SOUTHWESTERN ENERGY COMPANY
INCENTIVE COMPENSATION PLAN
(Amended and Restated as of January 1, 1999)
The name of this plan shall be the Southwestern Energy Company
Incentive Compensation Plan ("Plan"). The Plan Sponsor is Southwestern Energy
Company (the "Company"). The Plan is effective for fiscal years of the Company
commencing on or after January 1, 1993 and is hereby amended and restated as of
January 1, 1999. The Plan Year shall be each successive year beginning January 1
and ending December 31.
A. PURPOSE
The purpose of this Plan is to attract, retain and motivate key
employees by providing cash and stock incentive compensation to certain key
employees of the Company and its Subsidiaries (as listed below) who have a
significant impact on earnings, growth and shareholder value by rewarding both
organizational and individual performance. The participating entities include
Southwestern Energy Company ("Corporate"), Arkansas Western Gas Company
("Utility"), Southwestern Energy Production Company and SEECO, Inc. (together,
"E & P"), and Southwestern Energy Services Company ("Marketing").
B. ADMINISTRATION
The Compensation Committee ("Committee") of the Board of Directors
("Board") of the Company shall have full power and authority to review and
approve the designation of Participants, to approve annually the performance
measures and payout thresholds, and to promulgate such rules and regulations as
it deems necessary for the proper administration of the
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Plan, to interpret the provisions and supervise the administration of the Plan,
to certify prior to the payment of any award under the Plan that the appropriate
performance measures have been achieved giving rise to such awards, and to take
all action in connection therewith or in relation to the Plan as it deems
necessary or advisable. When authorizing action or taking action with respect to
this Plan, the Committee and/or the Board shall act without the vote of any
directors who shall fail to meet the definition of an Outside Director as
defined in Internal Revenue Code section 162(m) and the regulations thereunder.
C. PARTICIPATION
1. Eligibility--Executives
Only active employees of the Company or its subsidiaries who are
employed in a key management capacity may be designated as Participants under
the Plan.
2. Designation and Removal of Participants
Participation in the Plan shall be determined on an annual basis for
each calendar year as early as practicable in each year. No person shall be
entitled to any award under this Plan for any year unless he or she is so
designated as a Participant for that year. The CEO shall make recommendations to
the Committee for the executive Participants in the Plan and their corresponding
Level of Participation. The Committee shall have approval authority as to the
list of executive Participants and their corresponding level of participation.
The CEO will establish annually the employees who will participate in Level VI
and below bonus tiers. The Committee may add to or delete individuals from the
list of designated Participants from time to time, at its sole discretion,
during the year or for subsequent years. Exhibit 1 identifies those selected
Participants for the Plan Year, their corresponding Level of Participation and
their Performance
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Unit. A Performance Unit is the Company, Subsidiary or business unit upon whose
Performance Measures the Participant's awards will be determined.
3. Notice of Participation
As soon as reasonably practicable, each person who is selected as a
Participant in the Plan for a year will be notified of his selection and his
Level of Participation and the criteria for awards.
4. Partial Payments: New Hires
If an individual becomes a new Participant during the Plan Year, the
incentive compensation award will be earned on the basis of one-twelfth of the
annual incentive compensation for each full month of employment in the calendar
year of initial employment or promotion. Any exceptions shall be approved by the
Compensation Committee.
D. THRESHOLDS; PERFORMANCE CRITERIA
1. Organizational Performance
In connection with the designation of Participants for each year, the
Committee shall establish each Plan Year minimum, target and maximum
organization performance threshold levels ("Threshold Levels") for such Plan
Year based on Company and Subsidiary performance measures ("Performance
Measures"). The Committee may at its discretion make adjustments to the
performance threshold levels or to the actual Performance Measures to remove the
effect of extraordinary items or changes in accounting methods.
The Performance Measures to be used for each Performance Unit
(Corporate, Utility, E&P, and Marketing) will be recommended by the CEO, but
shall be set by the Committee. The
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Weighting Factors and performance Threshold Levels are designated on Exhibit 3
and each Performance Measure is defined on Exhibit 3a. The Performance Measures
and related definitions may be revised annually if deemed necessary upon
approval by the Committee.
