SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)of the Securities Exchange Act of 1934
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Filed by a Party other than the Registrant [ ]
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14a-6(e)(2))
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SOUTHWESTERN ENERGY COMPANY
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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4) Date Filed:
Southwestern Energy Company
1083 Sain Street
P. O. Box 1408
Fayetteville, Arkansas 72702-1408
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON MAY 22, 1997
The Annual Meeting of Shareholders of Southwestern Energy Company will
be held at the Northwest Arkansas Holiday Inn, Hwy. 71 Bypass at Hwy. 412,
Springdale, Arkansas, on Thursday, the 22nd day of May, 1997, at 11:00 a.m.,
Central Daylight Time, for the following purposes:
(1) The election of five (5) directors to serve until the 1998
Annual Meeting or until their respective successors are duly
elected and qualified;
(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 March 21,
1997, 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 14, 1997
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 22, 1997, 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 $5,000 plus expenses.
The cost of this proxy solicitation will be borne by the Company, including the
charges and expenses of brokerage firms and others for forwarding solicitation
material to beneficial owners of stock. The solicitation will be by mail and
such cost will include the cost of preparing and mailing this Proxy Statement
and proxy. In addition to the use of the mails, proxies may be solicited by
personal interview, by telephone, or by other means. Although solicitation will
be made primarily through the use of the mail, officers, directors, or regular
employees of the Company may solicit proxies personally or by telephone or other
means without additional remuneration for such activity.
A copy of the Company's Annual Report has previously been mailed to
shareholders. This Proxy Statement is being mailed to shareholders on April 14,
1997.
VOTING SECURITIES OUTSTANDING
CUMULATIVE VOTING FOR ELECTION OF DIRECTORS AUTHORIZED
On March 21, 1997, the Company had outstanding 24,722,332 shares of
Common Stock ($.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 nonvoted shares are disregarded in the vote tallies and
do not have the effect of "no" votes. For purposes of determining a quorum, a
share is present once it is represented for any purpose at the meeting.
Abstentions are counted present for purposes of determining a quorum. Broker
nonvoted shares are counted present if represented at the meeting for any
purpose.
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Unless revoked, each properly executed proxy will be voted in the
manner directed therein. If no direction is made, each such proxy will be voted
FOR the election of directors.
Only shareholders of record at the close of business on March 21, 1997,
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
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 served as a director of First Federal Bank of Arkansas,
Harrison, Arkansas, since 1966. Mr. Hammerschmidt was a member of the
Metropolitan Washington Airports Authority Board of Review from 1987-1992. From
1946-1984 he was active in the lumber business, serving as President of
Hammerschmidt Lumber Company, Harrison, Arkansas. Mr. Hammerschmidt is 74 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, since 1995, and United Meridian Corporation of Houston, Texas,
since September, 1996. He is 60 years old and first became a director in 1995.
KENNETH R. MOURTON - Mr. Mourton is an Attorney at Law with the firm of
Ball and Mourton, Ltd., PLLC, Fayetteville, Arkansas. He is the Managing
Principal Attorney for this firm. Mr. Mourton is also President and principal
shareholder of Coors of Western Arkansas, Inc., since 1980; President and
majority shareholder of E. J. Ball Plaza, Inc., since 1992; and part owner of
Emerald Travel Services, Ltd., since 1989. All of these businesses are located
in Fayetteville,
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Arkansas. Mr. Mourton is Chairman, since 1992, of Razorback Foundation, Inc., a
nonprofit corporation which supports University of Arkansas athletic programs.
He is also a Board member of the Arkansas Rural Endowment Fund, a nonprofit
corporation created by the State of Arkansas to help lower income rural Arkansas
children obtain college and university educations. Mr. Mourton is 46 years old
and was first elected to the Board of Directors in 1995.
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 77 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. He has served as a director, since 1980 of C.
H. Heist Corporation, Clearwater, Florida, and was appointed by the Governor of
the State of Arkansas to the University of Arkansas Board of Trustees in March,
1997. Mr. Scharlau is 69 years old and first became a director in 1966.
Shareholders entitled to vote for the election of directors at the
annual meeting may nominate additional candidates provided written notice of
such nomination is received at the Company's principal executive offices no
later than the close of business on April 29, 1997. The Company's by-laws
require that this notice contain certain information about any proposed nominee
and the shareholder submitting the notice. The Company may also require any
proposed nominee to furnish such other information as may reasonably be required
to determine the proposed nominee's eligibility to serve as a director of the
Company. A copy of the relevant by-law provisions may be obtained by contacting
Mr. Gregory D. Kerley, Secretary, Southwestern Energy Company, 1083 Sain Street,
P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.
