SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)of the Securities Exchange Act of 1934
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SOUTHWESTERN ENERGY COMPANY
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
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SOUTHWESTERN ENERGY COMPANY
1083 Sain Street
P. O. Box 1408
Fayetteville, Arkansas 72702-1408
April 21, 1995
To Our Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders on
Wednesday, May 31, at 11:00 a.m., at the Northwest Arkansas Holiday Inn,
Springdale, Arkansas.
We are very pleased that Mr. Kenneth R. Mourton of Fayetteville, Arkansas
is nominated for election to the Board of Directors. Mr. Mourton is a
distinguished attorney, CPA, and businessman active in legal, business and
civic affairs in Arkansas. He is the Managing Principal of Ball and Mourton,
Ltd., President and owner of a wholesale beverage distributor, and majority
owner of an office leasing company and travel agency. He is Chairman of the
Razorback Foundation, which supports University of Arkansas athletics, a
director and management committee member of the National Beer Wholesalers
Association and Chairman Elect of the Arkansas Wholesale Beer Distributor
Association. 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.
As noted in the Annual Report, which you should have already received, Mr.
E. J. Ball will retire effective with the Annual Meeting. In recognition of
his faithful and long service he will be designated Director Emeritus. Please
sign, date and return the enclosed proxy as soon as possible so your shares
can be voted at the meeting in accordance with your instructions.
Sincerely yours,
Charles E. Scharlau
Chairman and Chief Executive Officer
Southwestern Energy Company
1083 Sain Street
P. O. Box 1408
Fayetteville, Arkansas 72702-1408
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON MAY 31, 1995
The Annual Meeting of Shareholders of Southwestern Energy Company will be
held at the Northwest Arkansas Holiday Inn, Hwy. 71 Bypass at Hwy. 412,
Springdale, Arkansas, on Wednesday, the 31st day of May, 1995, at 11:00 a.m.,
Central Daylight Time, for the following purposes:
(1) The election of five (5) directors to serve until the 1996 Annual
Meeting or until their respective successors are duly elected and
qualified; and
(2) 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 April 17, 1995,
as the record date for the determination of shareholders entitled to notice of
and to vote at the meeting.
You are cordially invited to attend the meeting. In the event you will be
unable to attend, you are respectfully requested to mark, sign, date and
return the enclosed proxy at your earliest convenience in the enclosed return
envelope.
By Order of the Board of Directors
Gregory D. Kerley
Secretary
April 21, 1995
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 31,
1995, and any adjournment or adjournments thereof.
The complete mailing address of the principal executive offices of the
Company is:
1083 Sain Street
P.O. Box 1408
Fayetteville, Arkansas 72702-1408
The enclosed proxy is solicited by the Board of Directors of the Company.
A person giving the enclosed proxy has the power to revoke it at any time
before it is exercised.
The Board of Directors has engaged Morrow & Co., Inc., a proxy
solicitation firm, to solicit proxies from brokerage firms, banks and
institutional holders of shares on its behalf at a cost of $5,000 plus
expenses. The cost of this proxy solicitation will be borne by the Company,
including the charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of stock. The solicitation will be
by mail and such cost will include the cost of preparing and mailing this Proxy
Statement and proxy. In addition to the use of the mails, proxies may be
solicited by personal interview, by telephone or by other means. Although
solicitation will be made primarily through the use of the mail, officers,
directors or regular employees of the Company may solicit proxies personally or
by telephone or other means without additional remuneration for such activity.
A copy of the Company's Annual Report has previously been mailed to
shareholders. This Proxy Statement is being mailed to shareholders on April
21, 1995.
VOTING SECURITIES OUTSTANDING
CUMULATIVE VOTING FOR ELECTION OF DIRECTORS AUTHORIZED
On April 17, 1995, the Company had outstanding 25,560,591 shares of Common
Stock ($.10 par value). Each share outstanding on the record date for the
meeting 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
shares of stock outstanding in his name multiplied by the number of directors
to be elected, and he may cast all such votes for a single director or he may
distribute them among the number to be voted for, or for any two or more of
them, as he 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 non-voted 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 non-voted shares are counted present if
represented at the meeting for any purpose.
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Unless revoked, each properly executed proxy will be voted in the manner
directed therein. If no direction is made, each such proxy will be voted FOR
the election of directors.
Only shareholders of record at the close of business on April 17, 1995,
will be entitled to vote at the Annual Meeting of Shareholders.
ELECTION OF DIRECTORS
At the meeting, five (5) directors are to be elected to serve for the
ensuing year and until their respective successors are elected and qualified.
The shares represented by the enclosed proxy will be voted as instructed by
the shareholders for the election of the nominees named below. If no direction
is made, this proxy will be voted for the election of the nominees named
below. If any nominee becomes unavailable for any reason or if a vacancy
should occur before the election, the shares represented by the enclosed proxy
may be voted for such other person as may be determined by the holders of such
proxies. The Company has no knowledge that any nominee will be unavailable for
election. Directors shall be elected by plurality vote. Certain information
concerning the nominees for election as directors, is set forth below.
Nominees For Election
JAMES B. COFFMAN - Mr. Coffman is Chairman and Chief Executive Officer,
J.B. Coffman and Associates, Inc., performing petroleum consulting and
investment services in Houston, Texas. He is also Chairman and Director of
CoMac Chemical, providing process chemicals to the refining industry. Mr.
Coffman has held these positions since 1985. Previously, Mr. Coffman was
President and Chief Executive Officer of Aminoil, Inc., from 1984 until 1985,
and President and Chief Operating Officer, from 1981 until 1984. Aminoil,
Inc.'s principal business was oil and gas exploration and production. He also
held various positions with Exxon Corporation from 1950 until 1981, lastly, as
Vice President and Director of Exxon Production Research Company. Mr. Coffman
is 69 years old and first became a director in 1986.
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. He has
also been a member of the Metropolitan Washington Airports Authority Board of
Review since 1987. Mr. Hammerschmidt has served as a director of First Federal
Bank of Arkansas, Harrison, Arkansas since 1966. From 1946-1984 he was active
in the lumber business, serving as President of Hammerschmidt Lumber Company,
Harrison, Arkansas. Mr. Hammerschmidt is 72 years old and was first elected to
the Board of Directors in 1992.
KENNETH R. MOURTON - Mr. Mourton is an Attorney at Law, firm of Ball and
Mourton, Ltd., Fayetteville, Arkansas. He is the Managing Principal Attorney
for this firm. Mr. Mourton is also President and principal shareholder of
Coors of Western Arkansas, Inc., since 1980; President and majority
shareholder of E. J. Ball Plaza, Inc., since 1992; and part owner of Emerald
Travel Services, Ltd., since 1989. All of these businesses are located in
Fayetteville, Arkansas. Mr. Mourton is Chairman, since 1992, of Razorback
Foundation, Inc., a non-profit 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 44 years old.
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CHARLES E. SANDERS - Mr. Sanders is a retired General Manager of
Springdale Publishing Co., Springdale, Arkansas, and presently manages his own
investments. Mr. Sanders is 75 years old and first became a director in 1973.
