Preliminary Proxy - CONFIDENTIAL
Southwestern Energy Company
2350 N. Sam Houston Parkway East, Suite 300
Houston, Texas 77032
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON MAY 15, 2002
The Annual Meeting of Shareholders of Southwestern Energy Company will be
held at the Northwest Arkansas Holiday Inn, Hwy. 540, Springdale, Arkansas, on
Wednesday, the 15th day of May, 2002, at 11:00 a.m., Central Daylight Time, for
the following purposes:
(1) To elect six (6) directors to serve until the 2003 Annual Meeting
of Shareholders or until their respective successors are duly
elected and qualified;
(2) To approve an amendment to the Company's Amended and Restated
Articles of Incorporation to provide for authority to issue, from
time to time, up to 10,000,000 shares of preferred stock with such
rights, preferences and priorities as the Board of Directors shall
designate; and
(3) To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 7, 2002, 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. If you cannot attend, it
is important that your shares be represented and voted at the meeting. You can
vote your shares by completing and returning the proxy card. You can revoke a
proxy at any time prior to its exercise at the meeting by following the
instructions in the proxy statement, which will be mailed to you March 29, 2002
along with the proxy card and the Company's 2001 Annual Report.
By Order of the Board of Directors
MARK K. BOLING
Senior Vice President,
General Counsel & Secretary
March 15, 2002
Preliminary Proxy - CONFIDENTIAL
Southwestern Energy Company
2350 N. Sam Houston Parkway East, Suite 300
Houston, Texas 77032
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON MAY 15, 2002
The Annual Meeting of Shareholders of Southwestern Energy Company will be
held at the Northwest Arkansas Holiday Inn, Hwy. 540, Springdale, Arkansas, on
Wednesday, the 15th day of May, 2002, at 11:00 a.m., Central Daylight Time, for
the following purposes:
(1) To elect six (6) directors to serve until the 2003 Annual Meeting
of Shareholders or until their respective successors are duly
elected and qualified;
(2) To approve an amendment to the Company's Amended and Restated
Articles of Incorporation to provide for authority to issue, from
time to time, up to 10,000,000 shares of Preferred Stock with such
rights, preferences and priorities as the Board of Directors shall
designate; and
(3) To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 7, 2002, as
the record date for the determination of shareholders entitled to notice of and
to vote at the meeting.
The Company's 2001 Annual Report, which is not part of the proxy soliciting
material, is enclosed.
You are cordially invited to attend the meeting. If you cannot attend, it
is important that your shares be represented and voted at the meeting. You can
vote your shares by completing and returning the proxy card sent to you. You can
revoke a proxy at any time prior to its exercise at the meeting by following the
instructions in the accompanying proxy statement.
By Order of the Board of Directors
MARK K. BOLING
Senior Vice President,
General Counsel & Secretary
March 29, 2002
Preliminary Proxy - CONFIDENTIAL
TABLE OF CONTENTS
PROXY QUESTIONS............................................................ 1
PROPOSAL NO. 1 - ELECTION OF DIRECTORS.................................... 3
SHARE OWNERSHIP OF MANAGEMENT AND DIRECTORS............................... 6
GOVERNANCE OF THE COMPANY
Board Committees................................................. 7
Audit Committee Report........................................... 8
Relationship with Independent Public Accountants................. 9
Compensation Committee Report.................................... 9
Director Compensation............................................ 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS........................... 14
EXECUTIVE COMPENSATION
Summary Compensation Table....................................... 15
Option/SAR Grants in Last Fiscal Year............................ 17
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values........................... 18
STOCK PERFORMANCE GRAPH................................................... 19
PROPOSAL NO. 2 - AUTHORIZE PREFERRED STOCK................................ 19
AGREEMENTS CONCERNING EMPLOYMENT AND CHANGES IN CONTROL................... 21
PENSION PLANS............................................................. 22
PROPOSALS FOR 2003 ANNUAL MEETING......................................... 24
SHAREHOLDERS SHARING AN ADDRESS........................................... 25
OTHER BUSINESS............................................................ 25
APPENDIX A - Preferred Stock Provisions................................... A-1
Preliminary Proxy - CONFIDENTIAL
Southwestern Energy Company
PROXY STATEMENT
WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
Shareholders who own common shares as of March 7, 2002 may vote at the
meeting. There were 25,502,070 shares of common stock outstanding on that date.
Each share has one vote except for the election of directors.
WHEN ARE THE ENCLOSED SOLICITATION MATERIALS FIRST GIVEN TO SHAREHOLDERS?
The Notice of Annual Meeting was first sent to shareholders on Friday,
March 15, 2002. The enclosed annual report and proxy voting form, together with
this Notice of Annual Meeting and Proxy Statement, were sent, or given, to
shareholders on Friday, March 29, 2002.
WHAT IS A QUORUM OF SHAREHOLDERS, AND HOW MANY VOTES DOES IT TAKE TO ELECT
DIRECTORS AND PASS THE PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF
INCORPORATION?
A quorum is the presence at the Annual Meeting in person or by proxy of
shareholders entitled to cast a majority of all the votes entitled to be cast.
Since there were 25,502,070 shares of common stock outstanding on March 7, 2002,
a quorum is 12,751,036. Broker non-votes, abstentions and withhold-authority
votes COUNT for purposes of determining a quorum. We must have a quorum to
conduct the meeting. If a quorum of shareholders is present at the meeting, we
need a plurality of all the votes cast to elect each director and a simple
majority of all votes cast to pass the Preferred Stock proposal. Broker
non-votes, abstentions and withhold-authority votes DO NOT COUNT as votes cast.
HOW DO I VOTE?
You must be present, or represented by proxy, at the Annual Meeting in
order to vote your shares. Since many of our shareholders are unable to attend
the meeting in person, we send proxy cards to all of our shareholders.
IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE FOR ME?
If you do not return your proxy card, your broker has discretion to vote
for the election of directors. Your broker does not, however, have discretion to
vote for the proposal to authorize Preferred Stock.
Preliminary Proxy - CONFIDENTIAL
WHAT IS A PROXY?
A proxy is a person you appoint to vote on your behalf. When you vote, you
will be designating Kenneth R. Mourton and Charles E. Scharlau as your proxies.
We solicit proxies so that all common shares may be voted at the Annual Meeting.
You must complete and return the enclosed proxy card.
HOW WILL MY PROXY VOTE MY SHARES?
Your proxies will vote according to the instructions on your proxy card. If
you complete and return your proxy card but do not indicate your vote on the
matters, your proxies will vote "FOR" the six directors and "FOR" the proposal
to authorize Preferred Stock. Also your proxy card will give your proxies
authority to vote, using their best judgment, on any other business that
properly comes before the meeting.
HOW DO I VOTE USING MY PROXY CARD?
There are three steps.
1. a. Proposal No. 1
The names of six directors to serve for the next year are listed
on your proxy card.
To vote for all six directors, you check the box marked "FOR." To
withhold your vote from all six directors, (not vote for or against
the directors) mark the box "WITHHELD."
To vote for some of the directors and not others, mark the "FOR"
box, and write in the name(s) of the director(s) you wish to
withhold your vote from on the line provided. To exercise
cumulative voting (the number of shares owned multiplied by the
number of directors to be elected) mark the "FOR" box and write in
how many votes you wish to cast for each director on the line
provided.
b. Proposal No. 2
The proposal to amend the Company's Amended and Restated Articles
of Incorporation to provide for authorization of up to 10,000,000
shares of Preferred Stock is listed on your proxy card.
To vote for the proposal, you check the box marked "FOR". If you
are opposed to the proposal, check the box "AGAINST". If you are
unsure how to vote, check the box marked "ABSTAIN".
