<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
</TABLE>
SONAT INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
<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 24, 1997
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 24, 1997, for the
following purposes:
1. To elect five Directors as members of the Board of Directors of the
Company, to serve until the 2000 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 LLP, the present
Auditor, for election as Auditor (Proposal No. l).
3. 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 7,
1997, 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,
/s/ Beverley T. Krannich
BEVERLEY T. KRANNICH
Secretary
Birmingham, Alabama
March 19, 1997
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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 24, 1997
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 24, 1997 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 20, 1997.
VOTING SECURITIES
As of January 31, 1997, the Company had outstanding 86,417,161 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 7, 1997, 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 five nominees
for Director and "FOR" Proposal No. 1. 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). Five Class II 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 five nominees for election as Class II Directors are Jerome J.
Richardson, Donald G. Russell, Adrian M. Tocklin, James B. Williams and Joe B.
Wyatt. Each of the nominees has been previously elected as a Director by the
stockholders, except for Mr. Russell and Ms. Tocklin. 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" JEROME J. RICHARDSON, DONALD
G. RUSSELL, ADRIAN M. TOCKLIN, JAMES B. WILLIAMS AND JOE B. WYATT AS CLASS II
DIRECTORS.
<PAGE> 4
NOMINEES FOR DIRECTOR -- CLASS II -- TERMS TO EXPIRE 2000
<TABLE>
<S> <C>
JEROME J. RICHARDSON, age 60, is Owner/Founder of the NFL Carolina
[PHOTO Panthers. He has served as a Director of the Company since 1991. Mr.
JEROME J. RICHARDSON] Richardson is also a Director of NCAA Foundation, a trustee of
Wofford College and a Member of the Board of Visitors of Duke
University Medical Center. During the past five years prior to his
retirement in May 1995, Mr. Richardson served as an executive
officer of Flagstar Companies, Inc. and Flagstar Corporation.
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DONALD G. RUSSELL, age 65, is Executive Vice President of the
[PHOTO Company and Chairman of the Board and Chief Executive Officer of
DONALD G. RUSSELL] Sonat Exploration Company (a wholly-owned subsidiary of the
Company). On September 22, 1994, he was elected as a Director of the
Company by the Board of Directors, effective as of September 22,
1994. During the past five years, Mr. Russell has served as an
executive officer of the Company and Sonat Exploration Company.
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ADRIAN M. TOCKLIN, age 45, is President -- Diversified Operations of
[PHOTO CNA Insurance Companies, the principal business of which is property
ADRIAN M. TOCKLIN] and casualty insurance. On July 28, 1994, she was elected as a
Director of the Company by the Board of Directors, effective as of
September 1, 1994. She is also a Director and Chairman of the Board
of First Insurance Company of Hawaii. Ms. Tocklin was President and
a Director of The Continental Corporation until its merger with CNA
Insurance Companies in May 1995. During the past five years, Ms.
Tocklin has served as an executive officer of The Continental
Corporation and CNA Insurance Companies.
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</TABLE>
2
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<TABLE>
<S> <C>
JAMES B. WILLIAMS, age 63, is Chairman of the Board and Chief
[PHOTO Executive Officer of SunTrust Banks, Inc. He has served as a
JAMES B. WILLIAMS] Director of the Company since 1987. Mr. Williams is also a Director
of The Coca-Cola Company, Genuine Parts Company, Georgia-Pacific
Corporation, Rollins, Inc. and RPC, Inc. During the past five years,
Mr. Williams has served as an executive officer of SunTrust Banks,
Inc. and certain of its subsidiaries.
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JOE B. WYATT, age 61, is Chancellor, Chief Executive Officer and
[PHOTO Trustee of Vanderbilt University, a position he has held during the
JOE B. WYATT] 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 Micro, Inc., Reynolds Metals Company and
University Research Association.
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</TABLE>
CONTINUING DIRECTORS -- CLASS I -- TERMS TO EXPIRE 1999
<TABLE>
<S> <C>
[PHOTO WILLIAM O. BOURKE, age 69, is Chairman of the Executive Committee of
WILLIAM O. BOURKE] 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., Premark International Inc. and Tupperware
Corporation. During the past five years prior to his retirement in
April 1992, Mr. Bourke served as an executive officer of Reynolds
Metals Company.
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</TABLE>
3
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<TABLE>
<S> <C>
[PHOTO ROBERTO ROBERTO C. GOIZUETA, age 65, is Chairman of the Board and Chief
C. GOIZUETA] 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.,
SunTrust Banks of Georgia, Inc. and SunTrust Bank, Atlanta and a
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.