BOARD COMMITTEES
The Board of Directors has a standing audit committee (the "Audit
Committee") composed of noncompany members of the Board. The Audit Committee is
responsible to the Board for reviewing the accounting and auditing procedures
and financial reporting practices of the Company and for recommending the
appointment of the independent public accountants. The Audit Committee meets
periodically with the Company's management, internal auditors, and independent
public accountants to review the work of each and to satisfy itself that said
parties are properly discharging their responsibilities. The independent public
accountants have direct access to the Audit Committee and periodically meet with
the Audit Committee without management representatives present. The Audit
Committee is currently composed of Messrs. John Paul Hammerschmidt, Chairman,
Robert L. Howard, and Charles E. Sanders.
The Board of Directors has a compensation committee (the "Compensation
Committee") which is responsible for recommending to the Board of Directors
officer compensation and discretionary awards under the various incentive plans.
Messrs. Charles E. Sanders, Chairman, and John Paul Hammerschmidt presently
serve on this committee.
The Board of Directors also has a retirement committee (the "Retirement
Committee") which is responsible for administering the Company's pension and
retirement plans and for recommending retirement policy to the Board of
Directors. Messrs. Charles E. Scharlau, Chairman, Kenneth R. Mourton, and
Charles E. Sanders presently serve on this committee.
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The Company has no standing nominating committee. Candidates for
nomination for Board positions are considered by the Board as a whole. The Board
will consider qualified candidates recommended by shareholders. Any shareholder
wishing to recommend a candidate may do so by letter addressed to Mr. Gregory D.
Kerley, Secretary, Southwestern Energy Company, 1083 Sain Street, P. O. Box
1408, Fayetteville, Arkansas 72702-1408. Such letter should state in detail the
qualifications of the candidate. Shareholders entitled to vote for the election
of directors at the annual meeting may nominate additional candidates
independent of the Board of Directors. Shareholder nominees to be presented to
the 1997 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 1998 Annual Meeting may present independent
nominees to the 1998 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 1998 meeting date. If less than 65 days notice of the
1998 Annual Meeting is given, written notice of any such nomination must be
received no later than the close of business on the 15th day following the day
on which notice of the meeting date is mailed. The Company's by-laws require
that this notice contain certain information about any proposed nominee and the
shareholder submitting the notice. The Company may also require any proposed
nominee to furnish such other information as may reasonably be required to
determine the proposed nominee's eligibility to serve as a director of the
Company. A copy of the relevant by-law provisions may be obtained by contacting
Mr. Gregory D. Kerley, Secretary, Southwestern Energy Company, 1083 Sain Street,
P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.
DIRECTOR COMPENSATION
In 1996, for their services as directors, Messrs. John Paul
Hammerschmidt, Robert L. Howard, Kenneth R. Mourton, Charles E. Sanders and
Charles E. Scharlau were each paid $24,000 in cash. Mr. E. J. Ball, for his
service as Director Emeritus, was paid $5,000. Each outside director serving as
of December 31, 1996, was granted an option to purchase 12,000 shares of the
Company's Common Stock at $15.125 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 1996, 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 was appointed to the position of Director Emeritus upon his retirement
in 1995. Mr. Ball is General Counsel to the Company, and Mr. Ball and Mr.
Mourton are partners in the law firm of Ball and Mourton, Ltd., PLLC. During
1996, the Company paid $9,476 in legal fees to Ball and Mourton, Ltd., PLLC.
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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 21, 1997.
Amount and
Nature of Percent
Name and Address of Beneficial of
Title of Class Beneficial Owner Ownership Class
-------------- ------------------------ ------------- -------
Common Stock..............State Farm Mutual 1,430,800 (1) 5.79%
Automobile Insurance Co.
One State Farm Plaza
Bloomington, IL 61710
- ------------------------
<FN>
(1) State Farm Fire and Casualty Company, a wholly-owned subsidiary of
State Farm Mutual Automobile Insurance Company, holds sole voting and
dispositive power on 731,700 shares. State Farm Mutual Automobile
Insurance Company holds sole voting and dispositive power on the
remaining 699,100 shares. Each company disclaims beneficial ownership
of shares held by the other, and each company disclaims that it is part
of a group.
