<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
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 23, 1998
To Our Stockholders:
The Annual Meeting of Stockholders of Sonat Inc., a Delaware corporation,
will be held at the AmSouth Upper Lobby Auditorium, AmSouth-Harbert Plaza,
Birmingham, Alabama, at 9:00 a.m., local time, on Thursday, April 23, 1998, for
the following purposes:
1. To elect four Directors as members of the Board of Directors of the
Company, to serve until the 2001 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. 1).
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 6,
1998, 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 21, 1998
- --------------------------------------------------------------------------------
YOUR VOTE IS IMPORTANT
PLEASE COMPLETE, SIGN AND RETURN YOUR PROXY IN THE ENCLOSED RETURN ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE> 3
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS APRIL 23, 1998
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 23, 1998 at 9:00 a.m. at the AmSouth Upper Lobby Auditorium,
AmSouth-Harbert Plaza, Birmingham, Alabama. Mailing of the Proxy Statement and
the accompanying proxy card to the stockholders is expected to commence on or
about March 23, 1998.
VOTING SECURITIES
As of January 31, 1998, the Company had outstanding 109,960,050 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 6, 1998, 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. l. 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.
On January 30, 1998, pursuant to the terms of an Agreement and Plan of
Merger dated as of November 22, 1997 (the "Merger Agreement") between the
Company and Zilkha Energy Company, an oil and gas exploration, development and
production company ("Zilkha Energy"), a wholly-owned subsidiary of the Company
merged with Zilkha Energy. As provided in the Merger Agreement, at the time of
the merger the stock of Zilkha Energy was converted into the right to receive an
aggregate of 24,158,380 shares of the Company's Common Stock. Of such shares,
8,594,305 were issued to Michael S. Zilkha; 14,429,037 shares were issued to the
Selim K. Zilkha Trust (of which Selim K. Zilkha is settlor, trustee and
beneficiary); and 1,135,038 shares were issued to the Selim K. Zilkha (1996)
Annuity Trust (of which Selim K. Zilkha is beneficiary during the annuity
period). On March 29, 1998, the Selim K. Zilkha (1996) Annuity Trust will
expire, substantially all of the shares of the Company's Common Stock held in
such Trust will be distributed to Michael S. Zilkha, and the remainder of such
shares will be distributed to the Selim K. Zilkha Trust.
Pursuant to the terms of the Merger Agreement, on December 5, 1997, the
Board of Directors appointed Selim K. Zilkha as a Class III Director and Michael
S. Zilkha as a Class I Director. Such appointments were effective immediately
following the effective time of the merger on January 30, 1998. The Merger
Agreement provides that as long as Michael S. Zilkha, Selim K. Zilkha and their
<PAGE> 4
respective affiliates own at least 8% of the Company's Common Stock, the Board
of Directors will nominate and support the reelection of the Zilkhas to the
Board following the expiration of their respective terms. If such stock
ownership drops below 8% of the Company's Common Stock, the Merger Agreement
provides that the Zilkhas will promptly tender their resignations as Directors.
The four nominees for election as Class III Directors are Max L. Lukens,
Benjamin F. Payton, John J. Phelan, Jr. and Selim K. Zilkha. Each of the
nominees has been previously elected as a Director by the stockholders, except
for Selim K. Zilkha. 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" MAX L. LUKENS, BENJAMIN F.
PAYTON, JOHN J. PHELAN, JR. AND SELIM K. ZILKHA AS CLASS III DIRECTORS.
NOMINEES FOR DIRECTOR -- CLASS III -- TERMS TO EXPIRE 2001
<TABLE>
<S> <C>
Max L. Lukens Picture MAX L. LUKENS, age 49, is Chairman, President and Chief
Executive 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.
- --------------------------------------------------------------------------------------------
BENJAMIN F. PAYTON, age 65, is President of Tuskegee
Benjamin F. Payton Picture 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 Health Care, Inc., Praxair, Inc. and Ruby
Tuesday, Inc.
