<PAGE> 1
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:
<TABLE>
<S> <C>
/ / 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
</TABLE>
SONAT INC.
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(Name of Registrant as Specified In Its Charter)
SONAT INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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
SONAT INC.
P. O. BOX 2563, BIRMINGHAM, ALABAMA 35202 TELEPHONE: (205) 325-3800
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 1995
To Our Stockholders:
The Annual Meeting of Stockholders of Sonat Inc., a Delaware corporation,
will be held at the Ballroom, The Ritz-Carlton Houston, 1919 Briar Oaks Lane,
Houston, Texas at 9:00 a.m., local time, on Thursday, April 27, 1995, for the
following purposes:
1. To elect four Directors as members of the Board of Directors of the
Company, to serve until the 1998 Annual Meeting of Stockholders and
until their respective successors have been duly elected and qualified.
2. To elect an Auditor of the Company for the ensuing year. The Board of
Directors of the Company has recommended Ernst & Young, the present
Auditor, for election as Auditor (Proposal No. 1).
3. To approve a proposed amendment and restatement of the Executive Award
Plan as outlined in the accompanying Proxy Statement and set forth in
Exhibit A thereto (Proposal No. 2).
4. To approve a Restricted Stock Grant Program under the Executive Award
Plan (Proposal No. 3).
5. To transact such other business as may properly be brought before the
meeting.
Only holders of Common Stock of record at the close of business on March
10, 1995, will be entitled to vote at the meeting.
The meeting may be adjourned from time to time without other notice than by
announcement at the meeting, or any adjournment thereof, and any and all
business for which the meeting is hereby noticed may be transacted at any such
adjournment.
By order of the Board of Directors,
BEVERLEY T. KRANNICH
Secretary
Birmingham, Alabama
March 15, 1995
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YOUR VOTE IS IMPORTANT
PLEASE COMPLETE, SIGN AND RETURN YOUR PROXY IN THE ENCLOSED RETURN ENVELOPE.
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<PAGE> 3
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS APRIL 27, 1995
This Proxy Statement is furnished in connection with the solicitation of
proxies by Sonat Inc. on behalf of the Board of Directors of the Company, to be
voted at the Annual Meeting of Stockholders, called to be held on Thursday,
April 27, 1995 at 9:00 a.m. at the Ballroom, The Ritz-Carlton Houston, 1919
Briar Oaks Lane, Houston, Texas. Mailing of the Proxy Statement and the
accompanying proxy card to the stockholders is expected to commence on or about
March 17, 1995.
VOTING SECURITIES
As of January 31, 1995, the Company had outstanding 86,351,011 shares of
Common Stock, par value $1.00 per share, which are its only voting securities.
Holders of Common Stock are entitled to one vote for each share held. The Board
of Directors has fixed March 10, 1995, as the record date for the determination
of stockholders entitled to notice of, and to vote at, the Annual Meeting.
THE PROXY
If a proxy is executed properly by a stockholder and is not revoked, it
will be voted at the Annual Meeting in the manner specified on the proxy, or if
no manner is specified, it will be voted "FOR" the election of the four nominees
for Director and "FOR" Proposal No. 1, 2 and 3. The submission of an executed
proxy will not affect a stockholder's right to attend, and to vote in person at,
the Annual Meeting. A stockholder who executes a proxy may revoke it at any time
before it is voted by filing a written revocation with the Secretary of the
Company, executing a proxy bearing a later date or attending and voting in
person at the Annual Meeting.
THE BOARD OF DIRECTORS URGES YOU TO SIGN, DATE AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED RETURN ENVELOPE.
ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides for the
classification of the Board of Directors into three classes (Class I, Class II
and Class III). Four Class III Directors are to be elected at the Annual Meeting
of Stockholders to serve for a three-year term and until the election and
qualification of their respective successors in office.
The four nominees for election as Class III Directors are John J. Creedon,
Benjamin F. Payton, John J. Phelan, Jr. and L. Edwin Smart. Each of the nominees
has been previously elected as a Director by the stockholders. In the event that
any of the nominees becomes unavailable for any reason, which is not
anticipated, the Board of Directors in its discretion may, unless it has taken
appropriate action to provide for a lesser number of Directors, designate a
substitute nominee, in which event, pursuant to the accompanying proxy, votes
will be cast for such substitute nominee.
Pursuant to the Board's retirement policy, Mr. Creedon would retire from
the Board on the date of the 1997 Annual Meeting of Stockholders, and Mr. Smart
would retire from the Board on the date of the 1996 Annual Meeting of
Stockholders. Upon the retirement of a Director, the Board has the authority to
fill the vacancy on the Board for the remainder of such Director's term.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" JOHN J. CREEDON, BENJAMIN F.
PAYTON, JOHN J. PHELAN, JR. AND L. EDWIN SMART AS CLASS III DIRECTORS.
<PAGE> 4
NOMINEES FOR DIRECTOR -- CLASS III -- TERMS TO EXPIRE 1998
<TABLE>
<S> <C>
- ----------------------- JOHN J. CREEDON, age 70, is the former President and Chief Executive
Officer of Metropolitan Life Insurance Company. He has served as a
Director of the Company since 1987. Mr. Creedon is also a Director
of Melville Corporation, Metropolitan Life Insurance Company, NYNEX
Corporation, Praxair, Inc., Rockwell International Corporation and
Union Carbide Corporation. Prior to his retirement, Mr. Creedon
[Picture] served as Chief Executive Officer and as Chairman of the Executive
Committee of the Board of Directors of Metropolitan Life Insurance
Company.
- -----------------------
</TABLE>
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<TABLE>
<S> <C>
- ----------------------- BENJAMIN F. PAYTON, age 62, is President of Tuskegee University, a
position he has held during the past five years. He has served as a
Director of the Company since 1992. Dr. Payton is also a Director of
AmSouth Bancorporation, ITT Corporation, Liberty Corporation,
Morrison's, Inc., Praxair, Inc. and ITT Sheraton Corporation.
[Picture]
- -----------------------
</TABLE>
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<TABLE>
<S> <C>
- ----------------------- JOHN J. PHELAN, JR., age 63, is the former Chairman of the Board and
Chief Executive Officer of the New York Stock Exchange. He has
served as a Director of the Company since 1990. Mr. Phelan is also a
Director of Avon Products, Inc., Eastman Kodak Company, Merrill
Lynch & Co., Inc. and Metropolitan Life Insurance Company. During
the past five years prior to his retirement in December 1990, Mr.
[Picture] Phelan served as Chairman of the Board and Chief Executive Officer
of the New York Stock Exchange.
- -----------------------
</TABLE>
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2
<PAGE> 5
<TABLE>
<S> <C>
- ----------------------- L. EDWIN SMART, age 71, serves as counsel to the law firm of Hughes
Hubbard & Reed. He has served as a Director of the Company (or its
predecessor, Southern Natural Gas Company, now a wholly-owned
subsidiary of the Company) since 1967. Mr. Smart is also a Director
of Flagstar Companies, Inc. and Flagstar Corporation. Prior to his
retirement in April 1987, Mr. Smart served as an executive officer
[Picture] of Flagstar Corporation (and its predecessor, Transworld
Corporation), Trans World Airlines, Inc. and Hilton International
Co.
- -----------------------
</TABLE>
CONTINUING DIRECTORS -- CLASS I -- TERMS EXPIRING 1996
<TABLE>
<S> <C>
- ----------------------- WILLIAM O. BOURKE, age 67, is Chairman of the Executive Committee of
the Board of Directors and a Director of Reynolds Metals Company, an
aluminum and consumer products company. He has served as a Director
of the Company since 1990. Mr. Bourke is also a Director of Merrill
Lynch & Co., Inc. and Premark International Inc. During the past
five years prior to his retirement in April 1992, Mr. Bourke served
[Picture] as an executive officer of Reynolds Metals Company.
- -----------------------
</TABLE>
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<TABLE>
<S> <C>
- ----------------------- ROBERTO C. GOIZUETA, age 63, is Chairman of the Board and Chief
Executive Officer of The Coca-Cola Company, the principal business
of which is the manufacture of soft drinks. He has served as a
Director of the Company since 1981. Mr. Goizueta is also a Director
of Eastman Kodak Company, Ford Motor Company, SunTrust Banks, Inc.,
Trust Company of Georgia and Trust Company Bank of Georgia, and a
[Picture] member of the Board of Trustees of Emory University. During the past
five years, Mr. Goizueta has served as an executive officer of The
Coca-Cola Company.
- -----------------------
</TABLE>
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3
<PAGE> 6
<TABLE>
<S> <C>
- ----------------------- RONALD L. KUEHN, JR., age 59, is Chairman of the Board, President
and Chief Executive Officer of the Company. He has served as a
Director of the Company since 1981. Mr. Kuehn is also a Director of
AmSouth Bancorporation, Praxair, Inc., Protective Life Corporation,
Sonat Offshore Drilling Inc. and Union Carbide Corporation, and a
member of the Board of Trustees of Birmingham-Southern College and
[Picture] Tuskegee University. During the past five years, Mr. Kuehn has
served as an executive officer of the Company.
- -----------------------
</TABLE>
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<TABLE>
<S> <C>
- ----------------------- ROBERT J. LANIGAN, age 66, is Chairman Emeritus of the Board of
Directors of Owens-Illinois, Inc., the principal business of which
is the manufacture and sale of packaging products. He has served as
a Director of the Company since 1983. Mr. Lanigan is also a Director
of Chrysler Corporation, Sonat Offshore Drilling Inc., The Coleman
Company, Inc. and The Dun & Bradstreet Corporation. During the past
[Picture] five years prior to his appointment to his current position, Mr.
Lanigan served as an executive officer of Owens- Illinois, Inc.
- -----------------------
</TABLE>
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<TABLE>
<S> <C>
- ----------------------- CHARLES MARSHALL, age 65, is the former Vice Chairman of the Board
of American Telephone and Telegraph Company. He has served as a
Director of the Company since 1982. Mr. Marshall is also a Director
of Ceridian Corporation, GATX Corporation, Hartmarx Corporation,
Sundstrand Corporation and Zenith Electronics Corporation. Prior to
his retirement in June 1989, Mr. Marshall served as an executive
[Picture] officer of American Telephone and Telegraph Company.
- -----------------------
</TABLE>
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4
<PAGE> 7
CONTINUING DIRECTORS -- CLASS II -- TERMS EXPIRING 1997
<TABLE>
<S> <C>
- ----------------------- JEROME J. RICHARDSON, age 58, is Chairman of the Board of Flagstar
Companies, Inc. and Flagstar Corporation (a wholly-owned subsidiary
of Flagstar Companies, Inc.), the principal business of which is
food services. He has served as a Director of the Company since
1991. Mr. Richardson is also a Director of NCAA Foundation and
Isotechnologies, Inc., Owner- Founder of the NFL Carolina Panthers,
[Picture] a trustee of Saint Mary's College and Wofford College and a Member
of the Board of Visitors of Duke University Medical Center. During
the past five years, Mr. Richardson has served as an executive
officer of Flagstar Companies, Inc. and Flagstar Corporation.
- -----------------------
</TABLE>
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<TABLE>
<S> <C>
- ----------------------- DONALD G. RUSSELL, age 63, is Executive Vice President of the
Company and Chairman of the Board and Chief Executive Officer of
Sonat Exploration Company (a wholly-owned subsidiary of the
Company). On September 22, 1994, he was elected as a Director by the
Board of Directors, effective as of September 22, 1994. Mr. Russell
is also a Director of Grant Geophysical, Inc. and Sonat Offshore
[Picture] Drilling Inc. During the past five years, Mr. Russell has served as
an executive officer of the Company and Sonat Exploration Company.
- -----------------------
</TABLE>
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<TABLE>
<S> <C>
- ----------------------- ADRIAN M. TOCKLIN, age 43, is President and Chief Operating Officer
and a Director of The Continental Corporation, the principal
business of which is property and casualty insurance. On July 28,
1994, she was elected as a Director by the Board of Directors,
effective as of September 1, 1994. During the past five years, Ms.
Tocklin has served as an executive officer of The Continental
[Picture] Corporation.
- -----------------------
</TABLE>
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5
<PAGE> 8
<TABLE>
<S> <C>
- ----------------------- JAMES B. WILLIAMS, age 61, is Chairman of the Board and Chief
Executive Officer of SunTrust Banks, Inc. He has served as a
Director of the Company since 1987. Mr. Williams is also a Director
of The Coca-Cola Company, Federal Reserve Bank of Atlanta, Genuine
Parts Company, Georgia-Pacific Corporation, Rollins, Inc. and RPC
Energy Services, Inc. During the past five years, Mr. Williams has
[Picture] served as an executive officer of SunTrust Banks, Inc. and certain
of its subsidiaries.
- -----------------------
</TABLE>
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<TABLE>
<S> <C>
- ----------------------- JOE B. WYATT, age 59, is Chancellor, Chief Executive Officer and
Trustee of Vanderbilt University, a position he has held during the
past five years. He has served as a Director of the Company since
1984. Chancellor Wyatt is also a Director of Advanced Network &
Services, Inc., Ingram Industries, Inc., Reynolds Metals Company and
University Research Association, and a Trustee of EDUCOM, Inc.
[Picture]
- -----------------------
</TABLE>
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BOARD MEETINGS AND COMMITTEES
During 1994 the Board of Directors held ten regular and special meetings.
The Board has established Committees which assist the Board in the discharge of
its responsibilities. Each Director attended at least 75% of the meetings of the
Board and the Committees on which he served, except Mr. Phelan, who attended 74%
of such meetings.
Audit Committee. The Audit Committee reviews and reports to the Board the
scope and results of audits by the Auditor and the Company's internal auditing
staff, and reviews with the Auditor the adequacy of the Company's system of
internal controls. It reviews transactions between the Company and its Directors
and officers and Company policies with respect thereto, and compliance with the
Company's business ethics and conflict of interest policies. The Committee also
recommends a firm of certified public accountants to serve as Auditor of the
Company (subject to nomination by the Board and election by the stockholders),
authorizes all audit and other professional services rendered by the Auditor and
periodically reviews the independence of the Auditor.
Membership on the Audit Committee is restricted to those Directors who are
not active or retired officers or employees of the Company. The Company's policy
on Audit Committee membership complies with the Audit Committee Policy Statement
adopted by the New York Stock Exchange. The current members of the Committee are
Mr. Creedon, Chairman, and Mr. Goizueta, Mr. Phelan, Mr. Richardson, Ms. Tocklin
and Mr. Wyatt. The Committee met three times during 1994.