Achievement of the minimum, target or maximum Threshold Levels shall
determine the bonus percentages ("Bonus Percentages") to be used in calculating
bonus amounts as set forth herein. The Bonus Percentages applicable to each
Threshold Level may be established by the Committee from time to time as
outlined in Exhibit 2. For each Company Performance Measure, a bonus amount
shall be calculated for the year equal to the Bonus Percentage of Salary (as
defined below) for each Participant, adjusted by a percentage ("Weighting
Factor") applicable to each Company Performance Measure as established by the
Committee from time to time for each year. The Weighting Factors shall be as
outlined in Exhibit 3, but may be changed by the Committee from year to year,
and additional Company Performance Measures may be established, so long as the
sum of the Weighting Factors is always equal to 100 percent. The sum of the
individual bonus amounts so established for each Company Performance Measure
shall be equal to the Organizational Performance Amount. The formulas for
calculating the organizational performance awards are contained on Exhibit 4.
2. Individual Performance Award Amount
The Plan allows for discretionary awards to be made to Participants
upon the recommendation of the Company's Chief Executive Officer and the
approval of the Committee. These awards will be based upon an individual
Participant's performance against individually established goals or an overall
assessment of a Participant's contribution in areas that cannot be quantifiably
measured. The amount so determined shall be the Participant's "Individual
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Performance Award Amount." A Participant's maximum Individual Performance Award
Amount is equal to the Total Bonus Opportunity at the Target Performance level.
However, in no event can the amount of Individual Performance Award Amount
payable result in a Participant receiving a total bonus award greater than the
Total Bonus Opportunity, given the organizational performance level achieved.
3. Final Determination of Bonus
Each Participant's bonus for a year shall be equal to the sum of (i)
the Organizational Performance Amount for such Participant and (ii) the
Individual Performance Award Amount for such Participant.
4. Chief Executive Officer's Discretionary Pool
In each Plan Year, the Chief Executive Officer of the Company, in his
sole discretion, will be authorized to make awards from the Chief Executive
Officer's Discretionary Pool to any employee of the Company or its Subsidiaries
who is not a Participant in the Plan. Each Plan Year, the Chief Executive
Officer, with the approval of the Committee, will establish the amount to be
allocated to the Chief Executive Officer's Discretionary Pool. Initially, the
amount will be set at 1% of the aggregate base salaries of the exempt employees
who are not specified Participants under this Southwestern Energy Company
Incentive Compensation Plan.
5. Salary
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Salary for purposes of computing bonuses hereunder shall be equal to
the average annual base salary in effect for such Participant for the Plan Year.
E. PAYMENT OF AWARD
The total bonus payable for any Plan Year shall be payable to each
Participant as soon as practicable after the date of determination of the amount
thereof and a minimum of 75 percent of such amount shall be payable in cash. The
balance shall be payable as the Committee may determine in its sole discretion,
either in cash or in an award of shares of common stock of the Company
("Shares") having an aggregate Fair Market Value (FMV) equal to the balance of
the bonus. The FMV shall be equal to the closing sale price of the Company's
common stock as reported on the New York Stock Exchange for the day immediately
preceding the date of payment of such bonus. The Shares so issued shall be
subject to the restrictions set forth below.
The Committee may, in its absolute discretion, in connection with any
grant of Restricted Stock or at any time thereafter, grant a cash bonus, payable
promptly after the date on which the Participant is required to recognize income
for federal income tax purposes in connection with such grant of Restricted
Stock, in such amounts as the Committee shall determine from time to time;
provided, however that in no event shall the amount of a cash bonus exceed the
FMV of the related shares of Restricted Stock on such date. A cash bonus shall
be subject to such conditions as the Committee shall determine at the time of
the grant of such cash bonus and also subject to the Company's 1993 Stock
Incentive Plan ("the Stock Plan").
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Unless the Committee otherwise determines, no bonus shall be payable
to any Participant who is not an active employee of the Company or one of its
subsidiaries at the end of the Plan Year for which such bonus is payable.
F. RESTRICTED SHARES AWARDED
Any Restricted Shares awarded to a Participant under this Plan will be
awarded under the Stock Plan. As such, the terms and provisions of the Stock
Plan shall apply and control any Restricted Shares awarded under this Plan.
G. PAYMENT OF AWARDS-CHANGE IN CONTROL
1. In the event a Participant's employment is terminated on or after a
Change in Control (as defined below) (a) by the Company (other than for Cause as
defined below) (b) voluntarily by any Participant with whom the Company has not
entered into a severance agreement or any agreement in the nature of a severance
agreement for Good Reason (as defined below) or (c) voluntarily by any
Participant with whom the Company has entered into a severance agreement or an
agreement in the nature of a severance agreement, pursuant to the same
conditions (if any) for payment in the event of voluntary termination of
employment on or after a Change in Control provided for in such severance
agreements:
(i) Any annual incentive determined or determinable but not yet
paid as of the date of such termination of employment, immediately
shall be paid.
