SCHEDULE 14A INFORMATION
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SOUTHWESTERN ENERGY COMPANY
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Southwestern Energy Company
2350 N. Sam Houston Parkway East, Suite 300
Houston, Texas 77032
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ON MAY 17, 2001
The Annual Meeting of Shareholders of Southwestern Energy Company will
be held at the Northwest Arkansas Holiday Inn, Hwy. 71 Bypass at Hwy. 412,
Springdale, Arkansas, on Thursday, the 17th day of May, 2001, at 11:00 a.m.,
Central Daylight Time, for the following purposes:
(1) The election of six (6) directors to serve until the 2002
Annual Meeting or until successors are elected and qualified;
and
(2) To transact such other business as may properly come before
the meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 14,
2001, as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting.
The Company's 2000 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
GEORGE A. TAAFFE
Senior Vice President,
General Counsel & Secretary
March 30, 2001
TABLE OF CONTENTS
Page
PROXY QUESTIONS........................................................ 1
ELECTION OF DIRECTORS.................................................. 2
SHARE OWNERSHIP OF MANAGEMENT AND DIRECTORS............................ 4
GOVERNANCE OF THE COMPANY
Board Committees.............................................. 5
Audit Committee Report........................................ 6
Relationship with Independent Public Accountants.............. 6
Compensation Committee Report................................. 6
Director Compensation......................................... 10
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS........................ 11
EXECUTIVE COMPENSATION
Summary Compensation Table.................................... 12
Option/SAR Grants in Last Fiscal Year......................... 14
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values........................ 15
Agreements Concerning Employment and Changes in Control....... 16
Pension Plans................................................. 17
STOCK PERFORMANCE GRAPH................................................ 19
PROPOSALS FOR 2002 ANNUAL MEETING...................................... 19
OTHER BUSINESS......................................................... 20
APPENDIX A - Audit Committee Charter................................... A-1
Southwestern Energy Company
PROXY STATEMENT
WHO IS ENTITLED TO VOTE AT THE ANNUAL MEETING?
Shareholders who own common shares as of March 14, 2001 may vote at the
meeting. There were 25,189,842 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 enclosed annual report and proxy voting form, together with this
Notice of Annual Meeting and Proxy Statement, were first sent, or given, to
shareholders on Friday, March 30, 2001.
WHAT IS A QUORUM OF SHAREHOLDERS, AND HOW MANY VOTES DOES IT TAKE TO ELECT
DIRECTORS?
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 25,189,842 shares of common stock outstanding on March 14,
2001, a quorum is 12,594,922. 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.
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?
Yes. If you do not return your proxy card, your broker has discretion
to vote for the election of directors.
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 matter, your proxies will vote "FOR" the six directors. 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. The names of six directors to serve for the next year are listed on
your proxy card.
To vote for all six directors, you mark the box marked "FOR".
To withhold your vote from all six directors, (not vote for or
against the directors) mark the box "WITHHELD".
1
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.
2. Sign and date your proxy card. IF YOU DO NOT SIGN AND DATE YOUR
PROXY CARD, YOUR VOTES CANNOT BE COUNTED.
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, on behalf of the Board of Directors, though 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 $5,000 plus out-of-pocket expenses. Southwestern Energy pays the
cost of soliciting proxies.
ELECTION OF DIRECTORS
At the meeting, six (6) directors are to be elected to serve for the
ensuing year and until their respective successors are elected and qualified.
The shares represented by the enclosed proxy will be voted as instructed by the
shareholders for the election of the nominees named below. If no direction is
made, this proxy will be voted FOR the election of the nominees named below. If
any nominee becomes unavailable for any reason or if a vacancy should occur
before the election, the shares represented by the enclosed proxy may be voted
for such other person as may be determined by the holders of such proxies. The
Company has no knowledge that any nominee will be unavailable for election.
Directors shall be elected by plurality vote. Certain information concerning the
nominees for election as directors is below.