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2. Sign and date your proxy card. IF YOU DO NOT SIGN AND DATE YOUR PROXY
CARD, YOUR VOTES CANNOT BE COUNTED. EACH PROPERLY EXECUTED PROXY WILL
BE VOTED IN THE MANNER DIRECTED. IF NO DIRECTION IS MADE, EACH SUCH
PROXY WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS AND "FOR" THE
PROPOSAL TO AUTHORIZE PREFERRED STOCK.
3. Mail your proxy card in the pre-addressed, postage-paid envelope.
CAN I VOTE BY PROXY EVEN IF I PLAN TO ATTEND THE ANNUAL MEETING?
Yes. If you vote by proxy, you do not need to fill out a ballot at the
Annual Meeting unless you want to change your vote.
WHO IS SOLICITING MY PROXY, HOW IS IT BEING SOLICITED, AND WHO PAYS THE COSTS?
Southwestern Energy Company, on behalf of the Board of Directors, through
its directors, officers and employees, is soliciting proxies primarily by mail.
However, proxies may also be solicited in person, by telephone or facsimile.
Morrow & Co., Inc., a proxy solicitation firm, will be assisting us for a fee of
approximately $15,000 plus out-of-pocket expenses. Southwestern Energy Company
pays the cost of soliciting proxies.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the meeting, six (6) directors are to be elected to serve for the
ensuing year and until their respective successors are duly 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 below.
Nominees For Election
LEWIS E. EPLEY, JR. - Mr. Epley is an Attorney at Law and a private
investor. He has served as President of the Carroll County Bar Association and
Special Associate Justice of the Supreme Court of Arkansas. He is a director,
since 1964, and Vice Chairman of the Board of Directors, since 1993, of the Bank
of Eureka Springs. He is a past Chairman and past member
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Preliminary Proxy - CONFIDENTIAL
of the Board of Trustees of the University of Arkansas. He is currently a
director of the University of Arkansas Foundation, a director of the Washington
Regional Medical Foundation and director and past President of the Northwest
Arkansas Radiation Therapy Institute (NARTI). He also currently serves as
Chairman of the NARTI Foundation Board. Mr. Epley is 65 years old and was first
elected to the Board of Directors in 1998.
JOHN PAUL HAMMERSCHMIDT - Mr. Hammerschmidt is a retired U.S. Congressman,
Third District of Arkansas, who served from 1967-1993. He has been a director of
Dillard's, Inc., Little Rock, Arkansas, since 1992; First Federal Bank of
Arkansas, Harrison, Arkansas, since 1966; American Freightways Corporation,
Harrison, Arkansas, since 1997; and Metropolitan Washington Airport Authority
since 1997. Mr. Hammerschmidt is 79 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. From 1992 to 1995 he was Vice President, Domestic Operations,
Exploration and Production of Shell, and President of Shell Western Inc., and
Shell Offshore, Inc. In these positions 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 served as a
director of Camco International, Inc. of Houston, Texas, from 1995 until 1998;
and currently serves as a director of Ocean Energy, Inc. (formerly United
Meridian Corp.) of Houston, Texas, since 1996; and McDermott International, Inc.
of New Orleans, Louisiana, since 1997. He is 65 years old and first became a
director in 1995.
HAROLD M. KORELL - Mr. Korell is the President and Chief Executive Officer
of the Company. Mr. Korell joined Southwestern in 1997 as Executive Vice
President and Chief Operating Officer. On May 22, 1998, Mr. Korell was promoted
to President and Chief Operating Officer and was named President and Chief
Executive Officer effective January 1, 1999. Previously, Mr. Korell was Senior
Vice President - Operations of American Exploration Company, Executive Vice
President of McCormick Resources, and held various technical and managerial
positions with Tenneco Oil Company including Vice President - Production, and
various positions with Mobil Corporation. Mr. Korell is 57 years old and first
became a director in October 1998.
KENNETH R. MOURTON - Mr. Mourton is an Attorney at Law with the firm of
Ball and Mourton, Ltd., PLLC, Fayetteville, Arkansas and is a certified public
accountant (inactive). He is the Managing Principal Attorney for this firm. Mr.
Mourton also owns and operates several businesses in various states related to
beer distribution, lodging, warehousing and travel. 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
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Preliminary Proxy - CONFIDENTIAL
university educations. Mr. Mourton is 51 years old and was first elected to the
Board of Directors in 1995.
CHARLES E. SCHARLAU - Mr. Scharlau retired as President and Chief Executive
Officer of the Company on December 31, 1998. He continues to serve as a Director
of the Company. He began his career as the Company's legal counsel in 1951 and
was involved in all facets of the Company's business for over 47 years. In 1966
he was named Executive Vice President and first elected a director of the
Company. In 1972 he was elected President and Chief Executive Officer. Mr.
Scharlau is currently of counsel with the firm of Conner and Winters PLLC. He is
also a director since 1980 of ABLEST Inc., Clearwater, Florida; member of the
Board of Trustees of the University of Arkansas since 1998; and Chairman since
1999 of the Executive Committee for the Northwest Arkansas Council. Mr. Scharlau
is 74 years old.
Shareholders entitled to vote for the election of directors at the Annual
Meeting may nominate additional candidates provided written notice of such
nomination is received at the Company's principal executive offices no later
than the close of business on April 15, 2002. 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. Mark K. Boling, Secretary, Southwestern Energy Company, 2350 N. Sam Houston
Parkway East, Suite 300, Houston, Texas 77032, (281) 618-4700.
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Preliminary Proxy - CONFIDENTIAL
SHARE OWNERSHIP OF MANAGEMENT AND DIRECTORS
The following table sets forth information as of March 7, 2002, 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 3-7-02
(Sole Voting and Investment Percent
Name of Beneficial Owner Power Except as Noted)(1) of Class
------------------------ ------------------------------- --------
Executive Officers:
Harold M. Korell................................ 731,982 2.87%
Greg D. Kerley ................................. 347,047 1.36%
Richard F. Lane................................. 164,870 .65%
Charles V. Stevens ............................. 86,160 .34%
Alan H. Stevens................................. 234,180 .92%
Directors and Nominees:
Lewis E. Epley, Jr.............................. 53,183 .21%
John Paul Hammerschmidt......................... 100,000 .39%
Robert L. Howard................................ 78,000 .30%
Kenneth R. Mourton.............................. 77,000 .30%
Charles E. Scharlau............................. 668,502 2.62%
All persons as a group (10 in number) who are
directors, nominees or executive officers of the
Company .......................................... 2,540,924 (2) 9.96%
------------------------
(1) Of the number of shares reported as beneficially owned, the named
individuals had the right to acquire within 60 days, through the exercise
of stock options, beneficial ownership of the following number of shares:
Mr. Korell, 328,167; Mr. Kerley, 151,205; Mr. Lane, 53,667; Mr. Charles
Stevens, 49,785; Mr. Alan Stevens, 170,834; Mr. Epley, Jr., 17,000; Mr.
Hammerschmidt, 77,000; 53,000 each for Messrs. Howard and Mourton, and Mr.
Scharlau, 449,996. Included in the number of shares reported as
beneficially owned are the rights of the named individuals to acquire the
following number of shares through the exercise of stock options
immediately upon a "change in control" as defined under "Agreements
Concerning Employment and Changes in Control": Mr. Korell, 210,333; Mr.