CHARLES E. SCHARLAU - Mr. Scharlau is Chairman of the Board and Chief
Executive Officer of the Company, and a director of C.H. Heist Corporation.
Mr. Scharlau is 68 years old and first became a director in 1966.
Shareholders entitled to vote for the election of directors at the annual
meeting may nominate additional candidates provided written notice of such
nomination is received at the Company's principal executive offices no later
than the close of business on May 8, 1995. 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 Gregory D. Kerley, Secretary, Southwestern Energy Company, 1083
Sain Street, P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501)
521-1141.
BOARD COMMITTEES
The Board of Directors has a standing audit committee (the ''Audit
Committee'') composed of noncompany members of the Board. The Audit Committee
is responsible to the Board for reviewing the accounting and auditing
procedures and financial reporting practices of the Company and for
recommending the appointment of the independent auditors. The Audit Committee
meets periodically with the Company's management, internal auditors and
independent auditors to review the work of each and to satisfy itself that
said parties are properly discharging their responsibilities. The independent
auditors 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. James B. Coffman, Chairman, John
Paul Hammerschmidt, and Charles E. Sanders.
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. John Paul Hammerschmidt and Charles E. Sanders, Chairman,
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. E. J. Ball, Charles E. Sanders and Charles E. Scharlau
presently serve on this committee.
The Company has no standing nominating committee. Candidates for
nomination for Board positions are considered by the Board as a whole. The
Board will consider qualified candidates recommended by shareholders. Any
shareholder wishing to recommend a candidate may do so by letter addressed to
Gregory D. Kerley, Secretary, Southwestern Energy Company, 1083 Sain Street, P.
O. Box 1408, Fayetteville, Arkansas 72702-1408. Such letter should state in
detail the qualifications of the candidate. Shareholders entitled to vote for
the election of directors at the annual meeting may nominate additional
candidates independent of the Board of Directors. Shareholder nominees to
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be presented to the 1995 annual meeting must be submitted pursuant to the
procedures described under the sub-heading Nominees For Election. Shareholders
entitled to vote for the election of directors at the 1996 annual meeting may
present independent nominees to the 1996 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 1996 meeting date. If less than
65 days notice of the 1996 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 was 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 Gregory D. Kerley, Secretary, Southwestern Energy Company, 1083 Sain
Street, P. O. Box 1408, Fayetteville, Arkansas 72702-1408, 501-521-1141.
DIRECTOR COMPENSATION
In 1994, for his service as a director, each director was paid $24,000 in
cash and each outside director was granted an option to purchase 12,000 shares
of the Company's Common Stock at $14.75 per share, representing the fair
market value on the date of grant. Such options were granted in tandem with
limited stock appreciation rights, as defined under Compensation Committee
Report, and become exercisable in installments at a rate of 25% per year for
each full twelve months of service as a director. In addition, each outside
member of the Audit, Compensation and Retirement Committees is paid $500 per
diem for his participation on each committee. During 1994, the Board of
Directors held seven meetings, the Audit Committee held two meetings, the
Compensation Committee held two meetings and the Retirement Committee held one
meeting.
Directors who retire with certain qualifications are appointed to the
position of Director Emeritus and are paid a fee of $1,000 per meeting
attended. Mr. Ball will be appointed to the position of Director Emeritus upon
his retirement at the expiration of his present term. Mr. Ball is General
Counsel to the Company and Mr. Ball and Mr. Mourton are partners in the law
firm of Ball and Mourton, Ltd. During 1994, the Company paid $128,073 in legal
fees to Ball and Mourton, Ltd.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During 1994, the Compensation Committee consisted of Messrs. Charles E.
Sanders, Chairman, and Mr. John Paul Hammerschmidt. There were no instances of
interlocking relationships or insider participation in compensation decisions
in 1994.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
No persons were known by the Company to beneficially own more than 5% of
the Company's Common Stock as of March 31, 1995.
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SECURITY OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth information as of March 31, 1995, with
respect to beneficial ownership of the Company's Common Stock by its directors
and executive officers.
Number of Shares of $.10
Par Value Common Stock
Beneficially Owned as of 3-31-95
(Sole Voting and Investment Percent
Name of Beneficial Owner Power Except as Noted) of Class
------------------------ ------------------------------- --------
Executive Officers:
Charles E. Scharlau 569,450(1) 2.22%
Dan B. Grubb 153,337(1) 0.60%
Stanley D. Green 191,615(1) 0.75%
B. Brick Robinson 175,952(1) 0.69%
Gregory D. Kerley 65,298(1) 0.26%
Directors and Nominees:
E. J. Ball 72,400(1)(2) 0.28%
James B. Coffman 35,400(1) 0.14%
John Paul Hammerschmidt 24,000(1) 0.09%
Kenneth R. Mourton 1,000 0.00%
Charles E. Sanders 53,856(1) 0.21%
All persons as a group(10 in number) who
are directors, nominees or executive
officers of the Company 1,342,308(3) 5.24%
(1) Of the number of shares reported as beneficially owned, the named
individuals had the right to acquire within 60 days, through the exercise
of stock options, beneficial ownership of the following number of shares:
Mr. Scharlau, 169,650; Mr. Grubb, 18,405; Mr. Green, 62,205; Mr. Robinson,
45,000; Mr. Kerley, 10,682; and 3,000 each for Messrs. Ball, Coffman,
Hammerschmidt and Sanders. Included in the number of shares reported as
beneficially owned are the rights of the named individuals to acquire the
following number of shares through the exercise of stock options
immediately upon a ''change in control'' as defined under Agreements
Concerning Employment and Changes in Control on page 18 of the Proxy
Statement: Mr. Scharlau, 245,996; Mr. Grubb, 116,811; Mr. Green, 116,811;
Mr. Robinson, 123,247; Mr. Kerley 52,165; and 21,000 each for Messrs. Ball,
Coffman, Hammerschmidt and Sanders. 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. Grubb, 6,360; Mr. Green, 8,038; Mr. Robinson, 4,605; and Mr.
Kerley, 1,101. The named individuals acquire investment power on these
shares immediately upon a ''change in control.''
(2) Mr. Ball is trustee of a family trust holding 12,000 shares and
investment advisor of a grandchildren's trust holding 13,000 shares and
disclaims beneficial interest in such holdings, although they are included
in the 72,400 shares listed as beneficially owned by Mr. Ball. Mr. Ball
presently holds options to purchase 24,000 shares of the Company's stock
which were granted pursuant to the Company's 1993 Stock Incentive Plan For
Outside Directors. Options on 3,000 shares are presently vested and
exercisable, and options on 21,000 shares are unvested and not presently
exercisable. Because Mr. Ball will be retiring from his position as a
director of the
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Company at the end of his present term, the 21,000 unvested options will expire
upon the expiration of Mr. Ball's term, and the 3,000 vested options will
remain exercisable for a period of one year after the expiration of his term.
