<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
Sonat Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(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:
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<PAGE> 2
SONAT INC.
P.O. BOX 2563, BIRMINGHAM, ALABAMA 35202 TELEPHONE: (205) 325-3800
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 1999
To Our Stockholders:
The Annual Meeting of Stockholders of Sonat Inc., a Delaware corporation,
will be held at the Luxury Collection Hotel, 1919 Briar Oaks Lane, Houston,
Texas, at 9:00 a.m., local time, on Thursday, April 22, 1999, for the following
purposes:
1. To elect four Directors as members of the Board of Directors of the
Company, to serve until the 2002 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 5,
1999, 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 at any adjournment thereof. 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 22, 1999
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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 22, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by Sonat Inc. (the "Company") 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 22, 1999 at 9:00 a.m. at the Luxury Collection Hotel, 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 23,
1999.
VOTING SECURITIES
As of March 11, 1999, the Company had outstanding 110,047,818 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 5, 1999, 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. If no
manner is specified, it will be voted "FOR" the election of the four 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). Four Class I 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 "Zilkha 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. Pursuant to the terms of the Zilkha 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 Zilkha Merger Agreement provides that as long as Michael S. Zilkha,
Selim K. Zilkha and their 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 Zilkha
Merger Agreement provides that the Zilkhas will promptly tender their
resignations as Directors.
On March 13, 1999, the Company and El Paso Energy Corporation ("El Paso")
entered into an agreement and plan of merger (the "El Paso Merger Agreement")
pursuant to which, among other things, the Company and El Paso will be merged
(the "El Paso Merger"). Pursuant to the terms of the El Paso Merger Agreement
(and assuming that the Company stockholders and the El Paso stockholders approve
the El Paso Merger Agreement and the El Paso Merger and that certain other
conditions are met), the Company shall be merged with and into El Paso, with El
Paso continuing as the surviving corporation. If the El Paso Merger is
consummated, the Board of Directors of the combined company shall consist of
fifteen members, nine of whom shall be designated by El Paso and six of whom
shall be designated by the Company.
<PAGE> 4
The four nominees for election as Class I Directors are Ronald L. Kuehn,
Jr., Robert J. Lanigan, Charles Marshall and Michael S. Zilkha. Each of the
nominees has been previously elected as a Director by the stockholders, except
for Mr. Zilkha (who was appointed to the Board of Directors in connection with
the Zilkha Energy merger, as discussed above). 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" RONALD L. KUEHN, JR., ROBERT
J. LANIGAN, CHARLES MARSHALL AND MICHAEL S. ZILKHA AS CLASS I DIRECTORS.
NOMINEES FOR DIRECTOR -- CLASS I -- TERMS TO EXPIRE 2002
<TABLE>
<S> <C>
[Ronald L. Kuehn Jr. RONALD L. KUEHN, JR., age 63, is Chairman of the Board,
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.
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ROBERT J. LANIGAN, age 70, 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 Cognizant Corporation,
Daimler-Chrysler 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.
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CHARLES MARSHALL, age 69, 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.
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</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
MICHAEL S. ZILKHA, age 44, is the former Executive Vice
[Michael S. Zilkha Picture] 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.
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</TABLE>
CONTINUING DIRECTORS -- CLASS II -- TERMS TO EXPIRE 2000
<TABLE>
<S> <C>
JEROME J. RICHARDSON, age 62, is Owner/Founder of the NFL
[Jerome J. Richardson Carolina Panthers. He has served as a Director of the
Picture] Company since 1991. Mr. Richardson is also Chairman of the
NFL Stadium Committee, a Director of The 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.
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ADRIAN M. TOCKLIN, age 47, is President and Chief Executive
[Adrian M. Tocklin Picture] Officer of Tocklin & Associates, Inc., an insurance
management and consulting firm. She has served as a Director
of the Company since 1994. Ms. Tocklin is also a Director of
CNA Surety Corp. and First Insurance Company of Hawaii, and
a Trustee of George Washington University. During the past
five years prior to her retirement in April 1998, Ms.
Tocklin served as an executive officer of CNA Insurance
Companies and The Continental Corporation.
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</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C>
JAMES B. WILLIAMS, age 66, 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 63, 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.