Kerley, 131,592; Mr. Lane, 58,083; Mr. Charles Stevens, 20,912; Mr. Alan
Stevens, 33,416; 23,000 each for Messrs. Epley, Jr., Hammerschmidt, Howard
and Mourton; and Mr. Scharlau, 20,000. Also included in the number of
shares reported as beneficially owned are the following restricted shares
with respect to which the named individuals have voting power but not
investment power: Mr. Korell, 79,200; Mr. Kerley, 43,383; Mr. Lane, 42,800;
Mr. Charles Stevens, 5,067; and Mr. Alan Stevens, 2,583. The named
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Preliminary Proxy - CONFIDENTIAL
individuals acquire investmen 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 1,403,654 shares through the
exercise of stock options within 60 days. Also included in this number is
this group's right to acquire an additional 566,336 shares through the
exercise of stock options immediately upon a "change in control" as defined
under "Agreements Concerning Employment and Changes in Control."
Transactions With Nominees and Executive Officers
During 2001, the Company and related entities, for certain legal services,
paid $11,414 to the law firm of Conner and Winters PLLC of Fayetteville,
Arkansas, of which Mr. Charles Scharlau is of counsel. Mr. Greg Scharlau, Mr.
Scharlau's son, is a partner in Conner and Winters PLLC.
GOVERNANCE OF THE COMPANY
BOARD COMMITTEES
Audit Committee - The Board of Directors has a standing audit committee
(the "Audit Committee") composed of noncompany members of the Board. The Audit
Committee is responsible to the Board for reviewing the accounting and auditing
procedures and financial reporting practices of the Company and for recommending
the appointment of the independent public accountants. The Board of Directors of
the Company has determined that all members of the Audit Committee have no
relationship to the Company that may interfere with the exercise of their
independence from management and the Company. The Audit Committee meets
periodically with the Company's management and independent public accountants to
review the Company's financial information and systems of internal controls and
ensure both 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. Fees for the last fiscal year were: Audit -- $157,000; Other --
$223,935, which included audit related -- $37,000; and all other non-audit --
$186,935 of which $153,935 related to benefit plan services. No fees were paid
for financial information design and implementation. The Audit Committee is
currently composed of Messrs. Kenneth R. Mourton, a certified public accountant
(inactive) and Audit Committee Chairman, Lewis E. Epley, Jr., and Robert L.
Howard.
Compensation Committee - The Board of Directors has a compensation
committee (the "Compensation Committee") which is responsible for recommending
to the Board of Directors officer compensation and discretionary awards under
the various incentive plans. Messrs. Robert L. Howard, Compensation Committee
Chairman, John Paul Hammerschmidt, and Kenneth R. Mourton presently serve on
this committee.
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Preliminary Proxy - CONFIDENTIAL
Retirement Committee - The Board of Directors also has a retirement
committee (the "Retirement Committee") which is responsible for administering
the Company's pension and retirement plans and for recommending retirement
policy to the Board of Directors. Messrs. Charles E. Scharlau, Retirement
Committee Chairman, Lewis E. Epley, Jr., and Kenneth R. Mourton presently serve
on this committee.
Nominating Committee - The Company has no standing nominating committee.
The Board as a whole considers candidates for nomination for Board positions.
The Board will consider qualified candidates recommended by shareholders. Any
shareholder wishing to recommend a candidate may do so by letter addressed to
Mr. Mark K. Boling, Secretary, Southwestern Energy Company, 2350 North Sam
Houston Parkway East, Suite 300, Houston, Texas 77032. 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 2002 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 2002 Annual Meeting may
present independent nominees to the 2002 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 2002 meeting date. If less
than 65 days notice of the 2002 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. Mark K. Boling, Secretary, Southwestern Energy
Company, 2350 North Sam Houston Parkway East, Suite 300, Houston, Texas 77032,
(281) 618-4700.
AUDIT COMMITTEE REPORT
The Audit Committee has reviewed and discussed with management the
Company's audited financial statements as of and for the fiscal year ended
December 31, 2001. The Committee also had discussed with independent public
accountants for the Company the matters required to be discussed by Statement on
Auditing Standards No. 61, Communication with Audit Committees, as amended. The
Committee has received the written disclosures and the letter from the
independent public accountants for the Company required by Independence
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees," as amended, and has discussed with the independent public
accountants that firm's independence from management and the Company, including
consideration of non-audit fees on that firm's independence.
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Preliminary Proxy - CONFIDENTIAL
Based on the review and discussions referred to in the above paragraph, the
Committee recommends to the Board of Directors that the year-end audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2001, for filing with the Securities and
Exchange Commission.
KENNETH R. MOURTON, CHAIRMAN
LEWIS E. EPLEY, JR.
ROBERT L. HOWARD
Members of the Audit Committee
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. In view of the unprecedented nature of the situation
involving Arthur Andersen LLP, the Board of Directors, upon the recommendation
of its Audit Committee, requested management to solicit bids for audit services
for 2002. Representatives of Arthur Andersen LLP will be present at the Annual
Meeting of Shareholders and will have an opportunity to make a statement to
shareholders if they so desire. The representatives will also be available to
respond to questions from shareholders. There have been no disagreements with
the independent public accountants on accounting and financial disclosure.
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 makes recommendations to the Board of Directors, and
final compensation decisions are made by the full Board. The Compensation
Committee believes that compensation should:
- relate to the value created for shareholders by being directly tied
to the financial performance and condition of the Company and the
particular executive officer's contribution thereto;
- reward individuals who help the Company achieve its short-term and
long-term objectives and thereby contribute significantly to the
success of the Company;
- help to attract and retain the most qualified individuals in the
natural gas and oil and gas producing industries by being
competitive with compensation paid to persons having similar
responsibilities and duties in other companies in the same and
closely related industries; and
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Preliminary Proxy - CONFIDENTIAL
- reflect the qualifications, skills, experience, and
responsibilities of the particular executive officer.
In determining executive compensation, the Company uses peer group
comparisons for each of the three components of compensation described below
(i.e., base salary, incentive compensation plan (bonus) and stock incentive
plan). The industry group indices shown in the performance chart reported in
this Proxy Statement include a number of the companies that are used for
compensation analysis. Compensation packages are targeted to the median of the
range of compensation paid by comparable companies. Executive compensation paid
by the Company during 2001 generally corresponded to the 50th to 75th percentile
of compensation paid by comparable companies. 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
seeks the advice of 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.
Changes made to the Internal Revenue Code in 1993 could potentially limit
the ability of the Company to deduct, for federal income tax purposes, certain
compensation in excess of $1,000,000 per year paid to individuals named in the
summary compensation table. The Company believes that some of the compensation
paid to the CEO exceeded the $1,000,000 limit during 2001. The Company is
currently reviewing ways to maximize the deductibility of compensation payments
without compromising the Company's or the Compensation Committee's flexibility
in designing effective compensation plans that can meet the Company's objectives
and respond quickly to marketplace needs. Although the Compensation Committee
will from time to time review the advisability of making changes in compensation
plans to reflect changes in government-mandated policies, it will not do so
unless it feels that such changes are in the best interest of the Company and/or
its shareholders.
Components of Compensation
Base Salary. In establishing the base salaries of the CEO and the other
executive officers, the Compensation Committee examines competitive peer group
surveys and data in order to determine whether the total compensation package is
competitive with compensation offered by other companies in the natural gas and
oil and gas producing industries which are similar in terms of the complexity of
their operations and which offer the most direct competition for competent
executives. In addition, the Compensation Committee considers the particular
executive's performance, responsibilities, qualifications, and experience in the
oil and gas industry and the diverse skills required to expand the exploration
and production segment of its operations while maintaining satisfactory
performance in the highly regulated gas distribution segment.
The Compensation Committee recognizes that changes in base salary affect
other elements of compensation including: (i) awards under the Company's
Incentive Compensation Plan, (ii)
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Preliminary Proxy - CONFIDENTIAL
pension benefits, (iii) Company matching portions of 401(k) and Nonqualified
Plan contributions, and (iv) life insurance and disability benefits. As such,
adjustments to base salary are only made after consideration of the impact to
the executive's entire package.