Committee on Directors. The Committee on Directors makes recommendations
to the Board with respect to the size and composition of the Board, Board
retirement and tenure policies, and Director compensation. It also reviews the
qualifications of potential candidates for the Board of Directors, evaluates the
performance of incumbent Directors and recommends to the Board nominees to be
elected at the Annual Meeting of Stockholders. The current members of the
Committee are Mr. Marshall,
6
<PAGE> 9
Chairman, and Mr. Bourke, Dr. Payton, Mr. Phelan, Mr. Richardson and Mr.
Williams. The Committee met five times during 1994.
The Committee on Directors will consider nominees for Director recommended
by stockholders. Such recommendations should be submitted in writing,
accompanied by a resume of the nominee's qualifications and business experience
and a signed statement of the proposed candidate consenting to be named as a
candidate and, if nominated and elected, to serve as a Director, and addressed
to the offices of the Company to the attention of Beverley T. Krannich,
Secretary.
Employee Benefits Committee. The Employee Benefits Committee periodically
reviews the status of the Company's employee benefit programs and the
performance of the managers of the funded programs. To assist in its review, the
Committee meets periodically with the chairmen of the administrative and benefit
asset committees of each of the funded plans. The current members of the
Committee are Mr. Wyatt, Chairman, and Mr. Lanigan, Mr. Marshall, Dr. Payton,
Ms. Tocklin and Mr. Williams. The Committee met twice during 1994.
Executive Compensation Committee. The Executive Compensation Committee
reviews and makes recommendations to the Board with respect to the Company's
overall executive compensation policy. The Committee also reviews and approves
the compensation of the officers of the Company and makes awards under the
Executive Award Plan, Performance Award Plan and Cash Bonus Plan. Membership on
the Executive Compensation Committee is restricted to Directors who are not
active or retired officers or employees of the Company. The current members of
the Committee are Mr. Goizueta, Chairman, and Mr. Bourke, Mr. Lanigan, Mr. Smart
and Mr. Wyatt. The Committee met five times during 1994.
Finance Committee. The Finance Committee approves long-term financial
policies and annual financial plans, significant capital expenditures, insurance
programs and investment policies of the Company. It also makes recommendations
to the Board concerning dividend policy, the issuance and terms of debt and
equity securities and the establishment of bank lines of credit. The current
members of the Committee are Mr. Williams, Chairman, and Mr. Creedon, Mr.
Goizueta, Mr. Lanigan, Mr. Richardson and Mr. Smart. The Committee met three
times during 1994.
Public Affairs Committee. The Public Affairs Committee reviews the
Company's policies and practices which address issues of social and public
concern, such as government affairs, the environment, energy conservation and
charitable contributions. It also reviews stockholder relations and considers
stockholder proposals and matters of corporate governance. The current members
of the Committee are Mr. Smart, Chairman, and Mr. Bourke, Mr. Creedon, Mr.
Marshall, Dr. Payton, Mr. Phelan and Ms. Tocklin. The Committee met three times
during 1994.
Strategic Planning Committee. The Strategic Planning Committee assists in
the formulation of the business strategies of the Company and its subsidiaries
and reviews the Company's management succession plan. The current members of the
Committee are Mr. Lanigan, Chairman, and Mr. Bourke, Mr. Creedon, Mr. Goizueta,
Mr. Marshall, Dr. Payton, Mr. Phelan, Mr. Richardson, Mr. Smart, Ms. Tocklin,
Mr. Williams and Mr. Wyatt. The Committee met twice during 1994.
COMPENSATION OF OUTSIDE DIRECTORS
FEES AND RETAINERS. Each non-employee Director of the Company receives a
quarterly retainer of $8,250 ($9,500 for Committee Chairmen) and a fee of $1,250
for each Board meeting and each Board Committee meeting attended, plus incurred
expenses where appropriate.
Pursuant to the Director's Fees Deferral Plan, a Director may elect to
defer receipt of some or all of the Director's fees and retainer. All amounts
deferred are credited to the Director's account under the Plan. The Director may
invest the Plan balance in "phantom" investments in the Company's common stock
and five mutual funds. The Director may choose to have the account balance
distributed in a lump sum or in annual installments, commencing upon termination
of service as a Director.
7
<PAGE> 10
RETIREMENT PLAN FOR DIRECTORS. Directors of the Company who during some
portion of their service as Directors were not officers of the Company or its
subsidiaries are participants in the Retirement Plan for Directors. An eligible
Director who ceases being a Director after reaching age 70, completing five
years of service as a non-employee Director or as a result of death or permanent
disability, will receive a retirement benefit from the Plan. The Director may
choose to have such benefit paid as either (1) a cash lump sum in an amount
equal to the value of a series of quarterly payments equal to the retainer (as
of the date of the Director's retirement) for the period the Director served as
a non-employee Director of the Company (or its predecessor, Southern Natural Gas
Company) or (2) in a series of quarterly payments with a value equal to such
lump-sum payment.
RESTRICTED STOCK PLAN FOR DIRECTORS. Each non-employee Director of the
Company is a participant in the Restricted Stock Plan for Directors. Each such
Director who was a member of the Board of Directors on April 22, 1993 (the
effective date of the Plan, as amended and restated) was granted 2,000 shares of
restricted stock on such date, except that each Director who is scheduled to
retire from the Board under the Board's retirement policy prior to April 1, 1998
(the Plan's termination date) was granted 400 shares of restricted stock for
each remaining year of service as a Director. The Plan provides that 400 shares
granted to each Director will vest on April 1 of each of the years 1994 through
1998.
Each person who first becomes a non-employee Director after April 22, 1993
will be granted 33.33 shares of restricted stock for each calendar month or
fraction thereof from the Director's election as a non-employee Director to the
following March 31 (rounded to the nearest whole share), plus 400 shares for
each subsequent Plan Year (April 1 -- March 31) until the earlier of April 1,
1998 or the Director's scheduled retirement date. The product of 33.33 shares
times the number of full and partial calendar months from the Director's
election as a non-employee Director to the following March 31 (rounded to the
nearest whole share) will vest on the April 1 following such election, and 400
shares will vest on each April 1 thereafter through April 1, 1998.
All shares of restricted stock will vest immediately upon the Director's
death or disability. At the time the restricted stock vests, the Director will
receive a cash tax-offset "supplemental payment" in an amount equal to the
amount necessary to pay the federal income tax payable with respect to both the
vesting of restricted stock and receipt of the supplemental payment, assuming
the Director is taxed at the maximum effective federal income tax rate. If a
Director leaves the Board of Directors before all of the Director's shares of
restricted stock have vested, the unvested shares will be forfeited.
8
<PAGE> 11
OWNERSHIP OF COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
The following table shows the amount and nature of beneficial ownership of
shares of the Common Stock of the Company beneficially owned by the Directors
and certain executive officers of the Company, and by all present Directors and
executive officers of the Company as a group, as of January 31, 1995.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)
------------------------------------------------------- -----------------------
<S> <C>
William O. Bourke...................................... 5,000
John J. Creedon........................................ 13,900(2)
Roberto C. Goizueta.................................... 3,600
Ronald L. Kuehn, Jr. .................................. 669,409(3 and 4)
Robert J. Lanigan...................................... 6,040
Charles Marshall....................................... 7,600
James E. Moylan, Jr. .................................. 54,362(3)
Benjamin F. Payton..................................... 2,461
John J. Phelan, Jr. ................................... 2,660
Jerome J. Richardson................................... 4,882(5)
James A. Rubright...................................... 17,400(3)
Donald G. Russell...................................... 175,212(3)
L. Edwin Smart......................................... 3,600
William A. Smith....................................... 198,677(3)
Adrian M. Tocklin...................................... 1,633(6)
James B. Williams...................................... 15,200
Joe B. Wyatt........................................... 3,200
All Present Directors and Executive Officers as a Group
(21 persons)......................................... 1,349,953(7)
</TABLE>
NOTE 1: Each Director and executive officer has sole voting power and sole
investment power with respect to all shares beneficially owned by such
individual, unless otherwise indicated. As of January 31, 1995, each such
individual beneficially owned less than 0.80% of the outstanding shares of
Common Stock of the Company, and all present Directors and executive officers of
the Company as a group, consisting of 21 persons, beneficially owned 1.56% of
the outstanding shares of the Company's Common Stock.
The number of shares shown includes 1,600 shares of restricted stock for
each of Messrs. Bourke, Goizueta, Lanigan, Marshall, Payton, Phelan, Richardson,
Williams and Wyatt, 1,433 shares of restricted stock for Ms. Tocklin, 1,200
shares of restricted stock for Mr. Creedon, and 800 shares of restricted stock
for Mr. Smart, granted under the Company's Restricted Stock Plan for Directors,
which shares had not vested as of January 31, 1995. Such persons have the power
to vote and receive dividends on such shares, but do not have the power to
dispose of, or to direct the disposition of, such shares until such shares are
vested pursuant to the terms of such plan.
In addition to the shares of Common Stock shown above, as of January 31,
1995, the following individuals also held the following number of "phantom"
shares of the Company's Common Stock under the Company's Supplemental Benefit
Plan (with respect to Messrs. Kuehn and Russell) or Director's Fees Deferral
Plan (with respect to the other named individuals): Mr. Creedon, 5,127 phantom
shares; Mr. Kuehn, 10,501 phantom shares; Mr. Marshall, 348 phantom shares; Mr.
Russell, 4,928 phantom shares; Ms. Tocklin, 672 phantom shares; and Mr.
Williams, 480 phantom shares.
NOTE 2: The number of shares shown for Mr. Creedon includes 3,200 shares
held in trusts for two of his children, of which shares he disclaims any
beneficial ownership.
NOTE 3: The number of shares shown for Messrs. Kuehn, Moylan, Rubright,
Russell and Smith includes 85,700 shares, 7,200 shares, 9,400 shares, 27,000
shares and 17,000 shares, respectively, of restricted stock granted under the
Company's Executive Award Plan, which shares had not vested as of
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<PAGE> 12
January 31, 1995. Such persons have the right to vote and receive dividends on
such shares, but do not have the power to dispose of, or to direct the
disposition of, such shares until such shares are vested pursuant to the terms
of such plan. The number of shares shown for Messrs. Kuehn, Moylan, Rubright,
Russell and Smith also includes (a) 43,565 shares, 9,041 shares, 0 shares, 9,216
shares and 14,771 shares, respectively, held by the Trustee under the Company's
Savings Plan as of January 31, 1995; and (b) 515,600 shares, 35,200 shares,
8,000 shares, 134,000 shares and 157,000 shares, respectively, covered by
options under the Company's Executive Award Plan which were exercisable within
sixty days after January 31, 1995.
NOTE 4: The number of shares shown for Mr. Kuehn includes 7,500 shares
owned by his wife and 1,500 shares held in trust for one of his children, of
which shares he disclaims any beneficial ownership.
NOTE 5: Mr. Richardson filed a late report to the Securities and Exchange
Commission with respect to shares purchased through the automatic quarterly
reinvestments of dividends under the Company's Automatic Dividend Reinvestment
Service during 1991-1993.
NOTE 6: The number of shares shown for Ms. Tocklin includes 100 shares
owned by her husband, of which shares she disclaims any beneficial ownership.
Ms. Tocklin filed a late report to the Securities and Exchange Commission with
respect to her initial ownership of shares of the Company's Common Stock.
NOTE 7: The number of shares shown includes 167,700 shares of restricted
stock granted under the Company's Executive Award Plan, which shares had not
vested as of January 31, 1995; 104,655 shares held by the Trustee under the
Company's Savings Plan as of January 31, 1995; 958,967 shares covered by options
under the Company's Executive Award Plan which were exercisable within sixty
days after January 31, 1995; and 17,833 shares of restricted stock granted under
the Company's Restricted Stock Plan for Directors, which shares had not vested
as of January 31, 1995.
CERTAIN BUSINESS RELATIONSHIPS AND TRANSACTIONS
James B. Williams, a Director of the Company, is Chairman and Chief
Executive Officer of SunTrust Banks, Inc. Trust Company Bank, a subsidiary of
SunTrust Banks, Inc. ("Trust Company"), has extended short-term credit
facilities to the Company and one of its affiliates permitting the borrowing of
an aggregate of $48,400,000. During 1994, there were periodic borrowings and
repayments under these facilities and, at December 31, 1994, there was
$6,700,000 principal amount outstanding thereunder. In addition, the Company and
one of its wholly-owned subsidiaries were permitted to borrow an aggregate of
$38,800,000 pursuant to long-term loan agreements, and were indebted to Trust
Company in the principal amount thereunder of an aggregate of $38,800,000 at
December 31, 1994. A subsidiary of Trust Company also serves as an investment
manager for trusts that fund the Company's retirement, disability and retiree
medical benefits programs.
L. Edwin Smart, a Director of the Company, serves as counsel to the law
firm of Hughes Hubbard & Reed. Hughes Hubbard & Reed provides legal services to
the Company and certain of its subsidiaries.
COMPENSATION OF EXECUTIVE OFFICERS
REPORT OF THE EXECUTIVE COMPENSATION COMMITTEE
The Executive Compensation Committee of the Board of Directors of the
Company, which is composed solely of non-employee Directors, administers the
Company's executive compensation program. The Committee's primary responsibility
is to ensure that the executive compensation program furthers the interests of
the Company and its stockholders.
The Company's executive compensation program has three principal
objectives: (1) to attract and retain a highly qualified and motivated
management team; (2) to appropriately reward individual
10
<PAGE> 13
executives for their contributions to the attainment of the Company's key
strategic goals; and (3) to link the interests of executives and stockholders
through stock-based plans and performance measures.
The Committee meets with outside consultants at least annually to evaluate
the Company's performance against the performance of a peer group of companies
and to review and compare the level of compensation paid or awarded to key
executives to the compensation practices of the peer group. The peer group used
for determining compensation for corporate executives consists of 19 publicly
held companies in the Company's key business segments and investments -- natural
gas transmission and sales, domestic oil and gas exploration and production, and
offshore drilling (the "Corporate Peer Group"). The aggregate asset mix of the
companies included in the Corporate Peer Group approximates the Company's asset
mix. In comparing the level of the Company's compensation to that of the
companies in the Corporate Peer Group, the Committee reviews an analysis which
"size-adjusts" the compensation paid by a company to take into account the
relative size of the company as measured by its revenues. The recommended
size-adjustment is computed by an independent compensation consulting firm. The
Committee also reviews and may give greater weight to compensation survey data
specific to a particular business segment when considering the compensation of
executive officers whose job is related primarily to a single business segment.