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</TABLE>
CONTINUING DIRECTORS -- CLASS III -- TERMS TO EXPIRE 2001
<TABLE>
<S> <C>
MAX L. LUKENS, age 50, is Chairman, President and Chief
[Max L. Lukens Picture] 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.
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</TABLE>
4
<PAGE> 7
<TABLE>
<S> <C>
BENJAMIN F. PAYTON, age 66, 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, Liberty Corporation, Morrison's Health Care,
Inc., Praxair, Inc. and Ruby Tuesday, Inc.
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JOHN J. PHELAN, JR., age 67, is the former Chairman of the
[John J. Phelan, Jr. Board and Chief Executive Officer of the New York Stock
Picture] 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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SELIM K. ZILKHA, age 71, is the former Chief Executive
[Slim K. Zilkha Picture] 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>
Selim K. Zilkha is the father of Michael S. Zilkha. There are no other
family relationships between Directors and executive officers of the Company.
William O. Bourke, who is currently a Class I Director, will retire from
the Board of Directors on April 22, 1999, in accordance with the Board's
retirement policy.
BOARD MEETINGS AND COMMITTEES
During 1998 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
5
<PAGE> 8
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 and Joe B. Wyatt. The Committee met three times during 1998.
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 1998.
The Committee on Directors will consider nominees for Director recommended
by stockholders. 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 twice during 1998.
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 seven times during 1998.
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 three times during 1998.
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
6
<PAGE> 9
of the Committee are William O. Bourke, Chairman, Charles Marshall, Benjamin F.
Payton, John J. Phelan, Jr., Adrian M. Tocklin and Michael S. Zilkha. The
Committee met twice during 1998.
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 six times during 1998.
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 twelve 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 1, 1998 (the
effective date of the Plan, as amended and restated on February 26, 1998) was
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.
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.
7
<PAGE> 10
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, 1999. For
information regarding certain entities known by the Company to be the beneficial
owner of more than 5% of the Company's Common Stock as of December 31, 1998, see
"Institutional Ownership of Common Stock" at page 22.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) CLASS
------------------------ --------------------------- ----------
<S> <C> <C>
William O. Bourke......................... 7,000 *
John B. Holmes, Jr........................ 10,450(2) *
Ronald L. Kuehn, Jr....................... 846,922(2 and 3) *
Robert J. Lanigan......................... 8,040(4) *
Max L. Lukens............................. 4,107 *
Charles Marshall.......................... 16,958 *
James E. Moylan, Jr....................... 131,236(2 and 5) *
Benjamin F. Payton........................ 4,805 *
John J. Phelan, Jr........................ 4,660 *
Jerome J. Richardson...................... 7,464 *
James A. Rubright......................... 113,289(2) *
William A. Smith.......................... 235,659(2) *
Adrian M. Tocklin......................... 5,390(6) *
James B. Williams......................... 25,361 *
Joe B. Wyatt.............................. 5,200 *
Michael S. Zilkha......................... 8,994,664(7) 8.2%
909 Fannin
Two Houston Center, Suite 2910
Houston, TX 77010
Selim K. Zilkha........................... 14,118,916(8) 12.8%
750 Lausanne Road
Los Angeles, CA 90077
All present Directors and Executive
Officers as a Group (21 persons)........ 24,831,831(9) 22.6%
</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.
In connection with the execution of the El Paso Merger Agreement, on March
13, 1999, El Paso entered into separate voting agreements with (1) Michael S.
Zilkha, Selim K. Zilkha and an affiliated entity, and (2) Ronald L. Kuehn, Jr.,
pursuant to which, among other things, such stockholders of the Company agreed
to vote their shares of the Company's Common Stock in favor of the El Paso
Merger Agreement and the transactions contemplated thereby.
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,
granted under the Company's Restricted Stock Plan for Directors, which shares
had not vested as of January 31, 1999. 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 "phantom" shares of the Company's
Common Stock held by the following individuals: (a) Charles Marshall, 7,358
phantom shares; Adrian M. Tocklin, 757 phantom shares; and James B. Williams,
8,161 phantom shares (all held under the Company's Director's Fees Deferral
Plan); and (b) John B. Holmes, Jr., 186 phantom shares; Ronald L.