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[PHOTO RONALD RONALD L. KUEHN, JR., age 61, is Chairman of the Board, President
L. KUEHN, JR.] 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,
The Dun & Bradstreet Corporation, Transocean Offshore Inc. and Union
Carbide Corporation, and a member of the Board of Trustees of
Birmingham-Southern College and Tuskegee University. During the past
five years, Mr. Kuehn has served as an executive officer of the
Company.
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[PHOTO ROBERT ROBERT J. LANIGAN, age 68, is Chairman Emeritus of the Board of
J. LANIGAN] 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, Cognizant Corporation, The Coleman Company,
Inc., The Dun & Bradstreet Corporation and Transocean Offshore Inc.
During the past five years prior to his appointment to his current
position, Mr. Lanigan served as an executive officer of
Owens-Illinois, Inc.
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[PHOTO CHARLES CHARLES MARSHALL, age 67, is the former Vice Chairman of the Board
MARSHALL] 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 and
Sundstrand Corporation. Prior to his retirement, Mr. Marshall served
as an executive officer of American Telephone and Telegraph Company.
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</TABLE>
4
<PAGE> 7
CONTINUING DIRECTORS -- CLASS III -- TERMS TO EXPIRE 1998
<TABLE>
<S> <C>
[PHOTO MAX MAX L. LUKENS, age 48, is Chairman, President and Chief Executive
L. LUKENS] Officer of Baker Hughes Incorporated, the principal business of
which is the provision of products and services to the petroleum and
continuous process industries. He has served as a Director of the
Company since 1995. Mr. Lukens is also a Director of Baker Hughes
Incorporated and Transocean Offshore Inc. During the past five
years, Mr. Lukens has served as an executive officer of Baker Hughes
Incorporated.
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[PHOTO BENJAMIN BENJAMIN F. PAYTON, age 64, is President of Tuskegee University, a
F. PAYTON] 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 Health Care, Inc., Praxair, Inc. and Ruby Tuesday, Inc.
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[PHOTO JOHN JOHN J. PHELAN, JR., age 65, is the former Chairman of the Board and
J. PHELAN, JR.] Chief Executive Officer of the New York Stock Exchange. From 1991 to
1993, he was President of the International Federation of Stock
Exchanges. Mr. Phelan has served as a Director of the Company since
1990. He is also a Director of Eastman Kodak Company, Merrill Lynch
& Co., Inc. and Metropolitan Life Insurance Company and a Senior
Advisor to The Boston Consulting Group.
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</TABLE>
John J. Creedon, who is currently a Class III Director, will retire from
the Board of Directors on April 24, 1997, in accordance with the Board's
retirement policy.
BOARD MEETINGS AND COMMITTEES
During 1996 the Board of Directors held eight regular and special meetings.
The Board has established Committees that 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 the Director served.
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<PAGE> 8
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, Mr. Phelan, Vice Chairman, and Mr. Goizueta, Mr.
Richardson, Ms. Tocklin and Mr. Wyatt. The Committee met three times during
1996.
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, Chairman, and Mr. Bourke, Dr. Payton, Mr. Phelan,
Mr. Richardson and Mr. Williams. The Committee met three times during 1996.
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 chairman of the administrative committee
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 1996.
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.
Lukens and Mr. Wyatt. The Committee met six times during 1996.
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. Lukens and Mr. Richardson. The Committee met three
times during 1996.
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
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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. Bourke,
Chairman, and Mr. Creedon, Mr. Marshall, Dr. Payton, Mr. Phelan and Ms. Tocklin.
The Committee met twice during 1996.
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. Lukens, Mr. Marshall, Dr. Payton, Mr. Phelan, Mr. Richardson, Ms. Tocklin,
Mr. Williams and Mr. Wyatt. The Committee met three times during 1996.
COMPENSATION OF OUTSIDE DIRECTORS
FEES AND RETAINERS. Each non-employee Director of the Company receives a
quarterly retainer of $9,000 ($10,250 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 eight 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.
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 (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
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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.
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, 1997.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1)
--------------------------------------------------------- -----------------------
<S> <C>
Richard B. Bates......................................... 88,277(2)
William O. Bourke........................................ 5,000
John J. Creedon.......................................... 13,550(3)
Roberto C. Goizueta...................................... 3,600
Ronald L. Kuehn, Jr. .................................... 811,067(2 and 4)
Robert J. Lanigan........................................ 6,040
Max L. Lukens............................................ 967
Charles Marshall......................................... 7,600
James E. Moylan, Jr. .................................... 118,043(2 and 5)
Benjamin F. Payton....................................... 2,612
John J. Phelan, Jr. ..................................... 2,660
Jerome J. Richardson..................................... 5,192
James A. Rubright........................................ 101,475(2)
Donald G. Russell........................................ 351,442(2)
William A. Smith......................................... 253,672(2)
Adrian M. Tocklin........................................ 2,633(6)
James B. Williams........................................ 15,200
Joe B. Wyatt............................................. 3,200
All Present Directors and Executive Officers as a Group
(20 persons)........................................... 1,926,023(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, 1997, each such
individual beneficially owned less than 1.0% 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 20 persons, beneficially owned 2.2% of the
outstanding shares of the Company's Common Stock.
