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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)of the Securities Exchange Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
SOUTHWESTERN ENERGY COMPANY
------------------------------------------------
(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):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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Southwestern Energy 1083 Sain Street
Company P. O. Box 1408
Fayetteville, Arkansas 72702-1408
March 30, 1998
TO OUR SHAREHOLDERS:
You are cordially invited to attend Southwestern Energy Company's
Annual Meeting of Shareholders which will be held on Thursday, May 21, 1998, at
11:00 a.m., at the Northwest Arkansas Holiday Inn, Springdale, Arkansas.
The enclosed Notice and Proxy Statement contain details concerning the
business to come before the meeting. You will note that the Board of Directors
of the Company recommends a vote "FOR" the election of five Directors to serve
until the 1999 Annual Meeting, and "FOR" the proposal to amend and restate the
Southwestern Energy Company 1993 Stock Incentive Plan. Please sign and return
your proxy card in the enclosed envelope at your earliest convenience to assure
that your shares will be represented and voted at the meeting even if you cannot
attend.
We are very pleased that Mr. Lewis E. Epley, Jr. of Eureka Springs,
Arkansas, is nominated for election to the Board of Directors. Mr. Epley is an
outstanding civic leader in Arkansas. He currently is Chairman of the Board of
Trustees of the University of Arkansas system which governs four universities,
three community colleges and the University of Arkansas for Medical Sciences. He
is President of the Board of Directors of the Northwest Arkansas Radiation
Therapy Institute. He is a distinguished attorney who has served as President of
the Carroll County Bar Association and Special Associate Justice of the Supreme
Court of Arkansas. He is presently serving as director and Vice Chairman of the
Board of Directors of the Bank of Eureka Springs, and serves on the Board of
Directors of the Washington Regional Medical Foundation and the University of
Arkansas Foundation. He has been a delegate to the Arkansas Constitutional
Convention and served on numerous area and statewide advisory and service boards
and commissions. He has been honored as an alumnus of the University of Arkansas
School of Law for his professional accomplishments and service on behalf of
countless community and civic organizations.
Mr. Charles E. Sanders will retire as Director effective with the
Annual Meeting. In recognition of his faithful and long service of 25 years, he
will be designated Director Emeritus
Our Annual Meeting gives us an opportunity to review results and
discuss the steps the Company is taking to achieve a strong performance in the
future. Your interest in Southwestern Energy Company is much appreciated, and I
hope you will be able to join us on May 21.
Sincerely yours,
CHARLES E. SCHARLAU
Chairman and Chief Executive Officer
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Southwestern Energy Company
1083 Sain Street
P. O. Box 1408
Fayetteville, Arkansas 72702-1408
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON MAY 21, 1998
The Annual Meeting of Shareholders of Southwestern Energy Company will
be held at the Northwest Arkansas Holiday Inn, Hwy. 71 Bypass at Hwy. 412,
Springdale, Arkansas, on Thursday, the 21st day of May, 1998, at 11:00 a.m.,
Central Daylight Time, for the following purposes:
(1) The election of five (5) directors to serve until the 1999
Annual Meeting or until their respective successors are duly
elected and qualified;
(2) To consider and take action upon a proposal to amend and
restate the Southwestern Energy Company 1993 Stock Incentive
Plan for the compensation of officers and key employees of the
Company and its subsidiaries; and
(3) To transact such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 18,
1998, as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting.
You are cordially invited to attend the meeting. In the event you will
be unable to attend, you are respectfully requested to mark, sign, date and
return the enclosed proxy at your earliest convenience in the enclosed return
envelope.
By Order of the Board of Directors
GREGORY D. KERLEY
Secretary
March 30, 1998
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Southwestern Energy Company
PROXY STATEMENT
This Proxy Statement is furnished to the shareholders of Southwestern
Energy Company (the "Company") in connection with the solicitation of proxies to
be used in voting at the Annual Meeting of Shareholders on May 21, 1998, and any
adjournment or adjournments thereof.
The complete mailing address of the principal executive offices of the
Company is:
1083 Sain Street
P. O. Box 1408
Fayetteville, Arkansas 72702-1408
The enclosed proxy is solicited by the Board of Directors of the
Company. A person giving the enclosed proxy has the power to revoke it at any
time before it is exercised.
The Board of Directors has engaged Morrow & Co., Inc., a proxy
solicitation firm, to solicit proxies from brokerage firms, banks, and
institutional holders of shares on its behalf at a cost of $5,500 plus expenses.
The cost of this proxy solicitation will be borne by the Company, including the
charges and expenses of brokerage firms and others for forwarding solicitation
material to beneficial owners of stock. The solicitation will be by mail and
such cost will include the cost of preparing and mailing this Proxy Statement
and proxy. In addition to the use of the mails, proxies may be solicited by
personal interview, by telephone, or by other means. Although solicitation will
be made primarily through the use of the mail, officers, directors, or regular
employees of the Company may solicit proxies personally or by telephone or other
means without additional remuneration for such activity.
This Proxy Statement along with a copy of the Company's Annual Report
is being mailed to shareholders on March 30, 1998.
VOTING SECURITIES OUTSTANDING
CUMULATIVE VOTING FOR ELECTION OF DIRECTORS AUTHORIZED
On March 18, 1998, the Company had outstanding 24,848,237 shares of
common stock ($.10 par value). Each share outstanding on the record date
entitles the holder thereof to one vote upon each matter to be voted upon at the
meeting, except that for the election of directors each such shareholder shall
be entitled to as many votes as shall equal the number of the holder's shares of
stock outstanding in the holder's name multiplied by the number of directors to
be elected, and may cast all such votes for a single director or distribute them
among the number to be voted for, or for any two or more of them, as the holder
may see fit. Unless contrary instructions are given, persons named as proxies
will have discretionary authority to cumulate votes in the same manner. All
shares represented by effective proxies will be voted at the meeting or any
adjournment thereof as specified therein by the person giving the proxy.
Abstentions and broker nonvoted shares are disregarded in the vote tallies and
do not have the effect of "no" votes. For purposes of determining a quorum, a
share is present once it is represented for any purpose at the meeting.
Abstentions are counted present for purposes of determining a quorum. Broker
nonvoted shares are counted present if represented at the meeting for any
purpose.
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Unless revoked, each properly executed proxy will be voted in the
manner directed therein. If no direction is made, each such proxy will be voted
FOR the election of directors and FOR the proposal to amend and restate the 1993
Stock Incentive Plan.
Only shareholders of record at the close of business on March 18, 1998,
will be entitled to vote at the Annual Meeting of Shareholders.
ELECTION OF DIRECTORS
At the meeting, five (5) directors are to be elected to serve for the
ensuing year and until their respective successors are elected and qualified.
The shares represented by the enclosed proxy will be voted as instructed by the
shareholders for the election of the nominees named below. If no direction is
made, this proxy will be voted FOR the election of the nominees named below. If
any nominee becomes unavailable for any reason or if a vacancy should occur
before the election, the shares represented by the enclosed proxy may be voted
for such other person as may be determined by the holders of such proxies. The
Company has no knowledge that any nominee will be unavailable for election.
Directors shall be elected by plurality vote. Certain information concerning the
nominees for election as directors is set forth below.
Nominees For Election
LEWIS E. EPLEY, JR. - Mr. Epley is an Attorney at Law with the firm of
Epley, Epley & Parker Ltd., Eureka Springs, Arkansas, and is involved in several
personal business ventures in the Eureka Springs area. He has served as City
Attorney of Eureka Springs, President of the Carroll County Bar Association, and
Special Associate Justice of the Supreme Court of Arkansas. He is a director,
since 1964, and Vice Chairman of the Board of Directors, since 1993, of the Bank
of Eureka Springs, Chairman of the Board of Trustees of the University of
Arkansas, a director of the University of Arkansas Foundation, a director of the
Washington Regional Medical Foundation and President of the Board of Directors
of the Northwest Arkansas Radiation Therapy Institute. Mr. Epley has also been a
delegate to the Arkansas Constitutional Convention. Mr. Epley is 61 years old
and is being nominated for his first term on the Company's Board of Directors.
JOHN PAUL HAMMERSCHMIDT - Mr. Hammerschmidt is a retired U.S.
Congressman, Third District of Arkansas, who served from 1967-1993. He has been
a director of Dillard's Department Stores Inc., Little Rock, Arkansas, since
1992, First Federal Bank of Arkansas, Harrison, Arkansas, since 1966, and
American Freightways Corporation, Harrison, Arkansas, since June, 1997. Mr.
Hammerschmidt has been a member of the Board of the Metropolitan Washington
Airports Authority since November, 1997 and was a member of the Metropolitan
Washington Airports Authority Board of Review from 1987-1992. From 1946- 1984 he
was active in the lumber business, serving as President of Hammerschmidt Lumber
Company, Harrison, Arkansas. Mr. Hammerschmidt is 75 years old and was first
elected to the Board of Directors in 1992.
ROBERT L. HOWARD - Mr. Howard is a retired Vice President of Shell Oil
Company. He was most recently Vice President, Domestic Operations, Exploration
and Production of Shell, a position he held from 1992-1995. In that position, he
was responsible for all domestic exploration
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and production activities. From 1985-1991, Mr. Howard was President, Shell
Offshore Inc., and was responsible for all offshore exploration and production
in the Gulf of Mexico, the East Coast and Florida. During Mr. Howard's 36 years
with Shell, he held various positions within Shell's exploration and production
operations, including General Manager, Exploration and Production, Mid-Continent
Division, and General Manager, Exploration and Production, Rocky Mountain
Division and Alaska Division. Mr. Howard has served as a director of Camco
International, Inc. of Houston, Texas, since 1995, Ocean Energy, Inc. (formerly
United Meridian Corp.) of Houston, Texas, since 1996, McDermott International,
Inc. and J. Ray McDermott of New Orleans, Louisiana, since June, 1997. He is 61
years old and first became a director in 1995.
KENNETH R. MOURTON - Mr. Mourton is an Attorney at Law with the firm of
Ball and Mourton, Ltd., PLLC, Fayetteville, Arkansas. He is the Managing
Principal Attorney for this firm. Mr. Mourton is also President and principal
shareholder of Coors of Western Arkansas, Inc., since 1980; President and
majority shareholder of E. J. Ball Plaza, Inc., since 1992; and part owner of
Emerald Travel Services, Ltd., since 1989. All of these businesses are located
in Fayetteville, Arkansas. Mr. Mourton is Chairman, since 1992, of Razorback
Foundation, Inc., a nonprofit corporation which supports University of Arkansas
athletic programs. He is also a Board member of the Arkansas Rural Endowment
Fund, a nonprofit corporation created by the State of Arkansas to help lower
income, rural Arkansas children obtain college and university educations. Mr.
Mourton is 47 years old and was first elected to the Board of Directors in 1995.
CHARLES E. SCHARLAU - Mr. Scharlau is Chairman of the Board and Chief
Executive Officer of the Company, and a director since 1980 of C. H. Heist
Corporation, Clearwater, Florida. He is also a member of the Board of Trustees
of the University of Arkansas. Mr. Scharlau is 70 years old and first became a
director in 1966.
Shareholders entitled to vote for the election of directors at the
annual meeting may nominate additional candidates provided written notice of
such nomination is received at the Company's principal executive offices no
later than the close of business on April 14, 1998. The Company's by-laws
require that this notice contain certain information about any proposed nominee
and the shareholder submitting the notice. The Company may also require any
proposed nominee to furnish such other information as may reasonably be required
to determine the proposed nominee's eligibility to serve as a director of the
Company. A copy of the relevant by-law provisions may be obtained by contacting
Mr. Gregory D. Kerley, Secretary, Southwestern Energy Company, 1083 Sain Street,
P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.
BOARD COMMITTEES
The Board of Directors has a standing audit committee (the "Audit
Committee") composed of noncompany members of the Board. The Audit Committee is
responsible to the Board for reviewing the accounting and auditing procedures
and financial reporting practices of the Company and for recommending the
appointment of the independent public accountants. The Audit Committee meets
periodically with the Company's management, internal auditors, and independent
public accountants to review the work of each and to satisfy itself that said
parties are properly discharging their responsibilities. The independent public
accountants have direct access to the Audit Committee and periodically meet with
the Audit Committee without management representatives present. The Audit
Committee is currently composed of Messrs. John Paul Hammerschmidt, Chairman,
Robert L. Howard, and Charles E. Sanders.
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The Board of Directors has a compensation committee (the "Compensation
Committee") which is responsible for recommending to the Board of Directors
officer compensation and discretionary awards under the various incentive plans.
Messrs. Charles E. Sanders, Chairman, and John Paul Hammerschmidt presently
serve on this committee.
The Board of Directors also has a retirement committee (the "Retirement
Committee") which is responsible for administering the Company's pension and
retirement plans and for recommending retirement policy to the Board of
Directors. Messrs. Charles E. Scharlau, Chairman, Kenneth R. Mourton, and
Charles E. Sanders presently serve on this committee.
The Company has no standing nominating committee. Candidates for
nomination for Board positions are considered by the Board as a whole. The Board
will consider qualified candidates recommended by shareholders. Any shareholder
wishing to recommend a candidate may do so by letter addressed to Mr. Gregory D.
Kerley, Secretary, Southwestern Energy Company, 1083 Sain Street, P. O. Box
1408, Fayetteville, Arkansas 72702-1408. Such letter should state in detail the
qualifications of the candidate. Shareholders entitled to vote for the election
of directors at the annual meeting may nominate additional candidates
independent of the Board of Directors. Shareholder nominees to be presented to
the 1998 Annual Meeting must be submitted pursuant to the procedures described
under the subheading, "Nominees for Election." Shareholders entitled to vote for
the election of directors at the 1999 Annual Meeting may present independent
nominees to the 1999 Annual Meeting provided that notice of such nomination is
received at the Company's principal executive offices not less than 50 nor more
than 75 days prior to the 1999 meeting date. If less than 65 days notice of the
1999 Annual Meeting is given, written notice of any such nomination must be
received no later than the close of business on the 15th day following the day
on which notice of the meeting date is mailed. The Company's by-laws require
that this notice contain certain information about any proposed nominee and the
shareholder submitting the notice. The Company may also require any proposed
nominee to furnish such other information as may reasonably be required to
determine the proposed nominee's eligibility to serve as a director of the
Company. A copy of the relevant by-law provisions may be obtained by contacting
Mr. Gregory D. Kerley, Secretary, Southwestern Energy Company, 1083 Sain Street,
P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.
DIRECTOR COMPENSATION
In 1997, for their services as directors, Messrs. John Paul
Hammerschmidt, Robert L. Howard, Kenneth R. Mourton, Charles E. Sanders and
Charles E. Scharlau were each paid $24,000 in cash. Mr. E. J. Ball, for his
service as Director Emeritus, was paid $5,000. Each outside director serving as
of December 31, 1997, was granted an option to purchase 12,000 shares of the
Company's common stock at $12.75 per share, representing the Fair Market Value
on the date of grant. Such options were granted in tandem with limited stock
appreciation rights, as defined under "Compensation Committee Report," and
become exercisable in installments at a rate of 25% per year for each full
twelve months of service as a director. In addition, each outside member of the
Audit, Compensation, and Retirement Committees is paid $500 per diem for his
participation on each committee. During 1997, the Board of Directors held eleven
meetings, the Audit Committee held two meetings, the Compensation Committee held
two meetings, and the Retirement Committee held one meeting.
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Directors who retire with certain qualifications are appointed to the
position of Director Emeritus and are paid a fee of $1,000 per meeting attended.
Mr. Ball was appointed to the position of Director Emeritus upon his retirement
in 1995. Mr. Ball is General Counsel to the Company, and Mr. Ball and Mr.
Mourton are partners in the law firm of Ball and Mourton, Ltd., PLLC. During
1997, the Company paid $8,980 in legal fees to Ball and Mourton, Ltd., PLLC.
PROPOSAL TO AMEND AND RESTATE THE
SOUTHWESTERN ENERGY COMPANY 1993 STOCK INCENTIVE PLAN
On April 7, 1993, the Board of Directors adopted the Southwestern
Energy Company 1993 Stock Incentive Plan (the "Stock Plan"), subject to the
approval of shareholders. Shareholders subsequently approved the Stock Plan on
May 26, 1993. The Stock Plan expires on April 6, 2003. Presently, the maximum
number of shares of common stock of the Company that may be issued under the
Stock Plan and with respect to which stock-settled Incentive Awards may be
granted under the Stock Plan is 1,275,000, and the maximum number of shares with
respect to which cash-settled Incentive Awards may be granted under the Stock
Plan is 1,275,000, both adjusted for a three-for-one stock split in 1993. As of
March 18, 1998, stock-settled Incentive Awards have been granted with respect to
1,161,717 shares of the Company's common stock, and no cash settled Incentive
Awards have been granted. On February 18, 1998, the Board of Directors adopted
an amendment to the Stock Plan, subject to shareholder approval, to increase by
425,000 the number of shares with respect to which cash settled Incentive Awards
may be granted and the number of shares which may be issued under the Stock Plan
to 1,700,000 shares. In conjunction with these amendments, the Board of
Directors also adopted certain other amendments which are intended to insure
that the Stock Plan is administered in a way which is aligned as closely as
possible with the interests of shareholders, qualify stock options granted under
the Stock Plan for certain federal income tax deduction, and provide
participants with more flexibility in estate and retirement planning. These
amendments permit the Committee to accelerate the vesting of an issuance of
certain Incentive Awards subject to other provisions of the Stock Plan, require
that all stock options and stock appreciation rights granted under the Stock
Plan be priced at the Fair Market Value on the date of the grant, remove the
Board of Directors authority to make material amendments to the Sorck Plan
without shareholder approval, remove the Board of Directors authority to reprice
stock options without shareholder approval, provide for limited transferability
of stock options granted under the Stock Plan, provide for the waiver by the
Committee of the accelerated expiration of stock options and stand alone stock
appreciation rights in the event of termination of a participant's employment
for death, disability or retirement, and limit the number of stock options which
may be granted to any single participant to 25% of the number of the Company's
common stock authorized to be issued under the Stock Plan in settlement of
stock-based Incentive Awards and limit the number of stand alone stock
appreciation rights that may be granted to any single participant to 25% of the
number of shares of Company common stock with respect to which cash-settled
Incentive Awards are authorized to be issued under the Stock Plan. All of these
amendments are subject to shareholder approval. The Board of Directors proposes
to restate the Stock Plan to incorporate these amendments which are as described
below.