8
<PAGE> 11
Kuehn, Jr., 43,021 phantom shares; James E. Moylan, Jr., 462 phantom shares;
James A. Rubright, 842 phantom shares; and William A. Smith, 965 phantom shares
(all held under the Company's Supplemental Benefit Plan and Deferred
Compensation Plan).
NOTE 2: The number of shares shown for Messrs. Kuehn, Moylan, Rubright and
Smith includes 118,400 shares, 7,900 shares, 7,900 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, 1999. 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. Holmes, Kuehn, Moylan, Rubright and Smith also includes (a) 264 shares,
52,127 shares, 11,858 shares, 556 shares and 17,664 shares, respectively, held
by the Trustee under the Company's Savings Plan as of January 31, 1999; and (b)
10,000 shares, 616,200 shares, 105,000 shares, 98,500 shares and 192,400 shares,
respectively, covered by options under the Company's Executive Award Plan which
were exercisable within sixty days after January 31, 1999.
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. Lanigan includes 4,240 shares
held in a family limited partnership. Mr. Lanigan is the sole shareholder of the
corporate general partner of the partnership, and he and his wife own all of the
limited partnership interests of the partnership.
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 for Michael S. Zilkha includes 180,000
shares held in a family limited partnership. Mr. Zilkha and his wife each own a
50% interest in the limited liability company that is the general partner of the
partnership, and Mr. Zilkha owns all of the limited partnership interest of the
partnership.
NOTE 8: The number of shares shown for Selim K. Zilkha includes 14,116,816
shares held in the Selim K. Zilkha Trust (of which Mr. Zilkha is settlor,
trustee and beneficiary).
NOTE 9: The number of shares shown includes 168,100 shares of restricted
stock granted under the Company's Executive Award Plan, which shares had not
vested as of January 31, 1999; 118,687 shares held by the Trustee under the
Company's Savings Plan as of January 31, 1999; 1,226,460 shares covered by
options under the Company's Executive Award Plan which were exercisable within
sixty days after January 31, 1999; 24,000 shares of restricted stock granted
under the Company's Restricted Stock Plan for Directors, which shares had not
vested as of January 31, 1999; and 64,185 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, 1999.
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
9
<PAGE> 12
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 1998 compensation for corporate executives consisted of 12
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 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 overall executive salaries at the median of the
salaries for comparable executives in the Corporate Peer Group or other relevant
peer group. Executive salaries for 1998 were slightly below the median level
overall, although some executives were below and some above the median. Mr.
Kuehn has been in his current position for approximately 14 1/2 years, and has
significantly longer tenure than the average tenure of the chief executive
officers in the Corporate Peer Group. His current salary (which was increased
9.0% effective October 1) is 2.0% 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 the 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 design of the annual incentive program takes into account the fact that
the Company's financial results can be significantly affected by factors that
are beyond the control of the Company and its management, such as oil and
natural gas prices. Therefore, when compared to the programs of many other
employers, the Company's annual incentive program generally provides a lower
level of payout when the Company significantly exceeds the established financial
goals, and a higher level of payout when the Company's financial goals are only
partially achieved.
The payout of an executive's 1998 bonus opportunity was based on the level
of achievement of certain corporate and subsidiary financial goals, corporate
and subsidiary business goals, and individual goals, as described below. The
goals for each executive's bonus opportunity were weighted as follows: financial
goals -- 50%; business goals -- 35%; and individual goals -- 15%. The
10
<PAGE> 13
Committee also has the discretion to make additional cash bonus awards to
recognize exceptional individual performance.
The corporate financial goals included in the 1998 bonus opportunities were
the Company's 1998 earnings per share ("EPS") as compared to EPS targets
established by the Committee, the Company's annual cash flow return on assets as
compared to the mean of the cash flow return of a group of energy companies
whose aggregate asset mix approximates that of the Company (the "Financial Peer
Group"), and the Company's annual total stockholder return ("TSR") as compared
to the mean of the TSR of the Financial Peer Group. For subsidiary officers,
subsidiary financial goals included subsidiary earnings before corporate charges
("EBC") as compared to EBC targets established by the Committee, and subsidiary
annual cash flow return on assets as compared to the mean of the cash flow
return of a subsidiary peer group. Each goal had a minimum level of achievement
that was required for any payout to be made.