The number of shares shown includes 800 shares of restricted stock for each
of Mr. Bourke, Mr. Goizueta, Mr. Lanigan, Mr. Lukens, Mr. Marshall, Dr. Payton,
Mr. Phelan, Mr. Richardson, Ms. Tocklin, Mr. Williams and Mr. Wyatt, and 400
shares of restricted stock for Mr. Creedon, granted under the Company's
Restricted Stock Plan for Directors, which shares had not vested as of January
31, 1997. 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,
1997, the following individuals also held the following number of "phantom"
shares of the Company's Common Stock under the Company's Director's Fees
Deferral Plan (with respect to Mr. Creedon, Mr. Marshall, Ms. Tocklin and Mr.
Williams) or Supplemental Benefit Plan (with respect to the other named
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individuals): Mr. Bates, 477 phantom shares; Mr. Creedon, 9,203 phantom shares;
Mr. Kuehn, 12,424 phantom shares; Mr. Marshall, 4,594 phantom shares; Mr.
Moylan, 188 phantom shares; Mr. Rubright, 455 phantom shares; Mr. Russell, 6,717
phantom shares; Mr. Smith, 513 phantom shares; Ms. Tocklin, 711 phantom shares;
and Mr. Williams, 4,247 phantom shares.
NOTE 2: The number of shares shown for Messrs. Bates, Kuehn, Moylan,
Rubright, Russell and Smith includes 9,600 shares, 109,600 shares, 13,500
shares, 15,700 shares, 31,000 shares and 12,100 shares, respectively, of
restricted stock granted under the Company's Executive Award Plan, which shares
had not vested as of January 31, 1997. 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. Bates, Kuehn,
Moylan, Rubright, Russell and Smith also includes (a) 8,441 shares, 47,593
shares, 10,622 shares, 275 shares, 11,391 shares and 16,296 shares,
respectively, held by the Trustee under the Company's Savings Plan as of January
31, 1997; and (b) 66,000 shares, 634,800 shares, 92,000 shares, 85,500 shares,
297,000 shares and 211,000 shares, respectively, covered by options under the
Company's Executive Award Plan which were exercisable within sixty days after
January 31, 1997.
NOTE 3: 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 4: The number of shares shown for Mr. Kuehn includes 9,500 shares
owned by his wife, 20 shares owned by his children, and 1,500 shares held in
trust for one of his children, of which shares he disclaims any beneficial
ownership.
NOTE 5: The number of shares shown for Mr. Moylan includes 1,237 shares
owned by his wife, of which shares he disclaims any beneficial ownership.
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.
NOTE 7: The number of shares shown includes 205,700 shares of restricted
stock granted under the Company's Executive Award Plan, which shares had not
vested as of January 31, 1997; 112,874 shares held by the Trustee under the
Company's Savings Plan as of January 31, 1997; 1,484,800 shares covered by
options under the Company's Executive Award Plan which were exercisable within
sixty days after January 31, 1997; and 9,200 shares of restricted stock granted
under the Company's Restricted Stock Plan for Directors, which shares had not
vested as of January 31, 1997.
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 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
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group. The peer group used for determining 1996 compensation for corporate
executives consisted of 23 publicly held companies in the energy business (the
"Corporate Peer Group"). 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 18 of this Proxy Statement is not used to determine the
compensation of executives, because that group includes primarily natural gas
distribution companies and does not adequately represent the broader energy
industry from which the Company recruits.
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 1996 were slightly above the median level overall,
although some executives were below and some above the median. Mr. Kuehn has
been in his current position for approximately 12 1/2 years. His salary for 1996
(which included a 3.1% increase, effective April 1) was above the median of 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 or exceeds 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 1996 bonus opportunity was based on the level
of achievement of certain financial goals, corporate and subsidiary goals, and
individual goals, as described below. The goals for each executive's bonus
opportunity were weighted as follows: financial goals -- 40% for Mr. Kuehn and
30-40% for the other named executive officers; corporate and subsidiary goals --
45% for Mr. Kuehn and 45-55% for the other named executive officers; and
individual goals -- 15% for all executives.