(3) Of this number, all directors and executive officers as a group
had the right to acquire beneficial ownership of 317,942 shares through the
exercise of stock options within 60 days. Included in this number is this
group's right to acquire an additional 739,030 shares through the exercise
of stock options immediately upon a ''change in control'' as defined under
Agreements Concerning Employment and Changes in Control on page 18 of this
Proxy Statement. Also included in this number are 20,104 restricted shares
with respect to which individuals in this group have voting power but not
investment power. Investment power on these shares vest immediately upon a
''change in control.''
Compliance With Section 16(a) of the 1934 Act
In 1994, Mr. Robinson failed to make two Form 4 filings as required by
Section 16(a) of the Securities Exchange Act of 1934. Mr. Robinson also failed
to make a third Form 4 filing due in January, 1995. The duty to make these
filings was triggered by five separate purchases of the Company's stock
totaling 2,100 shares. These transactions have been reported on Mr. Robinson's
Form 5 for 1994 filed in February, 1995.
Transactions With Nominees and Executive Officers
Prior to his appointment as President and Chief Operating Officer of the
Company in July, 1992, Mr. Grubb owned an equity interest in certain business
enterprises in which the Company also owned an equity interest. Upon his
appointment as President and Chief Operating Officer of the Company, the
Company acquired Mr. Grubb's interest in these enterprises. These transactions
are further described below. Mr. Grubb is Chairman, Chief Executive Officer,
and principal shareholder of Grubb Industries, Inc., which was engaged
primarily in the development of energy projects. Mr. Grubb is also the
Chairman, Chief Executive Officer, and principal shareholder of GRUBB NOARK
Pipeline, Inc. which owned, during a portion of 1992, a 4% general partnership
interest in NOARK Pipeline System, Limited Partnership (''NOARK''), a limited
partnership in which the Company, through a wholly owned subsidiary, held at
that time a 43.33% general partnership interest. NOARK was formed in 1991 as
successor to a general partnership formed in 1989 to construct, own and
operate a $103,000,000 intrastate natural gas pipeline system in Arkansas. Mr.
Grubb held a position on NOARK's management committee as a representative of
GRUBB NOARK Pipeline, Inc. Since inception of the NOARK project, GRUBB NOARK
Pipeline, Inc. and its predecessor in the project, Grubb Industries, Inc.,
have contributed $231,942 to NOARK as equity and were reimbursed $106,437 for
consulting services performed on behalf of NOARK. In 1990, $136,016 in
previous capital contributions plus $8,161 in interest earned on funds
invested were returned to Grubb Industries, Inc. as a result of the entry of a
new partner and a reduction of the partnership interest of Grubb Industries,
Inc. from 15% to 4%. In 1991, $95,926 in previous capital contributions plus
$100 in interest earned on funds invested were returned to Grubb Industries,
Inc. as part of a pro rata return of capital to all general partners funded by
the initial draw under NOARK's construction financing arrangements.
In 1991, NOARK entered into definitive financing agreements with The
Prudential Insurance Company of America (''Prudential'') under which
Prudential lent to NOARK $63,000,000 for construc-
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tion of its pipeline system. Prudential is also the partnership's sole limited
partner with an interest of 20%. Under the agreements, certain of the general
partners (including the Company) were jointly and severally liable for the
repayment of construction advances owed by NOARK. GRUBB NOARK Pipeline, Inc.
was severally liable for the repayment of 4% of such advances prior to the
Company's acquisition of Mr. Grubb's interest in NOARK. In early 1993, the
construction advances were converted to long-term financing in the form of
Senior Secured Notes and certain of the general partners (including the
Company) severally guaranteed the availability of certain minimum cash balances
to service these notes. GRUBB NOARK Pipeline, Inc.'s share of such several
guarantee would have been 4% and GRUBB NOARK Pipeline, Inc. would also have
been severally liable for 4% of any deficiency remaining after any acceleration
of NOARK's indebtedness due to its default had the Company not acquired Mr.
Grubb's interest in NOARK.
GRUBB NOARK Pipeline, Inc.'s obligations under the NOARK related financing
agreements were guaranteed by the Company and one of its wholly owned
subsidiaries. The Company's wholly owned subsidiary and GRUBB NOARK Pipeline,
Inc. had entered into a separate agreement which would have allowed the
Company's wholly owned subsidiary to recover from GRUBB NOARK Pipeline, Inc.'s
share of NOARK's distributions to its partners 200% of any payments made by
the Company or its wholly owned subsidiary on behalf of GRUBB NOARK Pipeline,
Inc. related to these guarantees, plus interest at the rate of two percentage
points above the prime rate of The First National Bank of Chicago, but not to
exceed five percentage points above the federal reserve discount rate at the
time of the agreement. GRUBB NOARK Pipeline, Inc.'s obligation to repay any
amounts due to the Company or its wholly owned subsidiary related to these
guarantees was secured by its general partnership interest in NOARK. The
Boards of the Company and its wholly owned subsidiary each concluded that the
guarantees provided for the benefit of Mr. Grubb were in their best interest
and benefited the Company and its wholly owned subsidiary because (1) Mr.
Grubb had contributed substantial expertise to the planning, construction and
operation of NOARK based on his prior experience as an executive of a major
pipeline company, (2) fees paid to Mr. Grubb (through GRUBB NOARK Pipeline,
Inc. and its predecessor) were disproportionately low when compared to the
significant value contributed by Mr. Grubb to NOARK and (3) GRUBB NOARK
Pipeline, Inc. owned a 4% general partnership interest in NOARK and had
provided, and or agreed to provide, the several guarantees described above.
In 1990, prior to the time Mr. Grubb was appointed President and Chief
Operating Officer of the Company, the Company and other parties formed NOARK
Gas Marketing Company (''NGMC'') for the primary purpose of developing markets
to be served through NOARK. NGMC was a general partnership in which the
Company originally owned a 33.33% interest and in which Grubb Industries, Inc.
originally owned a 33.33% interest and acted as managing partner. Since
inception of NGMC, Grubb Industries, Inc. contributed $22,256 to NGMC as
equity. In 1991, NGMC's general partnership agreement was amended to provide
for the entry of another partner. This amendment lowered the Company's
interest in NGMC to 23.33% and lowered the interest of Grubb Industries, Inc.
to 25.00%.
In 1992, upon Mr. Grubb's appointment as President and Chief Operating
Officer of the Company, a wholly owned subsidiary of the Company purchased
GRUBB NOARK Pipeline, Inc.'s 4% general partnership interest in NOARK,
increasing the subsidiary's interest to 47.33%. Additionally, the Company
purchased the 25% general partnership interest of Grubb Industries, Inc. in
NGMC, thereby increasing its interest to 48.33%. For the general partnership
interest in NGMC, the Company has agreed to pay to Grubb Industries, Inc. the
sum of $7,912 representing the approximate balance
7
in its capital account as of the date of the acquisition. No cash consideration
was paid to GRUBB NOARK Pipeline, Inc. for its general partnership interest in
NOARK. The Company and its wholly owned subsidiary also agreed to assume all
liabilities and obligations of GRUBB NOARK Pipeline, Inc., Grubb Industries,
Inc., and Mr. Grubb incurred in connection with their participation in NOARK
and NGMC as of the date of the acquisitions. Among the liabilities assumed by
the Company and its wholly owned subsidiary were GRUBB NOARK Pipeline, Inc.'s
obligations under the NOARK related financing agreements with Prudential as
described above, which the Company and its wholly owned subsidiary had
previously guaranteed. In addition, the Company and its wholly owned subsidiary
may be required to indemnify Mr. Grubb and GRUBB NOARK Pipeline, Inc. against
liability potentially arising from lawsuits filed in 1993 and 1995 by Vesta
Energy Company (''Vesta'') against NOARK, the Company, certain of its wholly
owned subsidiaries, GRUBB NOARK Pipeline, Inc., and Mr. Grubb. In this
lawsuit, Vesta is seeking actual and punitive damages in excess of $2,000,000,
treble damages for alleged violations of federal and state antitrust and fair
trade laws, and rescission of certain gas transportation and sales contracts.