The corporate and subsidiary business goals included in the 1998 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 1998 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 1999, the Committee reviewed in detail the extent to which the
1998 performance goals had been achieved. The Company's EPS and TSR were below
the minimum payout levels, while cash flow return on assets was above the mean
for the Financial Peer Group and resulted in a payout percentage of 123% of the
bonus opportunity for that goal. The level of achievement of subsidiary
financial goals varied among the business segments. The Sonat Pipeline Group had
payout percentages of 45% of the bonus opportunity for its EBC goal and 100% of
the bonus opportunity for its cash flow return on assets goal. Sonat Exploration
Company had earnings below the minimum payout level for its EBC goal, and a
payout percentage of 135% of the bonus opportunity for its cash flow return on
assets goal.
The level of achievement of corporate and subsidiary business goals varied
considerably among the Company's business segments. The payout percentage for
these goals ranged from 47% to 69%.
Including individual performance, the total bonus payout percentages under
the 1998 annual incentive program for Company and subsidiary officers ranged
from 48% to 87%. Mr. Kuehn's total bonus payout percentage for 1998 was 48% of
his bonus opportunity, compared to 70% of his bonus opportunity for 1997 and
108% of his bonus opportunity for 1996.
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. For
purposes of determining the value of long-term incentive compensation, an
independent compensation consulting firm values stock options using a modified
Black-Scholes option pricing model. 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 addition, the Committee may make special
awards to individual executives during the year on a discretionary basis.
11
<PAGE> 14
The number of stock options and restricted shares granted to each executive
officer as part of the annual grant program is generally 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 (expressed as a percentage of base salary)is tied to the Company's total
stockholder return as compared to that of the Financial Peer Group. A minimum
level of total stockholder return must be attained in order for grants to be
made under the program. In 1998, the Company's weighted annualized three-year
total stockholder return was below the minimum level established by the
Committee.
In December 1998, the Committee reviewed compensation survey data which
indicated that over the past few years the value of the long-term incentive
grants made to senior executives was substantially below the level required to
appropriately compensate the Company's key officers. The Committee also
considered executive retention and the Committee's continued desire to align the
interests of executives and stockholders and to motivate the Company's senior
management to increase total stockholder return. Based on these considerations,
the Committee granted long-term incentive awards in December 1998 at a level
designed to be at or below the 25th percentile of the Corporate Peer Group. All
grants were made in the form of stock options; no restricted shares were
awarded.
Mr. Kuehn was awarded stock options in December 1998. As discussed above,
the amount of this award was intended to result in long-term compensation at or
below the 25th percentile of the Corporate Peer Group. Mr. Kuehn's total
long-term incentive grants in 1998 had a value of 97% of his salary, as compared
to 185% of his salary in 1997 and 235% of his salary in 1996.
The Committee will continue to consider individual position and
responsibilities, compensation survey data, total stockholder return, and
stockholder interests in its administration of the long-term stock incentive
program.
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 will qualify as performance-based
compensation.
The Committee feels that it should not use only arithmetic 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.
12
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
Robert J. Lanigan William O. Bourke Max L. Lukens
James B. Williams Joe B. Wyatt
</TABLE>
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ending December 31, 1996,
1997 and 1998 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., 1998 $797,500 $440,000 $1,283,945(3) $ 0 112,600 $ 47,850
Director, Chairman of 1997 $770,500 $550,000 $ 0 $385,528(4) 92,000 $105,522
the Board, President and 1996 $736,500 $800,000 $2,154,978(3) $748,800(5) 82,500 $111,058
Chief Executive Officer
John B. Holmes, Jr., 1998 $341,667 $182,940 $ 0 $ 0 185,000 $ 20,067
Senior Vice President(6)
James E. Moylan, Jr., 1998 $294,250 $116,625 $ 0 $ 0 35,000 $ 33,016
Senior Vice President 1997 $259,000 $132,100 $ 0 $ 70,096(4) 25,000 $ 30,098
and Chief Financial 1996 $245,000 $190,000 $ 0 $208,000(5) 20,000 $ 29,131
Officer
James A. Rubright, 1998 $372,667 $187,990 $ 0 $ 0 85,000 $ 43,522
Executive Vice 1997 $314,250 $163,600 $ 0 $ 70,096(4) 25,000 $ 41,810
President 1996 $300,250 $193,700 $ 0 $208,000(5) 20,000 $ 41,246
William A. Smith, 1998 $365,000 $160,000 $ 0 $ 0 35,000 $ 40,380
Executive Vice 1997 $365,000 $131,300 $ 669,098(3) $ 70,096(4) 23,000 $ 43,547
President and General 1996 $365,000 $218,300 $ 919,299(3) $197,600(5) 17,000 $ 44,260
Counsel
</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. 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.
