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:
<PAGE>
Southwestern Energy Company
1083 Sain Street
P. O. Box 1408
Fayetteville, Arkansas 72702-1408
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON MAY 24, 2000
The Annual Meeting of Shareholders of Southwestern Energy Company will
be held at the Northwest Arkansas Convention Center, Hwy. 71 Bypass at Hwy. 412,
Springdale, Arkansas, on Wednesday, the 24th day of May, 2000, at 11:00 a.m.,
Central Daylight Time, for the following purposes:
(1) The election of six (6) directors to serve until the 2001 Annual
Meeting or until their respective successors are duly elected and
qualified;
(2) To consider and take action upon a proposal to adopt a new stock
incentive plan for the compensation of officers, directors, 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 17,
2000, 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
GEORGE A. TAAFFE
Secretary
March 29, 2000
<PAGE>
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 24, 2000, 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 $6,500 plus expenses.
The cost of this proxy solicitation will be borne by the Company, including the
charges and expenses of brokerage firms and others for forwarding solicitation
material to beneficial owners of stock. The solicitation will be by mail and
such cost will include the cost of preparing and mailing this Proxy Statement
and proxy. In addition to the use of the mails, proxies may be solicited by
personal interview, by telephone, or by other means. Although solicitation will
be made primarily through the use of the mail, officers, directors, or regular
employees of the Company may solicit proxies personally or by telephone or other
means without additional remuneration for such activity.
This Proxy Statement along with a copy of the Company's Annual Report
is being mailed to shareholders on March 29, 2000.
VOTING SECURITIES OUTSTANDING
CUMULATIVE VOTING FOR ELECTION OF DIRECTORS AUTHORIZED
On March 17, 2000, the Company had outstanding 25,037,353 shares of
Common Stock ($.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.
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 adopt the new stock
incentive plan.
Only shareholders of record at the close of business on March 17, 2000,
will be entitled to vote at the Annual Meeting of Shareholders.
1
<PAGE>
ELECTION OF DIRECTORS
At the meeting, six (6) 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
Lewis E. Epley, Jr. Ltd., Holiday Island, Arkansas, and is involved in several
personal business ventures in the Eureka Springs, Arkansas 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. He is a past Chairman and past member of
the Board of Trustees of the University of Arkansas. He is currently a director
of the University of Arkansas Foundation, a director of the Washington Regional
Medical Foundation and Chairman of the Northwest Arkansas Radiation Therapy
Institute Foundation Board. Mr. Epley is 63 years old and was first elected to
the Board of Directors in 1998.
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 1997. Mr.
Hammerschmidt has been a member of the Board of the Metropolitan Washington
Airports Authority since 1997. He has served as member of the Board of Trustees
of the University of the Ozarks since 1994 and Arkansas State University since
1999. Mr. Hammerschmidt is 77 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 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, from 1995 until 1998; Ocean Energy, Inc. (formerly United
Meridian Corp.) of Houston, Texas, since 1996; and McDermott International, Inc.
and J. Ray McDermott of New Orleans, Louisiana, since 1997. He is 63 years old
and first became a director in 1995.
HAROLD M. KORELL - Mr. Korell is the President and Chief Executive
Officer of the Company. Mr. Korell joined Southwestern in 1997 as Executive Vice
President and Chief Operating Officer. On May 22, 1998, Mr. Korell was promoted
to President and Chief Operating Officer and was named President and Chief
Executive Officer effective January 1, 1999. Previously, Mr. Korell was Senior
Vice President - Operations of American Exploration Company, Executive Vice
President of McCormick Resources, and held various technical and managerial
positions with Tenneco Oil Company including Vice President - Production, and
various positions with Mobil Corporation. Mr. Korell is 55 years old and first
became a director in October 1998.
2
<PAGE>
KENNETH R. MOURTON - Mr. Mourton is an Attorney at Law with the firm of
Ball and Mourton, Ltd., PLLC, Fayetteville, Arkansas and is a certified public
accountant. 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 President and part owner of Emerald Travel Services, Ltd., since 1989.
All of these businesses are located in Fayetteville, Arkansas. Mr. Mourton also
owns and operates several other businesses in various states related to beer
distribution, lodging, warehousing and travel. 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 49 years old and was first elected to the
Board of Directors in 1995.
CHARLES E. SCHARLAU - Mr. Scharlau retired as President and Chief
Executive Officer of the Company on December 31, 1998. He continues to serve as
a Director and Chairman of the Board of Directors of the Company. He began his
career as the Company's legal counsel in 1951 and has been involved in all
facets of the Company's business for over 47 years. In 1966 he was named
Executive Vice President and first elected a director of the Company. In 1972 he
was elected President and Chief Executive Officer. Mr. Scharlau is currently of
counsel with the firm of Conner and Winters PLLC. He is also a director since
1980 of C. H. Heist Corporation, Clearwater, Florida; member of the Board of
Trustees of the University of Arkansas since 1998; and Chairman since 1999 of
the Executive Committee for the Northwest Arkansas Council. Mr. Scharlau is 72
years old.
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 13, 2000. 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. George A. Taaffe, Secretary, Southwestern Energy Company, 1083 Sain Street,
P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.
3
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES,
AND EXECUTIVE OFFICERS
The following table sets forth information as of March 17, 2000, 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 3-17-00
(Sole Voting and Investment Percent
Name of Beneficial Owner Power Except as Noted) (1) of Class
------------------------ -------------------------------- --------
<S> <S> <C>
Executive Officers:
Harold M. Korell......................................... 417,236 1.67%
Alan H. Stevens.......................................... 216,461 .86%
Greg D. Kerley .......................................... 190,573 .76%
George A. Taaffe......................................... 37,037 .15%
Debbie J. Branch......................................... 50,883 .20%
Directors and Nominees:
Lewis E. Epley, Jr...................................... 37,089 .15%
John Paul Hammerschmidt.................................. 84,000 .34%
Robert L. Howard......................................... 62,000 .25%
Kenneth R. Mourton....................................... 61,000 .24%
Charles E. Scharlau...................................... 715,502 2.86%
All persons as a group (10 in number) who are
directors, nominees or executive officers of the
Company ................................................... 1,871,781 (2) 7.48%
- ------------------------
<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. Korell, 91,666; Mr. Stevens, 73,334; Mr. Kerley, 35,363;
Mr. Taaffe, 0; Ms. Branch, 15,600; Mr. Epley, Jr., 3,000; Mr.
Hammerschmidt, 54,000; 30,000 each for Messrs. Howard and Mourton, and
Mr. Scharlau, 504,996. 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": Mr. Korell, 213,084; Mr.
Stevens, 114,916; Mr. Kerley, 135,284; Mr. Taaffe, 18,600; Ms. Branch,
21,100; Mr. Epley, Jr., 21,000; 30,000 each for Messrs. Hammerschmidt,
Howard and Mourton; and Mr. Scharlau, 12,000. 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. Korell, 37,631; Mr. Stevens,
11,750; Mr. Kerley, 8,135; Mr. Taaffe, 4,200; and Ms. Branch, 3,217.
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 837,959 shares through the
exercise of stock options within 60 days. Also included in this number
is this group's right to acquire an additional 625,984 shares through
the exercise of stock options immediately upon a "change in control" as
defined under "Agreements Concerning Employment and Changes in
Control."
</FN>
</TABLE>
Transactions With Nominees and Executive Officers
During 1999, the Company and related entities, for certain legal
services, paid $9,794 to the law firm of Conner and Winters PLLC of
Fayetteville, Arkansas, of which Mr. Charles Scharlau is of counsel. Mr. Greg
Scharlau, Mr. Scharlau's son, is a partner in Conner and Winters PLLC.
4
<PAGE>
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 Board of Directors of the
Company has determined that all members of the Audit Committee have no
relationship to the Company that may interfere with the exercise of their
independence from management and the Company. At the February 18, 2000, Board
meeting, the Board of Directors adopted an Audit Committee Charter in accordance
with the standards of the New York Stock Exchange and Securities and Exchange
Commission. The Audit Committee Charter appears as Appendix B to this Proxy
Statement. 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. Kenneth R. Mourton, a certified public accountant and Audit Committee
Chairman, Lewis E. Epley, Jr., and Robert L. Howard.
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. Robert L. Howard, Compensation Committee Chairman, John Paul
Hammerschmidt, and Kenneth R. Mourton 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, Retirement Committee Chairman, Lewis E.
Epley, Jr., and Kenneth R. Mourton presently serve on this committee.
The Company has no standing nominating committee. The Board as a whole
considers candidates for nomination for Board positions. The Board will consider
qualified candidates recommended by shareholders. Any shareholder wishing to
recommend a candidate may do so by letter addressed to Mr. George A. Taaffe,
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 2000 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 2001 Annual Meeting may present independent
nominees to the 2001 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 2001 meeting date. If less than 65 days notice of the
2001 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. George A. Taaffe, Secretary, Southwestern Energy Company, 1083 Sain Street,
P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.
5
<PAGE>
DIRECTOR COMPENSATION
In 1999, for their services as directors, Messrs. Lewis E. Epley, Jr.,
John Paul Hammerschmidt, Robert L. Howard, Kenneth R. Mourton, and Charles E.
Scharlau were each paid $24,000. Since January 1, 1999, Mr. Scharlau has acted
as an advisor to the Company for which he has received a salary until May 18,
1999 of $227,025; consulting fees of $144,677 under a consulting agreement with
the Company; $6,811 for the Company matching portion of Nonqualified Plan
contributions; an auto allowance of $3,075; and $1,264 for the cost of life
insurance. In 1999, Mr. Scharlau also received $85,288 as a payout of an award
previously granted under the Company's former Annual and Long-Term Incentive
Compensation Plan. Messrs. E. J. Ball and Charles E. Sanders were each paid
$5,000 for their services as Directors Emeritus. Each outside director serving
as of December 31, 1999, was granted an option to purchase 12,000 shares of the
Company's Common Stock at $6.50 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 meeting for his
participation on each committee. During 1999, the Board of Directors held eight
meetings, the Audit Committee held two meetings, the Compensation Committee held
two meetings, and the Retirement Committee held one meeting.
At the Board of Directors meeting held February 18, 2000, the Board
approved changes to director compensation. Directors will receive an annual fee
of $24,000 plus $1,000 for each Board meeting attended, excluding telephonic
meetings, and $1,000 for each committee meeting attended. Each outside director
serving as of December 31 of each year will also will be granted an option to
purchase 8,000 shares of the Company's Common Stock at the Fair Market Value on
the date of the grant. Such options will become exercisable in installments at a
rate of 25% per year for each full twelve months of service as a director.
Directors who retire with certain qualifications are appointed to the position
of Director Emeritus. A director emeritus received a fee of $1,000 per meeting
attended until December 31, 1999. After this date, a director emeritus is paid
an annual fee of $2,000 for the remainder of his life and such health care
benefits as the Company provides to its full time employees. Mr. Ball was
appointed to the position of Director Emeritus upon his retirement in 1995 and
Mr. Sanders was appointed to this position upon his retirement in 1998. Mr. Ball
and Mr. Mourton are partners in the law firm of Ball and Mourton, Ltd., PLLC.
During 1999, the Company paid $150 in legal fees to Ball and Mourton, Ltd.,
PLLC.