The Board of Directors proposes to amend the second paragraph of
Section 3 of the Stock Plan to read as follows:
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Subject to adjustment as provided in Section 14
hereof, the Committee may grant: (a) Options, shares of
Restricted Stock, and Stock Bonuses under the Plan with
respect to a number of shares of Company Stock that in the
aggregate, does not exceed 1,700,000 shares; and (b)
Stand-Alone SARs, shares of Phantom Stock and Cash Awards with
respect to a number of shares of Company Stock that in the
aggregate does not exceed 1,700,000 shares.
The Board of Directors proposes to amend the third and fourth
paragraphs of Section 4 of the Stock Plan to read as follows:
The Committee may, in its absolute discretion,
without amendment to the Plan, (i) accelerate the date on
which any Option or Stand-Alone SAR granted under the Plan
becomes exercisable or otherwise adjust, to the extent
consistent with other provisions of the Plan, any of the terms
of such Option or Stand-Alone SAR other than a downward
adjustment to the exercise price, (ii) accelerate the Vesting
Date or Issue Date, or waive any condition imposed hereunder,
with respect to any share of Restricted Stock granted under
the Plan or otherwise adjust any of the terms of such
Restricted Stock and (iii) accelerate the Vesting Date or
waive any condition imposed hereunder, with respect to any
share of Phantom Stock granted under the Plan or otherwise
adjust any of the terms of such Phantom Stock.
In addition, the Committee may, in its absolute
discretion and without amendment to the Plan, grant Incentive
Awards of any type to Participants on the condition that such
Participants surrender to the Committee for cancellation such
other Incentive Awards of the same or any other type as the
Committee specifies. Notwithstanding Section 3 herein, prior
to the surrender of such other Incentive Awards, Incentive
Awards granted pursuant to the preceding sentence of this
Section 4 shall not count against the limits set forth in such
Section 3. However, stock options and stock appreciation
rights may not be surrendered for other stock options or stock
appreciation rights with a lower exercise price unless both
count towards the aggregate limitations under the Stock Plan.
The Board of Directors proposes to amend Section 6(c)(4) of the Stock
Plan to read as follows:
(4) During the lifetime of a Participant, each Option
granted to the Participant shall be exercisable only by the
Participant. No Option shall be assignable or transferrable
otherwise than by will or by the laws of descent or
distribution, nor shall any Option be permitted to be pledged
in any manner. However, any Non-Qualified Stock Option,
including the right to exercise such option, may also be
transferred by a Participant or a subsequent transferee,
during the Participant's lifetime, only to: (i) one or more of
a Participant's spouse or natural or adopted lineal
descendants; or (ii) a trust, partnership, corporation or
other similar entity which is owned solely by one or more of
the Participant's spouse or natural or adopted lineal
descendants or which will hold such Non-Qualified Stock
Options solely for the benefit of one or more of such persons.
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The Board of Directors proposes to amend Section 6(d) of the Stock Plan
by adding a new Subsection 6(d)(1) which reads as follows and by
renumbering the remaining subsections of Section 6(d):
(d) Limitation on Grant of Options
(1) The maximum number of common shares of stock underlying
Options which may be awarded to any single Participant
under the Plan is 425,000.
The Board of Directors proposes to amend Section 6(b) of the Stock Plan
to read as follows:
(b) Exercise Price
The exercise price of any Option granted under the Plan
shall be not less than 100% of the Fair Market Value of a
share of Company Stock on the date on which such
Option is granted.
The Board of Directors proposes to amend Section 9(a) of the Stock Plan
to read as follows:
(a) Exercise Price
The exercise price of any Stand-Alone SAR granted under
the Plan shall be not less than 100% of the Fair Market
Value of a share of Company Stock on the date on which
such Stand Alone SAR is granted.
The Board of Directors proposes to amend Section 6(e) of the Stock Plan
by adding a new Subsection 6(e)(4) which reads as follows:
(4) Notwithstanding anything to the contrary contained
herein, in the event that the employment of a Participant
with the Company shall terminate for death, disability or
retirement, the Committee may waive the accelerated
expiration provisions of subsection 6(e) as they apply to
any or all Non-Qualified Stock Options or any or all
stand alone SARs granted to the Participant, to the
extent that they were exercisable at the time of such
termination, so that they shall remain exercisable until
the expiration of their term. Non-Qualified Stock Options
or stand alone SARs granted to such Participant, to the
extent that they were not exercisable at the time of such
termination, shall expire at the close of business on the
date of such termination; provided, however; that a
Non-Qualified Stock Option and a stand alone SAR shall
not be exercisable after the expiration of its term.
The Board of Directors proposes to amend Section 19 of the Stock Plan to
read as follows:
19. Amendment or Termination of the Plan
The Board of Directors may, at any time, suspend or
discontinue the Plan or revise or amend it in any respect
whatsoever; provided, however; that no amendment shall be
effective without the approval of the shareholders of the
Company, that (i) except as provided in Section 14
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hereof, increases the number of shares of Company Stock
that may be issued under the Plan, (ii) materially
increases the benefits accruing to individuals pursuant
to the Plan, (iii) materially modifies the requirements
as to eligibility for participation in the Plan, or (iv)
would otherwise materially alter the Plan. Nothing herein
shall restrict the Committee's ability to exercise its
discretionary authority hereunder pursuant to Section 4
hereof, which discretion may be exercised without
amendment to the Plan. No action hereunder may, without
the consent of a Participant, reduce the Participant's
rights under any previously granted and outstanding
Incentive Award. Nothing herein shall limit the right of
the Company to pay compensation of any kind outside the
terms of the Plan.
The following description of the Stock Plan, as amended and restated, is
subject, in all respects, to the actual terms of the Restated Stock Plan, a copy
of which may be obtained by contacting Mr. Gregory D. Kerley, Secretary,
Southwestern Energy Company, 1083 Sain Street, P. O. Box 1408, Fayetteville,
Arkansas 72702-1408, (501) 521-1141.
The Stock Plan is intended to promote the interests of the Company and its
shareholders by providing the Company's (and its subsidiaries') key employees,
on whose judgment, initiative and efforts the successful conduct of the business
of the Company largely depends and who are largely responsible for the
management, growth and protection of the business of the Company, with
appropriate incentives and rewards to encourage them to continue in the employ
of the Company (and its subsidiaries) and to maximize their performance. The
Board of Directors believes the Stock Plan gives the Company the ability to
award amounts and types of equity-based incentive compensation in an efficient
manner in a variety of circumstances and situations which may arise.
Furthermore, the Stock Plan should make available to the Board of
Directors a sufficient number of shares of common stock to (a) provide
additional equity-based incentives to key employees, and (b) provide a larger
number of key employees with incentive compensation commensurate with their
positions and responsibilities. The number of shares that remain available for
prospective grant of stock-settled awards under the Stock Plan is 113,283,
excluding the 425,000 shares which will be added by the proposed amendment to
Section 3. The Fair Market Value per share of Company common stock as of March
18, 1998 was $10.875.
Shares issued under the Stock Plan may be authorized but unissued shares
of common stock, or treasury shares, at the discretion of a committee (the
"Committee") of not fewer than two outside directors, each of whom is
"disinterested" within the meaning of Rule 16b-3 under the Securities Exchange
Act of 1934 (the "Exchange Act"), and is an "outside director" within the
meaning of Treasury Regulation Section 1.162-27(e)(3), appointed under the Stock
Plan to administer the Incentive Plan. The Board of Directors has appointed the
members of the Compensation Committee of the Board of Directors as the Committee
appointed to administer the Stock Plan. The Compensation Committee is made up
entirely of outside directors.
The Stock Plan provides for the grant of (i) non-qualified stock options,
(ii) incentive stock options, (iii) limited stock appreciation rights, (iv)
tandem stock appreciation rights, (v) stand-alone stock appreciation rights,
(vi) shares of restricted stock, (vii) shares of phantom stock, (viii) stock
bonuses, and (ix) cash bonuses (collectively, "Incentive Awards"). Key employees
of the
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Company and its subsidiaries, including officers, whether or not they are
directors of the Company or its subsidiaries, are eligible to receive grants of
Incentive Awards.
The Committee determines which key employees receive grants of Incentive
Awards, the type of Incentive Awards granted and the number of shares subject to
each Incentive Award. Subject to the terms of the Stock Plan, the Committee also
determines the prices, expiration dates and other material features of the
Incentive Awards granted under the Stock Plan.
The Committee may, in its absolute discretion, without amendment to the
Stock Plan, (i) accelerate the date on which any option or stock appreciation
right granted under the Stock Plan becomes exercisable or otherwise adjust, to
the extent consistent with other provisions of the Plan, any of the terms of
such option or stock appreciation right and (ii) accelerate the date on which
any incentive award vests or waive any condition imposed under the Stock Plan
with respect to any incentive award or otherwise adjust any of the terms of such
incentive award.
The Committee administers the Stock Plan and has the authority to
interpret and construe any provision of the Stock Plan and to adopt such rules
and regulations for administering the Stock Plan as it deems necessary. All
decisions and determinations of the Committee are final and binding on all
parties. The Company will indemnify each member of the Committee against any
cost, expense or liability arising out of any action, omission or determination
relating to the Stock Plan, unless such action, omission or determination was
taken or made in bad faith and without reasonable belief that it was in the best
interest of the Company.
The Board of Directors may at any time amend the Stock Plan in any
respect; provided, that no amendment may (i) increase the number of shares of
common stock that may be issued under the Stock Plan, (ii) materially increase
the benefits accruing to individuals holding Incentive Awards, (iii) materially
modify the requirements as to eligibility for participation in the Stock Plan,
or (iv) otherwise materially alter the Stock Plan.
A summary of the most significant features of the Incentive Awards
follows.
Non-Qualified Stock Options. The exercise price of each Non-Qualified
Stock Option ("NQO") granted under the Stock Plan shall be not less than 100% of
the Fair Market Value of a share of Company Stock on the date on which such NQO
is granted. Each NQO shall be exercisable for a term, not to exceed ten years,
established by the Committee on the date on which such NQO is granted. The
exercise price shall be paid to the Company in cash or, subject to the approval
of the Committee, in shares of common stock valued at their Fair Market Value on
the date of exercise.
With exceptions in the event of the death, disability, or retirement of an
optionee or the termination of the employment of an optionee for cause, NQOs are
exercisable only while an optionee is employed by the Company or within three
months after such employment has terminated to the extent that such NQOs were
exercisable on the last day of employment. In the event of the death or
disability of an optionee, NQOs are exercisable while the optionee is employed
by the Company or within one year after such death or disability to the extent
that such NQOs were exercisable on the last day of employment. In the event of
the termination of the employment of an optionee for cause, all NQOs held by
such optionee terminate immediately. In the event of the death, disability, or
retirement of an optionee, the Committee may waive the above described
accelerated exercise provisions for NQOs which were exercisable at the
9
<PAGE>
optionee's termination date. NQOs are not transferable other than by will or by
the laws of descent and distribution or to the spouse or lineal descendants of
the optionee or trusts, partnerships, or other entities held solely by or for
the benefit of the optionee or his spouse or lineal descendants.
Upon the occurrence of a change in control of the Company (a "Change in
Control"), all NQOs become immediately exercisable. A Change in Control of the
Company is defined as follows:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act, an "Acquiring Person") becomes the "beneficial owner"
(as such term is defined in Rule 13d-3 promulgated under the Exchange
Act), directly or indirectly, of securities of the Company representing
20% or more of the combined voting power of the Company's then outstanding
securities, excluding any employee benefit plan sponsored or maintained by
the Company (or any trustee of such plan acting as trustee); or
(ii) the Company's shareholders approve an agreement to merge or
consolidate the Company with another corporation (other than a corporation
50% or more of which is controlled by, or is under common control with,
the Company); or
(iii) any individual who is nominated by the Board of Directors for
election to the Board of Directors on any date fails to be so elected as a
direct or indirect result of any proxy fight or contested election for
positions on the Board; or
(iv) a Change in Control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act occurs; or
(v) a majority of the Board determines in its sole and absolute
discretion that there has been a Change in Control of the Company or that
there will be a Change in Control of the Company upon the occurrence of
certain specified events and such events occur.
Incentive Stock Options. The exercise price of each Incentive Stock Option
("ISO") granted under the Stock Plan shall be the Fair Market Value of a share
of common stock of the Company on the date on which such ISO is granted. An ISO
shall be exercisable for a term, not to exceed ten years, established by the
Committee on the date on which such ISO is granted. The exercise price shall be
paid to the Company in cash or, subject to the approval of the Committee, in
shares of common stock valued at their Fair Market Value on the date of
exercise.
The aggregate Fair Market Value of shares of common stock of the Company
with respect to which ISOs granted are exercisable for the first time by an
optionee during any calendar year under the Stock Plan or any other plan of the
Company or its subsidiaries may not exceed $100,000. Such Fair Market Value
shall be determined as of the date on which each ISO is granted.
With exceptions in the event of the death or the disability of an optionee
or the termination of the employment of an optionee for cause, ISOs are
exercisable only while an optionee is employed by the Company or within three
months after such employment has terminated to the extent that such ISOs were
exercisable on the last day of employment. In the event of the death or
disability of an optionee, ISOs are exercisable while the optionee is employed
by the Company or within one year after such death or disability to the extent
that such ISOs were exercisable on
10
<PAGE>
the last day of employment. In the event of the termination of the employment of
an optionee for cause, all ISOs held by such optionee terminate immediately.
ISOs are not transferable other than by will or by the laws of descent and
distribution.
Upon the occurrence of a Change in Control of the Company, all ISOs become
immediately exercisable.
Limited Stock Appreciation Rights. Each Non-Qualified Stock Option and
Incentive Stock Option granted under the Stock Plan may include a limited stock
appreciation right ("LSAR") with respect to a number of shares equal to the
number of shares subject to the Option. The exercise of an LSAR with respect to
a number of shares causes the cancellation of the Option with which it is
included with respect to an equal number of shares. The exercise of an Option
with respect to a number of shares causes the cancellation of the LSAR included
with it with respect to an equal number of shares.
With a minor exception, LSARs are exercisable only during the sixty-day
period immediately following a Change in Control of the Company and only to the
extent that their related Options are exercisable. The exercise of an LSAR
included with a Non-Qualified Stock Option with respect to a number of shares
entitles the employee to an amount in cash, for each such share, equal to the
excess of (i) the greater of (A) the highest price per share of common stock of
the Company paid in connection with the Change in Control of the Company in
connection with which the LSAR became exercisable and (B) the highest Fair
Market Value of a share of common stock of the Company during the ninety-day
period immediately preceding such Change in Control over (ii) the exercise price
of the related Non-Qualified Stock Option. The exercise of an LSAR included with
an Incentive Stock Option with respect to a number of shares entitles the
employee to an amount in cash, for each such share, equal to the excess of (i)
the Fair Market Value of a share of common stock of the Company on the date of
exercise over (ii) the exercise price of the related Incentive Stock Option.
LSARs are not transferable other than by will or by the laws of descent and
distribution or other than together with their related Options.
Tandem Stock Appreciation Rights. The Committee may grant, in connection
with any Non-Qualified Stock Option or Incentive Stock Option, a tandem stock
appreciation right ("Tandem SAR") with respect to a number of shares of common
stock of the Company less than or equal to the number of shares subject to the
related Option. The exercise of a Tandem SAR with respect to a number of shares
causes the cancellation of its related Option with respect to an equal number of
shares. The exercise of an Option with respect to a number of shares causes the
cancellation of its related Tandem SAR to the extent that the number of shares
subject to the Option after its exercise is less than the number of shares
subject to the Tandem SAR.
A Tandem SAR is exercisable at the same time and to the same extent as its
related Option. The exercise of a Tandem SAR with respect to a number of shares
entitles the employee to an amount in cash, for each such share, equal to the
excess of (i) the Fair Market Value of a share of common stock of the Company on
the date of exercise over (ii) the exercise price of the related Option. Tandem
SARs are not transferable other than by will or by the laws of descent and
distribution and other than together with their related Options.
Stand-Alone Stock Appreciation Rights. The Committee may grant stand-alone
stock appreciation rights, which are stock appreciation rights that are not
related to any Option ("Stand-Alone SARs"), pursuant to the Stock Plan. The
exercise price of each Stand-Alone SAR
11
<PAGE>
granted under the Stock Plan shall be the Fair Market Value of a share of common
stock of the Company on the date on which such Stand-Alone SAR is granted. A
Stand-Alone SAR shall be exercisable for a term, not to exceed ten years,
established by the Committee on the date on which such Stand-Alone SAR is
granted. The exercise of a Stand-Alone SAR with respect to a number of shares
entitles the employee to an amount in cash, for each such share, equal to the
excess of (i) the Fair Market Value of a share of common stock of the Company on
the date of exercise over (ii) the exercise price of the Stand-Alone SAR.
With exceptions in the event of the death or the disability of an optionee
or the termination of the employment of an optionee for cause, Stand-Alone SARs
are exercisable only while an optionee is employed by the Company or within
three months after such employment has terminated to the extent that such
Stand-Alone SARs were exercisable on the last day of employment. In the event of
the death or disability of an optionee, Stand-Alone SARs are exercisable while
the optionee is employed by the Company or within one year after such death or
disability to the extent that such Stand-Alone SARs were exercisable on the last
day of employment. In the event of the termination of the employment of an
optionee for cause, all Stand-Alone SARs held by such optionee terminate
immediately. Stand-Alone SARs are not transferable other than by will or by the
laws of descent and distribution.
Upon the occurrence of a Change in Control of the Company, Stand-Alone
SARs become immediately exercisable.
Restricted Stock. A grant of shares of Restricted Stock represents the
promise of the Company to issue shares of common stock of the Company on a
predetermined date (the "Issue Date") to an employee, provided the employee is
continuously employed by the Company until the Issue Date. Prior to the vesting
of the shares, the shares are not transferable by the participant and are
forfeitable. Vesting of the shares occurs on a second predetermined date (the
"Vesting Date") if the employee has been continuously employed by the Company
until that date. The Committee may, at the time shares of Restricted Stock are
granted, impose additional conditions, such as, for example, the achievement of
specified performance goals, to the vesting of the shares. Vesting of some
portion of, or all, shares of restricted stock may occur upon the termination of
the employment of an employee other than for cause prior to the Vesting Date. If
vesting does not occur, shares of Restricted Stock are forfeited.
Upon the occurrence of a Change in Control, all shares of Restricted Stock
that have not vested or have been forfeited automatically vest.
The Committee may grant, in connection with a grant of shares of
Restricted Stock, a cash "tax" bonus, payable when an employee is required to
recognize income for federal income tax purposes with respect to such shares.
The cash "tax" bonus may not be greater than the value of the shares of
Restricted Stock at the time the income is required to be realized.