The financial goals included in the 1996 bonus opportunities were the
Company's 1996 earnings per share ("EPS") as compared to EPS targets established
by the Committee, the Company's five-
10
<PAGE> 13
year average cash flow return on assets as compared to that of a group of energy
companies whose aggregate asset mix approximates that of the Company (the
"Financial Peer Group") and, for the subsidiary officers, subsidiary earnings
before interest, taxes and corporate charges ("EBITC") as compared to EBITC
targets established by the Committee. Payout of the EPS and EBITC goals was
based on comparison of actual EPS and EBITC to the EPS and EBITC targets,
provided that a minimum level of EPS or EBITC was required for any payout to be
made. The payout of the cash flow return on assets goal was based on the
Company's performance against the mean of the Financial Peer Group.
The corporate and subsidiary goals included in the 1996 bonus opportunities
included earnings goals, operating, marketing and strategic goals relating to
each major business segment, and goals relating to safety and the environment,
human resources, and corporate citizenship. 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 1996 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 1997, the Committee reviewed in detail the extent to which the
1996 performance goals had been achieved. The Company's EPS was significantly
above the target, and cash flow return on assets was significantly above the
mean for the Financial Peer Group. Each of the subsidiaries met or exceeded its
EBITC target. The payout percentages for these financial goals were 120% of the
bonus opportunity for the EPS goal, 100% of the bonus opportunity for the cash
flow return on assets goal, and 104-120% of the bonus opportunity for the
subsidiary EBITC goals.
In general, there was substantial achievement of the other corporate and
subsidiary goals. The payout percentage for corporate and subsidiary goals
ranged from 93% to 103%.
Including individual performance, the total bonus payout percentages under
the 1996 annual incentive program ranged from 95% to 130%. Mr. Kuehn's total
bonus payout percentage for 1996 was 120% 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 1996. In addition, the
Committee may make special awards to individual executives during the year on a
discretionary basis.
In 1996, 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 dividends paid, and weighted
for most recent performance) as compared to the total stockholder return of the
Financial 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 Financial Peer Group. In 1996, the Company's weighted annualized
three-year total stockholder return was in the top quartile of the Financial
Peer Group. The December 1996 long-term incentive grants were designed to
reflect that performance and to result in long-term compensation at that level.
For purposes of determining the value of long-term incentive compensation, an
independent compensation consulting firm uses a modified Black-
11
<PAGE> 14
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 1996, 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 compensate Mr. Kuehn for the performance of the Company's stock
as compared to the Financial Peer Group and to result in long-term compensation
in the top quartile of the Corporate Peer Group.
STOCK OWNERSHIP GUIDELINES. The Committee has 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 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 with respect to restricted stock and stock
options granted under the Executive Award Plan, and the portion of the Company's
annual cash bonus program that is based on objective financial and operating
measures, will qualify as performance-based compensation.
The Committee feels that it should not use only mechanical formulas in
carrying out its responsibilities for compensating the Company's management.
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.
<TABLE>
<S> <C> <C>
Roberto C. Goizueta William O. Bourke Robert J. Lanigan
Max L. Lukens Joe B. Wyatt
</TABLE>
12
<PAGE> 15
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ending December 31, 1994,
1995 and 1996 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 COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------------
---------------------------------- SECURITIES
OTHER RESTRICTED UNDERLYING ALL OTHER
NAME AND ANNUAL STOCK OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS(1) SARS (2)
- -------------------------- ----- -------- -------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald L. Kuehn, Jr., 1996 $736,500 $800,000 $2,154,978(3) $748,800(4) 82,500 $108,429
Director, Chairman of 1995 $710,000 $418,600 $ 332,396(3) $306,375(5) 79,200 $108,107
the Board, President and 1994 $660,000 $450,000 $ 0 $459,938(6) 112,000 $110,064
Chief Executive Officer
Richard B. Bates, 1996 $241,875 $165,000 $ 0 $208,000(4) 20,000 $ 27,146
Senior Vice President 1995 $222,500 $ 84,900 $ 0 $ 74,175(5) 18,000 $ 26,100
1994 $208,750 $121,400 $ 0 $ 91,988(6) 22,000 $ 25,362
James E. Moylan, Jr., 1996 $245,000 $190,000 $ 0 $208,000(4) 20,000 $ 28,245
Senior Vice President 1995 $226,250 $131,100 $ 0 $ 74,175(5) 18,000 $ 27,284
1994 $200,000 $114,300 $ 0 $ 91,988(6) 22,000 $ 25,525
James A. Rubright, 1996 $300,250 $193,700 $ 0 $208,000(4) 20,000 $ 40,173
Senior Vice President 1995 $287,750 $117,100 $ 0 $ 74,175(5) 18,000 $ 40,534
and General Counsel(7) 1994 $240,625 $130,600 $ 115,572(8) $268,275(6 & 9) 67,500 $ 35,813
Donald G. Russell, 1996 $481,500 $469,400 $ 0 $468,000(4) 53,000 $ 39,209
Director and Executive 1995 $465,750 $184,400 $ 0 $161,250(5) 45,000 $ 39,588
Vice President 1994 $430,000 $250,000 $ 0 $278,750(6) 66,000 $ 71,165
William A. Smith, 1996 $365,000 $218,300 $ 919,299(3) $197,600(4) 17,000 $ 43,817
Executive Vice President 1995 $361,250 $135,300 $ 188,043(10) $ 74,175(5) 18,000 $ 45,560
1994 $342,000 $200,000 $ 44,000(11) $167,250(6) 45,000 $ 44,439
</TABLE>
NOTE 1: 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, 1996, and the value of such shares (calculated by
multiplying the closing price of unrestricted shares of the Company's Common
Stock on December 31, 1996 ($51.50) by the number of shares held on such date)
is as follows: Mr. Kuehn, 109,600 shares, $5,644,400; Mr. Bates, 9,600 shares,
$494,400; Mr. Moylan, 13,500 shares, $695,250; Mr. Rubright, 15,700 shares,
$808,550; Mr. Russell, 31,000 shares, $1,596,500; and Mr. Smith, 12,100 shares,
$623,150.