- --------------------------------------------------------------------------------------------
JOHN J. PHELAN, JR., age 66, is the former Chairman of the
John J. Phelan, Jr. Picture Board and 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.
- --------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
SELIM K. ZILKHA, age 70, is the former Chief Executive
Selim K. Zilkha Officer of Zilkha Energy. He served as the sole Director and
Chief Executive Officer of Zilkha Energy from March 1984
until January 1998. Prior to such time, Mr. Zilkha was a
banker with Zilkha & Sons in the United States and Europe
from 1947 to 1955 and in London from 1955 to 1960. In 1960,
he founded Mothercare, PLC, a retail chain catering to
mothers-to-be, babies and small children in Great Britain,
Europe and the United States. Mr. Zilkha sold his interest
in Mothercare, PLC in January 1982.
- --------------------------------------------------------------------------------------------
</TABLE>
CONTINUING DIRECTORS -- CLASS I -- TERMS TO EXPIRE 1999
<TABLE>
<S> <C>
WILLIAM O. BOURKE, age 70, is the former Chairman of the
William O. Bourke Picture Board of Directors and Chief Executive Officer 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.
During the past five years prior to his retirement in April
1992, Mr. Bourke served as an executive officer of Reynolds
Metals Company.
- --------------------------------------------------------------------------------------------
RONALD L. KUEHN, JR., age 62, is Chairman of the Board,
Ronald L. Kuehn, Jr. Picture 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, The Dun & Bradstreet
Corporation, Transocean Offshore Inc. and Union Carbide
Corporation, and a member of the Board of Trustees of
Tuskegee University and Southern Research Institute. During
the past five years, Mr. Kuehn has served as an executive
officer of the Company.
- --------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C>
ROBERT J. LANIGAN, age 69, is Chairman Emeritus of the Board
Robert J. Lanigan Picture 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,
Cognizant Corporation, 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.
- --------------------------------------------------------------------------------------------
CHARLES MARSHALL, age 68, is the former Vice Chairman of the
Charles Marshall Picture 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 and Sundstrand
Corporation. Prior to his retirement, Mr. Marshall served as
an executive officer of American Telephone and Telegraph
Company.
- --------------------------------------------------------------------------------------------
MICHAEL S. ZILKHA, age 43, is the former Executive Vice
Michael S. Zilkha President of Zilkha Energy. He served as an executive
officer of Zilkha Energy from July 1986 to January 1998. Mr.
Zilkha was an editor at Atlantic Monthly Press from 1985 to
1986, and from 1978 to 1985, he was President of ZE Records,
an independent record production company in New York.
- --------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 7
CONTINUING DIRECTORS -- CLASS II -- TERMS TO EXPIRE 2000
<TABLE>
<S> <C>
JEROME J. RICHARDSON, age 61, is Owner/Founder of the NFL
Jerome J. Richardson Picture Carolina Panthers. He has served as a Director of the
Company since 1991. Mr. Richardson is also a Director of
NCAA Foundation and a trustee of Wofford College. 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.
- --------------------------------------------------------------------------------------------
DONALD G. RUSSELL, age 66, is Vice Chairman of the Company
Donald G. Russell Picture and Chairman of the Board and Chief Executive Officer of
Sonat Exploration Company (a wholly-owned subsidiary of the
Company). He has served as a Director of the Company since
1994. Mr. Russell is also a Director of Grant Geophysical,
Inc. During the past five years, Mr. Russell has served as
an executive officer of the Company and Sonat Exploration
Company.
- --------------------------------------------------------------------------------------------
ADRIAN M. TOCKLIN, age 46, is the former President and Chief
Adrian M. Tocklin Picture Executive Officer -- Diversified Operations of CNA Insurance
Companies, the principal business of which is property and
casualty insurance. She has served as a Director of the
Company since 1994. Ms. Tocklin is also a Director and
Chairman of the Board of CNA Surety Corp. and of First
Insurance Company of Hawaii. She was President and a
Director of The Continental Corporation until its merger
with CNA Insurance Companies in May 1995. During the past
five years prior to her retirement in March 1998, Ms.