The Standard & Poor's Natural Gas Distribution/Pipeline Group described in the
five-year total stockholder return comparison on page 19 of this Proxy Statement
is not used to determine the compensation of executives, because that group's
aggregate asset mix does not include an appropriate weighting for exploration
and production and offshore drilling.
The key components of the Company's executive compensation program are base
salary, annual cash bonus incentives, and long-term stock incentives. The
Committee's policies with respect to each component of the program, including
the bases for the compensation of Mr. Kuehn, Chairman of the Board, President
and Chief Executive Officer of the Company, are described below. The Committee
consults with Mr. Kuehn in reviewing the individual performance and compensation
of key executives of the Company (other than Mr. Kuehn). The Committee reviews
Mr. Kuehn's performance and compensation in executive session at least annually.
BASE SALARIES. Base salaries are initially established by an evaluation of
the executive's position, responsibilities and experience and a review of salary
surveys. Each year the Committee reviews the base salaries of key executive
officers of the Company and its subsidiaries and determines whether salaries
should be adjusted, based primarily on the executive's individual performance
and experience and salary survey information. In general, the Committee's
objective is to maintain executive salaries at the median of the salaries for
comparable executives in the Corporate Peer Group or other relevant peer group.
Executive salaries for 1994 were at the median level overall, although some
executives were below and some above the median. Taking into consideration Mr.
Kuehn's individual performance and experience and the salary survey data, Mr.
Kuehn's base salary was increased 13%, effective April 1, 1994. Mr. Kuehn has
been in his current position for approximately 10 1/2 years and his salary for
1994 was slightly above the size-adjusted median for the Corporate Peer Group.
ANNUAL CASH BONUS INCENTIVES. Annual cash bonus incentive opportunities
are awarded each year. The amount of an executive's bonus opportunity (which is
expressed as a percentage of base salary) is dependent primarily upon such
individual's position and responsibilities and bonus opportunities provided to
comparable positions within the Corporate Peer Group or other relevant peer
group. At the beginning of each year, the Committee reviews and approves annual
performance goals. Shortly after the end of the year, the Committee determines
the appropriate bonus payout levels based on the degree to which these goals
have been achieved. The annual incentive program is designed to pay total annual
cash compensation in the upper quartile of the relevant peer group when the
Company meets substantially all of the goals established for an executive's
bonus opportunity. Similarly, when the goals are not achieved, the program is
intended to result in total annual cash compensation below the median of the
relevant peer group.
The payout of an executive's 1994 bonus opportunity was based on the level
of achievement of certain financial goals, corporate and subsidiary goals, and
individual goals, as described below. The
11
<PAGE> 14
goals for each executive's bonus opportunity were weighted as follows: financial
goals -- 40% for Mr. Kuehn and 25-30% for the other named executive officers;
company and subsidiary goals -- 45% for Mr. Kuehn and 55-60% for the other named
executive officers; and individual goals -- 15% for all executives.
The financial goals included in the 1994 bonus opportunities were the
Company's 1994 earnings per share ("EPS") as compared to EPS targets established
by the Committee, and the Company's five-year average cash flow return on assets
as compared to that of the Corporate Peer Group. In general, these goals were
weighted equally. Payout of the EPS goal was based on comparison of actual EPS
and the EPS targets, provided that a minimum level of EPS was required for any
payout to be made. The payout of the cash flow return on assets goal was based
on the Company's absolute ranking within the Corporate Peer Group and its
performance against the mean of the Corporate Peer Group.
The company and subsidiary goals included in the 1994 bonus opportunities
included operating, marketing and strategic goals relating to each major
business segment, and annual corporate goals relating to safety and the
environment, human resources, and corporate citizenship. Subsidiary goals also
included financial goals with respect to earnings and cash flow. When
appropriate, an executive's goals focused on the company for which he was
primarily employed. Achievement of many of the goals was determined by
quantitative or objective measures, while other goals were subjective in nature.
Each executive's 1994 bonus opportunity included individual goals. Mr.
Kuehn's individual performance is based primarily on the Company's achievement
of its financial and business goals. The Committee also has discretion to make
additional cash bonus awards to recognize exceptional individual performance.
In January 1995, the Committee reviewed in detail the extent to which the
1994 performance goals had been achieved. The Company's EPS was below the EPS
target, while cash flow return on assets was in the upper quartile of the
Corporate Peer Group and significantly above the mean for the Corporate Peer
Group. The payout percentage for these financial goals was 84% of the bonus
opportunity for the EPS goal and 95% of the bonus opportunity for the cash flow
return on assets goal. The Company and its subsidiaries also substantially
achieved key company and subsidiary goals relating to oil and gas production and
reserve replacement, pipeline restructuring, oil and gas marketing, and the
environment. Goals relating to subsidiary earnings were also substantially
achieved, with the exception of the earnings goal of Sonat Exploration Company
(which was not achieved due to decreases in natural gas prices during 1994). The
payout percentages for Company and subsidiary goals ranged from 84% to 95% of
the bonus opportunity for these goals.
Mr. Kuehn's total bonus payout percentage for 1994 was 82.7% of his bonus
opportunity.
LONG-TERM STOCK INCENTIVES. The long-term stock incentives component of
the Company's executive compensation program is designed to align executive and
stockholder interests by rewarding executives for the attainment of stock price
appreciation and total stockholder returns.
As a general rule, the Committee administers the long-term stock incentive
program through annual grants of stock options and restricted stock to certain
executive officers of the Company and its major operating subsidiaries. Awards
under the annual grant program were made in December 1994. In addition, the
Committee may make special awards to individual executives during the year on a
discretionary basis.
In 1994, the number of stock options and restricted shares granted to each
executive officer as part of the annual grant program was determined primarily
by individual position and responsibilities, compensation survey data of the
Company's Corporate Peer Group, and the Company's three-year total stockholder
return (considering stock price appreciation and reinvestment of dividends, and
weighted for most recent performance) as compared to the total stockholder
return of the Corporate Peer Group. The amount of an executive's annual
long-term incentive grant was expressed as a percentage of base salary. The
percentage used for each executive was tied to the Company's total stockholder
return as compared to that of the Corporate Peer Group. In 1994, the Company's
weighted annualized three-year total
12
<PAGE> 15
stockholder return was substantially above that of the Corporate Peer Group. The
December 1994 long-term incentive grants were designed to reflect that
performance and to result in long-term compensation in the upper quartile of the
Corporate Peer Group. For purposes of determining the value of long-term
incentive compensation, an independent compensation consulting firm uses a
modified Black-Scholes option pricing model to value stock options granted by
the Company and the companies in the Corporate Peer Group. Similarly, the
consulting firm values restricted share grants based on the present value of the
shares on the date of grant (taking into account the vesting schedules of the
grants and projected executive turnover). The Committee may adjust the grants to
take into account individual performance and the number of options and
restricted shares previously granted to the executive.
In December 1994, Mr. Kuehn was awarded stock options and restricted stock
as a part of the annual program. As discussed above, the amount of this award
was intended to reward and compensate Mr. Kuehn for the excellent performance of
the Company's stock as compared to the Corporate Peer Group and to result in
long-term compensation in the upper quartile of the Corporate Peer Group.
STOCK OWNERSHIP GUIDELINES. In 1992 the Committee established guidelines
designed to encourage key executives of the Company and its subsidiaries to
attain specified levels of stock ownership over a five-year period. Stock
ownership goals are based on the value of the Company's stock, and are expressed
as a multiple of the executive's base salary. The Committee periodically reviews
the guidelines and the executives' progress toward attaining the stock ownership
goals.
POLICY WITH RESPECT TO SECTION 162(m). Section 162(m) of the Internal
Revenue Code, which was enacted in August 1993, limits the tax deduction that
the Company or its subsidiaries can take with respect to the compensation of
certain executive officers, unless the compensation is "performance-based." The
Committee expects that all income recognized by executive officers upon the
exercise of stock options granted under the Executive Award Plan will qualify as
performance-based compensation. The portion of the Company's annual cash bonus
program that is based on objective financial and operating measures, and the
restricted stock grant program, have been modified in an effort to qualify
compensation thereunder as performance-based.
The Committee feels that it should not totally relinquish its
responsibility for compensating management to mechanical formulas. Therefore,
the Committee currently intends to continue to make cash bonus payments that are
based on the achievement of subjective, non-quantifiable goals, and that may
therefore not qualify as performance-based compensation. The Committee believes
that these Company, subsidiary and individual goals, while not properly
measurable by the kind of quantifiable targets that are required to qualify
compensation as performance-based, are important to the long-term financial
success of the Company and to its stockholders.
CONCLUSION. The Committee believes that the executive compensation
philosophy that it has adopted effectively serves the interests of the
stockholders and the Company. It is the Committee's intention that the pay
delivered to executives be commensurate with Company performance.
Roberto C. Goizueta William O. Bourke Robert J. Lanigan
L. Edwin Smart Joe B. Wyatt
13
<PAGE> 16
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ending December 31, 1992,
1993 and 1994 the cash compensation paid by the Company, and a summary of
certain other compensation paid or accrued for such years, to certain of the
Company's executive officers (as determined pursuant to the rules of the
Securities and Exchange Commission) (the "named executive officers") for service
in all capacities with the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------- -----------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND COMPENSATION STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS (1) AWARDS (2) OPTIONS/SARS (3)
- ------------------------ ----- --------- --------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald L. Kuehn, Jr., 1994 $ 660,000 $ 450,000 $ 0 $ 459,938(4) 112,000 $103,689
Director, Chairman of 1993 $ 590,000 $ 504,600 $300,362 $ 420,000(5) 110,000 $113,528
the Board, President and 1992 $ 560,000 $ 455,000 $ 0 $1,071,100(6 & 7) 91,600 $117,801
Chief Executive Officer
James E. Moylan, Jr., 1994 $ 200,000 $ 114,300 $ 0 $ 91,988(4) 22,000 $ 18,875
President of 1993 $ 151,875 $ 65,500 $410,888 $ 75,000(5) 21,000 $ 18,467
Southern Natural 1992 $ 142,500 $ 59,700 $ 563 $ 29,575(7) 9,000 $ 16,589
Gas Company(8)
James A. Rubright, 1994 $ 240,625 $ 130,600 $115,572 $ 268,275(4 & 10) 67,500 $ 35,813
Vice President and
General Counsel(9)
Donald G. Russell, 1994 $ 430,000 $ 250,000 $ 0 $ 278,750(4) 66,000 $ 64,790
Executive Vice President 1993 $ 362,500 $ 250,000 $649,292 $ 300,000(5) 65,000 $102,687
1992 $ 340,000 $ 218,000 $ 705 $ 147,875(7) 40,000 $ 70,240
William A. Smith, 1994 $ 342,000 $ 200,000 $ 0 $ 167,250(4) 45,000 $ 38,064
Executive Vice President 1993 $ 313,500 $ 200,000 $530,865 $ 180,000(5) 45,000 $ 41,440
1992 $ 300,000 $ 180,000 $ 1,339 $ 105,625(7) 32,000 $ 38,271
</TABLE>
NOTE 1: With respect to 1993, represents the amount of tax-offset
"supplemental payments" paid upon the exercise of stock options (or tandem stock
appreciation rights) granted under the Company's Executive Award Plan. The
amount shown for Mr. Rubright includes (a) relocation allowances, related to Mr.
Rubright's move from Atlanta, Georgia to Birmingham, Alabama, of $89,317 in
excess of relocation allowances normally provided under Company policy, and (b)
tax reimbursement payments of $26,255 made with respect to such reimbursement
allowances.
NOTE 2: The amount shown represents the dollar value of restricted stock
awards made during the year, calculated by multiplying the closing price of
unrestricted shares of the Company's Common Stock on the date of grant by the
number of shares awarded. Dividends are paid on all shares of restricted stock.
All shares of restricted stock generally vest at the earlier of age 65 (age
67, with respect to the shares granted to Mr. Russell) or 10 years from the date
of grant, unless the average closing price of the Company's Common Stock
achieves certain specified levels, in which case vesting of such shares is
accelerated. All shares of restricted stock that have not previously vested are
generally forfeited upon termination of employment, unless such termination
occurs either by reason of death or disability or for the convenience of the
Company (as determined by the Executive Compensation Committee). All shares of
restricted stock that have not previously vested will immediately vest upon a
"Change of Control" of the Company, as described under "Compensation Upon Change
of Control" below.
The number of shares of restricted stock held by the named executive
officers as of December 31, 1994, and the value of such shares (calculated by
multiplying the closing price of unrestricted shares of the Company's Common
Stock on December 31, 1994 by the number of shares held on such date) is as
follows: Mr. Kuehn, 85,700 shares, $2,399,600; Mr. Moylan, 7,200 shares,
$201,600; Mr. Rubright, 9,400 shares, $263,200; Mr. Russell, 27,000 shares,
$756,000; and Mr. Smith, 17,000 shares, $476,000.
14
<PAGE> 17
NOTE 3: With respect to 1994, represents the following amounts for each of
Messrs. Kuehn, Moylan, Rubright, Russell and Smith, respectively: (1) Company
matching contributions to the trust established under the Company's Savings
Plan -- $6,375, $6,649, $0, $6,375 and $6,375; (2) Company contributions to the
Savings Plan accounts under the Company's Supplemental Benefit Plan -- $43,350,
$4,250, $19,479, $23,800 and $16,320; and (3) with respect to premiums paid by
the Company under the Company's "split-dollar" Executive Life Insurance Program,
the sum of (a) the value of the premium payment used to purchase term life
insurance plus (b) the value of the benefit to the executive officer of the
remainder of the premium payment -- $53,964, $7,976, $16,334, $34,615 and
$15,369.
NOTE 4: Includes the value of 16,500 shares, 3,300 shares, 4,400 shares,
10,000 shares and 6,000 shares of restricted stock granted on December 1, 1994
to Messrs. Kuehn, Moylan, Rubright, Russell and Smith, respectively.
NOTE 5: Represents the value of 14,000 shares, 2,500 shares, 10,000 shares
and 6,000 shares of restricted stock granted on December 2, 1993 to Messrs.
Kuehn, Moylan, Russell and Smith, respectively.
NOTE 6: Includes the value of 40,000 shares of restricted stock granted to
Mr. Kuehn on May 28, 1992. Such shares were granted in recognition of Mr.
