def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE
14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material under § 240.14a-12 |
STONE ENERGY CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table shown below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Fee paid previously with preliminary materials. |
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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
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Date Filed: |
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STONE ENERGY CORPORATION
625 E. Kaliste Saloom Road
Lafayette, Louisiana 70508
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Thursday, May 15, 2008
To the Stockholders of Stone Energy Corporation:
The 2008 Annual Meeting of Stockholders (the Annual Meeting) of Stone Energy Corporation
(the Company) will be held on Thursday, May 15, 2008 at 10:00 a.m., local time, at the Windsor
Court Hotel, 300 Gravier Street, New Orleans, Louisiana, for the following purposes:
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To elect two individuals to the Companys Board of Directors; |
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To ratify the appointment of Ernst & Young LLP as the independent
registered public accounting firm of the Company for the fiscal year
ending December 31, 2008; |
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To approve the proposed amendment to the Companys Bylaws to eliminate
the classified structure of the Board of Directors; and |
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To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) or postponement(s) thereof. |
Information relevant to these matters is set forth in the accompanying proxy statement.
The close of business on March 20, 2008 was fixed as the record date for the determination of
stockholders entitled to receive notice of and to vote at the Annual Meeting or any adjournment(s)
or postponement(s) thereof.
You are cordially invited to attend the Annual Meeting. Whether or not you plan to attend the
Annual Meeting, we ask that you vote as soon as possible. You may vote by mailing a completed
proxy card, by telephone or via the Internet. For detailed information regarding voting
instructions, please refer to the section entitled Voting Rights and SolicitationVoting by Mail,
via the Internet or by Telephone in the accompanying proxy statement.
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By Order of the Board of Directors, |
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![-s- Andrew L. Gates, III](h55003dh5500301.gif) |
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Lafayette, Louisiana
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Andrew L. Gates, III |
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March 28, 2008
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Senior Vice President, General Counsel |
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and Secretary |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS FOR THE STOCKHOLDER
MEETING TO BE HELD ON MAY 15, 2008
This Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2008 Annual Meeting
of Stockholders, the 2007 Annual Report to Stockholders and the Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 of Stone Energy Corporation are available at
http://bnymellon.mobular.net/bnymellon/sgy.
TABLE OF CONTENTS
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i
STONE ENERGY CORPORATION
625 E. Kaliste Saloom Road
Lafayette, Louisiana 70508
(337) 237-0410
PROXY STATEMENT
These proxy materials are furnished to you in connection with the solicitation by and on
behalf of the Board of Directors (the Board) of the Stone Energy Corporation (we, our or the
Company) for use at the Annual Meeting to be held on Thursday, May 15, 2008 at 10:00 a.m., local
time, at the Windsor Court Hotel, 300 Gravier Street, New Orleans, Louisiana, or at any
adjournment(s) or postponement(s) thereof (the Annual Meeting).
The solicitation of proxies by the Board will be conducted primarily by mail. In addition,
officers, directors and employees of the Company may solicit proxies personally or by telephone,
facsimile or electronic means. These officers, directors and employees will not receive any extra
compensation for these services. We have retained BNY Mellon Shareowner Services to aid in the
distribution of proxy materials and to provide voting and tabulation services for the Annual
Meeting. For these services, we estimate that we will pay BNY Mellon a fee of approximately $7,000
and reimburse it for certain expenses. In addition, we will reimburse brokers, custodians,
nominees and fiduciaries for reasonable expenses incurred by them in forwarding proxy materials to
beneficial owners of common stock of the Company. The costs of the solicitation, including the
cost of the preparation, assembly, printing and mailing of this proxy statement, the proxy card and
any additional information furnished to stockholders, will be borne by the Company.
These proxy materials are being mailed to stockholders of the Company on or about April 8,
2008.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual Meeting are summarized in
the accompanying Notice of Annual Meeting of Stockholders. Each proposal is described in more
detail in this proxy statement.
VOTING RIGHTS AND SOLICITATION
Voting; Revocation
At the close of business on March 20, 2008, the record date for the determination of
stockholders entitled to receive notice of and to vote at the Annual Meeting, there were 28,425,995
shares of common stock outstanding, each share of which is entitled to one vote. Common stock is
the only class of outstanding securities of the Company entitled to receive notice of and to vote
at the Annual Meeting.
If you are a registered stockholder, you may revoke your proxy at any time before the shares
are voted at the Annual Meeting by:
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timely submitting a proxy with new voting instructions using the telephone or
Internet voting system; |
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voting in person at the Annual Meeting by completing a ballot; however, attending
the Annual Meeting without completing a ballot will not revoke any previously submitted
proxy; |
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timely delivery of a valid, later-dated executed proxy card; or |
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filing an instrument of revocation received by the Secretary of Stone Energy
Corporation at 625 E. Kaliste Saloom Road, Lafayette, Louisiana 70508, by 10:00 a.m. on
May 14, 2008. |
If you are a street-name stockholder and you vote by proxy, you may change your vote by
submitting new voting instructions to your bank, broker or nominee in accordance with that entitys
procedures.
1
In the absence of a revocation, shares represented by the proxies will be voted at the Annual
Meeting.
Voting by Mail, via the Internet or by Telephone
Registered Stockholders. Stockholders whose shares are registered in their own name may vote
by mailing a completed proxy card, via the Internet or by telephone. Instructions for voting via
the Internet or by telephone are set forth on the enclosed proxy card. To vote by mailing a proxy
card, sign, date and return the enclosed proxy card in the enclosed prepaid and addressed envelope
and your shares will be voted at the Annual Meeting in the manner you direct. In the event no
directions are specified, the proxies will be voted FOR each of the nominees of the Board, FOR the
ratification of the appointment of Ernst and Young LLP as the Companys independent registered
public accounting firm for the fiscal year ending December 31, 2008, FOR the proposed amendment to
the Companys Bylaws to eliminate the classified structure of the Board, and in the discretion of
the proxy holders (Richard A. Pattarozzi, David H. Welch and B.J. Duplantis) as to any other
matters that may properly come before the Annual Meeting.
Street Name Holders. If your shares are registered in the name of a bank or brokerage firm
and you have not elected to receive your proxy materials electronically, you may nevertheless be
eligible to vote your shares over the Internet or by telephone rather than by mailing a completed
voting instruction card provided by the bank or brokerage firm. Please check the voting
instructions card provided by your bank or brokerage firm for availability and instructions. If
Internet or telephone voting is unavailable from your bank or brokerage firm, please complete and
return the enclosed voting instruction card in the prepaid and addressed envelope provided.
Quorum; Required Votes
The presence at the Annual Meeting, in person or by proxy, of the stockholders entitled to
cast at least a majority of the votes that all common stockholders are entitled to cast is
necessary to constitute a quorum. Each vote represented at the Annual Meeting in person or by
proxy will be counted toward a quorum. If a quorum is not present, the Annual Meeting may be
adjourned from time to time until a quorum is obtained.
Under the rules of the New York Stock Exchange, brokers holding shares of record for a
customer have the discretionary authority to vote on some matters if the brokers do not receive
timely instructions from the customer regarding how the customer wants the shares voted. There are
also non-discretionary matters for which brokers do not have discretionary authority to vote even
if they do not receive timely instructions from the customer. When a broker does not have any
discretion to vote on a particular matter, the customer has not given timely instructions on how
the broker should vote the customers shares and the broker indicates it does not have authority to
vote the customers shares on its proxy, a broker non-vote results. Although any broker non-vote
would be counted as present at the Annual Meeting for purposes of determining a quorum, it would be
treated as not entitled to vote with respect to non-discretionary matters. For Items I, II and III
to be voted on at the Annual Meeting, brokers will have discretionary authority in the absence of
timely instructions from their customers.
Recommendations of the Board
Item I. (Election of Directors). To be elected, each nominee for election as a
Class III director must receive the affirmative vote of a plurality of the votes of the shares of
common stock cast at the Annual Meeting. This means that director nominees with the most votes are
elected. Votes may be cast in favor of or withheld from the election of each nominee. Votes that
are withheld from a directors election will be counted toward a quorum but will not affect the
outcome of the vote on this Item.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR ITEM I.
Item II. (Ratification of the Appointment of Independent Registered Public Accounting
Firm). Ratification of the appointment of Ernst & Young LLP as the Companys independent public
accounting firm for the fiscal year ending December 31, 2008 requires the affirmative vote of the
holders of a majority of the votes of the shares of common stock cast on this Item at the Annual
Meeting. Abstentions and broker non-votes will not affect the outcome of the vote on this Item.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR ITEM II.
Item III. (Amendment to the Bylaws to Eliminate the Classified Structure of the
Board). The Board has agreed to amend the Companys Bylaws to eliminate the classified structure
of the Board if there is an affirmative vote of the holders of a majority of the votes of the
shares of common stock cast in favor of this Item at the Annual Meeting. Abstentions and broker
non-votes will not affect the outcome of the vote on this Item.
2
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR ITEM III.
The Board recommends that you vote FOR each of the director nominees, FOR the ratification of
the appointment of Ernst & Young LLP as the Companys independent registered public accounting firm
for the fiscal year ending December 31, 2008, FOR the proposed amendment to the Companys Bylaws to
eliminate the classified structure of the Board, and in the discretion of the proxy holders as to
any other matters that may properly come before the Annual Meeting.
Annual Meeting Admission
If you wish to attend the Annual Meeting in person, you must present a form of personal
identification. No cameras, recording equipment, electronic devices, large bags, briefcases or
packages will be permitted in the Annual Meeting.
2007 Annual Report
The Companys 2007 Annual Report to Stockholders, including its Annual Report on Form 10-K for
the fiscal year ended December 31, 2007 as filed with the Securities and Exchange Commission, is
being mailed to all stockholders entitled to vote at the Annual Meeting. The 2007 Annual Report
does not constitute a part of the proxy soliciting material.
A copy of the Annual Report on Form 10-K for the fiscal year ended December 31, 2007,
including the financial statements and the financial statement schedules, if any, but not including
exhibits, is also available at http://bnymellon.mobular.net/bnymellon/sgy and a copy will be
furnished at no charge to each person to whom a proxy statement is delivered upon the written
request of such person addressed to the following:
STONE ENERGY CORPORATION
Attention: Chief Financial Officer
625 E. Kaliste Saloom Road
Lafayette, LA 70508
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF
PROXY MATERIALS FOR THE STOCKHOLDER
MEETING TO BE HELD ON MAY 15, 2008
The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2008 Annual Meeting
of Stockholders, the 2007 Annual Report to Stockholders and the Annual Report on Form 10-K for the
fiscal year ended December 31, 2007 of Stone Energy Corporation are available at
http://bnymellon.mobular.net/bnymellon/sgy.
3
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial ownership of common
stock as of March 20, 2008 (unless otherwise indicated) of (1) each person known by the Company to
own beneficially more than 5% of its outstanding common stock; (2) the Companys Chief Executive
Officer, the Companys Chief Financial Officer and each of the Companys other three most highly
compensated executive officers who were serving as executive officers at the end of 2007; (3) each
of the Companys directors and nominees; and (4) all executive officers and directors of the
Company as a group. Unless otherwise indicated, each of the persons below has sole voting and
investment power with respect to the shares beneficially owned by such person.
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Amount and |
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Nature of |
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Beneficial |
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Percent of |
Name of Beneficial Owner |
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Ownership(1) |
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Barclays Global Investors, N.A. (2) |
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2,522,419 |
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8.9 |
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Dimensional Fund Advisors, LP (3) |
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2,226,239 |
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7.8 |
% |
Goldman Sachs Asset Management (US) (4) |
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1,601,556 |
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5.6 |
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David H. Welch |
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208,373 |
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Kenneth H. Beer |
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59,654 |
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Jerome F. Wenzel, Jr. |
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33,132 |
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Andrew L. Gates, III |
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82,465 |
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J. Kent Pierret |
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78,068 |
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Robert A. Bernhard (5) |
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143,025 |
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George R. Christmas |
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16,000 |
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B. J. Duplantis |
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20,212 |
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John P. Laborde |
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36,137 |
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Richard A. Pattarozzi |
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14,800 |
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Donald E. Powell |
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1,600 |
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Kay G. Priestly |
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4,800 |
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David R. Voelker (6) |
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95,492 |
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Executive officers and directors as a group
(consisting of 16 persons) |
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860,962 |
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3.0 |
% |
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Less than 1%. |
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Under the regulations of the Securities and Exchange
Commission, shares are deemed to be beneficially owned
by a person if he directly or indirectly has or shares the
power to vote or dispose of, or to direct the voting or
disposition of, such shares, whether or not he has any
pecuniary interest in such shares, or if he has the right
to acquire the power to vote or dispose of such shares
within 60 days, including any right to acquire such power
through the exercise of any option, warrant or right. The
shares beneficially owned by (a) Mr. Welch include 101,000
shares, (b) Mr. Beer include 14,000 shares, (c) Mr. Wenzel
include 6,000 shares, (d) Mr. Gates include 51,200 shares,
(e) Mr. Pierret include 60,200 shares, (f) Messrs. Laborde
and Pattarozzi each include 10,000 shares, (g) Mr.
Bernhard include 8,333 shares, (h) Mr. Christmas include
9,701 shares, (i) Mr. Duplantis include 5,000 shares and
(j) the executive officers and directors as a group
include 318,634 shares, that may be acquired by such
persons within 60 days through the exercise of stock
options. Unless otherwise noted, the address for each
beneficial owner is c/o Stone Energy Corporation, 625 E.
Kaliste Saloom Road, Lafayette, Louisiana 70508. |
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Barclays Global Investors, N.A.s address is 200 Park
Avenue, 5th Floor, New York, NY 10166. The
number of shares held is based on information included in
a Schedule 13G filed on January 10, 2008. Barclays Global
Investors, N.A. is an asset management subsidiary of
Barclays Plc., an institutional investment management
firm. |
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Dimensional Fund Advisors, LPs address is 1299 Ocean
Avenue, 11th Floor, Santa Monica, California
90401. The number of shares held is based on information
included in a Schedule 13G filed on February 6, 2008.
Dimensional Fund Advisors, LP is a registered investment
advisor primarily owned by its employees and directors.
The firm was founded by David Booth and Rex Sinquefield. |
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Goldman Sachs Asset Management (US)s address is 85 Broad
Street, New York, NY 10004. The number of shares held is
based on information included in a Schedule 13G filed on
January 18, 2008. Goldman Sachs Asset Management (US) is
an asset management subsidiary of The Goldman Sachs Group,
Inc. |
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Includes 25,000 shares held by the Bernhard Trust B of
which Mr. Bernhard is the trustee and a potential
beneficiary, and 2,000 shares held by Mr. Bernhards wife. |
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Includes 65,670 shares owned by Frantzen, Voelker and
Conway Investments, L.L.C., in which Mr. Voelker owns a
20% interest. |
5
ITEM I:
ELECTION OF DIRECTORS
The Board is currently divided into three classes. The members of each class are elected to
serve a three-year term with the term of office for each class ending in consecutive years. The
Bylaws of the Company allow for a maximum of 13 directors and, currently, nine directors serve on
the Companys Board.
Based on recommendations from the Nominating and Governance Committee, the Board has nominated
Robert A. Bernhard and David H. Welch for re-election as Class III directors to serve until the
2011 Annual Meeting and until their successors have been elected and qualified, or until their
earlier resignation or removal. If, however, stockholders approve Item III (Amendment to the
Bylaws to Eliminate the Classified Structure of the Board), the Class III director nominees will
serve until the Companys 2009 Annual Meeting and until their successors have been elected and
qualified, or until their earlier resignation or removal. Each nominee is currently a director,
and both nominees were previously elected to the Board by the stockholders. Each nominee has
consented to being named as a nominee in this proxy statement and has indicated a willingness to
serve if elected.
A plurality of votes cast is required for the election of directors. Although the Board does
not contemplate that either of the nominees will be unable to serve, if such a situation arises
prior to the Annual Meeting, the proxy holders will vote for the election of such other person(s)
as may be nominated by the Board. The remaining seven directors named below will not be required
to stand for election at the Annual Meeting because their present terms expire in either 2009 or
2010.
The following table sets forth information regarding the names, ages as of March 20, 2008 and
principal occupations of the nominees and directors, other directorships in certain companies held
by them and the length of continuous service as a director of the Company.
6
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Principal Occupation and |
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Director |
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Since |
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Age |
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Class I Directors |
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David R. Voelker
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Owner, Frantzen, Voelker and Conway
Investments, LLC, a personal holding
investment company
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1993 |
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54 |
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Kay G. Priestly
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Vice President, Finance and Chief
Financial Officer, Kennecott Utah
Copper (a member of the Rio Tinto
Group Rio Tinto plc and Rio Tinto
Limited), which is a world leader in
mining, smelting and refining
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2006 |
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52 |
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Donald E. Powell
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Former Federal Coordinator of Gulf
Coast Rebuilding, former Chairman of
the Federal Deposit Insurance
Corporation, former President and
CEO of the First National Bank of
Amarillo
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2008 |
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66 |
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Class II Directors |
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George R. Christmas
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Retired Lieutenant General, U.S.
Marine Corps; President, Marine
Corps Heritage Foundation, a
private, non-profit organization,
which preserves and promotes the
history and tradition of the United
States Marine Corps
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2003 |
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68 |
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B. J. Duplantis
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Senior Partner of the law firm of
Gordon, Arata, McCollam, Duplantis
& Eagan
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1993 |
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68 |
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John P. Laborde
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Retired Chairman Emeritus, Tidewater
Inc., which has the worlds largest
workboat fleet; Chairman and
Director, VT Halter Marine, Inc.,
which is a shipbuilder; Chairman,
Laborde Marine Lifts, Inc., Laborde
Products, Inc., Lab-More Properties,
LLC, Lab-Rex LLC, and LIS Energy
Services, Inc., which are privately
held energy service companies
|
|
|
1993 |
|
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
Richard A. Pattarozzi
Chairman of the Board
|
|
Former Vice President of Shell Oil
Company, an oil and gas company;
Director, Tidewater Inc., Global
Industries, Ltd., Superior Energy
Services Inc. and FMC Technologies
Inc.
|
|
|
2000 |
|
|
|
64 |
|
|
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|
|
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|
|
|
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|
Class III Director Nominees |
|
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|
|
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Robert A. Bernhard
|
|
Consultant, MB Investment Partners,
an investment advisory firm;
Non-voting member of McFarland,
Dewey and Co. LLC, an investment
banking firm
|
|
|
1993 |
|
|
|
79 |
|
|
|
|
|
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|
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|
David H. Welch
|
|
President and Chief Executive Officer
of the Company; Director, IberiaBank
Corporation
|
|
|
2004 |
|
|
|
59 |
|
7
Each of the nominees and directors has been engaged in the principal occupation set forth
opposite his name for at least the past five years except as described below.