Tocklin served as an executive officer of The Continental
Corporation and CNA Insurance Companies.
- --------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
<TABLE>
<S> <C>
JAMES B. WILLIAMS, age 65, is Chairman of the Executive
James B. Williams Picture Committee of the Board of Directors 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,
Genuine Parts Company, Georgia-Pacific Corporation, Rollins,
Inc. and RPC, Inc. During the past five years prior to his
retirement in March 1998, Mr. Williams served as Chairman of
the Board and Chief Executive Officer of SunTrust Banks,
Inc.
- --------------------------------------------------------------------------------------------
JOE B. WYATT, age 62, is Chancellor, Chief Executive Officer
Joe B. Wyatt Picture 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 Micro, Inc.,
Reynolds Metals Company, The Aerostructures Corporation and
University Research Association.
- --------------------------------------------------------------------------------------------
</TABLE>
Selim K. Zilkha is the father of Michael S. Zilkha. There are no other
family relationships between Directors and executive officers of the Company.
BOARD MEETINGS AND COMMITTEES
During 1997 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.
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
John J. Phelan, Jr., Chairman, Charles Marshall, Jerome J. Richardson, Adrian M.
Tocklin, Joe B. Wyatt and Michael S. Zilkha. The Committee met five times during
1997.
6
<PAGE> 9
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 Charles Marshall, Chairman, William O. Bourke, Benjamin F. Payton,
John J. Phelan, Jr., Jerome J. Richardson, James B. Williams and Selim K.
Zilkha. The Committee met once during 1997.
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 Joe B. Wyatt,
Chairman, Robert J. Lanigan, Benjamin F. Payton, Adrian M. Tocklin, James B.
Williams and Michael S. Zilkha. The Committee met three times during 1997.
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 Robert J. Lanigan, Chairman, William O. Bourke, Max L. Lukens,
James B. Williams and Joe B. Wyatt. The Committee met six times during 1997.
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 James B. Williams, Chairman, Robert J. Lanigan, Max
L. Lukens, John J. Phelan, Jr., Jerome J. Richardson and Selim K. Zilkha. The
Committee met six times during 1997.
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 William O. Bourke, Chairman, Charles Marshall, Benjamin F.
Payton, John J. Phelan, Jr. and Adrian M. Tocklin. The Committee met twice
during 1997.
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 Max L. Lukens, Chairman, William O. Bourke, Robert J. Lanigan,
Charles Marshall, Benjamin F. Payton, John J. Phelan, Jr., Jerome J. Richardson,
Adrian M. Tocklin, James B. Williams, Joe B. Wyatt, Michael S. Zilkha and Selim
K. Zilkha. The Committee met twice during 1997.
7
<PAGE> 10
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 is a member of the Board of Directors on April 1, 1998 (the
effective date of the Plan, as amended and restated on February 26, 1998) will
be granted 2,000 shares of restricted stock on such date. The Plan provides that
400 shares granted to each Director will vest on April 1 of each of the years
1999 through 2003.
Each person who first becomes a non-employee Director after April 1, 1998
and before April 1, 2003 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
April 1, 2003. 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, 2003.