</FN>
SECURITY OWNERSHIP OF DIRECTORS, NOMINEES,
AND EXECUTIVE OFFICERS
The following table sets forth information as of March 21, 1997, 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 3-21-97
(Sole Voting and Investment Percent
Name of Beneficial Owner Power Except as Noted) (1) of Class
------------------------ ---------------------------------- -----------
Executive Officers:
Charles E. Scharlau.................................. 644,502 2.61%
Dan B. Grubb......................................... 18,121 .07%
Stanley D. Green..................................... 229,122 .93%
B. Brick Robinson.................................... 198,452 .80%
Gregory D. Kerley.................................... 75,103 .30%
Directors and Nominees:
John Paul Hammerschmidt.............................. 48,000 .19%
Robert L. Howard..................................... 24,000 .10%
Kenneth R. Mourton................................... 25,000 .10%
Charles E. Sanders................................... 77,856 .32%
All persons as a group (9 in number) who are directors,
nominees or executive officers of the Company........... 1,340,156 (2) 5.42%
- ------------------------
<FN>
(1) Of the number of shares reported as beneficially owned, the named
individuals had the right to acquire within 60 days, through the
exercise of stock options, beneficial ownership of the following number
of shares: Mr. Scharlau, 225,961; Mr. Green, 79,956; Mr.
Robinson,63,920;
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Mr. Kerley, 16,876; 18,000 each for Messrs. Hammerschmidt and Sanders;
and 3,000 each for Messrs. Howard and Mourton. Included in the number
of shares reported as beneficially owned are the rights of the named
individuals to acquire the following number of shares through the
exercise of stock options immediately upon a "change in control" as
defined under "Agreements Concerning Employment and Changes in Control"
on page 16 of the Proxy Statement: Mr. Scharlau, 264,685; Mr. Green,
125,160; Mr. Robinson, 126,827; Mr. Kerley, 54,421; 30,000 each for
Messrs. Hammerschmidt and Sanders; and 21,000 each for Messrs. Howard
and Mourton. Also included in the number of shares reported as
beneficially owned are the following restricted shares with respect to
which the named individuals have voting power but not investment power:
Mr. Green, 17,576; Mr. Robinson, 1,535; and Mr. Kerley, 1,722. 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 428,713 shares through the
exercise of stock options within 60 days. Also included in this number
is this group's right to acquire an additional 673,093 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 16 of this Proxy Statement.
</FN>
Transactions With Nominees and Executive Officers
Prior to the time Mr. Grubb was appointed President and Chief Operating
Officer of the Company in July, 1992, he owned an equity interest in certain
business enterprises in which the Company also owned an equity interest. More
specifically, companies owned by Mr. Grubb held both a 4% general partnership
interest in NOARK Pipeline System, Limited Partnership ("NOARK"), which was
formed to own and operate a $103 million intrastate natural gas pipeline system
in Arkansas, and a 25% interest in NOARK Gas Marketing Company ("NGMC"), a
general partnership formed to develop markets to be served through NOARK.
In connection with the construction of the NOARK Pipeline System, NOARK
issued $63.0 million in Senior Secured Notes to The Prudential Insurance Company
of America ("Prudential"). Through a guarantee agreement, Mr. Grubb's companies
held ultimate responsibility for 4% of this debt.
In 1992, upon Mr. Grubb's appointment as President and Chief Operating
Officer of the Company, a wholly-owned subsidiary of the Company purchased Mr.
Grubb's 4% general partnership interest in NOARK and his 25% general partnership
interest in NGMC. The Company agreed to pay Mr. Grubb the sum of $7,912 for his
interest in NGMC. No cash consideration was paid to Mr. Grubb for his general
partnership interest in NOARK. The Company and its wholly-owned subsidiaries
also agreed to assume all liabilities and obligations of Mr. Grubb and his
companies 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 subsidiaries were GRUBB NOARK Pipeline Inc.'s obligations
under the Senior Secured Notes issued to Prudential as described above. Mr.
Grubb is Chairman, Chief Executive Officer, and principal shareholder of GRUBB
NOARK Pipeline, Inc. In 1996, NOARK generated insufficient cash flow to cover
its debt service obligations to Prudential, and the Company paid $84,400 to
Prudential which Mr. Grubb and his companies would otherwise have been obligated
to pay if the Company had not assumed these obligations.
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During 1996, the Company paid $24,610 to the law firm of Conner and
Winters of Tulsa, Oklahoma, for certain legal services. Mr. Greg Scharlau, Mr.
Scharlau's son, is a partner in Conner and Winters.
COMPENSATION COMMITTEE REPORT
Compensation Philosophy
In determining the compensation of the Chief Executive Officer (the
"CEO") and the other executive officers of the Company and its subsidiaries, the
Compensation Committee seeks to align compensation with the attainment of the
Company's objectives, the Company's performance, and the attraction and
retention of individuals who contribute to the Company's success. For the CEO
and the other named executive officers, the Compensation Committee makes
recommendations to the Board of Directors, and final compensation decisions are
made by the full Board. The Compensation Committee believes that compensation
should:
- relate to the value created for shareholders by being directly
tied to the financial performance and condition of the Company
and the particular executive officer's contribution thereto;
- reward individuals who help the Company achieve its short-term
and long-term objectives and thereby contribute significantly
to the success of the Company;
- help to attract and retain the most qualified individuals in
the natural gas and oil and gas industries by being
competitive with compensation paid to persons having similar
responsibilities and duties in other companies in the same and
closely related industries; and
- reflect the qualifications, skills, experience, and
responsibilities of the particular executive officer.