6
<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 17, 2000:
<TABLE>
<CAPTION>
Percent
Amount and Nature of of
Title of Class Name and Address of Beneficial Owner Beneficial Ownership Class
-------------- ------------------------------------ -------------------- -------
<S> <C> <C> <C>
Common Stock........... Heartland Advisors, Inc. 2,452,500 (1) 9.8%
789 North Water Street
Milwaukee, WI 53202
Common Stock........... Fidelity Management and 1,740,900 (2) 7.0%
Research Company
82 Devonshire Street
Boston, MA 02109-3605
Common Stock........... Sanford C. Bernstein & Co., Inc. 1,731,855 (3) 6.9%
767 Fifth Avenue
New York, NY 10153-0002
Common Stock........... Dimensional Fund Advisors Inc. 1,583,800 (4) 6.3%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Common Stock........... State Street Research & 1,444,900 (5) 5.8%
Management Company
One Financial Center
30th Floor
Boston, MA 02111-2690
- ------------------------
<FN>
(1) Heartland Advisors, Inc.(Heartland) is an investment advisor in accordance
with Section 240.13d-1(b)(1)(ii)(E) of the Securities Exchange Act of
1934. Heartland holds sole voting power on 1,705,500 shares and sole
dispositive power on 2,452,500 shares.
(2) Fidelity Management and Research Company (Fidelity) is an investment
advisor registered under the Investment Advisors Act of 1940 and a
wholly-owned subsidiary of FMR Corp. Fidelity acts as investment advisor
to various investment companies registered under the Investment Company
Act of 1940, including Fidelity Low-Priced Stock Fund which holds
1,740,900 shares of the Company's Common Stock. Edward C. Johnson, III, as
Chairman of FMR Corp., FMR Corp., and the Fidelity Low-Priced Stock Fund
have 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 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.
(3) Sanford C. Bernstein & Co., Inc. (Bernstein) is an investment advisor
registered under the Investment Advisors Act of 1940. Bernstein holds the
reported shares on behalf of its clients. Bernstein has sole voting power
on 1,401,900 shares, shared voting power on 31,155 shares, and sole
dispositive power on 1,731,855 shares.
(4) Dimensional Fund Advisors, Inc. (Dimensional) is an investment advisor
registered under the Investment Advisors Act of 1940. Dimensional holds
sole voting and dispositive power on all shares. Dimensional disclaims
beneficial ownership of all such securities
(5) State Street Research & Management Company (State Street) is an investment
advisor registered pursuant to the Investment Advisors Act of 1940 and
holds the reported shares on behalf of its clients. State Street holds
sole voting power on 1,356,500 shares and sole dispositive power on
1,444,900 shares. State Street disclaims beneficial ownership on all
shares.
</FN>
</TABLE>
7
<PAGE>
APPROVAL OF 2000 STOCK INCENTIVE PLAN
On February 18, 2000, the Board of Directors adopted the Southwestern
Energy Company 2000 Stock Incentive Plan (the "Plan"), subject to the approval
of shareholders. This Plan is intended to promote the interests of the Company
and its shareholders by providing the employees of the Company and eligible
non-employee directors of Southwestern Energy Company, who are largely
responsible for the management, growth and protection of the business of the
Company, with incentives and rewards to encourage them to continue in the
service of the Company. The Board of Directors believes the Plan will give 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.
Upon shareholder approval, the Plan will replace Southwestern Energy
Company's 1993 Stock Incentive Plan and Southwestern Energy Company's 1993 Stock
Incentive Plan for Outside Directors, adopted in 1993 (the "prior plans"). The
Company shall not have the right to grant new Incentive Awards in substitution
for or upon cancellation of outstanding Incentive Awards previously granted to
Participants under the Plan or any of the Company's prior plans. To the extent
that any Incentive Award granted under the Plan or prior plans expire, terminate
or are cancelled or otherwise settled for any reason without the issuance of all
or any portion of the shares of Common Stock covered by such Incentive Award,
such unissued shares of Common Stock shall again be available for grant under
the Plan. The Plan appears as Appendix A to this Proxy Statement. The following
description of the Plan is subject, in all resects, to the actual terms of the
Plan.
The Plan will make available to the Board of Directors a sufficient
number of shares of Common Stock to (a) provide additional equity-based
incentives to those key employees participating in the prior plans, (b) provide
a larger number of key employees with incentive compensation commensurate with
their positions and responsibilities, and (c) provide the Company's non-employee
directors with an equity interest and appropriate incentives and rewards to
encourage them to take a long-term outlook when formulating Company policy. The
maximum number of shares of Common Stock of the Company that may be issued under
the Plan is 1,250,000. The Fair Market Value per share of Company Common Stock
as of March 17, 2000 was $6.625.
Shares issued under the Plan may be authorized but unissued shares of
Common Stock or treasury shares, at the discretion of a committee (the
"Committee") composed 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"), appointed under the Plan to administer the
Plan. The Compensation Committee of the Board of Directors is currently composed
of members who meet the definition of "disinterested," referenced above, and has
responsibility for administering the Plan.
The Plan provides for the grant of (i) non-qualified stock options,
(ii) incentive stock options, (iii) stock appreciation rights, (iv) shares of
phantom stock, and (v) shares of restricted stock, (collectively, "Incentive
Awards"). Key employees of the Company and its subsidiaries, including officers,
will be eligible to receive grants of Incentive Awards. In addition, on the last
business day of each fiscal year of the Company, each outside director who is
eligible to participate in the Plan shall be granted a Director's Option with
respect to 8,000 shares of Common Stock.
The Committee will determine which key employees receive grants of
Incentive Awards, the type of Incentive Awards granted and the number of shares
subject to each Incentive Award. No Incentive Award may be granted under the
Plan after February 18, 2010. Subject to the terms of the Plan, the Committee
will also determine the prices, expiration dates and other material features of
the Incentive Awards granted under the Plan.
The Committee may, in its absolute discretion, without amendment to the
Plan, (i) accelerate the date on which any Incentive Awards granted under the
Plan become vested, exercisable or transferable, or (ii) extend the term of any
such Incentive Award, including, without limitation, extending the period
following a termination of a Participant's employment during which any such
Incentive Award may remain outstanding, or (iii) waive any conditions to the
vesting, exercisability or transferability, as the case may be, of any such
Incentive Award.
8
<PAGE>
The Committee will administer the Plan and have the authority to
interpret and construe any provision of the Plan and to adopt such rules and
regulations for administering the 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
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 Plan in any respect;
provided, that, if and to the extent required by Rule 16b-3 promulgated under
Section 16(b) of the Exchange Act or by any comparable or successor exemption
under which the Board of Directors believes it is appropriate for the Plan to
qualify, or if and to the extent required under Section 422 of the Internal
Revenue Code of 1986 (the "Code"), no amendment may (i) increase the number of
shares of Common Stock that may be issued under the Plan, (ii) materially
increase the benefits accruing to individuals holding Incentive Awards, (iii)
materially modify the requirements as to eligibility for participation in the
Plan, or (iv) increase the number of Incentive Awards that may be granted to any
one individual.
A summary of the most significant features of the Incentive Awards
follows.
Stock Options. All Options granted under the Plan shall be identified
in the agreement evidencing such Options as either Incentive Stock Options
("ISO") or Non-Qualified Stock Options ("NQO"). The exercise price of each
Option granted under the Plan shall not be less than 100% of the Fair Market
Value of a share of Common Stock on the date on which such Option is granted.
Each Option shall be exercisable for a term, not to exceed ten years,
established by the Committee on the date on which such Option is granted. The
exercise price shall be paid to the Company in cash or its equivalent, or,
subject to the approval of the Committee, in shares of Common Stock that have
been owned by the Participant for at least six months prior to the effective
date of exercise and valued at their Fair Market Value on the date of exercise.
The Committee may grant, in connection with a grant of Options, a cash
"tax" bonus, in an amount to be determined by the Committee to enable the
Participant to pay any federal, state or local taxes required as a result of the
exercise of such Options. The Committee may also provide a loan to the
Participant, evidenced by a promissory note, at such terms and at such interest
rate as the Committee determines, for purposes of paying any federal, state or
local taxes required as a result of the exercise of such Options.
Upon the occurrence of a change in control of the Company (a "Change in
Control"), all Options granted under the Plan and outstanding shall immediately
vest and become exercisable and remain exercisable until their expiration,
termination or cancellation pursuant to the terms of the Plan and the agreement
evidencing such Options.
A Change in Control of the Company includes the following:
(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.
The aggregate Fair Market Value of the shares of Common Stock covered
by ISOs granted to any individual under the Plan that may be exercisable shall
not exceed $100,000. To the extent, if any, that such aggregate Fair Market
Value limitation is exceeded, the ISOs granted to such Participant shall, to the
extent and in the order required by regulations, automatically be deemed to be
NQOs, but all other terms and provisions of such ISOs shall remain unchanged.
9
<PAGE>
No ISO may be granted to an individual if, at the time of the proposed
grant, such individual owns more than ten percent of the total combined voting
power of all classes of the Company's Common Stock, unless the Stock Option has
an exercise price of at least one hundred and ten percent of the Fair Market
Value and is not exercisable until five years from the date the Stock Option is
granted.
Stock Appreciation Rights. The Committee may grant stock appreciation
rights (SARs) pursuant to the Plan. The exercise price of each SAR granted under
the Plan shall be not less than 100% of the Fair Market Value of a share of
Common Stock on the date on which such SAR is granted. The exercise of a SAR
with respect to a number of shares prior to the occurrence of a Change in
Control shall entitle the employee to an amount in cash, for each 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 per share exercise price of the
SAR, or the equivalent value in shares of Common Stock or the combination of
cash and shares of Common Stock, all as determined by the Committee. The
exercise of an SAR with respect to any number of shares of Common Stock upon or
after the occurrence of a Change in Control shall entitle the Participant to a
cash payment for each share, equal to the excess of (i) the greater of (A) the
highest price per share of Common Stock paid in connection with such Change in
Control and (B) the Fair Market Value of a share of Common Stock on the
effective date of exercise over (ii) the per share exercise price of the SAR.
Each SAR shall be exercisable for a term, not to exceed ten years, and such
other terms as the Committee may establish.
Upon the occurrence of a Change in Control, any SAR granted under the
Plan and outstanding at such time shall become fully and immediately vested and
exercisable and shall remain exercisable until its expiration, termination or
cancellation pursuant to the terms of the Plan.
Phantom Stock. The Committee may grant shares of Phantom Stock
pursuant to the Plan. At the time of the grant of shares of Phantom Stock, the
Committee may impose such restrictions or conditions, not inconsistent with the
provisions of the Plan, to the vesting of such shares as it deems appropriate.
Upon the vesting of a share of Phantom Stock, the Participant shall receive a
cash payment within 30 days of the Vesting Date in the amount equal to the Fair
Market Value of a share of Common Stock on the applicable Vesting Date and the
aggregate amount of cash dividends paid with respect to a share of Common Stock
for the period from the date of the grant through the applicable Vesting Date.
At the time of the grant of shares of Phantom Stock, the Committee may impose
restrictions or conditions, not inconsistent with the provisions of the Plan,
including, but not limited to, performance criteria and continued employment for
a specified time period. Upon the occurrence of a Change in Control, all shares
of Phantom Stock shall immediately vest.
Restricted Stock. The Committee may grant shares of Restricted Stock
pursuant to the Plan. 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. At the time of the grant of shares of Restricted Stock, the
Committee may impose restrictions or conditions, not inconsistent with the
provisions of the Plan, including, but not limited to, performance criteria and
continued employment for a specified time period.