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
designed to help the Company attract and retain 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. As
such, the Incentive Plan is designed to encourage and reward the achievement of
(1) cash flow targets, (2) a defined reserve replacement ratio, (3) target
returns on capital investment, (4) a favorable return on equity as compared to
the Company's peer group, (5) goals for production, reserve addition, and return
on capital invested in the exploration and production group, (6) an adequate
financial return in its utility segment while maximizing utility throughput, and
(7) gas marketing margins. These criteria are deemed by the Compensation
Committee to be critical to increasing shareholder value, and the applicability
of each of these criteria in determining awards to any particular executive
depends on the responsibilities of that executive.
Each participant in the Incentive Plan is assigned target, minimum, and
maximum total award levels expressed as a percentage of their base salary. A
portion of each award under the Incentive Plan for the CEO and executive
officers is an organizational performance award based upon the achievement of
the individual corporate financial objectives specified for the executive. If
the actual level achieved for a specified corporate performance measure is not
at least equal to the predetermined minimum level, then the proportionate award
represented by the performance measure will not be paid. An additional portion
is discretionary based on a subjective evaluation of the executive's individual
performance by the Compensation Committee. Awards under the Incentive Plan are
payable in cash, restricted common stock of the Company, or a combination of
cash and restricted common stock.
In 2001, the organizational performance awards which could be paid based on
attainment of the corporate performance measures specified for each of the
executives ranged from 18.75% to 60% of base salary at target, 9.4% to 35% of
base salary at minimum, and 30% to 105% of base salary at maximum. When the
organizational performance award is added to the discretionary awards, which are
based upon the executive's individual performance, the combined award could
achieve a total bonus ranging from 31.25% to 100% of base salary at target.
For 2001, awards under the Incentive Plan for the CEO and certain of the
named executive officers were set to be determined by the following performance
thresholds as compared to predetermined criteria established by the Compensation
Committee: (1) cash flow per share, (2) reserve replacement ratio, (3) return on
capital investment, and (4) return on equity. Because these factors were
weighted equally, a proportionate award is earned for each identified factor
where performance reaches the pre-established levels. In 2001, the cash flow per
share, reserve replacement, return on capital investment and return on equity
performance levels were surpassed. The Compensation Committee based the
discretionary awards for these executives on a subjective
11
Preliminary Proxy - CONFIDENTIAL
evaluation of the executive's performance. 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 2000 Stock Incentive Plan (the "Stock
Plan"). The Stock Plan is designed to attract and retain key employees by
enabling them to acquire a proprietary interest in the Company and by tying
rewards to shareholder interests. The Stock Plan provides for the granting of
restricted stock, phantom stock, or options to purchase common stock of the
Company and stock appreciation rights in such amounts as determined by the
Compensation Committee on a discretionary basis. Grants relating to 2001
performance were made at a price equal to the "Fair Market Value" (as defined in
the Stock Plan) of the Company's common stock on the date of the grant. The
Stock Plan allows 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 1,250,000, subject to adjustment in
the event of any change in the outstanding common stock of the Company by reason
of any stock split, stock dividend, recapitalization, reclassification, merger,
consolidation, combination, or exchange of shares, or any other similar event.
The 2000 Stock Incentive Plan replaced the 1993 Stock Plan.
In determining the options granted to key employees under the Stock Plan,
the Compensation Committee considers a number of factors in addition to
considering the goals of attracting and retaining such employees and tying their
rewards to shareholder interests. The number of options and restricted shares
awarded in fiscal 2001 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 employee, and the desirability
of providing a particular employee with an adequate incentive to stay with the
Company.
Mr. Korell's base salary was $433,000 for 2001, and has remained at
$433,000 for 2002. Mr. Korell had a targeted annual bonus award of 100% of base
salary, with minimum and maximum awards of 30% and 140%, respectively, depending
upon the achievement of corporate performance measures. Of these awards, a
portion is an organizational performance award based upon the achievement of the
corporate financial objectives as described under the subheading, "Incentive
Compensation Plan" above, and a portion is discretionary based on a subjective
evaluation of Mr. Korell's performance by the Compensation Committee and the
Board of Directors and may be influenced by the performance of individual
business segments. The Company's attainment of the performance measures in 2001,
plus the discretionary component resulted in Mr. Korell being awarded a bonus of
$536,000, or 124% of his base salary.
12
Preliminary Proxy - CONFIDENTIAL
In addition to the factors described above, in determining the salary
and other forms of compensation for Mr. Korell, the Compensation Committee took
into consideration Mr. Korell's substantial experience and standing in the
industry.
ROBERT L. HOWARD, CHAIRMAN
JOHN PAUL HAMMERSCHMIDT
KENNETH R. MOURTON
Members of the Compensation Committee
DIRECTOR COMPENSATION
Directors receive compensation as indicated in the table below. Directors
who retire with certain qualifications are appointed to the position of Director
Emeritus. A Director Emeritus is paid an annual fee of $2,000 for the remainder
of his life and such health care benefits as the Company provides to its full
time employees. Mr. E.J. Ball was appointed to the position of Director Emeritus
upon his retirement in 1995 and Mr. Charles E. Sanders was appointed to this
position upon his retirement in 1998. Mr. Ball and Mr. Mourton are partners in
the law firm of Ball and Mourton, Ltd., PLLC. During 2001, the Company did not
pay any legal fees to Ball and Mourton, Ltd., PLLC.
Outside Director Compensation
Each Board Each Audit, Compensation, Annual Stock Options
Meeting and Retirement Committee Granted Directors
Annual Retainer Attended Meeting Attended Serving at 12/31
--------------- ---------- ------------------------- ---------------------
$24,000 $1,000 $1,000 8,000 options vesting
25%/year
In 2001, for their services as directors, Messrs. Lewis E. Epley, Jr. and
John Paul Hammerschmidt were each paid $34,000. Messrs. Robert L. Howard,
Kenneth R. Mourton, and Charles E. Scharlau were paid $37,000, $36,000 and
$30,000, respectively. As an advisor to the Company, Mr. Scharlau also received
consulting fees of $234,000 under a consulting agreement with the Company which
expires in May, 2002; $4,118 for the Company portion of health insurance; and
$15,445 as a payout of an award previously granted under the Company's former
Annual and Long-Term Incentive Compensation Plan. Messrs. E. J. Ball and Charles
E. Sanders were each paid $2,000 for their services as Directors Emeritus and
$4,118 for the Company portion of health insurance. Each outside director
serving as of December 31, 2001, was granted an option to purchase 8,000 shares
of the Company's common stock at $10.90 per share, representing the Fair Market
Value of the Company's common stock on the date of the grant. During 2001, the
Board of Directors held seven meetings, the Audit Committee held five meetings,
the Compensation Committee held two meetings, and the Retirement Committee did
not hold any meetings.
13
Preliminary Proxy - CONFIDENTIAL
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 December 31, 2001, pursuant to their
filed Schedule 13G under the Securities Exchange Act of 1934:
Amount and Percent
Title of Name and Address of Nature of of
Class Beneficial Owner Beneficial Class
Ownership
------------ ------------------------------- ------------- -------
Common Stock FMR Corporation 2,512,700 (1) 9.9%
82 Devonshire Street
Boston, MA 02109-3605
Common Stock Dimensional Fund Advisors, Inc. 1,945,500 (2) 7.6%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Common Stock Westport Asset Management, Inc. 1,823,700 (3) 7.2%
253 Riverside Avenue
Westport, CT 06880
Common Stock Alliance Capital Management L.P. 1,695,266 (4) 6.7%
1345 Avenue of the Americas
New York, NY 10105
(1) FMR Corporation is the parent holding company of Fidelity Management &
Research Company, an investment advisor registered under the Investment
Advisors Act of 1940. FMR holds sole voting power on 1,271,300 shares and
sole dispositive power on 2,512,700 shares.