Each current non-employee Director has 400 shares of unvested restricted
stock (except Michael S. Zilkha and Selim K. Zilkha, each of whom has 100 shares
of such stock), which were granted under the Plan as in effect before the
February 26, 1998 amendment and restatement. Such shares will vest on 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, 1998.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) CLASS
------------------------ ------------------------ ----------
<S> <C> <C>
Richard B. Bates............................ 83,815(2) *
William O. Bourke........................... 7,000 *
Ronald L. Kuehn, Jr......................... 865,550(2 and3) *
Robert J. Lanigan........................... 8,040 *
Max L. Lukens............................... 4,107 *
Charles Marshall............................ 15,310 *
James E. Moylan, Jr......................... 122,946(2 and4) *
Benjamin F. Payton.......................... 4,668 *
John J. Phelan, Jr.......................... 4,660 *
Jerome J. Richardson........................ 7,293 *
James A. Rubright........................... 103,734(2) *
Donald G. Russell........................... 338,715(2) *
William A. Smith............................ 226,635(2) *
Adrian M. Tocklin........................... 5,360(5) *
James B. Williams........................... 22,993 *
Joe B. Wyatt................................ 5,200 *
Michael S. Zilkha........................... 9,731,443(6) 8.8%
909 Fannin
Two Houston Center, Suite 2910
Houston, TX 77010
Selim K. Zilkha............................. 14,431,137(7) 13.1%
750 Lausanne Road
Los Angeles, CA 90077
All present Directors and Executive Officers
as a Group (20 persons)................... 26,123,288(8) 23.8%
</TABLE>
- ---------------
* Less than 1%.
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.
The number of shares shown includes 400 shares of restricted stock for each
of William O. Bourke, Robert J. Lanigan, Max L. Lukens, Charles Marshall,
Benjamin F. Payton, John J. Phelan, Jr., Jerome J. Richardson, Adrian M.
Tocklin, James B. Williams and Joe B. Wyatt, and 100 shares of restricted stock
for each of Michael S. Zilkha and Selim K. Zilkha, granted under the Company's
Restricted Stock Plan for Directors, which shares had not vested as of January
31, 1998. 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.
The number of shares shown includes 2,000 shares of restricted stock for
each of William O. Bourke, Robert J. Lanigan, Max L. Lukens, Charles Marshall,
Benjamin F. Payton, John J. Phelan, Jr., Jerome J. Richardson, Adrian M.
Tocklin, James B. Williams, Joe B. Wyatt, Michael S. Zilkha and Selim K. Zilkha,
to be granted under the Company's Restricted Stock Plan for Directors on April
1, 1998.
The number of shares shown includes "phantom" shares of the Company's
Common Stock held by the following individuals: (a) Charles Marshall, 5,710
phantom shares; Adrian M. Tocklin, 727 phantom shares; and James B. Williams,
5,793 phantom shares (all held under the Company's Director's Fees Deferral
Plan); and (b) Richard B. Bates, 675 phantom shares; Ronald L.
9
<PAGE> 12
Kuehn, Jr., 29,348 phantom shares; James E. Moylan, Jr., 312 phantom shares;
James A. Rubright, 605 phantom shares; Donald G. Russell, 16,821 phantom shares;
and William A. Smith, 733 phantom shares (all held under the Company's
Supplemental Benefit Plan and Deferred Compensation Plan).
NOTE 2: The number of shares shown for Messrs. Bates, Kuehn, Moylan,
Rubright, Russell and Smith includes 7,900 shares, 118,400 shares, 11,800
shares, 7,900 shares, 18,000 shares and 7,700 shares, respectively, of
restricted stock granted under the Company's Executive Award Plan, which shares
had not vested as of January 31, 1998. 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) 9,072 shares, 49,328
shares, 11,100 shares, 411 shares, 12,250 shares and 16,872 shares,
respectively, held by the Trustee under the Company's Savings Plan as of January
31, 1998; and (b) 60,000 shares, 651,300 shares, 96,000 shares, 89,500 shares,
267,600 shares and 184,400 shares, respectively, covered by options under the
Company's Executive Award Plan which were exercisable within sixty days after
January 31, 1998.
NOTE 3: The number of shares shown for Mr. Kuehn includes 10,500 shares
owned by his wife, 20 shares owned by his children, and 2,000 shares held in
trust for his children, of which shares he disclaims any beneficial ownership.
NOTE 4: 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 5: The number of shares shown for Ms. Tocklin includes 100 shares
owned by her husband, of which shares she disclaims any beneficial ownership.