NOTE 2: With respect to 1996, represents the following amounts for each of
Messrs. Kuehn, Bates, Moylan, Rubright, Russell and Smith, respectively: (1)
Company matching contributions to the trust established under the Company's
Savings Plan -- $12,750 for each such executive officer; (2) Company
contributions to the Savings Plan accounts under the Company's Supplemental
13
<PAGE> 16
Benefit Plan -- $47,224, $6,932, $7,189, $11,698, $26,459 and $17,832; 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 -- $48,455,
$7,464, $8,306, $15,725, $0 and $13,235.
NOTE 3: 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.
NOTE 4: Represents the value of 14,400 shares, 4,000 shares, 4,000 shares,
4,000 shares, 9,000 shares and 3,800 shares of restricted stock granted on
December 5, 1996 to Messrs. Kuehn, Bates, Moylan, Rubright, Russell and Smith,
respectively.
NOTE 5: Represents the value of 9,500 shares, 2,300 shares, 2,300 shares,
2,300 shares, 5,000 shares and 2,300 shares of restricted stock granted on
November 30, 1995, to Messrs. Kuehn, Bates, Moylan, Rubright, Russell and Smith,
respectively.
NOTE 6: Includes the value of 16,500 shares, 3,300 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, Bates, Moylan, Rubright, Russell and Smith,
respectively.
NOTE 7: Mr. Rubright was employed by the Company as Vice President and
General Counsel on February 15, 1994.
NOTE 8: 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 9: 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).
NOTE 10: Includes (a) a $119,353 tax-offset "supplemental payment" paid
upon the exercise of stock options granted under the Company's Executive Award
Plan, (b) $59,663 for housing allowances and moving expenses related to Mr.
Smith's relocation from Birmingham, Alabama to Houston, Texas, and (c)
tax-reimbursement payments of $9,027 made with respect to such moving expenses.
NOTE 11: Represents a $44,000 housing allowance related to Mr. Smith's
relocation from Birmingham, Alabama to Houston, Texas.
14
<PAGE> 17
OPTION GRANT TABLE
The following table contains certain information with respect to stock
options (and tandem stock appreciation rights that become exercisable only upon
certain change of control events ("Limited SARs")) granted in 1996 under the
Company's Executive Award Plan to the named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK PRICE
APPRECIATION FOR OPTION TERM (10
INDIVIDUAL GRANTS YEARS)
-------------------------------------------------------- ------------------------------------
NUMBER OF % OF TOTAL 5% 10%
SECURITIES OPTIONS/SARS (RESULTING (RESULTING
UNDERLYING GRANTED TO EXERCISE COMPANY STOCK COMPANY STOCK
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION PRICE OF PRICE OF
NAME GRANTED(1) 1996 ($/SHARE)(2) DATE(3) $84.70)(4) $134.87)(4)
- ----------------------------- ------------- ------------- ------------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
All Stockholders............. -- -- -- -- $ 2,825,841,165 $ 7,161,390,132
Ronald L. Kuehn, Jr.......... 82,500 13.0% $ 52.00 12/4/06 $ 2,697,750 $ 6,836,775
Richard B. Bates............. 20,000 3.2% $ 52.00 12/4/06 $ 654,000 $ 1,657,400
James E. Moylan, Jr.......... 20,000 3.2% $ 52.00 12/4/06 $ 654,000 $ 1,657,400
James A. Rubright............ 20,000 3.2% $ 52.00 12/4/06 $ 654,000 $ 1,657,400
Donald G. Russell............ 53,000 8.4% $ 52.00 12/4/06 $ 1,733,100 $ 4,392,110
William A. Smith............. 17,000 2.7% $ 52.00 12/4/06 $ 555,900 $ 1,408,790
Named Executive Officers' Potential Realizable Value as a % of All Stockholders'
Potential Realizable Value 0.25% 0.25%
</TABLE>
NOTE 1: All stock options shown in the table were granted on December 5,
1996. Each stock option was granted with a tandem Limited SAR that may be
exercised only within 60 days after an SAR Change of Control (as defined under
"Compensation Upon Change of Control" below). For more information on Limited
SARs, see "Compensation Upon Change of Control" below.