David H. Welch was appointed President, Chief Executive Officer and a Class III director of
the Company effective April 1, 2004. Mr. Welch most recently served as Senior Vice President of BP
America, Inc., an oil and gas exploration and exploitation company, from 2000 until 2003, and Vice
President of BP, Inc., an oil and gas exploration and exploitation company, from 1997 until 1999.
Kay G. Priestly was elected as a Class I director in 2006. Ms. Priestly is currently the Vice
President, Finance, and Chief Financial Officer of Kennecott Utah Copper, which is engaged in
mining, smelting and refining natural resources. Ms. Priestly served as Vice President, Risk
Management and General Auditor, for Entergy Corporation, an integrated energy company engaged
primarily in electric power production and retail distribution operations, from 2004 to 2006. Ms.
Priestly is the former Executive Vice President and Chief Operating Officer of American Nursing
Services, Inc., which provides nursing services, where she served from 2002 through 2003. Ms.
Priestly is a certified public accountant and has over 25 years of diverse financial and management
experience, having been named in 2000 as a managing partner of the New Orleans office of Arthur
Andersen LLP, an international accounting firm, and as a member of Arthur Andersens global
executive team.
Donald E. Powell accepted an appointment by the Board as a Class I director in March 2008.
Mr. Powell served as the Federal Coordinator of Gulf Coast Rebuilding from November 2005 until
March 2008. Mr. Powell was the 18th Chairman of the Federal Deposit Insurance
Corporation, where he served from August 2001 until November 2005. Mr. Powell previously served as
President and Chief Executive Officer of the First National Bank of Amarillo, where he started his
banking career in 1971.
THE BOARD RECOMMENDS STOCKHOLDERS VOTE FOR
ITEM I TO ELECT THE CLASS III DIRECTOR NOMINEES IDENTIFIED ABOVE.
8
CORPORATE GOVERNANCE
General
Stone Energy Corporation is committed to good corporate governance. The Board has adopted
several governance documents to guide the operation and direction of the Board and its committees,
which include Corporate Governance Guidelines, Code of Business Conduct and Ethics (which applies
to all directors and employees, including the Chief Executive Officer, Chief Finance Officer and
Chief Accounting Officer) and charters for the Audit Committee, Compensation Committee and
Nominating and Governance Committee. Each of these documents is available on our website
(www.stoneenergy.com) and stockholders may obtain a printed copy, free of charge, by sending a
written request to Stone Energy Corporation, Attention: Chief Financial Officer, 625 E. Kaliste
Saloom Road, Lafayette, Louisiana 70508, facsimile number 337-237-0426.
The Board and its Committees
The Board held 12 meetings during 2007 (including four regularly scheduled meetings) and also
took one action by written consent. Each director attended the 2007 Annual Meeting in accordance
with our policy that each director is to attend the Annual Meeting of Stockholders. Each director
also attended each of the four regularly-scheduled quarterly meetings. None of the incumbent
directors attended fewer than 75% of the total meetings of the Board and the Board committees of
which he or she was a member during 2007. Ms. Priestly missed three of the special meetings of the
Board, and Messrs. Christmas, Laborde and Pattarozzi each missed one of these meetings. Mr. Gary
attended all of the meetings prior to his death on April 28, 2007. Mr. Stone, who was Chairman of
the Board, attended all except one meeting prior to his death on January 14, 2008. Mr. Pattarozzi
was named non-executive Chairman of the Board on February 14, 2008.
Rather than adopting categorical standards, the Board assesses director independence on a
case-by-case basis, in each case consistent with applicable legal requirements and the listing
standards of the New York Stock Exchange. After reviewing all relationships each director has to
the Company, including charitable contributions the Company makes to organizations where its
directors serve as board members, the Board has affirmatively determined that the following six
directors have no material relationships with the Company and are independent as defined by the
current listing standards of the New York Stock Exchange: Messrs. Bernhard, Christmas, Duplantis,
Pattarozzi and Voelker and Ms. Priestly. Mr. Welch, the Companys Chief Executive Officer, is not
considered by the Board to be an independent director because of his employment with the Company.
Mr. Laborde is not considered by the Board to be an independent director as described in more
detail under Certain Relationships and Related Transactions. The Board previously determined
that Raymond B. Gary, a Class I director who died on April 28, 2007, had no material relationship
with the Company and was an independent director and that James H. Stone, a Class III director who
died on January 14, 2008, was not an independent director because he was an executive chairman and
considered to be part of the management team as described in more detail under Certain
Relationships and Related Transactions.
To facilitate candid discussion by non-management directors, our non-management directors meet
in executive sessions that are not attended by management in conjunction with each regular board
meeting. Mr. Duplantis is an independent director who has been elected Presiding Director to
preside over meetings of non-management directors and assist in the preparation of the agenda for
each meeting. Each director is an equal participant in decisions made by the full board, and the
Presiding Director and the other independent directors communicate regularly with the Chief
Executive Officer regarding appropriate board agenda topics and other board-related matters.
Although Mr. Duplantis has previously presided over meetings of non-management directors, Mr.
Pattarozzi will assume this role in the future as non-executive Chairman of the Board.
The Board has an Anonymous Reporting Policy and Program to handle anonymously any employee
complaint or alleged wrongdoing and to prohibit retaliation against any employee who makes a
complaint or reports alleged wrongdoing. Any such complaint or report must be furnished to Ms.
Priestly, Chairman of the Audit Committee. Additionally, we have an anonymous reporting hotline
through a third party allowing employees to anonymously report any employee complaint or
allegations of wrongdoing.
The Board has the following standing committees:
Audit Committee. The Audit Committee, which currently consists of Ms. Priestly and Messrs.
Bernhard and Voelker, met eight times during 2007. Ms. Priestly is the Chairman of the Audit
Committee. Mr. Voelker missed one meeting of the Audit Committee in 2007.
9
The principal functions of the Audit Committee are to (1) annually review and reassess the
adequacy of its charter; (2) review the engagement of an independent registered public accounting
firm, including the firms qualifications and independence; (3) review with management and the
independent registered public accounting firm the Companys annual and quarterly financial
statements; (4) review with management the Companys major financial risk exposures; (5) review
changes to the Companys significant auditing and accounting principles and practices; (6) consult
with the independent registered public accounting firm regarding the firms internal
quality-control procedures and the procedures for the Companys financial reporting processes; (7)
review the significant reports prepared by the internal auditor; and (8) assist the Board in
monitoring compliance with legal and regulatory requirements.
The Board has determined that each of the members of the Audit Committee satisfy the standards
of independence established under the Securities and Exchange Commissions rules and regulations
and listing standards of the New York Stock Exchange. The Board has further determined that each
of the members of the Audit Committee is financially literate and is an audit committee financial
expert as defined by the rules and regulations of the Securities and Exchange Commission.
Nominating and Governance Committee. The Nominating and Governance Committee, which currently
consists of Messrs. Bernhard, Christmas, Duplantis, Pattarozzi and Voelker and Ms. Priestly, met
four times during 2007. Mr. Duplantis is the Chairman of the Nominating and Governance Committee.
Each of these directors was present for each of these meetings.
The principal functions of the Nominating and Governance Committee are to (1) assist the
Companys Directors in selecting individuals to be nominated for election to serve as directors and
to serve on various committees; (2) annually review and reassess the adequacy of its charter; (3)
lead the Board in its annual review of the Boards performance; and (4) review and assess the
adequacy of the Companys Corporate Governance Guidelines.
The Nominating and Governance Committee will consider nominees recommended by stockholders in
accordance with the procedures described below under Consideration of Director Nominees.
The Board has determined that each of the members of the Nominating and Governance Committee
satisfy the standards of independence established under the listing standards of the New York Stock
Exchange.
Compensation Committee. The Compensation Committee, which currently consists of Messrs.
Christmas, Pattarozzi and Voelker, met 10 times during 2007. Mr. Pattarozzi is the Chairman of the
Compensation Committee. Mr. Pattarozzi missed two of these meetings, and Mr. Voelker missed one of
these meetings.
The principal function of the Compensation Committee is to review and approve the compensation
of the officers and other employees of the Company. In addition, the Compensation Committee
administers the Companys stock incentive and cash incentive compensation plans and has the
authority to make grants pursuant to these plans. Members of the Compensation Committee are not
eligible to participate in any of the plans that they administer except as to options and/or
restricted stock granted automatically to nonemployee directors under the 2004 Amended and Restated
Stock Incentive Plan.
The Board has determined that each of the members of the Compensation Committee satisfy the
standards of independence established under the Securities and Exchange Commissions rules and
regulations and listing standards of the New York Stock Exchange.
Executive Committee. The Executive Committee, which currently consists of Messrs. Duplantis
and Welch, did not meet during 2007. The principal function of the Executive Committee is to aid
and assist the Companys management in the day-to-day operations of the Company.
Investment Committee. The Investment Committee, which currently consists of Messrs. Bernhard
and Welch and Ms. Priestly, did not meet during 2007. The principal functions of the Investment
Committee are to determine the investment objectives for the Companys cash assets and to select
and supervise one or more investment managers, as necessary.
10
Non-Management Committee. The Non-Management Committee, which currently consists of Messrs.
Bernhard, Christmas, Duplantis, Laborde, Pattarozzi and Voelker and Ms. Priestly, met in executive
session four times during 2007. Each of these directors was present for each of these meetings.
The Non-Management Committee consists of all non-management directors and meets at regularly
scheduled executive sessions without management to review and assess the strategic direction of the
Company and managements performance and to assist in planning for the succession of executive
officers. Mr. Duplantis was chosen as the Presiding Director of the committee meetings pursuant to
the Companys Corporate Governance Guidelines.
Pricing Committee. The Pricing Committee, which currently consists of Messrs. Bernhard and
Welch, did not meet during 2007. The principal function of the Pricing Committee is to determine
the price at which the Companys securities are initially sold.
Reserves Committee. The Reserves Committee, which currently consists of Ms. Priestly and
Messrs. Duplantis, Laborde and Pattarozzi, met four times during 2007. Each of these directors was
present for each of these meetings. The principal function of the Reserves Committee is to assist
the Companys management in reviewing and assessing the Companys policies and procedures in
estimating proved reserves.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is now, or at any time since the beginning of 2007 has
been, employed by or served as an officer of the Company or any of its subsidiaries or had any
relationships requiring disclosure with the Company or any of its subsidiaries. None of the
Companys executive officers are now, or at any time has been, since the beginning of 2007, a
member of the compensation committee or board of directors of another entity, one of whose
executive officers has been a member of the Companys Board or Compensation Committee.
Consideration of Director Nominees
Stockholder Nominees. The Nominating and Governance Committee will consider all properly
submitted stockholder recommendations of candidates for election to the Board. The Companys
Bylaws permit stockholders to nominate candidates for election to the Board provided that such
nominees are recommended in writing pursuant to Article III, Section 13 of the Companys Bylaws not
less than 120 days prior to the anniversary date of the immediately preceding annual meeting of the
Companys stockholders. Director nominations for the 2009 Annual Meeting of Stockholders should be
received no later than December 10, 2008. In evaluating the recommendations of stockholders for
director nominees, as with all other possible director nominees, the Nominating and Governance
Committee will address the membership criteria set forth under Director Qualifications. There
have been no material changes in the procedures by which stockholders may recommend director
nominees.
Any stockholder recommendations for director nominees should comply with the notice
requirements set forth in Article III, Section 13 of the Companys Bylaws and should be sent in
writing to:
Stone Energy Corporation
Attention: Secretary
625 E. Kaliste Saloom Road
Lafayette, Louisiana 70508
(337) 237-0426 fax
Detailed information for submitting recommendations for director nominees is available upon
written request to the Companys Secretary at the address listed above.
Identifying and Evaluating Nominees for Directors. The Nominating and Governance Committee is
responsible for leading the search for individuals qualified to serve as directors and for
recommending to the Board nominees as directors to be presented for election at meetings of the
stockholders or of the Board. The Nominating and Governance Committee evaluates candidates for
nomination to the Board, including those recommended by stockholders, and conducts appropriate
inquiries into the backgrounds and qualifications of possible candidates. The Nominating and
Governance Committee may retain outside consultants to assist in identifying director candidates in
its sole discretion, but it did not engage any outside consultants in connection with selecting the
nominees for election at the 2008 Annual Meeting. Stockholders may recommend possible director
nominees for consideration by the Nominating and Governance Committee as indicated above. No
stockholders of the Company recommended director nominees for the 2008 Annual Meeting.
11
Director Qualifications. Our Corporate Governance Guidelines contain qualifications that
apply to nominees as directors recommended by the Nominating and Governance Committee. All
candidates must possess the requisite skills and characteristics the Board deems necessary. In
addition to an assessment of a directors qualification as independent, the Nominating and
Governance Committee considers diversity, age, skills, and experience in the context of the needs
of the Board as to the long-term corporate needs for new and supplemental board expertise. In
addition, the Board looks for recognized achievement and reputation, an ability to contribute to
specific aspects of the Companys activities and the willingness to commit the time and effort
required, including attendance at Board meetings and committee meetings of which he or she is a
member.
The Companys Corporate Governance Guidelines require that a majority of the directors meet
the criteria for independence required by the New York Stock Exchange, and the Nominating and
Governance Committee considers the independence standards as part of its process in evaluating
director nominees. In accordance with these standards, a director must be determined to have no
material relationship with the Company other than as a director to be considered independent.
Processes and Procedures for Determining Executive and Director Compensation
The Compensation Committee is appointed by the Board to discharge the Boards responsibilities
relating to compensation of the Companys directors and officers. The Compensation Committee has
overall responsibility for approving and evaluating the annual employee incentive compensation plan
amount as well as the director and officer compensation plans, policies and programs of the
Company. The Compensation Committee is also responsible for preparing the report included in this
proxy statement under the caption Compensation Committee Report. The Compensation Committee has
the sole authority to retain and terminate any compensation consultant to be used to assist in the
evaluation of director or senior executive compensation and has the sole authority to approve the
consultants fees and other retention terms. The Compensation Committee also has authority to
obtain advice and assistance from internal or external legal, accounting or other advisors. The
Compensation Committee may form and delegate authority to subcommittees when appropriate.
The Compensation Committee annually reviews and approves corporate goals and objectives
relevant to senior executive compensation, evaluates the senior executives performance in light of
those goals and objectives, and recommends to the Board the compensation levels of the Chief
Executive Officer (CEO) based on this evaluation. In determining the long-term incentive
component of CEO compensation, the Compensation Committee considers the Companys performance and
relative stockholder return, the value of similar incentive awards to CEOs at comparable companies,
and the awards given to the CEO in past years. The Compensation Committee annually reviews and
makes recommendations to the Board with respect to the compensation of all directors, officers and
other key executives, including incentive-compensation plans, equity-based plans, and the grant or
award of perquisites. The Compensation Committee annually reviews and approves, for the CEO, the
executive officers, and any other person whose total compensation is reasonably likely to equal or
exceed the total compensation of any member of senior management (1) the annual base salary level,
(2) the annual incentive opportunity level, (3) the long-term incentive opportunity level, (4)
employment agreements, severance arrangements, and change in control agreements/provisions, in each
case as, when and if appropriate, and (5) any special or supplemental benefits.
Please see Compensation Discussion and Analysis for additional information on the roles of
compensation consultants, if any, and our management team in determining the form and amount of
executive compensation.
12
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and related regulations require the
Companys executive officers and directors and persons who beneficially own more than 10% of a
registered class of the Companys equity securities to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the New York Stock Exchange. Executive
officers, directors and greater than 10% beneficial owners are also required by Securities and
Exchange Commission regulation to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of copies of such forms received by it, the Company believes that,
during the period from January 1, 2007 to March 20, 2008, its officers, directors and greater than
10% beneficial owners complied with all applicable filing requirements of Section 16(a).
13
COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis describes the material elements of
compensation for Stone Energy Corporations executive officers, including the individuals who
served during fiscal 2007 as our CEO and Chief Financial Officer, respectively, as well as the
other individuals included in the Summary Compensation Table (Named Executive Officers or
NEOs). As more fully described below, the Compensation Committee makes all decisions for the
total direct compensation (base salary, incentive plan and other bonus awards, stock options, and
restricted stock) of the executive officers, including the NEOs. The day-to-day design and
administration of health, welfare, sick leave, vacation, and relocation plans, policies and
procedures applicable to salaried employees in general are handled by our Vice President, Human
Resources and Administration. The Compensation Committee remains responsible for certain
fundamental changes outside the day-to-day requirements necessary to maintain these plans and
policies.
Compensation Objectives and Philosophy
The Board and the Compensation Committee believe that the most effective executive
compensation program is one designed to reward the achievement of our specific annual, long-term
and strategic goals and align executives interests with those of the stockholders with the
ultimate objective of improving stockholder value. The Compensation Committee evaluates both
performance and compensation to ensure that we maintain the ability to attract and retain superior
employees in key positions and that overall compensation remains competitive relative to
compensation paid by our Peer Group (identified below). The compensation objectives are to attract
and retain the workforce that helps ensure our future success, to motivate and inspire employee
behavior that fosters success, to support our culture and overall business objectives, and to
provide our stockholders with a superior rate of return over time.
Our overall compensation philosophy is based on the subjective evaluation of each individual
employee within the context of and in consideration of three sets of parameters: (1) competitive
employment market dynamics, (2) the Companys absolute and relative performance, and (3) the
individuals performance and contribution. The Compensation Committee and management use these
three factors in determining an individual employees total compensation.
Competitive employment market dynamics: The oil and gas industry is currently highly
competitive for experienced workers, primarily in the technical fields. Our goal is to pay
competitively in the industry. We utilize a third party survey to ensure awareness of the
competitive dynamics of employee and officer compensation. To the extent possible, we
attempt to align the interests of employees, including officers, with the interests of our
stockholders. However, while equity awards are the most logical way to align those
interests, we are aware that equity awards also increase dilution by increasing the total
number of shares outstanding. The Board and the Compensation Committee attempt to strike a
balance to provide those elements and quantities of compensation needed to attract and
retain valuable employees and also provide our stockholders with reasonable rates of return
over time.
Our long-term incentive program is geared to the competitive employee marketplace and is
also designed to align the employees with the stockholders. Each eligible classification of
employee has a market-based target number of restricted shares to be granted as a long-term
incentive.
The Companys absolute and relative performance: Annually, the Compensation Committee sets
minimum, target and stretch performance goals in production, reserves, costs and safety,
which apply to all officers and employees. Our bonus program is 70% to 85% tied to these
goals as determined by the Compensation Committee each year. The Compensation Committee
also retains the discretion to award a percentage of the annual bonus based on its
subjective evaluation of our performance. For 2008 performance, the discretionary
percentage has been reduced to 15% and a relative per share performance parameter has been
added to further align employee and stockholder interests.