Phantom Stock. A grant of shares of Phantom Stock represents the right to
the economic equivalent of a grant of Restricted Stock, which is payable in
cash. Shares of Phantom Stock are subject to the same vesting requirements as
are shares of Restricted Stock. In addition, the value of a share of Phantom
Stock (whether or not vested) is paid immediately upon the occurrence of a
Change in Control of the Company. The Committee may not grant any cash bonus in
connection with the grant of shares of Phantom Stock.
12
<PAGE>
Stock Bonuses. Bonuses payable in stock may be granted by the Committee
and may be payable at such times and subject to such conditions as the Committee
determines.
Cash Bonuses. The Committee may grant, in connection with a grant of
shares of Restricted Stock or in connection with the grant of a Stock Bonus, a
cash "tax" bonus, payable when an employee is required to recognize income for
federal income tax purposes with respect to such shares. The tax bonus may not
be greater than the value of the shares of Restricted Stock or Stock Bonus at
the time the income is required to be recognized.
Grants of Options, shares of Restricted Stock and shares of common stock
granted as Stock Bonuses count against the limit on the maximum number of shares
of common stock of the Company with respect to which stock-settled Incentive
Awards may be granted pursuant to the Stock Plan. Grants of Stand-Alone SARs and
shares of Phantom Stock count against the limit on the maximum number of shares
with respect to which cash-settled Incentive Awards may be granted under the
Incentive Plan. Grants of Tandem SARs, LSARs, and cash "tax" bonuses do not
count against either the stock-settled or cash-settled limits. If an Incentive
Award is canceled, the shares subject to that Incentive Award may be made
subject to new Incentive Awards.
The Incentive Plan provides for an adjustment in the number of shares of
common stock available to be issued and with respect to which Incentive Awards
may be granted under the Stock Plan, the number of shares subject to Incentive
Awards, and the exercise prices of certain Incentive Awards upon a change in the
capitalization of the Company, a stock dividend or split, a merger or
combination of shares and certain other similar events. The Incentive Plan also
provides for the termination of Incentive Awards upon the occurrence of certain
corporate events.
The Stock Plan provides that participants may be required to meet certain
income tax withholding requirements by remitting to the Company cash or through
the withholding of shares otherwise payable to the participant. In addition, the
participant may meet such withholding requirements, subject to certain
conditions, by remitting shares of previously acquired common stock of the
Company.
Federal Income Tax Consequences
NQOs. A participant will not be deemed to receive any income at the time a
NQO is granted, nor will the Company be entitled to a deduction at that time.
However, when any part of an NQO is exercised, the participant will be deemed to
have received compensation taxable as ordinary income in an amount equal to the
excess of (A) the Fair Market Value of the shares received on the exercise of
the NQO over (B) the exercise price of the NQO. The Company will be entitled to
a tax deduction in an amount equal to the amount of compensation taxable as
ordinary income recognized by the participant.
Upon any subsequent sale of the shares acquired upon the exercise of an
NQO, any gain (the excess of the amount received over the Fair Market Value of
the shares on the date ordinary income was recognized) or loss (the excess of
the Fair Market Value of the shares on the date ordinary income was recognized
over the amount received) will be a capital gain or loss and will be a long-term
capital gain or loss if the sale or exchange occurs one year after such date of
recognition. Long-term capital gain realized is generally subject to a maximum
tax rate of 28% in
13
<PAGE>
respect of property that has been held for over a year and to a maximum tax rate
of 20% in respect of property held for more than 18 months.
If all or any part of the exercise price of an NQO is paid by the
participant with shares of common stock (including, based upon proposed
regulations under the Code, shares previously acquired on exercise of an ISO),
no gain or loss will be recognized on the shares surrendered in payment. The
number of shares received on such exercise of the NQO equal to the number of
shares surrendered will have the same basis and holding period, for purposes of
determining whether subsequent dispositions result in long-term or short-term
capital gain or loss, as the basis and holding period of the shares surrendered.
The balance of the shares received on such exercise will be treated for federal
income tax purposes as described in the preceding paragraphs as though issued
upon the exercise of the NQO for an exercise price equal to the consideration,
if any, paid by the participant in cash. The participant's compensation, which
is taxable as ordinary income upon such exercise, and the Company's deduction,
will not be affected by whether the exercise price is paid in cash or in shares
of common stock.
ISOs. In general, a participant will not be deemed to receive any income
at the time an ISO is granted or exercised if a participant does not dispose of
the shares acquired on exercise of the ISO within two years after the grant of
the ISO and one year after the exercise of the ISO. In such a case, the gain (if
any) on a subsequent sale (the excess of the amount received over the exercise
price) or loss (if any) on a subsequent sale (the excess of the exercise price
over the amount received) will be a capital gain or loss and will be a long-term
capital gain or loss if the sale or exchange occurs one year after such date of
recognition. Long-term capital gain realized is generally subject to a maximum
tax rate of 28% in respect of property that has been held for over a year and to
a maximum tax rate of 20% in respect of property held for more than 18 months.
However, for purposes of computing the "alternative minimum tax" applicable to a
participant, the participant will include in the participant's alternative
minimum taxable income the amount that would have been included in income if the
ISO was a NQO. Such amount may be subject to an alternative minimum tax of up to
28%. Similarly, for purposes of making alternative minimum tax calculations, the
participant's basis in the stock received on the exercise of an ISO will be
determined as if the ISO were an NQO.
If the participant sells the shares acquired on exercise of an ISO within
two years after the date of grant of the ISO or within one year after the
exercise of the ISO, the disposition is a "disqualifying disposition," and the
participant will recognize income in the year of the disqualifying disposition
equal to the excess of the amount received for the shares over the exercise
price. Of that income, the portion equal to the excess of the Fair Market Value
of the shares at the time the ISO was exercised over the exercise price will be
treated as compensation to the participant, taxable as ordinary income, and the
balance (if any) will be long-term or short-term capital gain depending on
whether the shares were sold more than eighteen months after the ISO was
exercised. If the participant sells the shares in a disqualifying disposition at
a price that is below the exercise price, the loss will be a long-term capital
loss if the participant has held the shares for at least one year.
If a participant uses shares acquired upon the exercise of an ISO to
exercise an ISO, and the sale of the shares so surrendered for cash on the date
of surrender would be a disqualifying disposition of such shares, the use of
such shares to exercise an ISO also would constitute a
14
<PAGE>
disqualifying disposition. In such case, proposed regulations under the Code
appear to provide that tax consequences described above with respect to
disqualifying dispositions would apply, except that no capital gain would be
recognized with respect to such disqualifying disposition. In addition, the
basis of the surrendered shares would be allocated to the shares acquired upon
exercise of the ISO, and the holding period of the shares so acquired would be
determined, in a manner prescribed in proposed regulations under the Code.
If a participant uses shares acquired upon the exercise of an ISO to
exercise an ISO and such use of such shares does not constitute a disqualifying
disposition of the shares so surrendered or, if the participant uses other
shares of the Company to exercise an ISO, the participant will not recognize any
income or gain or loss upon exercise of the ISO. In such case, the basis of the
surrendered shares would be allocated to the shares acquired upon exercise of
the ISO, and the holding period of the shares so acquired would be determined,
in a manner prescribed in proposed regulations under the Code.
The Company is not entitled to a deduction as the result of the grant or
exercise of an ISO. If the participant has compensation taxable as ordinary
income as a result of a disqualifying disposition, the Company will be entitled
to a deduction of an equivalent amount in the taxable year of the Company in
which the disposition occurs.
LSARs, Tandem SARs and Stand-Alone SARs. A participant will not be deemed
to receive any income at the time an LSAR, Tandem SAR or Stand-Alone SAR is
granted, nor will the Company be entitled to a deduction at that time. However,
when any part of the LSAR, Tandem SAR or Stand-Alone SAR is exercised, the
participant will be deemed to have received compensation taxable as ordinary
income in an amount equal to the amount of cash received. The Company will be
entitled to a deduction in an amount equal to the amount of ordinary income
recognized by the participant.
Restricted Stock. A participant will not be deemed to receive any income
at the time shares of Restricted Stock are granted or issued, nor will the
Company be entitled to a deduction at that time. However, when shares of
Restricted Stock vest, the participant will be deemed to have received
compensation taxable as ordinary income in an amount equal to the Fair Market
Value of the shares of Restricted Stock on the date on which they vest. The
Company will be entitled to a deduction in an amount equal to the amount of
ordinary income recognized by the participant.
Upon any sale of vested shares of Restricted Stock, any gain (the excess
of the amount received over the Fair Market Value of the shares on the date
ordinary income was recognized) or loss (the excess of the Fair Market Value of
the shares on the date ordinary income was recognized over the amount received)
will be a capital gain or loss and will be a long-term capital gain or loss if
the sale or exchange occurs one year after such date of recognition. Long-term
capital gain realized is generally subject to a maximum tax rate of 28% in
respect of property that has been held for over a year and to a maximum tax rate
of 20% in respect of property held for more than 18 months.
Phantom Stock. A participant will not be deemed to receive any income at
the time shares of Phantom Stock are granted, nor will the Company be entitled
to a deduction at that time. However, when shares of Phantom Stock vest, the
participant will be deemed to have received
15
<PAGE>
compensation taxable as ordinary income in the amount of the cash received. The
Company will be entitled to a deduction in an amount equal to the amount of
ordinary income recognized by the participant.
Stock Bonus. In general, upon the receipt of a Stock Bonus, a participant
will be deemed to have received compensation taxable as ordinary income in an
amount equal to the Fair Market Value of the stock at the time it is received.
The Company will be entitled to a deduction in an amount equal to the amount of
ordinary income recognized by the participant.
Upon any sale of shares of stock received as a Stock Bonus, any gain (the
excess of the amount received over the Fair Market Value of the shares on the
date ordinary income was recognized) or loss (the excess of the Fair Market
Value of the shares on the date ordinary income was recognized over the amount
received) will be a capital gain or loss and will be a long-term capital gain or
loss if the sale or exchange occurs one year after such date of recognition.
Long-term capital gain realized is generally subject to a maximum tax rate of
28% in respect of property that has been held for over a year and to a maximum
tax rate of 20% in respect of property held for more than 18 months.
Cash Bonus. Upon the receipt of a cash bonus, a participant will be deemed
to have received compensation taxable as ordinary income in the amount of the
cash received. The Company will be entitled to a deduction in an amount equal to
the amount of ordinary income recognized by the participant.
Material Differences From Existing Stock Plan Resulting From Proposed Amendments
The proposed amendment to Section 3 of the Stock Plan increases the number
of Incentive Awards which may be granted and the number of shares of the
Company's common stock which may be issued pursuant to the Stock Plan.
Presently, the maximum number of shares of common stock of the Company that may
be issued under the Stock Plan and with respect to which stock-settled Incentive
Awards may be granted under the Stock Plan is 1,275,000, and the maximum number
of shares with respect to which cash-settled Incentive Awards may be granted
under the Stock Plan is 1,275,000. As of March 18, 1998, stock-settled Incentive
Awards have been granted with respect to 1,161,717 shares of the Company's
common stock, and no cash-settled incentive awards have been granted. If the
proposed amendment to Section 3 of the Stock Plan is adopted, the Company will
be authorized to grant stock-settled Incentive Awards with respect to a number
of shares which does not exceed 1,700,000 and cash-settled Incentive Awards with
respect to a number of shares which does not exceed 1,700,000. This amendment
would authorize the Company to issue Incentive Awards with respect to 425,000
more shares than it is now authorized to issue under the Stock Plan for each
class of Incentive Awards. The proposed amendment to Section 3 will also enable
the Company to grant cash-settled Incentive Awards with respect to a number of
shares which does not exceed 1,700,000.
The proposed amendment to Section 4 of the Stock Plan limits the
Committee's authority to reduce the exercise price of outstanding Incentive
Awards or to replace them with Incentive Awards having a lower exercise price
without shareholder approval. It also clarifies that any acceleration of
outstanding Incentive Awards must be consistent with other provisions of the
Stock Plan.
16
<PAGE>
The proposed amendment to Section 6(c)(4) of the Stock Plan allows
Participants to transfer Non-Qualified Stock Options, during the Participant's
lifetime, to a Participant's spouse or lineal descendants or to trusts,
partnerships or other similar entities held solely by or for the benefit of such
persons. Presently, such transfers are prohibited.
The proposed amendment to Section 6(d) of the Stock Plan limits the number
of common shares underlying Options which may be awarded to any one Participant
to 425,000. This amendment is made in accordance with Section 162(m) of the
Code.
The proposed amendment to Sections 6(b) and 9(a) of the Stock Plan require
that the exercise price of all Options and Stand-Alone SARs be set at the Fair
Market Value on the date of the grant. Although the Committee is presently
authorized to set the exercise price of NonQualified Stock Options at prices
greater or less than the fair market value on the date of the grant it has
always set the price at the fair market value on the date of the grant.
The proposed amendment to Section 6(e) of the Stock Plan authorizes the
Committee to waive the provisions of Section 6(e) which would otherwise
accelerate the expiration date of exercisable Non-Qualified Stock Options and
stand alone SARs upon termination of a Participant's employment with the Company
for death, disability, or retirement. Presently, such options and SARs would
remain exercisable for three months after retirement or one year after
termination for disability or death.
The proposed amendment to Section 19 of the Stock Plan removes the Board
of Directors' authority to materially amend the Stock Plan without shareholder
approval.
THE PROPOSAL TO AMEND AND RESTATE THE 1993 STOCK INCENTIVE PLAN WILL BE
ADOPTED IF APPROVED BY THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
SHARES OF COMMON STOCK OF THE COMPANY IN ATTENDANCE OR REPRESENTED AT THE
MEETING. THE BOARD OF DIRECTORS URGES YOU TO VOTE FOR THE PROPOSAL TO AMEND AND
RESTATE THE 1993 STOCK INCENTIVE PLAN.
17
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following persons were known by the Company to beneficially own more
than 5% of the Company's common stock as of March 18, 1998:
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Name and Address of Beneficial of
Title of Class Beneficial Owner Ownership Class
- --------------- ------------------- ------------- -------
<S> <C> <C> <C>
Common Stock Fidelity Management and 1,651,100 (1) 6.64%
Research Corporation
82 Devonshire Street
Boston, MA 02109-3605
Common Stock Sanford C. Bernstein & Co.,Inc. 1,504,900 (2) 6.06%
767 Fifth Avenue
New York, NY 10153-0002
Common Stock State Street Research & 1,456,400 (3) 5.86%
Management Company
One Financial Center
30th Floor
Boston, MA 02111-2690
- ------------------------
<FN>
(1) Fidelity Management and Research Corporation (Fidelity) is an investment
adviser registered under the Investment Advisers Act of 1940 and a
wholly-owned subsidiary of FMR Corp. Fidelity acts as investment adviser
to various investment companies registered under the Investment Company
Act of 1940, including Fidelity Low Priced Stock Fund which holds
1,651,100 shares of the Company's common stock. Edward C. Johnson, III, as
Chairman of FMR Corp., has the sole power to dispose of these shares.
Voting power is held by the Board of Trustees of the Fidelity Low Priced
Stock Fund. Members of Mr. Johnson's family, including Abigail P. Johnson,
and trusts for their benefit, are the predominant owners of stock
representing approximately 49% of the voting power of FMR Corp., and may
be deemed, under the Investment Company Act of 1940, to be a controlling
group with respect to FMR Corp.
(2) Sanford C. Bernstein & Co., Inc. (Bernstein) is an investment adviser
registered under the Investment Advisers Act of 1940. Bernstein holds the
reported shares on behalf of its clients. Bernstein has sole voting power
on 1,275,600 shares, shared voting power on 29,600 shares, and sole
dispositive power on 1,504,900 shares.
(3) State Street Research and Management is an investment advisor registered
pursuant to the Investment Company Act of 1940 and holds the reported
shares on behalf of its clients. State Street holds sole voting power on
1,053,900 shares and sole dispositive power on 1,456,400 shares. State
Street disclaims beneficial ownership on all shares.
</FN>
</TABLE>
18
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES,
AND EXECUTIVE OFFICERS
The following table sets forth information as of March 18, 1998, with
respect to beneficial ownership of the Company's common stock by its directors
and executive officers.
<TABLE>
<CAPTION>
Number of Shares of $.10
Par Value Common Stock
Beneficially Owned as of 3-18-98
(Sole Voting and Investment Percent
Name of Beneficial Owner Power Except as Noted) (1) of Class
------------------------ ---------------------------------- -----------
<S> <C> <C>
Executive Officers:
Charles E. Scharlau................ 726,502 2.92%
Stanley D. Green................... 286,492 1.15%
Harold M. Korell................... 129,870 .52%
B. Brick Robinson.................. 3,070 .01%
Debbie J. Branch................... 26,564 .11%
Gregory D. Kerley.................. 89,073 .36%
Directors and Nominees:
John Paul Hammerschmidt............ 60,000 .24%
Robert L. Howard................... 36,000 .15%
Kenneth R. Mourton................. 37,000 .15%
Charles E. Sanders................. 79,856 .32%
Lewis E. Epley, Jr................. 1,090 .01%
All persons as a group (11 in number) who are
directors, nominees or executive officers of the
Company............................... 1,475,517 (2) 5.94%
- ------------------------
<FN>
(1) Of the number of shares reported as beneficially owned, the named
individuals had the right to acquire within 60 days, through the
exercise of stock options, beneficial ownership of the following number
of shares: Mr. Scharlau, 193,653; Mr. Green, 77,623; Ms. Branch, 1,500;
Mr. Kerley, 19,686; 30,000 each for Messrs. Hammerschmidt and Sanders;
and 9,000 each for Messrs. Howard and Mourton. Included in the number
of shares reported as beneficially owned are the rights of the named
individuals to acquire the following number of shares through the
exercise of stock options immediately upon a "change in control" as
defined under "Agreements Concerning Employment and Changes in Control"
on page 28 of the Proxy Statement: Mr. Scharlau, 346,443; Mr. Green,
166,693; Mr. Korell, 100,000; Ms. Branch, 14,100; Mr. Kerley 62,711;
30,000 each for Messrs. Hammerschmidt and Sanders; and 27,000 each for
Messrs. Howard and Mourton. Also included in the number of shares
reported as beneficially owned are the following restricted shares with
respect to which the named individuals have voting power but not
investment power: Mr. Green, 22,604; Mr. Korell, 27,370; Ms. Branch,
8,190; and Mr. Kerley, 3,977. The named individuals acquire investment
power for these shares immediately upon a "change in control."