Upon the occurrence of a Change in Control, all shares of Restricted
Stock that have not vested or have been cancelled or forfeited automatically
vest.
The Committee may grant, in connection with a grant of shares of
Restricted Stock, a cash "tax" bonus, in an amount to be determined by the
Committee to enable the Participant to pay any federal, state or local taxes
required as a result of the receipt of such Restricted Stock. The Committee may
also provide a loan to the Participant, evidenced by a promissory note, at such
terms and at such interest rate as the Committee determines, for purposes of
paying any federal, state or local taxes required as a result of the receipt of
such Restricted Stock.
Director's Options. On the last business day of each fiscal year of the
Company, each Director who is eligible to participate in the Plan shall be
granted an Option with respect to 8,000 shares of NQOs. The exercise
10
<PAGE>
price per share of Common Stock of these NQOs shall be 100% of the Fair Market
Value of a share of Common Stock on the date of the grant. Each Director's
Option shall become vested and exercisable in installments at a rate of 25% per
year for each full twelve months of service as a director, commencing on the
date the Option was granted.
No Director's Option shall be exercisable after the expiration of its
original term. In the event that a Director is removed from the Board of
Directors by the shareholders of the Company, all outstanding Director's Options
granted such Director shall expire at the commencement of business of the date
of such removal.
Company Tax Deduction. Section 162(m) limits the ability of publicly
held companies to deduct compensation paid during a fiscal year to a "covered
employee" (as defined in Section 162(m)) in excess of one million dollars,
unless such compensation qualifies as "performance-based compensation" (as
defined in Section 162(m) or meets another exception specified in Section
162(m)). Generally, most types of Incentive Awards granted under the Plan should
be deductible by the Company without regard to the limit set by Section 162(m).
However, the Plan does permit some types of Incentive Awards to be granted that
would be subject to such limit and that would not qualify as "performance-based
compensation" (as defined in Section 162(m) or meets another exception specified
in Section 162(m)). In such case, the Company's deductions with respect to such
Incentive Awards would be subject to the limitations imposed by Section 162(m).
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 taxability of a
Participant who is subject to the reporting and short swing profit recovery
provisions of Section 16 of the Exchange Act (a "Section 16 Person") is modified
slightly. A Section 16 Person also will not be deemed to receive any income at
the time an NQO is granted, nor will the Company be entitled to a deduction at
that time. However, upon the exercise of the NQO, the Section 16 Person 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 on the later to occur of (i) the date of exercise or (ii)
six months after the date on which the NQO was awarded to the Section 16 Person
over (B) the exercise price of the NQO. The Section 16 Person's basis in the
Common Stock acquired pursuant to the exercise of the NQO is the sum of the
exercise price of the Option and the amount of such income required to be
recognized. If, however, a Section 16 Person files an appropriate election under
Section 83(b) of the Code with the IRS within thirty days of the exercise of the
NQO, the Participant will be treated for tax purposes as if he were not a
Section 16 Person.
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 long-term capital gain or loss if the sale
occurs more than one year after such date or recognition and otherwise will be a
short-term capital gain or loss. A Section 16 Person's (other than a Section 16
Person who makes a Section 83(b) election described above) holding period for
purposes of determining whether any such gain or loss is short-term or long-term
is measured from the later to occur of (i) the date the NQO is exercised or (ii)
six months after the NQO was granted. 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.
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
11
<PAGE>
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.
ISO. 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 long-term capital gain or loss. 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. 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 one year 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 short-term capital loss if the
Participant has held the shares for one year or less and otherwise will be a
long-term capital loss.
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 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.
SARs. A Participant will not be deemed to receive any income at the
time a SAR is granted, nor will the Company be entitled to a deduction at that
time. However, when any part of the SAR is exercised, the Participant will be
deemed to have received compensation taxable as ordinary income in an amount
equal to the
12
<PAGE>
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.
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 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.
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. However,
a Section 16 Person would not be required to recognize income in connection with
the grant of Restricted Stock until the later of (a) the date the Restricted
Stock vests and (b) the expiration of six months after the date of grant. If,
however, a Participant files an appropriate election under Section 83(b) of the
Code with the IRS within thirty days of the issuance of the Restricted Stock,
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 are issued. The Participant will not be entitled
to a deduction if the Restricted Stock is subsequently forfeited. The Company
will be entitled to a deduction in an amount equal to the amount of ordinary
income recognized by the Participant.
THE PROPOSAL TO ADOPT THE 2000 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 ADOPT THE 2000 STOCK
INCENTIVE PLAN.
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 producing 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 indices shown in the performance chart reported
in this Proxy Statement include a number of the companies that are used for
compensation analysis. Compensation packages are targeted to the median of the
range of
13
<PAGE>
compensation paid by comparable companies. Executive compensation paid by the
Company during 1999 generally corresponded to the 50th to 75th 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. The Company believes that all compensation
paid in 1999 will be fully deductible. Further, none of the named individuals
received compensation in excess of $1,000,000 during 1999. If, in the future, it
appears that the compensation paid to a named individual may 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 shareholders.
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. Korell has been incorporated into an
employment agreement 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) earnings and cash flow
targets, (2) a defined reserve replacement ratio, (3) target returns on capital
investments, (4) production, reserve addition, and investment goals in the
exploration and production group, (5) controlling utility expenditures while
maximizing utility throughput, and (6) gas marketing 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 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.
14
<PAGE>
The CEO and the executive officers have responsibilities directly
affecting the Company's operations and are assigned target, minimum, and maximum
award levels expressed as a percentage of their base salary. In 1999, the target
awards which could be paid based on attainment of corporate performance measures
ranged from 22.5% to 30% of base salary for these individuals, the minimum
awards ranged from 11.25% to 15% of base salary, and the maximum awards which
could be paid ranged from 45% 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,
which when combined with the performance measure award could achieve a total
targeted bonus ranging from 37.5% to 50% of base salary. Payouts under the
Incentive Plan will be 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.
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 Plan for the CEO and certain of the named
executive officers, the Compensation Committee examines the following
performance thresholds as compared to predetermined criteria: (1) cash flow per
share, (2) reserve replacement ratio, (3) return on capital investments, and (4)
earnings per share. Because these factors are weighted equally, proportionate
awards are made if targets for at least one of the factors are met. In 1999, the
cash flow per share and earnings per share minimum performance levels were not
met, but the reserve replacement and return on capital investments performance
levels were achieved. 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, or options to purchase Common Stock
of the Company and 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 1999 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 1,700,000, subject to 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. Upon approval of
shareholders, the 2000 Stock Incentive Plan will replace the Stock Plan as
described under "Approval of 2000 Stock Incentive Plan." 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 1999
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
15
<PAGE>
long-term component of the Prior Plan was replaced by the 1993 Stock Incentive
Plan for performance periods beginning after January 1, 1993, and the 2000 Stock
Incentive Plan for performance periods beginning in 2000. 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 through 2001. 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 were 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 were based equally on the
compounded five-year growth in earnings per share and the cumulative five-year
return on equity. Any award earned was payable at the rate of 20% per year,
commencing at the end of each five-year performance cycle.
Mr. Korell's base salary was $410,000 for 1999, and has been increased
to $418,000 for 2000. Mr. Korell had 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 is an automatic award based upon the achievement of the
corporate financial objectives as described under the subheading, "Incentive
Compensation Plan" above, and a portion is discretionary based on a subjective
evaluation of Mr. Korell's performance by the Compensation Committee and the
Board of Directors and may be influenced by the performance of individual
business segments. The Company's attainment of certain performance measures in
1999, plus the discretionary component resulted in Mr. Korell being awarded a
bonus of $160,000, or 39% of his base salary.
In addition to the factors described above, in determining the salary
and other forms of compensation for Mr. Korell, the Compensation Committee took
into consideration Mr. Korell's substantial experience and standing in the
industry.
ROBERT L. HOWARD
JOHN PAUL HAMMERSCHMIDT
KENNETH R. MOURTON
Members of the Compensation Committee
16
<PAGE>
EXECUTIVE COMPENSATION
The following table contains information with respect to executive
compensation paid or set aside by the Company for services in all capacities of
the CEO and the next four most highly paid executive officers of the Company and
its subsidiaries during the years indicated below.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
---------------------------------
Annual Compensation Awards Payouts
------------------------------------ ---------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Salary Bonus Compensation Awards Options/ Payouts Compensation
Name and Principal Position Year ($) ($) ($) ($) (4) SARs (#) ($) ($)
- --------------------------- ---- ------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harold M. Korell 1999 410,000 160,000 51,854(5) 57,000 129,750 - 14,957(6)
President, Chief Executive 1998 329,167 135,000 28,405 26,947 75,000 - 12,032
Officer and Director (1) 1997 186,506 80,000 274,675 342,125 100,000 - 33,076
Alan H. Stevens 1999 264,000 100,000 24,924(7) 28,500 68,250 - 40,661(8)
President and Chief 1998 250,000 125,000 133,004 215,063 120,000 - 67,400
Operating Officer, 1997 - - - - - - -
Southwestern Energy
Production Company and
SEECO, Inc. (2)
Greg D. Kerley 1999 235,000 100,000 26,763(9) 28,500 68,250 2,446 8,573(10)
Executive Vice President 1998 203,875 90,000 21,878 21,938 20,000 2,446 7,305
and Chief Financial 1997 169,600 40,000 31,841 35,875 11,100 2,446 6,088
Officer
George A. Taaffe 1999 72,820 21,400 24,369(11) 32,325 18,600 - 7,231(12)
Senior Vice President, 1998 - - - - - - -
General Counsel and 1997 - - - - - - -
Secretary (3)
Debbie J. Branch 1999 179,500 60,000 27,615(13) 6,900 10,000 - 6,548(14)
Senior Vice President, 1998 175,000 65,000 30,485 10,969 11,100 - 6,279
Southwestern Energy 1997 156,000 78,000 53,374 35,875 11,100 - 5,597
Services Company and
Southwestern Energy
Pipeline Company (2)
- ------------------------
<FN>
(1) Mr. Korell was named Chief Executive Officer on January 1, 1999.
(2) Southwestern Energy Production Company, SEECO, Inc., Southwestern
Energy Services Company, and Southwestern Energy Pipeline Company are
wholly-owned subsidiaries of the Company.
(3) Mr. Taaffe joined the Company as its Senior Vice President, General
Counsel and Secretary on July 27, 1999.
(4) Restricted stock awards for executives typically vest ratably over
three years. In connection with the employment of Mr. Taaffe in 1999,
he was awarded 3,000 shares of restricted stock that vests ratably over
three years. In connection with the employment of Mr. Stevens in 1998,
he was awarded 15,000 shares of restricted stock that vests ratably
over three years. In connection with the employment of Mr. Korell in
1997, he was awarded 20,000 shares of restricted stock that vests at
the end of three years. The value of all nonvested restricted shares
held by Messrs. Korell, Stevens, Kerley, Taaffe, and Ms. Branch at
December 31, 1999, was $246,953, $109,922, $53,386, $27,562, and
$21,112, respectively. Dividends are paid on all restricted stock.
17
<PAGE>
(5) Includes $44,474 as a bonus for the payment of income taxes related to
the restricted stock grants made during 1999.
(6) Includes $12,300 as the Company matching portion of Nonqualified Plan
contributions and $2,657 as the cost of life insurance.
(7) Includes $17,544 as a bonus for the payment of income taxes related to
the restricted stock grants made during 1999.