In determining executive compensation, the Company uses peer group
comparisons. The industry group index shown in the performance chart reported in
this Proxy Statement includes a number of the companies that are used for
compensation analysis. The Compensation Committee believes that companies
operating exclusively in the oil and gas producing industry are also appropriate
to include in its compensation analysis. Compensation packages are targeted to
the median of the range of compensation paid by comparable companies. Executive
compensation paid by the Company during 1996 generally corresponded to the 50th
percentile of compensation paid by comparable companies.
Changes made to the Internal Revenue Code in 1993 could potentially
limit the ability of the Company to deduct, for federal income tax purposes,
certain compensation in excess of $1,000,000 per year paid to individuals named
in the summary compensation table. This limitation became effective in 1994. The
Company believes that all compensation paid in 1996 will be fully deductible.
Further, none of the named individuals received compensation in excess of
$1,000,000 during 1996. 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
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that can meet the Company's objectives and respond quickly to marketplace needs.
Although the Compensation Committee will from time to time review the
advisability of making changes in compensation plans to reflect changes in
government-mandated policies, it will not do so unless it feels that such
changes are in the best interest of the Company and/or its stockholders.
Components of Compensation
Base Salary. In establishing the base salaries of the CEO and the other
executive officers, the Compensation Committee examines competitive peer group
surveys and data in order to determine whether the total compensation package is
competitive with compensation offered by other companies in the natural gas and
oil and gas producing industries which are similar in terms of the complexity of
their operations and which offer the most direct competition for competent
executives. The Compensation Committee also takes into account the Company's
financial and operating performance as compared with the industry mean and the
individual performance of the Company's executives as compared to the
Compensation Committee's expectations of performance for top level executives in
general. The Compensation Committee also considers the diverse skills required
of its executive management to expand the exploration and production segment of
its operations while maintaining satisfactory performance in the highly
regulated gas distribution segment. In addition, the Compensation Committee
considers the particular executive's performance, responsibilities,
qualifications, and experience in the natural gas industry. The Compensation
Committee is periodically advised by outside compensation consultants on its
compensation policies and receives evaluations from the appropriate level of
management concerning the performance of executives within their range of
reporting responsibilities.
The minimum base salary for Mr. Scharlau and Mr. 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) and Nonqualified Plan 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.
8
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 1996, 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 natural gas (diversified)
companies and (2) the increase in actual reported earnings per share over the
previous year. Because these factors are weighted equally, proportionate awards
are made if targets for at least one of the factors are met. In 1996, return on
equity exceeded the minimum target and the earnings per share growth maximum was
exceeded. 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 1996
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,
9
combination, or exchange of shares, or any other similar event. The number of
shares which may be issued pursuant to the Stock Plan may also be increased at
the discretion of the Board of Directors. 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 1996 were based
partially upon an analysis of the value of long-term incentive plan awards made
by the Company's competitive peer group. The Compensation Committee also
evaluated the performance of the Company, the performance and responsibility of
the particular executive, and the desirability of providing a particular
executive with an adequate incentive to remain in the employ of the Company.
In 1993, the annual component of the Company's former Annual and
Long-Term Incentive Compensation Plan (the "Prior Plan") was replaced by the
Company's Incentive Compensation Plan, discussed above. The long-term component
of the Prior Plan was replaced by the Stock Incentive Plan for performance
periods beginning after January 1, 1993. Payouts of awards previously granted
and payouts of awards related to five-year performance periods ending each year
through December 31, 1997, will continue to be made under the Prior Plan. Key
employees were selected annually to participate in the Prior Plan based on their
ability to have a significant impact on the performance of the Company. Under
the long-term incentive component of the Prior Plan, cash awards are based on
the Company's performance during overlapping five-year periods. A new five-year
performance period began each year on January 1, with the final five-year
performance period beginning January 1, 1993. For all participants, awards are
based equally on the compounded five-year growth in earnings per share and the
cumulative five-year return on equity. The return on equity performance factor
is compared to the composite actual average return on equity for the previous
five-year period of the natural gas (diversified) group of companies as
determined by reference to The Value Line Investment Survey. Payouts of awards
are tied to achieving specified levels of return on equity and earnings per
share (EPS) growth. None of these awards are paid if both return on equity and
EPS growth are below specified levels, but proportionate awards may be paid if
only one of these performance factors is below the specified level. Target
awards which could be paid based on attainment of corporate performance measures
range from 10% to 40% of base salary (determined at the beginning of each
five-year performance period), minimum awards range from 5% to 20% of base
salary, while the maximum awards range from 20% to 80% of base salary. During
the five-year performance period ending December 31, 1996, the specified target
EPS growth rate was not achieved while 96% of the targeted return on equity
performance factor was achieved. Any award earned is payable at the rate of 20%
per year, commencing at the end of each five-year performance cycle. The purpose
of this component of the Prior Plan 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 and 1996. Mr.