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 El Paso Merger, if consummated, will constitute a Change
of Control for this purpose.
The number of shares of restricted stock held by the named executive
officers as of December 31, 1998, and the value of such shares (calculated by
multiplying the closing price of unrestricted shares of the Company's Common
Stock on December 31, 1998 ($27.0625) by the number of shares held on such date)
is as follows: Mr. Kuehn, 118,400 shares, $3,204,200;
13
<PAGE> 16
Mr. Holmes, 0 shares, $0; Mr. Moylan, 7,900 shares, $213,794; Mr. Rubright,
7,900 shares, $213,794; and Mr. Smith, 7,700 shares, $208,381.
NOTE 2: With respect to 1998, represents the following amounts for each of
Messrs. Kuehn, Holmes, Moylan, Rubright and Smith, respectively: (1) Company
matching contributions to the trust established under the Company's Savings
Plan -- $9,600, $9,167, $9,600, $9,600 and $9,600; (2) Company contributions to
the Savings Plan accounts under the Company's Supplemental Benefit
Plan -- $38,250, $10,900, $8,055, $12,760 and $12,300; 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 -- $0, $0, $15,361, $21,162 and
$18,480.
NOTE 3: Represents the amount of tax-offset "supplemental payments" paid
upon the exercise of stock options (or tandem stock appreciation rights) granted
under the Company's Executive Award Plan.
NOTE 4: Represents the value of 8,800 shares, 1,600 shares, 1,600 shares
and 1,600 shares of restricted stock granted on December 5, 1997 to Messrs.
Kuehn, Moylan, Rubright and Smith, respectively.
NOTE 5: Represents the value of 14,400 shares, 4,000 shares, 4,000 shares
and 3,800 shares of restricted stock granted on December 5, 1996 to Messrs.
Kuehn, Moylan, Rubright and Smith, respectively.
NOTE 6: Mr. Holmes was employed by the Company on January 30, 1998 and was
named Senior Vice President of the Company effective as of May 1, 1998.
OPTION GRANT TABLE
The following table contains certain information with respect to stock
options (and tandem stock appreciation rights that become exercisable only upon
certain change of control events ("Limited SARs")) granted in 1998 under the
Company's Executive Award Plan to the named executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM (10 YEARS)
------------------------------------------------------- --------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES PRICE EXPIRATION
NAME GRANTED (1) IN 1998 ($/SHARE)(2) DATE(3) 5%(4) 10%(4)
---- ------------ ------------ ------------ ---------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
All Stockholders......... 110,059,886 -- -- -- $ 1,898,808,183 $4,813,193,964
Ronald L. Kuehn,
Jr.(5)................. 112,600 8.5% $27.4375 12/3/08 $ 1,942,632 $ 4,924,280
John B. Holmes, Jr.(6)... 50,000 3.8% $ 44.69 1/20/08 $ 1,405,500 $ 3,561,000
John B. Holmes, Jr.(7)... 75,000 5.7% $ 43.875 4/22/08 $ 2,069,625 $ 5,244,375
John B. Holmes, Jr.(5)... 60,000 4.5% $27.4375 12/3/08 $ 1,035,150 $ 2,623,950
James E. Moylan,
Jr.(5)................. 35,000 2.6% $27.4375 12/3/08 $ 603,838 $ 1,530,638
James A. Rubright(7)..... 25,000 1.9% $ 43.875 4/22/08 $ 689,875 $ 1,748,125
James A. Rubright(5)..... 60,000 4.5% $27.4375 12/3/08 $ 1,035,150 $ 2,623,950
William A. Smith(5)...... 35,000 2.6% $27.4375 12/3/08 $ 603,838 $ 1,530,638
Named Executive Officers' Potential Realizable Value as a % of All Stockholders'
Potential Realizable Value -- December 4, 1998 Grant 0.27% 0.27%
</TABLE>
14
<PAGE> 17
NOTE 1: Each stock option shown in the table was granted with a tandem
Limited SAR that may be exercised only within 60 days after a 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.