(ii) Any annual incentive not yet determined as of the date of
such termination of employment, immediately shall be determined
pursuant to the subsection 3 below
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entitled "Partial Payments: Termination of Employment" and shall
be paid in a lump sum to such Participant.
2. For all purposes under the Plan, (a) the term "Cause," when used in
connection with the termination of the Participant's employment shall mean (i)
the willful and continued failure by the Participant substantially to perform
his duties and obligations (other than any such failure resulting from his or
her Disability) or (ii) the willful engaging by the Participant in misconduct
which is materially injurious to the Company. For purposes of this definition,
no act, or failure to act, on a Participant's part shall be considered "willful"
unless done, or omitted to be done, by the Participant in bad faith and without
reasonable belief that his or her action or omission was in the best interests
of the Company or a participating Subsidiary.
(b) "Change in Control" shall mean the occurrence of any of the following:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"), and
"Acquiring Person") becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of Southwestern Energy Company representing
20 percent or more of the combined voting power of Southwestern Energy
Company's then outstanding securities, excluding any employee benefit
plan sponsored or maintained by Southwestern Energy Company (or any
trustee of such plan as trustee);
(ii) Southwestern Energy Company's stockholders approve an agreement to
merge or consolidate Southwestern Energy Company with another
corporation (other than a
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corporation 60 percent or more of which is controlled by, or is under
common control with, Southwestern Energy Company);
(iii) any individual who is nominated by the Board for election to the
Board on any date fails to be so elected as a direct or indirect result
of any proxy fight or contested election for positions on the Board;
(iv) a "Change in Control" of Southwestern Energy Company of a nature
that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act
occurs; or
(v) a majority of the Board determines in its sole and absolute
discretion that there has been a Change in Control of Southwestern
Energy Company or that there will be a Change in Control of
Southwestern Energy Company upon the occurrence of certain specified
events and such events occur.
(c) "Disability" shall mean a physical or mental incapacity of the Participant
which entitles the Participant to benefits at least equal to two-thirds of his
base salary during the period of such incapacity under any long term disability
plan applicable to him and maintained by the Company and in effect immediately
prior to a Change in Control.
(d) "Good Reason," when used with reference to a termination by the Participant
of his employment with the Company, shall mean:
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(i) the assignment to the Participant of any duties inconsistent with,
or the reduction of hours or functions associated with, his positions,
duties, responsibilities and status with the Company immediately prior
to a Change in Control, or any removal of the Participant from, or any
failure to reelect the Participant to, any positions or offices that
the Participant held immediately prior to a Change in Control, except
in connection with the termination of the Participant's employment by
the Company for Cause or on account of Disability pursuant to the
requirements of the Plan;
(ii) a reduction of the Participant's base salary as in effect
immediately prior to a Change in Control, except in connection with the
termination of the Participant's employment by the Company for Cause or
on account of Disability pursuant to the requirements of the Plan;
(iii) a change in the Participant's principal work location to a
location more than forty (40) miles from the Participant's work
location immediately prior to a Change in Control except for required
travel on business to an extent substantially consistent with the
Participant's business travel obligations immediately prior to a Change
in Control;
(iv) (A) the failure by the Company to continue in effect any employee
benefit plan, program or arrangement (including, without limitation,
"employee benefit plans" within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974) in which the
Participant was participating immediately prior to a Change in Control
(or substitute plans, programs or arrangements providing the
Participant with substantially similar benefits), (B) the taking of any
action, or the failure to take any action, by the
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Company which could (1) adversely affect the Participant's
participation in, or materially reduce the Participant's benefits under
any of such plans, programs or arrangements, (2) materially adversely
affect the basis for computing benefits under any of such plans,
programs or arrangements or (3) deprive the Participant of any material
fringe benefit enjoyed by the Participant immediately prior to a Change
in Control or (C) the failure by the Company to provide the Participant
with the number of paid vacation days to which the Participant was
entitled immediately prior to a Change in Control in accordance with
the Company's vacation policy applicable to the Participant then in
effect, except, in each case, in connection with the termination of the
Participant's employment by the Company for Cause or on account of
Disability pursuant to the requirements of the Plan;
(v) the failure by the Company to pay the Participant any portion of
the Participant's current compensation, or any portion of the
Participant's compensation deferred under any plan, agreement or
arrangement of or with the Company, within seven (7) days of the date
such compensation is due;
(vi) a material increase in the required working hours of the
Participant from that required prior to a Change in Control;
(vii) the failure by the Company to obtain an assumption of the
obligations of the Company under the Plan by any successor to the
Company; or
(viii) any termination of the Participant's employment by the Company
which is not effected pursuant to the requirements of the Plan.