(2) Of this number, all directors and executive officers as a group had the
right to acquire beneficial ownership of 370,462 shares through the
exercise of stock options within 60 days. Also included in this number
is this group's right to acquire an additional 803,947 shares through
the exercise of stock options immediately upon a "change in control" as
defined under "Agreements Concerning Employment and Changes in Control"
on page 28 of this Proxy Statement.
</FN>
</TABLE>
19
<PAGE>
Transactions With Nominees and Executive Officers
During 1997, the Company paid $7,783 to the law firm of Conner and
Winters of Tulsa, Oklahoma, for certain legal services. Mr. Greg Scharlau, Mr.
Scharlau's son, is a partner in Conner and Winters.
COMPENSATION COMMITTEE REPORT
Compensation Philosophy
In determining the compensation of the Chief Executive Officer (the
"CEO") and the other executive officers of the Company and its subsidiaries, the
Compensation Committee seeks to align compensation with the attainment of the
Company's objectives, the Company's performance, and the attraction and
retention of individuals who contribute to the Company's success. For the CEO
and the other named executive officers, the Compensation Committee makes
recommendations to the Board of Directors, and final compensation decisions are
made by the full Board. The Compensation Committee believes that compensation
should:
- relate to the value created for shareholders by being directly
tied to the financial performance and condition of the Company
and the particular executive officer's contribution thereto;
- reward individuals who help the Company achieve its short-term
and long- term objectives and thereby contribute significantly
to the success of the Company;
- help to attract and retain the most qualified individuals in
the natural gas and oil and gas industries by being
competitive with compensation paid to persons having similar
responsibilities and duties in other companies in the same and
closely related industries; and
- reflect the qualifications, skills, experience, and
responsibilities of the particular executive officer.
In determining executive compensation, the Company uses peer group
comparisons. The industry group index shown in the performance chart reported in
this Proxy Statement includes a number of the companies that are used for
compensation analysis. The Compensation Committee believes that companies
operating exclusively in the oil and gas producing industry are also appropriate
to include in its compensation analysis. Compensation packages are targeted to
the median of the range of compensation paid by comparable companies. Executive
compensation paid by the Company during 1997 generally corresponded to the 50th
percentile of compensation paid by comparable companies.
Changes made to the Internal Revenue Code in 1993 could potentially
limit the ability of the Company to deduct, for federal income tax purposes,
certain compensation in excess of $1,000,000 per year paid to individuals named
in the summary compensation table. This limitation became effective in 1994. The
Company believes that all compensation paid in 1997 will be fully deductible.
Further, none of the named individuals received compensation in excess of
$1,000,000 during 1997. If, in the future, it appears that the compensation paid
to a named individual may
20
<PAGE>
be in excess of limitations imposed on deductibility for federal income tax
purposes, the Company will seek ways to maximize the deductibility of
compensation payments without compromising the Company's or the Compensation
Committee's flexibility in designing effective compensation plans that can meet
the Company's objectives and respond quickly to marketplace needs. Although the
Compensation Committee will from time to time review the advisability of making
changes in compensation plans to reflect changes in government-mandated
policies, it will not do so unless it feels that such changes are in the best
interest of the Company and/or its stockholders.
Components of Compensation
Base Salary. In establishing the base salaries of the CEO and the other
executive officers, the Compensation Committee examines competitive peer group
surveys and data in order to determine whether the total compensation package is
competitive with compensation offered by other companies in the natural gas and
oil and gas producing industries which are similar in terms of the complexity of
their operations and which offer the most direct competition for competent
executives. The Compensation Committee also takes into account the Company's
financial and operating performance as compared with the industry mean and the
individual performance of the Company's executives as compared to the
Compensation Committee's expectations of performance for top level executives in
general. The Compensation Committee also considers the diverse skills required
of its executive management to expand the exploration and production segment of
its operations while maintaining satisfactory performance in the highly
regulated gas distribution segment. In addition, the Compensation Committee
considers the particular executive's performance, responsibilities,
qualifications, and experience in the natural gas industry. The Compensation
Committee is periodically advised by outside compensation consultants on its
compensation policies and receives evaluations from the appropriate level of
management concerning the performance of executives within their range of
reporting responsibilities.
The minimum base salary for Mr. Scharlau and Mr. Korell have been
incorporated into employment agreements as further described under the heading
"Agreements Concerning Employment and Changes in Control." Changes in base
salary also affect other elements of compensation including: (i) awards under
the Company's Incentive Compensation Plan, (ii) pension benefits, (iii) Company
matching portions of 401(k) and Nonqualified Plan contributions, and (iv) life
insurance and disability benefits.
Incentive Compensation Plan. The Company maintains an Incentive
Compensation Plan (the "Incentive Plan") applicable to executives with
responsibility for the Company's major business segments. The Incentive Plan is
intended to encourage and reward the achievement of (1) year-to-year growth in
the Company's actual reported earnings, (2) returns on equity which are above
industry averages, (3) reserve additions and acquisitions at competitive costs,
(4) return on utility rate base, and (5) pipeline throughput and margins. These
criteria are deemed by the Compensation Committee to be critical to increasing
shareholder value, and the applicability of each of these criteria in
determining awards to any particular executive depends on the responsibilities
of that executive. A portion of each award under the Incentive Plan is an
automatic award based upon the achievement of these corporate financial
objectives, and a portion is discretionary based on a subjective evaluation of
the executive's performance by the Compensation Committee. The Incentive Plan is
also designed to assist in the attraction and
21
<PAGE>
retention of qualified employees, to further link the financial interest and
objectives of employees with those of the Company, and to foster accountability
and teamwork throughout the Company.
The CEO and the executive officers have responsibilities directly
affecting the Company's operation and are assigned target, minimum, and maximum
award levels expressed as a percentage of their base salary. In 1997, the target
awards which could be paid based on attainment of corporate performance measures
ranged from 18.75% to 30% of base salary for these individuals, the minimum
awards ranged from 9.375% to 15% of base salary, and the maximum awards which
could be paid ranged from 37.5% to 60% of base salary. None of these awards are
paid if corporate performance as determined by the corporate performance
measures is below a specified level. In addition, the participating executives
are eligible for discretionary awards based upon their individual performance
ranging from 12.5% to 20% of base salary. Payouts under the Incentive Plan are
based on the achievement of corporate financial profit objectives, business unit
results, and the Committee's evaluation of individual performance. Awards are
payable in cash, restricted common stock of the Company, or a combination of
cash and restricted common stock. Restricted common stock awarded under the
Incentive Plan is subject to the provisions of the Company's 1993 Stock
Incentive Plan, discussed below, and counts toward the aggregate number of
shares authorized under that plan.
Generally, when multiple factors are considered to measure the
performance of the Company's executives, such factors are equally weighted in
determining the Company performance portion of an executive's bonus. In
determining automatic awards under the Incentive Plan for the CEO and certain of
the named executive officers, the Compensation Committee examines (1) the
Company's return on equity as compared to the performance of a peer group of the
Company as indicated by The Value Line Investment Survey group of natural gas
(diversified) companies and (2) the increase in actual reported earnings per
share over the previous year. Because these factors are weighted equally,
proportionate awards are made if targets for at least one of the factors are
met. In 1997, the return on equity and earnings per share minimum performance
levels were not met. Discretionary awards for these executives are based on a
subjective evaluation of the executive's performance by the Compensation
Committee. Discretionary awards may be influenced by the performance of
individual business segments, but are primarily intended to provide an incentive
to recognize exceptional performance by an individual.
Stock Incentive Plan. The CEO and other executive officers are also
eligible to participate in the Company's 1993 Stock Incentive Plan (the "Stock
Plan"). The Stock Plan is designed to attract and retain key executive employees
by enabling them to acquire a proprietary interest in the Company and by tying
executive rewards to shareholder interests. The Stock Plan provides for the
granting of restricted stock, phantom stock, stock bonuses, options to purchase
common stock of the Company, and limited, tandem, and stand-alone stock
appreciation rights in such amounts as determined by the Compensation Committee
on a discretionary basis. Limited stock appreciation rights are exercisable only
upon a change in control and provide for certain cash payments in lieu of the
exercise of the stock options to which they relate. Grants relating to 1997
performance were made at a price equal to the Fair Market Value on the date of
grant. In addition, the Stock Plan provides for the granting of cash bonuses in
connection with awards of restricted stock and stock bonuses when a participant
is required to recognize income for federal or state income tax purposes with
respect to such awards. The number of shares of the $.10 par value common stock
of the Company which may be issued under the Stock Plan cannot exceed 1,275,000,
subject to
22
<PAGE>
adjustment in the event of any change in the outstanding common stock of the
Company by reason of any stock split, stock dividend, recapitalization,
reclassification, merger, consolidation, combination, or exchange of shares, or
any other similar event. The Board of Directors has approved an amendment to the
Stock Plan, subject to shareholder approval, to increase this number by 425,000
to 1,700,000. In determining the options granted to executive officers under the
Stock Plan, the Compensation Committee considers a number of factors in addition
to considering the goals of attracting and retaining such officers and tying
their rewards to shareholder interests. The number of options and restricted
shares awarded in fiscal 1997 were based partially upon an analysis of the value
of long-term incentive plan awards made by the Company's competitive peer group.
The Compensation Committee also evaluated the performance of the Company, the
performance and responsibility of the particular executive, and the desirability
of providing a particular executive with an adequate incentive to remain in the
employ of the Company.
In 1993, the annual component of the Company's former Annual and
Long-Term Incentive Compensation Plan (the "Prior Plan") was replaced by the
Company's Incentive Compensation Plan, discussed above. The long-term component
of the Prior Plan was replaced by the Stock Incentive Plan for performance
periods beginning after January 1, 1993. Payouts of awards previously granted
and payouts of awards related to five-year performance periods ending each year
through December 31, 1997, will continue to be made under the Prior Plan. Key
employees were selected annually to participate in the Prior Plan based on their
ability to have a significant impact on the performance of the Company. Under
the long-term incentive component of the Prior Plan, cash awards are based on
the Company's performance during overlapping five-year periods. A new five-year
performance period began each year on January 1, with the final five-year
performance period beginning January 1, 1993. For all participants, awards are
based equally on the compounded five-year growth in earnings per share and the
cumulative five-year return on equity. The return on equity performance factor
is compared to the composite actual average return on equity for the previous
five-year period of the natural gas (diversified) group of companies as
determined by reference to The Value Line Investment Survey. Payouts of awards
are tied to achieving specified levels of return on equity and earnings per
share (EPS) growth. None of these awards are paid if both return on equity and
EPS growth are below specified levels, but proportionate awards may be paid if
only one of these performance factors is below the specified level. Target
awards which could be paid based on attainment of corporate performance measures
range from 10% to 40% of base salary (determined at the beginning of each
five-year performance period), minimum awards range from 5% to 20% of base
salary, while the maximum awards range from 20% to 80% of base salary. During
the five-year performance period ending December 31, 1997, the specified target
EPS growth rate and return on equity performance factors were not achieved. Any
award earned is payable at the rate of 20% per year, commencing at the end of
each five-year performance cycle. The purpose of this component of the Prior
Plan was to balance the focus of senior managers between annual goals and
long-term strategies of the Company.
Mr. Scharlau's base salary remained at $450,000 for two years
(1995-1996) prior to being increased to $468,000 for 1997. Mr. Scharlau's base
salary remains at $468,000 for 1998. Under the Company's Incentive Compensation
Plan, Mr. Scharlau has a targeted annual bonus award of 50% of base salary, with
minimum and maximum awards of 20% and 80%, respectively, depending upon the
achievement of corporate performance measures. Of these awards, a portion
23
<PAGE>
is an automatic award based upon the achievement of the corporate financial
objectives relating to earnings per share growth and return on equity as
described under the subheading, "Incentive Compensation Plan" above, and a
portion is discretionary based on a subjective evaluation of Mr. Scharlau's
performance by the Compensation Committee and the Board of Directors and may be
influenced by the performance of individual business segments. In 1997, none of
the performance measures under the Incentive Compensation Plan were achieved.
Mr. Scharlau was awarded a discretionary bonus of $40,000. Under the long-term
component of the Prior Plan, none of the performance measures were achieved. For
performance periods beginning after January 1, 1993, the long-term component of
the Prior Plan was replaced by the Stock Plan.
In 1997, Mr. Scharlau was awarded options to purchase 82,000 shares of
the Company's common stock under the Stock Plan, as described above. The options
vest at the end of three years or immediately upon his retirement or a change in
control. Limited stock appreciation rights were granted in tandem with these
options. The number of options awarded in fiscal 1997 was based upon a
competitive analysis of long-term incentive awards made to the chief executive
officers of the Company's competitive peer group, and is consistent with the
objectives of the Stock Plan. The number of options awarded in 1997 was not
based upon any specific performance measures.
In addition to the factors described above, in determining the salary
and other forms of compensation for Mr. Scharlau, the Compensation Committee
took into consideration Mr. Scharlau's substantial experience (46 years) and
standing in the industry in general and with the Company in particular. The
Compensation Committee also considered Mr. Scharlau's increase in
responsibilities and the complexity of his position as a result of the Company's
diversification and growth in recent years.
JOHN PAUL HAMMERSCHMIDT
CHARLES E. SANDERS
Members of the Compensation Committee
24
<PAGE>
EXECUTIVE COMPENSATION
The following table contains information with respect to executive
compensation paid or set aside by the Company for services in all capacities
during the years 1995, 1996, and 1997 of the CEO, the next four most highly paid
executive officers of the Company and its subsidiaries, and a former executive
officer of two of the Company's subsidiaries whose direct aggregate remuneration
exceeded $100,000 in 1997.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
----------------------------------
Annual Compensation Awards Payouts
----------------------------------- ------------------------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Salary Bonus Compensation Awards Options/ Payouts Compensation
Name and Principal Position Year ($) ($) ($) ($) (2) SARs (#) ($) ($)
- --------------------------- ---- ---------- --------- ------------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Charles E. Scharlau 1997 $468,000 $ 40,000 $ 7,380 $ - 82,000 $157,807 $40,792(3)
Chairman of the Board, 1996 450,000 174,556 7,380 - 25,000 165,362 40,146
Chief Executive Officer 1995 450,000 - 7,380 - 50,000 156,362 38,994
and Director
Stanley D. Green 1997 270,000 80,000 79,020(4) 92,125 50,000 34,304 10,703(5)
Executive Vice President- 1996 255,000 96,463 67,445 92,828 13,600 34,382 9,869
Finance and Corporate 1995 225,000 30,000 59,841 67,544 12,500 30,382 6,938
Development and Chief
Financial Officer
Harold M. Korell 1997 186,506(6) 80,000(7) 233,706(8) 342,125 100,000 - 33,076(9)
Executive Vice President- 1996 - - - - - - -
Operations, and Chief 1995 - - - - - - -
Operating Officer
B. Brick Robinson 1997 162,240(10) - 4,760 - - - 180,834(11)
Executive Vice President, 1996 234,000 68,077 7,140 - 7,500 - 8,384
Southwestern Energy 1995 225,000 - 7,140 - 15,000 - 6,938
Production Company and
SEECO, Inc. (1)
Debbie J. Branch 1997 156,000 78,000 53,374(13) 35,875 11,100 - 5,597(14)
Senior Vice President 1996 75,000(12) 25,000 5,353 106,200 4,500 - 36,368
Southwestern Energy 1995 - - - - - - -
Services Company and
Southwestern Energy
Pipeline Company (1)
Gregory D. Kerley 1997 169,600 40,000 31,841(15) 35,875 11,100 2,446 6,088(16)
Senior Vice President- 1996 160,000 55,175 13,121 12,413 4,700 1,620 5,710
Treasurer and Secretary, 1995 135,000 14,000 11,194 6,754 3,750 - 4,810
and Chief Accounting Officer
- ------------------------
<FN>
(1) Southwestern Energy Production Company, SEECO, Inc., Southwestern
Energy Services Company, and Southwestern Energy Pipeline Company are
wholly-owned subsidiaries of the Company.
(2) Restricted stock awards for Mr. Green, Mr. Korell, Ms. Branch and Mr.
Kerley relating to 1997 performance vest ratably over three years. In
connection with the employment of Mr. Korell in
25
<PAGE>
1997, he was awarded 20,000 shares of restricted stock which vests at
the end of three years. Restricted stock awards for Mr. Green, Ms.
Branch and Mr. Kerley relating to 1996 performance vest ratably over
five years, with the exception of restricted stock awarded in February,
1997 related to 1996 performance which vests ratably over three years.
In connection with the employment of Ms. Branch in 1996, she was
awarded 7,200 shares of restricted stock which vests ratably over three
years. Restricted stock awards for Mr. Green relating to 1995
performance vest at the end of five years while awards for Mr. Kerley
relating to 1995 performance vest ratably over five years. The value of
all nonvested restricted shares held by Mr. Green, Mr. Korell, Ms.
Branch and Mr. Kerley at December 31, 1997, was $303,271, $352,389,
$105,446, and $54,217 respectively. Dividends are paid on all
restricted stock.
(3) Includes $24,000 of director fees, $14,040 as the Company matching
portion of Nonqualified Plan contributions, and $2,752 as the cost of
life insurance.
(4) Includes $71,880 as a bonus for the payment of income taxes related to
the restricted stock grants made during 1997.
(5) Includes $8,100 as the Company matching portion of Nonqualified Plan
contributions, $1,588 as the cost of life insurance, and $1,015 related
to the value of life insurance under a split dollar life insurance
plan. The Company has purchased a life insurance policy for Mr. Green
who has no immediate right to receive the cash surrender value of the
policy, and may never have a right to receive the cash surrender value.
The interest of Mr. Green in the cash surrender value of the policy
will vest only if certain conditions are first satisfied. If Mr.
Green's interest in the cash surrender value vests, the retirement
benefits payable to him by the Company under its Supplemental Executive
Retirement Plan (the "SERP"), a defined benefit retirement income plan,
will be reduced dollar for dollar by the amount of the cash surrender
value of the policy at the time it vests. The premium paid on the
policy is designed to produce a cash surrender value which is equal to,
but which may be less than the benefits payable under the SERP.
(6) Represents salary and services rendered from April 28, 1997, through
December 31, 1997.
(7) Represents $27,500 of annual bonus taken in cash and $52,500 taken in
the form of restricted stock, which vests ratably over three years.
(8) Includes $228,701 as a bonus for the payment of income taxes related to
the restricted stock grants made during 1997.
(9) Includes $30,414 of moving expenses, $1,719 as the Company matching
portion of Nonqualified Plan contributions, and $943 as the cost of
life insurance.
(10) Represents salary and services rendered for January 1, 1997, through
August 31, 1997.