The Company is unable, at this time, to determine the extent of the potential
liability attributable to GRUBB NOARK Pipeline, Inc. or Mr. Grubb or the
extent of its ultimate obligation to indemnify GRUBB NOARK Pipeline, Inc. and
Mr. Grubb against such potential liability. The Company may also be required
to indemnify Mr. Grubb against liability arising from this lawsuit pursuant to
a separate indemnification agreement with Mr. Grubb in his capacity as an
officer and former director of the Company and its subsidiaries. The Company
and its subsidiaries are presently advancing all litigation costs and
attorneys' fees incurred in connection with this lawsuit which would otherwise
be attributable to GRUBB NOARK Pipeline, Inc. and Mr. Grubb. The Company is
aware of no other material liabilities or obligations assumed in connection
with these acquisitions.
Mr. Scharlau was also named as an individual defendant in the 1995 lawsuit
filed by Vesta described above. The Company may be required to indemnify Mr.
Scharlau against liability arising from this lawsuit pursuant to an
indemnification agreement which the Company entered into with Mr. Scharlau in
1988. Pursuant to this agreement, the Company is presently advancing all
litigation costs and attorneys' fees incurred in connection with this lawsuit
which would otherwise be attributable to Mr. Scharlau.
During 1994, the Company paid $66,571 to the law firm of Conner & Winters
of Tulsa, Oklahoma for certain legal services. Mr. Greg Scharlau, Mr.
Scharlau's son, is a partner in Conner & Winters.
COMPENSATION COMMITTEE REPORT
Compensation Philosophy
In determining the compensation of the Chief Executive Officer (the
''CEO'') and the other executive officers of the Company and its subsidiaries,
the Compensation Committee seeks to align compensation with the attainment of
the Company's objectives, the Company's performance and the attraction and
retention of individuals who contribute to the Company's success. For the CEO
and the other named executive officers, the Compensation Committee makes
recommendations to the Board of Directors, and final compensation decisions
are made by the full Board. The Compensation Committee believes that
compensation should:
- relate to the value created for shareholders by being directly tied
to the financial performance and condition of the Company and the
particular executive officer's contribution thereto;
8
- 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 index shown in the performance chart reported
in this Proxy Statement includes a number of the companies that are used for
compensation analysis. The Compensation Committee believes that companies
operating exclusively in the oil and gas producing industry are also
appropriate to include in its compensation analysis. Compensation packages are
targeted to the median of the range of compensation paid by comparable
companies. Executive compensation paid by the Company during 1994 generally
corresponded to the 75th percentile of compensation paid by comparable
companies due to the achievement of certain corporate performance measures
under the Company's Incentive Compensation Plans.
Changes made to the Internal Revenue Code in 1993 could potentially limit
the ability of the Company to deduct, for federal income tax purposes, certain
compensation in excess of $1,000,000 per year paid to individuals named in the
summary compensation table. This limitation is effective beginning in 1994.
The Company believes that all compensation paid in 1994 will be fully
deductible. Further, none of the named individuals received compensation in
excess of $1,000,000 during 1994. 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
9
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.
Minimum base salaries for Mr. Scharlau and Mr. Grubb have been
incorporated into employment agreements as further described under the heading
''Agreements Concerning Employment and Changes in Control.'' Changes in base
salary also affect other elements of compensation including: (i) awards under
the Company's Incentive Compensation Plan; (ii) pension benefits; (iii) company
matching portions of 401(k) contributions; and (iv) life insurance benefits.
Incentive Compensation Plan. The Company maintains an Incentive
Compensation Plan (the ''Incentive Plan'') applicable to executives with
responsibility for the Company's major business segments. The Incentive Plan
is intended to encourage and reward the achievement of (1) year-to-year growth
in the Company's actual reported earnings; (2) returns on equity which are
above industry averages; (3) reserve additions and acquisitions at competitive
costs; (4) return on utility rate base; and (5) pipeline throughput and
margins. These criteria are deemed by the Compensation Committee to be
critical to increasing shareholder value, and the applicability of each of
these criteria in determining awards to any particular executive depends on
the responsibilities of that executive. A portion of each award under the
Incentive Plan is an automatic award based upon the achievement of these
corporate financial objectives, and a portion is discretionary based on a
subjective evaluation of the executive's performance by the Compensation
Committee. The Incentive Plan is also designed to assist in the attraction and
retention of qualified employees, to further link the financial interest and
objectives of employees with those of the Company and to foster accountability
and teamwork throughout the Company.
The CEO and the executive officers have responsibilities directly
affecting the Company's operation and are assigned target, minimum and maximum
award levels expressed as a percentage of their base salary. In 1994, the
target awards which could be paid based on attainment of corporate performance
measures ranged from 18.75% to 30% of base salary for these individuals, the
minimum awards ranged from 9.375% to 15% of base salary, and the maximum
awards which could be paid ranged from 37.5% to 60% of base salary. None of
these awards are paid if corporate performance as determined by the corporate
performance measures is below a specified level. In addition, the
participating executives are eligible for discretionary awards based upon
their individual performance ranging from 12.5% to 20% of base salary. Payouts
under the Incentive Plan are based on the achievement of corporate financial
profit objectives, business unit results and the Committee's evaluation of
individual performance. Awards are payable in cash, restricted Common Stock of
the Company, or a combination of cash and restricted Common Stock. Restricted
Common Stock awarded under the Incentive Plan is subject to the provisions of
the Company's 1993 Stock Incentive Plan, discussed below, and counts toward
the aggregate number of shares authorized under that plan.
Generally, when multiple factors are considered to measure the performance
of the Company's executives, such factors are equally weighted in determining
the Company performance portion of an executive's bonus. In determining
automatic awards under the Incentive Plan for the CEO and the named executive
officers, the Compensation Committee examines (1) the Company's return on
equity as compared to the performance of a peer group of the Company as
indicated by The Value Line Investment Survey group of diversified natural gas
companies and (2) the increase in actual reported earnings per share over the
previous year. Because these factors are weighted equally,
10
proportionate awards are made if targets for at least one of the factors are
met. In 1994, the return on equity target was exceeded, while the minimum
earnings per share growth was not met. Discretionary awards for these
executives are based on a subjective evaluation of the executive's performance
by the Compensation Committee. Discretionary awards may be influenced by the
performance of individual business segments, but are primarily intended to
provide an incentive to recognize exceptional performance by an individual.