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3. Partial Payments: Termination of Employment
In the event of a Participant's termination of employment, other than
(a) a termination by the Company (other than for Cause) on or after a Change in
Control, (b) voluntarily by any Participant with whom the Company has not
entered into a severance agreement or any agreement in the nature of a severance
agreement for Good Cause (as defined above) on or after a Change in Control, (c)
voluntarily by any Participant with whom the Company has entered into a
severance agreement or an agreement in the nature of a severance agreement on or
after a Change in Control, pursuant to the same conditions (if any) provided for
in such severance agreement for payment in the event of a voluntary termination
of employment on or after a Change in Control, (d) by the Participant's death,
(e) by disability or (f) by retirement, any unpaid incentive compensation awards
shall be subject to forfeiture at the discretion of the Committee. If the
termination is a result of retirement or Disability, the Participant shall be
considered to have earned one-twelfth of the annual incentive compensation award
of a particular year for each full month of employment in the calendar year of
retirement.
In the event of termination by the Company (other than for Cause) on or
after a Change in Control, voluntarily by any Participant with whom the Company
has not entered into a severance agreement or any agreement in the nature of a
severance agreement for Good Reason on or after a Change in Control, or
voluntarily by any Participant with whom the Company has entered into a
severance agreement or an agreement in the nature of a severance agreement, on
or after a Change in Control pursuant to the same conditions (if any) for
payment in the event of a voluntary termination of employment on or after a
Change in Control provided for in such severance agreement and in the event the
Participant's employment terminates prior to the end of any calendar year:
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(a) The Participant's annual incentive compensation award for the year of
termination shall be determined based on the number of full months in the
calendar year in which the termination of employment occurs during
which the employee was a Participant in this Plan. In the event the
Participant's employment terminates prior to the end of any calendar year,
the performance measures used in determining a Participant's annual
incentive compensation award shall be determined by annualizing
Southwestern Energy Company's results to date with respect to each
Performance Measure. Each of the Performance Measures for such incomplete
calendar year for the respective Performance Unit (i.e. Corporate, Utility,
E&P or Marketing) shall be deemed to be Southwestern Energy Company's
projected Performance Measures (i.e. Cash Flow, EPS, G&A, Production, etc.)
for such calendar year (as reflected in Southwestern Energy Company's
Annual Budget for such calendar year, prepared in the immediately preceding
calendar year) plus or minus a percentage of such projected Performance
Measure, equal to the percentage by which Southwestern Energy Company's
actual annualized Performance Measure during such incomplete calendar year,
exceeds or is exceeded by the projected Performance Measure for such
incomplete calendar year.
(b) The Individual Performance Award Amount for such Participant shall be
the Compensation Committee's most recent estimation of such Participant's
performance for the calendar year in which the Participant's employment
terminates or, if there shall be no such estimation and the Participant
was a Participant in the Plan in the immediately preceding calendar year,
the Individual Performance Award Amount for such Participant for such
immediately preceding calendar year.
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For all purposes under the Plan, on or after a Change in Control, the
term Compensation Committee shall mean the Compensation Committee of the Board
as it existed immediately prior to such Change in Control.
H. NO VESTED RIGHTS
Neither the adoption of the Plan nor any action of the Board or the
Committee shall be deemed to give any employee any right to be granted
participation in the Plan. Nothing contained in the Plan shall confer any right
upon any employee concerning the continuation of employment with the Company or
interfere in any way with the right of the Company to terminate his employment
at any time. Nothing in the Plan shall be construed to prevent the Company from
taking any corporate action which is deemed by the Company to be appropriate or
in its best interest, whether or not such action will have an adverse effect on
the Plan or any Participant or any award made thereunder. No employees,
beneficiaries or other person shall have any claim against the Company or any
Subsidiary as a result of any action and no Participant shall have any claim or
legal right to a bonus hereunder until such time as the bonuses are actually
paid pursuant to Section E hereof.
I. NON-ASSIGNMENT
The interest of any Participant under the Plan shall not be assignable
either by voluntary or involuntary assignment or by operation of law.
J. TERM OF THE PLAN
Awards may be granted pursuant to this Plan for any year ending on or
before December 31, 2009 unless the Plan is sooner terminated by the Board of
Directors.
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K. AMENDMENTS
The Board may, from time to time, amend, alter, suspend or discontinue
the Plan or alter or amend any and all awards of Shares granted thereunder prior
to the issuance thereof. The power of the Board to amend the Plan shall include
the power to amend the Plan, without the approval of shareholders, to provide
that all bonuses shall be payable in cash.
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