(11) Includes $4,867 as the Company matching portion of Nonqualified Plan
contributions, $967 as the cost of life insurance, and a $175,000
payment made in connection with Mr. Robinson's retirement in full and
complete settlement of any and all obligations due him under the
Company's compensation plans.
(12) Represents salary and services rendered from July 1, 1996, through
December 31, 1996.
(13) Includes $25,555 as a bonus for the payment of income taxes related to
the restricted stock grants made during 1997 and $21,219 as a bonus for
the payment of income taxes related to the 1996 restricted stock grant
which vested during 1997.
26
<PAGE>
(14) Includes $4,680 as the Company matching portion of 401(k) contributions
and $917 as the cost of life insurance.
(15) Includes $25,241 as a bonus for the payment of income taxes related to
the restricted stock grants made during 1997.
(16) Includes $5,088 as the Company matching portion of Nonqualified Plan
contributions, and $1,000 as the cost of life insurance.
</FN>
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (3)
- ---------------------------------------------------------------------- ----------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise
Options/ Employees or Base
SARs in Fiscal Price Expiration
Name Granted (1) Year ($/Sh) (2) Date 5% ($) 10% ($)
---- ----------- ---------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Scharlau 82,000 29.1% $12.500 12/7/2007 $644,617 $1,633,586
Stanley D. Green 50,000 17.7% $12.500 12/7/2007 393,059 996,089
Harold M. Korell 50,000 17.7% $14.000 4/28/2007 440,226 1,115,620
50,000 17.7% $12.500 12/7/2007 393,059 996,089
B. Brick Robinson - - - - - -
Debbie J. Branch 11,100 3.9% $12.500 12/7/2007 87,259 221,132
Gregory D. Kerley 11,100 3.9% $12.500 12/7/2007 87,259 221,132
- -----------------------
<FN>
(1) All 1997 grants, except those to Mr. Scharlau, vest and become
exercisable ratably over three years beginning one year from the date
of grant or immediately upon a "change in control." The 1997 grant to
Mr. Scharlau vests at the earlier of three years from the date of the
grant or at retirement, or immediately upon a "change in control," and
is exercisable three years from the date of grant or immediately upon a
"change in control." All 1997 grants expire after ten years from the
date of grant but may expire earlier upon termination of employment.
Limited stock appreciation rights were granted in tandem with all
options granted in 1997.
(2) The exercise price reflects the fair market value of the Company's
common stock on the date of grant.
(3) Realizable values are reported net of the option exercise price, but
before taxes associated with exercise. The dollar amounts shown are the
result of calculations using 5% and 10% rates of appreciation as
specified by the Securities and Exchange Commission and are not
intended to forecast possible future appreciation, if any, of the
Company's stock price. The assumed annual appreciation of 5% and 10% on
the options granted at $12.50 would result in the price of the
Company's stock increasing to $20.36 and $32.42, respectively.
Realization by optionees of the amounts shown are dependent on future
increases in the price of the Company's common stock and the continued
employment of the optionee with the Company.
</FN>
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at FY-End (#) at FY-End ($) (3)
--------------------------------- ---------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($)(1) Exercisable (2) Unexercisable (2) Exercisable (2) Unexercisable (2)
---- ------------ --------------- --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Scharlau 32,550 $194,623 193,653 346,443 $314,188 $30,750
Stanley D. Green 10,800 64,575 77,623 166,693 129,563 18,750
Harold M. Korell - - - 100,000 - 18,750
B. Brick Robinson - - - - - -
Debbie J. Branch - - 1,500 14,100 - 4,163
Gregory D. Kerley - - 19,686 62,711 15,825 4,163
- ------------------------
<FN>
(1) Reflects the difference between exercise price and issuance price on
the number of shares exercised. All of the options exercised were
granted in 1987 and would have expired in December, 1997 if not
exercised.
(2) All 1997 grants, all 1996 grants issued at $14.75, and all 1995 grants
except those to Mr. Scharlau vest and become exercisable ratably over
three years beginning one year from the date of grant or immediately
upon a "change in control." All 1997, 1996, and 1995 grants to Mr.
Scharlau vest at the earlier of three years from the date of the grant
or at retirement, or immediately upon a "change in control" and are
exercisable three years from the date of grant or immediately upon a
"change in control." All 1994 grants vest and become exercisable
ratably over the four year period beginning six years from the date of
grant or sooner upon achievement of certain performance objectives,
upon a "change in control" as defined under "Agreements Concerning
Employment and Changes in Control" on page 28 of the Proxy Statement,
or upon retirement. (See "Compensation Committee Report" for discussion
of performance goals.) All grants made prior to 1993 are presently
exercisable and expire on the earlier of (a) ten years and one day from
the date of grant, or (b) termination of employment other than for
retirement due to age or disability. All 1993 through 1997 grants
expire after ten years from the date of grant but may expire earlier
upon termination of employment. Limited stock appreciation rights were
granted in tandem with all options granted in 1993 through 1997.
(3) Values are calculated as the difference between the exercise price of
the options/LSARs and the market value of the Company's common stock as
of December 31, 1997 ($12.875/share).
</FN>
</TABLE>
Agreements Concerning Employment and Changes in Control
On December 18, 1990, the Company entered into a five-year employment
agreement with Mr. Scharlau commencing January 1, 1991, under which Mr. Scharlau
will be paid a minimum base salary of $400,000 per year and will be entitled to
participate in any of the Company's compensation or benefit plans for which he
otherwise qualifies. In 1994, this agreement was extended for two additional
years at a minimum base salary of $400,000 per year. Mr. Scharlau's employment
agreement expired on December 31, 1997. On April 28, 1997, the Company entered
into a three-year employment agreement with Mr. Korell under which Mr. Korell
will be paid a minimum base salary of $275,000 per year and will be entitled to
participate in any of the Company's compensation or benefit plans for which he
otherwise qualifies. Additionally, Mr. Korell was awarded options to purchase
50,000 shares of Company stock and received a restricted stock award totaling
20,000 shares pursuant to his employment agreement.
28
<PAGE>
On August 4, 1989, the Company entered into Severance Agreements with
Messrs. Scharlau, Green, and Robinson. Effective December 14, 1994, April 28,
1997, and July 9, 1997, respectively, the Company entered into Severance
Agreements with Mr. Kerley, Mr. Korell, and Ms. Branch. The Severance Agreements
provide that if within three years after a "change in control" of the Company
the officer's employment is terminated by the Company without cause, the officer
is entitled to a payment equal to the product of 2.99 and the officer's "base
amount" as defined under Section 280G of the Internal Revenue Code. Generally,
Section 280G defines the term "base amount" as the officer's average W-2
compensation over the five-year period preceding the termination of employment.
In addition, the officer will be entitled to continued participation in certain
insurance plans and fringe benefits from the date of the termination of
employment until the earliest of (a) the expiration of three years, (b) death,
or (c) the date he or she is afforded a comparable benefit at comparable cost by
a subsequent employer. On February 18, 1998, the Board of Directors voted to
redefine "base amount" as base salary as of the executive's termination date
plus the maximum bonus opportunity available to the executive under the
Incentive Compensation Plan. This change will become effective as accepted by
each executive though the execution of an amendment to the executive's Severance
Agreement.
Mr. Scharlau also is entitled to the severance benefits described above
if within three years after a "change in control" he voluntarily terminates
employment with the Company for any reason. Messrs. Green, Korell, Kerley and
Ms. Branch are also entitled to the severance benefits described above if within
one year after a "change in control" they voluntarily terminate employment with
the Company for "good reason," or if in the next two succeeding years they
voluntarily terminate employment with the Company for any reason.
For purposes of the severance agreements, a "change in control"
includes (i) the acquisition by any person (other than, in certain cases, an
employee of the Company) of 20% or more of the Company's voting securities, (ii)
approval by the Company's shareholders of an agreement to merge or consolidate
the Company with another corporation (other than certain corporations controlled
by or under common control with the Company), (iii) certain changes in the
composition of the Board of Directors of the Company, (iv) any change in control
which would be required to be reported to the shareholders of the Company in a
proxy statement and (v) a determination by a majority of the Board of Directors
that there has been a "change in control" or that there will be a "change in
control" upon the occurrence of certain specified events and such events occur.
"Good reason" includes (i) a reduction in the employee's employment status or
responsibilities, (ii) a reduction in the employee's base salary, (iii) a change
in the employee's principal work location, and (iv) certain adverse changes in
the Company's incentive or other benefit plans.
As of August 31, 1997, Mr. Robinson elected to take retirement from the
Company which resulted in the cancellation of his Severance Agreement. In
connection with his retirement, the Company paid Mr. Robinson a lump sum of
$175,000 in full and complete settlement of any and all obligations due Mr.
Robinson under the Company's compensation plans. The Company also agreed to pay
Mr. Robinson a monthly sum of $2,542 from the Company's Pension Plan and
Supplemental Retirement Plan, under the ten-year certain and life annuity
payment option available under these plans. All unvested shares of restricted
stock (1,535 shares) and all options held by Mr. Robinson to purchase Company
stock (options on 190,747 shares) were canceled at Mr. Robinson's retirement
date.
The Company's 1993 Stock Incentive Plan provides that all outstanding
stock options and all limited, tandem, and stand-alone stock appreciation rights
become exercisable immediately upon
29
<PAGE>
a "change in control." The Stock Plan also provides that all shares of
restricted and phantom stock which have not previously vested or been canceled
or forfeited shall vest immediately upon a "change in control." For purposes of
the Stock Plan, a "change in control" has the same meaning contained in the
Company's Severance Agreements as defined above.
The Company's Incentive Compensation Plan adopted in 1993 provides that
all restrictions on shares of restricted stock granted pursuant to the Incentive
Plan shall lapse upon a "change in control," as defined in the Company's
Severance Agreements. This plan also provides that upon a participant's
termination of employment under certain conditions on or after a "change in
control" all determined but unpaid incentive awards shall be paid immediately,
and any undetermined awards shall be determined and paid based on projected
performance factors calculated in accordance with the plan.
The Company's Annual and Long-Term Incentive Compensation Plan (the
"Prior Plan") provides that:
(a) Upon a participant's involuntary termination of employment
other than for cause, or voluntary termination for "good
reason" on or after a "change of control" or as otherwise
provided in a severance agreement between the participant and
the Company, all determined but unpaid incentive awards shall
be paid immediately, and any undetermined awards shall be
determined and paid based on projected performance factors
calculated in accordance with the plan; and
(b) On or after a "change in control," all awards accrued but
unpaid and all awards thereafter accrued shall be 100% vested
and nonforfeitable; and
(c) On or after a "change in control," the Compensation Committee
of the Company's Board of Directors and the Company's Chief
Executive Officer as they existed immediately prior to such
"change in control" shall retain their authority to administer
the plan.
For purposes of the Prior Plan, the terms "change in control" and "good reason"
have the meanings contained in the Company's Severance Agreements as defined
above.
30
<PAGE>
STOCK PERFORMANCE CHART
The following chart compares for the last five years the performance of
the Company's common stock to the S&P 500 Index and The Value Line Natural Gas,
Diversified, Industry Index (see footnote (1) below). The chart assumes that the
value of the investment in the Company's common stock and each index was $100 at
December 31, 1992, and that all dividends were reinvested.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Southwestern Energy Company 100 141 118 103 124 108
S&P 500 Index 100 110 112 153 189 252
Value Line Natural Gas, 100 121 114 152 191 219
Diversified, Industry Index(1)
- ---------------------
<FN>
(1) The following companies are included in The Value Line Natural Gas,
Diversified, Industry Index: Cabot Oil and Gas, The Coastal
Corporation, The Columbia Energy Group Inc., Consolidated Natural Gas
Company, Eastern Enterprises, El Paso Natural Gas, Enron Corp.,
Equitable Resources, Inc., KN Energy, Inc., Mapco Inc., Mitchell Energy
& Development Corporation, National Fuel Gas Company, Questar Corp.,
Seagull Energy Corporation, Sonat Inc., Southwestern Energy Company,
Union Pacific Resources, and The Williams Companies, Inc.
</FN>
</TABLE>
31
<PAGE>
Pension Plans
The estimated annual benefits payable upon retirement in 1997 to
persons in specified remuneration and years of service classifications are as
follows:
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Years of Service
---------------------------------------------------------------
Remuneration 15 20 25 30 35 40
- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 90,000 $ 20,250 $ 27,000 $ 33,750 $ 40,500 $ 47,250 $ 54,000
120,000 27,000 36,000 45,000 54,000 63,000 72,000
150,000 33,750 45,000 56,250 67,500 78,750 90,000
180,000 40,500 54,000 67,500 81,000 94,500 108,000
210,000 47,250 63,000 78,750 94,500 110,250 126,000
240,000 54,000 72,000 90,000 108,000 126,000 144,000
270,000 60,750 81,000 101,250 121,500 141,750 162,000
300,000 67,500 90,000 112,500 135,000 157,500 180,000
330,000 74,250 99,000 123,750 148,500 173,250 198,000
360,000 81,000 108,000 135,000 162,000 189,000 216,000
390,000 87,750 117,000 146,250 175,500 204,750 234,000
420,000 94,500 126,000 157,500 189,000 220,500 252,000
450,000 101,250 135,000 168,750 202,500 236,250 270,000
480,000 108,000 144,000 180,000 216,000 252,000 288,000
510,000 114,750 153,000 191,250 229,500 267,750 306,000
540,000 121,500 162,000 202,500 243,000 283,500 324,000
</TABLE>
<TABLE>
<CAPTION>
Current
Years of Remuneration
Credited Covered Under
Name Service the Plans (1)
---- -------- --------------
<S> <C> <C>
Charles E. Scharlau 40 $468,000
Stanley D. Green 16 270,000
Harold M. Korell 1 185,506(2)
B. Brick Robinson 10 162,240(3)
Debbie J. Branch 2 156,000
Gregory D. Kerley 8 169,600
- ----------------
<FN>
(1) The Internal Revenue Code (the "Code") limits both the amount of
compensation that may be used for purposes of calculating a participant's
Pension Plan benefit and the maximum annual benefit payable to a
participant under the Pension Plan. For the 1997 plan year, (i) a
participant's compensation in excess of $160,000 is disregarded for
purposes of determining average compensation and (ii) the maximum annual
Pension Plan benefit permitted under the Code is $125,000. The numbers
presented in the table disregard these limitations because the Company's
Supplemental Retirement Plan, discussed below, provides participants with
a supplemental retirement benefit to compensate them for the limitation on
benefits imposed by the Code.
(2) Represents salary and services rendered from April 28, 1997, through
December 31, 1997.
(3) Represents salary and services rendered from January 1, 1997, through August
31, 1997.
</FN>
</TABLE>
32
<PAGE>
The Company's Pension Plan provides for defined benefits to eligible
officers and employees in the event of retirement at a specified age based on
number of years of service and average monthly compensation during the five
years of highest pay in the last ten years before terminating. Contributions to
the plan cannot be allocated to individual participants because funding is based
on average and not individual participation. No contributions from the Company
to the plan were required in 1997.
On May 31, 1989, the Company adopted a Supplemental Retirement Plan
which provides benefits equal to the amount which would be payable under the
Pension Plan in the absence of certain limitations of the Code, less the amount
actually paid under the Pension Plan. In the event of a "change in control" as
defined under "Agreements Concerning Employment and Changes in Control" on page
28 of the Proxy Statement, the benefits of a participant then employed by the
Company would be determined as if the participant had credit for three
additional years of service.
The remuneration covered by the Pension Plan includes wages and
salaries but excludes incentive awards, bonuses, and fees. The benefit amounts
listed above are not subject to any deductions for Social Security benefits or
other offset amounts.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, with offices at 6450 South Lewis, Suite 300,
Tulsa, Oklahoma 74136-1068, has been the independent public accounting firm of
the Company since 1979. Representatives will be present at the Annual Meeting of
Shareholders and will have an opportunity to make a statement to the
shareholders if they so desire. The representatives will also be available to
respond to appropriate questions from the shareholders. There have been no
disagreements with the independent public accountants on accounting and
financial disclosure.
PROPOSALS FOR 1999 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 1999 Annual
Meeting of Shareholders must be received by the Company at its principal offices
not later than November 30, 1998, for inclusion in the 1999 Proxy Statement and
form of proxy. Proposals intended to be the subject of a separate solicitation
may be brought before the 1999 Annual Meeting by shareholders provided that
written notice of any such proposal is received at the Company's principal
executive offices not less than 50 nor more than 75 days prior to the called
meeting date. If less than 65 days notice of the 1999 Annual Meeting is given,
written notice of any such proposal must be received no later than the close of
business on the 15th day following the day on which notice of the annual meeting
date was mailed. The Company's by-laws require that notices of shareholder
proposals contain certain information about any proposal and the proposing
shareholder. A copy of the relevant by-law provisions may be obtained by
contacting Mr. Gregory D. Kerley, Secretary, Southwestern Energy Company, 1083
Sain Street, P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.
33
<PAGE>
OTHER BUSINESS
While the Notice of Annual Meeting of Shareholders calls for
transaction of such other business as may properly come before the meeting, the
Company's management has no knowledge of any matters to be presented for action
by shareholders at the meeting other than as set forth in this statement. If any
other business should come before the meeting, the persons named in the proxy
have discretionary authority to vote in accordance with their best judgment.
Shareholders may bring additional proposals before the meeting provided written
notice of any such proposal is received at the Company's principal executive
offices no later than the close of business on April 14, 1998. The Company's
by-laws require that this notice must contain certain information about any
proposal and the proposing shareholder. A copy of the relevant by-law provisions
may be obtained by contacting Mr. Gregory D. Kerley, Secretary, Southwestern
Energy Company, 1083 Sain Street, P. O. Box 1408, Fayetteville, Arkansas
72702-1408, (501) 521-1141.
Any shareholder who has not received a copy of the Company's Annual
Report or wishes to obtain a copy of the Company's Form 10-K may obtain a copy
of either free of charge by contacting Mr. Gregory D. Kerley, Secretary,
Southwestern Energy Company, 1083 Sain Street, P. O. Box 1408, Fayetteville,
Arkansas 72702-1408.
By Order of the Board of Directors
GREGORY D. KERLEY
Secretary
Dated: March 30, 1998
34
<PAGE>
SOUTHWESTERN ENERGY COMPANY
1083 Sain Street
P. O. Box 1408
Fayetteville, Arkansas 72702-1408
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints each of Kenneth R. Mourton and Charles E.
Scharlau as Proxies, with power of substitution, and hereby authorizes them to
represent and to vote, as designated below, all the shares of Common Stock of
Southwestern Energy Company held of record by the undersigned on March 18, 1998,
at the Annual Meeting of Shareholders to be held on May 21, 1998, or any
adjournment or adjournments thereof.