Scharlau's base salary will increase to $468,000 for 1997. 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
10
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 earnings per share
and return on equity performance measures in fiscal 1996 resulted in Mr.
Scharlau being awarded a bonus of $174,556, or 39% of his base salary. Under the
long-term component of the Prior Plan, Mr. Scharlau earned an award in 1996 of
$77,223, or 18% of his 1992 base salary for the five-year performance period
ending December 31, 1996. This award will be paid out at the rate of 20% per
year through 2001. 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,
the specified target EPS growth rate was not achieved while 96% of the targeted
return on equity performance factor was achieved. For performance periods
beginning after January 1, 1993, the long-term component of this plan was
replaced by the Stock Plan.
In 1996, Mr. Scharlau was awarded options to purchase 25,000 shares of
the Company's Common Stock under the Stock Plan, as described above. The options
vest at the end of three years or immediately upon his retirement or a change in
control. Limited stock appreciation rights were granted in tandem with these
options. The number of options awarded in fiscal 1996 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 1996 was not
based upon any specific performance measures.
In addition to the factors described above, in determining the salary
and other forms of compensation for Mr. Scharlau, the Compensation Committee
took into consideration Mr. Scharlau's substantial experience (45 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
11
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 1994, 1995, and 1996 of the CEO and the next four most highly
paid executive officers of the Company and its subsidiaries whose direct
aggregate remuneration exceeded $100,000 in 1996.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
-------------------------------
Annual Compensation Awards Payouts
------------------- ---------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Salary Bonus Compensation Awards Options/ Payouts Compensation
Name and Principal Position Year ($) ($) (3) ($) ($) (4) SARs (#) ($) ($)
- --------------------------- ---- -------- -------- ------------ ------- -------- ------- ------------
Charles E. Scharlau 1996 $450,000 $174,556 $ 7,380 $ - 25,000 $165,362 $ 40,146(5)
Chairman of the Board, 1995 450,000 - 7,380 - 50,000 156,362 38,994
Chief Executive Officer, 1994 425,000 161,500 7,380 - 200,000 - 30,999
and Director
Dan B. Grubb 1996 295,000 - 7,140 - - 275,260(6)
President and Chief 1995 285,000 - 7,140 - 25,000 - 6,676
Operating Officer (1) 1994 275,000 58,140 7,140 - 110,000 - 5,186
Stanley D. Green 1996 255,000 96,463 67,445(7) 92,828 13,600 34,382 9,869(8)
Executive Vice President- 1995 225,000 30,000 59,841 67,544 12,500 30,382 6,938
Finance and Corporate 1994 204,000 36,046 24,379 22,094 110,000 - 5,696
Development, and Chief
Financial Officer
B. Brick Robinson 1996 234,000 68,077 7,140 - 7,500 - 8,384(9)
Executive Vice President 1995 225,000 - 7,140 - 15,000 - 6,938
and Chief Operating Officer 1994 204,000 - 45,260 58,138 110,000 - 5,700
Southwestern Energy
Production Company and
SEECO, Inc. (2)
Gregory D. Kerley 1996 160,000 55,175 13,121(10) 12,413 4,700 1,620 5,710(11)
Vice President - Treasurer 1995 135,000 14,000 11,194 6,754 3,750 - 4,810
and Secretary, and Chief 1994 116,000 21,238 10,893 6,313 50,000 - 4,138
Accounting Officer
- ------------------------
<FN>
(1) As of January 1, 1997, Mr. Grubb elected to take early retirement from
the Company. Mr. Scharlau has been elected President of the Company to
fill the vacancy caused by the resignation of Mr. Grubb. Effective
April 28, 1997, Mr. Harold M. Korell will assume the position of
Executive Vice President - Operations and Chief Operating Officer of
the Company with responsibility for oversight of the Company's utility
and exploration and production subsidiaries. Mr. Korell was previously
employed by American Exploration Company where he was most recently
Senior Vice President - Operations.
(2) Southwestern Energy Production Company and SEECO, Inc. are wholly-owned
subsidiaries of the Company.