Kuehn's performance with respect to the sale of an oilfield services subsidiary.
NOTE 7: Includes the value of 15,200 shares, 1,400 shares, 7,000 shares
and 5,000 shares of restricted stock granted on December 3, 1992 to Messrs.
Kuehn, Moylan, Russell and Smith, respectively.
NOTE 8: Mr. Moylan served as Vice President and Controller of the Company
from January 1, 1992 until March 31, 1994.
NOTE 9: Mr. Rubright was employed by the Company as Vice President and
General Counsel effective as of February 15, 1994.
NOTE 10: Includes the value of 5,000 shares of restricted stock granted to
Mr. Rubright on January 26, 1994 (contingent upon his commencement of employment
with the Company on February 15, 1994).
15
<PAGE> 18
OPTION GRANT TABLE
The following table contains certain information with respect to stock
options granted in 1994 under the Company's Executive Award Plan to the named
executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (10 YEARS)
OPTIONS/SARS EMPLOYEES PRICE EXPIRATION --------------------------------
NAME GRANTED (1) IN 1994 ($/SHARE) (2) DATE (3) 5% (4) 10% (4)
- -------------------------- ------------ ------------ ------------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
All Stockholders.......... -- -- -- -- $1,521,302,302 $3,854,226,105
Ronald L. Kuehn, Jr. ..... 112,000(5) 11.3% $27.875 11/30/04 $ 1,963,920 $ 4,975,600
James E. Moylan, Jr. ..... 22,000(5) 2.2% $27.875 11/30/04 $ 385,770 $ 977,350
James A. Rubright......... 40,000(6) 4.0% $29.125 1/25/04 $ 732,600 $ 1,856,600
James A. Rubright ........ 27,500(5) 2.8% $27.875 11/30/04 $ 482,213 $ 1,221,688
Donald G. Russell......... 66,000(5) 6.7% $27.875 11/30/04 $ 1,157,310 $ 2,932,050
William A. Smith.......... 45,000(5) 4.5% $27.875 11/30/04 $ 789,075 $ 1,999,125
Named Executive Officers' Potential Realizable Value as a % of
All Stockholders' Potential Realizable Value --
December 1, 1994 Option Grant 0.31% 0.31%
</TABLE>
NOTE 1: Any stock options that have not previously become exercisable (as
described at notes 5 and 6) are generally forfeited upon termination of
employment, unless such termination occurs by reason of retirement after age 65,
death, disability or for the convenience of the Company (as determined by the
Executive Compensation Committee). Any options held by then-current employees
will become immediately exercisable in the event of a "Change of Control" of the
Company, as described under "Compensation Upon Change of Control" below.
NOTE 2: The exercise price equals the closing price of the Company's
Common Stock on the date of grant.
NOTE 3: The stock options are subject to termination prior to their
expiration date in the event of termination of employment.
NOTE 4: For each named executive officer, the potential realizable values
shown represent the difference between the Resulting Company Stock Price for the
option (as described below) and the exercise price of the option, multiplied by
the number of options granted to such executive officer. For all stockholders,
the potential realizable values shown represent the difference between the
Resulting Company Stock Price for the options granted on December 1, 1994 and
the exercise price of such options, multiplied by the number of outstanding
shares of the Company's Common Stock as of December 31, 1994.
The Resulting Company Stock Price for an option equals the price the
Company's Common Stock would attain at the end of the option's 10-year term if
the price of the Company's Common Stock appreciated from the date of stock
option grant at a rate of 5% or 10% per year (as the case may be). The Resulting
Company Stock Prices are as follows: (1) for the options granted to all named
executive officers on December 1, 1994, $45.41 (5% annual stock price
appreciation) and $72.30 (10% annual stock price appreciation) and (2) for the
options granted to Mr. Rubright on January 26, 1994, $47.44 (5% annual stock
price appreciation) and $75.54 (10% annual stock price appreciation).
NOTE 5: Represents stock options granted on December 1, 1994. The stock
options become exercisable in equal installments on each of the first five
anniversaries of the date of grant, provided that the entire option grant will
become immediately exercisable if, during any 10 business day period ending
16
<PAGE> 19
prior to December 1, 1999, the average of the closing prices of the Company's
Common Stock during such period is at least $41.813.
NOTE 6: Represents stock options granted to Mr. Rubright on January 26,
1994 (contingent upon his commencement of employment with the Company on
February 15, 1994). The stock options become exercisable in five equal
installments beginning on February 15, 1995, provided that the entire option
grant will become immediately exercisable if, during any 10 business day period
ending prior to February 15, 1999, the average of the closing prices of the
Company's Common Stock during such period is at least $43.688.
AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE
The following table shows certain information with respect to the named
executive officers concerning unexercised stock options (or stock appreciation
rights ("SARs") granted in tandem therewith) held as of December 31, 1994. None
of the named executive officers exercised stock options (or tandem SARs) during
1994.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
- ------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED,
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
AT FISCAL YEAR END (1) AT FISCAL YEAR END (2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Ronald L. Kuehn, Jr. ....................... 515,600 200,000 $ 5,345,625 $14,000
James E. Moylan, Jr. ....................... 35,200 38,800 $ 224,625 $ 2,750
James A. Rubright........................... 0 67,500 $ 0 $ 3,438
Donald G. Russell........................... 134,000 118,000 $ 832,500 $ 8,250
William A. Smith............................ 175,000 81,000 $ 1,567,563 $ 5,625
</TABLE>
NOTE 1: Certain stock options granted before December 6, 1991, were
granted with tandem SARs. Each stock option granted before December 6, 1991 was
granted with a tax-offset "supplemental payment" payable upon the exercise of
the stock option (or tandem SAR). The amount of the supplemental payment is the
amount necessary to pay the federal income tax payable with respect to both (1)
exercise of the stock option (or tandem SAR) and (2) receipt of the supplemental
payment, based on the assumption that the participant is taxed at the maximum
effective federal income tax rate applicable to such income.
NOTE 2: The value of each unexercised in-the-money stock option (or tandem
SAR) is equal to the difference between $28.00 (the closing price of the
Company's Common Stock on December 31, 1994) and the exercise price of the stock
option. Such value does not include the value of any tax-offset supplemental
payments.
DEFINED BENEFIT PLANS
Employees and officers of the Company and participating subsidiaries are
participants in the Company's Retirement Plan. In general, annual retirement
benefits are based on average covered compensation for the highest five
consecutive years of the final ten years of employment. Covered compensation
under the Retirement Plan currently includes salaries and amounts paid under the
Performance Award Plan and the Cash Bonus Plan (reported in the Summary
Compensation Table) and certain personal benefits; covered compensation does not
include amounts relating to the grant or vesting of restricted stock, the
exercise of stock options and SARs, and receipt of supplemental payments under
the Executive Award Plan, or to employer contributions under the Savings Plan or
the Supplemental Benefit Plan.
The maximum annual retirement benefit is 65% of the participant's average
covered compensation minus 50% of his primary social security benefit.
Participants accrue benefits under the following formula: (a) 2.4% of average
covered compensation minus 2.0% of primary social security benefits for each
year
17
<PAGE> 20
of service prior to January 1, 1992; plus (b) 2.0% of average covered
compensation minus 1.667% of primary social security benefits for each year of
service after January 1, 1992; plus (c) when the total of (a) plus (b) above
equals 60% of average covered compensation minus 50% of primary social security
benefits, 1% of average covered compensation for each year of service after
January 1, 1992, not included in the calculation in (b) above, up to five such
additional years of service. The eligible survivors of a deceased Retirement
Plan participant are entitled to a survivors benefit, which usually equals 75%
of the participant's retirement benefit. Retirement Plan benefits are generally
paid as life annuities.
The Supplemental Benefit Plan provides its eligible participants and their
eligible survivors with retirement and survivors benefits which would have been
payable under the Retirement Plan but for the fact that benefits payable under
funded pension plans are limited by federal tax laws. As a general rule, during
1994 the federal tax laws limited annual benefits under the Retirement Plan to
$118,800 (subject to reduction in certain circumstances), and required the
Retirement Plan to disregard any portion of the participant's 1994 compensation
in excess of $150,000. A participant may choose to have benefits under the Plan
paid either as a life annuity or in a cash lump sum upon termination of
employment.
The following table sets forth information with respect to the named
executive officers concerning the benefits payable under the Retirement Plan and
Supplemental Benefit Plan.
DEFINED BENEFIT PLAN TABLE
<TABLE>
<CAPTION>
CURRENT ESTIMATED ANNUAL
YEARS OF 1994 COVERED RETIREMENT
NAME SERVICE (1) COMPENSATION (2) BENEFIT AT AGE 65 (3)
- ---------------------------------------------- ----------- ---------------- ---------------------
<S> <C> <C> <C>
Ronald L. Kuehn, Jr........................... 24.4 $1,164,600 $ 745,344
James E. Moylan, Jr........................... 18.5 $ 265,500 $ 172,575
James A. Rubright............................. 0.8 $ 405,600 $ 152,100
Donald G. Russell............................. 6.9 $ 680,000 $ 131,920
William A. Smith.............................. 24.7 $ 546,000 $ 354,900
</TABLE>
NOTE 1: The number of years of credited service under the Retirement Plan
and Supplemental Benefit Plan as of December 31, 1994.
NOTE 2: The amount of covered compensation under the Retirement Plan and
Supplemental Benefit Plan during 1994.
NOTE 3: The estimated annual retirement benefit payable as a single life
annuity at age 65 to the named executive officer (based on the assumptions that
such officer retires at age 65 and has average covered compensation at his
retirement date equal to his 1994 covered compensation, and calculated prior to
the offset for primary social security benefits).
18
<PAGE> 21
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's Common Stock for the five-year period ending December 31, 1994, with
the cumulative total return of two indices during such period.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN
SONAT INC.; STANDARD & POOR'S 500 STOCK INDEX;
STANDARD & POOR'S NATURAL GAS DISTRIBUTION/PIPELINE GROUP (1)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD S&P NATURAL
(FISCAL YEAR COVERED) SONAT INC. S&P 500 GAS
<S> <C> <C> <C>
12/31/89 100.00 100.00 100.00
12/31/90 100.09 96.89 87.55
12/31/91 74.16 126.28 76.23
12/31/92 113.88 135.88 84.19
12/31/93 141.31 149.52 99.89
12/31/94 142.13 151.55 95.35
</TABLE>
The total returns set forth above assume that $100 was invested in the
Company's Common Stock and each of the indices set forth above on December 31,
1989, and that all dividends were reinvested.
NOTE 1: The Standard & Poor's Natural Gas Distribution/Pipeline Group
consists of the following companies: The Coastal Corporation, Columbia Gas
System, Inc., Consolidated Natural Gas Company, Eastern Enterprises, Enron
Corp., Ensearch Corporation, NICOR Inc., NorAm Energy Corp. (formerly Arkla,
Inc.), ONEOK Inc., Pacific Enterprises, Panhandle Eastern Corporation, Peoples
Energy Corporation, Sonat Inc., Transco Energy Company and The Williams
Companies Inc.
COMPENSATION UPON CHANGE OF CONTROL
Certain of the Company's benefit plans provide for the acceleration of
certain benefits in the event of a "Change of Control" of the Company. Under
such plans, a Change of Control will be deemed to have occurred if (1) any
person or group acquires (or obtains the right to acquire) beneficial ownership
of 35% or more of the Company's voting securities, (2) there is a change in the
composition of a majority of the Company's Board of Directors within any period
of three consecutive years which change was not approved by a majority of the
Board of Directors as constituted immediately prior to the commencement of such
three-year period, or (3) at any meeting of stockholders of the Company called
for the purpose of electing Directors, the entire slate nominated by the Board
of Directors fails to be elected.
Any outside Director who is eligible for a retirement benefit under the
Retirement Plan for Directors will receive such benefit (regardless of whether
he has met the other eligibility requirements of the Plan)
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<PAGE> 22
in the event he ceases to be a Director following a Change of Control. A
Director who participates in the Director's Fees Deferral Plan may, prior to the
year the fees are earned, elect to have the balance of his account distributed
to him in a lump sum in the event his service as a Director is terminated within
one year following a Change of Control, regardless of any other elections he may
have made with respect to the timing and manner of payment of amounts in his
account. Also, all shares of restricted stock granted under the Restricted Stock
Plan for Directors will vest immediately upon a Change of Control.
Upon the occurrence of a Change of Control, all outstanding shares of
restricted stock under the Executive Award Plan will immediately vest, and all
outstanding options (and tandem SARs) under the Executive Award Plan held by
then-current employees will become immediately exercisable. If an SAR is
exercised within 60 days of the occurrence of a Change of Control, the holder
will receive, in addition to the amount otherwise due on exercise, a payment
equal to the excess over the amount otherwise due of the highest price per share
of Common Stock paid during the 60-day period prior to exercise of the SAR, plus
a supplemental payment on such excess. Also, upon the occurrence of a Change of
Control, the participant will receive 100% of his bonus opportunities under the
Performance Award Plan and the Cash Bonus Plan. Any officer of the Company or
certain of its subsidiaries who at the time of a Change of Control is not vested
under the Retirement Plan will be provided with a vested benefit under the
Supplemental Benefit Plan equal to the benefit that would have been payable
under the Retirement Plan if his actual years of service had been sufficient for
vesting. Following a Change of Control, a participant's Savings Plan account
under the Supplemental Benefit Plan will be distributed within 30 days of his
termination of employment.