Stock Incentive Plan. The CEO and other executive officers are also
eligible to participate in the Company's 1993 Stock Incentive Plan (the
''Stock Plan''). The Stock Plan is designed to attract and retain key
executive employees by enabling them to acquire a proprietary interest in the
Company and by tying executive rewards to shareholder interests. The Stock
Plan provides for the granting of restricted stock, phantom stock, stock
bonuses, options to purchase Common Stock of the Company, and limited, tandem,
and stand alone stock appreciation rights in such amounts as determined by the
Compensation Committee on a discretionary basis. Limited stock appreciation
rights are exercisable only upon a change in control and provide for certain
cash payments in lieu of the exercise of the stock options to which they
relate. Grants relating to 1994 performance were made at a price equal to the
fair market value on the date of grant. In addition, the Stock Plan provides
for the granting of cash bonuses in connection with awards of restricted stock
and stock bonuses when a participant is required to recognize income for
federal or state income tax purposes with respect to such awards. The number
of shares of the $.10 par value Common Stock of the Company which may be
issued under the Stock Plan cannot exceed 1,275,000, subject to 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. 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 1994 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
addition, 1994 option awards were designed to provide a substantial incentive
for achievement of the goals of doubling each of the Company's reserves,
production, earnings, and cash flow prior to January 1, 2000. These
performance objectives are weighted 35%, 35%, 15%, and 15%, respectively, and
the 1994 options provide for full or partial accelerated vesting upon full or
partial achievement of the objectives. The size of the 1994 option awards are
not based upon any specific performance measures, but were intended to be a
one-time large grant of roughly five times the value of the previous year's
awards, inclusive of restricted stock awards and option grants, adjusted for
the potential of the particular executive to contribute to the achievement of
the Company's goals.
In 1993, the annual component of the Company's former Annual and Long-Term
Incentive Compensation Plan (the ''Prior Plan'') was replaced by the Company's
Incentive Compensation Plan, discussed above. The long-term component of the
Prior Plan was replaced by the Stock Incentive Plan for performance periods
beginning after January 1, 1993. Payouts of awards previously granted and
payouts of awards related to five-year performance periods ending each year
through December 31, 1997, will continue to be made under the Prior Plan. Key
employees were selected annually to participate in the Prior Plan based on
their ability to have a significant impact on the performance of
11
the Company. Under the long-term incentive component of the Prior Plan, cash
awards are based on the Company's performance during overlapping five-year
periods. A new five-year performance period began each year on January 1, with
the final five-year performance period beginning January 1, 1993. For all
participants, awards are based equally on the compounded five-year growth in
earnings per share and the cumulative five-year return on equity. The return on
equity performance factor is compared to the composite actual average return on
equity for the previous five-year period of the natural gas (diversified)
group of companies as determined by reference to The Value Line Investment
Survey. Payouts of awards are tied to achieving specified levels of return on
equity and earnings per share (EPS) growth. None of these awards are paid if
both return on equity and EPS growth are below specified levels, but
proportionate awards may be paid if only one of these performance factors is
below the specified level. Target awards which could be paid based on
attainment of corporate performance measures range from 10% to 40% of base
salary (determined at the beginning of each five-year performance period),
minimum awards range from 5% to 20% of base salary, while the maximum awards
range from 20% to 80% of base salary. During the five-year performance period
ending December 31, 1994, 59% of the specified target EPS growth rate was
achieved while the return on equity performance factor resulted in maximum
awards. Any award earned is payable at the rate of 20% per year, commencing at
the end of each five-year performance cycle. The purpose of this component of
the Prior Plan is to balance the focus of senior managers between annual goals
and long-term strategies of the Company.
Mr. Scharlau's base salary remained at $425,000 for three years
(1992-1994)prior to being increased to $450,000 for 1995. Under the Company's
Incentive Compensation Plan, Mr. Scharlau has a targeted annual bonus award of
50% of base salary, with minimum and maximum awards of 20% and 80%,
respectively, depending upon the achievement of corporate performance measures.
Of these awards, a portion is an automatic award based upon the achievement of
the corporate financial objectives relating to earnings per share growth and
return on equity as described under the subheading ''Incentive Compensation
Plan'' above, and a portion is discretionary based on a subjective evaluation
of Mr. Scharlau's performance by the Compensation Committee and the Board of
Directors and may be influenced by the performance of individual business
segments. The Company's attainment of the return on equity performance measure
in fiscal 1994 resulted in Mr. Scharlau being awarded a bonus of $76,500, or
18% of his base salary. In 1994, Mr. Scharlau was also awarded $85,000, or 20%
of his base salary, representing his maximum discretionary bonus based upon a
subjective evaluation of his performance by the Compensation Committee and the
Board of Directors. Under the long-term component of the Prior Plan, Mr.
Scharlau earned an award in 1994 of $189,216, or 52% of his 1990 base salary
for the five-year performance period ending December 31, 1994. This award will
be paid out at the rate of 20% per year through 1999. For this performance
period, minimum, target and maximum awards applicable to Mr. Scharlau under
the long-term component of the Prior Plan were 20%, 40% and 80% of base
salary, respectively. During this period, 59% of the specified target EPS
growth rate was achieved while the return on equity performance factor
resulted in maximum awards. For performance periods beginning after January 1,
1993, the long-term component of this plan was replaced by the Stock Plan.
In 1994, Mr. Scharlau was awarded options to purchase 200,000 shares of
the Company's Common Stock under the Stock Plan, as described above. The
options vest ratably over four years beginning six years from the date of grant
or sooner upon the full or partial achievement of the goals of doubling each of
the Company's reserves, production, earnings and cash flow prior to January 1,
2000. These performance objectives are weighted 35%, 35%, 15%, and 15%,
respectively. These options
12
also vest immediately upon retirement or a change in control. Limited stock
appreciation rights were granted in tandem with these options. The number of
options awarded in fiscal 1994 was based upon a competitive analysis of
long-term incentive awards made to the chief executive officers of the
Company's competitive peer group, and is consistent with the objectives of the
Stock Plan. The number of options awarded in 1994 was not based upon any
specific performance measures, but was intended to be a one-time large grant of
roughly five times the value of the previous year's award and is designed to
provide a substantial incentive for achievement of the goals of doubling each
of the Company's reserves, production, earnings and cash flow prior to January
1, 2000.
In addition to the factors described above, in determining the salary and
other forms of compensation for Mr. Scharlau, the Compensation Committee took
into consideration Mr. Scharlau's substantial experience (43 years) and
standing in the industry in general and with the Company in particular. The
Compensation Committee also considered Mr. Scharlau's increase in
responsibilities and the complexity of his position as a result of the
Company's diversification and growth in recent years.