In the long term, we desire to outperform our peers in stockholder return. Thus, the
long-term incentive program is tied to the performance of the Companys stock relative to
that of its Peer Group.
The individuals performance and contribution: We have historically attempted to compensate
an individuals performance and contribution on an annual basis. Each employee, including
officers, conducts an annual performance appraisal with his immediate supervisor, which, in
the case of officers, is the CEO, to determine whether the employees performance has been
excellent, satisfactory or not satisfactory. These performance appraisals are used by
management to recommend whether the employee receives the same percentage award as others in
his group or receives some upward or downward adjustment to the basic percentage award.
Managers may also use scorecards to set goals for an individual or a group to establish
performance. The Compensation
14
Committee relies on the CEOs assessments and the Compensation Committees own observations
as to individual performance and contribution, which assessments are based on these
appraisals as well as his own evaluations. Countering individual performance is the desire
for team unity and performance.
Role of Executive Officers in Compensation Decisions
The Compensation Committee makes all compensation decisions for the NEOs and approves equity
awards to all of our officers. The CEO and the Vice President, Human Resources and Administration,
provide information and/or make recommendations to the Compensation Committee concerning
compensation, and the CEO has some discretion in making compensation decisions for employees other
than officers. The Compensation Committee determines base salaries for executive officers,
including the NEOs. The CEO proposes new base salary amounts based on his evaluation of individual
performance and expected future contributions, a review of survey data to ensure competitive
compensation against the external market, including the Peer Group, and comparison of the base
salaries of the executive officers who report directly to the CEO to ensure internal equity. The
CEO also makes recommendations to the Compensation Committee relating to measures, targets and
similar items that affect compensation, and the CEO typically attends a portion of Compensation
Committee meetings and reviews and discusses compensation matters with the Compensation Committee.
Benchmarking
In order to achieve the objective of paying competitively within the oil and gas industry, the
Compensation Committee uses a third-party market survey for the purpose of obtaining compensation
and benefits data. The Compensation Committee generally uses the same benchmark data for each form
of compensation and for each executive position. In 2007, we participated in a survey provided by
Effective Compensation, Inc. (ECI), an independent consulting firm located in Denver, Colorado
that specializes in working with clients to improve their organizations efficiency through a
competitive, focused total compensation process. The Annual Oil & Gas E&P Industry Compensation
Survey provides data for over 250 jobs found in exploration and production firms in the United
States. While participation varies from year to year, there were 112 participants in the 2007
survey.
The Compensation Committee compares each element of total compensation against a group of
publicly-traded energy companies (collectively, the Peer Group), which are participants in the
Annual Oil & Gas E&P Industry Compensation Survey. For the long-term incentive measure, which is
based on the Companys relative share price performance, we also use the Peer Group. The Peer
Group, which is periodically reviewed and updated by the Compensation Committee, consists of
companies against which the Compensation Committee believes we compete for stockholder investment.
The Peer Group in 2007 consisted of the following companies:
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Bois dArc Energy, Inc. |
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Cabot Oil & Gas Corporation, |
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Callon Petroleum Company, |
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Comstock Resources, Inc., |
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Energy Partners, Ltd., |
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Forest Oil Corporation, |
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Newfield Exploration Company, |
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St. Mary Land and Exploration Company, |
|
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Swift Energy Company, |
|
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The Houston Exploration Company, and |
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W&T Offshore, Inc. |
15
In 2008, we eliminated Cabot Oil & Gas Corporation, Comstock Resources, Inc., Forest Oil
Corporation and St. Mary Land and Exploration Company from the Peer Group. We sold substantially
all of our Rocky Mountain properties in 2007 to focus on our Gulf of Mexico properties, and the
eliminated companies are not focused in the Gulf of Mexico. We removed The Houston Exploration
Company from the Peer Group because it was acquired by Forest Oil Corporation. We also added ATP
Oil & Gas Corporation, Energy XXI (Bermuda) Limited, Mariner Energy, Inc., McMoRan Exploration
Company and PetroQuest Energy Inc. to the Peer Group in 2008.
We compete with many larger companies for top executive talent and generally set base
compensation below the market median, but we enable executives to earn a total possible
compensation for NEOs at approximately the 75th percentile of total compensation if
annual targets are met, and at the 90th percentile if stretch targets are met. Base pay
is set at the lowest 25th percentile paid to similarly situated executives of
participating companies, including the majority of the companies in the Annual Oil & Gas E&P
Industry Compensation Survey and the Peer Group. Variations may occur due to the experience of an
individual and other market factors. Over the long term, the Compensation Committees goal is to
generate stockholder returns in excess of the average of the Annual Oil & Gas E&P Industry
Compensation Survey and the Peer Group.
A significant percentage of total compensation is allocated to incentives as a result of the
philosophy outlined above. There is no official policy or target for the allocation between either
cash and non-cash or short-term and long-term incentive compensation. The Compensation Committee
reviews information provided by the independent compensation consulting firm to determine the
appropriate level and mix of incentive compensation. Income from such incentive compensation is
typically realized as a result of the performance of the Company and/or the individual, depending
on the type of award, compared to established goals.
We use the data from the Annual Oil & Gas E&P Industry Compensation Survey to match the
executive positions to organization type, which for us is the Independent Public Company Category,
then by revenue size. The data is segregated by position or job responsibilities for each of the
executives, managers and all other employees. The data includes statistical distributions at the
25th, 50th, and 75th quartiles, as well as the average. We
believe that the market data provided by the Annual Oil & Gas E&P Industry Compensation Survey
provides sufficient information on competitive employment market dynamics to fashion a competitive
compensation program designed to attract and retain those highly capable employees necessary to be
competitive in our industry.
To create greater alignment between stockholders and employee compensation, the employees,
other than administrative or clerical employees, have a base salary target below the
50th percentile (the bottom 25th percentile for officers) and then have the
opportunity to earn higher bonus amounts if we meet certain targets for performance goals such as
production growth, reserves growth/replacement, lower costs, safety performance, and stock price
performance relative to the Peer Group.
Executive Compensation Components
For the fiscal year ended December 31, 2007, the components of compensation for NEOs were:
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base salary, |
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cash incentive/discretionary bonus compensation, |
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equity incentive compensation, and |
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perquisites and other benefits. |
Base Salary. While the Compensation Committee believes it is crucial to provide salaries
within a competitive market range in order to attract and retain personnel who are highly talented,
the Compensation Committee has established a philosophy of generally providing more conservative
base salaries (bottom 25th percentile for officers) and more aggressive incentive
compensation opportunities than the market in order to strongly emphasize pay-for-performance. The
specific competitive markets considered depend on the nature and level of the positions in question
and the labor markets from which qualified individuals would be recruited. The Compensation
Committee reviews the executive groups salaries on an annual basis and adjusts them if they
deviate substantially from the marketplace, including the Peer Group.
Executive officer base salaries are based on job responsibilities and individual contribution,
with reference to base salary levels of executives at the Peer Group and ECI survey companies, and
these base salaries are included in determining severance and change in control benefits. The
Compensation Committee also considers the expected tax treatment to the Company and its executive
officers as one of the factors in determining compensation matters. Section 162(m) of the Internal
Revenue Code of 1986, as amended, generally limits the deductibility of certain
16
compensation
expenses in excess of $1 million to any individual in any fiscal year, although certain qualifying
performance-based compensation is not subject to the limits on deductibility. The Compensation
Committee currently considers the deductibility under Section 162(m) of compensation of its
executives to the extent reasonably practical and consistent with the Companys objectives, but the
Compensation Committee may nonetheless approve compensation that does not fall within these
requirements. The Compensation Committee may authorize compensation that results in amounts above
the limits if it determines that such compensation is in the best interests of the Company.
Cash Incentive/Discretionary Bonus Compensation. In February 2005, the Board approved and
adopted the Revised (2005) Annual Incentive Compensation Plan, which provides for a maximum
incentive pool equal to twice the aggregate base salaries of all eligible employees for the
relevant plan year. The Compensation Committee is responsible for determining the participants,
performance criteria to be used, award levels and allocation of generated incentives. Any allocated
incentives are awarded to individuals, including executive officers, based upon a combination of
company and individual performance factors. Our overall objective for this Plan is not to reward
employees until our stockholders have been appropriately rewarded for investing in our stock. The
Compensation Committee is not required to grant awards for all amounts available under this Plan.
The CEO is compensated for his individual performance in meeting strategic goals and
milestones. The CEO compensation is predicated primarily on the achievement of the reserves,
production, cost and safety goals which are laid out in the discussion above. In addition, the
Compensation Committee also considers certain strategic milestones which will vary from year to
year. In 2007, the Compensation Committee considered three primary strategic milestones: (1) the
sale of substantially all of the Companys Rocky Mountain properties, which was successfully
completed in June 2007, (2) the recruitment of a Vice President of Exploration, which was
successfully completed with the hiring of Richard L. Smith on July 23, 2007, and (3) the success in
the October 2007 Gulf of Mexico lease sale in which Stone acquired 16 new offshore blocks,
comprising approximately 5,000 acres for each block, for a total of $13 million.
In compensating the other named executives, the CEO and Compensation Committee also considered
the contributions of each of these individuals to the achievement of the reserves, production, cost
and safety goals as well as certain specific functional milestones, which vary from year to year.
We believe that attracting, motivating and retaining highly qualified, highly capable
employees is critical to our success. We have designed our compensation program to attract,
motivate and retain top quality employees. The compensation program is also designed to align
employee rewards with shareholder returns. To attract, motivate and retain employees, the base
salaries must be market competitive or other elements of compensation must be added to make
compensation market competitive. To align stockholder returns and employee rewards, the bonus
program is tied to the drivers of value and profit creation. Those drivers include reserves,
production, costs and safety. Increasing reserves and production while managing costs and safety
increase the value of the Company, which should lead to realizing greater shareholder value.
Under the Plan, annual cash incentive payments are primarily tied to several performance
criteria determined by the Compensation Committee on an annual basis. The Compensation Committee
established the 2007 performance goals for the Plan and their relative weighting:
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growing production (20%), |
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growing reserves (20%), |
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managing lease operating expenses (20%), |
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managing total recordable incident rates for safety matters (10%), and |
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a discretionary portion (30% ). |
We selected the business metrics because they are the primary operating metrics that we use in
evaluating our performance. The Production measure is the average daily rate of production during
2007. The Reserves measure is the amount of estimated proved reserves booked during 2007 as a
result of drilling activity authorized by the $320 million capital expenditures budget, plus a $20
million contingency fund held by the Board. The Reserves measure excludes pricing revisions (for
2007, pricing revisions would have resulted in an additional 12 Bcfe that are not included in the
actual results set forth below) and significant acquisitions. The Lease Operating Expenses factor
is the total dollar amount attributable to base lease operating expenses, excluding major
maintenance items, in 2007. The Total Recordable Incident
17
Rate factor is the number of safety incidents per 200,000 man-hours worked for employees and
certain contractors. The discretionary factor is within the sole discretion of the Compensation
Committee.
To achieve the full points allocated for a particular measure, the target amount must be
achieved, and no points are earned if less than the minimum amount is achieved. Achieving the
stretch amount earns 200% of the points for that measure and should be difficult but highly
advantageous to the Company to achieve.
To the extent that performance criteria are met, an incentive pool is generated from which
annual cash incentive payments are awarded. The amount of the incentive pool, however, may not
exceed twice the aggregate base salaries of all eligible employees for the relevant plan year. The
Compensation Committee established the 2008 performance goals for the Plan, and the performance
factors include growing production (20%), growing reserves (20%), managing lease operating expenses
(15%), managing total recordable incident rates for safety matters (10%), and the performance of
the Companys stock price relative to its peers (20%), leaving a 15% factor in the sole discretion
of the Compensation Committee.
For the 2007 performance year, a Company-wide total of $9.1 million for cash incentive/bonus
compensation was paid on March 10, 2008. Awards granted to the NEOs for the 2007 performance year
are presented under Bonus and Non-Equity Incentive Plan Compensation in the Summary
Compensation Table.
As approved by the Compensation Committee and the Board, there were four measures of
performance with associated targets plus one discretionary measure used to determine the amounts
earned for cash incentive compensation in 2007. Achieving the target performance for all measures
would yield a score of 70 points. An additional 30 points could be awarded in the sole discretion
of the Compensation Committee. Earning 100 points results in an annual cash incentive opportunity
for each executive officer of the Company of 100% of annual base salary. For 2007, the
Compensation Committee determined that one hundred twenty (120) points had been earned, including
30 discretionary points. The Compensation Committee awarded the discretionary points because the
Company satisfied three primary strategic milestones: (1) the sale of substantially all of the
Companys Rocky Mountain properties, which was successfully completed in June 2007, (2) the
recruitment of a Vice President of Exploration, which was successfully completed with the hiring of
Richard L. Smith on July 23, 2007, and (3) the success in the October 2007 Gulf of Mexico lease
sale in which Stone acquired 16 new offshore blocks, comprising approximately 5,000 acres for each
block, for a total of $13 million.
The target points and earned points for each of the four measures in 2007 are set forth below:
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Target Points |
|
Earned Points |
Reserves |
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|
20 |
|
|
|
17 |
|
Production |
|
|
20 |
|
|
|
36 |
|
Lease Operating Expenses |
|
|
20 |
|
|
|
24 |
|
Safety (total recordable incident rate) |
|
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10 |
|
|
|
13 |
|
Discretionary |
|
|
30 |
|
|
|
30 |
|
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Total |
|
|
100 |
|
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|
120 |
|
The Committee and the Board had approved the following performance measures and targets to be
used in determining the annual cash incentive compensation pool for 2007:
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Target |
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Earned |
Factor |
|
Minimum |
|
Target |
|
Stretch |
|
Results |
|
Points |
|
Points |
Reserves (Bcfe) |
|
|
57 |
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74.3 |
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|
95 |
|
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|
72 |
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|
20 |
% |
|
|
17 |
% |
Production (MMcfe/d) |
|
|
180 |
* |
|
|
197 |
* |
|
|
230 |
* |
|
|
224 |
|
|
|
20 |
% |
|
|
36 |
% |
Base LOE ($MM) |
|
$ |
90 |
* |
|
$ |
85 |
* |
|
$ |
75 |
* |
|
|
83 |
|
|
|
20 |
% |
|
|
24 |
% |
Safety (Total
Recordable Incident
Rate) |
|
|
1.5 |
|
|
|
1.0 |
|
|
|
0.5 |
|
|
|
86 |
|
|
|
10 |
% |
|
|
13 |
% |
Discretionary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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30 |
% |
|
|
30 |
% |
|
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|
* |
|
Production targets were reduced as a result of the sale of the Rocky Mountain properties, from 200
to 180, from 215 to 197, and from 250 to 230. LOE targets were similarly reduced from $95, $90 and
$80. |
18
The Compensation Committee and the Board approved the following performance measures and
targets to be used in determining the annual cash incentive compensation pool for 2008:
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|
|
|
|
|
|
|
|
Factor |
|
Minimum |
|
Target |
|
Stretch |
|
Points |
Reserves (Bcfe) |
|
|
60 |
|
|
|
71 |
|
|
|
90 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production (MMcfe/d) |
|
|
175 |
|
|
|
195 |
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|
215 |
|
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|
20 |
|
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|
|
|
|
|
|
Total LOE ($MM) |
|
$ |
149 |
|
|
$ |
145 |
|
|
$ |
130 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Safety (Total Recordable Incident Rate) |
|
|
1.05 |
|
|
|
0.85 |
|
|
|
.065 |
|
|
|
10 |
|
|
|
|
|
|
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Relative Stock Performance |
|
|
#7 |
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#3 |
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#1 |
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|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Discretionary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
For 2008, the operating metrics are defined as they were in 2007, except that the Reserves
measure is the amount of estimated proved reserves booked during 2008 as a result of drilling
activity authorized by the $395 million capital expenditures budget. The Reserves measure excludes
revisions due to pricing and significant acquisitions. In addition, the Committee approved the
addition of a new metric to address the relative ranking of our stock price performance as compared
to our Peer Group of eleven companies. This factor was added to reinforce our objective that
compensation be tied to our performance and increasing stockholder value. For 2008, the Lease
Operating Expenses factor is the total dollar amount attributable to base lease operating expenses,
including major maintenance and insurance premiums.
Stock Incentive Plan. Stock option and restricted stock grants are designed to align the
long-term interests of the Companys employees with those of its stockholders by directly linking
compensation to stockholder return, as well as by enabling employees to develop and maintain a
significant, long-term equity ownership position in the Company. The Companys 2004 Amended and
Restated Stock Incentive Plan (Stock Incentive Plan) currently authorizes the Compensation
Committee to award stock incentives for up to 4,225,000 shares of common stock. The Compensation
Committee grants non-statutory options at an exercise price equal to the fair market value of the
Companys common stock on the date of grant. Options granted to employees generally have 10-year
terms, with exercise restrictions that lapse over a five-year period. Options granted to
non-employee directors have had 5-year terms, with exercise restrictions that lapse over a
three-year period. The Plan requires stockholder approval to amend any outstanding option contract
to lower the option price. Stock options provide for financial gain derived from the potential
appreciation in stock price from the date that the option is granted until the date that the option
is exercised. The exercise price of stock option grants is set at fair market value (average of
the Companys high and low stock price) on the grant date. The Companys long-term performance
ultimately determines the value of stock options because gains from stock option exercises are
entirely dependent on the long-term appreciation of the Companys stock price. Restricted stock
grants are to fully vest in two or more years at the discretion of the Compensation Committee, and,
with very few exceptions, the restricted stock grants fully vest in three years. In 2007, there
was a total of 218,084 shares granted (restricted stock and stock options) pursuant to the plan.
Long-Term Incentive Program. The implementation of the Long-Term Incentive Program (LTIP)
in 2006 was designed to provide compensation for performance and be competitive for similar
positions in the marketplace. The size of the awards under the LTIP is determined by the Companys
prior year performance. However, the performance factor was not used in determining the awards
granted in 2006 and January of 2007 due to merger discussions in 2006 and our desire to facilitate
retention objectives by providing awards that were at the target level subject to time-based
vesting requirements.