(8) Includes $7,950 as the Company matching portion of Nonqualified Plan
contributions, $1,711 as the cost of life insurance, $6,000 of imputed
interest income related to a $125,000 loan the Company made to Mr.
Stevens in connection with his employment, and $25,000 of the loan
which was forgiven in 1999. Under the terms of the loan agreement, the
$125,000 loan is forgiven at the rate of 20% per year.
(9) Includes $19,383 as a bonus for the payment of income taxes related to
the restricted stock grants made during 1999.
(10) Includes $7,050 as the Company matching portion of 401(k) and
Nonqualified Plan contributions and $1,523 as the cost of life
insurance.
(11) Includes $21,985 as a bonus for the payment of income taxes related to
the restricted stock grants made during 1999.
(12) Includes $4,799 of moving and relocation expenses, $2,000 as the
Company matching portion of 401(k) Plan contributions, and $432 as the
cost of life insurance. In connection with his employment, the Company
made a loan to Mr. Taaffe dated March 6, 2000, in the amount of
$75,000. This loan, which is non-interest bearing, will be forgiven at
the rate of 20% per year.
(13) Includes $4,081 as a bonus for the payment of income taxes related to
the restricted stock grants made during 1999 and $16,934 as a bonus for
the payment of income taxes related to the 1996 restricted stock grant
that vested during 1999.
(14) Includes $5,385 as the Company matching portion of Nonqualified Plan
contributions, and $1,163 as the cost of life insurance.
</FN>
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (3)
- ----------------------------------------------------------------------- -------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise
Options/ Employees or Base
SARs in Fiscal Price Expiration
Name Granted (1) Year ($/Sh) (2) Date 0% ($) 5% ($) 10% ($)
- --------------------- ----------- ----------- ---------- ---------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Harold M. Korell..... 129,750 25.8% 6.000 12/16/09 - 489,594 1,240,729
Alan H. Stevens...... 68,250 13.6% 6.000 12/16/09 - 257,532 652,638
Greg D. Kerley....... 68,250 13.6% 6.000 12/16/09 - 257,532 652,638
George A. Taaffe..... 6,600 1.3% 6.000 12/16/09 - 24,904 63,112
12,000 2.4% 8.375 07/27/09 - 63,204 160,171
Debbie J. Branch..... 10,000 2.0% 6.000 12/16/09 - 37,734 95,625
- ------------------------
<FN>
(1) All 1999 grants vest and become exercisable ratably over three years
beginning one year from the date of grant or immediately upon a "change
in control." All 1999 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 1999.
(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 0%, 5% and 10% rates of appreciation from
the exercise price 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 $6.00 would result
in the price of the Company's stock increasing to $9.77 and $15.56,
respectively. Realization by optionees of the amounts shown are
dependent on future increases in the price of the Company's Common
Stock and the continued employment of the optionee with the Company.
The options have no value if the Company's Common Stock does not
appreciate, as shown in the 0% column.
</FN>
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at FY-End (#) at FY-End ($) (3)
Shares -------------------------------- --------------------------------
Acquired on Value
Name Exercise (#) Realized($)(1) Exercisable(2) Unexercisable(2) Exercisable(2) Unexercisable(2)
- -------------------- ------------ -------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Harold M. Korell.... - - 91,666 213,084 - 72,984
Alan H. Stevens..... - - 40,001 148,249 - 38,391
Greg D. Kerley...... - - 35,363 135,284 - 38,391
George A. Taaffe.... - - - 18,600 - 3,713
Debbie J. Branch.... - - 15,600 21,100 - 5,625
- ------------------------
<FN>
(1) Reflects the difference between exercise price and issuance price on
the number of shares exercised. During 1999 no options were exercised.
(2) All 1995 through 1999 grants vest and become exercisable ratably over
three years beginning one year 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," or upon retirement. 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 1999 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 1999.
(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, 1999 ($6.5625/share).
</FN>
</TABLE>
Agreements Concerning Employment and Changes in Control
On April 28, 1997, the Company entered into an employment agreement
with Mr. Korell for the term of his employment, 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. Mr. Korell also was appointed a director October 28, 1998.
Effective February 17, 1999, the Company entered into amended Severance
Agreements with Messrs. Korell, Stevens, Kerley, and Ms. Branch which replaced
substantially similar severance agreements which were currently in place. On
July 27, 1999, the Company entered into a Severance Agreement with Mr. Taaffe.
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." "Base amount" is defined as base salary as of
the executive's termination date plus the maximum bonus opportunity available to
the executive under the Incentive Compensation Plan. 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.
Messrs. Korell, Stevens, Kerley, Taaffe, and Ms. Branch are also
entitled to the severance benefits described above if within three years after
a "change in control" they voluntarily terminate employment with the Company for
"good reason."
20
<PAGE>
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.
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 a "change in control". The Stock Plan also
provides that all shares of restricted and phantom stock which have not
previously vested or been cancelled 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.
21
<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 Smallcap 600 Index and the Dow Jones Oil -
Secondary Index. The Chart assumes that the value of the investment in the
Company's Common Stock and each index was $100 at December 31, 1994, and that
all dividends were reinvested.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Southwestern Energy Company 100 87 105 91 55 49
S&P Smallcap 600 Index 100 130 158 198 195 220
Dow Jones Oil - Secondary Index 100 113 137 143 102 113
</TABLE>
22
<PAGE>
PENSION PLANS
Prior to January 1, 1998, the Company maintained a traditional defined
benefit plan (the "Pension Plan") with benefits payable based upon average final
compensation and years of service. Effective January 1, 1998, the Company
amended its Pension Plan to become a "cash balance" plan on a prospective basis
for its non-bargaining employees. A cash balance plan provides benefits based
upon a fixed percentage of an employee's annual compensation.
Employees who were participants in the Pension Plan as of January 1,
1998 are entitled to annual benefits payable upon retirement based upon current
remuneration and years of service through December 31, 1997 as follows:
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Years of Service Through December 31, 1997
---------------------------------------------------------------------------
Remuneration 5 10 15 20 30 40
------------ ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$150,000 $11,250 $22,500 $ 33,750 $ 45,000 $ 67,500 $ 90,000
180,000 13,500 27,000 40,500 54,000 81,000 108,000
210,000 15,750 31,500 47,250 63,000 94,500 126,000
240,000 18,000 36,000 54,000 72,000 108,000 144,000
270,000 20,250 40,500 60,750 81,000 121,500 162,000
300,000 22,500 45,000 67,500 90,000 135,000 180,000
330,000 24,750 49,500 74,250 99,000 148,500 198,000
360,000 27,000 54,000 81,000 108,000 162,000 216,000
390,000 29,250 58,500 87,750 117,000 175,500 234,000
420,000 31,500 63,000 94,500 126,000 189,000 252,000
450,000 33,750 67,500 101,250 135,000 202,500 270,000
480,000 36,000 72,000 108,000 144,000 216,000 288,000
</TABLE>
<TABLE>
<CAPTION>
Years of
Credited Current
Service Remuneration
Through Covered Under
Name 12/31/97 the Plans (1)
---- -------- -------------
<S> <C> <C>
Harold M. Korell....... 1 $410,000
Alan H. Stevens........ - 264,000
Greg D. Kerley......... 8 235,000
George A. Taaffe....... - 72,820(2)
Debbie J. Branch....... 2 179,500
- ----------------
<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 1999 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 $130,000. The numbers
presented in the table disregard these limitations because the Company's
Supplemental Retirement Plan ("SERP"), 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 July 27, 1999.
</FN>
</TABLE>
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 through December 31, 1997 and average monthly
compensation during the five years of highest pay in the last ten years before
terminating.
23
<PAGE>
Under the cash balance provisions of the Pension Plan, which became
effective January 1, 1998, each participant has a hypothetical account, for
recordkeeping purposes only, to which credits are allocated annually based upon
a percentage of the participant's remuneration. The applicable percentage is
equal to 6% plus an additional percentage for participants in the Pension Plan
as of January 1, 1998. The additional percentage is based upon a participant's
age, and is designed to approximate any lost benefits due to the change to a
cash balance plan. The additional percentage is equal to 6.3% for Mr. Korell,
3.7% for Mr. Kerley, and 4.1% for Ms. Branch.
All balances in the cash balance account also earn a fixed rate of
interest which is credited annually. The interest rate for a particular year is
the annual rate of interest of the 30-year treasury securities for November of
the prior year. Interest is credited as long as the participant's balance
remains in the Pension Plan.
At retirement or termination of employment, the vested amount credited
to a participant is payable to the participant in the form of a lump sum or in
lifetime monthly payments. The estimated annual benefit payable upon retirement
related to the cash balance provisions of the Pension Plan and SERP at December
31, 1999, is $74,826 for Mr. Korell, $22,762 for Mr. Stevens, $96,099 for Mr.
Kerley, $18,900 for Mr. Taaffe, and $54,282 for Ms. Branch. These projections
are based on the following assumptions; (1) participant remains employed until
age 65; (2) the 1999 remuneration remains constant; and (3) interest credit of
6.00% for all years.
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," 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 shareholders if
they so desire. The representatives will also be available to respond to
appropriate questions from shareholders. There have been no disagreements with
the independent public accountants on accounting and financial disclosure.
PROPOSALS FOR 2001 ANNUAL MEETING
Shareholder's proposals intended to be presented at the 2001 Annual
Meeting of Shareholders must be received by the Company at its principal offices
not later than November 30, 2000, for inclusion in the 2001 Proxy Statement and
form of proxy. Proposals intended to be the subject of a separate solicitation
may be brought before the 2001 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 2000 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. George A. Taaffe, Secretary, Southwestern Energy Company, 1083
Sain Street, P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.
24
<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 Proxy 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 13,
2000. 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. George A. Taaffe,
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 and Form 10-K may obtain a copy free of charge by contacting Mr. George
A. Taaffe, Southwestern Energy Company, 1083 Sain Street, P.O. Box 1408,
Fayetteville, Arkansas 72702-1408.
By Order of the Board of Directors
GEORGE A. TAAFFE
Secretary
Dated: March 29, 2000
25
<PAGE>
APPENDIX A
SOUTHWESTERN ENERGY COMPANY
2000 STOCK INCENTIVE PLAN
(As Adopted February 18, 2000)
1. Purpose of the Plan
This Southwestern Energy Company 2000 Stock Incentive Plan is intended
to promote the interests of the Company and its shareholders by providing the
employees of the Company and eligible non-employee directors of Southwestern
Energy Company, who are largely responsible for the management, growth and
protection of the business of the Company, with incentives and rewards to
encourage them to continue in the service of the Company.
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
Southwestern.
(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 to substantially perform his duties and
obligations (other than any such failure resulting from his incapacity due to
physical or mental illness), after a written demand for substantial performance
has been delivered to the Participant by the Company or by the Participant's
supervisor, which demand identifies in reasonable detail the manner in which the
Participant is believed to have not substantially performed his or her duties,
(ii) the Participant's willful and serious misconduct which has resulted in or
could reasonably be expected to result in material injury to the business,
financial condition or reputation of the Company, (iii) the Participant's
conviction of, or entering of a plea of nolo contendere to, a crime that
constitutes a felony or serious misdemeanor or (iv) the breach by the
Participant of any written covenant or agreement with the Company not to
disclose any information pertaining to the Company or not to compete or
interfere with the Company.