John Paul Hammerschmidt
Charles E. Sanders
Members of the Compensation Committee
13
EXECUTIVE COMPENSATION
The following table contains information with respect to executive
compensation paid or set aside by the Company for services in all capacities
during the years 1992, 1993, and 1994 of the CEO and the next four most highly
paid executive officers of the Company and its subsidiaries whose direct
aggregate remuneration exceeded $100,000 in 1994.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------------- ------------------------ --------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Number of
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Salary Bonus Compensation Awards Options/ Payouts Compensation
Name and Principal Position Year ($) ($)(2) ($) ($)(3) SARs(#)(4) ($)(5) ($)
- ---------------------------- ---- -------- ------ ------------ ---------- ---------- -------- ------------
Charles E. Scharlau 1994 $425,000 $161,500 $ 7,380 $ - 200,000 $ - $ 6,999(6)
Chairman of the Board, 1993 425,000 255,000 7,380 - 45,996 130,560 8,874
Chief Executive Officer, 1992 425,000 236,846 7,380 - 27,000 114,231 2,487
and Director
Dan B. Grubb 1994 275,000 58,140 7,140 - 110,000 - 5,186(7)
President and Chief 1993 275,000 92,822 51,900 115,097 10,216 - 9,824
Operating Officer 1992 125,000(8) 49,912 2,678 - 15,000 - 3,786
Stanley D. Green 1994 204,000 36,046 24,379(9) 22,094 110,000 - 5,696(10)
Executive Vice President - 1993 196,000 88,213 51,301 113,556 10,216 23,696 6,996
Finance and Corporate 1992 170,500 66,283 6,848 - 12,000 19,242 990
Development, and Chief
Financial Officer
B. Brick Robinson 1994 204,000 - 45,260(11) 58,138 110,000 - 5,700(12)
Executive Vice President 1993 204,000 91,800 7,140 - 13,247 - 7,304
and Chief Operating Officer, 1992 195,000 10,000 7,140 - 9,000 - 15,076
Southwestern Energy
Production Company and
SEECO,Inc. (1)
Gregory D. Kerley 1994 116,000 21,238 10,893(13) 6,313 50,000 - 4,138(14)
Vice President - Treasurer 1993 102,000 47,061 11,601 12,861 3,247 - 3,651
and Secretary, and Chief 1992 94,000 31,513 6,600 - 3,000 - 545
Accounting Officer
(1) Southwestern Energy Production Company and SEECO, Inc. are wholly
owned subsidiaries of the Company.
(2) In 1993, the named executive officers were given the option of
taking up to 25% of their awards under the Company's Incentive Compensation
Plan in restricted stock, and Mr. Grubb, Mr. Green, and Mr. Kerley elected
to take 25%, 25%, and 8%, respectively, of their awards in restricted
stock. In 1994, these officers were given the option to take up to 100% of
their awards under the Incentive Plan in restricted stock. Mr. Robinson,
Mr. Green and Mr. Kerley elected to take 100%, 38%, and 23%, respectively,
of their 1994 awards in restricted stock. The officers who elected to
receive restricted stock also received a cash tax bonus designed to cover a
portion of the income taxes incurred as a result of the restricted stock
awards as described in footnotes 9, 11 and 13 below.
14
(3) Restricted stock awards for Messrs. Green, Robinson and
Kerley relating to 1994 performance vest ratably over 3 years. Restricted
stock awards for Messrs. Grubb and Green relating to 1993 performance
generally vest at the end of five years. Awards relating to 1993
performance for Mr. Kerley vest ratably over 5 years. Restricted stock
awards relating to 1994 performance were awarded on February 22, 1995, and
the value of these awards appearing in the table are as of this date. The
value of all other non-vested restricted shares held by Messrs. Grubb,
Green, and Kerley at year end was $94,605, $93,534 and $8,940,
respectively. Dividends are paid on all restricted stock. The values
reported in this table represent all the restricted stock held by the
named executive officers.
(4) All Options/SARs have been adjusted for the three-for-one
stock split distributed in 1993.
(5) Payments scheduled to be made in 1994 were made in December,
1993, and 85% of the payments scheduled to be made in 1993 were made in
December, 1992.
(6) Includes $4,500 as the Company matching portion of 401(k)
contributions and $2,499 as the cost of life insurance benefits provided
by the Company.
(7) Includes $3,569 as the Company matching portion of 401(k)
contributions and $1,617 as the cost of life insurance.
(8) Represents salary for services rendered from July 1, 1992
through December 31, 1992.
(9) Includes $17,239 as a bonus for the payment of taxes related
to the restricted stock grants made during 1994.
(10) Includes $4,500 as the Company matching portion of 401(k)
contributions and $1,196 as the cost of life insurance.
(11) Includes $38,120 as a bonus for the payment of taxes related to
the restricted stock grants made during 1994.
(12) Includes $4,500 as the Company matching portion of 401(k)
contributions and $1,200 as the cost of life insurance.
(13) Includes $4,293 as a bonus for the payment of taxes related to the
restricted stock grants made during 1994.
(14) Includes $3,463 as the Company matching portion of 401(k)
contributions and $675 as the cost of life insurance.
15
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (3)
- ------------------------------------------------------------------------ ----------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise
Options/ Employees or Base
SARs in Fiscal Price Expiration
Name Granted (1) Year ($/Sh)(2) Date 5% ($) 10% ($)
- --------------------- ----------- ---------- --------- ---------- ---------- ----------
Charles E. Scharlau 200,000 25.5% $14.625 12/14/2004 $1,839,517 $4,661,697
Dan B. Grubb 110,000 14.0% $14.625 12/14/2004 1,011,734 2,563,933
Stanley D. Green 110,000 14.0% $14.625 12/14/2004 1,011,734 2,563,933
B. Brick Robinson 110,000 14.0% $14.625 12/14/2004 1,011,734 2,563,933
Gregory D. Kerley 50,000 6.4% $14.625 12/14/2004 459,879 1,165,424
(1) 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 goals, upon a ''change in control'' as
defined under Agreements Concerning Employment and Changes in Control on
page 18 of the Proxy Statement, or upon retirement. (See Compensation
Committee Report for discussion of performance objectives.) All 1993 grants
except those to Mr. Scharlau and Mr. Robinson vest and become exercisable
ratably over three years beginning one year from the date of grant or
immediately upon a ''change in control.'' All 1993 grants to Mr. Scharlau
and Mr. Robinson vest at the earlier of three years from the date of the
grant or at retirement, or immediately upon a ''change in control,'' and
are exercisable three years from the date of grant or immediately upon a
''change in control.'' All 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 and 1994 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 and 1994.
(2) The exercise price reflects the fair market value of the Company's
Common Stock on the date of grant.
(3) Realizable values are reported net of the option exercise price,
but before taxes associated with exercise. The dollar amounts shown are the
result of calculations using 5% and 10% rates of appreciation as specified
by the Securities and Exchange Commission and are not intended to forecast
possible future appreciation, if any, of the Company's stock price. The
assumed annual appreciation of 5% and 10% would result in the price of the
Company's stock increasing to $23.82 and $37.93, respectively. Realization
by optionees of the amounts shown are dependent on future increases in the
price of the Company's Common Stock and the continued employment of the
optionee with the Company.