NOTE 6: The number of shares shown for Michael S. Zilkha includes
1,135,038 shares held in the Selim K. Zilkha (1996) Annuity Trust (the "Trust"),
of which Selim K. Zilkha is the sole beneficiary during the annuity period. On
March 29, 1998, the Trust will expire, substantially all of the shares held in
the Trust will be distributed to Michael S. Zilkha, and the remainder of such
shares will be distributed to the Selim K. Zilkha Trust.
NOTE 7: The number of shares shown for Selim K. Zilkha includes 14,429,037
shares held in the Selim K. Zilkha Trust (of which Mr. Zilkha is settlor,
trustee and beneficiary).
NOTE 8: The number of shares shown includes 184,400 shares of restricted
stock granted under the Company's Executive Award Plan, which shares had not
vested as of January 31, 1998; 118,119 shares held by the Trustee under the
Company's Savings Plan as of January 31, 1998; 1,445,640 shares covered by
options under the Company's Executive Award Plan which were exercisable within
sixty days after January 31, 1998; 4,200 shares of restricted stock granted
under the Company's Restricted Stock Plan for Directors, which shares had not
vested as of January 31, 1998; 24,000 shares of restricted stock to be granted
under the Company's Restricted Stock Plan for Directors on April 1, 1998; and
61,953 phantom shares of the Company's Common Stock held under the Company's
Director's Fees Deferral Plan, Supplemental Benefit Plan and Deferred
Compensation Plan as of January 31, 1998.
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.
10
<PAGE> 13
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 group. The peer group used
for determining 1997 compensation for corporate executives consisted of 18
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 19 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 1997 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 13 1/2 years. His salary for 1997
(which included a 5.1% increase, effective April 1) was 3% 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.
11
<PAGE> 14
The payout of an executive's 1997 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 -- 50% for Mr. Kuehn and
40-50% for the other named executive officers; corporate and subsidiary goals --
35% for Mr. Kuehn and 35-45% for the other named executive officers; and
individual goals -- 15% for all executives. The Committee also has the
discretion to make additional cash bonus awards to recognize exceptional
individual performance.
The financial goals included in the 1997 bonus opportunities were the
Company's 1997 earnings per share ("EPS") as compared to EPS targets established
by the Committee, the Company's five-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 earnings goals was based on comparison of actual earnings to the
earnings 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 business goals included in the 1997 bonus
opportunities included 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 1997 bonus opportunity included individual performance.
Mr. Kuehn's individual performance was based primarily on the Committee's
assessment of his leadership for the year.
In January 1998, the Committee reviewed in detail the extent to which the
1997 performance goals had been achieved. The Company's EPS was below the
minimum payout level, while cash flow return on assets was significantly above
the mean for the Financial Peer Group. The payout percentage was 100% of the
bonus opportunity for the cash flow return on assets goal; no payout was made
with respect to the bonus opportunity for the EPS goal. The level of achievement
of subsidiary financial goals varied among the business segments. The Sonat
Pipeline Group significantly exceeded its earnings target, while Sonat
Exploration Company had earnings below the minimum payout level.
The level of achievement of corporate and subsidiary business goals varied
considerably among the Company's business segments. The payout percentage for
corporate and subsidiary business goals ranged from 59% to 98%.
Including individual performance, the total bonus payout percentages under
the 1997 annual incentive program for executives ranged from 39% to 106%. Mr.
Kuehn's total bonus payout percentage for 1997 was 70% 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 1997. In addition, the
Committee may make special awards to individual executives during the year on a
discretionary basis.