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.
The El Paso Merger, if consummated, will constitute a Change of Control for
the foregoing purposes.
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: For each named executive officer, the potential realizable values
shown represent the difference between the Resulting Company Stock Price for the
option (as described below) and the exercise price of the option, multiplied by
the number of options granted to such executive officer. For all stockholders,
the potential realizable values shown represent the difference between the
Resulting Company Stock Price for the options granted on December 4, 1998 and
the exercise price of such options, multiplied by the number of outstanding
shares of the Company's Common Stock as of December 31, 1998.
The Resulting Company Stock Price for an option equals the price the
Company's Common Stock would attain at the end of the option's 10-year term if
the price of the Company's Common Stock appreciated from the date of stock
option grant at a rate of 5% or 10% per year (as the case may be). The Resulting
Company Stock Prices are as follows: (1) for the options granted on January 21,
1998, $72.80 (5% annual stock price appreciation) and $115.91 (10% annual stock
price appreciation), (2) for the options granted on April 23, 1998, $71.47 (5%
annual stock price appreciation) and $113.80 (10% annual stock price
appreciation) and (3) for the options granted on December 4, 1998, $44.69 (5%
annual stock price appreciation) and $71.17 (10% annual stock price
appreciation).
NOTE 5: Represents stock options (and tandem Limited SARs) granted on
December 4, 1998. The stock options (and tandem Limited SARs) 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 4, 2003, the average
of the closing prices of the Company's Common Stock during such period is at
least $41.1563.
NOTE 6: Represents stock options (and tandem Limited SARs) granted to Mr.
Holmes on January 21, 1998 (contingent upon his commencement of employment with
the Company on January 30, 1998). The stock options (and tandem Limited SARs)
become exercisable in five 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
January 21, 2003, the average of the closing prices of the Company's Common
Stock during such period is at least $67.04.
NOTE 7: Represents stock options (and tandem Limited SARs) granted on
April 23, 1998. The stock options (and tandem Limited SARs) become exercisable
in five equal installments on each of the first five anniversaries of the date
of grant, provided that the entire grant will become
15
<PAGE> 18
immediately exercisable if, during any 10 business day period ending prior to
April 23, 2003, the average of the closing prices of the Company's Common Stock
during such period is at least $65.8125.
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 1998 and
unexercised stock options (and tandem SARs) held as of December 31, 1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
------------------------------------------------------------------------------------
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED,
UNEXERCISED OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT FISCAL YEAR END(1) AT FISCAL YEAR END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ronald L. Kuehn, Jr...... 70,000 $1,863,750 616,200 235,700 $1,826,625 $0
John B. Holmes, Jr....... 0 $ 0 10,000 175,000 $ 0 $0
James E. Moylan, Jr...... 0 $ 0 105,000 67,000 $ 195,563 $0
James A. Rubright........ 0 $ 0 98,500 117,000 $ 0 $0
William A. Smith......... 0 $ 0 192,400 63,600 $ 630,750 $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.
NOTE 2: The value of each unexercised in-the-money stock option (or tandem
SAR) is equal to the difference between $27.0625 (the closing price of the
Company's Common Stock on December 31, 1998) 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. The Retirement Plan provides two
types of benefits -- pension benefits and cash balance benefits.
The pension benefits portion of the Retirement Plan (the "Pension Program")
provides annual retirement benefits that are based on average covered
compensation for the highest five consecutive years of the final ten years of
employment. Covered compensation under the Pension Program 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 under the Pension Program 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
16
<PAGE> 19
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 Pension
Program 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). Pension Program benefits are generally paid
as life annuities.
Under the cash balance benefits portion of the Retirement Plan (the "Cash
Balance Program"), Company contributions and interest are credited to a
hypothetical account for the participant under the Retirement Plan. Company
contributions equal 1 1/2% or 2 1/2% of the participant's salary (as shown in
the Summary Compensation Table), depending on the participant's date of hire,
age and years of service. Interest credits are based on the 30-year Treasury
Constant Maturities rate. Cash Balance Program benefits are based on the value
of the participant's hypothetical account at termination of employment, and are
paid as a lump sum, life annuity or 50% joint and survivor annuity.