12
(3) In connection with the 1996 awards, the named executive officers
were given the option of taking up to 100% of their awards under the
Company's Incentive Compensation Plan in restricted stock with a
related stock option issued for each share of restricted stock. Mr.
Green and Mr. Kerley elected to take 14% and 5%, respectively, of their
awards in restricted stock. In connection with the 1994 awards, 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.
(4) Restricted stock awards for Mr. Green and Mr. Kerley relating to 1996
performance vest ratably over five years, with the exception of
restricted stock awarded in February, 1997 related to 1996 performance
which vests ratably over three years. Restricted stock awards for Mr.
Green relating to 1995 performance vest at the end of five years while
awards for Mr. Kerley relating to 1995 performance vest ratably over
five years. Restricted stock awards for Messrs. Green, Robinson and
Kerley relating to 1994 performance vest ratably over three years. The
value of all nonvested restricted shares held by Messrs. Green,
Robinson, and Kerley at December 31, 1996 was $258,017, $46,434 and
$25,546, respectively. Dividends are paid on all restricted stock.
(5) Includes $24,000 of Director fees, $13,500 as the Company matching
portion of Nonqualified Plan contributions, and $2,646 as the cost of
life insurance.
(6) Includes $8,838 as the Company matching portion of Nonqualified Plan
contributions, $1,734 as the cost of life insurance, and a $264,688
payment made in connection with Mr. Grubb's early retirement in full
and complete settlement of any and all obligations due him under the
Company's compensation plans.
(7) Includes $60,305 as a bonus for the payment of income taxes related to
the restricted stock grants made during 1996.
(8) Includes $7,613 as the Company matching portion of Nonqualified Plan
contributions, $1,499 as the cost of life insurance, and $757 related
to the value of life insurance under a split dollar life insurance
plan. The Company has purchased a life insurance policy for Mr. Green
who has no immediate right to receive the cash surrender value of the
policy, and may never have a right to receive the cash surrender value.
The interest of Mr. Green in the cash surrender value of the policy
will vest only if certain conditions are first satisfied. If Mr.
Green's interest in the cash surrender value vests, the retirement
benefits payable to him by the Company under its Supplemental Executive
Retirement Plan (the "SERP"), a defined benefit retirement income plan,
will be reduced dollar for dollar by the amount of the cash surrender
value of the policy at the time it vests. The premium paid on the
policy is designed to produce a cash surrender value which is equal to,
but which may be less than the benefits payable under the SERP.
(9) Includes $7,009 as the Company matching portion of Nonqualified Plan
contributions, and $1,375 as the cost of life insurance.
(10) Includes $6,521 as a bonus for the payment of income taxes related to
the restricted stock grants made during 1996.
(11) Includes $4,369 as the Company matching portion of 401(k)
contributions, $400 as the Company matching portion of Nonqualified
Plan contributions, and $941 as the cost of life insurance.
</FN>
13
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (3)
- ------------------------------------------------------------- ----------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise
Options/ Employees or Base
SARs in Fiscal Price Expiration
Name Granted(1) Year ($/Sh)(2) Date 5% ($) 10% ($)
---- ---------- --------- --------- ---------- -------- ---------
Charles E. Scharlau 25,000 29.6% $14.750 12/11/2006 $231,905 $587,693
Dan B. Grubb - - - - - -
Stanley D. Green 12,500 14.8% $14.750 12/11/2006 115,952 293,846
1,100 1.3% $14.125 2/27/2007 9,771 24,763
B. Brick Robinson 7,500 8.9% $14.750 12/11/2006 69,571 176,308
Gregory D. Kerley 4,500 5.3% $14.750 12/11/2006 41,743 105,785
200 0.2% $14.125 2/27/2007 1,777 4,502
- ------------------------
<FN>
(1) The 1996 grants issued at $14.75, 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." The 1996 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."
The grants issued for 1996 performance at $14.125 are fully vested and
exercisable upon issuance. All 1996 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 1996.
(2) The exercise price reflects the fair market value of the Company's
Common Stock on the date of grant.
(3) Realizable values are reported net of the option exercise price, but
before taxes associated with exercise. The dollar amounts shown are the
result of calculations using 5% and 10% rates of appreciation as
specified by the Securities and Exchange Commission and are not
intended to forecast possible future appreciation, if any, of the
Company's stock price. The assumed annual appreciation of 5% and 10% on
the options granted at $14.75 would result in the price of the
Company's stock increasing to $24.03 and $38.26, respectively.
Realization by optionees of the amounts shown are dependent on future
increases in the price of the Company's Common Stock and the continued
employment of the optionee with the Company.