The LTIP creates guidelines established by the Compensation Committee pursuant to which grants
of restricted shares are made pursuant to the Stock Incentive Plan. Long-term incentive grants to
executive officers are based on job responsibilities and potential for individual contributions,
with reference to the levels of total compensation of executives at the Peer Group and ECI survey
companies. When it makes grants, the Compensation Committee also considers prior grants of stock
options and restricted shares, and the Compensation Committee exercises judgment and discretion in
view of these criteria and its general policies. Participants receive awards of restricted shares
50% of which are based solely on market competitive dynamics and 50% of which are based on a
defined performance factor; the restrictions on the restricted shares awarded lapse over a
three-year period. Mr. Welch has a provision in his employment agreement providing that, after he
has completed five consecutive years of employment with the Company as President and CEO, the Board
will agree that he will not be required to forfeit upon his retirement any unvested stock options
or restricted shares
19
that were granted to him and the options will continue to vest and the restrictions will
continue to lapse without his being an employee.
The defined performance factor for 2007 was a relative share price factor (RSPF) that was
designed to yield a value of 0.5 for poor performance and a 1.5 value for outstanding performance.
The defined performance factor for 2007 was 1.25 because the Company was tied for third in the
relative peer position based on the Companys stock relative share price factor (averaging 1.3 for
third place and 1.2 for fourth place resulted in 1.25). The restricted stock and stock option
awards in January 2008 reflected this 2007 performance factor. There was no 2006 performance
factor used in granting awards in 2006 and January 2007, and, therefore, awards in 2006 and January
2007 were granted solely at the target level (1.0). Poor performance is defined as the change in
percentage share price being in the bottom of the Peer Group and outstanding performance as the
change in percentage share price being in the top of the Peer Group with interpolation as per the
table below. Thus, if performance was better than average, the LTI shares awarded would have been
greater than target and if performance was worse than average, the LTI shares awarded would have
been lower than target.
|
|
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|
|
|
|
|
|
|
|
|
|
Relative Peer |
|
|
|
|
|
|
Position (RPP) |
|
RSPF |
|
RPP |
|
RSPF |
1
|
|
|
1.5 |
|
|
|
7 |
|
|
|
1.0 |
|
2
|
|
|
1.5 |
|
|
|
8 |
|
|
|
0.9 |
|
3
|
|
|
1.3 |
|
|
|
9 |
|
|
|
0.8 |
|
4
|
|
|
1.2 |
|
|
|
10 |
|
|
|
0.7 |
|
5
|
|
|
1.1 |
|
|
|
11 |
|
|
|
0.5 |
|
6
|
|
|
1.0 |
|
|
|
12 |
|
|
|
0.5 |
|
The above table shows the relative ranking of the Company in the Peer Group and the
corresponding relative share price performance factor (RSPF). For example, if the Company is in
the number 3 position in the Peer Group performance (i.e. the Companys average daily share price
change relative to the peers), then the share multiplier would be 1.3, if the Company is in the
number 12 position, then the share multiplier would be 0.5. For 2007, the Company was tied for the
number 3 position, and, therefore, it averaged the number 3 and 4 positions (1.3 and 1.2) to
achieve a 1.25 performance factor. This performance factor, used in granting restricted stock
awards in January 2008, affects one-half of the target number of shares, and, for example, if an
executive is targeted for 7,000 shares, 3,500 shares would be multiplied times 1.25 to result in a
total award of 7,875 (3,500 plus 4,375) shares. The 2007 performance levels determined the size of
awards made in 2008.
401(k) Plan. Under our 401(k) profit sharing plan, eligible employees are permitted to defer
receipt of up to 60% of their compensation up to a maximum amount, plus up to an additional $5,000
catch-up adjustment for employees over the age of 50 (subject to certain limitations imposed under
the Code). The plan provides that a discretionary match of employee deferrals, before catch-up
adjustments, may be made by the Company, at its discretion, in cash or shares of common stock.
During the year ended December 31, 2007, and since the inception of this plan, we have made annual
matching contributions of $1 for every $2 contributed by an employee.
Deferred Compensation Plan. The Stone Energy Corporation Deferred Compensation Plan provides
eligible executives and other highly compensated individuals with the option to defer up to 100% of
their compensation for a calendar year, and the Compensation Committee may, at its discretion,
match a portion or all of the participants deferral based upon a percentage determined by the
Board. The amounts held under the plan are invested in various investment funds maintained by a
third party in accordance with the direction of each participant. During the year ended December
31, 2007, and since the inception of this plan, there were no matching contributions made by the
Company, and the Compensation Committee does not anticipate any matching contributions in 2008.
Perquisites and Other Benefits. Perquisites and other benefits represent a small part of our
overall compensation package. These benefits help us attract and retain senior level executives and
are reviewed periodically to ensure that they are competitive with industry norms. The perquisites
for the CFO included inducements to move to the Companys headquarters in Lafayette, Louisiana,
consisting of temporary housing assistance (now expired) with cash payments to cover the tax
liability for the imputed value of such assistance. We also sponsor membership in golf or social
20
clubs for certain senior executives who have responsibility for entertainment deemed necessary
or desirable to conduct business and recruit employees.
The NEOs also participate in a variety of retirement, health and welfare, and paid time-off
benefits designed to enable us to attract and retain our workforce in a competitive marketplace.
Health and welfare and paid time-off benefits help ensure that we have a productive and focused
workforce through reliable and competitive health and other benefits that are available to all
employees on a non-discriminatory basis. However, the Company continues to pay life insurance
premiums for policies that were purchased for the benefit of its officers in prior years, with Mr.
Gates being the only current NEO with such a policy.
Severance Plan and Change of Control Plans. Our severance and change of control plans are
designed to facilitate our ability to attract and retain executives as we compete for talented
employees in a marketplace where such protections are commonly offered. We believe that providing
consistent, competitive levels of severance protection to senior executives helps minimize
distraction during times of uncertainty and helps to retain key employees. The severance plans
provide benefits to ease an employees transition due to the unexpected employment termination by
the Company due to ongoing changes in the Companys employment needs. The Compensation Committee
is responsible for administering these policies and plans.
Tax Deductibility of Pay. The Compensation Committee also considers the expected tax
treatment to the Company and its executive officers as one of the factors in determining
compensation matters. Section 162(m) of the Internal Revenue Code of 1986, as amended, generally
limits the deductibility of certain compensation expenses in excess of $1 million to any individual
in any fiscal year, although certain qualifying performance-based compensation is not subject to
the limits on deductibility. The Compensation Committee currently considers the deductibility
under Section 162(m) of compensation of its executives to the extent reasonably practical and
consistent with the Companys objectives, but the Compensation Committee may nonetheless approve
compensation that does not fall within these requirements. The Compensation Committee may
authorize compensation that results in amounts above the limits if it determines that such
compensation is in the best interests of the Company. None of the Companys officers or employees
received more than $1 million in base salary in 2006 or in 2007.
Sections 280G and 4999. We provide our CEO and CFO with certain tax protection in the form of
a gross-up payment to reimburse the executive for any excise tax under Code Section 4999 as well as
any additional income taxes resulting from such reimbursement. Code Section 4999 imposes a 20%
non-deductible excise tax on the recipient of an excess parachute payment and Code Section 280G
disallows the tax deduction to the payor of any amount of an excess parachute payment that is
contingent on a change of control. A payment as a result of a change of control must exceed three
(3) times the executives base amount in order to be considered an excess parachute payment, and
then the excise tax is imposed on the parachute payments that exceed the executives base amount.
The intent of the tax gross-up is to provide a benefit without a tax penalty to these executives
who are displaced in the event of a change of control. We believe the provision of tax protection
for excess parachute payments for these executive officers is consistent with market practice, is a
valuable executive retention tool, and is consistent with the objectives of our overall executive
compensation program.
Section 409A. We operate our plans in good faith compliance with Section 409A as permitted by
the regulations issued by the Internal Revenue Service. We have amended our plans as necessary to
comply with Code Section 409A requirements.
Accounting for Stock-Based Compensation. We are accounting for stock-based payments in
accordance with the requirements of Statement of Financial Accounting Standard 123(R).
21
COMPENSATION COMMITTEE REPORT
The Compensation Committee does hereby state that:
|
(A) |
|
The Compensation Committee has reviewed and discussed the foregoing
Compensation Discussion and Analysis with management; and |
|
|
(B) |
|
Based on the review and discussions, the Compensation Committee recommended to
the Board of Directors that the Compensation Discussion and Analysis be included in
Stone Energy Corporations proxy statement and incorporated by reference into Stone
Energy Corporations Annual Report on Form 10-K for the fiscal year ended December 31,
2007. |
Compensation Committee,
Richard A. Pattarozzi Chairman
George R. Christmas
David R. Voelker
22
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth the compensation earned by the NEOs for services rendered in
all capacities to the Company and its subsidiaries for the fiscal years ended December 31, 2007 and
December 31, 2006.
SUMMARY COMPENSATION TABLE
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
Option |
|
Plan |
|
All Other |
|
|
Name and |
|
|
|
|
|
|
|
|
|
Bonus |
|
Awards |
|
Awards |
|
Compensation |
|
Compensation |
|
Total |
Principal Position |
|
Year |
|
Salary ($) |
|
($) (1) |
|
($) (2) |
|
($) (3) |
|
($) (4) |
|
($) (5) |
|
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David H. Welch |
|
|
2007 |
|
|
$ |
465,000 |
|
|
$ |
136,250 |
|
|
$ |
1,190,364 |
|
|
$ |
797,966 |
|
|
$ |
408,750 |
|
|
$ |
17,864 |
|
|
$ |
3,016,194 |
|
President and Chief |
|
|
2006 |
|
|
|
430,000 |
|
|
|
193,500 |
|
|
|
942,572 |
|
|
|
698,649 |
|
|
|
236,500 |
|
|
|
17,251 |
|
|
|
2,518,472 |
|
Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth H. Beer |
|
|
2007 |
|
|
|
295,000 |
|
|
|
87,500 |
|
|
|
465,300 |
|
|
|
161,060 |
|
|
|
262,500 |
|
|
|
13,616 |
|
|
|
1,284,976 |
|
Senior Vice President |
|
|
2006 |
|
|
|
275,000 |
|
|
|
123,750 |
|
|
|
354,667 |
|
|
|
133,740 |
|
|
|
151,250 |
|
|
|
43,174 |
|
|
|
1,081,581 |
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
Jerome F. Wenzel, Jr. |
|
|
2007 |
|
|
|
230,000 |
|
|
|
72,500 |
|
|
|
223,447 |
|
|
|
38,260 |
|
|
|
217,500 |
|
|
|
7,750 |
|
|
|
789,457 |
|
Senior Vice President, |
|
|
2006 |
|
|
|
208,646 |
|
|
|
93,891 |
|
|
|
206,452 |
|
|
|
38,260 |
|
|
|
114,755 |
|
|
|
17,500 |
|
|
|
679,504 |
|
Operations/Exploitation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew L. Gates, III |
|
|
2007 |
|
|
|
220,000 |
|
|
|
55,000 |
|
|
|
219,016 |
|
|
|
65,679 |
|
|
|
165,000 |
|
|
|
11,540 |
|
|
|
736,235 |
|
Senior Vice President, |
|
|
2006 |
|
|
|
200,000 |
|
|
|
90,000 |
|
|
|
141,573 |
|
|
|
83,027 |
|
|
|
110,000 |
|
|
|
11,000 |
|
|
|
635,600 |
|
General Counsel &
Secretary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Kent Pierret |
|
|
2007 |
|
|
|
210,000 |
|
|
|
62,500 |
|
|
|
190,257 |
|
|
|
62,323 |
|
|
|
187,500 |
|
|
|
8,130 |
|
|
|
720,710 |
|
Senior Vice President, |
|
|
2006 |
|
|
|
182,500 |
|
|
|
82,125 |
|
|
|
123,877 |
|
|
|
66,164 |
|
|
|
100,375 |
|
|
|
7,500 |
|
|
|
562,541 |
|
CAO & Treasurer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts reflected in the Bonus column for 2006 represent bonuses paid in March 2007
that related to service in 2006, which were discretionary awards granted to encourage
employee retention and stabilization necessitated by merger activities in 2006. The
amounts reflected in the Bonus column for 2007 represent bonuses paid in March 2008 that
related to service in 2007, which were discretionary awards granted by the Compensation
Committee. |
|
(2) |
|
Restricted stock awards were made pursuant to our 2004 Amended and Restated Stock
Incentive Plan. The value shown for the stock awards reflects amounts recognized in 2007
for financial reporting purposes under FAS123(R) for restricted stock awards granted during
and prior to fiscal 2007, except that estimates of forfeitures related to service-based
vesting conditions have been disregarded. See Note 9 to our audited financial statements
included in our Form 10-K for the year ended December 31, 2007 for a complete description
of the FAS123(R) valuation, including the assumptions used. |
|
(3) |
|
Stock option awards were made pursuant to our 2004 Amended and Restated Stock Incentive
Plan. The value shown for the option awards reflects amounts recognized in 2007 for
financial reporting purposes under FAS 123(R) for stock option awards granted during and
prior to fiscal 2007, except that estimates of forfeitures related to service-based vesting
conditions have been disregarded. See Note 9 to our audited financial statements included
in our Form 10-K for the year ended December 31, 2007 for a complete description of the
FAS123(R) valuation, including the assumptions used. |
|
(4) |
|
The amounts reflected in the Non-Equity Incentive Plan Compensation column relate to
services provided for the applicable fiscal year. Such amounts were earned pursuant to the
annual incentive compensation plan. |
23
|
|
|
(5) |
|
The following table provides detail for the All Other Compensation column in the
Summary Compensation Table for each of the named NEOs in 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Welch |
|
|
Mr. Beer |
|
|
Mr. Wenzel |
|
|
Mr. Gates |
|
|
Mr. Pierret |
|
Company 401(k) match |
|
$ |
7,750 |
|
|
$ |
7,750 |
|
|
$ |
7,750 |
|
|
$ |
7,750 |
|
|
$ |
7,750 |
|
Life insurance premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500 |
|
|
|
|
|
Annual dues for club memberships |
|
|
10,114 |
|
|
|
60 |
|
|
|
|
|
|
|
290 |
|
|
|
380 |
|
Housing allowance |
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax gross-up on housing allowance |
|
|
|
|
|
|
1,806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,864 |
|
|
$ |
13,616 |
|
|
$ |
7,750 |
|
|
$ |
11,540 |
|
|
$ |
8,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides detail for the All Other Compensation column in the Summary
Compensation Table for each of the named NEOs in 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Welch |
|
|
Mr. Beer |
|
|
Mr. Wenzel |
|
|
Mr. Gates |
|
|
Mr. Pierret |
|
Company 401(k) match |
|
$ |
7,500 |
|
|
$ |
7,500 |
|
|
$ |
7,500 |
|
|
$ |
7,500 |
|
|
$ |
7,500 |
|
Life insurance premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500 |
|
|
|
|
|
Annual dues for club memberships |
|
|
9,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Moving allowance |
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
Housing allowance |
|
|
|
|
|
|
24,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax gross-up on housing allowance |
|
|
|
|
|
|
10,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,251 |
|
|
$ |
43,174 |
|
|
$ |
17,500 |
|
|
$ |
11,000 |
|
|
$ |
7,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
Grants of Plan Based Awards
The following table discloses detail regarding equity awards during the fiscal year ended 2007
under plan-based grants for the NEOs. It also discloses potential future payouts under the
Companys non-equity incentive plan.
2007 GRANTS OF PLAN BASED AWARDS TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
Number |
|
|
|
|
|
Closing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
of |
|
|
|
|
|
Market |
|
Grant Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
Securities |
|
Exercise or |
|
Price on |
|
Fair Value |
|
|
|
|
|
|
Estimated Future Payouts Under |
|
of Shares |
|
Underly- |
|
Base Price |
|
Grant |
|
of Stock |
|
|
|
|
|
|
Non-Equity Incentive Plan Awards (1) |
|
of Stock |
|
ing |
|
of Option |
|
Date of |
|
and Option |
|
|
Grant |
|
Target |
|
Threshold |
|
Maximum |
|
or Units |
|
Options |
|
Awards |
|
Options |
|
Awards |
Name |
|
Date |
|
($) |
|
($) |
|
($) |
|
(#) |
|
(#) |
|
($/Sh) (2) |
|
($/Sh) (2) |
|
($) (3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David H. Welch |
|
|
1/9/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
663,800 |
|
|
|
|
1/9/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000 |
|
|
$ |
33.19 |
|
|
$ |
33.30 |
|
|
$ |
204,900 |
|
|
|
|
|
|
|
|
|
|
|
$ |
465,000 |
|
|
$ |
930,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth H. Beer |
|
|
1/9/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
331,900 |
|
|
|
|
1/9/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
$ |
33.19 |
|
|
$ |
33.30 |
|
|
$ |
136,600 |
|
|
|
|
|
|
|
|
|
|
|
$ |
295,000 |
|
|
$ |
590,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerome F. Wenzel,Jr. |
|
|
1/9/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
298,710 |
|
|
|
|
|
|
|
|
|
|
|
$ |
230,000 |
|
|
$ |
460,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew L. Gates, III |
|
|
1/9/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
232,330 |
|
|
|
|
|
|
|
|
|
|
|
$ |
220,000 |
|
|
$ |
440,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Kent Pierret |
|
|
1/9/07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
199,140 |
|
|
|
|
|
|
|
|
|
|
|
$ |
210,000 |
|
|
$ |
420,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
For 2007, achieving the targets for each of the four performance measures would have
earned 70 points or 70% of the employees targeted bonus opportunity, plus up to 30% as a
discretionary amount. Similarly, achieving the stretch goals for each performance measure
would have earned 140 points or 140% of the employees targeted incentive award
opportunity, plus up to 60% as a discretionary amount. Thus, achieving the targets could
have resulted in an award of 100% and achieving the stretch goals could have resulted in a
maximum award of 200%. If none of the minimums are achieved and if no discretionary amount
is awarded, then no cash incentive award would be granted. Please read Compensation
Discussion and Analysis Executive Compensation Components Cash
Incentive/Discretionary Bonus Compensation for additional information. |
|
(2) |
|
Option exercise price represents average of Companys high and low stock price on date
of grant. Closing market price on date of grant is disclosed if higher than option price. |
|
(3) |
|
Calculated in accordance with FAS123(R) as described in footnotes 2 and 3 to the
Summary Compensation Table. |
On January 15, 2008, Mr. Welch was granted 25,000 stock options, and Mr. Beer was granted
15,000 stock options. Stock options are priced at fair market value on the date of the grant. The
exercise price of these options is $44.67, and they vest 20% each year over a five-year period,
with the first vesting of 20% beginning on January 15, 2009. On January 15, 2008, Mr. Welch was
granted 28,125 shares of restricted stock, Mr. Beer was granted 16,875 shares of restricted stock,
Mr. Wenzel was granted 10,125 shares of restricted stock, and Messrs. Pierret and Gates were each
granted 7,875 shares of restricted stock. The forfeiture restrictions on the restricted stock
lapse 33.3% each year over a three-year period. These 2008 grants were related to 2007
performance. These grants will be shown in the 2008 Grants of Plan Based Awards Table contained
in our 2009 Proxy Statement.