(c) "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 Securities Exchange Act of 1934 (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 Southwestern representing 20% or more of
the combined voting power of Southwestern's then outstanding
securities, provided, however, that any acquisition by (A) Southwestern
or any of its subsidiaries, or any employee benefit plan (or related
trust) sponsored or maintained by Southwestern or any of its
subsidiaries or (B) any corporation with respect to which, immediately
following such acquisition, more than 60% of, respectively, the then
outstanding shares of Common Stock of such corporation and the combined
voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, in the aggregate by
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding Southwestern Common
Stock and Southwestern voting securities immediately prior to such
acquisition in substantially the same proportion as their ownership,
immediately prior to such acquisition, of the outstanding Southwestern
Common Stock and Southwestern voting securities, as the case may be,
shall not constitute a Change in Control;
(ii) consummation by Southwestern of a reorganization, merger or
consolidation (a "Business Combination"), in each case, with respect to
which all or substantially all of the individuals and entities who were
their respective beneficial owners of the outstanding Southwestern
Common Stock and Southwestern voting securities immediately prior to
such Business Combination do not in the aggregate,
A-1
<PAGE>
immediately following such Business Combination, beneficially own,
directly or indirectly, more than 60% of, respectively, the then
outstanding shares of Common Stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination in substantially the same proportion as
their ownership immediately prior to such Business Combination of the
outstanding Southwestern Common Stock and Southwestern voting
securities, as the case may be;
(iii) any individual who is nominated by the Board for election to
the Board 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 Southwestern 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;
(v) (A) a complete liquidation or dissolution of Southwestern or
(B) a sale or other disposition of all or substantially all of the
assets of both the Exploration and Production and the Utility business
segments of Southwestern other than to a corporation with respect to
which, immediately following such sale or disposition, more than 80%
of, respectively, the then outstanding shares of Common Stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, in the aggregate by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding Southwestern Common
Stock and Southwestern voting securities immediately prior to such sale
or disposition in substantially the same proportion as their ownership
of the outstanding Southwestern Common Stock and Southwestern voting
securities, as the case may be, immediately prior to such sale or
disposition;
(vi) other than with respect to a person who is employed in the
Utility business segment of Southwestern, the sale or other disposition
of all or substantially all the assets of the Exploration and
Production business segment other than to a corporation with respect to
which, immediately following such sale or disposition, more than 80%
of, respectively, the then outstanding shares of Common Stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, in the aggregate by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the outstanding Southwestern Common
Stock and Southwestern voting securities immediately prior to such sale
or disposition in substantially the same proportion as their ownership
of the outstanding Southwestern Common Stock and Southwestern voting
securities, as the case may be, immediately prior to such sale or
disposition; or
(vii) a majority of the Board determines in its sole and absolute
discretion that there has been a Change in Control of Southwestern
or that there will be a Change in Control of Southwestern upon the
occurrence of certain specified events and such events occur.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(e) "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 and to otherwise exercise and perform the
authority and functions assigned to the Committee under the terms of the Plan.
(f) "Common Stock" shall mean Southwestern's Common Stock, $.10 par
value per share, or any other security into which the common stock shall be
changed pursuant to the adjustment provisions of Section 11 of the Plan.
(g) "Company" shall mean Southwestern and each of its Subsidiaries.
(h) "Director" shall mean a member of the Board of Directors who is not
at the time of reference an employee of the Company and who is entitled to
receive an Incentive Award pursuant to Section 10 hereof.
A-2
<PAGE>
(i) "Director's Option" shall mean an Option granted to a Director
pursuant to Section 10 hereof. Each Director's Option shall be a Non-qualified
Stock Option.
(j) "Disability" shall mean a condition entitling a Participant to
benefits under the long-term disability policy maintained by the Company and
applicable to him and for a Director shall mean any physical or mental condition
that prevents a Director from being able to perform the duties of a director for
a period of twelve consecutive months.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" shall mean, with respect to a share of Common
Stock, as of the applicable date of determination (i) the closing sales price on
the immediately preceding business day of a share of Common Stock as reported on
the principal securities exchange on which shares of Common 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 Common Stock shall not be so reported, the Fair Market Value
of a share of Common Stock shall be determined by the Committee in its absolute
discretion.
(m) "Incentive Award" shall mean an Option, SAR, share of Phantom Stock
or a share of Restricted Stock granted to a Participant pursuant to the terms of
the Plan or a Director's Option granted to a Director pursuant to the terms of
the Plan.
(n) "Incentive Stock Option" shall mean an Option granted to a
Participant which, at the date of grant, is intended to be an "incentive stock
option" within the meaning of Section 422 of the Code and which is identified as
an Incentive Stock Option in the agreement by which it is evidenced.
(o) "Issue Date" shall mean the date established by the Committee on
which certificates representing shares of Restricted Stock shall be issued by
Southwestern pursuant to the terms of Section 9(b) hereof.
(p) "Non-Qualified Stock Option" shall mean an Option granted to a
Participant or Director which is not an Incentive Stock Option.
(q) "Option" shall mean an option to purchase shares of Common Stock
granted to a Participant or a Director pursuant to the terms of the Plan. 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 one or more Incentive Awards have been
granted pursuant to the Plan and, following the death of any such employee, his
successors, heirs, executors and administrators, as the case may be.
(s) "Person" shall mean a "person," as such term is used in Section
13(d) and 14(d) of the Exchange Act.
(t) "Phantom Stock" shall mean the right granted to a Participant to
receive a payment in cash equal to the Fair Market Value of a share of Common
Stock, which right is granted pursuant to Section 8 hereof and subject to the
terms and conditions contained therein and in any agreement evidencing such
share of Phantom Stock.
(u) "Plan" shall mean this Southwestern Energy Company 2000 Stock
Incentive Plan, as it may be amended from time to time.
(v) "Restricted Stock" shall mean a share of Common Stock which is
granted to a Participant pursuant to Section 9 hereof and which is subject to
the restrictions set forth in Section 9(c) hereof for so long as such
restrictions continue to apply to such share.
A-3
<PAGE>
(w) "Retirement" shall mean the termination of the employment of a
Participant with the Company on or after (i) the first date on which the
Participant has both attained age 55 and completed 5 years of service with the
Company or (ii) the date on which the Participant attains age 65.
(x) "SAR" shall mean a stock appreciation right granted to a
Participant pursuant to Section 7 hereof which is not related to any Option.
(y) "Securities Act" shall mean the Securities Act of 1933, as amended.
(z) "Southwestern" shall mean Southwestern Energy Company, an Arkansas
corporation, and any successor thereto.
(aa) "Subsidiary" shall mean any "subsidiary corporation" within the
meaning of Section 425(f) of the Code.
(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) SARs, (iii) shares of Phantom Stock and/or (iv) shares of Restricted Stock.
In addition, Directors will be granted Director's Options pursuant to the
provisions of Section 10 hereof.
Subject to adjustment as provided in Section 11 hereof and the
following provisions of this Section 3, the maximum number of shares of Common
Stock that may be covered by Incentive Awards granted under the Plan shall not
exceed 1,250,000 shares. In addition, subject to adjustment as provided in
Section 11 hereof, the maximum number of shares of Common Stock that may be
covered by Incentive Awards granted to any single Participant in any calendar
year shall not exceed 312,500 shares; provided that the maximum number of shares
of Common Stock that may be covered by shares of Restricted Stock or Phantom
Stock that may be granted to any single Participant during the life of the Plan
shall not exceed 200,000 shares; and provided further that the maximum number of
shares of Common Stock that may be covered by shares of Restricted Stock that
may be granted to all Participants shall not exceed 400,000 shares.
To the extent that any Incentive Award granted under the Plan or any
incentive award granted under the Southwestern Energy Company 1993 Stock
Incentive Plan and the Southwestern Energy Company 1993 Stock Incentive Plan for
Outside Directors expires, terminates or is cancelled or otherwise settled for
any reason without the issuance of all or any portion of the shares of Common
Stock covered by such Incentive Award or incentive award, such unissued shares
of Common Stock shall again be available for grant under the Plan. The Committee
shall not have the right to grant new Incentive Awards in substitution for the
outstanding Incentive Awards previously granted to Participants.
Shares of Common 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 a Committee of the Board of Directors
consisting of two or more persons, at least two of whom qualify as a
"disinterested person," within the meaning of Rule 16b-3 promulgated under
Section 16 of the Exchange Act, and an "outside director," within the meaning of
Treasury Regulation Section 1.162-27(e)(2). The Committee shall, consistent with
the terms of the Plan, from time to time designate the employees of the Company
who shall be granted Incentive Awards under the Plan and the amount, type and
other terms and conditions of such Incentive Awards. Director's Options shall be
granted pursuant to Section 10 hereof. All of the powers and responsibilities of
the Committee under the Plan may be delegated by the Committee, in writing, to
any subcommittee thereof. In addition, the Committee may authorize an executive
A-4
<PAGE>
officer of the Corporation to grant Incentive Awards of a specified type,
covering a specified aggregate number of shares of Common Stock and, in the case
of any such grant of Options or SARs, at a specified exercise or base price
(which may not be less than Fair Market Value on the date of grant) to a
specified group of employees and within a specified period of time.
The Committee shall have full, discretionary authority to administer
the Plan, including discretionary authority to interpret and construe any and
all provisions of the Plan and the terms of any Incentive Award (and any
agreement evidencing any Incentive Award) granted thereunder and to adopt and
amend from time to time such rules and regulations for the administration of the
Plan as the Committee may deem necessary or appropriate. Decisions of the
Committee shall be final, binding and conclusive on all parties.
At or after the date of grant of an Incentive Award under the Plan, the
Committee may (i) accelerate the date on which any such Incentive Award becomes
vested, exercisable or transferable, as the case may be, (ii) extend the term of
any such Incentive Award, including, without limitation, extending the period
following a termination of a Participant's employment during which any such
Incentive Award may remain outstanding, or (iii) waive any conditions to the
vesting, exercisability or transferability, as the case may be, of any such
Incentive Award.
Whether an authorized leave of absence, or absence in military or
government service, shall constitute termination of employment shall be
determined by the Committee.
No member of the Committee shall be liable for any action, omission, or
determination relating to the Plan, and Southwestern 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 employees who shall be eligible to receive Incentive Awards
pursuant to the Plan shall be those employees of the Company that the Committee
shall select from time to time, including those key employees (including
officers of Southwestern, whether or not they are directors of Southwestern) who
are largely responsible for the management, growth and protection of the
business of the Company. Directors who are entitled to receive Incentive Awards
pursuant to Section 10 hereof shall be eligible to participate in the Plan. All
Incentive Awards granted under the Plan shall be evidenced by a separate written
agreement entered into by the Company and the recipient of such Award.
6. Options
The Committee may from time to time grant Options pursuant to the Plan
to Participants who are not Directors, which 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:
(a) Identification of Options
All Options granted under the Plan shall be identified in the agreement
evidencing such Options as either Incentive Stock Options or Non-Qualified Stock
Options.
(b) Exercise Price
The exercise price per share of Common Stock covered by any Option
granted under the Plan shall be not less than 100% of the Fair Market Value of a
share of Common Stock on the date on which such Option is granted.
A-5
<PAGE>
(c) Term and Exercise of Options
(1) Each Option shall become vested and exercisable on such date or
dates, during such period and for such number of shares of Common Stock as shall
be determined by the Committee on or after the date such Option is granted;
provided, however, that no Option shall be exercisable after the expiration of
ten years from the date such Option is granted; and, provided, further, that
each Option shall be subject to earlier termination, expiration or cancellation
as provided in the Plan or in the agreement evidencing such Option.