Nominees For Election
LEWIS E. EPLEY, JR. - Mr. Epley is an Attorney at Law and involved in
several personal business ventures in the Eureka Springs and Holiday Island,
Arkansas, area. He has served as City Attorney of Eureka Springs, President of
the Carroll County Bar Association, and Special Associate Justice of the Supreme
Court of Arkansas. He is a director, since 1964, and Vice Chairman of the Board
of Directors, since 1993, of the Bank of Eureka Springs. He is a past Chairman
and past member of the Board of Trustees of the University of Arkansas. He is
currently a director of the University of Arkansas Foundation, a director of the
Washington Regional Medical Foundation and Chairman of the Northwest Arkansas
Radiation Therapy Institute Foundation Board. Mr. Epley is 64 years old and was
first elected to the Board of Directors in 1998.
JOHN PAUL HAMMERSCHMIDT - Mr. Hammerschmidt is a retired U.S.
Congressman, Third District of Arkansas, who served from 1967-1993. He has been
a director of Dillard's Department Stores Inc., Little Rock, Arkansas, since
1992; First Federal Bank of Arkansas, Harrison, Arkansas, since 1966; and
American Freightways Corporation, Harrison, Arkansas, since 1997. Mr.
Hammerschmidt has been a member of the Board of the Metropolitan Washington
Airports Authority since 1997. He has served as member of the Board of Trustees
of the University of the Ozarks since 1994 and Arkansas State University since
1999. Mr. Hammerschmidt is 78 years old and was first elected to the Board of
Directors in 1992.
2
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 has served
as a director of Camco International, Inc. of Houston, Texas, from 1995 until
1998; Ocean Energy, Inc. (formerly United Meridian Corp.) of Houston, Texas,
since 1996; and McDermott International, Inc. of New Orleans, Louisiana, since
1997. He is 64 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 56 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 is also President and principal shareholder of Coors of Western
Arkansas, Inc., since 1980; President and majority shareholder of E. J. Ball
Plaza, Inc., since 1992; and President and part owner of Emerald Travel
Services, Ltd., since 1989. All of these businesses are located in Fayetteville,
Arkansas. Mr. Mourton also owns and operates several other businesses in various
states related to beer distribution, lodging, warehousing and travel. Mr.
Mourton is Chairman, since 1992, of Razorback Foundation, Inc., a nonprofit
corporation which supports University of Arkansas athletic programs. He is also
a Board member of the Arkansas Rural Endowment Fund, a nonprofit corporation
created by the State of Arkansas to help lower income, rural Arkansas children
obtain college and university educations. Mr. Mourton is 50 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 73 years old.
Shareholders entitled to vote for the election of directors at the
annual meeting may nominate additional candidates provided written notice of
such nomination is received at the Company's principal executive offices no
later than the close of business on April 13, 2001. The Company's by-laws
require that this notice contain certain information about any proposed nominee
and the shareholder submitting the notice. The Company may also require any
proposed nominee to furnish such other information as may reasonably be required
to determine the proposed nominee's eligibility to serve as a director of the
Company. A copy of the relevant by-law provisions may be obtained by contacting
Mr. George A. Taaffe, Secretary, Southwestern Energy Company, 1083 Sain Street,
P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.
3
SHARE OWNERSHIP OF MANAGEMENT AND DIRECTORS
The following table sets forth information as of March 14, 2001, 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 3-14-01
(Sole Voting and Investment Percent
Name of Beneficial Owner Power Except as Noted) (1) of Class
------------------------ ---------------------------------- ----------
Executive Officers:
Harold M. Korell......................................... 632,032 2.51%
Alan H. Stevens.......................................... 234,180 .93%
Greg D. Kerley .......................................... 295,073 1.17%
Richard F. Lane.......................................... 109,320 .43%
George A. Taaffe......................................... 57,118 .23%
Directors and Nominees:
Lewis E. Epley, Jr...................................... 45,183 .18%
John Paul Hammerschmidt.................................. 92,000 .37%
Robert L. Howard......................................... 70,000 .28%
Kenneth R. Mourton....................................... 69,000 .27%
Charles E. Scharlau...................................... 690,502 2.74%
All persons as a group (10 in number) who are
directors, nominees or executive officers of the
Company ................................................... 2,294,408 (2) 9.11%
------------------------
[FN]
(1) Of the number of shares reported as beneficially owned, the named
individuals had the right to acquire within 60 days, through the
exercise of stock options, beneficial ownership of the following number
of shares: Mr. Korell, 193,250; Mr. Stevens, 136,083; Mr. Kerley,
80,341; Mr. Lane, 27,667; Mr. Taaffe, 6,200; Mr. Epley, Jr., 9,000; Mr.