25
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
The following narrative provides additional information about the various compensation plans,
programs and policies reflected in the Summary Compensation Table and the Grants of Plan-Based
Awards table.
At the annual meeting in 2004, the stockholders approved the current 2004 Amended and Restated
Stock Incentive Plan (the 2004 Plan). The 2004 Plan is an amendment and restatement of the
2001Amended and Restated Stock Option Plan, which was originally effective as of May 17, 2001 and
was also approved by the stockholders. The aggregate maximum number of shares authorized to be
issued under the 2004 Plan is 4,225,000. The 2004 Plan is the Companys only equity compensation
plan, and any awards of stock options or restricted stock are pursuant to the 2004 Plan.
The material terms of the employment agreements for Messrs. Welch and Beer are set forth below
under Employment Agreements, Termination of Employment, Severance and Change-in-Control Plans
Employment Agreements. None of the other NEOs has an employment agreement. The Company has never
paid dividends, but any restricted stock awards to employees entitle the recipient to receive
dividends, if paid, and to vote the shares. Once stock options or restricted stock are granted,
there are no performance-based conditions to vesting. Vesting of stock options occurs over a
period of five years, and restrictions lapse on restricted stock over a period of three years.
There were no material modifications of any stock option or restricted stock awards during 2007.
The proportion of salary and bonus or cash-based compensation to equity-based compensation will
vary, year to year, with the Companys stock price and with the annual bonus amounts, but, over
time, the proportions should be approximately equal.
Outstanding Equity Awards at Fiscal Year-End
The following table contains information concerning the number and value of exercisable and
unexercisable options as well as the number and value of unvested restricted stock awards at
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2007 |
|
|
Option Awards |
|
Stock Awards |
|
|
Number of |
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
Securities |
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
Underlying |
|
Underlying |
|
Option |
|
|
|
|
|
Shares or Units |
|
Market Value of Shares |
|
|
Unexercised |
|
Unexercised |
|
Exercise |
|
Option |
|
of Stock That |
|
or Units of Stock That |
|
|
Options (#) |
|
Options (#) |
|
Price |
|
Expiration |
|
Have Not Vested |
|
Have Not Vested |
Name |
|
Exercisable |
|
Unexercisable |
|
($) |
|
Date |
|
(#) |
|
($) |
David H. Welch |
|
|
|
|
|
|
15,000 |
(1) |
|
$ |
33.19 |
|
|
|
1/9/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
12,000 |
(2) |
|
|
47.75 |
|
|
|
2/7/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
18,000 |
(3) |
|
|
48.29 |
|
|
|
6/16/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
60,000 |
|
|
|
40,000 |
(4) |
|
|
48.90 |
|
|
|
4/1/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,044 |
(9) |
|
$ |
518,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,333 |
(10) |
|
|
390,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,333 |
(11) |
|
|
625,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
(12) |
|
|
938,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth H. Beer |
|
|
|
|
|
|
10,000 |
(5) |
|
$ |
33.19 |
|
|
|
1/9/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
18,000 |
(6) |
|
|
53.20 |
|
|
|
8/1/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,667 |
(13) |
|
$ |
312,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
(14) |
|
|
469,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerome F. Wenzel, Jr. |
|
|
6,000 |
|
|
|
4,000 |
(7) |
|
$ |
44.04 |
|
|
|
10/1/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,333 |
(15) |
|
$ |
109,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000 |
(16) |
|
|
422,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andrew L. Gates, III |
|
|
3,200 |
|
|
|
800 |
(8) |
|
$ |
36.46 |
|
|
|
11/14/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
18,000 |
|
|
|
|
|
|
|
32.96 |
|
|
|
12/6/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
38.79 |
|
|
|
09/10/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
58.16 |
|
|
|
5/18/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,667 |
(17) |
|
$ |
125,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000 |
(18) |
|
|
328,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Kent Pierret |
|
|
2,400 |
|
|
|
600 |
(8) |
|
$ |
36.46 |
|
|
|
11/14/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
10,800 |
|
|
|
|
|
|
|
32.96 |
|
|
|
12/6/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
2,000 |
|
|
|
|
|
|
|
38.79 |
|
|
|
09/10/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
45,000 |
|
|
|
|
|
|
|
58.16 |
|
|
|
05/18/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,333 |
(19) |
|
$ |
109,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000 |
(20) |
|
|
281,460 |
|
|
|
|
1) |
|
Stock options which vest 3,000 per year on January 9 of 2008 through 2012. |
|
2) |
|
Stock options which vest 3,000 per year on February 7 of 2008 through 2011. |
|
3) |
|
Stock options which vest 6,000 per year on June 16 of 2008 through 2010. |
|
4) |
|
Stock options which vest 20,000 per year on April 1 of 2008 and 2009. |
26
|
|
|
5) |
|
Stock options which vest 2,000 per year on January 9 of 2008 through 2012. |
|
6) |
|
Stock options which vest 6,000 per year on August 1 of 2008 through 2010. |
|
7) |
|
Stock options which vest 2,000 per year on October 1 of 2008 and 2009. |
|
8) |
|
Stock options which fully vest on November 14, 2008. |
|
9) |
|
Restricted stock grant which vests 5,522 shares per year on April 1 of 2008 and 2009. |
|
10) |
|
Restricted stock grant which fully vests on June 16, 2008. |
|
11) |
|
Restricted stock grant which vests 6,666 shares per year on February 7 of 2008 and
2009. |
|
12) |
|
Restricted stock grant which vests as follows: 6,667 shares on January 9 of 2008,
6,666 shares on January 9, 2009 and 6,667 shares on January 9, 2010. |
|
13) |
|
Restricted stock grant which fully vests on August 1, 2008. |
|
14) |
|
Restricted stock grant which vests as follows: 3,334 shares on January 9, 2008, 3,333
shares on January 9, 2009 and 3,333 shares on January 9, 2010. |
|
15) |
|
Restricted stock grant which fully vests on August 16, 2008. |
|
16) |
|
Restricted stock grant which vests 3,000 shares per year on January 9 of 2008 through
2010. |
|
17) |
|
Restricted stock grant which fully vests on August 16, 2008. |
|
18) |
|
Restricted stock grant which vests as follows: 2,334 shares on January 9, 2008, 2,333
shares on January 9, 2009 and 2,333 shares on January 9, 2010. |
|
19) |
|
Restricted stock grant which fully vests on August 16, 2008. |
|
20) |
|
Restricted stock grant which vests 2,000 shares per year on January 9 of 2008 through
2010. |
Option Exercises and Stock Vested
The following table sets forth information regarding the number of options exercised and stock
awards vested, and the related value received during 2007 for the NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTION EXERCISES AND STOCK VESTED TABLE |
|
|
Option Awards |
|
Stock Awards |
|
|
Number of |
|
|
|
|
|
Number of |
|
|
|
|
Shares |
|
Value |
|
Shares |
|
Value Realized |
|
|
Acquired |
|
Realized |
|
Acquired |
|
on |
|
|
on Exercise |
|
on Exercise |
|
on Vesting |
|
Vesting |
Name |
|
(#) |
|
($) |
|
(#) |
|
($) |
David H. Welch |
|
|
|
|
|
|
|
|
|
|
20,522 |
|
|
$ |
680,426 |
|
Kenneth H. Beer |
|
|
|
|
|
|
|
|
|
|
6,666 |
|
|
|
215,112 |
|
Jerome F. Wenzel, Jr. |
|
|
|
|
|
|
|
|
|
|
2,333 |
|
|
|
71,506 |
|
Andrew L. Gates, III |
|
|
10,000 |
|
|
|
38,550 |
|
|
|
2,666 |
|
|
|
81,713 |
|
J. Kent Pierret |
|
|
|
|
|
|
|
|
|
|
2,333 |
|
|
|
71,506 |
|
27
Non-Qualified Deferred Compensation
The following table sets forth information regarding non-qualified deferred compensation
during the last fiscal year for the NEOs.
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-QUALIFIED DEFERRED COMPENSATION TABLE |
|
|
Executive |
|
Aggregate |
|
Aggregate |
|
|
Contributions |
|
Earnings |
|
Balance at Last |
|
|
in Last FY |
|
in Last FY |
|
FYE |
Name |
|
($) (1) |
|
($) |
|
($) |
David H. Welch |
|
|
839,677 |
|
|
|
262,160 |
|
|
|
2,098,496 |
|
Kenneth H. Beer |
|
|
211,523 |
|
|
|
30,122 |
|
|
|
391,486 |
|
Jerome F. Wenzel, Jr. |
|
|
|
|
|
|
3,277 |
|
|
|
43,469 |
|
Andrew L. Gates, III |
|
|
|
|
|
|
23,098 |
|
|
|
322,463 |
|
J. Kent Pierret |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects the following amounts for each of the following NEOs that are reported as
compensation to the officer in the Summary Compensation Table: Mr. Welch $839,677 and
Mr. Beer $211,523. |
The Stone Energy Corporation Deferred Compensation Plan provides eligible executives and other
highly compensated individuals with the option to defer up to 100% of their salary and/or 100% of
their bonus for a calendar year, and the Compensation Committee may, at its discretion, match all
or a portion of the participants deferral based upon a percentage determined by the Board.
Deferral elections are made separately for salary and/or bonus not later than December for amounts
to be earned in the following year. In addition, the Board may elect to make discretionary profit
sharing contributions to the plan. Since the inception of the plan there have been no matching or
profit sharing contributions made by the Company, and the Compensation Committee does not
anticipate making any matching or profit sharing contributions in 2008.
All employee contributions to the plan and investment returns on those contributions are fully
vested, and there have not been any Company contributions to the plan. Distributions due to
termination of employment will be made as a lump-sum cash payment or in installments, based on the
participants election and subject to the six-month delay of distributions imposed on certain key
employees of the Company by section 409A of the Code. Distributions upon a change of control (as
defined in the plan) will be made in a lump sum. The amounts held under the plan are invested in
various investment funds maintained by a third party in accordance with the direction of each
participant. Investment options under the plan are identical to the investment options available
to participants in the Stone Energy Corporation 401(k) Profit Sharing Plan. Both the Deferred
Compensation Plan and the 401(k) Profit Sharing Plan utilize a mutual fund investment window that
enables participants to elect a wide variety of mutual funds. Participants may change their
investment elections daily. The investment funds and rate of return for the year ended December
31, 2007, for the investment options actually elected by one or more the NEOs for all or any
portion of 2007 are as follows:
|
|
|
David H. Welch Stock investments include Fidelity Contrafund, Fidelity
International Discovery, Fidelity Select Healthcare Fund and Fidelity Japan Fund with a
combined rate of return for the year ended December 31, 2007 of 16.1%. |
|
|
|
|
Kenneth H. Beer Stock investments include Fidelity Leveraged Co. Stock Fund,
Fidelity Diversified International Fund, Fidelity Small Cap Stock Fund and Spartan US
Equity Index with a combined rate of return for the year ended December 31, 2007 of
12.2%. |
|
|
|
|
Jerome F. Wenzel, Jr. Stock investments include Fidelity Cap Appreciation Fund,
Fidelity Spartan US Equity Index, Baron Asset Fund and Fidelity Diversified
International with a combined rate of return for the year ended December 31, 2007 of
8.2%. |
|
|
|
|
Andrew L. Gates, III Stock investments include Fidelity Mega Cap Fund, Fidelity
Balanced Fund, Fidelity Value Fund, Fidelity Convertible Securities Fund and Fidelity
Strategic Dividend and Income Fund with a rate of return for the year ended December
31, 2007 of 7.7%. |
28
Potential Payment Upon Termination or Change of Control
The table below reflects the amount of compensation to each of the NEOs of the Company in the
event of termination of such executives employment. The amount of compensation payable to each
NEO upon Involuntary Termination without cause or for Good Reason, Change of Control
termination without Cause or for Good Reason, voluntary termination, or in the event of
disability or death of the executive is shown below. These terms are based upon the definitions in
the Companys Executive Change in Control Severance Plan and the Companys Executive Change in
Control Severance Policy (2005 Executive Policy), which are described in greater detail below:
|
|
|
Cause shall mean shall mean any termination of an executives employment by reason
of the executives willful and continued failure to substantially perform their duties
after written notice of such failure has been given to the executive, or the willful
engaging by the executive in conduct that is materially injurious to the Company and
its affiliates taken as a whole, monetarily or otherwise. |
|
|
|
|
A Change of Control is generally deemed to have occurred if the event set forth
in any of the following paragraphs shall have occurred: |
|
|
|
any person is or becomes the Beneficial Owner (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of 20% or more of the combined voting power of the Companys
securities (though not including securities that were acquired directly
from the Company); |
|
|
|
|
the current Board of Directors fails to constitute the
majority of the members of the Board, unless the Board members replacing the
current members were appointed or elected by the current Board; |
|
|
|
|
an arrangement, merger or consolidation of the Company
other than a transaction which would: (1) result in the voting securities of
the Company outstanding immediately prior to such transaction continuing to
represent at least 65% of the combined voting power of the securities of the
Company or such surviving entity or any parent thereof outstanding
immediately after transaction, or (2) result in an arrangement, merger or
consolidation which is effected to implement a recapitalization of the
Company (or similar transaction) in which no person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Companys then
outstanding securities; or |
|
|
|
|
the Companys stockholders approve a plan of complete
liquidation or dissolution of the Company, or there is a sale or disposition
of all or substantially all of the Companys assets. |
|
|
|
Good Reason shall mean the occurrence (without the executives express written
consent) on or within 12 months after any Change of Control of any one of the following
acts by the Company: |
|
|
|
a material reduction in the executives annual base
salary as in effect on the date of the Change of Control; |
|
|
|
|
a material diminution in the authority, duties or
responsibilities of the Executive as in effect immediately prior to the
Change of Control; or |
|
|
|
|
a requirement that the executive transfer to a work
location that is more than 50 miles from such executives principal work
location immediately prior to the Change of Control. |
|
|
|
An Involuntary Termination means any termination of the executives employment by
the Company other than for Cause or a termination by the executive on or following a
Change of Control, but not later than 12 months after the Change of Control, for a Good
Reason. |
The following assumptions were used in determining the amounts below in the Potential Payment
Upon Termination or Change of Control Table:
|
|
|
All terminations would be effective as of December 31, 2007 (the last business day
of 2007). |
|
|
|
|
The closing share price of Stone Energy common stock as of December 31, 2007 was
$46.91. The closing price of the Companys stock on the New York Stock Exchange on
March 20, 2008 was $49.20, which could change the payout in the event of a Change of
Control. There can be no assurance that a Change of Control would produce the same or
similar results as those described if it occurs on any other date or at any other
price, or if any assumption is not correct in fact. |
|
|
|
|
The actual amounts to be paid can only be determined at the time of such executives
separation from the Company. The cash incentive compensation, for example, is a pro
rata share of the bonus opportunity for the year up to the date of termination at the
then projected year-end rate of payout in an amount, if any, as determined by the
Compensation Committee in its sole discretion. |
29
|
|
|
Outplacement services are not to exceed a cost to the Company of 5% of the base
annual salary of the executive. |
|
|
|
|
Vacation pay assumes the executive has not used any vacation days and is being paid
for all unused days. |
|
|
|
|
The 401(k) match assumes the executive is eligible for the maximum contribution. |
|
|
|
|
Tax gross-up payments reflect the amount payable to the executives to offset any
excise tax imposed under the Internal Revenue Code. The amount shown assumes the base
amount is the five-year average W-2 earnings for the period of calendar years 2002
through 2006. The benefit amount in excess of a named executive officers base amount
is considered an excess parachute payment and if the parachute payment is equal to
or greater than three times the base amount, it is subject to an excise tax. The
calculation of the gross up amounts are based upon an excise tax rate under Section
4999 of 20%, a 35% federal income tax rate and a 1.45% Medicare tax rate. We have also
made the assumptions that (1) no amounts will be discounted as attributable to
reasonable compensation, (2) all cash severance payments are contingent upon a Change
in Control, and (3) we could rebut the presumption required under applicable
regulations that the equity awards granted in 2007 were contingent upon a Change in
Control. |
30
POTENTIAL PAYMENT UPON TERMINATION OR CHANGE OF CONTROL TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary |
|
Change of Control |
|
|
|
|
|
|
|
|
|
|
|
|
Termination |
|
Termination |
|
|
|
|
|
|
|
|
|
|
|
|
w/o Cause or for |
|
w/o Cause or for |
|
Voluntary |
|
|
|
|
Name |
|
Benefit |
|
Good Reason |
|
Good Reason |
|
Termination |
|
Death |
|
Disability |
|
David H. Welch |
|
Severance (1) |
|
$ |
2,780,700 |
|
|
$ |
2,780,700 |
|
|
$ |
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
Cash incentive compensation (4) |
|
|
545,000 |
|
|
|
545,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax gross-up payment (5) |
|
|
|
|
|
|
1,605,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement (6) |
|
|
23,250 |
|
|
|
23,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) match (7) |
|
|
|
|
|
|
7,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and welfare benefits (8) |
|
|
5,451 |
|
|
|
5,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accelerated vesting (9) |
|
|
|
|
|
|
2,678,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation pay (10) |
|
|
44,712 |
|
|
|
44,712 |
|
|
|
44,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,399,113 |
|
|
$ |
7,690,809 |
|
|
$ |
44,712 |
|
|
|
|
|
|
|
|
|
|
Kenneth H. Beer |
|
Severance (1) |
|
$ |
1,764,100 |
|
|
$ |
1,764,100 |
|
|
$ |
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
Cash incentive compensation (4) |
|
|
350,000 |
|
|
|
350,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax gross-up payment (5) |
|
|
|
|
|
|
955,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement (6) |
|
|
14,750 |
|
|
|
14,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) match (7) |
|
|
|
|
|
|
7,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and welfare benefits (8) |
|
|
5,451 |
|
|
|
5,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted
stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accelerated vesting (9) |
|
|
|
|
|
|
919,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation pay (10) |
|
|
28,365 |
|
|
|
28,365 |
|
|
|
28,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,162,666 |
|
|
$ |
4,044,466 |
|
|
$ |
28,365 |
|
|
|
|
|
|
|
|
|
|
Jerome F. Wenzel, Jr. |
|
Severance (1) |
|
$ |
230,000 |
|
|
$ |
687,700 |
|
|
$ |
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
Cash incentive compensation (4) |
|
|
290,000 |
|
|
|
290,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax gross-up payment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement (6) |
|
|
11,500 |
|
|
|
11,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) match (7) |
|
|
|
|
|
|
7,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and welfare benefits (8) |
|
|
5,451 |
|
|
|
5,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted
stock accelerated
vesting (9) |
|
|
|
|
|
|
543,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation pay (10) |
|
|
22,115 |
|
|
|
22,115 |
|
|
|
22,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
559,066 |
|
|
$ |
1,567,627 |
|
|
$ |
22,115 |
|
|
|
|
|
|
|
|
|
|
Andrew L. Gates, III |
|
Severance (1) |
|
$ |
220,000 |
|
|
$ |
657,800 |
|
|
$ |
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
Cash incentive compensation (4) |
|
|
220,000 |
|
|
|
220,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax gross-up payment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement (6) |
|
|
11,000 |
|
|
|
11,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) match (7) |
|
|
|
|
|
|
7,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and welfare benefits (8) |
|
|
5,451 |
|
|
|
5,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted
stock
accelerated vesting (9) |
|
|
|
|
|
|
461,839 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation pay (10) |
|
|
21,154 |
|
|
|
21,154 |
|
|
|
21,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
477,605 |
|
|
$ |
1,384,994 |
|
|
$ |
21,154 |
|
|
|
|
|
|
|
|
|
|
J. Kent Pierret |
|
Severance (1) |
|
$ |
210,000 |
|
|
$ |
627,900 |
|
|
$ |
|
|
|
|
(2 |
) |
|
|
(2 |
) |
|
|
|
|
Cash incentive compensation (4) |
|
|
250,000 |
|
|
|
250,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax gross-up payment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement (6) |
|
|
10,500 |
|
|
|
10,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) match (7) |
|
|
|
|
|
|
7,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health and welfare benefits (8) |
|
|
5,451 |
|
|
|
5,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted
stock accelerated
vesting (9) |
|
|
|
|
|
|
397,171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vacation pay (10) |
|
|
20,192 |
|
|
|
20,192 |
|
|
|
20,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
496,143 |
|
|
$ |
1,318,964 |
|
|
$ |
20,192 |
|
|
|
|
|
|
|
|
|
|
31
|
|
|
(1) |
|
Severance amounts for Messrs. Welch and Beer are calculated by multiplying the sum of
each executives base salary and target bonus by 2.99. Mr. Welchs base salary and target
bonus are each $465,000 for 2007; Mr. Beers base salary and target bonus are each
$295,000 for 2007. |
|
(2) |
|
No additional benefits in the event of death or disability other than what is
provided under the companys life and disability benefit plans. Life insurance benefits
are 2 1/2 times annual salary with a maximum of $200,000 and disability benefits provide for
66 2/3% of salary with a maximum of $10,000 per month. |
|
(3) |
|
Severance amounts for Messrs. Wenzel, Pierret and Gates are calculated by multiplying
each executives base salary by 2.99. The 2007 base salaries for Messrs. Wenzel, Pierret
and Gates were $230,000, $210,000 and $220,000, respectively. |
|
(4) |
|
These amounts reflect the awards for each executive in 2007 under the Companys
annual incentive compensation plan and for the discretionary bonus awards; these amounts
are further discussed above in the Summary Compensation Table. |
|
(5) |
|
The tax gross-up payments for Messrs. Welch and Beer were calculated using the
assumptions referenced in the narrative above the table. |
|
(6) |
|
The amounts reported for each executives outplacement services assume that the
maximum amount of 5% of salary was paid. |
|
(7) |
|
Each 401(k) match assumes that the Company provided the executive with 50% of the
maximum amount allowable by the Internal Revenue Code such contribution, which was $15,500
for 2007. |
|
(8) |
|
The amounts reported above represent the portion of employee health insurance
premiums covered by the Company in the amount of $908.49 per month multiplied by 6 months. |
|
(9) |
|
The amounts reported above are the combination of the acceleration of both stock
options and restricted stock. The stock option portion of this amount is calculated by
multiplying the number of stock options that are in-the-money as of December 31, 2007
(meaning that the stock option exercise price is below the fair market value of the
options on the date of exercise) by the difference in the exercise price and the fair
market value of the stock options, which was $46.91 on December 31, 2007. |
|
a. |
|
Mr. Welch held 15,000 in-the-money stock options with an exercise
price of $33.19. |
|
|
b. |
|
Mr. Beer held 10,000 in-the-money stock options with an exercise
price of $33.19. |
|
|
c. |
|
Mr. Wenzel held 4,000 in-the-money stock options with an exercise
price of $44.04. |
|
|
d. |
|
Mr. Gates held 800 in-the-money stock options with an exercise price
of $36.46. |
|
|
e. |
|
Mr. Pierret held 600 in-the-money stock options with an exercise
price of $36.46. |
The restricted stock portion of the amounts above are calculated by multiplying the number
of restricted stock each executive holds as of December 31, 2007 by the fair market value of
the stock, $46.91.