(2) Each Option may be exercised in whole or in part, to the extent
such Option is vested on the date of exercise; 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.
(3) An Option shall be exercised by delivering notice to Southwestern's
principal office, to the attention of its Secretary, no less than three business
days in advance of the effective date of the proposed exercise. Such notice
shall specify the number of shares of Common 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. Payment for shares of
Common 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, (ii) through a directed brokerage service, if
any is made available to Participants by the Company or (iii) subject to the
approval of the Committee, in shares of Common Stock that have been owned by the
Participant for at least six months prior to the effective date of exercise and
valued at their Fair Market Value on the effective date of such exercise, or
partly in shares of Common Stock with the balance in cash, by certified check,
bank cashier's check or wire transfer. Any payment in shares of Common Stock
shall be effected by the delivery of such shares to the Secretary of
Southwestern, duly endorsed in blank or accompanied by stock powers duly
executed in blank, together with any other documents and evidences as the
Secretary of Southwestern shall require from time to time.
(4) Certificates for shares of Common Stock purchased upon the exercise
of an Option shall be issued in the name of the Participant and delivered to the
Participant as soon as practicable following the effective date on which the
Option is exercised.
(5) During the lifetime of a Participant, each Option granted to him
shall be exercisable only by him. No Option shall be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
Notwithstanding the foregoing, with the prior consent of the Committee, any
Non-Qualified Stock Option, including the right to exercise such option, may be
transferred by a Participant during the Participant's lifetime, but only to: (i)
one or more of a Participant's spouse or natural or adopted lineal descendants;
or (ii) a trust, partnership, or 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.
(d) Limitations on Grant of Incentive Stock Options
(1) The aggregate fair market value (within the meaning of Section 422
of the Code) of the shares of Common Stock covered by "incentive stock options"
(within the meaning of Section 422 of the Code) granted under the Plan and under
any other plan, agreement or arrangement of the Company (or any "subsidiary" of
Southwestern as such term is defined in Section 425 of the Code) which may
become exercisable for the first time by a Participant during any calendar year
shall not exceed $100,000. To the extent, if any, that such aggregate fair
market value limitation is exceeded, then Incentive Stock Options granted
hereunder to such Participant shall, to the extent and in the order required by
regulations promulgated under the Code, automatically be deemed to be
Non-Qualified Stock Options, but all other terms and provisions of such
Incentive Stock Options shall remain unchanged. In the absence of such
regulations, or in the event such regulations require or permit a designation of
the options which shall cease to constitute incentive stock options, Incentive
A-6
<PAGE>
Stock Options shall, to the extent of such excess 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.
(2) 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
Southwestern or any Subsidiary thereof, 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 Common 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) Unless the Committee provides otherwise on or after the date of
grant, in the event that the employment of a Participant with the Company shall
terminate for any reason other than Disability, Retirement, Cause or death (i)
Options granted to such Participant, to the extent that they were vested and
exercisable at the time of such termination, shall remain exercisable until the
expiration of ninety days after such termination, on which date they shall
expire to the extent not exercised, 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 original term.
(2) Unless the Committee provides otherwise on or after the date of
grant, in the event that the employment of a Participant with the Company shall
terminate on account of the Disability or Retirement of the Participant, such
Participant shall be entitled to exercise at any time or from time to time after
such termination and until the first anniversary of such termination, Options
granted to him hereunder to the extent that such Options were vested and
exercisable at the time of such termination provided however, that no Option
shall be exercisable after the expiration of its original term.
(3) Unless the Committee provides otherwise on or after the date of
grant, in the event that the employment of a Participant with the Company shall
terminate on account of the death of the Participant, such Participant's estate
or beneficiary under his will shall be entitled to exercise, at any time or from
time to time until the first anniversary of such termination, Options granted to
him hereunder to the extent that such Options were exercisable at the time of
such termination; provided, however, that no Option shall be exercisable after
the expiration of its original term. Options that are not exercised prior to the
first anniversary of such termination shall expire on such anniversary date.
(4) 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; provided, however,
that no Participant shall be deemed to have been terminated for Cause during the
two year period following any Change in Control.
(5) For purposes of this Section 6(e), an Option shall be deemed to be
exercisable on the date of the termination of the employment of a Participant
with the Company to the extent, if any, it becomes exercisable by acceleration
by the Committee.
(f) Effect of 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 vested
and exercisable and shall remain exercisable until its expiration, termination
or cancellation pursuant to the terms of the Plan and the agreement evidencing
such Option.
(g) Cash Tax Bonuses and Loans
(1) The Committee may grant to any Participant a cash tax bonus in an
amount determined by the Committee to enable the Participant to pay any federal,
state or local income taxes arising out of the exercise of an Option.
A-7
<PAGE>
(2) The Committee may provide a loan to any Participant in an amount
determined by the Committee to enable the Participant to pay (i) any federal,
state or local income taxes arising out of the exercise of an Option or (ii) the
exercise price with respect to any Option. Any such loan (i) shall be for such
term and at such rate of interest as the Committee may determine, (ii) shall be
evidenced by a promissory note in a form determined by the Committee and
executed by the Participant and (iii) shall be subject to such other terms and
conditions as the Committee may determine.
7. Stock Appreciation Rights
The Committee may grant SARs pursuant to the Plan, which SARs shall be
evidenced by an agreement in such form as the Committee shall from time to time
approve. SARs shall comply with and be subject to the following terms and
conditions:
(a) Exercise Price
The exercise price per share of Common Stock covered by any SAR granted
under the Plan shall be not less than 100% of the Fair Market Value of a share
of Common Stock on the date on which such SAR is granted.
(b) Benefit Upon Exercise
The exercise of an SAR with respect to any number of shares of Common
Stock prior to the occurrence of a Change in Control shall entitle the
Participant to (i) a cash payment, for each such share, equal to the excess of
(A) the Fair Market Value of a share of Common Stock on the effective date of
such exercise over (B) the per share exercise price of the SAR, (ii) the
issuance or transfer to the Participant of the greatest number of whole shares
of Common Stock which on the date of the exercise of the SAR have an aggregate
Fair Market Value equal to such excess or (iii) a combination of cash and shares
of Common Stock in amounts equal to such excess, all as determined by the
Committee. The exercise of an SAR with respect to any number of shares of Common
Stock upon or after the occurrence of a Change in Control 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 Common Stock paid in
connection with such Change in Control and (B) the Fair Market Value of a share
of Common Stock on the effective date of exercise over (ii) the per share
exercise price of the SAR. Such payment, transfer or issuance shall occur as
soon as practical, but in no event later than five business days, after the
effective date of the exercise.
(c) Term and Exercise of SARs
(1) Each SAR shall be exercisable on such date or dates, during such
period and for such number of shares of Common Stock as shall be determined by
the Committee and set forth in the SAR agreement with respect to such SAR;
provided, however, that no SAR shall be exercisable after the expiration of ten
years from the date such SAR is granted; and, provided, further, that each SAR
shall be subject to earlier termination, expiration or cancellation as provided
in the Plan or in the agreement evidencing such SAR.
(2) Each SAR may, to the extent vested and exercisable, be exercised in
whole or in part; provided, that no partial exercise of an SAR shall be for an
aggregate exercise price of less than $1,000. The partial exercise of an SAR
shall not cause the expiration, termination or cancellation of the remaining
portion thereof.
(3) An SAR shall be exercised by delivering notice to Southwestern's
principal office, to the attention of its Secretary, no less than three business
days in advance of the effective date of the proposed exercise. Such notice
shall specify the number of shares of Common Stock with respect to which the 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.
(4) During the lifetime of a Participant, each SAR granted to him shall
be exercisable only by the Participant. No SAR shall be assignable or
transferable otherwise than by will or by the laws of descent and distribution.
A-8
<PAGE>
(d) Effect of Termination of Employment
(1) Unless the Committee provides otherwise on or after the date of
grant, in the event that the employment of a Participant with the Company shall
terminate for any reason other than Cause, Disability, Retirement or death (i)
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
ninety days after such termination, on which date they shall expire to the
extent not exercised, and (ii) 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 SAR shall be exercisable after the expiration of its original term.
(2) Unless the Committee provides otherwise on or after the date of
grant, in the event that the employment of a Participant with the Company shall
terminate on account of the Disability, Retirement or death of the Participant
(i) 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 to the
extent not exercised, and (ii) 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 SAR shall be exercisable after the expiration of its original term.
(3) In the event of the termination of a Participant's employment for
Cause, all outstanding SARs granted to such Participant shall expire at the
commencement of business on the date of such termination; provided, however,
that no Participant shall be deemed to have been terminated for Cause during the
two year period following any Change in Control.
(e) Effect of Change in Control
Upon the occurrence of a Change in Control, any SAR granted under the
Plan and outstanding at such time shall become fully and immediately vested and
exercisable and shall remain exercisable until its expiration, termination or
cancellation pursuant to the terms of the Plan.
8. 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 and
the conditions, if any, which must be satisfied on or prior to such Vesting Date
for the Participant's rights with respect to such shares of Phantom Stock to
become vested.. The Committee may divide such shares into classes and assign a
different Vesting Date and different conditions for each class. Provided that
all conditions to the vesting of a share of Phantom Stock imposed pursuant to
Section 8(c) hereof and any agreement evidencing such Phantom Stock are
satisfied and except as provided in Section 8(d) hereof, upon the occurrence of
the Vesting Date with respect to a share of Phantom Stock, the Participant's
rights with respect to such share shall become fully vested and nonforfeitable.
(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 applicable Vesting Date or at
such later date as the Committee shall determine, an amount in cash in a lump
sum equal to the sum of (i) the Fair Market Value of a share of Common Stock on
the applicable Vesting Date with respect to such share of Phantom Stock and (ii)
the aggregate amount of cash dividends paid with respect to a share of Common
Stock during the period commencing on the date on which such share of Phantom
Stock was granted to the Participant and terminating on the applicable Vesting
Date for such share.
A-9
<PAGE>
(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 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 or that the Participant
continue in the employment of the Company for a specified period of time.
(d) Effect of Termination of Employment
(1) Unless the Committee provides otherwise on or after the date of
grant, in the event that the employment of a Participant with the Company shall
terminate for any reason other than Cause prior to the Vesting Date with respect
to shares of Phantom Stock granted to such Participant, a portion of such
shares, to the extent not forfeited or cancelled on or prior to such termination
pursuant to any provision hereof or of the agreement evidencing such Phantom
Stock, shall vest on the date of such termination. The portion referred to in
the preceding sentence shall be determined by the Committee at or after 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 8(c). Such portion may be 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 or of the agreement evidencing such Phantom Stock, shall
immediately vest.
9. 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 and the conditions, if any, which must be satisfied
on or prior to such Vesting Date for the Participant's rights with respect to
such shares of Restricted Stock to become vested. The Committee may divide such
shares into classes and assign a different Issue Date and/or Vesting Date and
different conditions for each class. Except as provided in Section 9(c) and 9(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 9(d) hereof. Provided that all conditions to the
vesting of a share of Restricted Stock imposed pursuant to Section 9(b) hereof
and any agreement evidencing such Restricted Stock are satisfied, and except as
provided in Section 9(c) and 9(f) hereof, upon the occurrence of the Vesting
Date with respect to a share of Restricted Stock, the Participant's rights with
respect to such share shall become fully vested and the restrictions of Section
9(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 deems appropriate. By
A-10
<PAGE>
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 or that the
Participant continue in the employment of the Company for a specified period of
time.