EXECUTIVE SEVERANCE AGREEMENTS
The Company has Executive Severance Agreements with Messrs. Kuehn,
Rubright, Russell and Smith. These agreements provide that if the executive
officer's employment is terminated within three years after a Change of Control
(as defined above), either (a) by the Company for reasons other than dishonesty,
conviction of a felony or willful unauthorized disclosure of confidential
information or other than as a consequence of death, disability or retirement at
age 65 or (b) by the executive officer for reasons relating to a diminution of
responsibilities or compensation, or relocation requiring a change in residence
or a significant increase in travel, or a good faith determination by the
executive officer that he can no longer effectively discharge his duties, he
will receive: (1) a lump sum payment equal to three times his highest earnings
(defined to include those items described as covered compensation under the
Retirement Plan) during any 12-month period during the three years preceding the
termination (such lump sum payment to be reduced pro rata to the extent there
are less than 36 months until the officer reaches age 65); (2) life, medical,
and accident and disability insurance as provided in the Company's insurance
programs or, in certain circumstances, substantially equivalent insurance to be
provided by the Company for a period of 36 months after termination of
employment (or until age 65, whichever is sooner); and (3) for an executive
officer who has reached age 50 and is not otherwise entitled to an early
retirement benefit under the terms of a qualified retirement plan of the Company
or its subsidiaries, an annual benefit equal to the amount such officer would
have received had he been entitled to an early retirement benefit (reduced by
any benefits payable to him under such retirement plan and the Supplemental
Benefit Plan), and a 75% survivors benefit with respect to such early retirement
benefit. Assuming that the executive officers terminated employment on January
31, 1995, in a manner entitling them to benefits under the Executive Severance
Agreements, the respective executive officers would receive the following lump
sum cash payments pursuant to item (1) above and the following annual retirement
benefits pursuant to item (3) above: Mr. Kuehn, $3,493,800 in cash and $0 in
retirement benefits; Mr. Rubright, $1,185,598 in cash and $0 in retirement
benefits; Mr. Russell, 1,316,112 in cash and $11,153 in retirement benefits; and
Mr. Smith, $1,646,000 in cash and $60,312 in retirement benefits.
The Executive Severance Agreements provide that the executive officer may
not voluntarily leave the employ of the Company if a third party attempts to
effect a Change of Control until such third party abandons such attempt or a
Change of Control has occurred. The executive officer is also required to be
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available for three years after his termination of employment for consultation
with senior officers of the Company. The Agreements renew automatically for
one-year terms unless terminated at the end of any term by the Board of
Directors. The Agreements shall also terminate if the Executive Compensation
Committee determines that the executive officer is no longer a key employee,
unless a Change of Control is threatened at the time or has occurred within the
past three years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
L. Edwin Smart, a member of the Executive Compensation Committee of the
Board of Directors, serves as counsel to the law firm of Hughes Hubbard & Reed.
Hughes Hubbard & Reed provides legal services to the Company and certain of its
subsidiaries.
ELECTION OF AUDITOR (PROPOSAL NO. L)
Ernst & Young has been nominated for election as Auditor of the Company.
The Restated Certificate of Incorporation provides that no other person shall be
eligible for election as Auditor unless notice of intention to nominate such
person has been given to the Company not less than ten days before the Annual
Meeting.
A representative of Ernst & Young will be present at the Annual Meeting
with the opportunity to make a statement if such representative desires to do so
and will be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF ERNST &
YOUNG AS AUDITOR (PROPOSAL NO. L).
AMENDMENT AND RESTATEMENT OF EXECUTIVE
AWARD PLAN (PROPOSAL NO. 2)
The Executive Award Plan was adopted in 1981 and amended and restated in
1985, 1988 and 1991, in each case with the approval of stockholders. The Plan
was amended without shareholder approval in 1992 and 1993 to limit the number of
stock options that may be granted to any employee in any 12-month period, to
reflect the two-for-one split of the Company's Common Stock that was effective
as of September 15, 1993, and to make various technical amendments. The Plan is
intended to enable the Company to attract, motivate and retain key employees of
outstanding ability.
The Board of Directors believes that the Plan is accomplishing its purpose.
However, the Board believes that in order to carry out the purposes of the Plan
it is necessary to amend the Plan to increase the number of shares available for
issuance and to make certain technical amendments. Accordingly, at its January
26, 1995 meeting, the Board of Directors took action to submit to stockholders,
for their approval at the 1995 Annual Meeting of Stockholders, the amendment and
restatement of the Plan.
The amendments approved by the Board are (1) increasing the number of
shares which may be issued under the Plan by 4,000,000, (2) extending the period
during which incentive stock options may be granted, and (3) adopting certain
technical amendments regarding the manner of determining the number of shares
available under the Plan. Approval of the Plan as amended and restated will also
constitute approval of the amendments previously adopted by the Board of
Directors.
PRINCIPAL PROVISIONS OF THE EXECUTIVE AWARD PLAN
The following summary of the Plan, as amended and restated effective as of
April 27, 1995, is qualified by reference to the full text of the Plan which is
attached as Exhibit A to this Proxy Statement.
GENERAL PROVISIONS
The Plan is administered by the Executive Compensation Committee of the
Board of Directors consisting of at least three Directors, all of whom are
"disinterested" within the meaning of Rule 16b-3
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<PAGE> 24
under the Securities Exchange Act of 1934. The Committee designates the key
employees of the Company and its subsidiaries and affiliated companies to be
granted awards and the type and amount of awards to be granted. Officers of the
Company are eligible to participate in the Plan. Directors who are not officers
or employees are not eligible. Approximately 170 current employees have received
awards under the Plan. It is estimated that the total number of key employees
who are eligible to receive awards under the Plan would not at present exceed
250.
The aggregate number of shares of Common Stock which may be issued under
the Plan with respect to awards granted after April 27, 1995 may not exceed
4,000,000, plus any unused shares which were previously authorized by
stockholders (numbering 946,023 as of January 31, 1995). Unused shares which
were authorized under the Plan as in effect on April 25, 1985 will not be
available for issuance with respect to awards granted after April 24, 1995. Cash
supplemental payments will not count against these limits. Lapsed, forfeited or
cancelled awards will not count against these limits and can be regranted under
the Plan (regardless of whether the recipient received dividends or other
economic benefits with respect to the awards); however, the cancellation of an
option upon exercise of the related stock appreciation right will count against
these limits. If the exercise price of an option is paid in Common Stock or if
shares are withheld from payment of an award to satisfy tax obligations with
respect to the award, such shares will also not count against the above limits.
Options with respect to more than 250,000 shares of Common Stock may not be
granted to any employee in any 12-month period.
The shares issued under the Plan may be issued from shares held in treasury
or from authorized but unissued shares. On April 28, 1994, the Board of
Directors authorized the Company to repurchase before May 1, 1996, up to
2,000,000 shares of the Company's Common Stock, for the purpose of having such
shares available for issuance under the Plan. As of February 15, 1995, 1,039,900
shares had been repurchased under the stock repurchase program (of which shares
148,467 shares have been subsequently reissued under the Plan). The Company
intends to repurchase additional shares under this program when, in its
judgment, it is appropriate to do so.
TYPES OF AWARDS
The Plan authorizes the granting of the following types of awards:
1. Stock Options. The Committee is authorized to determine the terms and
conditions of all option grants, subject to the limitations that the option
price per share may not be less than the fair market value of a share of Common
Stock on the date of grant, and the term of an option may not be longer than ten
years.
The Plan authorizes the Committee to specify the manner of payment of the
option price. Payment may be made in cash or in any other manner specified by
the Committee (which may include payment in Common Stock of the Company). The
Committee may permit payment to be made by way of successive, automatic
applications of shares received upon exercise of a portion of the option to
satisfy the exercise price for additional portions of the option, a payment
method known as "pyramiding". The Committee may also permit arrangements with a
brokerage firm whereby shares issuable upon exercise of an option would be sold
by the broker and the proceeds used to pay the option price, a payment method
known as "cashless exercise".
The Committee is authorized to specify the period, if any, over which
options become exercisable, and to accelerate the exercisability of options on a
case by case basis at any time. The Committee is also authorized to specify the
period during which options may be exercised following an employee's termination
of employment, and to extend such period on a case by case basis.
All options heretofore granted under the Plan have been non-qualified
options for federal income tax purposes. Although the Company presently intends
to continue granting non-qualified options, the Plan also authorizes the grant
of incentive stock options and any other form of tax-favored options that may in
the future be included in the Internal Revenue Code (the "Code").
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<PAGE> 25
2. Stock Appreciation Rights. The Committee is authorized to grant stock
appreciation rights ("SARs") in tandem with options under the Plan. An SAR can
be exercised only to the extent the option with respect to which it is granted
is not exercised, and is subject to the same terms and conditions as the option
to which it is related. Any SAR which is outstanding on the last day of the term
of the related option will be automatically exercised on such date for cash.
Upon exercise of an SAR the holder is entitled to receive, for each share
with respect to which the SAR is exercised, an amount (the "appreciation") equal
to the difference between the option price of the related option and the fair
market value of a share of Common Stock on the date of exercise of the SAR. The
appreciation is payable in cash, Common Stock, or a combination of both, as
determined by the Committee.
3. Restricted Stock. The Committee is authorized to award restricted stock
under the Plan subject to such terms and conditions as the Committee may
determine in its sole discretion. The Committee has authority to determine the
number of shares of restricted stock to be awarded, the price, if any, to be
paid by the recipient of the restricted stock, and the date or dates on which
the restricted stock will vest. The vesting of restricted stock may be
conditioned upon the completion of a specified period of service with the
Company, upon the attainment of specified performance goals, or upon such other
criteria as the Committee may determine. The Plan gives the Committee discretion
to accelerate the vesting of restricted stock on a case by case basis at any
time. The Committee also has authority to determine whether the employee will
have the right to vote and/or receive dividends on shares of restricted stock,
and whether the certificates for such shares will be held by the Company or
delivered to the employee bearing legends to restrict their transfer.
Stock certificates representing the restricted stock granted to an eligible
employee will be registered in the employee's name. However, no share of
restricted stock may be sold, transferred, assigned or pledged by the employee
until such share has vested in accordance with the terms of the restricted stock
award. In the event of an employee's termination of employment before all of his
restricted stock has vested, or in the event other conditions to the vesting of
restricted stock have not been satisfied prior to any deadline for the
satisfaction of such conditions set forth in the award, the shares of restricted
stock which have not vested will be forfeited and any purchase price paid by the
employee will be returned to the employee. At the time restricted stock vests, a
certificate for such vested shares will be delivered to the employee (or the
beneficiary designated by the employee, in the event of death), free of all
restrictions.
The Committee has adopted a Restricted Stock Grant Program (the "Program")
pursuant to which the grant of restricted stock is contingent upon the
attainment of objective performance goals set by the Committee. Shares awarded
under the Program will be issued under the Plan, and will be subject to the
Plan's limitations on the number of shares issuable. The Program is being
separately submitted for shareholder approval to qualify awards under the
Program as "performance-based" for purposes of Section 162(m) of the Code. (See
"Approval of Restricted Stock Grant Program (Proposal No. 3)" below.) The
adoption of the Program does not limit the Committee's ability to make other
grants of restricted stock under the Plan.
4. Supplemental Payments. The Committee is authorized to provide for a
"supplemental payment" by the Company to an option holder in connection with the
exercise of an option or SAR, and to a holder of restricted stock in connection
with the vesting of such restricted stock. The amount of the supplemental
payment is subject to the discretion of the Committee, but can be no greater
than the amount necessary to pay the federal income tax payable with respect to
both (1) exercise of the option or tandem SAR, or vesting of the restricted
stock, and (2) receipt of the supplemental payment, based on the assumption that
the participant is taxed at the maximum effective federal income tax rate
applicable to such income. Due to variations in the actual tax rates applicable
to employees, the benefit of the supplemental payment may not correspond to the
actual tax liability of the employee.
A supplemental payment can be awarded at either the time of grant or of
exercise of an option or SAR, and at either the time of grant or of vesting of
restricted stock.
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<PAGE> 26
Supplemental payments are payable in cash or Common Stock, at the
discretion of the Committee. It is contemplated that as a general matter the
payment would be made in cash.
PROVISIONS RELATING TO A CHANGE OF CONTROL
The Plan provides for certain benefits in the event of a "Change of
Control" of the Company. A "Change of Control" is deemed to have occurred if (1)
any person or group acquires (or obtains the right to acquire) beneficial
ownership of 35% or more of the Company's voting securities, (2) there is a
change in the composition of a majority of the Company's Board of Directors
within any period of three consecutive years which change was not approved by a
majority of the Board as constituted immediately prior to the commencement of
such three-year period, or (3) at any meeting of stockholders of the Company
called for the purpose of electing Directors the entire slate nominated by the
Board of Directors fails to be elected.
Upon the occurrence of a Change of Control all outstanding shares of
restricted stock will immediately vest, and all outstanding options (and tandem
SARs) held by then-current employees will become immediately exercisable and
will remain exercisable for three years following the employee's termination of
employment or such longer period as may be provided in the option (but not
beyond their expiration date).
If an SAR is exercised within 60 days of the occurrence of a Change of
Control, the holder will receive, in addition to the amount otherwise due on
exercise, a payment equal to the excess over the amount otherwise due of the
highest price per share of Common Stock paid during the 60-day period prior to
the exercise of the SAR, plus, if the holder is entitled to a supplemental
payment on the SAR, a supplemental payment on such excess.
OTHER PROVISIONS
The Plan permits employees who do not receive a cash supplemental payment
with respect to an award to satisfy all or a portion of their federal, state,
and local tax liability with respect to the award by having the Company withhold
from the shares otherwise deliverable to such employee shares having a value
equal to the tax liability to be so satisfied. Employees who receive a cash
supplemental payment will have their tax withholding obligation satisfied out of
such supplemental payment.
In the event of specified changes in the Company's capital structure, the
Committee will have the power to adjust the number and kind of shares authorized
by the Plan (including any limitations on individual awards) and the number,
option price or kinds of shares covered by outstanding awards, and to make such
other adjustments in awards under the Plan as it deems appropriate.
The Board of Directors may amend the Plan without shareholder approval,
unless such approval is required by law or stock exchange requirements.
The Committee may amend any grant under the Plan, including currently
outstanding options, to include any provision which, at the time of such
amendment, is authorized under the terms of the Plan, except that no award can
be modified in a manner unfavorable to the holder without the written consent of
the holder. In addition, the Committee may, without shareholder approval, cancel
an option or other award granted under the Plan and grant a new option or award
to the employee on more favorable terms and conditions than the cancelled award.
The Plan shall continue in effect for an unlimited period, but may be terminated
by the Board of Directors in its discretion at any time. No incentive stock
options may be granted under the Plan after April 26, 2005.
FEDERAL INCOME TAX CONSEQUENCES
Under the Code and Treasury Regulations currently in effect, the grant of a
non-qualified stock option, SAR, or right to a supplemental payment is not
taxable. The entire amount received upon exercise of an SAR or as a supplemental
payment will be taxed as ordinary income to the recipient.