|
a. |
|
Mr. Welch held 52,710 shares of restricted stock. |
|
|
b. |
|
Mr. Beer held 16,667 shares of restricted stock. |
|
|
c. |
|
Mr. Wenzel held 11,333 shares of restricted stock. |
|
|
d. |
|
Mr. Gates held 9,667 shares of restricted stock. |
|
|
e. |
|
Mr. Pierret held 8,333 shares of restricted stock. |
(10) |
|
The amounts reported above for vacation pay were calculated by using the officers
base salary divided by 52 weeks, multiplied by 5 weeks. |
Employment Agreements, Termination of Employment, Severance and Change-in-Control Plans
Employment Agreements
On May 19, 2005, the Company entered into an employment agreement, commencing August 1, 2005,
with Mr. Kenneth H. Beer. Under the agreement, Mr. Beer received (1) a base salary of $260,000
annually, (2) an award of 20,000 shares of restricted stock whereby one-third of the restrictions
will lapse each year over three years, (3) stock options to acquire 30,000 shares of the Companys
common stock (vesting 20% per year over five years), and (4) the eligibility to receive additional
awards with annual targets of 10,000 shares of restricted stock and stock options for 10,000
shares. The employment agreement does not specifically address severance provisions, but instead
provides that Mr. Beer shall receive severance benefits as set forth in the Companys Executive
Change in Control Severance Plan. The agreement further provided for relocation assistance and/or
lodging for a period not to exceed eighteen months, and this period of eighteen months has now
expired.
On January 12, 2006, the Company entered into an employment agreement with Mr. David H. Welch.
Under the agreement, upon completion of five consecutive years of employment, Mr. Welch will not
be required to forfeit, at the time of retirement, any unvested stock options or any restricted
shares, and these options will continue to vest and the restrictions will continue to lapse without
his being an employee of the Company. Additionally, upon termination by the Company, other than
for cause or by Mr. Welch for Good Reason in connection with or within twenty-four (24) months of a
Change of Control, Mr. Welch will receive a lump sum cash severance payment equal to 2.99 times the
sum of his
32
annual base salary and any target bonus at the 100% level, along with any earned but unpaid
salary and a pro rata bonus opportunity up to the date of termination, plus outplacement services
of up to 5% of his base salary. To the extent such payments are subject to any tax imposed under
Section 4999 of the Internal Revenue Code (the Excise Tax), the Company will pay Mr. Welch an
additional amount to offset the Excise Tax. The Company agreed to employ Mr. Welch through
December 31, 2008, with the term of the agreement to be automatically extended for one year on each
December 31, such that each December 31 will begin a new three-year term.
Change of Control and Severance Policies and Plans
The Companys severance and change in control policies are designed to facilitate the
Companys ability to attract and retain executives as the Company competes for talented employees
in a marketplace where such protections are commonly offered. The severance plans provide benefits
to ease an employees transition due to the unexpected employment termination by the Company due to
ongoing changes in the Companys employment needs. The change in control plans encourage employees
to remain focused on the Companys business in the event of rumored or actual fundamental corporate
changes. The Compensation Committee is responsible for administering these policies and plans.
The Company has retention and severance policies and plans currently in effect for (1) the CEO
and CFO, (2) other officers of the Company, and (3) the employees of the Company. The 2005
Executive Policy is currently applicable solely to the CEO and CFO. The 2005 Executive Policy was
amended on December 7, 2007 to comply with Internal Revenue Code Section 409A. Pursuant to
employment agreements with Messrs. Welch and Beer and the 2005 Executive Policy, if either such
executives employment is terminated following a Change of Control (other than termination by the
Company for cause or by reason of death or disability) or if such executive terminates his
employment in certain circumstances defined in the agreement or plan which constitute Good Reason,
the CEO and the CFO will each receive:
|
|
|
a base salary up to the date of termination; |
|
|
|
|
a lump sum severance payment of 2.99 times the sum of (1) the executives annual
base salary calculated using the annual salary rate in effect at the time of
termination and (2) any target bonus at the one hundred percent level for which the
executive is eligible for the fiscal year in which the termination occurs; |
|
|
|
|
a lump sum amount representing a pro rata share of the bonus opportunity up to the
date of termination at the then projected year-end rate of payout, in an amount, if
any, as determined by the Compensation Committee in its sole discretion; |
|
|
|
|
outplacement services the duration and costs for which shall be determined by the
then prevailing practice of the Human Resources Department and, in no event, shall
exceed a cost to the Company of 5% of the base annual salary of the executive; |
|
|
|
|
a Gross-Up Payment in an amount equal to the excise tax charged to the executive as
a result of the receipt of any change-of-control payments, provided that if it shall be
determined that the executive is entitled to a Gross-Up Payment but the total to be
paid does not exceed 110% of the greatest amount (the Reduced Amount) that could be
paid to the executive such that the receipt of the total would not give rise to any
excise tax, then no Gross-Up Payment shall be made and the total payments to the
executive in the aggregate shall be reduced to the Reduced Amount; and |
|
|
|
|
other benefits consistent with practices for non-executive employees. |
The other benefits, upon a Change of Control would be those benefits available to other
executives and employees on a non-discriminatory basis pursuant to the 2006 Change of
Control Plans, as amended, described below, including:
|
|
|
unexercised in-the-money stock options shall be fully vested and cancelled
immediately prior to the Change of Control for cash equal to the excess, if any, of the
product of the number of the Companys shares issuable upon exercise of the respective
stock options times the per share cash consideration to be determined by the Board in
connection with the Change of Control over the aggregate exercise price of such stock
options; |
|
|
|
|
all the remaining vesting restrictions with respect to any of the Companys
restricted stock awards issued or issuable pursuant to any of the Companys stock
incentive plans shall expire; |
33
|
|
|
the Company will contribute to its 401(k) plan a matching amount for the
participants equal to $1.00 for every $2.00 contributed as a 401(k) contribution (other
than a 401(k) catch-up contribution) by the participants in the 401(k) plan for the
period from January 1 in the calendar year of the Change of Control through the
effective date of the Change of Control, less any matching amounts previously
contributed to the 401(k) plan for such period, if any, to be credited to the 401(k)
plan participants accounts according to the terms of the 401(k) plan, up to a total
maximum matching contribution for an individual participants account that does not
exceed the limit authorized by the Internal Revenue Code for such contribution; and |
|
|
|
|
the continuation of the Health Benefit Coverages for himself and, where applicable,
his eligible dependents for the remainder, if any, of the six-month period following
the date of the Change of Control, at a cost to the Executive that is equal to the cost
for an active employee for similar coverage. |
Effective November 16, 2006, the Company adopted an Executive Change of Control and Severance
Plan (the 2006 Executive Plan) and also an Employee Change of Control Severance Plan (the 2006
Employee Plan) (collectively, the 2006 Change of Control Plans). Effective December 7, 2007,
the Company amended and restated the 2006 Change of Control Plans to comply with Internal Revenue
Code Section 409A and to provide that each of these plans shall remain in force and effect until
amended or terminated. Notwithstanding the foregoing, the plans may not be amended or terminated
to adversely affect the benefits or potential rights to benefits for a period of 12 months
following amendment or termination. In the event of a Change of Control during the existence of
either of the plans, the term of the plan shall automatically be extended for 12 months following
the date of such Change of Control. Pursuant to each of these plans, upon a Change of Control,
eligible executives and employees would receive the following:
|
|
|
unexercised in-the-money stock options shall be fully vested and cancelled
immediately prior to the Change of Control for cash equal to the excess, if any, of the
product of the number of the Companys shares issuable upon exercise of the respective
stock options times the per share cash consideration to be determined by the Board in
connection with the Change of Control over the aggregate exercise price of such stock
options; |
|
|
|
|
all the remaining vesting restrictions with respect to any of the Companys
restricted stock awards issued or issuable pursuant to any of the Companys stock
incentive plans shall expire; |
|
|
|
|
the Company will contribute to its 401(k) plan a matching amount for the
participants equal to $1.00 for every $2.00 contributed as a 401(k) contribution (other
than a 401(k) catch-up contribution) by the participants in the 401(k) plan for the
period from January 1 in the calendar year of the Change of Control through the
effective date of the Change of Control, less any matching amounts previously
contributed to the 401(k) plan for such period, if any, to be credited to the 401(k)
plan participants accounts according to the terms of the 401(k) plan, up to a total
maximum matching contribution for an individual participants account that does not
exceed the limit authorized by the Internal Revenue Code for such contribution; |
|
|
|
|
an eligible employee (but not executive) will receive a lump sum cash payment equal
to the product of (1) the number of restricted shares of the Company stock that the
employee would have received under the Companys stock plan but did not receive for his
or her targeted long-term stock incentive award, if any, for the calendar year in which
the Change of Control occurs times (2) the price per share of the Companys common
stock utilized in effecting the Change of Control, prorated by multiplying such amount
by the number of full months that have elapsed from January 1 of that calendar year to
the effective date of the Change of Control and then dividing by 12; |
|
|
|
|
an eligible executive would be eligible to receive a lump sum amount representing a
pro rata share of the bonus opportunity up to the date of termination at the then
projected year-end rate of payout, in an amount, if any, as determined by the
Compensation Committee in its sole discretion (this amount would be payable upon a
Change of Control or upon an Involuntary Termination; and |
|
|
|
|
if an eligible executive or an employee incurs an Involuntary Termination upon a
Change of Control, such executive or employee would be entitled to Health Benefit
Coverages for himself and, where applicable, his eligible dependents for six months
following the Change of Control. |
Pursuant to the 2006 Executive Plan, as amended, if an eligible executive incurred an
Involuntary Termination upon a Change of Control, he or she would also receive:
34
|
|
|
a lump sum severance payment of 2.99 times the executives annual base salary (for
an Involuntary Termination prior to a Change of Control, the amount is one year of
annual base salary); these payments are based on present salaries (at 2.99 times), and
as of December 31, 207 would be $687,700 for Mr. Wenzel, $657,800 for Mr. Gates, and
$627,900 for Mr. Pierret; and |
|
|
|
|
eligibility to receive outplacement services the duration and costs for which shall
be determined by the then prevailing practice of the Human Resources Department and, in
no event, shall exceed a cost to the Company of 5% of the base annual salary of the
executive. |
The 2006 Executive Plan, as amended, covers all of the Companys officers, except to the
extent an officer is covered by the 2005 Executive Policy, which currently applies to only Messrs.
Welch and Beer. Severance is triggered by a termination of employment by the Company for the
convenience of the Company, as determined by the Compensation Committee of the Board, whether or
not a Change of Control has occurred. On and during the 12-month period following a Change of
Control, a termination of the executive other than for Cause or a resignation for Good Reason is
deemed to be for the convenience of the Company. Executives who are terminated within the scope of
the plan would be entitled to certain payments and benefits including the following: a lump sum
equal to annual pay (or 2.99 times annual pay if the termination is on or after a Change of
Control), a pro-rated portion of the projected bonus, if any, for the year of termination or Change
of Control, continued health plan coverage for the executive and the executives eligible
dependents for six months and outplacement services of up to 5% of base salary. If the payments
would be excess parachute payments, they will be reduced as necessary to avoid the 20% excise tax
under Section 4999 of the Internal Revenue Code (the Code) but only if the executive is in a
better net after-tax position after such reduction. Also, if a payment would be to a key
employee for purposes of Section 409A of the Code, payment will be delayed until six months after
his termination if required to comply with Section 409A. Benefits paid upon a Change of Control,
without regard to whether there is a termination of employment, include the following: lapse of
restrictions on restricted stock, accelerated vesting and cash-out of all in-the-money stock
options, a 401(k) plan employer matching contribution at the rate of 50%, and a pro-rated portion
of the projected bonus, if any, for the year of Change of Control.
The 2006 Executive Plan, as amended, also requires that the executive sign a release within 45
days of an Involuntary Termination in order to receive the applicable payments for such a
termination. The release will state that the Compensation Committee, the plans fiduciaries, the
Company and the Companys parent corporation, subsidiaries, affiliates, shareholders, partners,
officers, directors, employees and agents are released from all causes of action of any kind,
including all claims or causes of action that may arise out of that executives termination. The
execution of the release and the receipt of the benefits provided under the plan will constitute
full settlement of all such claims and causes of action relating to the executives employment or
termination of employment.
Payments Made Upon Termination
Regardless of the manner in which a NEOs employment terminates, he is entitled to receive
amounts earned during his employment. Such amounts include:
|
|
|
non-equity compensation earned during the fiscal year; |
|
|
|
|
amounts contributed pursuant to the Companys Deferred Compensation Plan; |
|
|
|
|
unused vacation pay; and |
|
|
|
|
amounts accrued and vested through the Companys 401(k) Plan. |
Payments Made Upon Retirement
The Company does not have any retirement plan or pension plan for any officers or other
employees.
Payments Made Upon Death or Disability
In the event of the death or disability of a NEO, in addition to the benefits listed under the
headings Payments Made Upon Termination above, the NEO will receive benefits under the Companys
disability plan or payments under the Companys life insurance plan, as appropriate.