The stock options (and tandem Limited SARs) shown in the table become
exercisable in equal installments on each of the first five anniversaries of the
date of grant, provided that the entire grant will become immediately
exercisable if, during any 10 business day period ending prior to December 5,
2001, the average of the closing prices of the Company's Common Stock during
such period is at least $78.00. Any stock options (and tandem Limited SARs) that
have not previously become exercisable are generally forfeited upon termination
of employment, unless such termination occurs by reason of retirement after age
65 (age 67 for Mr. Russell), death, disability or for the convenience of the
Company (as determined by the Executive Compensation Committee). Any options
(and tandem Limited SARs) 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 (and tandem Limited SARs) are subject to
termination prior to their expiration date in the event of termination of
employment.
NOTE 4: The Resulting Company Stock Price shown in the table 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
potential realizable values shown represent the difference between the $84.70 or
$134.87 Resulting Company Stock Price (as the case may be) and the $52.00
exercise price, multiplied by (a) for all stockholders, the number of
outstanding shares of the Company's Common Stock as of December 31, 1996, and
(b) for each named executive officer, the number of options granted.
15
<PAGE> 18
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 the exercise of stock options (or stock
appreciation rights ("SARs") granted in tandem therewith) during 1996 and
unexercised stock options (and tandem SARs) held as of December 31, 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
-------------------------------------------------------------------------------
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED,
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED AT FISCAL YEAR END(1) AT FISCAL YEAR END(2)
ON VALUE ------------------------ ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- -------- ----------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Ronald L. Kuehn,
Jr. ................. 110,000 $ 3,128,125 634,800 82,500 $ 17,455,200 $ 0
Richard B. Bates....... 9,000 $ 133,875 66,000 20,000 $ 1,503,250 $ 0
James E. Moylan,
Jr. ................. 0 $ 0 92,000 20,000 $ 2,270,875 $ 0
James A. Rubright...... 0 $ 0 85,500 20,000 $ 1,891,187 $ 0
Donald G. Russell...... 0 $ 0 297,000 53,000 $ 7,510,687 $ 0
William A. Smith....... 45,000 $ 1,334,437 211,000 17,000 $ 5,564,312 $ 0
</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 $51.50 (the closing price of the
Company's Common Stock on December 31, 1996) 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); 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 of service before 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.
16
<PAGE> 19
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
1996 the federal tax laws limited annual benefits under the Retirement Plan to
$120,000 (subject to reduction in certain circumstances), and required the
Retirement Plan to disregard any portion of the participant's 1996 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 1996 COVERED RETIREMENT
NAME SERVICE(1) COMPENSATION(2) BENEFIT(3)
- ------------------------------------------ ----------- --------------- ----------------
<S> <C> <C> <C>
Ronald L. Kuehn, Jr. ..................... 26.4 $ 1,155,150 $739,296
Richard B. Bates.......................... 11.8 $ 326,825 $211,129
James E. Moylan, Jr. ..................... 20.5 $ 376,150 $244,498
James A. Rubright......................... 2.8 $ 417,400 $156,525
Donald G. Russell......................... 8.9 $ 665,950 $155,832
William A. Smith.......................... 26.7 $ 500,350 $325,228
</TABLE>
NOTE 1: The number of years of credited service under the Retirement Plan
and Supplemental Benefit Plan as of December 31, 1996.
NOTE 2: The amount of covered compensation under the Retirement Plan and
Supplemental Benefit Plan during 1996.
NOTE 3: The estimated annual retirement benefit payable as a single life
annuity to the named executive officer (based on the assumptions that such
officer retires at age 65 (age 67 for Mr. Russell) and has average covered
compensation at his retirement date equal to his 1996 covered compensation, and
calculated prior to the offset for primary social security benefits).