16
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Number of Unexercised Value of Unexercised
Number of Securities Underlying In-the-Money Options/SARs
Securities Options/SARs at FY-End(#) at FY-End ($) (2)
Underlying ------------------------------- -------------------------------
Options/SARs Value
Name Exercised Realized($) Exercisable(1) Unexercisable(1) Exercisable(1) Unexercisable(1)
- ------------------- ------------ ----------- -------------- ---------------- -------------- ----------------
Charles E. Scharlau - - 169,650 245,996 $878,625 $50,000
Dan B. Grubb - - 18,405 116,811 30,938 27,500
Stanley D. Green - - 62,205 116,811 321,863 27,500
B. Brick Robinson - - 45,000 123,247 219,375 27,500
Gregory D. Kerley - - 10,682 52,165 35,025 12,500
(1) All 1994 grants vest and become exercisable ratably over the four
year period beginning six years from the date of grant or sooner upon
achievement of certain performance objectives, upon a ''change in control''
as defined under Agreements Concerning Employment and Changes in Control on
page 18 of the Proxy Statement, or upon retirement. (See Compensation
Committee Report for discussion of performance goals.) All 1993 grants
except those to Mr. Scharlau and Mr. Robinson vest and become exercisable
ratably over three years beginning one year from the date of grant or
immediately upon a ''change in control.'' All 1993 grants to Mr. Scharlau
and Mr. Robinson vest at the earlier of three years from the date of the
grant or at retirement, or immediately upon a ''change in control,'' and
are exercisable three years from the date of grant or immediately upon a
''change in control.'' All 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 and 1994 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 and 1994.
(2) 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, 1994 ($14.88/share).
LONG-TERM INCENTIVE PLANS-AWARDS IN LAST FISCAL YEAR
Estimated Future Payouts
under Non-Stock Price-
Based Plans (2)
-----------------------------
(a) (b) (c) (d) (e) (f)
Performance
Number of or Other
Shares, Units Period Until
or Other Maturation or Threshold Target Maximum
Name Rights (1) Payout ($ or #) ($ or #) ($ or #)
- -------------------- ------------- ------------- --------- -------- --------
Charles E. Scharlau $189,216 1995-99 - - -
Dan B. Grubb (3) - - - - -
Stanley D. Green 42,120 1995-99 - - -
B. Brick Robinson (3) - - - - -
Gregory D. Kerley (3) - - - - -
(1) Specified awards are payable in the years 1995 through 1999 at the
rate of 20% per year and relate to the five-year performance period
beginning January 1, 1990, and ending December 31, 1994. The awards were
calculated as a percentage of the participants' 1990 base salary.
17
(2) The long-term component of the Company's Annual and Long-Term
Incentive Compensation Plan was replaced for performance periods beginning
after January 1, 1993, by the Stock Plan. Payouts will continue under the
long-term component of the Annual and Long-Term Incentive Compensation Plan
for five-year performance periods ending each year through December 31,
1997.
(3) Messrs. Grubb, Robinson and Kerley were not participants in the
long-term incentive component of the Company's Annual and Long-Term
Incentive Compensation Plan for the performance period ending on December
31, 1994.
The long-term incentive awards described above were awarded pursuant to
the Company's former Annual and Long-Term Incentive Compensation Plan. For
discussion of this Plan, refer to page 8 of this Proxy Statement under
Compensation Committee Report.
Agreements Concerning Employment and Changes in Control
On December 18, 1990, the Company entered into a five-year employment
agreement with Mr. Scharlau commencing January 1, 1991, under which Mr.
Scharlau will be paid a minimum base salary of $400,000 per year and will be
entitled to participate in any of the Company's compensation or benefit plans
for which he otherwise qualifies. In 1994, this agreement was extended for two
additional years at a minimum base salary of $400,000 per year. On July 8,
1992, the Company entered into a four-year employment agreement with Mr. Grubb
under which Mr. Grubb will be paid a minimum base salary of $250,000 per year
and will be entitled to participate in any of the Company's compensation or
benefit plans for which he otherwise qualifies.
On August 4, 1989, the Company entered into Severance Agreements with
Messrs. Scharlau, Green, and Robinson. Effective July 8, 1992, and December
14, 1994, respectively, the Company entered into Severance Agreements with Mr.
Grubb and Mr. Kerley. The Severance Agreements provide that if within three
years after a ''change in control'' of the Company the officer's employment is
terminated by the Company without cause, the officer is entitled to a payment
equal to the product of 2.99 and the officer's ''base amount'' as defined
under Section 280G of the Internal Revenue Code. Generally, Section 280G
defines the term ''base amount'' as the officer's average W-2 compensation
over the five-year period preceding his termination of employment. In
addition, the officer will be entitled to continued participation in certain
insurance plans and fringe benefits from the date of his termination of
employment until the earliest of (a) the expiration of three years, (b) his
death or (c) the date he is afforded a comparable benefit at comparable cost
by a subsequent employer.
Messrs. Scharlau, Grubb, and Robinson also are entitled to the severance
benefits described above if within three years after a ''change in control''
they voluntarily terminate employment with the Company for any reason. Messrs.
Green and Kerley are also entitled to the severance benefits described above
if within one year after a ''change in control'' they voluntarily terminate
employment with the Company for ''good reason,'' or if in the next two
succeeding years they voluntarily terminate employment with the Company for
any reason.
For purposes of the severance agreements, a ''change in control'' includes
(i) the acquisition by any person (other than, in certain cases, an employee
of the Company) of 20% or more of the Company's voting securities; (ii)
approval by the Company's shareholders of an agreement to merge or consolidate
the Company with another corporation (other than certain corporations
controlled by
18
or under common control with the Company); (iii) certain changes in the
composition of the Board of Directors of the Company; (iv) any changes
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.
The Company's Annual and Long-Term Incentive Compensation Plan (the
''Prior Plan'') provides that:
(a) Upon a participant's involuntary termination of employment other
than for cause, or voluntary termination for ''good reason'' on or after
a ''change of control'' or as otherwise provided in a severance
agreement between the participant and the Company, all determined but
unpaid incentive awards shall be paid immediately, and any undetermined
awards shall be determined and paid based on projected performance
factors calculated in accordance with the plan;
(b) On or after a ''change in control,'' all awards accrued but unpaid
and all awards thereafter accrued shall be 100% vested and
nonforfeitable; and
(c) On or after a ''change in control,'' the Compensation Committee of
the Company's Board of Directors and the Company's Chief Executive
Officer as they existed immediately prior to such ''change in control''
shall retain their authority to administer the plan.
For purposes of the Prior Plan, the terms ''change in control'' and ''good
reason'' have the meanings contained in the Company's Severance Agreements as
defined above.
19
STOCK PERFORMANCE CHART
The following chart compares for the last five years the performance of
the Company's Common Stock to the S&P 500 Index and The Value Line Natural Gas,
Diversified, Industry Index (see footnote (1) below). The chart assumes that
the value of the investment in the Company's Common Stock and each index was
$100 at December 31, 1989, and that all dividends were reinvested.