In their discretion, the Proxies are authorized to vote on such other business
as may properly come before the meeting.
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof. This proxy is revocable at any time
before it is exercised, the signer retaining the right to attend the meeting and
vote in person.
This proxy when properly executed will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR the election of directors,
and FOR the proposal to amend and restate the Company's 1993 Stock Incentive
Plan.
[X] Please mark your votes as in this example.
You are encouraged to specify your choices by marking the appropriate box,
but you need not mark either box if you wish to vote FOR the election of all
nominees. The Proxies cannot vote your shares unless you sign and return this
card.
1. Election of Directors FOR( ) WITHHELD( )
L. Epley, Jr. K. Mourton
J. Hammerschmidt C. Scharlau
R. Howard
FOR, except vote WITHHELD from the following nominee(s):_______________
FOR, with exercise of cumulative voting privilege. Indicate number of
votes cast for each nominee.___________________________________________
2. Proposal to amend and restate the Southwestern
Energy Company 1993 Stock Incentive Plan for
the compensation of officers and key employees
of the Company and its subsidiaries.
FOR( ) AGAINST( ) ABSTAIN( )
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in
full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
________________________________________________
SIGNATURE(S) ________________________________________________ DATE __________
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
APPENDIX
SOUTHWESTERN ENERGY COMPANY
1993 STOCK INCENTIVE PLAN
(As Amended and Restated as of February 18, 1998)
1. Purpose of the Plan
This Southwestern Energy Company 1993 Stock Incentive Plan is intended to
promote the interests of the Company and its shareholders by providing the
Company's key employees on whose judgment, initiative and efforts the successful
conduct of the business of the Company largely depends and who are largely
responsible for the management, growth and protection of the business of the
Company, with appropriate incentives and rewards to encourage them to continue
in the employ of the Company and to maximize their performance.
2. Definitions
As used in the Plan, the following definitions apply to the terms
indicated below:
(a) "Board of Directors" shall mean the Board of Directors of the
Company.
(b) "Cause," when used in connection with the termination of a
Participant's employment with the Company, shall mean the termination of
the Participant's employment by the Company on account of (i) the willful
and continued failure by the Participant substantially to perform his
duties and obligations to the Company (other than any such failure
resulting from his incapacity due to physical or mental illness) or (ii)
the willful engaging by the Participant in misconduct which is materially
injurious to the Company. For purposes of this Section 2(b), no act, or
failure to act, on a Participant's part shall be considered "willful"
unless done, or omitted to be done, by the Participant in bad faith and
without reasonable belief that his action or omission was in the best
interests of the Company
(c) "Cash Bonus" shall mean an award of a bonus payable in cash
pursuant to Section 13 hereof.
(d) "Change in Control" shall mean the occurrence of any of the
following:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act, an "Acquiring Person") becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the
Company's then outstanding securities, excluding any employee benefit
plan sponsored or maintained by the Company (or any trustee of such
plan acting as trustee);
(ii) the Company's stockholders approve an agreement to merge or
consolidate the Company with another corporation (other than a
corporation 50% or more of which is controlled by, or is under common
control with, the Company);
(iii) any individual who is nominated by the Board of Directors
for election to the Board of Directors on any date fails to be so
elected as a direct or indirect result of any proxy fight or
contested election for positions on the Board;
(iv) a "change in control" of the Company of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Exchange Act occurs; or
(v) a majority of the Board determines in its sole and absolute
discretion that there has been a Change in Control of the Company or
that there will be a Change in Control of the Company upon the
occurrence of certain specified events and such events occur.
1
<PAGE>
(e) "Code" shall mean the Internal Revenue Code of 1986.
(f) "Committee" shall mean the Compensation Committee of the Board of
Directors or such other committee as the Board of Directors shall appoint
from time to time to administer the Plan; provided, however; that the
Committee shall at all times consist of two or more persons, each of whom
shall be a "disinterested person" within the meaning of Rule 16b-3
promulgated under Section 16 of the Exchange Act.
(g) "Company" shall mean Southwestern Energy Company, an Arkansas
corporation, and each of its Subsidiaries.
(h) "Company Stock" shall mean the common stock of the Company.
(i) "Disability" shall mean any physical or mental condition that
would qualify a Participant for a disability benefit under the long-term
disability plan maintained by the Company and applicable to him.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) the "Fair Market Value" of a share of Company Stock with respect
to any day shall be (i) the closing sales price on the immediately
preceding business day of a share of Company Stock as reported on the
principal securities exchange on which shares of Company Stock are then
listed or admitted to trading or (ii) if not so reported, the average of
the closing bid and ask prices on the immediately preceding business day
as reported on the National Association of Securities Dealers Automated
Quotation System or (iii) if not so reported, as furnished by any member
of the National Association of Securities Dealers, Inc. selected by the
Committee. In the event that the price of a share of Company Stock shall
not be so reported, the Fair Market Value of a share of Company Stock
shall be determined by the Committee in its absolute discretion.
(1) "Incentive Award" shall mean an Option, LSAR, Tandem SAR,
Stand-Alone SAR, share of Restricted Stock, share of Phantom Stock, Stock
Bonus or Cash Bonus granted pursuant to the terms of the Plan.
(m) "Incentive Stock Option" shall mean an Option that is an
"incentive stock option" within the meaning of Section 422 of the Code and
that is identified as an Incentive Stock Option in the agreement by which
it is evidenced.
(n) "Issue Date" shall mean the date established by the Committee on
which certificates representing shares of Restricted Stock shall be issued
by the Company pursuant to the terms of Section 10(d) hereof.
(o) "LSAR" shall mean a limited stock appreciation right that is
granted pursuant to the provisions of Section 7 hereof and which relates
to an Option. Each LSAR shall be exercisable only upon the occurrence of a
Change in Control and only in the alternative to the exercise of its
related Option.
(p) "Non-Qualified Stock Option" shall mean an Option that is not an
Incentive Stock Option.
(q) "Option" shall mean an option to purchase shares of Company Stock
granted pursuant to Section 6 hereof. Each Option shall be identified as
either an Incentive Stock Option or a Non-Qualified Stock Option in the
agreement by which it is evidenced.
(r) "Participant" shall mean an employee of the Company who is
eligible to participate in the Plan and to whom an Incentive Award is
granted pursuant to the Plan, and, upon his death, his successors, heirs,
executors and administrators, as the case may be.
(s) "Person" shall mean a "person," as such term is used in
Sections 13(d) and 14(d) of the Exchange Act.
2
<PAGE>
(t) "Phantom Stock" shall mean the right to receive in cash the Fair
Market Value of a share of Company Stock, which right is granted pursuant
to Section 11 hereof and subject to the terms and conditions contained
therein.
(u) "Plan" shall mean the Southwestern Energy Company 1993 Stock
Incentive Plan, as it may be amended from time to time.
(v) "Restricted Stock" shall mean a share of Company Stock which is
granted pursuant to the terms of Section 10 hereof and which is subject to
the restrictions set forth in Section 10(c) hereof for so long as such
restrictions continue to apply to such share.
(w) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(x) "Stand-Alone SAR" shall mean a stock appreciation right granted
pursuant to Section 9 hereof which is not related to any Option.
(y) "Stock Bonus" shall mean a grant of a bonus payable in shares of
Company Stock pursuant to Section 12 hereof.
(z) "Subsidiary" shall mean any corporation in which, at the time of
reference, the Company owns, directly or indirectly, stock comprising more
than fifty percent of the total combined voting power of all classes of
stock of such corporation.
(aa) "Tandem SAR" shall mean a stock appreciation right granted
pursuant to Section 8 hereof which is related to an Option. Each Tandem
SAR shall be exercisable only to the extent its related Option is
exercisable and only in the alternative to the exercise of its related
Option.
(bb) "Vesting Date" shall mean the date established by the Committee
on which a share of Restricted Stock or Phantom Stock may vest.
3. Stock Subject to the Plan
Under the Plan, the Committee may grant to Participants (i) Options, (ii)
LSARs, (iii) Tandem SARs, (iv) Stand-Alone SARs, (v) shares of Restricted Stock,
(vi) shares of Phantom Stock, (vii) Stock Bonuses and (viii) Cash Bonuses.
Subject to adjustment as provided in Section 14 hereof, the Committee may
grant: (a) Options, shares of Restricted Stock, and Stock Bonuses under the Plan
with respect to a number of shares of Company Stock that in the aggregate, does
not exceed 1,700,000 shares; and (b) Stand-Alone SARs, shares of Phantom Stock
and Cash Awards with respect to a number of shares of Company Stock that in the
aggregate does not exceed 1,700,000 shares.
To the extent Incentive Awards granted under the Plan are exercised, the
shares covered will be unavailable for future grants under the Plan. To the
extent that Options together with any related rights granted under the Plan
terminate, expire or are cancelled without having been exercised, or; in the
case of LSARs, Stand-Alone SARs or Tandem SARs exercised for cash, new Incentive
Awards may be made with respect to the shares covered thereby. In the event that
any shares of Restricted Stock or Phantom Stock, or any shares of Company Stock
granted in a Stock Bonus are forfeited or cancelled for any reason, such shares
(together with any related Cash Bonuses) shall again be available for grants
under the Plan; provided that, if and to the extent required under Rule 16b-3
promulgated under Section 16(b) of the Exchange Act, no shares of Company Stock
in respect of a forfeited Stock Bonus or grant of Restricted Stock shall again
be available for grant to the extent that, prior to such forfeiture, the
Participant had any benefits of ownership such as the present right to receive
dividends distributed with respect thereto.
3
<PAGE>
Shares of Company Stock issued under the Plan may be either newly issued
shares or treasury shares, at the discretion of the Committee.
4. Administration of the Plan
The Plan shall be administered by the Committee. The Committee shall from
time to time designate the key employees of the Company who shall be granted
Incentive Awards and the amount and type of such Incentive Awards.
The Committee shall have full authority to administer the Plan, including
authority to interpret and construe any provision of the Plan and the terms of
any Incentive Award issued under it and to adopt such rules and regulations for
administering the Plan as it may deem necessary or appropriate. Decisions of the
Committee shall be final and binding on all parties.
The Committee may, in its absolute discretion, without amendment to the
Plan, (i) accelerate the date on which any Option or Stand-Alone SAR granted
under the Plan becomes exercisable or otherwise adjust, to the extent consistent
with other provisions of the Plan, any of the terms of such Option or
Stand-Alone SAR other than a downward adjustment to the exercise price, (ii)
accelerate the Vesting Date or Issue Date, or waive any condition imposed
hereunder, with respect to any share of Restricted Stock granted under the Plan
or otherwise adjust any of the terms of such Restricted Stock and (iii)
accelerate the Vesting Date or waive any condition imposed hereunder, with
respect to any share of Phantom Stock granted under the Plan or otherwise adjust
any of the terms of such Phantom Stock.
In addition, the Committee may, in its absolute discretion and without
amendment to the Plan, grant Incentive Awards of any type to Participants on the
condition that such Participants surrender to the Committee for cancellation
such other Incentive Awards of the same or any other type as the Committee
specifies. Notwithstanding Section 3 herein, prior to the surrender of such
other Incentive Awards, Incentive Awards granted pursuant to the preceding
sentence of this Section 4 shall not count against the limits set forth in such
Section 3. However, stock options and stock appreciation rights may not be
surrendered for other stock options or stock appreciation rights with a lower
exercise price unless both count towards the aggregate limitations under the
Stock Plan.
Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Committee subject to applicable law.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Committee) arising out of any action, omission or
determination relating to the Plan, unless, in either case, such action,
omission or determination was taken or made by such member, director or employee
in bad faith and without reasonable belief that it was in the best interests of
the Company.
5. Eligibility
The persons who shall be eligible to receive Incentive Awards pursuant to
the Plan shall be such key employees of the Company who are largely responsible
for the management, growth and protection of the business of the Company
(including officers of the Company, whether or not they are directors of the
Company) as the Committee shall select from time to time. Directors who are not
employees or officers of the Company shall not be eligible to receive Incentive
Awards under the Plan.
6. Options
The Committee may grant Options pursuant to the Plan. Such Options shall
be evidenced by agreements in such form as the Committee shall from time to time
approve. Options shall comply with and be subject to the following terms and
conditions:
4
<PAGE>
(a) Identification of Options
All Options granted under the Plan shall be clearly identified in the
agreement evidencing such Options as either Incentive Stock Options or as
Non-Qualified Stock Options.
(b) Exercise Price
The exercise price of any Option granted under the Plan shall be not less
than 100% of the Fair Market Value of a share of Company Stock on the date on
which such Option is granted.
(c) Term and Exercise of Options
(1) Each Option shall be exercisable on such date or dates, during such
period and for such number of shares of Company Stock as shall be determined by
the Committee on the day on which such Option is granted and set forth in the
Option agreement with respect to such Option; provided, however; that no Option
shall be exercisable after the expiration of ten years from the date such Option
was granted; and, provided, further; that each Option shall be subject to
earlier termination, expiration or cancellation as provided in the Plan.
(2) Each Option shall be exercisable in whole or in part; provided, that
no partial exercise of an Option shall be for an aggregate exercise price of
less than $1,000. The partial exercise of an Option shall not cause the
expiration, termination or cancellation of the remaining portion thereof. Upon
the partial exercise of an Option, the agreements evidencing such Option and any
related LSARs and Tandem SARs, marked with such notations as the Committee may
deem appropriate to evidence such partial exercise, shall be returned to the
Participant exercising such Option together with the delivery of the
certificates described in Section 6(c)(5) hereof.
(3) An Option shall be exercised by delivering notice to the Company's
principal office, to the attention of its Secretary, no less than one business
day in advance of the effective date of the proposed exercise. Such notice shall
be accompanied by the agreements evidencing the Option and any related LSARs and
Tandem SARs, shall specify the number of shares of Company Stock with respect to
which the Option is being exercised and the effective date of the proposed
exercise and shall be signed by the Participant. The Participant may withdraw
such notice at any time prior to the close of business on the business day
immediately preceding the effective date of the proposed exercise, in which case
such agreements shall be returned to him. Payment for shares of Company Stock
purchased upon the exercise of an Option shall be made on the effective date of
such exercise either (i) in cash, by certified check, bank cashier's check or
wire transfer or (ii) subject to the approval of the Committee, in shares of
Company Stock owned by the Participant and valued at their Fair Market Value on
the effective date of such exercise, or partly in shares of Company Stock with
the balance in cash, by certified check, bank cashier's check or wire transfer.
Any payment in shares of Company Stock shall be effected by the delivery of such
shares to the Secretary of the Company, duly endorsed in blank or accompanied by
stock powers duly executed in blank, together with any other documents and
evidences as the Secretary of the Company shall require from time to time.
(4) During the lifetime of a Participant, each Option granted to the
Participant shall be exercisable only by the Participant. No Option shall be
assignable or transferrable otherwise than by will or by the laws of descent or
distribution, nor shall any Option be permitted to be pledged in any manner.
However, any Non-Qualified Stock Option, including the right to exercise such
option, may also be transferred by a Participant or a subsequent transferee,
during the Participant's lifetime, only to: (i) one or more of a Participant's
spouse or natural or adopted lineal descendants; or (ii) a trust, partnership,
corporation or other similar entity which is owned solely by one or more of the
Participant's spouse or natural or adopted lineal descendants or which will hold
such Non-Qualified Stock Options solely for the benefit of one or more of such
persons.
(5) Certificates for shares of Company Stock purchased upon the exercise
of an Option shall be issued in the name of the Participant or his beneficiary,
as the case may be, and delivered to the Participant or his beneficiary, as the
case may be, as soon as practicable following the effective date on which the
Option is exercised.
(d) Limitations on Grant of Options
(1) The maximum number of common shares of stock underlying Options which
may be awarded to any single Participant under the Plan is 425,000.
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(2) The aggregate Fair Market Value of shares of Company Stock with
respect to which Incentive Stock Options granted hereunder are exercisable for
the first time by a Participant during any calendar year under the Plan and any
other stock option plan of the Company (or any "subsidiary corporation" of the
Company within the meaning of Section 424 of the Code) shall not exceed
$100,000. Such Fair Market Value shall be determined as of the date on which
each such Incentive Stock Option is granted. In the event that the aggregate
Fair Market Value of shares of Company Stock with respect to such Incentive
Stock Options exceeds $100,000, then Incentive Stock Options granted hereunder
to such Participant shall, to the extent and in the order in which they were
granted, automatically be deemed to be Non-Qualified Stock Options, but all
other terms and provisions of such Incentive Stock Options shall remain
unchanged.
(3) No Incentive Stock Option may be granted to an individual if, at the
time of the proposed grant, such individual owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company or any of its "subsidiary corporations" (within the meaning of Section
424 of the Code), unless (i) the exercise price of such Incentive Stock Option
is at least one hundred and ten percent of the Fair Market Value of a share of
Company Stock at the time such Incentive Stock Option is granted and (ii) such
Incentive Stock Option is not exercisable after the expiration of five years
from the date such Incentive Stock Option is granted.
(e) Effect of Termination of Employment
(1) In the event that the employment of a Participant with the Company
shall terminate for any reason other than Cause, Disability or death (i) Options
granted to such Participant, to the extent that they were exercisable at the
time of such termination, shall remain exercisable until the expiration of three
months after such termination, on which date they shall expire, and (ii) Options
granted to such Participant, to the extent that they were not exercisable at the
time of such termination, shall expire at the close of business on the date of
such termination; provided, however; that no Option shall be exercisable after
the expiration of its term.
(2) In the event that the employment of a Participant with the Company
shall terminate on account of the Disability or death of the Participant (i)
Options granted to such Participant, to the extent that they were exercisable at
the time of such termination, shall remain exercisable until the expiration of
one year after such termination, on which date they shall expire, and (ii)
Options granted to such Participant, to the extent that they were not
exercisable at the time of such termination, shall expire at the close of
business on the date of such termination; provided, however; that no Option
shall be exercisable after the expiration of its term.
(3) In the event of the termination of a Participant's employment for
Cause, all outstanding Options granted to such Participant shall expire at the
commencement of business on the date of such termination.
(4) Notwithstanding anything to the contrary contained herein, in the
event that the employment of a Participant with the Company shall terminate for
death, disability or retirement, the Committee may waive the accelerated
expiration provisions of subsection 6(e) as they apply to any or all
Non-Qualified Stock Options or any or all stand alone SARs granted to the
Participant, to the extent that they were exercisable at the time of such
termination, so that they shall remain exercisable until the expiration of their
term. Non-Qualified Stock Options or stand alone SARs granted to such
Participant, to the extent that they were not exercisable at the time of such
termination, shall expire at the close of business on the date of such
termination; provided, however; that a Non-Qualified Stock Option and a stand
alone SAR shall not be exercisable after the expiration of its term.