17
<PAGE> 20
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, 1996, 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>
12/31/91 100.00 100.00 100.00
12/31/92 153.57 107.61 110.45
12/31/93 190.56 118.41 131.04
12/31/94 191.67 120.01 125.08
12/31/95 252.23 164.95 176.73
12/31/96 373.77 202.73 234.70
</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,
1991, 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, The Columbia Gas
System, Inc., Consolidated Natural Gas Company, Eastern Enterprises, Enron
Corp., ENSERCH Corporation, NICOR Inc., NorAm Energy Corp., ONEOK Inc., Pacific
Enterprises, PanEnergy Corp., Peoples Energy Corporation, Sonat Inc. 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 becomes the owner of (or obtains the right to acquire) 20% or
more of the Company's common stock or outstanding voting securities (with
18
<PAGE> 21
certain exceptions, as set forth in the plans); (2) the individuals who, as of
December 1, 1995, constituted the Board of Directors (the "Incumbent Board"),
cease to be at least a majority of the Board of Directors (but including as
Incumbent Board members, except as otherwise provided, any director whose
election or nomination was approved by the Incumbent Board); or (3) there is
consummation of a reorganization, consolidation or merger involving the Company,
or sale of all or substantially all of the Company's assets, unless the
stockholders and Board of Directors of the Company before the transaction
control the resulting company after the transaction.
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) in the event he
ceases to be a Director following a Change of Control. A Director's account
balance in the Director's Fees Deferral Plan will be distributed immediately in
a cash lump if either (a) the Director terminates service as a Director within
three years after a Change of Control or (b) a Change of Control occurs after
the Director has commenced payment of benefits from the Plan, regardless of any
elections the Director may have made with respect to the timing and manner of
payment of such account balance. 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. 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.
The named executive officers have Limited SARs in tandem with all
outstanding options under the Executive Award Plan. Upon exercise of a Limited
SAR or an SAR within 60 days after an SAR Change of Control (as defined below),
the executive officer would receive the difference between (1) the greater of
(a) the highest price of the Company's Common Stock during the 60-day period
before exercise of the Limited SAR or SAR and (b) the highest price paid for a
share of the Company's Common Stock by an acquiring person during the 60-day
period before the SAR Change of Control and (2) the exercise price of the
Limited SAR or SAR. An "SAR 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.
EXECUTIVE SEVERANCE AGREEMENTS
The Company has Executive Severance Agreements with Messrs. Kuehn, Bates,
Moylan, Rubright, Russell and Smith. These agreements provide that if the
executive officer's employment is terminated either (1) 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 normal retirement age (age 65 except for Mr. Russell, for whom
normal retirement age is age 67) 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
19
<PAGE> 22
(2) by the executive officer for any reason during the 30-day period immediately
following the first anniversary of the Change of Control, 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 normal retirement age); (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 normal retirement age, 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. The Executive Severance Agreements also provide that if the executive
officer receives payments that would be subject to the tax imposed by Section
4999 of the Internal Revenue Code, the executive shall be entitled to receive an
additional payment in an amount necessary to put the executive officer in the
same after-tax position as if such tax had not been imposed. Assuming that the
executive officers terminated employment on January 31, 1997, 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, $4,615,150 in cash and $0 in retirement benefits;
Mr. Bates, $1,226,400 in cash and $0 in retirement benefits; Mr. Moylan,
$1,310,150 in cash and $0 in retirement benefits; Mr. Rubright, $1,484,750 in
cash and $5,502 in retirement benefits; Mr. Russell, $1,745,547 in cash and $0
in retirement benefits; and Mr. Smith, $1,750,050 in cash and $69,362 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 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.
ELECTION OF AUDITOR (PROPOSAL NO. 1)
Ernst & Young LLP 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 LLP 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 LLP AS AUDITOR (PROPOSAL NO. 1).
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 1998 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 24,
1997.
20
<PAGE> 23
STOCKHOLDER PROPOSALS TO BE PRESENTED AT MEETINGS. A stockholder who
desires to propose any business at an annual meeting of stockholders must give
the Secretary of the Company written notice which is received not later than the
close of business on the 60th day nor earlier than the close of business on the
90th day before the first anniversary of the preceding year's annual meeting
(the "Notice Deadline"). (Special notice provisions apply if the date of the
annual meeting is more than 30 days before or more than 60 days after such
anniversary date.) Adjournment of an annual meeting shall not commence a new
Notice Deadline. The stockholder's notice must set forth (a) a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and the beneficial owner, if any, on
whose behalf the proposal is made; (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 such
meeting to propose such business; (c) any material interest of the stockholder
in such business; and (d) for both the stockholder giving notice and the
beneficial owner, if any, on whose behalf the proposal is made (1) the name and
address of such stockholder and beneficial owner and (2) the class and number of
shares owned beneficially and of record by such stockholder and beneficial
owner.