24
<PAGE> 27
If a non-qualified option is exercised, the option spread (i.e., the
difference between the option price and the fair market value of the shares) on
the income recognition date (defined below) will be taxed as ordinary income to
the option holder as of such income recognition date. An employee who receives
stock upon the exercise of an SAR or as a supplemental payment will recognize
income in the amount of the fair market value of such stock on the income
recognition date. For these purposes, the income recognition date is the date of
exercise of an option or SAR (or of receipt of a supplemental payment), except
that for officers subject to Section 16(b) of the Securities Exchange Act of
1934 ("Section 16(b)") who exercise an option within six months of the date of
grant the income recognition date is the date six months after such grant unless
the officer elects to recognize income as of the date of exercise.
If an option is granted which is designated as an incentive stock option
("ISO") under Section 422 of the Code, an optionee will not recognize any income
upon the exercise of such option prior to termination of employment or within
specified periods (generally three months) thereafter. However, the option
spread on the date of exercise will constitute an item of tax preference which
may cause an employee to be subject to the alternative minimum tax. If the
optionee does not dispose of the shares received upon exercise of an ISO before
the end of the required holding periods (two years from the option grant and one
year from exercise), any gain recognized by the option holder on the sale or
exchange of the shares will be treated as long-term capital gain. If the shares
acquired upon the exercise of an ISO are disposed of before the end of such
holding periods, the optionee will recognize ordinary income in an amount equal
to the lesser of (1) the option spread on the income recognition date, or (2)
the excess of the amount received upon disposition of the shares over the option
price. Any excess of the amount received upon disposition of the shares over the
value of the shares on the income recognition date will be taxed as a long-term
or short-term capital gain, depending on whether the shares were held for more
than one year.
Generally, and except as noted below, the grant of restricted stock is not
taxable. Instead, at the time restricted stock vests, an employee will recognize
ordinary income equal to (1) the excess of the fair market value of such
restricted stock on the date the shares vest over (2) the price, if any, paid
for the restricted stock. Dividends paid on the shares before they vest will be
taxed as additional compensation to the employee. An employee may, however,
elect to recognize income as of the date of grant of the restricted stock, in an
amount equal to (1) the excess of the fair market value of the restricted stock
on the date of grant over (2) the price, if any, paid for the restricted stock.
Such employee will not recognize a loss for tax purposes in the event of a
subsequent forfeiture of the shares.
In most cases, the basis in shares acquired upon exercise of a
non-qualified option or SAR or as restricted stock or a supplemental payment
will be equal to the fair market value of the shares on the employee's income
recognition date, and the holding period for determining gains and losses on a
subsequent disposition of such shares will begin on such date.
As a general rule, the Company or one of its subsidiaries will be entitled
to a deduction for federal income tax purposes at the same time and in the same
amount that an employee recognizes ordinary income from awards under the Plan,
to the extent such income is considered reasonable compensation under the Code.
However, Section 162(m) of the Code limits to $1 million the annual tax
deduction that the Company and its subsidiaries can take with respect to the
compensation of each of certain executive officers unless the compensation
qualifies as "performance-based" or certain other exemptions apply. The Company
believes that all compensation recognized with respect to options granted under
the Plan will be deemed performance-based under Section 162(m) of the Code, and
that all compensation recognized with respect to restricted stock granted under
the Plan pursuant to the Restricted Stock Grant Program will be deemed
performance-based if the Program is approved by the stockholders.
Neither the Company nor any subsidiary will be entitled to a deduction with
respect to payments to employees which are contingent upon a change of control
if such payments are deemed to constitute "excess parachute payments" pursuant
to Section 280G of the Code and do not qualify as reasonable compensation
pursuant to that Section; such payments will subject the recipients to a 20%
excise tax.
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<PAGE> 28
ADDITIONAL INFORMATION
If the stockholders do not approve the Plan as amended and restated, the
Company intends to continue to grant awards under the Plan as currently in
effect (to the extent shares are available for grant under the Plan), or as may
be amended from time to time by the Board of Directors to the extent such
amendments do not require stockholder approval.
Because the granting of awards under the Plan is discretionary, it is not
possible to state which employees will be granted awards, or the amount or type
of awards that would have been granted to particular individuals or in the
aggregate had the Plan, as proposed to be amended, been in effect during 1994.
See the Summary Compensation Table on page 14 above for information as to the
awards actually granted during the last three years under the Plan as then in
effect.
The last sale price of Common Stock of the Company on the consolidated
transactions reporting system on March 1, 1995 was $28.625 per share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE EXECUTIVE
AWARD PLAN AS AMENDED AND RESTATED (PROPOSAL NO. 2).
APPROVAL OF RESTRICTED STOCK GRANT PROGRAM
(PROPOSAL NO. 3)
Since 1992 the Executive Compensation Committee of the Company's Board of
Directors (the "Committee") has granted restricted stock awards under the
Company's Executive Award Plan (the "Plan") based on the Company's total
shareholder return as compared to the total shareholder return of a peer group
of companies. In 1993, the Internal Revenue Code was amended by the addition of
Section 162(m), which limits to $1 million the annual tax deduction available
with respect to compensation paid to certain executive officers unless the
compensation qualifies as "performance-based" (as defined for purposes of
Section 162(m)) or certain other exemptions apply. Among the requirements for
performance-based compensation are that the compensation be paid based solely on
the attainment of objective performance goals established by a committee of
outside directors, and that the material terms under which the compensation is
to be paid be disclosed to and approved by stockholders.
Following the adoption of Section 162(m), the Committee formalized its
prior practice by adopting a Restricted Stock Grant Program (the "Program")
which continued to satisfy the objective performance goal requirement of Section
162(m). In order to satisfy the shareholder approval requirement of Section
162(m), on January 26, 1995, the Board took action to submit the Program for
stockholder approval at the 1995 Annual Meeting of Stockholders. Stockholder
approval of the Program would enable the shares of restricted stock granted
under the Program to qualify as performance-based for purposes of Section 162(m)
and therefore to continue to be deductible by the Company without regard to the
deduction limit otherwise imposed by Section 162(m).
In January 1995 the Board also took action to amend the Plan (subject to
shareholder approval) to, among other things, increase the number of shares
issuable under the Plan. (See "Amendment and Restatement of Executive Award Plan
(Proposal No. 2)" above.) While approval of the Program is not conditioned on
approval of the Plan as amended and restated, because shares granted under the
Program are issued under the Plan, failure to increase the number of shares
issuable under the Plan will effectively limit the number of shares that can be
granted under the Program.
PRINCIPAL PROVISIONS OF THE RESTRICTED STOCK GRANT PROGRAM
The purpose of the Program is to further the purposes of the Plan by
providing a means to award restricted stock in a manner that results in
performance-based compensation under Section 162(m). The Program determines only
the number of shares of restricted stock which are awarded. All terms of the
restricted stock (including the vesting provisions thereof), and all provisions
with respect to the
26
<PAGE> 29
administration of awards granted under the Program, are set forth in the Plan,
the full text of which, as proposed to be amended, is set forth as Exhibit A to
this Proxy Statement.
ADMINISTRATION. The Program is administered by the Committee, the members
of which are "disinterested" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934. The provisions of the Plan regarding
administration and the powers of the Committee also apply to the Program.
ELIGIBILITY. Eligibility for the Program is limited to officers of the
Company and certain subsidiaries who hold positions of Vice President and above.
Directors who are not officers of the Company and its subsidiaries are not
eligible to participate. As of January 31, 1995, approximately 22 current
employees have received grants under the Program. It is estimated that the total
number of employees who are eligible to participate in the Program would not at
present exceed 40.
DETERMINATION OF SIZE OF GRANT. The number of shares of restricted stock
to be granted to an eligible employee under the Program is determined pursuant
to a formula that measures the total shareholder return of the Company relative
to the total shareholder returns of a peer group of companies selected by the
Committee. For a given grant of restricted stock, the annual total shareholder
returns for the Company and each company in the peer group are first calculated
for each of the last three years. The average total shareholder return for the
peer group for each year is determined by adjusting the annual returns of each
company to reflect the capitalization of the various companies in the peer
group. The total shareholder returns for the Company and the peer group are also
weighted to give the most weight to the most recent year, and the least weight
to the earliest of the three years. The extent to which the Company's weighted
total shareholder return exceeds that of the peer group determines the maximum
dollar value of the award (which is expressed as a different percentage of base
pay for each category of officer). The maximum dollar value of an award cannot
exceed $1,920,000. The applicable dollar amount is converted into shares by
dividing it by 66% of the market price of the Company's Common Stock (to reflect
the reduction in value due to the forfeitable nature of the restricted shares).
Notwithstanding the results of the calculation, no more than 100,000 shares of
restricted stock may be issued to any employee under the Program in any year.
The Committee may reduce the number of shares of restricted stock granted below
the number of shares calculated under the Program's formula.
AMENDMENT AND TERMINATION. The Committee may amend the Program from time
to time without stockholder approval except as required to satisfy Section
162(m). The Program shall continue in effect for an unlimited period, but may be
terminated by the Committee or the Board of Directors, in its discretion, at any
time.
ADDITIONAL INFORMATION
If the stockholders do not approve the Program, further awards would not be
made under the Program, but the Committee would retain the ability to make other
grants of restricted stock under the Plan. However, such grants would not
satisfy the performance-based compensation requirements of Section 162(m), and
income attributable to such awards would be included in the determination of
whether an executive officer's compensation exceeded the annual limit imposed by
Section 162(m).
BENEFITS UNDER THE PROGRAM
It is not possible to specify the number of shares of restricted stock to
be granted to particular individuals under the Program, since the maximum size
of each grant under the Program will be determined by the total shareholder
return of the Company and of the companies in the peer group (subject to an
overall annual limit of 100,000 shares of restricted stock per participant). The
following
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<PAGE> 30
table sets forth the number of shares of restricted stock granted under the
Program in 1994 for the persons indicated below.
NEW PLAN BENEFITS
RESTRICTED STOCK GRANT PROGRAM
<TABLE>
<CAPTION>
1994 GRANT
NAME AND POSITION (NUMBER OF SHARES)
--------------------------------------------------------------- ------------------
<S> <C>
Ronald L. Kuehn, Jr. .......................................... 16,500
Chairman of the Board, President and Chief Executive Officer
James E. Moylan, Jr. .......................................... 3,300
President of Southern Natural Gas Company
James A. Rubright.............................................. 4,400
Vice President and General Counsel
Donald G. Russell.............................................. 10,000
Executive Vice President
William A. Smith............................................... 6,000
Executive Vice President
Current Executive Officer Group................................ 48,600
(9 persons)
Non-Executive Director Group................................... 0
(12 persons)
Non-Executive Officer Employee Group........................... 19,100
(13 persons)
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE RESTRICTED
STOCK GRANT PROGRAM (PROPOSAL NO. 3).
OTHER MATTERS
PROPOSALS OF STOCKHOLDERS
STOCKHOLDER PROPOSALS IN THE COMPANY'S PROXY STATEMENT. In order for
proposals by stockholders to be considered for inclusion in the proxy statement
and form of proxy relating to the 1996 Annual Meeting of Stockholders, such
proposals must be received at the principal executive offices of the Company,
AmSouth-Sonat Tower, Birmingham, Alabama 35203, by no later than November 17,
1995.
STOCKHOLDER PROPOSALS TO BE PRESENTED AT MEETINGS. A stockholder who
desires to propose any business at a meeting of stockholders must give the
Company written notice within ten days following public disclosure by the
Company of the meeting date (by notice to the New York Stock Exchange or
otherwise) or, if the meeting is adjourned and the Company is required by
Delaware law to give notice of the adjourned meeting date, within five days
after the earlier of the date public disclosure is made by the Company of the
adjourned meeting date (by notice to such exchange or otherwise) or the date
notice of the adjourned meeting is given to stockholders. The stockholder's
notice must set forth (a) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting; (b) the name and address of the stockholder who intends to propose such
business; (c) a representation that the stockholder is a holder of record of
stock of the Company entitled to vote at such meeting (or if the record date for
such meeting is subsequent to the date required for such stockholder notice, a
representation that the stockholder is a holder of record at the time of such
notice and intends to be a holder of record on the record date for such meeting)
and intends to appear in person or by proxy at such meeting to propose such
business; and (d) any material interest of the stockholder in such business.
STOCKHOLDER NOMINATIONS FOR DIRECTORS. A stockholder who desires to
nominate Directors at a meeting of stockholders must give the Company written
notice within the time period described in the preceding paragraph. The
stockholder's notice must set forth (a) the name and address of the
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<PAGE> 31
stockholder who intends to make the nomination and of the person or persons to
be nominated; (b) a representation that the stockholder is a holder of record of
stock of the Company entitled to vote at such meeting (or if the record date for
such meeting is subsequent to the date required for such stockholder notice, a
representation that the stockholder is a holder of record at the time of such
notice and intends to be a holder of record on the record date for such meeting)
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; (c) a description of all arrangements
or understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the stockholder; (d) such other information
regarding each nominee proposed by such stockholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or intended
to be nominated, by the Board of Directors; and (e) the consent of each nominee
to serve as a Director of the Company if so elected.
The Chairman of the meeting may refuse to transact any business or to
acknowledge the nomination of any person if a stockholder has failed to comply
with the foregoing procedures.
A copy of the Company's By-Laws may be obtained from the Company upon
written request to the Company at its principal place of business.
VOTING AT THE ANNUAL MEETING
The presence, in person or by proxy, of the holders of a majority of the
Company's Common Stock is necessary to constitute a quorum at the Annual Meeting
or any adjournment thereof.
The vote required for the election of Directors and the approval of the
other matters scheduled for a vote at the Annual Meeting is controlled by the
provisions of the Company's Charter and By-Laws and the Delaware General
Corporation Law. Directors are elected by a plurality vote. Approval of Proposal
No. 1 would require a plurality vote. Approval of Proposal No. 2 and 3 would
each require the affirmative vote of a majority of the shares of Common Stock
represented in person or by proxy at the Annual Meeting and voting either for or
against, or abstaining from voting on, such proposal. Broker "non-votes" (shares
not voted on a matter because a nominee holding shares for a beneficial owner
neither receives voting instructions from such beneficial owner nor has
discretionary voting power with respect thereto) shall not have an effect on the
vote at the Annual Meeting. Abstentions shall have the effect of a vote against
Proposal No. 2 and 3. The vote will be tabulated by an independent tabulator and
the results of such vote will be certified by independent inspectors of
election.
SOLICITATION OF PROXIES
The Company will bear the costs of solicitation of proxies. Officers and
regular employees of the Company may solicit proxies by mail, telephone,
telegraph and personal interview. In addition, the Company has retained D. F.