(f) Acceleration of Exercise Date Upon Change in Control
Upon the occurrence of a Change in Control, each Option granted under the
Plan and outstanding at such time shall become fully and immediately exercisable
and shall remain exercisable until its expiration, termination or cancellation
pursuant to the terms of the Plan.
7. Limited SARs
The Committee may grant in connection with any Option granted hereunder
one or more LSARs relating to a number of shares of Company Stock less than or
equal to the number of shares of Company Stock subject to the related Option. An
LSAR may be granted at the same time as, or, in the case of a Non-Qualified
Stock Option, subsequent to the time that, its related Option is granted. Each
LSAR shall be evidenced by an agreement in such
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form as the Committee shall from time to time approve. Each LSAR granted
hereunder shall be subject to the following terms and conditions:
(a) Benefit Upon Exercise
(1) The exercise of an LSAR relating to a Non-Qualified Stock Option with
respect to any number of shares of Company Stock shall entitle the Participant
to a cash payment, for each such share, equal to the excess of (i) the greater
of (A) the highest price per share of Company Stock paid in the Change in
Control in connection with which such LSAR became exercisable and (B) the Fair
Market Value of a share of Company Stock on the date of such Change in Control
over (ii) the exercise price of the related Option. Such payment shall be made
as soon as practicable, but in no event later than the expiration of five
business days after the effective date of such exercise.
(2) The exercise of an LSAR relating to an Incentive Stock Option with
respect to any number of shares of Company Stock shall entitle the Participant
to a cash payment, for each such share, equal to the excess of (i) the Fair
Market Value of a share of Company Stock on the effective date of such exercise
over (ii) the exercise price of the related Option. Such payment shall be made
as soon as practical, but in no event later than the expiration of five business
days, after the effective date of such exercise.
(b) Term and Exercise of LSARs
(1) An LSAR shall be exercisable only during the period commencing on the
first day following the occurrence of a Change in Control and terminating on the
expiration of sixty days after such date. Notwithstanding the preceding sentence
of this Section 7(b), in the event that an LSAR held by any Participant who is
or may be subject to the provisions of Section 16(b) of the Exchange Act becomes
exercisable prior to the expiration of six months following the date on which it
is granted, then the LSAR shall also be exercisable during the period commencing
on the first day immediately following the expiration of such six month period
and terminating on the expiration of sixty days following such date.
Notwithstanding anything else herein, an LSAR relating to an Incentive Stock
Option may be exercised with respect to a share of Company Stock only if the
Fair Market Value of such share on the effective date of such exercise exceeds
the exercise price relating to such share. Notwithstanding anything else herein,
an LSAR may be exercised only if and to the extent that the Option to which it
relates is exercisable.
(2) The exercise of an LSAR with respect to a number of shares of Company
Stock shall cause the immediate and automatic cancellation of the Option to
which it relates with respect to an equal number of shares. The exercise of an
Option, or the cancellation, termination or expiration of an Option (other than
pursuant to this Paragraph (2)), with respect to a number of shares of Company
Stock, shall cause the cancellation of the LSAR related to it with respect to an
equal number of shares.
(3) Each LSAR shall be exercisable in whole or in part; provided, that no
partial exercise of an LSAR shall be for an aggregate exercise price of less
than $1,000. The partial exercise of an LSAR shall not cause the expiration,
termination or cancellation of the remaining portion thereof. Upon the partial
exercise of an LSAR, the agreements evidencing the LSAR, the related Option and
any Tandem SARs related to such Option, marked with such notations as the
Committee may deem appropriate to evidence such partial exercise, shall be
returned to the Participant exercising such LSAR together with the payment
described in Paragraph 7(a)(1) or (2) hereof, as applicable.
(4) During the lifetime of a Participant, each LSAR granted to him shall
be exercisable only by him. No LSAR shall be assignable or transferable
otherwise than by will or by the laws of descent and distribution and otherwise
than together with its related Option, nor shall any LSAR be permitted to be
pledged in any manner.
(5) An LSAR shall be exercised by delivering notice to the Company's
principal office, to the attention of its Secretary, no less than one business
day in advance of the effective date of the proposed exercise. Such notice shall
be accompanied by the applicable agreements evidencing the LSAR, the related
Option and any Tandem SARs relating to such Option, shall specify the number of
shares of Company Stock with respect to which the LSAR is being exercised and
the effective date of the proposed exercise and shall be signed by the
Participant. The Participant may withdraw such notice at any time prior to the
close of business on the business day immediately
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preceding the effective date of the proposed exercise, in which case such
agreements shall be returned to him.
8. Tandem SARs
The Committee may grant in connection with any Option granted hereunder
one or more Tandem SARs relating to a number of shares of Company Stock less
than or equal to the number of shares of Company Stock subject to the related
Option. A Tandem SAR may be granted at the same time as, or subsequent to the
time that, its related Option is granted. Each Tandem SAR shall be evidenced by
an agreement in such form as the Committee shall from time to time approve.
Tandem SARs shall comply with and be subject to the following terms and
conditions:
(a) Benefit Upon Exercise
The exercise of a Tandem SAR with respect to any number of shares of
Company Stock shall entitle a Participant to a cash payment, for each such
share, equal to the excess of (i) the Fair Market Value of a share of Company
Stock on the effective date of such exercise over (ii) the exercise price of the
related Option. Such payment shall be made as soon as practicable, but in no
event later than the expiration of five business days, after the effective date
of such exercise.
(b) Term and Exercise of Tandem SAR
(1) A Tandem SAR shall be exercisable at the same time and to the same
extent (on a proportional basis, with any fractional amount being rounded down
to the immediately preceding whole number) as its related Option.
Notwithstanding the first sentence of this Section 8(b)(1), (i) a Tandem SAR
shall not be exercisable at any time that an LSAR related to the Option to which
the Tandem SAR is related is exercisable and (ii) a Tandem SAR relating to an
Incentive Stock Option may be exercised with respect to a share of Company Stock
only if the Fair Market Value of such share on the effective date of such
exercise exceeds the exercise price relating to such share.
(2) The exercise of a Tandem SAR with respect to a number of shares of
Company Stock shall cause the immediate and automatic cancellation of its
related Option with respect to an equal number of shares. The exercise of an
Option, or the cancellation, termination or expiration of an Option (other than
pursuant to this Paragraph (2)), with respect to a number of shares of Company
Stock shall cause the automatic and immediate cancellation of its related Tandem
SARs to the extent that the number of shares of Company Stock subject to such
Option after such exercise, cancellation, termination or expiration is less than
the number of shares subject to such Tandem SARs. Such Tandem SARs shall be
cancelled in the order in which they became exercisable.
(3) Each Tandem SAR shall be exercisable in whole or in part; provided,
that no partial exercise of a Tandem SAR shall be for an aggregate exercise
price of less than $1,000. The partial exercise of a Tandem SAR shall not cause
the expiration, termination or cancellation of the remaining portion thereof.
Upon the partial exercise of a Tandem SAR, the agreements evidencing such Tandem
SAR, its related Option and LSARs relating to such Option, marked with such
notations as the Committee may deem appropriate to evidence such partial
exercise, shall be returned to the Participant exercising such Tandem SAR
together with the payment described in Section 8(a) hereof.
(4) During the lifetime of a Participant, each Tandem SAR granted to him
shall be exercisable only by him. No Tandem SAR shall be assignable or
transferable otherwise than by will or by the laws of descent and distribution
and otherwise than together with its related Option, nor shall any Tandem SAR be
permitted to be pledged in any manner.
(5) A Tandem SAR shall be exercised by delivering notice to the Company's
principal office, to the attention of its Secretary, no less than one business
day in advance of the effective date of the proposed exercise. Such notice shall
be accompanied by the applicable agreements evidencing the Tandem SAR, its
related Option and any LSARs related to such Option, shall specify the number of
shares of Company Stock with respect to which the Tandem SAR is being exercised
and the effective date of the proposed exercise and shall be signed by the
Participant. The Participant may withdraw such notice at any time prior to the
close of business on the business day immediately preceding the effective date
of the proposed exercise, in which case such agreements shall be returned to
him.
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9. Stand-Alone SARs
The Committee may grant Stand-Alone SARs pursuant to the Plan, which
Stand-Alone SARs shall be evidenced by agreements in such form as the Committee
shall from time to time approve. Stand-Alone SARs shall comply with and be
subject to the following terms and conditions:
(a) Exercise Price
The exercise price of any Stand-Alone SAR granted under the Plan shall be
not less than 100% of the Fair Market Value of a share of Company Stock on the
date on which such Stand Alone SAR is granted.
(b) Benefit Upon Exercise
(1) The exercise of a Stand-Alone SAR with respect to any number of shares
of Company Stock prior to the occurrence of a Change in Control shall entitle a
Participant to a cash payment, for each such share, equal to the excess of (i)
the Fair Market Value of a share of Company Stock on the exercise date over (ii)
the exercise price of the Stand-Alone SAR.
(2) The exercise of a Stand-Alone SAR with respect to any number of shares
of Company Stock on or after the occurrence of a Change in Control shall entitle
a Participant to a cash payment, for each such share, equal to the excess of (i)
the greater of (A) the highest price per share of Company Stock paid in
connection with such Change in Control and (B) the Fair Market Value of a share
of Company Stock on the date of such Change in Control over (ii) the exercise
price of the Stand-Alone SAR.
(3) All payments under this Section 9(b) shall be made as soon as
practicable, but in no event later than five business days, after the effective
date of the exercise.
(c) Term and Exercise of Stand-Alone SARs
(1) Each Stand-Alone SAR shall be exercisable on such date or dates,
during such period and for such number of shares of Company Stock as shall be
determined by the Committee and set forth in the Stand-Alone SAR agreement with
respect to such Stand-Alone SAR; provided, however, that no Stand-Alone SAR
shall be exercisable after the expiration of ten years from the date such
Stand-Alone SAR was granted; and, provided, further; that each Stand-Alone SAR
shall be subject to earlier termination, expiration or cancellation as provided
in the Plan.
(2) Each Stand-Alone SAR may be exercised in whole or in part; provided,
that no partial exercise of a Stand-Alone SAR shall be for an aggregate exercise
price of less than $1,000. The partial exercise of a Stand-Alone SAR shall not
cause the expiration, termination or cancellation of the remaining portion
thereof. Upon the partial exercise of a Stand-Alone SAR, the agreement
evidencing such Stand-Alone SAR, marked with such notations as the Committee may
deem appropriate to evidence such partial exercise, shall be returned to the
Participant exercising such Stand-Alone SAR together with the payment described
in Section 9(b)(1) or 9(b)(2) hereof.
(3) A Stand-Alone SAR shall be exercised by delivering notice to the
Company's principal office, to the attention of its Secretary, no less than one
business day in advance of the effective date of the proposed exercise. Such
notice shall be accompanied by the applicable agreement evidencing the
Stand-Alone SAR, shall specify the number of shares of Company Stock with
respect to which the Stand-Alone SAR is being exercised and the effective date
of the proposed exercise and shall be signed by the Participant. The Participant
may withdraw such notice at any time prior to the close of business on the
business day immediately preceding the effective date of the proposed exercise,
in which case the agreement evidencing the Stand-Alone SAR shall be returned to
him.
(4) During the lifetime of a Participant, each Stand-Alone SAR granted to
him shall be exercisable only by him. No Stand-Alone SAR shall be assignable or
transferable otherwise than by will or by the laws of descent and distribution,
nor shall any Stand-Alone SARs be permitted to be pledged in any manner.
(d) Effect of Termination of Employment
(1) In the event that the employment of a Participant with the Company
shall terminate for any reason other than Cause, Disability or death (i)
Stand-Alone SARs granted to such Participant, to the extent that they were
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exercisable at the time of such termination, shall remain exercisable until the
expiration of three months after such termination, on which date they shall
expire, and (ii) Stand-Alone SARs granted to such Participant, to the extent
that they were not exercisable at the time of such termination, shall expire at
the close of business on the date of such termination; provided, however; that
no Stand-Alone SAR shall be exercisable after the expiration of its term.
(2) In the event that the employment of a Participant with the Company
shall terminate on account of the Disability or death of the Participant (i)
Stand-Alone SARs granted to such Participant, to the extent that they were
exercisable at the time of such termination, shall remain exercisable until the
expiration of one year after such termination, on which date they shall expire,
and (ii) Stand-Alone SARs granted to such Participant, to the extent that they
were not exercisable at the time of such termination, shall expire at the close
of business on the date of such termination; provided, however; that no
Stand-Alone SAR shall be exercisable after the expiration of its term.
(3) In the event of the termination of a Participant's employment for
Cause, all outstanding Stand-Alone SARs granted to such Participant shall expire
at the commencement of business on the date of such termination.
(e) Acceleration of Exercise Date Upon Change in Control
Upon the occurrence of a Change in Control, any Stand-Alone SAR granted
under the Plan and outstanding at such time shall become fully and immediately
exercisable and shall remain exercisable until its expiration, termination or
cancellation pursuant to the terms of the Plan.
10. Restricted Stock
The Committee may grant shares of Restricted Stock pursuant to the Plan.
Each grant of shares of Restricted Stock shall be evidenced by an agreement in
such form as the Committee shall from time to time approve. Each grant of shares
of Restricted Stock shall comply with and be subject to the following terms and
conditions:
(a) Issue Date and Vesting Date
At the time of the grant of shares of Restricted Stock, the Committee
shall establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates
with respect to such shares. The Committee may divide such shares into classes
and assign a different Issue Date and/or Vesting Date for each class. Except as
provided in Sections 10(c) and 10(f) hereof, upon the occurrence of the Issue
Date with respect to a share of Restricted Stock, a share of Restricted Stock
shall be issued in accordance with the provisions of Section 10(d) hereof.
Provided that all conditions to the vesting of a share of Restricted Stock
imposed pursuant to Section 10(b) hereof are satisfied, and except as provided
in Sections 10(c) and 10(f) hereof, upon the occurrence of the Vesting Date with
respect to a share of Restricted Stock, such share shall vest and the
restrictions of Section 10(c) hereof shall cease to apply to such share.
(b) Conditions to Vesting
At the time of the grant of shares of Restricted Stock, the Committee may
impose such restrictions or conditions, not inconsistent with the provisions
hereof, to the vesting of such shares as it, in its absolute discretion deems
appropriate. By way of example and not by way of limitation, the Committee may
require, as a condition to the vesting of any class or classes of shares of
Restricted Stock, that the Participant or the Company achieve such performance
criteria as the Committee may specify at the time of the grant of such shares.
(c) Restrictions on Transfer Prior to Vesting
Prior to the vesting of a share of Restricted Stock, no transfer of a
Participant's rights with respect to such share, whether voluntary or
involuntary, by operation of law or otherwise, shall vest the transferee with
any interest or right in or with respect to such share, but immediately upon any
attempt to transfer such rights, such share, and all of the rights related
thereto, shall be forfeited by the Participant and the transfer shall be of no
force or effect.
(d) Issuance of Certificates
(1) Except as provided in Sections 10(c) or 10(f) hereof, reasonably
promptly after the Issue Date with respect to shares of Restricted Stock, the
Company shall cause to be issued a stock certificate, registered in the name of
the Participant to whom such shares were granted, evidencing such shares;
provided, that the Company shall not cause to be issued such a stock certificate
unless it has received a stock power duly endorsed in blank with respect
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to such shares. Each such stock certificate shall bear the following legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture provisions and restrictions
against transfer) contained in the Southwestern Energy Company
1993 Stock Incentive Plan and an Agreement entered into between
the registered owner of such shares and Southwestern Energy
Company A copy of the Plan and Agreement is on file in the
office of the Secretary of Southwestern Energy Company, 1083
Sain Street, Fayetteville, Arkansas 72702-1408.
Such legend shall not be removed from the certificate evidencing such shares
until such shares vest pursuant to the terms hereof.
(2) Each certificate issued pursuant to Section 10(d)(1) hereof, together
with the stock powers relating to the shares of Restricted Stock evidenced by
such certificate, shall be deposited by the Company with a custodian designated
by the Company. The Company shall cause such custodian to issue to the
Participant a receipt evidencing the certificates held by it which are
registered in the name of the Participant.
(e) Consequences Upon Vesting
Upon the vesting of a share of Restricted Stock pursuant to the terms
hereof, the restrictions of Section 10(c) hereof shall cease to apply to such
share. Reasonably promptly after a share of Restricted Stock vests pursuant to
the terms hereof, the Company shall cause to be issued and delivered to the
Participant to whom such shares were granted, a certificate evidencing such
share, free of the legend set forth in Section 10(d)(1) hereof together with any
other property of the Participant held by the custodian pursuant to Section
14(b) hereof.
(f) Effect of Termination of Employment
(1) In the event that the employment of a Participant with the Company
shall terminate for any reason other than Cause prior to the vesting of shares
of Restricted Stock granted to such Participant, a proportion of such shares, to
the extent not forfeited or cancelled on or prior to such termination pursuant
to any provision hereof, shall vest on the date of such termination. The
proportion referred to in the preceding sentence shall initially be determined
by the Committee at the time of the grant of such shares of Restricted Stock and
may be based on the achievement of any conditions imposed by the Committee with
respect to such shares pursuant to Section 10(b). Such proportion may be equal
to zero.
(2) In the event of the termination of a Participant's employment for
Cause, all shares of Restricted Stock granted to such Participant which have not
vested as of the date of such termination shall immediately be forfeited.
(g) Effect of Change in Control
Upon the occurrence of a Change in Control, all shares of Restricted Stock
which have not theretofore vested (including those with respect to which the
Issue Date has not yet occurred), or been cancelled or forfeited pursuant to any
provision hereof, shall immediately vest.
11. Phantom Stock
The Committee may grant shares of Phantom Stock pursuant to the Plan. Each
grant of shares of Phantom Stock shall be evidenced by an agreement in such form
as the Committee shall from time to time approve. Each grant of shares of
Phantom Stock shall comply with and be subject to the following terms and
conditions:
(a) Vesting Date
At the time of the grant of shares of Phantom Stock, the Committee shall
establish a Vesting Date or Vesting Dates with respect to such shares. The
Committee may divide such shares into classes and assign a different Vesting
Date for each class. Provided that all conditions to the vesting of a share of
Phantom Stock imposed pursuant to Section 11(c) hereof are satisfied, and except
as provided in Section 11(d) hereof, upon the occurrence of the Vesting Date
with respect to a share of Phantom Stock, such share shall vest.