</FN>
14
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at FY-End (#) at FY-End ($) (2)
------------------------------- -------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized($) Exercisable(1) Unexercisable(1) Exercisable(1) Unexercisable(1)
---- ------------ ----------- -------------- ---------------- -------------- ----------------
Charles E. Scharlau - - 225,961 264,685 $926,195 $191,718
Dan B. Grubb - - - - - -
Stanley D. Green - - 78,855 125,161 346,690 71,436
B. Brick Robinson - - 63,920 126,827 233,462 81,226
Gregory D. Kerley - - 16,676 54,421 40,902 29,773
- ------------------------
<FN>
(1) All 1996 grants issued at $14.75 and all 1995 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 1996 and 1995 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 1996 grants issued at $14.125 are fully
vested and exercisable upon issuance. 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 16 of the Proxy
Statement, or upon retirement. (See "Compensation Committee Report" for
discussion of performance goals.) All grants made prior to 1994 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 1994, 1995, and 1996
grants expire after ten years from the date of grant but may expire
earlier upon termination of employment. Limited stock appreciation
and 1996.
(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, 1996 ($15.125/share).
</FN>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
Estimated Future Payouts
under Non-Stock Price-
Based Plans (2)
--------------------------------
(a) (b) (c) (d) (e) (f)
Performance
Number of or Other
Shares, Units Period Until
or Other Maturation or Threshold Target Maximum
Name Rights (1) Payout ($ or #) ($ or #) ($ or #)
---- ------------- ------------- --------- -------- --------
Charles E. Scharlau $77,223 1997-2001 - - -
Dan B. Grubb (3) - - - - -
Stanley D. Green 18,858 1997-2001 - - -
B. Brick Robinson (3) - - - - -
Gregory D. Kerley 4,131 1997-2001 - - -
15
- ------------------------
<FN>
(1) Specified awards are payable in the years 1997 through 2001 at the rate
of 20% per year and relate to the five-year performance period
beginning January 1, 1992, and ending December 31, 1996. The awards
were calculated as a percentage of the participants' 1992 base salary.
(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 and Robinson 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 December 31, 1996.
</FN>
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 7 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 was paid a minimum base salary of $250,000 per year and was entitled
to participate in any of the Company's compensation or benefit plans for which
he otherwise qualified. Mr. Grubb's employment agreement expired July 8, 1996.
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 and Robinson (and formerly Mr. Grubb) 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.
16
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 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.
As of January 1, 1997, Mr. Grubb elected to take early retirement from
the Company which resulted in the cancellation of his Severance Agreement. In
connection with his retirement, the Company paid Mr. Grubb a lump sum of
$264,688 in full and complete settlement of any and all obligations due Mr.
Grubb under the Company's compensation plans. The Company also agreed to pay Mr.
Grubb a monthly sum of $1,476 from the Company's Pension Plan and Supplemental
Retirement Plan, under the ten-year certain and life annuity payment option
available under these plans. Fifty percent of the Company's matching
contributions on behalf of Mr. Grubb to the Company's 401(k) Savings Plan and
Nonqualified Plan ($14,014) were deemed vested at Mr. Grubb's retirement date
with the remaining fifty percent being forfeited. All restrictions on the
unvested 5,638 shares of restricted Company stock were lifted and all options
held by Mr. Grubb to purchase Company stock (options on 160,216 shares) were
canceled at Mr. Grubb's retirement date.
The Company's 1993 Stock Incentive Plan provides that all outstanding
stock options and all limited, tandem, and stand-alone stock appreciation rights
become exercisable immediately upon a "change in control." The Stock Plan also
provides that all shares of restricted and phantom stock which have not
previously vested or been canceled or forfeited shall vest immediately upon a
"change in control." For purposes of the Stock Plan, a "change in control" has
the same meaning contained in the Company's Severance Agreements as defined
above.
The Company's Incentive Compensation Plan adopted in 1993 provides that
all restrictions on shares of restricted stock granted pursuant to the Incentive
Plan shall lapse upon a "change in control," as defined in the Company's
Severance Agreements. This plan also provides that upon a participant's
termination of employment under certain conditions on or after a "change in
control" all determined but unpaid incentive awards shall be paid immediately,
and any undetermined awards shall be determined and paid based on projected
performance factors calculated in accordance with the plan.
The Company's Annual and Long-Term Incentive Compensation Plan (the
"Prior Plan") provides that:
(a) Upon a participant's involuntary termination of employment
other than for cause, or voluntary termination for "good
reason" on or after a "change of control" or as otherwise
provided in a severance agreement between the participant and
the Company, all determined but unpaid incentive awards shall
be paid immediately, and any
17
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.