(2) Dimensional Fund Advisors, Inc. (Dimensional) is an investment advisor
registered under the Investment Advisors Act of 1940. Dimensional holds
sole voting and dispositive power on all shares. Dimensional disclaims
beneficial ownership of all such securities.
(3) Westport Asset Management, Inc. (Westport) is an investment advisor
registered under the Investment Advisors Act of 1940. Westport holds sole
voting power on 672,100 shares, shared voting power on 940,600 shares, sole
dispositive power on 672,100 shares, and shared disposition power of
1,151,600 shares.
(4) Alliance Capital Management L.P. (Alliance) is an investment advisor
registered under the Investment Advisors Act of 1940 and is majority owned
by AXA Financial, Inc. Alliance has
14
Preliminary Proxy - CONFIDENTIAL
sole voting power on 1,400,000 shares, shared voting power on 16,755
shares, sole dispositive power on 1,629,866 shares, and shared dispositive
power on 65,400 shares.
EXECUTIVE COMPENSATION
The following table contains information with respect to executive
compensation paid or set aside by the Company for services in all capacities of
the CEO and the next four most highly paid executive officers of the Company and
its subsidiaries, and one former executive of the Company, during the years
indicated below.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
--------------------------------- ----------------------- ---------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Principal Salary Bonus Compensation Awards Options/ Payouts Compensation
Position Year ($) ($) ($) ($)(4) SARs (#) ($) ($)
--------------------------- ------ -------- -------- ------------- ---------- ---------- --------- ------------
Harold M. Korell 2001 433,000 536,000 417,107(5) 638,168 33,750 - 18,879(6)
President, Chief Executive 2000 418,000 265,000 92,975 109,703 200,000 - 15,244
Officer and Director 1999 410,000 160,000 51,854 57,000 129,750 - 14,957
Greg D. Kerley 2001 272,000 239,000 233,645(7) 354,752 18,750 826 95,611(8)
Executive Vice President 2000 252,000 143,000 48,737 55,781 100,000 2,446 9,190
and Chief Financial Officer 1999 235,000 100,000 26,763 28,500 68,250 2,446 8,573
Richard F. Lane 2001 225,584 200,000 231,162(9) 354,752 18,750 - 8,189(10)
Executive Vice President 2000 177,000 86,000 34,573 48,344 50,000 - 6,455
Exploration and Production, 1999 167,733 40,000 24,255 30,000 18,000 - 6,139
Southwestern Energy Production
Company and SEECO, Inc.(1)
Charles V. Stevens 2001 136,000 25,000 21,496(11) 23,136 1,200 - 4,952(12)
Senior Vice President, 2000 130,000 40,000 21,085 22,312 8,000 - 4,470
Arkansas Western Gas Company(1) 1999 122,000 40,000 13,457 12,000 8,000 - 4,480
Alan H. Stevens 2001 135,625 46,000 1,537 - - - 32,932(13)
Former President and Chief 2000 290,000 168,000 14,694 11,156 16,000 - 40,046
Chief Operating Officer, 1999 264,000 100,000 24,924 28,500 68,250 - 40,661
Southwestern Energy
Production Company and
SEECO, Inc. (1)(2)
George A. Taaffe 2001 208,000 52,000 6,457 - - - 171,791(14)
Senior Vice President, 2000 200,000 70,000 32,672 37,187 15,000 - 16,837
General Counsel and 1999 72,820 21,400 24,369 32,325 18,600 - 7,231
Secretary (3)
------------------------
(1) Southwestern Energy Production Company, SEECO, Inc., and Arkansas Western
Gas Company are wholly-owned subsidiaries of the Company.
15
Preliminary Proxy - CONFIDENTIAL
(2) Effective March 1, 2001, Mr. Alan Stevens resigned as President and Chief
Operating Officer of Southwestern Energy Production Company and SEECO,
Inc., but continues as a part-time employee of the Company and is a
Director of Southwestern Energy Production Company and SEECO, Inc.
(3) Mr. Taaffe died October 30, 2001. Effective January 1, 2002, Mr. Mark K.
Boling joined the Company as Senior Vice President, General Counsel and
Secretary.
(4) The restricted stock awards issued in 2001 vest ratably over four years.
The value of all nonvested restricted shares held by Messrs. Korell,
Kerley, Lane, Charles Stevens, Alan Stevens, and Taaffe at December 31,
2001, was $823,680, $451,183, $445,120, $52,697, $26,863 and $0,
respectively. The Company does not currently pay dividends on its common
stock.
(5) Includes $409,727 as a bonus for the payment of income taxes related to the
restricted stock grants made during 2001.
(6) Includes $12,971 as the Company matching portion of Nonqualified Plan
contributions, $2,801 as the cost of life insurance, and $3,107 for moving
and relocation expenses.
(7) Includes $226,265 as a bonus for the payment of income taxes related to the
restricted stock grants made during 2001.
(8) Includes $8,135 as the Company matching portion of 401(k) and Nonqualified
Plan contributions, $1,759 as the cost of life insurance, and $85,717 for
moving and relocation expenses.
(9) Includes $223,782 as a bonus for the payment of income taxes related to the
restricted stock grants made during 2001.
(10) Includes $6,701 as the Company matching portion of 401(k) Plan
contributions and $1,488 as the cost of life insurance.
(11) Includes $15,376 as a bonus for the payment of income taxes related to the
restricted stock grants made during 2001.
(12) Includes $4,072 as the Company matching portion of 401(k) and Nonqualified
Plan contributions and $880 as the cost of life insurance.
(13) Includes $4,397 as the Company matching portion of Nonqualified Plan
contributions, $501 as the cost of life insurance, $3,034 of imputed
interest income related to a $125,000 loan the Company made to Mr. Stevens
in connection with his employment, of which $25,000 was forgiven in 2001.
Under the terms of the loan agreement, the $125,000 loan is forgiven at the
rate of 20% per year.
16
Preliminary Proxy - CONFIDENTIAL
(14) Includes $5,100 as the Company's matching portion of 401(k) contributions,
$1,121 as the cost of life insurance, $3,570 of imputed interest income
related to a loan the Company made to Mr. Taaffe in connection with his
employment, forgiveness of the $75,000 loan upon Mr. Taaffe's death during
2001, and $87,000 related to other amounts earned by Mr. Taaffe at the time
of his death.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (3)
----------------------------------------------------------------------- ---------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise
Options/ Employees or Base
SARs in Fiscal Price Expiration
Name Granted(1) Year ($/Sh)(2) Date 0%($) 5%($) 10% ($)
------------------ ---------- ---------- --------- ---------- ------ ------- --------
Harold M. Korell 33,750 19.8% 9.64 12/20/11 - 204,611 518,524
Greg D. Kerley 18,750 11.0% 9.64 12/20/11 - 113,673 288,069
Richard F. Lane 18,750 11.0% 9.64 12/20/11 - 113,673 288,069
Charles V. Stevens 1,200 0.7% 9.64 12/20/11 - 7,275 18,436
Alan H. Stevens - - - - - - -
George A. Taaffe - - - - - - -
------------------------
(1) All 2001 grants vest and become exercisable ratably over three years
beginning one year from the date of grant or immediately upon a "change in
control." All 2001 grants expire after ten years from the date of grant but
may expire earlier upon termination of employment.
(2) The exercise price reflects the Fair Market Value of the Company's common
stock on the date of grant.