King & Co., Inc. to assist in the solicitation of proxies, and anticipates that
the fees that it will incur for this service, excluding out-of-pocket expenses,
will not exceed $50,000. Arrangements will be made with brokerage houses and
with other custodians, nominees and fiduciaries to forward proxy soliciting
material to beneficial owners. The Company will reimburse persons holding stock
for others in their names or in those of their nominees for their reasonable
out-of-pocket expenses in sending proxy material to their principals and
obtaining their proxies.
------------------------
The information provided under the headings "Report of the Executive
Compensation Committee" and "Performance Graph" above shall not be deemed to be
"soliciting material" or to be "filed" with the Securities and Exchange
Commission or subject to Regulations 14A or 14C, other than as provided in Item
402 of Regulation S-K, or to the liabilities of Section 18 of the Securities
Exchange Act of 1934 and, unless specific reference is made therein to such
headings, shall not be incorporated by reference into any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934.
29
<PAGE> 32
The Company is not aware that any matters other than those mentioned above
will be presented for action at the 1995 Annual Meeting, but if any other
matters do properly come before the meeting, the persons named as proxies will
vote upon such matters in accordance with their best judgment.
Please complete, sign, date and return the enclosed proxy card promptly.
SONAT INC.
Beverley T. Krannich
Secretary
Birmingham, Alabama
March 15, 1995
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<PAGE> 33
EXHIBIT A
EXECUTIVE AWARD PLAN OF SONAT INC.
(AS AMENDED AND RESTATED AS OF APRIL 27, 1995)
I. GENERAL
1.1 PURPOSE OF THE PLAN
The Executive Award Plan (the "Plan") of Sonat Inc. (the "Company") is
intended to advance the best interests of the Company and its subsidiaries by
providing key employees with additional incentives through the grant of options
("Options") to purchase shares of Common Stock of the Company ("Common Stock")
and through the award of shares of restricted Common Stock ("Restricted Stock"),
thereby increasing the personal stake of such employees in the continued success
and growth of the Company and encouraging them to remain in the employ of the
Company.
The Plan was adopted effective May 1, 1981, and has been amended at various
times. The provisions of the Plan as hereby amended and restated may, at the
discretion of the Committee referred to below, be made available to all grants
outstanding on the effective date of this Amendment and Restatement, and all
awards granted after such date, except that no such provision shall alter any
outstanding grant in a manner unfavorable to the holder thereof without the
written consent of the holder.
1.2 ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Executive Compensation Committee
or other designated committee (the "Committee") of the Board of Directors of the
Company (the "Board of Directors") which shall consist of at least three
Directors all of whom are not eligible to participate in the Plan and are
"disinterested" within the meaning of Rule 16b-3 under the Securities Exchange
Act of 1934. The Committee shall have authority to interpret conclusively the
provisions of the Plan, to adopt such rules and regulations for carrying out the
Plan as it may deem advisable, to decide conclusively all questions of fact
arising in the application of the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan. All decisions and
acts of the Committee shall be final and binding upon all affected Plan
participants.
(b) The Committee shall meet once each fiscal year, and at such additional
times as it may determine or at the request of the chief executive officer of
the Company, to designate the eligible employees, if any, to be granted awards
under the Plan and the type and amount of such awards and the time when awards
will be granted. All awards granted under the Plan shall be on the terms and
subject to the conditions hereinafter provided.
1.3 ELIGIBLE PARTICIPANTS
Key employees, including officers, of the Company and its subsidiaries, and
of partnerships or joint ventures in which the Company and its subsidiaries have
a significant ownership interest as determined by the Committee (all of such
subsidiaries, partnerships and joint ventures being referred to as
"Subsidiaries") shall be eligible to participate in the Plan. Directors who are
not employees of the Company or its Subsidiaries shall not be eligible to
participate in the Plan.
1.4 AWARDS UNDER THE PLAN
Awards under the Plan may be in the form of (i) Options to purchase shares
of Common Stock, (ii) Stock Appreciation Rights issued in tandem with such
Options, (iii) shares of Restricted Stock, (iv) Supplemental Payments with
respect to Options, Stock Appreciation Rights and Restricted Stock, or (v) any
combination of the foregoing.
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1.5 SHARES SUBJECT TO THE PLAN
The aggregate number of shares of Common Stock which may be issued with
respect to Options or Restricted Stock granted after April 27, 1995 (including
Stock Appreciation Rights and Supplemental Payments related thereto) shall not
exceed (i) 4,000,000 shares plus (ii) the number of shares previously authorized
for use in the Plan which have not been issued or have again become available
for grants pursuant to the following paragraph. At no time shall the number of
shares issued plus the number of shares subject to outstanding awards under the
Plan exceed the number of shares that may be issued under the Plan. Options with
respect to more than 250,000 shares of Common Stock shall not be granted to any
optionee in any 12-month period. Shares distributed pursuant to the Plan may
consist of authorized but unissued shares or treasury shares of the Company, as
shall be determined from time to time by the Board of Directors.
If any Option under the Plan shall expire, terminate or be cancelled
(except upon the holder's exercise of a related Stock Appreciation Right) for
any reason without having been exercised in full, or if any shares of Restricted
Stock shall be forfeited to the Company, the unexercised Options and forfeited
shares of Restricted Stock shall not count against the above limit and shall
again become available for grants under the Plan (regardless of whether the
holder of such Options or shares received dividends or other economic benefits
with respect to such Options or shares). Shares of Common Stock equal in number
to the shares surrendered in payment of the option price, and shares of Common
Stock which are withheld in order to satisfy federal, state or local tax
liability, shall not count against the above limit and shall again become
available for grants under the Plan. Notwithstanding the foregoing, any shares
which were authorized for issuance under the Plan as in effect on April 25, 1985
shall not be available for issuance with respect to awards granted after April
24, 1995.
1.6 OTHER COMPENSATION PROGRAMS
The existence and terms of the Plan shall not limit the authority of the
Board of Directors in compensating employees of the Company and its subsidiaries
in such other forms and amounts, including compensation pursuant to any other
plans as may be currently in effect or adopted in the future, as it may
determine from time to time.
II. STOCK OPTIONS
2.1 TERMS AND CONDITIONS OF OPTIONS
Subject to the following provisions, all Options granted under the Plan
shall be in such form and shall have such terms and conditions as the Committee,
in its discretion, may from time to time determine.
(a) Option Price. The option price per share shall not be less than
the fair market value of the Common Stock (as determined by the Committee)
on the date the Option is granted.
(b) Term of Option. The term of an Option shall not exceed ten years
from the date of grant, and, notwithstanding any other provision of this
Plan, no Option shall be exercised after the expiration of its term.
(c) Exercise of Options. Options shall be exercisable at such time or
times and subject to such terms and conditions as the Committee shall
specify in the Option grant. The Committee shall have discretion to at any
time declare all or any portion of the Options held by any optionee to be
immediately exercisable. An Option may be exercised in accordance with its
terms as to any or all shares purchasable thereunder.
(d) Payment for Shares. Payment for shares as to which an Option is
exercised shall be made in such manner and at such time or times as shall
be provided by the Committee in the Option grant. Payment may be made in
cash or in such other manner as the Committee in its discretion may
authorize.
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(e) Nontransferability of Options. No Option or any interest therein
shall be transferable by the optionee other than by will or by the laws of
descent and distribution. During an optionee's lifetime, all Options shall
be exercisable only by such optionee or by the guardian or legal
representative of the optionee.
(f) Shareholder Rights. The holder of an Option shall, as such, have
none of the rights of a shareholder.
(g) Termination of Employment. The Committee shall have discretion to
specify in the Option grant or an amendment thereof, provisions with
respect to the period, not extending beyond the term of the Option, during
which the Option may be exercised following the optionee's termination of
employment.
(h) Change of Control. Notwithstanding the exercisability schedule
governing any Option, upon the occurrence of a Change of Control (as
defined in Section 4.9) all Options outstanding at the time of such Change
of Control and held by optionees who are employees of the Company or its
Subsidiaries at the time of such Change of Control shall become immediately
exercisable and, unless the optionee agrees otherwise in writing, shall
remain exercisable for a period of three years following the optionee's
termination of employment or such longer period as may be provided in the
Option.
2.2 STOCK APPRECIATION RIGHTS IN TANDEM WITH OPTIONS
(a) The Committee may, either at the time of grant of an Option or at any
time during the term of the Option, grant Stock Appreciation Rights with respect
to all or any portion of the shares of Common Stock covered by such Option. A
Stock Appreciation Right may be exercised at any time the Option to which it
relates is then exercisable, but only to the extent the Option to which it
relates is exercisable, and shall be subject to the conditions applicable to
such Option. When a Stock Appreciation Right is exercised, the Option to which
it relates shall cease to be exercisable to the extent of the number of shares
with respect to which the Stock Appreciation Right is exercised. Similarly, when
an Option is exercised, the Stock Appreciation Rights relating to the shares
covered by such Option exercise shall terminate. Any Stock Appreciation Right
which is outstanding on the last day of the term of the related Option (as
determined pursuant to Section 2.1(b)) shall be automatically exercised on such
date for cash without any action by the optionee.
(b) Upon exercise of a Stock Appreciation Right, the holder shall receive,
for each share with respect to which the Stock Appreciation Right is exercised,
an amount (the "Appreciation") equal to the difference between the option price
per share of the Option to which the Stock Appreciation Right relates and the
fair market value (as determined by the Committee) of a share of Common Stock on
the date of exercise of the Stock Appreciation Right. The Appreciation shall be
payable in cash, Common Stock, or a combination of both, at the option of the
Committee, and shall be paid within 30 days of the exercise of the Stock
Appreciation Right.
(c) Notwithstanding the foregoing, if a Stock Appreciation Right is
exercised within 60 days of the occurrence of a Change of Control, (i) the
Appreciation and any Supplemental Payment (as defined in Section 2.3) to which
the holder is entitled shall be payable solely in cash if the Stock Appreciation
Right has been outstanding at least six months and solely in Common Stock in all
other cases, and (ii) in addition to the Appreciation and the Supplemental
Payment (if any), the holder shall receive (in cash, if the Stock Appreciation
Right has been outstanding for at least six months, and in Common Stock in all
other cases) (1) the amount by which the greater of (a) the highest market price
per share of Common Stock during the 60-day period preceding exercise of the
Stock Appreciation Right or (b) the highest price per share of Common Stock (or
the cash-equivalent thereof as determined by the Board of Directors) paid by an
acquiring person during the 60-day period preceding a Change of Control, exceeds
the Appreciation, plus (2) if the holder is entitled to a Supplemental Payment,
an additional payment, calculated under the same formula as used for calculating
such holder's Supplemental Payment, with respect to the amount referred to in
clause (1) of this sentence.
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2.3 SUPPLEMENTAL PAYMENT ON EXERCISE OF OPTIONS OR STOCK APPRECIATION RIGHTS
The Committee, either at the time of grant or at the time of exercise of
any Option or related Stock Appreciation Right, may provide for a supplemental
payment (the "Supplemental Payment") by the Company to the optionee with respect
to the exercise of any Option or related Stock Appreciation Right. The
Supplemental Payment shall be in the amount specified by the Committee, which
shall not exceed, but may be equal to, the amount necessary to pay the federal
income tax payable with respect to both exercise of the Option or related Stock
Appreciation Right and receipt of the Supplemental Payment, assuming the
optionee is taxed at the maximum effective federal income tax rate applicable
thereto. The Supplemental Payment shall be paid in cash, Common Stock, or a
combination of both, at the option of the Committee. The Supplemental Payment
shall be paid within 30 days of the date of exercise of an Option or Stock
Appreciation Right (or, if later, within 30 days of the date on which income is
recognized for federal income tax purposes with respect to such exercise).
2.4 STATUTORY OPTIONS
Subject to the limitations on Option terms set forth in Section 2.1, the
Committee shall have the authority to grant (i) incentive stock options within
the meaning of Section 422 of the Code and (ii) Options containing such terms
and conditions as shall be required to qualify such Options for preferential tax
treatment under the Code as in effect at the time of such grant. Options granted
pursuant to this Section 2.4 may contain such other terms and conditions
permitted by Article II of this Plan as the Committee, in its discretion, may
from time to time determine (including, without limitation, provision for Stock
Appreciation Rights and Supplemental Payments), to the extent that such terms
and conditions do not cause the Options to lose their preferential tax
treatment. To the extent the Code and Regulations promulgated thereunder require
a plan to contain specified provisions in order to qualify options for
preferential tax treatment, such provisions shall be deemed to be stated in this
Plan.
III. RESTRICTED STOCK
3.1 TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS
Subject to the following provisions, all awards of Restricted Stock shall
be in such form and shall have such terms and conditions as the Committee, in
its discretion, may from time to time determine:
(a) The Restricted Stock award shall specify the number of shares of
Restricted Stock to be awarded, the price, if any, to be paid by the
recipient of the Restricted Stock, and the date or dates on which the
Restricted Stock will vest. The vesting of Restricted Stock may be
conditioned upon the completion of a specified period of service with the
Company or its Subsidiaries, upon the attainment of specified performance
goals, or upon such other criteria as the Committee may determine in its
sole discretion.
(b) Stock certificates representing the Restricted Stock granted to an
employee shall be registered in the employee's name. Such certificates
shall either be held by the Company on behalf of the employee, or delivered
to the employee bearing a legend to restrict transfer of the certificate
until the Restricted Stock has vested, as determined by the Committee. The
Committee shall determine whether the employee shall have the right to vote
and/or receive dividends on the Restricted Stock before it has vested. No
share of Restricted Stock may be sold, transferred, assigned, or pledged by
the employee until such share has vested in accordance with the terms of
the Restricted Stock award. In the event of an employee's termination of
employment before all of his Restricted Stock has vested, or in the event
other conditions to the vesting of Restricted Stock have not been satisfied
prior to any deadline for the satisfaction of such conditions set forth in
the award, the shares of Restricted Stock which have not vested shall be
forfeited and any purchase price paid by the employee shall be returned to
the employee. At the time Restricted Stock vests (and, if the employee has
been issued legended certificates of Restricted Stock, upon the return of
such
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<PAGE> 37
certificates to the Company), a certificate for such vested shares shall be
delivered to the employee (or the beneficiary designated by the employee in
the event of death), free of all restrictions.
(c) Notwithstanding the vesting conditions set forth in the Restricted
Stock award, (i) the Committee may in its discretion accelerate the vesting
of Restricted Stock at any time, and (ii) all shares of Restricted Stock
shall vest upon a Change of Control of the Company.