STOCKHOLDER NOMINATIONS FOR DIRECTORS. A stockholder who desires to
nominate Directors at a meeting of stockholders must give the Secretary of the
Company written notice within the Notice Deadline (for an annual meeting) or,
for a special meeting at which directors are to be elected pursuant to the
Company's notice of meeting, not earlier than the close of business on the 90th
day before such special meeting and not later than the close of business on the
later of the 60th day before such special meeting or the 10th day after the date
public announcement is made of the date of the special meeting and the nominees
proposed by the Board of Directors to be elected at such meeting. The
stockholder's notice must set forth (a) the name and address of the stockholder
giving the notice and of the beneficial owner, if any, on whose behalf the
nominations are made; (b) the class and number of shares owned beneficially and
of record by such stockholder and such beneficial owner; (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 the meeting to nominate the person or persons specified in
the notice; (d) a description of all arrangements or understandings between the
stockholder or beneficial owner 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; (e) such other information regarding each nominee proposed by
such stockholder as would have been required to be disclosed in solicitations of
proxies for election of directors pursuant to the rules of the Securities and
Exchange Commission; and (f) the consent of each nominee to be named in the
proxy statement as a nominee and 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.
21
<PAGE> 24
INSTITUTIONAL OWNERSHIP OF COMMON STOCK
The table below sets forth, as of December 31, 1996, certain information
with respect to each person or entity known by the Company to be the beneficial
owner of more than 5% of the Company's Common Stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF TITLE OF NUMBER OF SHARES PERCENT
BENEFICIAL OWNER CLASS BENEFICIALLY OWNED OF CLASS
- ------------------------------------------ ------------- ------------------ --------
<S> <C> <C> <C>
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109............. Common Stock 9,199,244 10.6%
The Prudential Insurance Company
of America
751 Broad Street
Newark, New Jersey 07102................ Common Stock 4,690,717 5.4%
</TABLE>
In reports on Schedule 13G filed with the Securities and Exchange
Commission with respect to the ownership of the Company's Common Stock as of
December 31, 1996, FMR Corp. and The Prudential Insurance Company of America
each stated that such stock was acquired in the ordinary course of business and
was not acquired for the purpose of changing or influencing the control of the
Company and was not acquired in connection with or as a participant in any
transaction having such a purpose or effect.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
John J. Creedon, a Director of the Company, filed one late report under
Section 16(a) of the Securities Exchange Act of 1934 with respect to a
charitable contribution of the Company's Common Stock.
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. Abstentions and 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. 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 $10,000. 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.
------------------------------
22
<PAGE> 25
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.
The Company is not aware that any matters other than those mentioned above
will be presented for action at the 1997 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.
/s/ Beverley T. Krannich
-------------------------
Beverley T. Krannich
SECRETARY
Birmingham, Alabama
March 19, 1997
23
<PAGE> 26
PROXY
SONAT SAVINGS PLAN
SONAT INC.
ANNUAL MEETING -- APRIL 24, 1997
I hereby direct The Northern Trust Company, as Trustee of the Sonat
Savings Plan, to sign and forward a proxy in the form being solicited by the
Board of Directors and to vote as directed on the reverse side all shares of
Sonat Inc. Common Stock held with respect to my account under the Plan at the
Annual Meeting of Stockholders of Sonat Inc. to be held on April 24, 1997 and
at any adjournment thereof.
TO BE COMPLETED, SIGNED AND DATED ON THE REVERSE SIDE.
<PAGE> 27
SONAT SAVINGS PLAN
SONAT INC.
ANNUAL MEETING -- APRIL 24, 1997
THE BOARD RECOMMENDS A VOTE "FOR ALL NOMINEES", AND "FOR" PROPOSAL NO. 1.
FOR WITHHOLD
all nominees AUTHORITY
(except those whose to vote for
names are all nominees
inserted on the
line below)
1. ELECTION OF DIRECTORS
Jerome J. Richardson, Donald G. Russell, / / / /
Adrian M. Tocklin, James B. Williams
and Joe B. Wyatt.
-------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. ELECTION of Ernst & Young LLP
as Auditor (Proposal No. 1). / / / / / /
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"
PROPOSAL NO. 1.
Dated_________, 1997 Signature________________________________________
Sign here as name appears hereon.
<PAGE> 28
PROXY
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 24,
1997 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: Jerome J. Richardson, Donald G.
Russell, Adrian M. Tocklin, James B. Williams and Joe B. Wyatt.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN PROMPTLY.
- -------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
<PAGE> 29
Please mark
your votes /X/
as this
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
WITHHELD
Item 1--ELECTION of Directors FOR FOR ALL
(see reverse side). / / / /
WITHHELD FOR: (Write that nominee's
name in the space provided below).
_______________________________________
Item 2--ELECTION of Ernst & Young LLP FOR AGAINST ABSTAIN
as Auditor (Proposal No. 1). / / / / / /
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.
- -------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