(3) Realizable values are reported net of the option exercise price, but before
taxes associated with exercise. The dollar amounts shown are the result of
calculations using 0%, 5% and 10% rates of appreciation from the exercise
price as specified by the Securities and Exchange Commission and are not
intended to forecast possible future appreciation, if any, of the Company's
stock price. The assumed annual appreciation of 5% and 10% on the
17
Preliminary Proxy - CONFIDENTIAL
options granted at $9.64 would result in the price of the Company's stock
increasing to $15.71 and $25.01, respectively. Realization by optionees of
the amounts shown is dependent on future increases in the price of the
Company's common stock and the continued employment of the optionee with
the Company. The options have no value if the Company's common stock does
not appreciate, as shown in the 0% column.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at FY-End (#) at FY-End ($) (3)
----------------------------------- --------------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($)(1) Exercisable (2) Unexercisable (2) Exercisable (2) Unexercisable (2)
------------------ ------------ --------------- --------------- ----------------- --------------- -----------------
Harold M. Korell - - 328,167 210,333 809,663 610,949
Greg D. Kerley - - 151,205 131,592 360,702 311,848
Richard F. Lane - - 53,667 58,083 133,051 139,399
Charles V. Stevens - - 49,785 20,912 52,670 28,446
Alan H. Stevens - - 170,834 33,416 277,752 131,698
George A. Taaffe - - - - - -
------------------------
(1) Reflects the difference between exercise price and issuance price on the
number of shares exercised. During 2001 no options were exercised.
(2) Option grants generally vest and become exercisable ratably over three
years beginning one year from the date of grant or immediately upon a
"change in control" as defined under "Agreements Concerning Employment and
Changes in Control." All grants made prior to 1993 are presently
exercisable and expire on the earlier of (a) ten years and one day from the
date of grant, or (b) termination of employment other than for retirement
due to age or disability. All 1993 through 2001 grants expire after ten
years from the date of grant but may expire earlier upon termination of
employment. Limited stock appreciation rights were granted in tandem with
all options granted in 1993 through 1999.
(3) Values are calculated as the difference between the exercise price of the
options and the market value of the Company's common stock as of December
31, 2001 ($10.40/share).
18
Preliminary Proxy - CONFIDENTIAL
STOCK PERFORMANCE GRAPH
The following graph compares for the last five years, the performance of
the Company's common stock to the S&P Smallcap 600 Index and the Dow Jones Oil -
Secondary Index. The Chart assumes that the value of the investment in the
Company's common stock and each index was $100 at December 31, 1996, and that
all dividends were reinvested.
1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
Southwestern Energy Company 100 87 52 47 75 75
S&P Smallcap 600 Index 100 126 124 139 156 188
Dow Jones Oil - Secondary Index 100 100 68 79 126 116
PROPOSAL NO. 2
PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED
ARTICLES OF INCORPORATION TO PROVIDE FOR AUTHORITY
TO ISSUE PREFERRED STOCK
The Board of Directors ("Board") recommends that the shareholders approve
an amendment to the Amended and Restated Articles of Incorporation of the
Company ("Articles") authorizing a new class of capital stock as preferred
stock, with $.01 par value ("Preferred Stock"). The proposed amendment to the
Articles gives the Board the authority to issue up to 10,000,000 shares of
Preferred Stock in such series and in such amounts as the Board may, from time
to time, determine. Under the Company's current Articles, the Company does not
have any shares of capital stock designated as Preferred Stock.
19
Preliminary Proxy - CONFIDENTIAL
If the proposed amendment is approved by the shareholders, the Board will
have the authority to issue one or more series of Preferred Stock to those
persons and for such consideration as it may determine in its discretion,
without further action by the shareholders, except such shareholder action as
may be required by law or contractual arrangements. The proposed amendment, if
adopted, will also provide significant flexibility to the Board in structuring
the terms of Preferred Stock that may be issued by the Company.
The Board will have the right to establish, for each series of Preferred
Stock issued from time to time, the series' designation and number of shares;
dividend rights and rates; voting, conversion and redemption rights, if any;
liquidation rights; powers, preferences and relative, participating, optional or
other special rights, if any; and any qualifications, limitations or
restrictions on those rights. The Company will amend its Articles to add the
10,000,000 shares of Preferred Stock to the Company's total authorized capital
stock. The shares of Preferred Stock may be issued with conversion rights which
could adversely affect the voting power of holders of common stock. The text of
the proposed amendment is attached as Appendix A to this Proxy Statement.
The Company currently has no plans to issue any shares of the Preferred
Stock nor does the Company have any commitments, arrangements, understandings or
agreements which would require the issuance of shares of the Preferred Stock
contemplated by the amendment. The Company believes that the availability of
Preferred Stock will provide the Company with increased flexibility in
connection with future financing and similar corporate transactions. Because,
except as discussed below, the Preferred Stock may be issued without further
action by shareholders, the Company will be able to respond quickly to corporate
opportunities and changing market conditions. If shareholder approval were
required before a series of Preferred Stock could be issued, a delay of several
months would be likely. Changes in market conditions during this time could
result in terms proposed to and approved by shareholders that, when the process
ends, are no longer acceptable to investors. Additionally, obtaining shareholder
approval involves significant expense, which will be saved if the Preferred
Stock is pre-authorized. If the proposed amendment is approved, shares of
Preferred Stock could be issued by action of the Board at any time and for any
purpose, subject to the Articles and other applicable requirements without
further approval or action by shareholders.
The amendment to the Articles does not, by itself, change any of the
current rights of holders of the Company's common stock. However, any Preferred
Stock which ultimately is issued would have preference over the common stock
upon liquidation and in the payment of dividends and could have special voting
rights (for instance, in the event required dividends are not paid) and other
rights that take precedence over those of the common stock. Accordingly, the
issuance of Preferred Stock could decrease the amount of earnings and assets
allocable or available for distribution to holders of the Company's common stock
and adversely affect other rights and preferences, including voting rights, of
the common stock.
20
Preliminary Proxy - CONFIDENTIAL
Possible Anti-Takeover Effect of Proposal
The Board does not believe that the establishment of the class of Preferred
Stock will have a significant impact on any attempt to gain control of the
Company. It is possible, however, that the availability of authorized but
unissued shares of Preferred Stock could discourage third parties from
attempting to gain such control since the Board could authorize the issuance of
shares of Preferred Stock with conversion rights in a private placement or
otherwise to one or more persons. Such an issuance of shares could dilute the
voting power of a person attempting to acquire control of the Company, increase
the cost of acquiring such control or otherwise hinder such efforts.
Adoption of Amendment by Shareholders
The affirmative vote of a majority of the shares of common stock of the
Company in attendance or represented at the meeting is required for adoption of
the proposed amendment to the Articles authorizing the Preferred Stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE
PROPOSED AMENDMENT TO THE ARTICLES AUTHORIZING THE PREFERRED STOCK.
AGREEMENTS CONCERNING EMPLOYMENT AND CHANGES IN CONTROL
Effective February 17, 1999, the Company entered into amended Severance
Agreements with Messrs. Korell and Kerley that replaced substantially similar
severance agreements which were currently in place. The Company entered into
Severance Agreements with Messrs. Lane and Charles Stevens on January 15, 2001
and February 17, 1999, respectively. 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, Messrs. Korell, Kerley
and Lane are entitled to a payment equal to the product of 2.99 and the
officer's "base amount," while Mr. Stevens is entitled to a payment equal to the
product of 2.0 times his "base amount." "Base amount" is defined as base salary
as of the executive's termination date plus the maximum bonus opportunity
available to the executive under the Incentive Compensation Plan. In addition,
the officer will be entitled to continued participation in certain insurance
plans and fringe benefits from the date of the termination of employment until
the earliest of (a) the expiration of three years, (b) death, or (c) the date he
is afforded a comparable benefit at comparable cost by a subsequent employer.