(Chart Appears Here)
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ----
Southwestern Energy Company 100 99 101 127 179 150
S&P 500 Index 100 97 126 136 150 152
Value Line Natural Gas, 100 84 75 89 108 97
Diversified, Industry Index(1)
(1) The following companies are included in The Value Line Natural
Gas, Diversified, Industry Index: Burlington Resources, Inc., The Coastal
Corporation, The Columbia Gas System, Inc., Consolidated Natural Gas
Company, Eastern Enterprises, Enron Corp., ENSERCH Corporation, Equitable
Resources, Inc., KN Energy, Inc., Mitchell Energy & Development
Corporation, National Fuel Gas Company, NorAm Energy Corp., Panhandle
Eastern Corporation, Seagull Energy Corporation, Sonat Inc., Southwestern
Energy Company, Tenneco Inc., Transco Energy Company, Valero Energy
Corporation, and The Williams Companies, Inc.
20
Pension Plan
The estimated annual benefits payable upon retirement in 1994 to persons
in specified remuneration and years of service classifications are as follows:
PENSION PLAN TABLE
Average Annual Years of Service Upon Retirement
Salary upon -----------------------------------------------------
Retirement 15 20 25 30 35 40
- -------------- -------- -------- -------- -------- -------- --------
$ 90,000 $ 20,250 $ 27,000 $ 33,750 $ 40,500 $ 47,250 $ 54,000
120,000 27,000 36,000 45,000 54,000 63,000 72,000
150,000 33,750 45,000 56,250 67,500 78,750 90,000
180,000 40,500 54,000 67,500 81,000 94,500 108,000
210,000 47,250 63,000 78,750 94,500 110,250 126,000
240,000 54,000 72,000 90,000 108,000 126,000 144,000
270,000 60,750 81,000 101,250 121,500 141,750 162,000
300,000 67,500 90,000 112,500 135,000 157,500 180,000
330,000 74,250 99,000 123,750 148,500 173,250 198,000
360,000 81,000 108,000 135,000 162,000 189,000 216,000
390,000 87,750 117,000 146,250 175,500 204,750 234,000
420,000 94,500 126,000 157,500 189,000 220,500 252,000
450,000 101,250 135,000 168,750 202,500 236,250 270,000
480,000 108,000 144,000 180,000 216,000 252,000 288,000
510,000 114,750 153,000 191,250 229,500 267,750 306,000
540,000 121,500 162,000 202,500 243,000 283,500 324,000
Current
Years of Remuneration
Credited Covered Under
Name Service the Plan (1)
-------------------- -------- ------------
Charles E. Scharlau 40 $425,000
Dan B. Grubb 3 275,000
Stanley D. Green 13 204,000
B. Brick Robinson 7 204,000
Gregory D. Kerley 5 116,000
(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 1994 plan year, (i) a
participant's compensation in excess of $150,000 is disregarded for
purposes of determining average compensation, and (ii) the maximum annual
Pension Plan benefit permitted under the Code is $118,800. The numbers
presented in the table disregard these limitations because the Company's
Supplemental Retirement Plan, discussed below, provides participants with a
supplemental retirement benefit to compensate them for the limitation on
benefits imposed by the Code.
21
The Company's Pension Plan provides for defined benefits to eligible
officers and employees in the event of retirement at a specified age based on
number of years of service and average monthly compensation during the five
years of highest pay in the last ten years before terminating. Contributions
to the plan cannot be allocated to individual participants because funding is
based on average and not individual participation. No contributions from the
Company to the plan were required in 1994.
On May 31, 1989, the Company adopted a Supplemental Retirement Plan which
provides benefits equal to the amount which would be payable under the Pension
Plan in the absence of certain limitations of the Code, less the amount
actually paid under the Pension Plan. In the event of a ''change in control''
as defined under Agreements Concerning Employment and Changes in Control on
page 18 of the Proxy Statement, the benefits of a participant then employed by
the Company would be determined as if the participant had credit for three
additional years of service.
The remuneration covered by the Pension Plan includes wages and salaries
but excludes incentive awards, bonuses and fees. The benefit amounts listed
above are not subject to any deductions for Social Security benefits or other
offset amounts.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Arthur Andersen LLP, with offices at 6450 South Lewis, Suite 300, Tulsa,
Oklahoma 74136-1068, has been the independent auditor of the Company since
1979. Representatives will be present at the Annual Meeting of Shareholders
and will have an opportunity to make a statement to the shareholders if they
so desire. The representatives will also be available to respond to
appropriate questions from the shareholders. There have been no disagreements
with the auditors on accounting and financial disclosure.
PROPOSALS FOR 1996 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 1996 Annual
Meeting of Shareholders must be received by the Company at its principal
offices not later than December 22, 1995, for inclusion in the 1996 Proxy
Statement and form of proxy. Proposals intended to be the subject of a
separate solicitation may be brought before the 1996 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 1996
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 Gregory D. Kerley, Secretary,
Southwestern Energy Company, 1083 Sain Street, P. O. Box 1408, Fayetteville,
Arkansas 72702-1408, 501-521-1141.
22
OTHER BUSINESS
While the Notice of Annual Meeting of Shareholders calls for transaction
of such other business as may properly come before the meeting, the Company's
management has no knowledge of any matters to be presented for action by
shareholders at the meeting other than as set forth in this statement. If any
other business should come before the meeting, the persons named in the proxy
have discretionary authority to vote in accordance with their best judgment.
Shareholders may bring additional proposals before the meeting provided
written notice of any such proposal is received at the Company's principal
executive offices no later than the close of business on May 8, 1995. 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 Gregory D. Kerley, Secretary,
Southwestern Energy Company, 1083 Sain Street, P. O. Box 1408, Fayetteville,
Arkansas 72702-1408, 501-521-1141.
Any shareholder who has not received a copy of the Company's Annual Report
or wishes to obtain a copy of the Company's Form 10-K may obtain a copy of
either free of charge by contacting Mr. Gregory D. Kerley, Secretary,
Southwestern Energy Company, 1083 Sain Street, P. O. Box 1408, Fayetteville,
Arkansas 72702-1408.
By Order of the Board of Directors
Gregory D. Kerley
Secretary
Dated: April 21, 1995
23
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 E. J. Ball 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 April 17,
1995, at the Annual Meeting of Shareholders to be held on May 31, 1995, or any
adjournment or adjournments thereof.
1. ELECTION OF DIRECTORS
J. Coffman C. Sanders For [ ] Withheld [ ]
J. Hammerschmidt C. Scharlau
K. Mourton
FOR, except vote WITHHELD from the following nominee(s):___________
FOR, with exercise of cumulative voting privilege. Indicate number
of votes cast for each nominee._________________________________________
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.
NOTE: Please sign exactly as name appears hereon. Joint
owners should each sign. When signing as attorney,
executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign
in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership
name by authorized person.
SIGNATURE(S) ________________________________________________
DATE __________
PLEASE MARK, SIGN, DATE AND
RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
SOUTHWESTERN ENERGY COMPANY
APPENDIX TO DEFINITIVE PROXY STATEMENT
Stock Performance Chart
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See the information in tabular format on page 20 of this Proxy Statement.