Payments Made Upon a Change of Control or Voluntary Termination for Good Reason
The Company has entered into employment agreements with its Chief Executive Officer and its
Chief Financial Officer. Additionally, the Company has retention and severance policies and plans
currently in effect for (1) the CEO and CFO, (2) other officers of the Company, and (3) the
employees of the Company. The Companys Executive Change in
35
Control Severance Policy (2005 Executive Policy), effective as of August 18, 2005, is
currently applicable solely to the CEO and CFO. The 2005 Executive Policy was amended on December
7, 2007 to comply with Internal Revenue Code Section 409A. Pursuant to these employment agreements
and the 2005 Executive Policy, if such executives employment is terminated following a change of
control (other than termination by the Company for cause or by reason of death or disability) or if
such executive terminates his employment in certain circumstances defined in the agreement or plan
which constitute good reason, in addition to the benefits listed under the heading Payments Made
Upon Termination:
The CEO and the CFO will each receive:
|
|
|
a base salary up to the date of termination; |
|
|
|
|
a lump sum severance payment of 2.99 times the sum of (1) the executives annual
base salary calculated using the annual salary rate in effect at the time of
termination and (2) any target bonus at the one hundred percent level for which the
executive is eligible for the fiscal year in which the termination occurs; |
|
|
|
|
a lump sum amount representing a pro rata share of the bonus opportunity up to the
date of termination at the then projected year-end rate of payout, in an amount, if
any, as determined by the Compensation Committee in its sole discretion; |
|
|
|
|
eligibility to receive outplacement services the duration and costs for which shall
be determined by the then prevailing practice of the Human Resources Department and, in
no event, shall exceed a cost to the Company of 5% of the base annual salary of the
executive; |
|
|
|
|
a Gross-Up Payment in an amount equal to the excise tax charged to the NEO as a
result of the receipt of any change-of-control payments, provided that if it shall be
determined that the executive is entitled to a Gross-Up Payment but the total to be
paid does not exceed 110% of the greatest amount (the Reduced Amount) that could be
paid to the executive such that the receipt of the total would not give rise to any
excise tax, then no Gross-Up Payment shall be made and the total payments to the
executive in the aggregate shall be reduced to the Reduced Amount; and |
|
|
|
|
other benefits consistent with practices for non-executive employees. |
The other benefits, upon a change of control in 2006 and/or 2007 would be those benefits
available to other executives and employees on a non-discriminatory basis pursuant to the
2006 Change of Control Plans described below, including:
|
|
unexercised in-the-money stock options shall be fully vested and cancelled
immediately prior to the Change of Control for cash equal to the excess, if any, of the
product of the number of the Companys shares issuable upon exercise of the respective
stock options times the per share cash consideration to be determined by the Board in
connection with the Change of Control over the aggregate exercise price of such stock
options; |
|
|
|
all the remaining vesting restrictions with respect to any of the Companys
restricted stock awards issued or issuable pursuant to any of the Companys stock
incentive plans shall expire and the restricted shares shall be treated as the
Companys common shares; |
|
|
|
the Company will contribute to its 401(k) plan a matching amount for the
participants equal to $1.00 for every $2.00 contributed as a 401(k) contribution (other
than a 401(k) catch-up contribution) by the participants in the 401(k) plan for the
period from January 1 in the calendar year of the Change of Control through the
effective date of the Change of Control, less any matching amounts previously
contributed to the 401(k) plan for such period, if any, to be credited to the 401(k)
plan participants accounts according to the terms of the 401(k) plan, up to a total
maximum matching contribution for an individual participants account that does not
exceed the limit authorized by the Internal Revenue Code for such contribution; and |
|
|
|
the continuation of the Health Benefit Coverages for himself and, where applicable,
his eligible dependents for the remainder, if any, of the six-month period following
the date of the Change of Control, at a cost to the Executive that is equal to the cost
for an active employee for similar coverage. |
Effective November 16, 2006, the Company adopted an Executive Change of Control and Severance
Plan (the 2006 Executive Plan) and also an Employee Change of Control Severance Plan (the 2006
Employee Plan)
36
(collectively, the 2006 Change of Control Plans). Effective December 7, 2007, the Company
amended and restated the 2006 Change of Control Plans to comply with Internal Revenue Code Section
409A and to provide that each of these plans shall remain in force and effect until amended or
terminated. Notwithstanding the foregoing, the plans may not be amended or terminated to adversely
affect the benefits or potential rights to benefits for a period of 12 months following amendment
or termination. In the event of a Change of Control during the existence of either of the plans,
the term of the plan shall automatically be extended for 12 months following the date of such
Change of Control. Pursuant to each of these plans, upon a Change of Control, eligible executives
and employees would receive the following:
|
|
|
unexercised in-the-money stock options shall be fully vested and cancelled
immediately prior to the Change of Control for cash equal to the excess, if any, of the
product of the number of the Companys shares issuable upon exercise of the respective
stock options times the per share cash consideration to be determined by the Board in
connection with the Change of Control over the aggregate exercise price of such stock
options; |
|
|
|
|
all the remaining vesting restrictions with respect to any of the Companys
restricted stock awards issued or issuable pursuant to any of the Companys stock
incentive plans shall expire and the restricted shares shall be treated as the
Companys common shares; |
|
|
|
|
the Company will contribute to its 401(k) plan a matching amount for the
participants equal to $1.00 for every $2.00 contributed as a 401(k) contribution (other
than a 401(k) catch-up contribution) by the participants in the 401(k) plan for the
period from January 1 in the calendar year of the Change of Control through the
effective date of the Change of Control, less any matching amounts previously
contributed to the 401(k) plan for such period, if any, to be credited to the 401(k)
plan participants accounts according to the terms of the 401(k) plan, up to a total
maximum matching contribution for an individual participants account that does not
exceed the limit authorized by the Internal Revenue Code for such contribution; |
|
|
|
|
an eligible employee (but not executive) will receive a lump sum cash payment equal
to the product of (1) the number of restricted shares of the Company stock that the
employee would have received under the Companys stock plan but did not receive for his
or her targeted long-term stock incentive award, if any, for the calendar year in which
the Change of Control occurs times (2) the price per share of the Companys common
stock utilized in effecting the Change of Control, prorated by multiplying such amount
by the number of full months that have elapsed from January 1 of that calendar year to
the effective date of the Change of Control and then dividing by 12; |
|
|
|
|
an eligible executive would be eligible to receive a lump sum amount representing a
pro rata share of the bonus opportunity up to the date of termination at the then
projected year-end rate of payout, in an amount, if any, as determined by the
Compensation Committee in its sole discretion (this amount would be payable upon a
Change of Control or upon an involuntary termination; and |
|
|
|
|
if an eligible executive or an employee incurs an Involuntary Termination upon a
Change of Control, such executive or employee would be entitled to Health Benefit
Coverages for himself and, where applicable, his eligible dependents for six months
following the Change of Control at the then employee rate. |
Pursuant to the 2006 Executive Plan, as amended, if an eligible executive incurred an
Involuntary Termination upon a change of control, he or she would also receive:
|
|
|
a lump sum severance payment of 2.99 times the executives annual base salary (for
an involuntary termination prior to a Change of Control, the amount is one year of
annual base salary); these payments based on present salaries (at 2.99 times) would be
$747,500 for Mr. Wenzel, and $687,700 each for Messrs. Pierret and Gates; and |
|
|
|
|
eligibility to receive outplacement services the duration and costs for which shall
be determined by the then prevailing practice of the Human Resources Department and, in
no event, shall exceed a cost to the Company of 5% of the base annual salary of the
executive. |
37
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information, as of December 31, 2007, regarding the shares of our
common stock that may be issued under our existing equity compensation plans.
Equity Compensation Plan Information as of December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
securities |
|
|
|
|
|
|
|
|
|
|
|
remaining available |
|
|
|
Number of |
|
|
|
|
|
|
for future issuance |
|
|
|
securities to be |
|
|
|
|
|
|
under equity |
|
|
|
issued upon |
|
|
Weighted-average |
|
|
compensation plans |
|
|
|
exercise of |
|
|
exercise price of |
|
|
(excluding |
|
|
|
outstanding |
|
|
outstanding |
|
|
securities |
|
|
|
options, warrants |
|
|
options, warrants |
|
|
reflected in column |
|
|
|
and rights |
|
|
and rights |
|
|
(a)) |
|
Plan category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation plans
approved by security holders |
|
|
931,589 |
|
|
$ |
43.72 |
|
|
|
965,122 |
|
Equity compensation plans
not approved by security holders (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
931,589 |
|
|
$ |
43.72 |
|
|
|
965,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
No equity compensation plans have been adopted without approval by security holders. |
DIRECTOR COMPENSATION
General
The following table discloses the cash, equity awards and other compensation earned, paid or
awarded, to each of the Companys directors during the fiscal year ended 2007. A description of
the fees and other awards payable to the companys directors is set forth below in the section
titled Compensation of Directors.
DIRECTOR SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or |
|
Stock |
|
Option |
|
All Other |
|
|
|
|
Paid in Cash |
|
Awards |
|
Awards |
|
Compensation |
|
Total |
Name (1) |
|
($) |
|
($) (2) |
|
($) (3) |
|
($) (4) |
|
($) |
Robert A. Bernhard |
|
|
45,000 |
|
|
|
56,774 |
|
|
|
9,538 |
|
|
|
10,000 |
|
|
$ |
121,312 |
|
George R. Christmas |
|
|
46,500 |
|
|
|
56,774 |
|
|
|
9,538 |
|
|
|
4,000 |
|
|
|
116,812 |
|
B.J. Duplantis |
|
|
46,750 |
|
|
|
56,774 |
|
|
|
9,538 |
|
|
|
10,000 |
|
|
|
123,062 |
|
Raymond B. Gary |
|
|
16,000 |
|
|
|
45,464 |
|
|
|
9,538 |
|
|
|
|
|
|
|
71,002 |
|
John P. Laborde |
|
|
39,750 |
|
|
|
56,774 |
|
|
|
9,538 |
|
|
|
|
|
|
|
106,062 |
|
Richard A. Pattarozzi |
|
|
50,750 |
|
|
|
56,774 |
|
|
|
9,538 |
|
|
|
9,150 |
|
|
|
126,212 |
|
Kay G. Priestly |
|
|
53,750 |
|
|
|
57,758 |
|
|
|
|
|
|
|
|
|
|
|
111,508 |
|
James H. Stone |
|
|
|
|
|
|
164,367 |
|
|
|
188,249 |
|
|
|
61,652 |
|
|
|
414,268 |
|
David R. Voelker |
|
|
51,500 |
|
|
|
56,774 |
|
|
|
9,538 |
|
|
|
10,000 |
|
|
|
127,812 |
|
|
|
|
(1) |
|
David H. Welch is not included in this table as he is an officer of the Company and
thus receives no compensation for his service as a director. The compensation received by
Mr. Welch is shown in the Summary |
38
|
|
|
|
|
Compensation Table. Mr. Stone died on January 14,
2008, and he was the Chairman of the Board at the time of his death. Mr. Gary died on
April 28, 2007. |
|
(2) |
|
The values shown for the stock awards reflect amounts recognized in 2007 for
financial reporting purposes under FAS123(R) for restricted stock awards granted during
and prior to fiscal 2007. See Note 9 to our audited financial statements included in our
Form 10-K for the year ended December 31, 2007 for a complete description of the FAS123(R)
valuation, including the assumptions used. The aggregate number of restricted stock
awards outstanding at December 31, 2007 is 3,200 shares for Mr. Gary, 10,000 shares for
Mr. Stone and 4,800 shares for each of the other directors. During fiscal year 2007, each
of Messrs. Bernhard, Christmas, Duplantis, Laborde, Pattarozzi and Voelker and Ms.
Priestly received a grant of 1,600 shares of restricted stock. The grant date fair value
of each directors 2007 restricted stock awards as computed in accordance with FAS 123(R)
is $54,288. |
|
(3) |
|
The values shown for the option awards reflect amounts recognized in 2007 for
financial reporting purposes under FAS123(R) for stock option awards granted during and
prior to fiscal 2007. See Note 9 to our audited financial statements included in our Form
10-K for the year ended December 31, 2007 for a complete description of the FAS123(R)
valuation, including the assumptions used. The aggregate number of stock option awards
outstanding at December 31, 2007 for the directors is as follows: 10,000 shares
outstanding for each of Messrs. Laborde, and Pattarozzi, 8,333 shares outstanding for Mr.
Bernhard, 5,000 shares outstanding for Mr. Duplantis, 9,701 shares outstanding for Mr.
Christmas and 108,000 shares outstanding for Mr. Stone. During fiscal year 2007, the
following number of options were forfeited as they expired out-of-the money: 1,667 stock
options for Mr. Bernhard and 5,000 stock options for each of Messrs. Duplantis, Gary,
Laborde, Pattarozzi and Voelker. During fiscal year 2007, there were no grants of stock
option awards to any non-employee directors. |
|
(4) |
|
Other than for Mr. Stone, the perquisites for the directors consisted solely of
matching charitable contributions of up $10,000 in the aggregate per calendar year per
director to qualified charitable organizations. In 2007, the total matching contributions
by the Company for all directors was $43,150 (United Way, Audubon Nature Institute,
University of Illinois, Blythedale Childrens Hospital, Marine Corps Heritage Foundation,
Aquia Episcopal Church, The National World War II Museum, University of Illinois
Foundation, Father Allen Scholarship Fund, and Holy Cross School). Mr. Stone received
$46,290 in perquisites in 2007 attributable to the New Orleans office; he was allocated an
additional $15,362 in 2007 for rollover perquisites from 2006. |
Retainers, Fees and Equity Compensation
Pursuant to the Companys 2004 Amended and Restated Stock Incentive Plan (the 2004 Plan),
directors of the Company who are not officers or employees of the Company or any of its
subsidiaries (Nonemployee Directors) receive, upon the date of their initial appointment to the
Board of the Company, a nonqualified stock option to purchase 5,000 shares of common stock or 1,600
shares of restricted stock. Further, as of the date of each annual meeting of the stockholders of
the Company, each Nonemployee Director, who has already received his initial option grant as
described in the preceding sentence, will receive a nonqualified stock option to purchase 5,000
shares of common stock or will receive 1,600 shares of restricted stock. The Compensation
Committee determines whether stock options or restricted stock are granted. Each option will have
an exercise price equal to the fair market value of the common stock on the date of grant. The
exercise price may be paid in cash, qualified, mature shares of common stock (valued at fair market
value at the date of exercise) or by a combination of such means of payment. Generally, the fair
market value of a share of common stock on a particular date is equal to the average of the high
and low sales prices of the common stock on the New York Stock Exchange on such date.
Except upon the occurrence of a Change of Control (as defined in the 2004 Plan), all options
granted to Nonemployee Directors under the 2004 Plan have a maximum term of 10 years and will vest
in three equal annual installments beginning on the first anniversary of the date of grant. Grants
of restricted shares are subject to forfeiture restrictions lapsing over three years, one-third per
year. Upon the occurrence of a Change of Control, each option will be exercisable in full and
forfeiture restrictions on restricted shares will lapse.
Each Nonemployee Director is paid $7,500 each quarter, plus $1,500 for attending each board
meeting and $1,500 for attending each committee meeting. Each committee chairman is paid an
additional $3,000, except the Audit Committee chairman is paid an additional $5,000. Each
Nonemployee Director is also reimbursed for expenses incurred in attending meetings of the Board
and committees thereof.
39
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a description of certain transactions entered into between the Company and
certain of its officers, directors and stockholders. The information below is also disclosed in
the Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the fiscal
year ended December 31, 2007.
Policies and Procedures
Pursuant to the Audit Committee Charter, the Audit Committee adopts policies and procedures
governing the review, approval or ratification of transactions with related persons that are
reportable under Item 404(a) of Regulation S-K, and reviews for approval or ratification all
transactions with related persons reportable under Item 404(a) of Regulation S-K in accordance with
such policies and procedures. In accordance with such policies and procedures, each officer and
director of the Company must complete a directors and officers questionnaire each year that
solicits information concerning transactions with related persons. Additionally, each quarter, the
Nominating and Governance Committee asks each director whether any issues have arisen concerning
independence, transactions with related persons or conflicts of interest. To the extent that a
transaction or a possible transaction with a related person exists, the Audit Committee determines
whether the transaction should be permitted and makes its recommendation to the Board for approval.
The Nominating & Governance Committee Charter provides that the Nominating & Governance
Committee periodically reviews all transactions (each, a Related Person Transaction) that would
require disclosure under Item 404(a) of Regulation S-K of the Securities and Exchange Commission
and makes a recommendation to the Board regarding the initial authorization or ratification of any
such transaction. In the event that the Board considers ratification of a Related Person
Transaction and determines not to so ratify, management makes all reasonable efforts to cancel or
annul such transaction. All authorized or ratified Related Person Transactions are disclosed in
the Companys applicable filings as required by the Securities Act of 1933 and the Securities
Exchange Act of 1934 and related rules. In determining whether or not to recommend the initial
approval or ratification of a Related Person Transaction, the Nominating & Governance Committee
considers all of the relevant facts and circumstances available to the Committee, including (if
applicable) but not limited to: (1) whether there is an appropriate business justification for the
transaction; (2) the benefits that accrue to the Company as a result of the transaction; (3) the
terms available to unrelated third parties entering into similar transactions; (4) the impact of
the transaction on a directors independence (in the event the Related Person is a director, an
immediate family member of a director or an entity in which a director is a partner, shareholder or
executive officer); (5) the availability of other sources for comparable products or services; (6)
whether it is a single transaction or a series of ongoing, related transactions; and (7) whether
entering into the transaction would be consistent with the Companys Code of Business Conduct and
Ethics.
Transactions
James H. Stone, a former director, owned up to 7.5% of the working interest in certain wells
drilled on Section 19 on the east flank of the Weeks Island Field prior to his death on January 14,
2008. Mr. Stones interest was acquired prior to the initial public offering of the Companys
common stock in 1993. In his capacity as a working interest owner, he was required to pay his
proportional share of all costs and was entitled to receive his proportional share of revenue. The
value of this ownership in 2007 was approximately $27,600. Mr. Stone was the executive chairman of
the Board prior to his death and was considered to be part of the management team.
The son of John P. Laborde, a Class II director, has an interest in several marine service
companies that provided services to us during 2007 and 2005 in the amounts of $672 and $1,876,
respectively, but no such services were provided to us in 2006. John P. Laborde has no interest in
these companies, and although the Board ratified these transactions, this was the sole reason Mr.
Laborde was not considered an independent director by the Board.
40
AUDIT COMMITTEE REPORT
The Audit Committees principal functions are to (1) annually review and reassess the adequacy
of its charter; (2) review the engagement of an independent registered public accounting firm,
including the firms qualifications and independence; (3) review with management and the
independent registered public accounting firm the Companys annual and quarterly financial
statements; (4) review with management the Companys major financial risk exposures; (5) review
changes to the Companys significant auditing and accounting principles and practices; (6) consult
with the independent registered public accounting firm regarding the firms internal
quality-control procedures and the procedures for the Companys financial reporting processes; (7)
review the significant reports prepared by the internal auditor; and (8) assist the Board in
monitoring compliance with legal and regulatory requirements.
The Board has determined that each of the members of the Audit Committee satisfy the standards
of independence established under the Securities and Exchange Commissions rules and regulations
and listing standards of the New York Stock Exchange. The Board has further determined that each
of the members of the Audit Committee is financially literate and is an audit committee financial
expert as defined by the rules and regulations of the Securities and Exchange Commission.