In 1997, 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 responsibili-
12
<PAGE> 15
ties, 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
1997, the Company's weighted annualized three-year total stockholder return was
at the 40th percentile of the Financial Peer Group. The December 1997 long-term
incentive grants were designed to reflect that performance and to result in
long-term compensation in the 40th to 50th percentile 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 1997, 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
at slightly below the median 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> <C> <C>
Robert J. Lanigan William O. Bourke Max L. Lukens
James B. Williams Joe B. Wyatt
</TABLE>
13
<PAGE> 16
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ending December 31, 1995,
1996 and 1997 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
ANNUAL COMPENSATION AWARDS
---------------------------------- --------------------------
SECURITIES
RESTRICTED UNDERLYING ALL OTHER
NAME AND OTHER 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., 1997 $770,500 $550,000 $ 0 $385,528(4) 92,000 $105,522
Director, Chairman of 1996 $736,500 $800,000 $2,154,978(3) $748,800(5) 82,500 $111,058
the Board, President and 1995 $710,000 $418,600 $ 332,396(3) $306,375(6) 79,200 $108,107
Chief Executive Officer
Richard B. Bates, 1997 $256,875 $138,300 $ 165,553(3) $ 70,096(4) 20,000 $ 29,132
Senior Vice President 1996 $241,875 $165,000 $ 0 $208,000(5) 20,000 $ 28,023
1995 $222,500 $ 84,900 $ 0 $ 74,175(6) 18,000 $ 26,100
James E. Moylan, Jr., 1997 $259,000 $132,100 $ 0 $ 70,096(4) 25,000 $ 30,098
Senior Vice President 1996 $245,000 $190,000 $ 0 $208,000(5) 20,000 $ 29,131
and Chief Financial
Officer 1995 $226,250 $131,100 $ 0 $ 74,175(6) 18,000 $ 27,284
James A. Rubright, 1997 $314,250 $163,600 $ 0 $ 70,096(4) 25,000 $ 41,810
Senior Vice President 1996 $300,250 $193,700 $ 0 $208,000(5) 20,000 $ 41,246
1995 $287,750 $117,100 $ 0 $ 74,175(6) 18,000 $ 40,534
Donald G. Russell, 1997 $522,500 $196,300 $ 880,075(3) $175,240(4) 46,000 $ 44,413
Director and 1996 $481,500 $469,400 $ 0 $468,000(5) 53,000 $ 40,928
Vice Chairman 1995 $465,750 $184,400 $ 0 $161,250(6) 45,000 $ 39,588
William A. Smith, 1997 $365,000 $131,300 $ 669,098(3) $ 70,096(4) 23,000 $ 43,547
Executive Vice President 1996 $365,000 $218,300 $ 919,299(3) $197,600(5) 17,000 $ 44,260
and General Counsel 1995 $361,250 $135,300 $ 188,043(7) $ 74,175(6) 18,000 $ 45,560
</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 granted to Messrs. Bates, Moylan, Rubright
and Smith generally vest at the earlier of age 65 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 granted to Mr. Kuehn generally vest on April 1,
2001. The shares of restricted stock granted to Mr. Russell in 1995 and 1996
generally vest at age 67; the shares of restricted stock granted to Mr. Russell
in 1997 generally vest on January 1, 2000.
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, 1997, and the value of such shares (calculated by
multiplying the closing price of unrestricted shares of the Company's Common
Stock on December 31, 1997 ($45.75) by the number of shares held on such date)
is as follows: Mr. Kuehn, 118,400 shares, $5,416,800; Mr. Bates, 7,900 shares,
$361,425; Mr. Moylan, 11,800 shares, $539,850; Mr. Rubright, 7,900 shares,
$361,425; Mr. Russell, 18,000 shares, $823,500; and Mr. Smith, 7,700 shares,
$352,275.
14
<PAGE> 17
NOTE 2: With respect to 1997, 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 -- $13,600, $13,600, $10,700, $13,600, $13,600 and $10,700; (2)
Company contributions to the Savings Plan accounts under the Company's
Supplemental Benefit Plan -- $51,893, $8,234, $11,315, $13,111, $30,813 and
$20,325; 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 -- $40,029, $7,298, $8,083, $15,099, $0 and $12,522.