The Supplemental Benefit Plan provides its eligible participants and their
eligible survivors with Pension Program and Cash Balance Program benefits that
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 1998 the federal tax laws limited annual benefits under the
Retirement Plan to $130,000 (subject to reduction in certain circumstances), and
required the Retirement Plan to disregard any portion of the participant's 1998
compensation in excess of $160,000. A participant may choose to have benefits
under the Supplemental Benefit 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>
YEARS OF
YEARS OF CASH 1998 1998 ESTIMATED
PENSION BALANCE PENSION PROGRAM CASH BALANCE ANNUAL
PROGRAM PROGRAM COVERED PROGRAM COVERED RETIREMENT
NAME SERVICE(1) SERVICE(2) COMPENSATION(3) COMPENSATION(4) BENEFIT(5)
---- ---------- ---------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Ronald L. Kuehn, Jr. ..... 28.4 1.0 $1,237,500 $797,500 $811,483
John B. Holmes, Jr. ...... 0.9 0.9 $ 524,607 $341,667 $168,754
James E. Moylan, Jr. ..... 22.5 1.0 $ 410,875 $294,250 $290,642
James A. Rubright......... 4.8 1.0 $ 560,657 $372,667 $226,552
William A. Smith.......... 28.7 1.0 $ 525,000 $365,000 $356,295
</TABLE>
NOTE 1: The number of years of credited service under the Pension Program
as of December 31, 1998.
NOTE 2: The number of years of service under the Cash Balance Program as
of December 31, 1998.
NOTE 3: The aggregate of the named executive officer's salary and bonus
for 1998 (as shown in the Summary Compensation Table).
NOTE 4: The named executive officer's salary for 1998 (as shown in the
Summary Compensation Table).
NOTE 5: The aggregate estimated annual benefit payable as a single life
annuity to the named executive officer under the Retirement Plan and
Supplemental Benefit Plan, based on the assumptions that (1) such officer's
average covered compensation under the Pension Program at his retirement date
equals his 1998 Pension Program covered compensation; (2) such officer's salary
under the Cash Balance Program between December 31, 1998 and his retirement date
equals his 1998 Cash Balance Program covered compensation; and (3) such
officer's hypothetical account
17
<PAGE> 20
under the Cash Balance Program is credited with interest after December 31, 1998
at the annual interest rate in effect for the Program as of such date (6.33%),
and determined without regard to the offset for primary social security benefits
under the Pension Program. The assumed retirement dates are April 30, 2001 for
Mr. Kuehn, and age 65 for the other named executive officers.
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, 1998, with
the cumulative total return of three 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);
STANDARD & POOR'S OIL & GAS
(EXPLORATION & PRODUCTION) GROUP (2)
[CUMULATIVE PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
SONAT INC. S&P 500 S&P NATURAL GAS S&P OIL AND GAS
---------- ------- --------------- ---------------
<S> <C> <C> <C> <C>
12/31/93 100.00 100.00 100.00 100.00
12/31/94 100.58 101.31 92.21 79.59
12/31/95 132.36 139.37 126.31 93.36
12/31/96 196.15 171.36 164.49 128.73
12/31/97 178.01 228.52 193.54 113.71
12/31/98 110.45 293.81 211.77 78.44
</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,
1993, and that all dividends were reinvested.
NOTE 1: The Standard & Poor's Natural Gas Distribution/Pipeline Group
consists of the following companies: The Coastal Corporation, Columbia Energy
Group, Consolidated Natural Gas Company, Eastern Enterprises, Enron Corp., NICOR
Inc., ONEOK Inc., Peoples Energy Corporation, Sempra Energy, Sonat Inc. and The
Williams Companies, Inc.
NOTE 2: The Standard & Poor's Oil & Gas (Exploration & Production) Group
consists of the following companies: Anadarko Petroleum Corporation, Apache
Corporation, Burlington Resources, Inc., Kerr-McGee Corporation, Oryx Energy
Company and Union Pacific Resources Group, Inc.
18
<PAGE> 21
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
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
the Director has met the other eligibility requirements of the Plan) in the
event the Director ceases to be a Director following a Change of Control. The
balance in a Director's account in the Director's Fees Deferral Plan will be
distributed in a lump sum if the Director's service as a Director is terminated
within three years following a Change of Control, regardless of any other
elections the Director may have made with respect to the timing and manner of
payment of amounts in the 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 the officer's 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 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 in connection with a Change of Control, the executive officer
would receive the difference between (1) the "change of control price" and (2)
the exercise price of the Limited SAR or SAR.