In connection with the Companys consolidated financial statements for the year ended December
31, 2007, the Audit Committee has:
|
|
|
reviewed and discussed the audited consolidated financial statements
contained in the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2007 with management; |
|
|
|
|
approved the appointment of Ernst & Young LLP to serve as the
Companys independent registered public accounting firm for the fiscal
year ended December 31, 2008; |
|
|
|
|
discussed with the Companys independent registered public accounting
firm, Ernst & Young LLP, the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended; and |
|
|
|
|
received the written disclosures and the letter from Ernst & Young LLP
as required by Independence Standards Board Standard No. 1, and
discussed with Ernst & Young LLP its independence from the Company and
its management. |
Based on the review and discussions with the Companys management and independent registered
public accounting firm, as set forth above, the Audit Committee recommended to the Companys Board
that the audited consolidated financial statements be included in the Companys Annual Report on
Form 10-K for the fiscal year ended December 31, 2007 for filing with the Securities and Exchange
Commission.
|
|
|
|
|
|
Audit Committee,
Kay G. Priestly Chairman
Robert A. Bernhard
David R. Voelker
|
|
|
|
|
|
|
|
|
|
|
41
ITEM II:
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Pursuant to the recommendation of the Audit Committee, the Board appointed Ernst & Young LLP,
independent registered public accounting firm, to audit the consolidated financial statements of
the Company for the year ending December 31, 2008. The Board recommends that stockholders vote for
the ratification of this appointment. Notwithstanding the selection, the Board, in its discretion,
may direct the appointment of a new independent registered public accounting firm at any time
during the year if the Board believes that the change would be in the best interests of the Company
and its stockholders. If the stockholders vote against ratification, the Board will reconsider its
selection.
Ernst & Young LLP has served as the Companys independent registered public accounting firm
and audited the Companys consolidated financial statements beginning with the fiscal year ended
December 31, 2002. The engagement of Ernst & Young LLP has been recommended by the Audit Committee
and approved by the Board annually.
The Company is advised that no member of Ernst & Young LLP has any direct or material indirect
financial interest in the Company or, during the past three years, has had any connection with the
Company in the capacity of promoter, underwriter, voting trustee, director, officer or employee.
Set forth below are the aggregate fees billed by Ernst & Young LLP, the independent registered
public accounting firm, for each of the last two fiscal years:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Audit Fees(1) |
|
$ |
477,184 |
|
|
$ |
741,085 |
|
Audit-Related Fees(2) |
|
|
21,544 |
|
|
|
150,526 |
|
Tax Compliance and Consulting Fees(3) |
|
|
51,675 |
|
|
|
66,700 |
|
|
|
|
|
|
|
|
Total |
|
$ |
550,403 |
|
|
$ |
958,311 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Audit Fees represent fees for professional services provided in
connection with the audit of the Companys financial statements, attestation work
in connection with the Companys Sarbanes-Oxley Section 404 internal control
compliance, review of the Companys quarterly financial statements and audit
services provided in connection with other statutory or regulatory filings. |
|
(2) |
|
Audit-Related Fees primarily represent fees for professional services
provided in connection with the audit of the Companys financial statements of the
401(k) Profit Sharing Plan. |
|
(3) |
|
Tax Compliance and Consulting Fees represent fees for professional
services provided in connection with tax return preparation and tax consulting. |
The Companys Audit Committee does not believe that these services have impacted Ernst & Young
LLPs independence. The Audit Committee has the sole authority to appoint or replace the
independent registered public accounting firm (subject, if applicable, to shareholder
ratification), and approves all audit engagement fees and terms and all significant non-audit
engagements with the independent registered public accounting firm. The Audit Committee has
established policies and procedures regarding pre-approval of all services provided by the
independent registered public accounting firm. At the beginning of the fiscal year, the Audit
Committee pre-approves the engagement of the independent registered public accounting firm to
provide audit services based on fee estimates. The Audit Committee also pre-approves proposed
audit-related services, tax services and other permissible services, based on specified project and
service details, fee estimates, and aggregate fee limits for each service category. The percentage
of services that were pre-approved by the Audit Committee was 88%. The Audit Committee receives a
report at each meeting on the status of services provided or to be provided by the independent
registered public accounting firm and the related fees.
Ratification of this appointment shall be effective upon receiving the affirmative vote of the
holders of a majority of the common stock present or represented by proxy and entitled to vote at
the Annual Meeting. In the event the appointment is not ratified, the Board will consider the
appointment of a different independent registered public accounting firm.
A representative of Ernst & Young LLP is expected to be present at the Annual Meeting and will
be offered the opportunity to make a statement if such representative desires to do so and will be
available to respond to appropriate questions from stockholders.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR ITEM II TO RATIFY THE SELECTION OF THE
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
42
ITEM III:
AMENDMENT TO THE BYLAWS TO ELIMINATE
THE CLASSIFIED STRUCTURE OF THE BOARD
Pursuant to Article III, Section 2 of the Bylaws, the Board is divided into three classes with
staggered three-year terms, and not more than one class of directors is elected at any annual
meeting of stockholders. For the reasons set forth below, the Board has determined that the
Companys Bylaws should be amended to eliminate over a period of two years the classified structure
of the Board set forth in Article III, Section 2 and to provide for the annual election of all
directors.
Article IX of the Bylaws provides, in pertinent part, that no amendment to or repeal of
Article III, Section 2 shall be effective without the affirmative vote of (1) a majority of the
Board of Directors or (2) holders of outstanding shares of common stock representing 80% or more of
the voting power of the outstanding voting securities of the Company. Accordingly, the Board has
unanimously voted to recommend this amendment to the stockholders. If the proposed amendment is
approved by an affirmative vote of the holders of a majority of the votes of the shares of common
stock cast in favor of this Item at the Annual Meeting, the Board will amend Article III, Section 2
as described in more detail below and the classified Board will be fully eliminated in 2010 upon
the expiration of the current terms of the Class II directors, while the Class I and Class III
directors will stand for re-election annually beginning in 2009. Furthermore, any director chosen
as a result of a newly created directorship, or to fill a vacancy on the Board, will hold office
until the next annual meeting of stockholders, beginning in 2009, and until his or her successor is
elected and qualified. If the proposed amendment to the Bylaws is not approved by an affirmative
vote of the holders of a majority of the votes of the shares of common stock cast in favor of this
Item at the Annual Meeting, the Board will remain classified, and if elected, the two nominees for
director at the Annual Meeting will each serve until the 2011 Annual Meeting and until their
successors have been elected and qualified, or until their earlier resignation or removal. All
other directors will continue in office for the remainder of their full three-year terms and until
their successors are duly elected and qualified. This proposal would not change the present number
of directors, nor would it change the Boards authority to change that number and to fill any
vacancies or newly created directorship by resolution of the Board.
The Nominating and Governance Committee and the full Board have considered the merits of the
classified board structure, taking a variety of perspectives into account. While the Board
believes that the classified board structure has promoted continuity and stability and reinforced a
commitment to a long-term point of view, it believes that the elimination of the classified board
structure expands the ability of stockholders to promote director accountability by enabling
stockholders to register their views as to specific directors on an annual basis. In addition, the
Board believes that the Company should no longer retain the classified board structure because of
the negative perception among many potential investors and investor groups concerning staggered
boards in general. Therefore, the Board believes it is advisable and in the best interests of the
Company and its stockholders to amend the Bylaws and eliminate the classified board structure,
thereby permitting the Companys stockholders to elect all members of the Board annually.
Article III, Section 2 of the Companys Bylaws currently provides for a classified board as
follows:
Classification of Directors. Effective at the time of the annual meeting of stockholders in
1993, in lieu of electing the whole number of directors annually, the directors shall be
divided into three classes, Class I, Class II and Class III, each class to be as nearly
equal in number as possible, and the remainder of this Section 2 shall be effective. Each
director shall serve for a term ending on the date of the third annual meeting of
stockholders following the annual meeting at which such director was elected; provided,
however, that each initial director in Class I shall hold office until the first annual
meeting of stockholders after his election; each initial director in Class II shall hold
office until the second annual meeting of stockholders after his election; and each initial
director in Class III shall hold office until the third annual meeting of stockholders after
his election. In the event of any increase or decrease in the authorized number of
directors, (i) each director then serving as such shall nevertheless continue as a director
of the class of which he is a member until the expiration of his current term or until his
prior death, retirement, resignation or removal for cause in accordance with the provisions
of these bylaws, and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board among the three classes of directors
so as to maintain such classes as nearly equal in number as possible.
If Item III is approved by an affirmative vote of the holders of a majority of the votes of
the shares of common stock cast in favor of this Item at the Annual Meeting, the Board will
affirmatively vote to amend the Bylaws, effective as of May 15, 2008, particularly Article III,
Section 2, to read as follows:
A. Classification of Directors. Effective at the time of the annual meeting of
stockholders in 1993, in lieu of electing the whole number of directors annually, the
directors shall be divided into three classes, Class I, Class II
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and Class III, each class to be as nearly equal in number as possible, and the remainder of
this Section 2 shall be effective. Each director shall serve for a term ending on the date
of the third annual meeting of stockholders following the annual meeting at which such
director was elected; provided, however, that each initial director in Class I shall hold
office until the first annual meeting of stockholders after his election; each initial
director in Class II shall hold office until the second annual meeting of stockholders after
his election; and each initial director in Class III shall hold office until the third
annual meeting of stockholders after his election. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such shall
nevertheless continue as a director of the class of which he is a member until the
expiration of his current term or until his prior death, retirement, resignation or removal
for cause in accordance with the provisions of these bylaws, and (ii) the newly created or
eliminated directorships resulting from such increase or decrease shall be apportioned by
the Board among the three classes of directors so as to maintain such classes as nearly
equal in number as possible. Notwithstanding the foregoing, the classes of directors shall
be terminated in accordance with paragraph B below entitled Annual Election of Directors,
and this paragraph A of Section 2 entitled Classification of Directors shall cease to have
effect immediately prior to the annual meeting of stockholders in 2010.
B. Annual Election of Directors. Effective at the annual meeting of stockholders in 2008,
the Class III classification of directors shall terminate; effective at the annual meeting
of stockholders in 2009, the Class I classification of directors shall terminate; effective
at the annual meeting of stockholders in 2010, the Class II classification of directors
shall terminate. Upon termination of each of the three classes of directors, each of the
directors whose class has terminated may be elected to serve as a director on an annual
basis. Upon termination of all three classes of directors, the whole number of directors
shall be elected annually. Each director currently serving as such shall nevertheless
continue as a director of the class of which he is a member until the expiration of his
current term or until his prior death, retirement, resignation or removal for cause in
accordance with the provisions of these bylaws.
Section 141(d) of the Delaware General Corporation Law requires that a corporation desiring to
classify its board of directors must expressly provide for such classification in either its
certificate of incorporation or its bylaws. The amendment of the current provisions of Article
III, Section 2 of the Bylaws relating to the classification of the Board is intended to eliminate
in 2010 the classified structure of the Board in the Bylaws.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR ITEM III TO AMEND THE BYLAWS TO ELIMINATE OVER A
PERIOD OF TWO YEARS THE CLASSIFIED STRUCTURE OF THE BOARD.
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OTHER MATTERS FOR 2008 ANNUAL MEETING
The Board does not know of any other matters that are to be presented for action at the Annual
Meeting. However, if any other matters properly come before the Annual Meeting or any
adjournment(s) or postponement(s) thereof, it is intended that the enclosed proxy will be voted in
accordance with the judgment of the proxy holders.
STOCKHOLDER COMMUNICATIONS WITH DIRECTORS
If any stockholder or third party has a complaint or concern regarding accounting, internal
accounting controls or auditing matters at the Company, they should send their complaint in writing
to Ms. Priestly, the Chairperson of the Audit Committee at the Companys principal executive
offices. If any stockholder or third party has a concern about the Company or otherwise wishes to
communicate with the Board, they should send their communication in writing to the Chairman at the
Companys principal executive offices. If any stockholder or any other interested party wishes to
communicate with a non-management director or with the Presiding Director, the stockholder or
interested party should send the communication in writing to Mr. Duplantis, the Presiding Director
of the non-management directors, at the Companys principal executive offices.
A stockholder, who wishes to communicate directly with the Board, a committee of the Board or
with an individual director, should send the communication to:
Board of Directors [or committee name or
Directors name, as appropriate]
Stone Energy Corporation
625 E. Kaliste Saloom Road
Lafayette, Louisiana 70508
The Company will forward all stockholder correspondence about the Company directly to the
committee or individual director, as appropriate.
A majority of the independent directors approved the Companys process for collecting and
organizing stockholder communications to the Board.
STOCKHOLDER PROPOSALS FOR 2009 ANNUAL MEETING
Any stockholder who wishes to submit a proposal for inclusion in the proxy material and for
presentation at the Companys 2009 Annual Meeting of Stockholders may do so by following the
procedures set forth in Rule 14a-8 under the Securities Exchange Act of 1934. In general,
stockholder proposals should be received by the Secretary of the Company at Stone Energy
Corporation, 625 E. Kaliste Saloom Road, Lafayette, Louisiana 70508, no later than December 10,
2008.
In addition to the requirements of Rule 14a-8, and as more specifically provided in the
Companys Bylaws, in order for a proposal of business to be properly brought before the 2009 Annual
Meeting of Stockholders, it must be specified in a notice given by a stockholder entitled to vote
at the meeting and who complies with the notice procedures set forth in Article II, Section 13 of
the Companys Bylaws. Detailed information for submitting stockholder proposals is available upon
written request to the Companys Secretary at the address listed above.
Please see Corporate Governance Consideration of Director Nominees for information
regarding the submission of director nominees by stockholders.
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HOUSEHOLDING
The Securities and Exchange Commission proxy rules permit companies and intermediaries, such
as brokers and banks, to satisfy delivery requirements for proxy statements with respect to two or
more stockholders sharing the same address by delivering a single proxy statement to those
stockholders. This method of delivery, often referred to as householding, helps to reduce the
amount of duplicate information that stockholders receive and lowers printing and mailing costs for
companies.
We are householding proxy materials for stockholders of record in connection with the Annual
Meeting unless otherwise notified. We have been notified that certain intermediaries may household
proxy materials as well. If you hold your shares of common stock through a broker or bank that has
determined to household proxy materials:
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Only one proxy statement and one Annual Report to Stockholders will be
delivered to multiple stockholders sharing an address unless you
notify your broker or bank to the contrary; and |
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We will promptly deliver you a separate copy of the proxy statement
and Annual Report to Stockholders for the 2008 Annual Meeting and for
future meetings if you so request by calling us at (337) 237-0410 or
by writing to the Companys Secretary at Stone Energy Corporation, 625
E. Kaliste Saloom Road, Lafayette, Louisiana 70508 or you can contact
your bank or broker to make a similar request. |
Please contact us or your bank or broker directly if you have questions or wish to revoke your
decision to household and thereby receive multiple copies. You should also contact us or your bank
or broker if you wish to institute householding. These options are available to you at any time.
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The Board of Directors recommends stockholders vote
FOR each of the nominees for director, FOR ratification
of appointment of the independent registered public
accounting firm, and FOR approval of amendment to the
Bylaws to eliminate the classified structure of the Board.
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Please Mark
Here for
Address
Change or
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SEE REVERSE SIDE |
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Item I. |
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ELECTION OF DIRECTORS: |
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Nominees: 01
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David H. Welch |
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WITHHELD
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FOR ALL |
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*Instructions: To withhold authority to vote for
any individual nominee, strike a line through the
nominees name.
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Item II.
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RATIFICATION OF APPOINTMENT
OF THE INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM, ERNST &
YOUNG LLP
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FOR
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AGAINST
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FOR
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Item III.
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APPROVAL OF AMENDMENT TO
THE BYLAWS TO ELIMINATE THE
CLASSIFIED STRUCTURE OF THE
BOARD
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I PLAN TO ATTEND THE MEETING
If you check the box to the
right, an admission card
will be sent to you.
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All as more particularly described in the
accompanying Proxy Statement relating to
such meeting, receipt of which is hereby
acknowledged. |
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(Signature)
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Dated (mm/dd/yyyy): |
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NOTE: Please sign exactly as your name
appears hereon, joint owners must each
sign. When signing as attorney, executor,
administrator, corporate officer, trustee
or guardian, please give full title as
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5 FOLD AND DETACH HERE 5
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING.
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
INTERNET
http://www.proxyvoting.com/sgy
Use the Internet to vote your proxy.
Have your proxy card in hand when you
access the web site.
TELEPHONE
1-866-540-5760
Use any touch-tone telephone to vote
your proxy. Have your proxy card in
hand when you call.
If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.
To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope.
Choose MLinkSM for fast, easy and secure 24/7 online access to your
future proxy materials, investment plan statements, tax documents and more.
Simply log on to Investor ServiceDirect®at
www.bnymellon.com/shareowner/isd where step-by-step instructions will prompt you
through enrollment.
The Notice of Annual Meeting of Stockholders, the Proxy Statement for the 2008
Annual Meeting of Stockholders, the 2007 Annual Report to Stockholders and the
Annual Report on Form 10-K for the fiscal year ended December 31, 2007 of Stone
Energy Corporation are available at http://bnymellon.mobular.net/bnymellon/sgy
STONE ENERGY CORPORATION
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
MAY 15, 2008
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF STONE ENERGY CORPORATION
The undersigned stockholder of Stone Energy Corporation, a Delaware corporation, hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement and
hereby appoints Richard A. Pattarozzi, David H. Welch and B. J. Duplantis, and each of them,
attorneys and proxies for the undersigned, with full power of substitution, to vote all shares of
Stone Energy Corporation common stock that the undersigned may be entitled to vote at the Annual
Meeting of Stockholders of Stone Energy Corporation, on May 15, 2008 at 10:00 a.m., Central Time,
in New Orleans, Louisiana, or at any adjournment or postponement thereof, upon the matters set
forth below and described in the accompanying Proxy Statement and upon such other business as may
properly come before the meeting or any adjournment or postponement thereof.
Please vote, date and sign this proxy card on the reverse side and return promptly in the
enclosed envelope or submit your proxy by following the telephone or Internet voting instructions
provided on the reverse side.
This proxy will be voted as directed or, if no contrary direction is indicated, will be voted
FOR Items I, II and III, and as the proxies deem appropriate on such other matters as may
properly come before the Annual Meeting or any adjournment or postponement thereof.
The undersigned hereby revokes all proxies previously given by the undersigned to vote at the
Annual Meeting or any adjournment or postponement thereof.
(Continued and to be signed on reverse side)
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5 FOLD AND DETACH HERE 5