Hammerschmidt, 66,000; 42,000 each for Messrs. Howard and Mourton, and
Mr. Scharlau, 474,996. 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, 311,500; Mr.
Stevens, 68,167; Mr. Kerley, 187,306; Mr. Lane, 65,333; Mr. Taaffe,
27,400; Mr. Epley, Jr., 23,000; 26,000 each for Messrs. Hammerschmidt,
Howard and Mourton; and Mr. Scharlau, 17,000. 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, 23,920; Mr. Stevens,
5,666; Mr. Kerley, 11,796; Mr. Lane, 10,500; and Mr. Taaffe, 7,800. The
named individuals acquire investment power for these shares immediately
upon a "change in control."
(2) Of this number, all directors and executive officers as a group had the
right to acquire beneficial ownership of 1,077,537 shares through the
exercise of stock options within 60 days. Also included in this number
is this group's right to acquire an additional 777,706 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 2000, the Company and related entities, for certain legal
services, paid $18,614 to the law firm of Conner and Winters PLLC of
Fayetteville, Arkansas, of which Mr. Charles Scharlau is of counsel. Mr. Greg
Scharlau, Mr. Scharlau's son, is a partner in Conner and Winters PLLC.
4
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. At the February 14, 2001, Board
meeting, the Board of Directors adopted the revised Audit Committee Charter in
accordance with the standards of the New York Stock Exchange and Securities and
Exchange Commission. The revised Audit Committee Charter appears as Appendix A
to this Proxy Statement. 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 -- $145,000; and Other -- $287,625, which included
audit related -- $30,000; and all other non-audit -- $257,625 of which $211,125
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.
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. George A. Taaffe, Secretary, Southwestern Energy
Company, 1083 Sain Street, P. O. Box 1408, Fayetteville, Arkansas 72702-1408.
Such letter should state in detail the qualifications of the candidate.
Shareholders entitled to vote for the election of directors at the annual
meeting may nominate additional candidates independent of the Board of
Directors. Shareholder nominees to be presented to the 2001 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. George A. Taaffe, Secretary, Southwestern Energy Company, 1083 Sain Street,
P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.
5
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, 2000. 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.
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, 2000, 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. Representatives will be present at the Annual Meeting of
Shareholders and will have an opportunity to make a statement to shareholders if
they so desire. The representatives will also be available to respond to
appropriate questions from shareholders. There have been no disagreements with
the independent public accountants on accounting and financial disclosure.
COMPENSATION COMMITTEE REPORT
Compensation Philosophy
In determining the compensation of the Chief Executive Officer (the
"CEO") and the other executive officers of the Company and its subsidiaries, the
Compensation Committee seeks to align compensation with the attainment of the
Company's objectives, the Company's performance, and the attraction and
retention of individuals who contribute to the Company's success. For the CEO
and the other named executive officers, the Compensation Committee makes
recommendations to the Board of Directors, and final compensation decisions are
made by the full Board. The Compensation Committee believes that compensation
should:
- relate to the value created for shareholders by being directly
tied to the financial performance and condition of the Company
and the particular executive officer's contribution thereto;
- reward individuals who help the Company achieve its short-term
and long-term objectives and thereby contribute significantly
to the success of the Company;
- help to attract and retain the most qualified individuals in
the natural gas and oil and gas producing industries by being
competitive with compensation paid to persons having similar
responsibilities and duties in other companies in the same and
closely related industries; and
- reflect the qualifications, skills, experience, and
responsibilities of the particular executive officer.
In determining executive compensation, the Company uses peer group
comparisons. The industry group indices shown in the performance chart reported
in this Proxy Statement include a number of the companies that
6
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 2000 generally corresponded to the 50th
to 75th percentile of compensation paid by comparable companies.