The El Paso Merger, if consummated, will constitute a Change of Control for
the foregoing purposes and for purposes of the Executive Severance Agreements
described below.
EXECUTIVE SEVERANCE AGREEMENTS
The Company has Executive Severance Agreements with Messrs. Kuehn, Holmes,
Moylan, Rubright 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 (April 30, 2001 for Mr. Kuehn and age 65 for
the other officers) 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 severance
payment equal to three times his "earnings" (defined to include the sum of (a)
the executive's annual base pay, (b) the largest
19
<PAGE> 22
cash bonus payable to the executive either upon the Change of Control or in the
previous two years, and (c) the average value of the executive's stock option
and restricted stock grants over the last three years) (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 is not otherwise entitled to an early retirement benefit under the
Retirement Plan, a lump-sum payment in an amount equal in value to the annual
benefit such officer would have received had he been entitled to an early
retirement benefit (reduced by any benefits payable to him under the Retirement
Plan and the Supplemental Benefit Plan), and the 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 April 1,
1999, 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 items (1) and (3) above: Mr. Kuehn, $6,854,989 in
severance pay and $0 in retirement benefits; Mr. Holmes, $4,229,280 in severance
pay and $39,141 in retirement benefits; Mr. Moylan, $2,968,032 in severance pay
and $554,553 in retirement benefits; Mr. Rubright, $4,229,280 in severance pay
and $159,945 in retirement benefits; and Mr. Smith, $3,022,254 in severance pay
and $1,245,418 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. In no event
shall the Agreements terminate within three years after a Change of Control, or
during any period in which a Change of Control is threatened.
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).
20
<PAGE> 23
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 2000 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,
1999.
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.
21
<PAGE> 24
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.
INSTITUTIONAL OWNERSHIP OF COMMON STOCK
The table below sets forth, as of December 31, 1998, certain information
with respect to each entity known by the Company to be the beneficial owner of
more than 5% of the Company's Common Stock. For information regarding certain
individuals known by the Company to be the beneficial owner of more than 5% of
the Company's Common Stock as of January 31, 1999, see "Ownership of Common
Stock by Directors and Executive Officers" at page 8.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT
BENEFICIAL OWNER TITLE OF CLASS BENEFICIALLY OWNED OF CLASS
- ------------------- -------------- ------------------ --------
<S> <C> <C> <C>
Putnam Investments, Inc....................... Common Stock 9,702,120 8.8
and certain of its subsidiaries.
One Post Office Square
Boston, MA 02109
</TABLE>
In a report 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, 1998, Putnam Investments, Inc. and its subsidiaries 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 M. Musgrave, Vice President -- Planning and Treasurer of the Company,
filed one late report under Section 16(a) of the Securities Exchange Act of 1934
("Section 16(a)") with respect to his initial ownership of the Company's Common
Stock. Selim K. Zilkha, a Director of the Company, filed one late report under
Section 16(a) with respect to a charitable gift 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 for the election of Directors and on Proposal No. 1. 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 $11,000. 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
22
<PAGE> 25
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 1999 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 22, 1999
23
<PAGE> 26
PROXY
SONAT SAVINGS PLAN
SONAT INC.
ANNUAL MEETING -- APRIL 22, 1999
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 22, 1999 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 22, 1999
THE BOARD RECOMMENDS A VOTE "FOR ALL NOMINEES" AND "FOR" PROPOSAL NO. 1.
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS FOR ALL NOMINEES [ ] WITHHOLD AUTHORITY [ ]
Ronald L. Kuehn, Jr., Robert J. Lanigan, (except those whose names are inserted on the line below) to vote for all nominees
Charles Marshall and Michael S. Zilkha
</TABLE>
<TABLE>
<S> <C> <C> <C>
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.
</TABLE>
Dated ___________, 1999 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., James A. Rubright 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 22, 1999 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 [X]
like this.
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: [ ] [ ]
Ronald L. Kuehn, Jr., Robert J. Lanigan,
Charles Marshall and Michael S. 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 -