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, 1991, and that all dividends were reinvested.
(Chart Appears Here)
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Southwestern Energy Company 100 126 177 148 129 156
S&P 500 Index 100 108 118 120 165 203
Value Line Natural Gas, 100 119 145 130 172 220
Diversified, Industry Index(1)
- ------------------------
<FN>
(1) The following companies are included in The Value Line Natural Gas,
Diversified, Industry Index: Burlington Resources, Inc., Cabot Oil and
Gas, The Coastal Corporation, The Columbia
18
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., PanEnergy Corp., Questar
Corp., Seagull Energy Corporation, Sonat Inc., Southwestern Energy
Company, Tenneco Inc., Valero Energy Corporation, and The Williams
Companies, Inc.
</FN>
Pension Plans
The estimated annual benefits payable upon retirement in 1996 to
persons in specified remuneration and years of service classifications are as
follows:
PENSION PLAN TABLE
Years of Service
----------------------------------------------------------------
Remuneration 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 Plans (1)
---- -------- -------------
Charles E. Scharlau 40 $450,000
Dan B. Grubb 5 295,000
Stanley D. Green 15 255,000
B. Brick Robinson 9 234,000
Gregory D. Kerley 7 160,000
- -----------------
<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 1996 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 $120,000. The numbers
presented in the table disregard these limitations because the
19
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.
</FN>
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 1996.
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
16 of the Proxy Statement, the benefits of a participant then employed by the
Company would be determined as if the participant had credit for three
additional years of service.
The remuneration covered by the Pension Plan includes wages and
salaries but excludes incentive awards, bonuses, and fees. The benefit amounts
listed above are not subject to any deductions for Social Security benefits or
other offset amounts.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, with offices at 6450 South Lewis, Suite 300,
Tulsa, Oklahoma 74136-1068, has been the independent public accounting firm of
the Company since 1979. Representatives will be present at the Annual Meeting of
Shareholders and will have an opportunity to make a statement to the
shareholders if they so desire. The representatives will also be available to
respond to appropriate questions from the shareholders. There have been no
disagreements with the independent public accountants on accounting and
financial disclosure.
PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 1998 Annual
Meeting of Shareholders must be received by the Company at its principal offices
not later than December 9, 1997, for inclusion in the 1998 Proxy Statement and
form of proxy. Proposals intended to be the subject of a separate solicitation
may be brought before the 1998 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 1998 Annual Meeting is given,
written notice of any such proposal must be received no later than the close of
business on the 15th day following the day on which notice of the annual meeting
date was mailed. The Company's by-laws require that notices of shareholder
proposals contain certain information about any proposal and the proposing
shareholder. A copy of the relevant by-law provisions may be obtained by
contacting Mr. Gregory D. Kerley, Secretary, Southwestern Energy Company, 1083
Sain Street, P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.
20
OTHER BUSINESS
While the Notice of Annual Meeting of Shareholders calls for
transaction of such other business as may properly come before the meeting, the
Company's management has no knowledge of any matters to be presented for action
by shareholders at the meeting other than as set forth in this statement. If any
other business should come before the meeting, the persons named in the proxy
have discretionary authority to vote in accordance with their best judgment.
Shareholders may bring additional proposals before the meeting provided written
notice of any such proposal is received at the Company's principal executive
offices no later than the close of business on April 29, 1997. The Company's
by-laws require that this notice must contain certain information about any
proposal and the proposing shareholder. A copy of the relevant by-law provisions
may be obtained by contacting Mr. Gregory D. Kerley, Secretary, Southwestern
Energy Company, 1083 Sain Street, P. O. Box 1408, Fayetteville, Arkansas
72702-1408, (501) 521-1141.
Any shareholder who has not received a copy of the Company's Annual
Report or wishes to obtain a copy of the Company's Form 10-K may obtain a copy
of either free of charge by contacting Mr. Gregory D. Kerley, Secretary,
Southwestern Energy Company, 1083 Sain Street, P. O. Box 1408, Fayetteville,
Arkansas 72702-1408.
By Order of the Board of Directors
GREGORY D. KERLEY
Secretary
Dated: April 14, 1997
21
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 21, 1997,
at the Annual Meeting of Shareholders to be held on May 22, 1997, 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.
[ X ] Please mark your votes as in this example.
You are encouraged to specify your choices by marking the appropriate
box, but you need not mark either box if you wish to vote FOR the election of
all nominees. The Proxies cannot vote your shares unless you sign and return
this card.
1. ELECTION OF DIRECTORS FOR [ ] WITHHELD [ ] NOMINEES: J. Hammerschmidt
R. Howard C. Sanders
K. Mourton 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.
_______________________________________________________________________________
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.