3.2 SUPPLEMENTAL PAYMENT ON VESTING OF RESTRICTED STOCK
The Committee, either at the time of grant or at the time of vesting of
Restricted Stock, may provide for a Supplemental Payment by the Company to the
employee in an amount specified by the Committee which shall not exceed, but may
be equal to, the amount necessary to pay the federal income tax payable with
respect to both the vesting of the Restricted Stock and receipt of the
Supplemental Payment, assuming the employee is taxed at the maximum effective
federal income tax rate applicable thereto and has not elected to recognize
income with respect to the Restricted Stock before the date such Restricted
Stock vests. The Supplemental Payment shall be paid within 30 days of each date
that Restricted Stock vests. The Supplemental Payment shall be paid in cash or
Common Stock, in the discretion of the Committee, except that in the event of a
Change of Control the Supplemental Payment shall be paid in cash.
IV. ADDITIONAL PROVISIONS
4.1 GENERAL RESTRICTIONS
Each award under the Plan shall be subject to the requirement that, if at
any time the Committee shall determine that (i) the listing, registration or
qualification of the shares of Common Stock subject or related thereto upon any
securities exchange or under any state or federal law, or (ii) the consent or
approval of any government regulatory body, or (iii) an agreement by the
recipient of an award with respect to the disposition of shares of Common Stock
is necessary or desirable (in connection with any requirement or interpretation
of any federal or state securities law, rule or regulation) as a condition of,
or in connection with, the granting of such award or the issuance, purchase or
delivery of shares of Common Stock thereunder, such award may not be consummated
in whole or in part unless such listing, registration, qualification, consent,
approval or agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITALIZATION
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, rights offer, liquidation, dissolution, merger,
consolidation, spin-off, sale of assets, payment of an extraordinary cash
dividend, or any other change in or affecting the corporate structure or
capitalization of the Company, the Committee shall make appropriate adjustment
in the number and kind of shares authorized by the Plan (including any
limitations on individual awards), in the number, price or kind of shares
covered by the awards and in any outstanding awards under the Plan.
4.3 AMENDMENTS
(a) The Board of Directors may amend the Plan from time to time. No such
amendment shall require approval by the stockholders unless stockholder approval
is required by applicable law or stock exchange requirements.
(b) The Committee shall have the authority to amend any grant to include
any provision which, at the time of such amendment, is authorized under the
terms of the Plan; however, no outstanding award may be revoked or altered in a
manner unfavorable to the holder without the written consent of the holder.
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<PAGE> 38
4.4 CANCELLATION OF AWARDS
Any award granted under the Plan may be cancelled at any time with the
consent of the holder and a new award may be granted to such holder in lieu
thereof, which award may, in the discretion of the Committee, be on more
favorable terms and conditions than the cancelled award.
4.5 WITHHOLDING
(a) Whenever the Company proposes or is required to issue or transfer
shares of Common Stock under the Plan, the Company shall have the right to
require the holder to remit to the Company an amount sufficient to satisfy any
federal, state or local withholding tax liability prior to the delivery of any
certificate for such shares. Whenever under the Plan payments are to be made in
cash, such payments shall be net of an amount sufficient to satisfy any federal,
state or local withholding tax liability.
(b) An employee entitled to receive Common Stock under the Plan who has not
received a cash Supplemental Payment may elect to have the federal, state and
local tax liability (or a specified portion thereof) with respect to such Common
Stock satisfied by having the Company withhold from the shares otherwise
deliverable to the employee shares of Common Stock having a value equal to the
amount of the tax liability to be satisfied with respect to the Common Stock. An
election to have all or a portion of the tax liability satisfied using Common
Stock shall comply with such requirements as may be imposed by the Committee and
shall be subject to the disapproval of the Committee (expressed either prior to
or within two days after the making of such election).
4.6 NON-ASSIGNABILITY
Except as expressly provided in the Plan, no award under the Plan shall be
assignable or transferable by the holder thereof except by will or by the laws
of descent and distribution. During the life of the holder, awards under the
Plan shall be exercisable only by such holder or by the guardian or legal
representative of such holder.
4.7 NON-UNIFORM DETERMINATIONS
Determinations by the Committee under the Plan (including, without
limitation, determinations of the persons to receive awards; the form, amount
and timing of such awards; the terms and provisions of such awards and the
agreements evidencing same; and provisions with respect to termination of
employment) need not be uniform and may be made by it selectively among persons
who receive, or are eligible to receive, awards under the Plan, whether or not
such persons are similarly situated.
4.8 NO GUARANTEE OF EMPLOYMENT
The grant of an award under the Plan shall not constitute an assurance of
continued employment for any period.
4.9 CHANGE OF CONTROL
A "Change of Control" shall be deemed to have occurred if:
(i) any "person" (as defined in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as in effect on March 1, 1985) is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Securities Exchange Act of 1934 as in effect on March 1, 1985) of
securities of the Company representing 35% or more of the voting power of
the outstanding securities of the Company having the right under ordinary
circumstances to vote at an election of the Board of Directors,
(ii) there shall occur a change in the composition of a majority of
the Board of Directors within any period of three consecutive years which
change shall not have been approved by a majority of the Board of Directors
as constituted immediately prior to the commencement of such period, or
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<PAGE> 39
(iii) at any meeting of the stockholders of the Company called for the
purpose of electing directors, all persons nominated by the Board of
Directors for election as directors shall fail to be elected.
4.10 DURATION AND TERMINATION
(a) The Plan shall be of unlimited duration. Notwithstanding the foregoing,
no incentive stock option (within the meaning of Section 422 of the Code) shall
be granted under the Plan after April 26, 2005, but awards granted prior to such
date may extend beyond such date, and the terms of this Plan shall continue to
apply to all awards granted hereunder.
(b) The Board of Directors may discontinue or terminate the Plan at any
time. Such action shall not impair any of the rights of any holder of any award
outstanding on the date of the Plan's discontinuance or termination without the
holder's written consent.
This document (a) incorporates into a single document the provisions of the
Plan as amended and restated as of December 3, 1993, (b) amends the Plan to
increase the number of shares available for issuance by 4,000,000, (c) extends
the period during which incentive stock options may be granted under the Plan,
and (d) makes certain technical amendments regarding the manner of determining
the number of shares available under the Plan.
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<PAGE> 40
SONAT INC.
AMSOUTH-SONAT TOWER
BIRMINGHAM, ALABAMA 35203
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Ronald L. Kuehn, Jr., Donald G. Russell
and William A. Smith, and each of them, proxies, with full powers of
substitution, and hereby authorizes each of them to represent the undersigned
at the Annual Meeting of Stockholders of Sonat Inc. to be held on April 27,
1995 and at any adjournment thereof, and to vote all shares of stock which the
undersigned would be entitled to vote if personally present as directed on the
reverse side hereof with respect to the items set forth in the Proxy Statement
and upon any other matter which may properly come before the meeting or any
adjournment thereof.
Nominees for the Board of Directors: John J. Creedon, Benjamin F.
Payton, John J. Phelan, Jr. and L. Edwin Smart.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
PLEASE MARK YOUR VOTES AS THIS /X/
--------------- ---------------
Common D.R.S..
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 and 4.
Item 1--ELECTION of Directors (see reverse side).
FOR / / WITHHELD FOR ALL / /
WITHHELD FOR: (Write that nominee's name in the space provided below).
- -----------------------------------------------------------------------
Item 2--ELECTION of Ernst & Young as Auditor (Proposal No. 1).
FOR / / AGAINST / / ABSTAIN / /
Item 3--APPROVAL of amended and restated Executive Award Plan
(Proposal No. 2).
FOR / / AGAINST / / ABSTAIN / /
Item 4--APPROVAL of Restricted Stock Grant Program (Proposal No. 3).
FOR / / AGAINST / / ABSTAIN / /
Signature(s) DATE
-------------------------------------------------- ----------
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
<PAGE> 41
--------------- --------------- ---------------
ACCT. NO. SHARES NAME
AMSOUTH BANK OF ALABAMA, TRUSTEE
SONAT OFFSHORE DRILLING SAVINGS PLAN
RE: SONAT INC.
ANNUAL MEETING APRIL 27, 1995
Receipt of proxy soliciting material for the above meeting is
acknowledged. As to stock in Sonat Inc. owned by me but held by your nominee
for my account, you are instructed to sign and forward a proxy in the form
being solicited by the Board of Directors and to direct a vote as follows:
THE BOARD RECOMMENDS A VOTE "FOR ALL NOMINEES",
AND "FOR" PROPOSAL NO. 1, 2 AND 3.
1. ELECTION OF DIRECTORS (see reverse side).
FOR all nominees / /
(except those whose names are inserted on the line below)
WITHHOLD AUTHORITY / /
to vote for all nominees
- ------------------------------------------------------------------------------
2. ELECTION of Ernst & Young as Auditor (Proposal No. 1).
FOR / / AGAINST / / ABSTAIN / /
3. APPROVAL of amended and restated Executive Award Plan (Proposal No. 2).
FOR / / AGAINST / / ABSTAIN / /
ITEMS CONTINUED ON THE REVERSE SIDE OF PROXY--PLEASE SIGN ON THE REVERSE SIDE
4. APPROVAL of Restricted Stock Grant Program (Proposal No. 3).
FOR / / AGAINST / / ABSTAIN / /
5. In their discretion upon such other matters as may properly come before the
meeting; all as set forth in the Proxy Statement for the meeting.
Nominees for the Board of Directors: John J. Creedon, Benjamin F. Payton,
John J. Phelan, Jr. and L. Edwin Smart.
THE UNDERSIGNED'S VOTE IS TO BE CAST AS SPECIFIED ABOVE. IF NO VOTE IS
SPECIFIED, IT WILL BE VOTED "FOR ALL NOMINEES" IN ITEM 1 AND "FOR" ITEMS 2, 3
AND 4.
Dated , 1995
-----------------------------------
Signature
------------------------------------
Sign here as name appears hereon.
PLEASE SIGN, DATE AND MAIL PROXY PROMPTLY IN THE ENVELOPE PROVIDED
<PAGE> 42
PROXY SONAT INC.
AMSOUTH-SONAT TOWER
BIRMINGHAM, ALABAMA 35203
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Ronald L. Kuehn, Jr., Donald G. Russell
and William A. Smith, and each of them, proxies, with full powers of
substitution, to represent the undersigned at the Annual Meeting of
Stockholders of Sonat Inc. to be held on April 27, 1995 and at any adjournment
thereof, and to vote all shares of stock which the undersigned would be
entitled to vote if personally present as follows:
THE BOARD RECOMMENDS A VOTE "FOR ALL NOMINEES", AND "FOR" PROPOSAL NO. 1, 2
AND 3.
1. ELECTION OF DIRECTORS FOR all nominees / / WITHHOLD AUTHORITY / /
(see reverse side). (except those whose to vote for
names are inserted all nominees
on the line below)
- -----------------------------------------------------------------------------
2. ELECTION of Ernst & Young as Auditor (Proposal No. 1).
FOR / / AGAINST / / ABSTAIN / /
3. APPROVAL of amended and restated Executive Award Plan (Proposal No. 2).
FOR / / AGAINST / / ABSTAIN / /
4. APPROVAL of Restricted Stock Grant Program (Proposal No. 3).
FOR / / AGAINST / / ABSTAIN / /
(CONTINUED, AND TO BE SIGNED AND DATED, ON THE REVERSE SIDE.)
5. In their discretion upon such other matters as may properly come before
the meeting; all as set forth in the Proxy Statement for the meeting, the
receipt of which is hereby acknowledged.
Nominees for the Board oF Directors: John J. Creedon, Benjamin F. Payton,
John J. Phelan, Jr. and L. Edwin Smart.
This Proxy will be voted as specified above. If no vote is specified, this
Proxy will be voted "FOR all nominees" in Item 1 and "FOR" Proposal
No. 1, 2 and 3.
Dated: , 1995
----------------------------------------
Signature
-------------------------------------------
Signature
------------------------------------------
Sign here as name(s) appear hereon.
(If shares are held by joint tenants, both should sign. If signing as
Attorney, Executor, Administrator, Trustee or Guardian, please give your
title as such. If the signer is a corporation, please sign the full
corporate name by duly authorized officer.)
PLEASE SIGN, DATE AND MAIL PROXY PROMPTLY
<PAGE> 43
--------------- --------------- ---------------
ACCT. NO. SHARES NAME
AMSOUTH BANK OF ALABAMA, TRUSTEE
SONAT SAVINGS PLAN
RE: SONAT INC.
ANNUAL MEETING APRIL 27, 1995
Receipt of proxy soliciting material for the above meeting is
acknowledged. As to stock in Sonat Inc. owned by me but held by your nominee
for my account, you are instructed to sign and forward a proxy in the form
being solicited by the Board of Directors and to direct a vote as follows:
THE BOARD RECOMMENDS A VOTE "FOR ALL NOMINEES",
AND "FOR" PROPOSAL NO. 1, 2 AND 3.
1. ELECTION OF DIRECTORS (see reverse side).
FOR all nominees / /
(except those whose names are inserted on the line below)
WITHHOLD AUTHORITY / /
to vote for all nominees
- ------------------------------------------------------------------------------
2. ELECTION of Ernst & Young as Auditor (Proposal No. 1).
FOR / / AGAINST / / ABSTAIN / /
3. APPROVAL of amended and restated Executive Award Plan (Proposal No. 2).
FOR / / AGAINST / / ABSTAIN / /
ITEMS CONTINUED ON THE REVERSE SIDE OF PROXY--PLEASE SIGN ON THE REVERSE SIDE
4. APPROVAL of Restricted Stock Grant Program (Proposal No. 3).
FOR / / AGAINST / / ABSTAIN / /
5. In their discretion upon such other matters as may properly come before the
meeting; all as set forth in the Proxy Statement for the meeting.
Nominees for the Board of Directors: John J. Creedon, Benjamin F. Payton,
John J. Phelan, Jr. and L. Edwin Smart.
THE UNDERSIGNED'S VOTE IS TO BE CAST AS SPECIFIED ABOVE. IF NO VOTE IS
SPECIFIED, IT WILL BE VOTED "FOR ALL NOMINEES" IN ITEM 1 AND "FOR" ITEMS 2, 3
AND 4.
Dated , 1995
-----------------------------------
Signature
------------------------------------
Sign here as name appears hereon.
PLEASE SIGN, DATE AND MAIL PROXY PROMPTLY IN THE ENVELOPE PROVIDED