(c) Restrictions on Transfer Prior to Vesting
Prior to the vesting of a share of Restricted Stock, such share of
Restricted Stock shall not be transferable under any circumstances and 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 cancelled and 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 Section 9(c) or 9(f) hereof, reasonably
promptly after the Issue Date with respect to shares of Restricted Stock, the
Company shall cause to be issued stock certificates, 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 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 2000 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
unless and until such shares become vested and the restrictions on the transfer
thereof lapse pursuant to the terms hereof and any agreement evidencing such
Restricted Stock.
(2) Each certificate issued pursuant to Section 9(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 9(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 9(d)(1) hereof, together with any
other property of the Participant held by the custodian pursuant to Section
9(d)(2) hereof.
(f) Effect of Termination of Employment
(1) Unless the Committee provides otherwise on or after the date of
grant, 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 portion of such shares, to the
extent not forfeited or cancelled on or prior to such termination pursuant to
any provision hereof or any agreement evidencing such Restricted Stock, shall
vest on the date of such termination. The portion referred to in the preceding
sentence shall be determined by the Committee and may be based on the
achievement of any conditions imposed by the Committee with respect to such
shares pursuant to Section 9(b). Such portion may zero.
A-11
<PAGE>
(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 cancelled and
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 or any agreement evidencing such Restricted Stock, shall
immediately vest.
(h) Cash Tax Bonuses and Loans
(1) The Committee may grant to any Participant a cash tax bonus in an
amount determined by the Committee to enable the Participant to pay any federal,
state or local income taxes arising out of the award or vesting of Restricted
Stock.
(2) The Committee may provide a loan to any Participant in an amount
determined by the Committee to enable the Participant to pay (i) any federal,
state or local income taxes arising out of the award or vesting of Restricted
Stock. Any such loan (i) shall be for such term and at such rate of interest as
the Committee may determine, (ii) shall be evidenced by a promissory note in a
form determined by the Committee and executed by the Participant and (iii) shall
be subject to such other terms and conditions as the Committee may determine.
10. Director's Options
Director's Options shall be granted pursuant to this Section 10, in the
amounts and subject to the terms and conditions hereinafter set forth.
(a) Automatic Grant of Options
On the last business day of each fiscal year of the Company, each
Director who is eligible to participate in the Plan on such date shall be
granted a Director's Option with respect to 8,000 shares of Common Stock.
(1) Identification of Options
All Director's Options granted under the Plan shall be identified in
the agreement evidencing such options as Non-Qualified Stock Options.
(2) Exercise Price
The exercise price per share of Common Stock covered by any Director's
Option granted under the Plan shall be 100% of the Fair Market Value of a share
of Common Stock on the date on which such Option is granted.
(3) Term and Exercise of Options
(i) Each Director's Option shall become vested and exercisable in
installments at a rate of 25% per year for each full twelve months of
the Director's service on the Board of Directors, commencing on the
date the Option is granted provided, however, that no Option shall be
exercisable after the expiration of ten years from the date such Option
is granted; and, provided, further, that each Option shall be subject
to earlier termination, expiration or cancellation as provided in the
Plan or in the agreement evidencing such option.
(ii) Each Director's Option may, to the extent vested and
exercisable, be exercised in whole or in part; provided, that no
partial exercise of a Director's Option shall be for an aggregate
exercise price of less than $1,000. The partial exercise of a
Director's Option shall not cause the expiration, termination or
cancellation of the remaining portion thereof. Upon the partial
exercise of a Director's Option, the agreements evidencing such
Director's Option, marked with such notations as the Committee may deem
appropriate to evidence such partial exercise, shall be returned to the
Director exercising such Director's Option together with the delivery
of the certificates described in Section 6(c)(4) hereof.
A-12
<PAGE>
(iii) A Director's Option shall be exercised by delivering notice
to the Company's principal office, to the attention of its Secretary,
no less than three business days in advance of the effective date of
the proposed exercise. Such notice shall be accompanied by the
agreements evidencing the Director's Option, shall specify the number
of shares of Common Stock with respect to which the Director's Option
is being exercised and the effective date of the proposed exercise and
shall be signed by the Director. The Director 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 Common Stock purchased upon the exercise of a Director's 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, (ii)
through a directed brokerage service, if any is made available to
Directors by the Company or (iii) subject to the approval of the
Committee, in shares of Common Stock that have been owned by the
Director for at least six months and valued at the Fair Market Value on
the effective date of such exercise, or partly in shares of Common
Stock with the balance in cash, by certified check, bank cashier's
check or wire transfer. Any payment in shares of Common 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.
(iv) During the lifetime of a Director, each Director's Option
granted to him shall be exercisable only by him. No Director's Option
shall be assignable or transferable otherwise than by will or by the
laws of descent and distribution.
(v) Certificates for shares of Common Stock purchased upon the
exercise of a Director's Option shall be issued in the name of the
Director or his beneficiary, as the case may be, and delivered to the
Director or his beneficiary, as the case may be, as soon as practicable
following the effective date on which the Director's Option is
exercised.
(4) Effect of Discontinuance of Director's Term
(i) In the event that the term of a Director's membership on the
Board of Directors expires because the Director loses an election for a
position on the Board of Directors, resigns from the Board of Directors
prior to his completing ten years of service as a director or attaining
age 72 or fails to seek reelection to the Board of Directors for a term
commencing prior to his completing ten years of service as a director
or attaining age 72 (in any case, other than on account of death or
Disability) (a) Director's Options granted to such Director, 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 to the extent not
exercised, and (b) Director's Options granted to such Director, 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 Director's Options shall be exercisable
after the expiration of its original term.
(ii) In the event that the term of a Director's membership on the
Board of Directors expires (i) because of the Director's resignation on
or after age 72 or after completing ten years of service, (ii) because
of his failure to seek reelection on or after age 72 or after
completing ten years of service or (iii) because of the Director's
Disability or death (A) Director's Options granted to such Director, 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 to the extent not
exercised, and (B) Director's Options granted to such Director, 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 Director's Option shall be exercisable after
the expiration of its original term.
(iii) In the event that a Director is removed from the Board of
Directors by the shareholders of the Company, all outstanding
Director's Options granted to such Director shall expire at the
commencement of business on the date of such removal.
A-13
<PAGE>
(5) Acceleration of Exercise Date Upon Change in Control
Upon the occurrence of a Change in Control, each Director's Option
granted under the Plan and outstanding at such time shall become fully and
immediately vested and exercisable and shall remain exercisable until its
expiration, termination or cancellation pursuant to the terms of the Plan.
11. Adjustment Upon Changes in Common Stock
(a) Adjustment upon Certain Events
In the event of any change in the shares of Common Stock outstanding by
reason of any stock dividend or split, recapitalization, merger, consolidation,
combination, spin-off, reclassification or exchange of shares or similar
corporate change (such change, an "Adjustment Event"), (i) the maximum aggregate
number of shares of Common Stock with respect to which Incentive Awards may be
granted under the Plan, the maximum number of Incentive Awards that may be
granted to any individual Participant in a calendar year and the number, type
and class of securities to be granted to Directors pursuant to Section 10(a)
hereof, (ii) the type or class of securities with respect to which Incentive
Awards may be granted under the Plan, (iii) the number, type and class of
securities covered by any then outstanding Options and SARs and the respective
exercise prices applicable under any then outstanding Options and SARs and (iv)
the number, type and class of securities covered by any then outstanding shares
of Phantom Stock or Restricted Stock and the respective limitations or other
criteria applicable to any then outstanding shares of Phantom Stock or
Restricted Stock may be appropriately adjusted as the Committee shall determine
to prevent enlargement or dilution of the rights of Participants hereunder and
the Committee's determination hereunder shall be conclusive. In the event of any
change in the shares of Common Stock outstanding by reason of any other event or
transaction, the Committee may, but need not, make such adjustments in the
number, type and class of shares of securities with respect to which Incentive
Awards may be granted or that are subject to then outstanding Incentive Awards,
and the other terms and conditions of then outstanding Incentive Awards, as the
Committee may deem appropriate to prevent enlargement or dilution of the rights
of Participants hereunder and the Committee determination shall be conclusive.
(b) Outstanding Restricted Stock and Phantom Stock
Unless the Committee otherwise determines, any securities or other
property (including dividends paid in cash) issued or paid with respect to
shares of Restricted Stock that are outstanding as of the date an Adjustment
Event occurs which have vested as of such date shall be promptly deposited with
the custodian designated pursuant to Paragraph 9(d)(2) hereof and shall not
become vested or transferable to the Participant unless and until such
Participant's rights with respect to the related shares of Restricted Stock
become vested.
(c) Outstanding Options, SARs, and Director's Options - Certain
Transactions
Notwithstanding any other provision of the Plan, in the event of (i) a
dissolution or liquidation of Southwestern, (ii) a sale of all or substantially
all of Southwestern's assets or (iii) a merger or consolidation involving
Southwestern, the Committee shall have the power to:
(A) cancel, effective immediately prior to the occurrence of
such event, each Option and SAR outstanding immediately prior to such
event (whether or not then vested or exercisable), and, in full
consideration of such cancellation, pay to the Participant or Director,
as the case may be, to whom such Option or SAR was granted an amount in
cash, for each share of Common Stock subject to such Option or SAR,
respectively, immediately prior to such event, equal to the excess of
(A) the value, as determined by the Committee of the property
(including cash) received by the holder of a share of Common Stock as a
result of such event over (B) the exercise price of such Option or SAR;
or
(B) provide for the exchange of all or a portion of such
Options and/or SARs outstanding immediately prior to such event
(whether or not then vested or exercisable) for equivalent options or
stock appreciation rights covering securities of the acquiring entity
(or the ultimate parent thereof) and, incident thereto, make an
equitable adjustment as determined by the Committee in the exercise
price of such
A-14
<PAGE>
exchanged option or stock appreciation right, and/or the number, type
and class of securities subject to such exchanged option or stock
appreciation right or, if appropriate, provide for a cash payment to
the Participant to whom such Option or SAR was granted in partial
consideration for the exchange of the Option or SAR.
In the event of the occurrence of any event described in this Paragraph
11(c), the Committee shall, with respect to each Director's Option outstanding
immediately prior to such event (whether or not then vested or exercisable),
take the action described in clause (A) above, except that the value of the
property received in exchange for a share of Common Stock pursuant to such event
shall be the Fair Market Value of such property.
(d) No Other Rights
Except as expressly provided in the Plan, no Participant or Director
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 Southwestern or any other corporation. Except as expressly
provided in the Plan, no issuance by Southwestern of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reasons thereof shall be made with respect to, the
number of shares of Common Stock subject to an Incentive Award or the exercise
price of any Option, SAR, or Director's Option.
12. Rights as a Stockholder
No person shall have any rights as a stockholder with respect to any
shares of Common 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 11
hereof, no adjustment of 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.
13. 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 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.
14. Securities Matters
(a) Southwestern shall be under no obligation to effect the
registration pursuant to the Securities Act of any shares of Common Stock to be
issued hereunder or to effect similar compliance under any state laws.
Notwithstanding anything herein to the contrary, Southwestern shall not be
obligated to cause to be issued or delivered any certificates evidencing shares
of Common Stock pursuant to the Plan unless and until Southwestern 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 any securities exchange on which shares of Common Stock are
traded. The Committee may require, as a condition to the issuance and delivery
of certificates evidencing shares of Common Stock pursuant to the terms hereof,
that the recipient of such shares make such covenants, agreements and
representations, and that such certificates bear such legends, as the Committee
deems necessary or desirable.