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 8,800 shares, 1,600 shares, 1,600 shares,
1,600 shares, 4,000 shares and 1,600 shares of restricted stock granted on
December 5, 1997 to Messrs. Kuehn, Bates, Moylan, Rubright, Russell and Smith,
respectively.
NOTE 5: 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 6: 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 7: 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 $9,027 made with respect to such moving expenses.
OPTION GRANT TABLE
The following table contains certain information with respect to stock
options (and tandem stock appreciation rights that become exercisable only upon
certain change of control events ("Limited SARs")) granted in 1997 under the
Company's Executive Award Plan to the named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM (10 YEARS)
------------------------------------------------------- -------------------------------
NUMBER OF % OF TOTAL 5% 10%
SECURITIES OPTIONS/SARS (RESULTING (RESULTING
UNDERLYING GRANTED TO EXERCISE COMPANY STOCK COMPANY STOCK
OPTIONS/SARS EMPLOYEES PRICE EXPIRATION PRICE OF PRICE OF
NAME GRANTED(1) IN 1997 ($/SHARE)(2) DATE(3) $71.36)(4) $113.63)(4)
---- ------------ ------------ ------------ ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
All Stockholders....... -- -- -- -- $3,029,399,378 $7,677,410,691
Ronald L. Kuehn, Jr.... 92,000 12.9% $43.81 12/4/07 $ 2,534,600 $ 6,423,440
Richard B. Bates....... 20,000 2.8% $43.81 12/4/07 $ 551,000 $ 1,396,400
James E. Moylan, Jr.... 25,000 3.5% $43.81 12/4/07 $ 688,750 $ 1,745,500
James A. Rubright...... 25,000 3.5% $43.81 12/4/07 $ 688,750 $ 1,745,500
Donald G. Russell...... 46,000 6.5% $43.81 12/4/07 $ 1,267,300 $ 3,211,720
William A. Smith....... 23,000 3.2% $43.81 12/4/07 $ 633,650 $ 1,605,860
Named Executive Officers' Potential Realizable Value as a % of All Stockholders'
Potential Realizable Value 0.21% 0.21%
</TABLE>
15
<PAGE> 18
NOTE 1: All stock options shown in the table were granted on December 5,
1997. 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,
2002, the average of the closing prices of the Company's Common Stock during
such period is at least $65.06. 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 normal retirement,
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 $71.36 or
$113.63 Resulting Company Stock Price (as the case may be) and the $43.81
exercise price, multiplied by (a) for all stockholders, the number of
outstanding shares of the Company's Common Stock as of January 31, 1998, and (b)
for each named executive officer, the number of options granted.
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 1997 and
unexercised stock options (and tandem SARs) held as of December 31, 1997.
<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...... 0 $ 0 651,300 158,000 $13,805,100 $178,480
Richard B. Bates......... 10,000 $ 240,313 60,000 36,000 $ 923,750 $ 38,800
James E. Moylan, Jr...... 0 $ 0 96,000 41,000 $ 1,741,825 $ 48,500
James A. Rubright........ 0 $ 0 89,500 41,000 $ 1,399,563 $ 48,500
Donald G. Russell........ 40,000 $1,277,500 267,600 88,400 $ 5,002,938 $ 89,240
William A. Smith......... 30,000 $ 971,250 184,400 36,600 $ 3,751,063 $ 44,620
</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
16
<PAGE> 19
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 $45.75 (the closing price of the
Company's Common Stock on December 31, 1997) 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 equals 75% or 50% of
the participant's retirement benefit (depending upon the participant's date of
hire, age and years of service). 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
1997 the federal tax laws limited annual benefits under the Retirement Plan to
$125,000 (subject to reduction in certain circumstances), and required the
Retirement Plan to disregard any portion of the participant's 1997 compensation
in excess of $160,000. 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.