The named executives are also entitled to the severance benefits described
above if within three years after a "change in control" they voluntarily
terminate employment with the Company for "good reason."
21
Preliminary Proxy - CONFIDENTIAL
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 15% or more of the Company's voting securities, (ii) approval by
the Company's shareholders of an agreement to merge or consolidate the Company
with another corporation (other than certain corporations controlled by or under
common control with the Company), (iii) certain changes in the composition of
the Board of Directors of the Company, (iv) any change in control which would be
required to be reported to the shareholders of the Company in a proxy statement
and (v) a determination by a majority of the Board of Directors that there has
been a "change in control" or that there will be a "change in control" upon the
occurrence of certain specified events and such events occur. "Good reason"
includes (i) a reduction in the employee's employment status or
responsibilities, (ii) a reduction in the employee's base salary, (iii) a change
in the employee's principal work location, and (iv) certain adverse changes in
the Company's incentive or other benefit plans.
Effective March 1, 2001, the Company entered into an agreement with Mr.
Alan Stevens regarding his part-time employment. Under the agreement, Mr.
Stevens is paid an annual salary of $77,500, he remains a participant in the
Company's Incentive Compensation Plan, and his options and restricted stock
continue to vest pursuant to the existing agreements. Mr. Stevens' agreement is
currently set to expire on December 31, 2002. Mr. Stevens also has a severance
agreement which provides for compensation at two times his annual salary should
his employment be terminated by the Company without cause after a "change in
control."
The Company's 2000 Stock Incentive Plan and 1993 Stock Incentive Plan
provide 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 Plans also provide that all shares of restricted
and phantom stock which have not previously vested or been cancelled or
forfeited shall vest immediately upon a "change in control." For purposes of the
Stock Plan, a "change in control" has the same meaning contained in the
Company's Severance Agreements as defined above.
The Company's Incentive Compensation Plan adopted in 1993 provides that all
restrictions on shares of restricted stock granted pursuant to the Incentive
Plan shall lapse upon a "change in control," as defined in the Company's
Severance Agreements. This plan also provides that upon a participant's
termination of employment under certain conditions on or after a "change in
control" all determined but unpaid Incentive Awards shall be paid immediately,
and any undetermined awards shall be determined and paid based on projected
performance factors calculated in accordance with the plan.
PENSION PLANS
Prior to January 1, 1998, the Company maintained a traditional defined
benefit plan (the "Pension Plan") with benefits payable based upon average final
compensation and years of service. Effective January 1, 1998, the Company
amended its Pension Plan to become a "cash
22
Preliminary Proxy - CONFIDENTIAL
balance" plan on a prospective basis for its non-bargaining employees. A cash
balance plan provides benefits based upon a fixed percentage of an employee's
annual compensation.
Employees who were participants in the Pension Plan as of January 1, 1998
are entitled to annual benefits payable upon retirement based upon current
remuneration and years of service through December 31, 1997 as follows:
Years of Service Through December 31, 1997
----------------------------------------------------------------------------
Remuneration 5 10 15 20 30 40
-------------- ----------- ----------- ----------- ----------- ----------- -----------
$ 120,000 $ 9,000 $ 18,000 $ 27,000 $ 36,000 $ 54,000 $ 72,000
150,000 11,250 22,500 33,750 45,000 67,500 90,000
180,000 13,500 27,000 40,500 54,000 81,000 108,000
210,000 15,750 31,500 47,250 63,000 94,500 126,000
240,000 18,000 36,000 54,000 72,000 108,000 144,000
270,000 20,250 40,500 60,750 81,000 121,500 162,000
300,000 22,500 45,000 67,500 90,000 135,000 180,000
330,000 24,750 49,500 74,250 99,000 148,500 198,000
360,000 27,000 54,000 81,000 108,000 162,000 216,000
390,000 29,250 58,500 87,750 117,000 175,500 234,000
420,000 31,500 63,000 94,500 126,000 189,000 252,000
450,000 33,750 67,500 101,250 135,000 202,500 270,000
480,000 36,000 72,000 108,000 144,000 216,000 288,000
Years of
Credited Current
Service Remuneration
Through Covered Under
12/31/97 the Plans (1)
------------ --------------
Name
----
Harold M. Korell 1 433,000
Greg D. Kerley 8 272,000
Richard F. Lane - 225,584
Charles V. Stevens 26 136,000
Alan H. Stevens - 135,625
----------------
(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 2001 plan year, (i) a
participant's compensation in excess of $170,000 is disregarded for
purposes of determining average compensation and (ii) the maximum annual
Pension Plan benefit permitted under the Code is $140,000. The numbers
presented in the table disregard these limitations because the Company's
Supplemental Retirement Plan ("SERP"), discussed below, provides
participants with a supplemental retirement benefit to compensate them for
the limitation on benefits imposed by the Code.
The Company's Pension Plan provides for defined benefits to eligible
officers and employees in the event of retirement at a specified age based on
number of years of service through
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Preliminary Proxy - CONFIDENTIAL
December 31, 1997 and average monthly compensation during the five years of
highest pay in the last ten years before terminating.
Under the cash balance provisions of the Pension Plan, which became
effective January 1, 1998, each participant has a hypothetical account, for
recordkeeping purposes only, to which credits are allocated annually based upon
a percentage of the participant's remuneration. The applicable percentage is
equal to 6% plus an additional percentage for participants in the Pension Plan
as of January 1, 1998. The additional percentage is based upon a participant's
age, and is designed to approximate any lost benefits due to the change to a
cash balance plan. The additional percentage is equal to 6.3% for Mr. Korell,
3.7% for Mr. Kerley, and 4.3% for Mr. Charles Stevens.
All balances in the cash balance account also earn a fixed rate of interest
which is credited annually. The interest rate for a particular year is the
annual rate of interest of the 30-year treasury securities for November of the
prior year. Interest is credited as long as the participant's balance remains in
the Pension Plan.
At retirement or termination of employment, the vested amount credited to a
participant is payable to the participant in the form of a lump sum or in
lifetime monthly payments. The estimated annual benefit payable upon retirement
related to the cash balance provisions of the Pension Plan and SERP at December
31, 2001, is $78,227 for Mr. Korell, $108,458 for Mr. Kerley, $59,648 for Mr.
Lane, $34,080 for Mr. Charles Stevens, and $16,118 for Mr. Alan Stevens. These
projections are based on the following assumptions; (1) participant remains
employed until age 65; (2) the 2001 remuneration remains constant; and (3)
interest credit of 6.00% for all years.
On May 31, 1989, the Company adopted a Supplemental Retirement Plan which
provides benefits equal to the amount which would be payable under the Pension
Plan in the absence of certain limitations of the Code, less the amount actually
paid under the Pension Plan. In the event of a "change in control" as defined
under "Agreements Concerning Employment and Changes in Control," the benefits of
a participant then employed by the Company would be determined as if the
participant had credit for three additional years of service.
The remuneration covered by the Pension Plan includes wages and salaries
but excludes Incentive Awards, bonuses, and fees. The benefit amounts listed
above are not subject to any deductions for Social Security benefits or other
offset amounts.
PROPOSALS FOR 2003 ANNUAL MEETING
Shareholder's proposals intended to be presented at the 2003 Annual Meeting
of Shareholders must be received by the Company at its principal offices not
later than November 30, 2002, for inclusion in the 2003 Proxy Statement and form
of proxy. Proposals intended to be the subject of a separate solicitation may be
brought before the 2003 Annual Meeting by
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Preliminary Proxy - CONFIDENTIAL
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 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. Mark K. Boling, Secretary, Southwestern Energy Company, 2350
North Sam Houston Parkway East, Suite 300, Houston, Texas 77032, (281) 618-4700.