A-15
<PAGE>
(b) The exercise of any Option granted hereunder shall only be
effective at such time as counsel to Southwestern shall have determined that the
issuance and delivery of shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authority and
the requirements of any securities exchange on which shares of Common Stock are
traded. Southwestern may, in its sole discretion, defer the effectiveness of an
exercise of an Option hereunder or the issuance or transfer of shares of Common
Stock pursuant to any Incentive Award pending or to ensure compliance under
federal or state securities laws. Southwestern shall inform the Participant in
writing of its decision to defer the effectiveness of the exercise of an Option
or the issuance or transfer of shares of Common Stock pursuant to any Incentive
Award. 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.
15. Withholding Taxes
(a) Cash Remittance
Whenever shares of Common Stock are to be issued upon the exercise of
an Option or the grant of Restricted Stock or restrictions on shares of
Restricted Stock are to lapse, Southwestern shall have the right to require the
Participant to remit to Southwestern in cash an amount sufficient to satisfy
federal, state and local withholding tax requirements, if any, attributable to
such exercise, grant or lapse prior to the delivery of any certificate or
certificates for such shares or the effectiveness of the lapse of such
restrictions. In addition, upon the exercise of an SAR or receipt of, or payment
in respect of, a share of Phantom Stock, Southwestern 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.
(b) Stock Remittance
At the election of the Participant or Director, subject to the approval
of the Committee, when shares of Common Stock are to be issued upon the exercise
of an Option or a Director's Option or the grant of Restricted Stock, the
Participant or Director may tender to Southwestern a number of shares of Common
Stock that have been owned by the Participant or Director for at least six
months having a Fair Market Value at the tender date determined by the Committee
to be sufficient to satisfy the federal, state and local withholding tax
requirements, if any, attributable to such exercise or grant but not greater
than such withholding obligations. Such election shall satisfy the Participant's
or Director's obligations under Section 15(a) hereof, if any.
(c) Stock Withholding
At the election of the Participant or Director, subject to the approval
of the Committee, when shares of Common Stock are to be issued upon the exercise
of an Option or a Director's Option or the grant of Restricted Stock,
Southwestern shall withhold a number of such shares having a Fair Market Value
at the exercise date determined by the Committee to be sufficient to satisfy the
federal, state and local withholding tax requirements, if any, attributable to
such exercise or grant but not greater than such withholding obligations. Such
election shall satisfy the Participant's or Director's obligations under Section
15(a) hereof, if any.
16. 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 without
approval of the shareholders no revision or amendment shall (i) except as
provided in Section 11 hereof, increase the number of shares of Common Stock
that may be issued under the Plan, (ii) materially increase the benefits
accruing to individuals holding Incentive Awards granted pursuant to the Plan,
or (iii) materially modify the requirements as to eligibility for participation
in 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.
A-16
<PAGE>
17. No Obligation to Exercise
The grant to a Participant or Director of an Option, SAR, or Director's
Option shall impose no obligation upon such Participant or Director to exercise
such Option, SAR, or Director's Option.
18. Transfers Upon Death
Subject to Section 6(c)(5), upon the death of a Participant or
Director, outstanding Incentive Awards granted to such Participant or Director
may be exercised only by the executors or administrators of the Participant's or
Director'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. Subject to
Section 6(c)(5), 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 Southwestern 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 or Director and to be bound by the acknowledgements made by the
Participant or Director in connection with the grant of the Incentive Award.
Except as provided in Section 18 or Section 6(c)(5), no Incentive Award shall be
transferable, and shall be exercisable only by a Participant or Director during
the Participant's or Director's lifetime.
19. Expenses and Receipts
The expenses of the Plan shall be paid by Southwestern. Any proceeds
received by Southwestern in connection with any Incentive Award will be used for
general corporate purposes.
20. Failure to Comply
In addition to the remedies of Southwestern elsewhere provided for
herein, failure by a Participant or Director to comply with any of the terms and
conditions of the Plan or the agreement executed by such Participant or Director
evidencing an Incentive Award, unless such failure is remedied by such
Participant or Director 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 may determine.
21. Effective Date and Term of Plan
The Plan was adopted by the Board of Directors on February 18, 2000,
subject to the approval of the Plan by the shareholders of Southwestern. All
Incentive Awards granted under this Plan shall be void unless such shareholder
approval is obtained. No grants may be made under the Plan after February 18,
2010.
A-17
<PAGE>
APPENDIX B
SOUTHWESTERN ENERGY COMPANY
AUDIT COMMITTEE CHARTER
(As Adopted February 18, 2000)
The Audit Committee is a committee of the Board of Directors. Its
primary function is to assist the Board in fulfilling its oversight
responsibilities by reviewing financial information which will be provided to
the shareholders and others, the systems of internal controls which management
and the Board of Directors have established, and the audit process.
In meeting its responsibilities, the Audit Committee is expected to:
1. Provide an open avenue of communication between the internal
auditors, the independent accountant, management, and the
Board of Directors.
2. Review and update the Committee's charter annually with
approval by the Board of Directors. The Company's annual Proxy
Statement to Shareholders will disclose that a charter has
been adopted. A copy of the charter will be included as an
appendix to the Proxy Statement at least once every three
years.
3. Recommend to the Board of Directors the independent
accountants to be nominated, approve the compensation of the
independent accountants, and review and approve the discharge
of the independent accountants. Independent accountants are
ultimately accountable to the Board of Directors and to the
Audit Committee.
4. Review and concur in the appointment, replacement,
reassignment, or dismissal of the director of internal
auditing.
5. Confirm and take or recommend any appropriate actions to
assure the independence of the internal auditor and the
independent accountants. Obtain disclosures regarding the
accountants' independence as required by Independence
Standards Board Standard No. 1, as may be modified or
supplemented, and discuss with the accountants all significant
relationships to determine the accountants' independence.
6. Inquire of management, the director of internal auditing, and
the independent accountants about significant risks or
exposures and assess the steps management has taken to
minimize such risk to the Company.
7. Consider, in consultation with the independent accountants and
the director of internal auditing, the audit scope and plan of
the internal auditors and the independent accountants.
8. Review with the director of internal auditing and the
independent accountants the coordination of audit effort to
assure completeness of coverage, reduction of redundant
efforts, and the effective use of audit resources.
9. Consider and review with the independent accountants and the
director of internal auditing:
(a) The adequacy of the Company's internal controls
including computerized information system controls and
security.
(b) Any related significant findings and recommendations of
the independent accountants and internal auditing
together with management's responses thereto.
10. Review with management and the independent accountants at the
completion of the annual examination:
(a) The Company's annual financial statements and related
footnotes.
(b) The independent accountants' audit of the financial
statements and their report thereon.
B-1
<PAGE>
(c) Any significant changes required in the independent
accountants' audit plan.
(d) Any serious difficulties or disputes with management
encountered during the course of the audit.
(e) Other matters related to the conduct of the audit, which
are to be communicated to the Committee under generally
accepted auditing standards.
11. Consider and review with managemen and the director of
internal auditing:
(a) Significant findings during the year and management's
responses thereto.
(b) Any difficulties encountered in the course of their
audits, including any restrictions on the scope of their
work or access to required information.
(c) Any changes required in the planned scope of their audit
plan.
(d) The internal auditing department budget and staffing.
(e) Auditing department's compliance with Institute of
Internal Auditor's Standards of Professional Practice of
Internal Auditing.
12. Review with management and the independent accountants interim
financial information prior to public release of quarterly
results and filing of Form 10-Q.
13. Review annual filings on Form 10-K and any registration
statements containing the Company's financial statements prior
to filing with the Securities and Exchange Commission.
14. Review with the director of internal auditing the results of
internal auditing's review of the Company's monitoring
compliance with the Company's Standards of Conduct.
15. Review legal and regulatory matters that may have a material
impact on the financial statements and related Company
compliance policies.
16. Meet with the director of internal auditing, the independent
accountants, and management in separate executive sessions to
discuss any matters that the Committee or these groups believe
should be discussed privately with the Audit Committee.
17. Report Committee actions to the Board of Directors with such
recommendations as the Committee may deem appropriate.
18. The Audit Committee shall have the power to conduct or
authorize investigations into any matters within the
Committee's scope of responsibilities. The Committee shall be
empowered to retain independent counsel, accountants, or
others to assist it in the conduct of any investigation.
19. The Committee shall meet at least four times per year or more
frequently as circumstances require. The Committee may ask
members of management or others to attend the meeting and
provide pertinent information as necessary.
20. The Audit Committee will issue a report annually to be
included in the Company's Annual Proxy Statement to
Shareholders. This report will disclose that the Audit
Committee has:
(a) Reviewed and discussed audited financial statements with
management.
(b) Discussed with the independent accountants the matters
required to be discussed by Statement on Auditing
Standards No. 61, as may be modified or supplemented.
(c) Received from and discussed with the independent
accountants disclosures regarding the independent
accountants' independence.
(d) Based on its reviews and discussions, has recommended to
the Board of Directors that the audited financial
statements be included in the Company's Annual Report on
Form 10-K for the last fiscal year for filing with the
Securities and Exchange Commission.
21. The Committee will perform such other functions as assigned by
law, the Company's charter or bylaws, or the Board of
Directors.
B-2
<PAGE>
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors and free
from any relationship to the Company that, in the opinion of the Board, would
interfere with the exercise of his or her independent judgment. The Company's
annual Proxy Statement to Shareholders will contain a disclosure that Audit
Committee members are independent.
The following relationships would disqualify a director from serving on
the Audit Committee:
- Employment by the Company or any of its affiliates currently or for
the past three years.
- Accepting compensation from the Company or any of its affiliates
currently or in the past three years, unless the Board of Directors
certifies its belief that the acceptance of compensation would not
impact a director's independence.
- Being an immediate family member of a person who is or has been in
the past three years an executive officer of the Company or any of
its affiliates.
- Being a partner, controlling shareholder, or executive officer of an
organization to which the Company has made or received payments,
unless the Board of Directors certifies its belief that the payments
or receipts would not impact a director's independence. No
certification is necessary once three years elapse following the
termination of the relationship between either (1) the relevant
organization and the Company, or (2) the director and the relevant
organization.
- Being an executive of a corporation if any executive of the Company
sits on the compensation committee of such other corporation.
All members of the Committee shall have a working familiarity with
basic finance and accounting practices, and at least one member of the Committee
shall have accounting or related financial management expertise. It will be at
the Board of Directors discretion as to each Committee member's ability to meet
these requirements.
The members of the Committee shall be appointed by the Board at the
annual organizational meeting of the Board or until their successors shall be
duly appointed and qualified. Unless a Chair is appointed by the full Board, the
members of the Committee may designate a Chair by majority vote of the full
Committee membership.
B-3
<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 17, 2000,
at the Annual Meeting of Shareholders to be held on May 24, 2000, 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 adopt a new stock incentive plan.
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 and FOR the proposal to adopt a new stock incentive plan. The
Proxies cannot vote your shares unless you sign and return this card.
1. Election of Directors
L. Epley, Jr. H. Korell For |_| Withheld |_|
J. Hammerschmidt K. Mourton
R. Howard C. Scharlau
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 adopt a new stock incentive For |_| Against |_| Abstain |_|
plan for the compensation of officers,
directors, and key employees of the
Company and its subsidiaries.
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 an authorized person.
SIGNATURE(S) ________________________________________________ DATE __________
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