17
<PAGE> 20
DEFINED BENEFIT PLAN TABLE
<TABLE>
<CAPTION>
CURRENT ESTIMATED ANNUAL
YEARS OF 1997 COVERED RETIREMENT
NAME SERVICE(1) COMPENSATION(2) BENEFIT(3)
---- ---------- --------------- ----------------
<S> <C> <C> <C>
Ronald L. Kuehn, Jr. ......................... 27.4 $1,570,500 $1,020,825
Richard B. Bates.............................. 12.8 $ 421,875 $ 272,531
James E. Moylan, Jr. ......................... 21.5 $ 449,000 $ 291,850
James A. Rubright............................. 3.8 $ 507,950 $ 190,481
Donald G. Russell............................. 9.9 $ 991,900 $ 255,249
William A. Smith.............................. 27.7 $ 583,300 $ 379,145
</TABLE>
NOTE 1: The number of years of credited service under the Retirement Plan
and Supplemental Benefit Plan as of December 31, 1997.
NOTE 2: The amount of covered compensation under the Retirement Plan and
Supplemental Benefit Plan during 1997.
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 has average covered compensation at his retirement date equal to his
1997 covered compensation, and calculated prior to the offset for primary social
security benefits). The assumed retirement dates are April 1, 2001 for Mr.
Kuehn; January 1, 2000 for Mr. Russell; and age 65 for the other named executive
officers.
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<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, 1997, 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
(FISCAL YEAR COVERED) SONAT INC. S&P 500 S&P NATURAL GAS
<S> <C> <C> <C>
12/31/92 100.00 100.00 100.00
12/31/93 124.08 110.03 118.64
12/31/94 124.81 111.53 113.25
12/31/95 164.24 153.29 160.01
12/31/96 243.38 188.39 212.50
12/31/97 220.87 251.16 250.59
</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,
1992, 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., NICOR Inc., ONEOK Inc., Pacific Enterprises, 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
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
19
<PAGE> 22
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. The balance of a
Director's account in the Director's Fees Deferral Plan will be distributed to
him in a lump sum in the event his service as a Director is terminated within
three years 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. 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 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 (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
20
<PAGE> 23
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 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, 1998, 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, $4,711,500 in cash and $0 in
retirement benefits; Mr. Bates, $1,265,625 in cash and $0 in retirement
benefits; Mr. Moylan, $1,347,000 in cash and $0 in retirement benefits; Mr.
Rubright, $1,523,850 in cash and $7,039 in retirement benefits; Mr. Russell,
$1,901,142 in cash and $0 in retirement benefits; and Mr. Smith, $1,749,900 in
cash and $71,993 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 1999 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,
1998.
21
<PAGE> 24
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 Birmingham, Alabama office.
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-
22
<PAGE> 25
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.
------------------------------
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 1998 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 21, 1998
23
<PAGE> 26
PROXY
SONAT SAVINGS PLAN
SONAT INC.
ANNUAL MEETING -- APRIL 23, 1998
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 23, 1998 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 23, 1998
THE BOARD RECOMMENDS A VOTE "FOR ALL NOMINEES" AND "FOR" PROPOSAL NO. 1.
1. ELECTION OF DIRECTORS
Max L. Lukens, Benjamin F. Paylon,
John J. Phelan, Jr., and Selim K. Zilkha
FOR ALL NOMINEES / / WITHHOLD AUTHORITY / /
(except those whose names are to vote for all nominees
inserted on the line below)
- -------------------------------------------------------------------------------
2. ELECTION of Ernst & Young LLP as Auditor (Proposal No. 1).
FOR / / AGAINST / / ABSTAIN / /
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 _____________, 1998 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 23,
1998 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.
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 like this. [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
WITHHELD
FOR FOR ALL
Item 1 -- ELECTION of Directors [ ] [ ]
Nominees for the Board of Directors:
Max L. Lukens, Benjamin F. Payton, John J. Phelan, Jr. and
Selim K. Zilkha
WITHHELD FOR: (Write that nominee's name in the space
provided below).
- -----------------------------------------------------
FOR AGAINST ABSTAIN
Item 2 -- ELECTION of Ernst & Young LLP 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 -