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(b) Benefit Upon Vesting
Upon the vesting of a share of Phantom Stock, a Participant shall be
entitled to receive in cash, within 30 days of the date on which such share
vests, an amount in cash in a lump sum equal to the sum of (i) the Fair Market
Value of a share of Company Stock on the date on which such share of Phantom
Stock vests and (ii) the aggregate amount of cash dividends paid with respect to
a share of Company Stock during the period commencing on the date on which the
share of Phantom Stock was granted and terminating on the date on which such
share vests.
(c) Conditions to Vesting
At the time of the grant of shares of Phantom Stock, the Committee may
impose such restrictions or conditions, not inconsistent with the provisions
hereof, to the vesting of such shares as it, in its absolute discretion deems
appropriate. By way of example and not by way of limitation, the Committee may
require, as a condition to the vesting of any class or classes of shares of
Phantom Stock, that the Participant or the Company achieve such performance
criteria as the Committee may specify at the time of the grant of such shares of
Phantom Stock.
(d) Effect of Termination of Employment
(1) In the event that the employment of a Participant with the Company
shall terminate for any reason other than Cause prior to the vesting of shares
of Phantom Stock granted to such Participant, a proportion of such shares, to
the extent not forfeited or cancelled on or prior to such termination pursuant
to any provision hereof, shall vest on the date of such termination. The
proportion referred to in the preceding sentence initially shall be determined
by the Committee at the time of the grant of such shares of Phantom Stock and
may be based on the achievement of any conditions imposed by the Committee with
respect to such shares pursuant to Section 11(c). Such proportion may be equal
to zero.
(2) In the event of the termination of a Participant's employment for
Cause, all shares of Phantom Stock granted to such Participant which have not
vested as of the date of such termination shall immediately be forfeited.
(e) Effect of Change in Control
Upon the occurrence of a Change in Control, all shares of Phantom Stock
which have not theretofore vested, or been cancelled or forfeited pursuant to
any provision hereof, shall immediately vest.
12. Stock Bonuses
The Committee may grant Stock Bonuses in such amounts as it shall
determine from time to time. A Stock Bonus shall be paid at such time and
subject to such conditions as the Committee shall determine at the time of the
grant of such Stock Bonus. Certificates for shares of Company Stock granted as a
Stock Bonus shall be issued in the name of the Participant to whom such grant
was made and delivered to such Participant as soon as practicable after the date
on which such Stock Bonus is required to be paid.
13. Cash Bonuses
The Committee may, in its absolute discretion, in connection with any
grant of Restricted Stock or Stock Bonus or at any time thereafter; grant a cash
bonus, payable promptly after the date on which the Participant is required to
recognize income for federal income tax purposes in connection with such grant
of Restricted Stock or Stock Bonus, in such amounts as the Committee shall
determine from time to time; provided, however; that in no event shall the
amount of a Cash Bonus exceed the Fair Market Value of the related shares of
Restricted Stock or Stock Bonus on such date. A Cash Bonus shall be subject to
such conditions as the Committee shall determine at the time of the grant of
such Cash Bonus.
14. Adjustment Upon Changes in Company Stock
(a) Shares Available for Grants
In the event of any change in the number of shares of Company Stock
outstanding by reason of any stock dividend or split, reverse stock split,
recapitalization, merger, consolidation, combination or exchange of shares or
similar corporate change, the maximum aggregate number of shares of Company
Stock with respect to which the Committee may grant Options, Stand-Alone SARs,
shares of Restricted Stock, shares of Phantom Stock, Stock Bonuses and Cash
Bonuses shall be appropriately adjusted by the Committee. In the event of any
change in the
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number of shares of Company Stock outstanding by reason of any other event or
transaction, the Committee may, but need not, make such adjustments in the
number and class of shares of Company Stock with respect to which Options,
Stand-Alone SARs, shares of Restricted Stock, shares of Phantom Stock, Stock
Bonuses and Cash Bonuses may be granted as the Committee may deem appropriate.
(b) Outstanding Restricted Stock and Phantom Stock
Unless the Committee in its absolute discretion otherwise determines, any
securities or other property (including dividends paid in cash) received by a
Participant with respect to a share of Restricted Stock, the Issue Date with
respect to which occurs prior to such event, but which has not vested as of the
date of such event, as a result of any dividend, stock split, reverse stock
split, recapitalization, merger, consolidation, combination, exchange of shares
or otherwise will not vest until such share of Restricted Stock vests, and shall
be promptly deposited with the custodian designated pursuant to Paragraph
10(d)(2) hereof.
The Committee may, in its absolute discretion, adjust any grant of shares
of Restricted Stock, the Issue Date with respect to which has not occurred as of
the date of the occurrence of any of the following events, or any grant of
shares of Phantom Stock, to reflect any dividend, stock split, reverse stock
split, recapitalization, merger, consolidation, combination, exchange of shares
or similar corporate change as the Committee may deem appropriate to prevent the
enlargement or dilution of rights of Participants under the grant.
(c) Outstanding Options, LSARs, Tandem SARs and Stand-Alone SARs -Increase
or Decrease in Issued Shares Without Consideration
Subject to any required action by the shareholders of the Company in the
event of any increase or decrease in the number of issued shares of Company
Stock resulting from a subdivision or consolidation of shares of Company Stock
or the payment of a stock dividend (but only on the shares of Company Stock), or
any other increase or decrease in the number of such shares effected without
receipt of consideration by the Company, the Committee shall proportionally
adjust the number of shares of Company Stock subject to each outstanding Option,
LSAR, Tandem SAR and Stand-Alone SAR, and the exercise price per share of
Company Stock of each such Option, LSAR, Tandem SAR and Stand-Alone SAR.
(d) Outstanding Options, LSARs, Tandem SARs and Stand-Alone SARs - Certain
Mergers
Subject to any required action by the shareholders of the Company, in the
event that the Company shall be the surviving corporation in any merger or
consolidation (except a merger or consolidation as a result of which the holders
of shares of Company Stock receive securities of another corporation), each
Option, LSAR, Tandem SAR and Stand-Alone SAR outstanding on the date of such
merger or consolidation shall pertain to and apply to the securities which a
holder of the number of shares of Company Stock subject to such Option, LSAR,
Tandem SAR or Stand-Alone SAR would have received in such merger or
consolidation.
(e) Outstanding Options, LSARs, Tandem SARs and Stand-Alone SARs - Certain
Other Transactions
In the event of (i) a dissolution or liquidation of the Company, (ii) a
sale of all or substantially all of the Company's assets, (iii) a merger or
consolidation involving the Company in which the Company is not the surviving
corporation or (iv) a merger or consolidation involving the Company in which the
Company is the surviving corporation but the holders of shares of Company Stock
receive securities of another corporation and/or other property, including cash,
the Committee shall, in its absolute discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of such
event, each Option (including each LSAR and Tandem-SAR related thereto)
and Stand-Alone SAR outstanding immediately prior to such event (whether
or not then exercisable), and, in full consideration of such cancellation,
pay to the Participant to whom such Option or Stand-Alone SAR was granted
an amount in cash, for each share of Company Stock subject to such Option
or Stand-Alone SAR, respectively, equal to the excess of (A) the value, as
determined by the Committee in its absolute discretion, of the property
(including cash) received by the holder of a share of Company Stock as a
result of such event over (B) the exercise price of such Option or
Stand-Alone SAR; or
(ii) provide for the exchange of each Option (including any related
LSAR or Tandem SAR) and Stand-
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Alone SAR outstanding immediately prior to such event (whether or not then
exercisable) for an option on or stock appreciation right with respect to,
as appropriate, some or all of the property for which such Option or
Stand-Alone SAR is exchanged and, incident thereto, make an equitable
adjustment as determined by the Committee in its absolute discretion in
the exercise price of the option or stock appreciation right, or the
number of shares or amount of property subject to the option or stock
appreciation right or, if appropriate, provide for a cash payment to the
Participant to whom such Option or Stand-Alone SAR was granted in partial
consideration for the exchange of the Option or Stand-Alone SAR.
(f) Outstanding Options, LSARs, Tandem SARs and Stand-Alone SARs - Other
Changes
In the event of any change in the capitalization of the Company or a
corporate change other than those specifically referred to in Sections 14(c),
(d) or (e) hereof, the Committee may, in its absolute discretion, make such
adjustments in the number and class of shares subject to Options, LSARs, Tandem
SARs or Stand-Alone SARs outstanding on the date on which such change occurs and
in the per-share exercise price of each such Option, LSAR, Tandem SAR and
Stand-Alone SAR as the Committee may consider appropriate to prevent dilution or
enlargement of rights.
(g) No Other Rights
Except as expressly provided in the Plan, no Participant shall have any
rights by reason of any subdivision or consolidation of shares of stock of any
class, the payment of any dividend, any increase or decrease in the number of
shares of stock of any class or any dissolution, liquidation, merger or
consolidation of the Company or any other corporation. Except as expressly
provided in the Plan, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Company Stock subject to an Incentive Award or the exercise
price of any Option, LSAR, Tandem SAR or Stand-Alone SAR.
15. Rights as a Stockholder
No person shall have any rights as a stockholder with respect to any
shares of Company Stock covered by or relating to any Incentive Award granted
pursuant to this Plan until the date of the issuance of a stock certificate with
respect to such shares. Except as otherwise expressly provided in Section 14
hereof, no adjustment to any Incentive Award shall be made for dividends or
other rights for which the record date occurs prior to the date such stock
certificate is issued.
16. No Special Employment Rights; No Right to Incentive Award
Nothing contained in the Plan or any Incentive Award shall confer upon any
Participant any right with respect to the continuation of his employment by the
Company or interfere in any way with the right of the Company, subject to the
terms of any separate employment agreement to the contrary, at any time to
terminate such employment or to increase or decrease the compensation of the
Participant from the rate in existence at the time of the grant of an Incentive
Award.
No person shall have any claim or right to receive an Incentive Award
hereunder. The Committee's granting of an Incentive Award to a Participant at
any time shall neither require the Committee to grant an Incentive Award to such
Participant or any other Participant or other person at any time nor preclude
the Committee from making subsequent grants to such Participant or any other
Participant or other person.
17. Securities Matters
(a) The Company shall be under no obligation to effect the registration
pursuant to the Securities Act of any interests in the Plan or any shares of
Company Stock to be issued hereunder or to effect similar compliance under any
state laws. Notwithstanding anything herein to the contrary, the Company shall
not be obligated to cause to be issued or delivered any certificates evidencing
shares of Company Stock pursuant to the Plan unless and until the Company is
advised by its counsel that the issuance and delivery of such certificates is in
compliance with all applicable laws, regulations of governmental authority and
the requirements of the New York Stock Exchange and any other securities
exchange on which shares of Company Stock are traded. The Committee may require,
as a condition of the issuance and delivery of certificates evidencing shares of
Company Stock pursuant to the terms
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hereof, that the recipient of such shares make such covenants, agreements and
representations, and that such certificates bear such legends, as the Committee,
in its sole discretion, deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall be effective only
at such time as counsel to the Company shall have determined that the issuance
and delivery of shares of Company Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authority and
the requirements of the New York Stock Exchange and any other securities
exchange on which shares of Company Stock are traded. The Committee may, in its
sole discretion, defer the effectiveness of any exercise of an Option granted
hereunder in order to allow the issuance of shares of Company Stock pursuant
thereto to be made pursuant to registration or an exemption from registration or
other methods for compliance available under federal or state securities laws.
The Committee shall inform the Participant in writing of its decision to defer
the effectiveness of the exercise of an Option granted hereunder. During the
period that the effectiveness of the exercise of an Option has been deferred,
the Participant may, by written notice, withdraw such exercise and obtain the
refund of any amount paid with respect thereto.
18. Withholding Taxes
(a) Cash Remittance
Whenever shares of Company Stock are to be issued upon the exercise of an
Option, the occurrence of the Issue Date or Vesting Date with respect to a share
of Restricted Stock or the payment of a Stock Bonus, the Company shall have the
right to require the Participant to remit to the Company in cash an amount
sufficient to satisfy federal, state and local withholding tax requirements, if
any, attributable to such exercise, occurrence or payment prior to the delivery
of any certificate or certificates for such shares. In addition, upon the
exercise of an LSAR, Tandem SAR or Stand-Alone SAR, the grant of a Cash Bonus or
the making of a payment with respect to a share of Phantom Stock, the Company
shall have the right to withhold from any cash payment required to be made
pursuant thereto an amount sufficient to satisfy the federal, state and local
withholding tax requirements, if any, attributable to such exercise or grant.
(b) Stock Remittance
Subject to Section 18(d) hereof at the election of the Participant,
subject to the approval of the Committee, when shares of Company Stock are to be
issued upon the exercise of an Option, the occurrence of the Issue Date or the
Vesting Date with respect to a share of Restricted Stock or the grant of a Stock
Bonus, in lieu of the remittance required by Section 18(a) hereof, the
Participant may tender to the Company a number of shares of Company Stock
determined by such Participant, the Fair Market Value of which at the tender
date the Committee determines to be sufficient to satisfy the federal, state and
local withholding tax requirements, if any, attributable to such exercise,
occurrence or grant and not greater than the Participant's estimated total
federal, state and local tax obligations associated with such exercise,
occurrence or grant.
(c) Stock Withholding
The Company shall have the right, when shares of Company Stock are to be
issued upon the exercise of an Option, the occurrence of the Issue Date or the
Vesting Date with respect to a share of Restricted Stock or the grant of a Stock
Bonus, in lieu of requiring the remittance required by Section 18(a) hereof, to
withhold a number of such shares, the Fair Market Value of which at the exercise
date the Committee determines to be sufficient to satisfy the federal, state and
local withholding tax requirements, if any, attributable to such exercise,
occurrence or grant and is not greater than the Participant's estimated total
federal, state and local tax obligations associated with such exercise,
occurrence or grant.
(d) Timing and Method of Elections
Notwithstanding any other provisions of the Plan, a Participant who is
subject to Section 16(b) of the Exchange Act may not make the election described
in Section 18(b) hereof prior to the expiration of six months after the date on
which the applicable Option, share of Restricted Stock or Stock Bonus was
granted, except in the event of the death or Disability of the Participant. A
Participant who is subject to Section 16(b) of the Exchange Act may not make
such election other than (i) during the 10-day window period beginning on the
third business day following the date of release for publication of the
Company's quarterly and annual summary statements of sales and earnings and
ending on the twelfth business day following such date or (ii) at least six
months prior to the date such election
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is made. Such elections shall be irrevocable and shall be made by the delivery
to the Company's principal office, to the attention of its Secretary, of a
written notice signed by the Participant.
19. Amendment or Termination of the Plan
The Board of Directors may, at any time, suspend or discontinue the Plan
or revise or amend it in any respect whatsoever; provided, however; that no
amendment shall be effective without the approval of the shareholders of the
Company, that (i) except as provided in Section 14 hereof, increases the number
of shares of Company Stock that may be issued under the Plan, (ii) materially
increases the benefits accruing to individuals pursuant to the Plan, (iii)
materially modifies the requirements as to eligibility for participation in the
Plan, or (iv) would otherwise materially alter the Plan. Nothing herein shall
restrict the Committee's ability to exercise its discretionary authority
hereunder pursuant to Section 4 hereof, which discretion may be exercised
without amendment to the Plan. No action hereunder may, without the consent of a
Participant, reduce the Participant's rights under any previously granted and
outstanding Incentive Award. Nothing herein shall limit the right of the Company
to pay compensation of any kind outside the terms of the Plan.
20. No Obligation to Exercise
The grant to a Participant of an Option, LSAR, Tandem SAR or Stand-Alone
SAR shall impose no obligation upon such Participant to exercise such Option,
LSAR, Tandem SAR or Stand-Alone SAR.
21. Transfers Upon Death
Upon the death of a Participant, outstanding Incentive Awards granted to
such Participant may be exercised only by the executors or administrators of the
Participant's estate or by any person or persons who shall have acquired such
right to exercise by will or by the laws of descent and distribution. No
transfer by will or the laws of descent and distribution of any Incentive Award,
or the right to exercise any Incentive Award, shall be effective to bind the
Company unless the Committee shall have been furnished with (a) written notice
thereof and with a copy of the will and/or such evidence as the Committee may
deem necessary to establish the validity of the transfer and (b) an agreement by
the transferee to comply with all the terms and conditions of the Incentive
Award that are or would have been applicable to the Participant and to be bound
by the acknowledgments made by the Participant in connection with the grant of
the Incentive Award. Except as provided in this Section 21, no Incentive Award
shall be transferable, and shall be exercisable only by a Participant during the
Participant's lifetime.
22. Expenses and Receipts
The expenses of the Plan shall be paid by the Company. Any proceeds
received by the Company in connection with any Incentive Award will be used for
general corporate purposes.
23. Failure to Comply
In addition to the remedies of the Company elsewhere provided for herein,
failure by a Participant (or beneficiary) to comply with any of the terms and
conditions of the Plan or the agreement executed by such Participant (or
beneficiary) evidencing an Incentive Award, unless such failure is remedied by
such Participant (or beneficiary) within ten days after having been notified of
such failure by the Committee, shall be grounds for the cancellation and
forfeiture of such Incentive Award, in whole or in part, as the Committee, in
its absolute discretion, may determine.
24. Effective Date of Plan
The Plan was adopted by the Board of Directors on April 7, 1993, subject
to approval by the shareholders of the Company at their annual meeting on May
26, 1993 in accordance with applicable law, the requirements of Section 422 of
the Code and the requirements of Rule 16b-3 promulgated under Section 16(b) of
the Exchange Act. Incentive Awards maybe granted under the Plan at any time
prior to the receipt of such shareholder approval; provided, however, that each
such grant shall be subject to such approval. Without limitation on the
foregoing, no Option, LSAR, Tandem SAR or Stand-Alone SAR may be exercised prior
to the receipt of such approval, no share certificate shall be issued pursuant
to a grant of Restricted Stock or Stock Bonus prior to the receipt of such
approval and no Cash Bonus or payment with respect to a share of Phantom Stock
shall be paid prior to the receipt of such approval. If the Plan is not so
approved prior to December 31, 1993, then the Plan and all Incentive Awards then
outstanding hereunder shall forthwith automatically terminate and be of no force
and effect.
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25. Term of the Plan
The right to grant Incentive Awards under the Plan will terminate upon the
expiration of 10 years after the Effective Date of the Plan.
26. Applicable Law
Except to the extent preempted by any applicable federal law, the Plan
will be construed and administered in accordance with the laws of the State of
Arkansas, without reference to the principles of conflicts of law.
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