SHAREHOLDERS SHARING AN ADDRESS
The practice of sending only one copy of the annual report, Form 10-K and proxy
statement to shareholders who share a single address is known as "householding".
Householding is designed to reduce the Company's printing and postage costs.
Shareholders may request or discontinue householding, or may request a separate
copy of the annual report, Form 10-K or proxy statement as follows:
o Record shareholders who wish to discontinue or commence householding,
or any record shareholder residing at a household address who would
like to request prompt delivery of a copy of the annual report, Form
10-K or proxy statement, should contract our transfer agent, EquiServe
at 1-800-446-2617.
o Shareholders owning their shares through a bank, broker or other
holder of record who wish to either discontinue or begin householding
should contact their record holder. Any such householded shareholder
may request prompt delivery of a copy of the annual report, Form 10-K
or proxy statement by contacting the Company at 479-521-1141 or
281-618-4700.
OTHER BUSINESS
While the Notice of Annual Meeting of Shareholders calls for transaction of
such other business as may properly come before the meeting, the Company's
management has no knowledge of any matters to be presented for action by
shareholders at the meeting other than as set forth in this Proxy Statement. If
any other business should come before the meeting, the persons named in the
proxy have discretionary authority to vote in accordance with their best
judgment. Shareholders may bring additional proposals before the meeting
provided written notice of any such proposal is received at the Company's
principal executive offices no later than the close of business on April 15,
2002. 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. Mark K. Boling,
Secretary, Southwestern Energy Company, 2350 North Sam Houston Parkway East,
Suite 300, Houston, Texas 77032, (281) 618-4700.
Any shareholder who has not received a copy of the Company's Annual Report
and Form 10-K may obtain a copy free of charge by contacting Mr. Mark K. Boling,
Southwestern Energy Company, 2350 North Sam Houston Parkway East, Suite 300,
Houston, Texas 77032.
By Order of the Board of Directors
MARK K. BOLING
Senior Vice President,
General Counsel & Secretary
Dated: March 29, 2002
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Preliminary Proxy - CONFIDENTIAL
APPENDIX A
Preferred Stock Provisions
In the event that shareholders approve the amendment to the Articles set
forth as Proposal 2, SECTION A of ARTICLE SIXTH of the Articles would be amended
to provide as follows:
SIXTH: SECTION A: The total amount of the authorized capital stock of the
corporation is Eighty-Five Million (85,000,000) shares which shall be classified
as follows:
(i) Seventy-Five Million (75,000,000) shares shall be designated as
common stock, with a par value of ten cents ($.10) per share
(hereinafter referred to as "Common Stock"). Each share of Common
Stock shall have one vote;
(ii) Ten Million (10,000,000) shares shall be designated as preferred
stock, with a par value of one cent ($.01) per s hare (hereinafter
referred to as "Preferred Stock"), as further designated by the
Board of Directors of the Company in accordance herewith.
(iii) The Board of Directors is hereby expressly authorized to provide
for, designate and issue out of the authorized but unissued shares
of Preferred Stock, one or more series of Preferred Stock, subject
to the terms and conditions set forth herein. Before any shares of
any such series are issued, the Board of Directors shall fix, and
hereby is expressly empowered to fix, by resolution or resolutions,
the following provisions of the shares of any such series:
(a) the designation of such series, the number of shares to
constitute such series and the stated value thereof, if
different from the par value thereof;
(b) whether the shares of such series shall have voting rights or
powers, in addition to any voting rights required by law, and,
if so, the terms of such voting rights or powers, which may be
full or limited;
(c) the dividends, if any, payable on such series, whether any
such dividends shall be cumulative, and, if so, from what
dates, the conditions and dates upon which such dividends
shall be payable, the preference or relation which such
dividends shall bear to the dividends payable on any other
series of Preferred Stock or on any other class of stock of
the Company or any series of such class;
(d) whether the shares of such series shall be subject to
redemption by the Company, and, if so, the times, prices and
other conditions of such redemption;
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Preliminary Proxy - CONFIDENTIAL
(e) the amount or amounts payable upon shares of such series upon,
and the rights of the holders of such series in, the voluntary
or involuntary liquidation, dissolution or winding up, or upon
any distribution of the assets, of the Company and the
preference or relation which such amount or amounts shall bear
to the amount or amounts payable on any other series of
Preferred Stock or on any other class of stock of the Company
or any series of such class;
(f) whether the shares of such series shall be subject to the
operation of a retirement or sinking fund and, if so, the
extent to and manner in which any such retirement or sinking
fund shall be applied to the purchase or redemption of the
shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the
operation thereof;
(g) whether the shares of such series shall be convertible into,
or exchangeable for, shares of Preferred Stock of any other
series or any other class of stock of the Company or any
series of such class or any other securities and, if so, the
price or prices or the rate or rates of conversion or exchange
and the method, if any, of adjusting the same, and any other
terms and conditions of such conversion or exchange;
(h) the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the
payment of dividends or the making of other distributions on,
and upon the purchase, redemption or other acquisition by the
Company of, the Common Stock or shares of Preferred Stock of
any other series or any other class of stock of the Company or
any series of such class;
(i) the conditions or restrictions, if any, to be effective while
any shares of such series are outstanding upon the creation of
indebtedness of the Company or upon the issuance of any
additional stock, including additional shares of such series
or of any other series of the Preferred Stock or of any class
of stock of the Company or any series of such class; and
(j) any other powers, designations, preferences and relative,
participating, optional or other special rights, and any
qualifications, limitations or restrictions thereof.
Preferred Stock redeemed or otherwise acquired by the Company shall assume
the status of authorized but unissued Preferred Stock and shall be unclassified
as to series and may thereafter, subject to the provisions of this ARTICLE
SIXTH, as it may be amended, be reissued in the same manner as other authorized
but unissued Preferred Stock.
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Preliminary Proxy - CONFIDENTIAL
SOUTHWESTERN ENERGY COMPANY
2350 N. Houston Parkway East, Suite 300
Houston, Texas 77032
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 7, 2002,
at the Annual Meeting of Shareholders to be held on May 15, 2002, or any
adjournment or adjournments thereof.
You are encouraged to specify your choices by marking the appropriate box,
but you need not mark either box if you wish to FOR the election of all
nominees. The Proxies cannot vote your shares unless you sign and return this
card.
1. Election of Directors
L. Epley, Jr. H. Korell For |_| Withheld |_|
J. Hammerschmidt K. Mourton
R. Howard C. Scharlau
FOR, except vote WITHHELD from the following nominee(s)________________
FOR, with exercise of cumulative voting privilege. Indicate number of
votes cast for each nominee.___________________________________________
2. Proposal to amend the Company's Amended and Restated Articles of
Incorporation to provide for authority to issue up to 10,000,000 shares of
Preferred Stock.
For |_| Against |_| Abstain |_|
In their discretion, the Proxies are authorized to vote on such other
business as may properly come before the meeting.
The signer hereby revokes all proxies heretofore given by the signer to
vote at said meeting or any adjournments thereof. This proxy is revocable at any
time before it is exercised, the signer retaining the right to attend the
meeting and vote in person.
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR the election of
directors and FOR the amendment to the Company's Amended and Restated Articles
of Incorporation to provide authority to issue Preferred Stock.
NOTE: Please sign exactly as your 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
Preliminary Proxy - CONFIDENTIAL
or other authorized officer. If a partnership, please sign in
partnership name by an authorized person.
SIGNATURE(S) ________________________________________________ DATE __________
PLEASE MARK, SIGN, DATE, AND
RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.