Changes made to the Internal Revenue Code in 1993 could potentially
limit the ability of the Company to deduct, for federal income tax purposes,
certain compensation in excess of $1,000,000 per year paid to individuals named
in the summary compensation table. The Company believes that all compensation
paid in 2000 will be fully deductible. Further, none of the named individuals
received compensation in excess of $1,000,000 during 2000. If, in the future, it
appears that the compensation paid to a named individual may be in excess of
limitations imposed on deductibility for federal income tax purposes, the
Company will seek ways to maximize the deductibility of compensation payments
without compromising the Company's or the Compensation Committee's flexibility
in designing effective compensation plans that can meet the Company's objectives
and respond quickly to marketplace needs. Although the Compensation Committee
will from time to time review the advisability of making changes in compensation
plans to reflect changes in government-mandated policies, it will not do so
unless it feels that such changes are in the best interest of the Company and/or
its shareholders.
Components of Compensation
Base Salary. In establishing the base salaries of the CEO and the other
executive officers, the Compensation Committee examines competitive peer group
surveys and data in order to determine whether the total compensation package is
competitive with compensation offered by other companies in the natural gas and
oil and gas producing industries which are similar in terms of the complexity of
their operations and which offer the most direct competition for competent
executives. The Compensation Committee also takes into account the Company's
financial and operating performance as compared with the industry mean and the
individual performance of the Company's executives as compared to the
Compensation Committee's expectations of performance for top level executives in
general. The Compensation Committee also considers the diverse skills required
of its executive management to expand the exploration and production segment of
its operations while maintaining satisfactory performance in the highly
regulated gas distribution segment. In addition, the Compensation Committee
considers the particular executive's performance, responsibilities,
qualifications, and experience in the oil and gas industry. The Compensation
Committee is periodically advised by outside compensation consultants on its
compensation policies and receives evaluations from the appropriate level of
management concerning the performance of executives within their range of
reporting responsibilities.
Changes in base salary affect other elements of compensation including:
(i) awards under the Company's Incentive Compensation Plan, (ii) pension
benefits, (iii) Company matching portions of 401(k) and Nonqualified Plan
contributions, and (iv) life insurance and disability benefits.
Incentive Compensation Plan. The Company maintains an Incentive
Compensation Plan (the "Incentive Plan") applicable to executives with
responsibility for the Company's major business segments. The Incentive Plan is
intended to encourage and reward the achievement of (1) earnings and cash flow
targets, (2) a defined reserve replacement ratio, (3) target returns on capital
investment, (4) a favorable return on equity as compared to the Company's peer
group, (5) production, reserve addition, and investment goals 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. A portion of each award under the Incentive Plan is an
automatic award based upon the achievement of these corporate financial
objectives, and a portion is discretionary based on a subjective evaluation of
the executive's performance by the Compensation Committee. The Incentive Plan is
also designed to assist in the attraction and retention of qualified employees,
to further link the financial interest and objectives of employees with those of
the Company, and to foster accountability and teamwork throughout the Company.
7
The CEO and the executive officers have responsibilities directly
affecting the Company's operations and are assigned target, minimum, and maximum
award levels expressed as a percentage of their base salary. In 2000, the target
awards which could be paid based on attainment of corporate performance measures
ranged from 22.5% to 30% of base salary for these individuals, the minimum
awards ranged from 11.25% to 15% of base salary, and the maximum awards which
could be paid ranged from 45% to 60% of base salary. None of these awards are
paid if corporate performance as determined by the corporate performance
measures is below a specified level. In addition, the participating executives
are eligible for discretionary awards based upon their individual performance,
which when combined with the performance measure award could achieve a total
targeted bonus ranging from 37.5% to 50% of base salary. Payouts under the
Incentive Plan are based on the achievement of corporate financial profit
objectives, business unit results, and the Committee's evaluation of individual
performance. Awards are payable in cash, restricted Common Stock of the Company,
or a combination of cash and restricted Common Stock.
Generally, when multiple factors are considered to measure the
performance of the Company's executives, such factors are equally weighted in
determining the Company performance portion of an executive's bonus. In
determining automatic awards under the Plan for the CEO and certain of the named
executive officers, the Compensation Committee examines the following
performance thresholds as compared to predetermined criteria: (1) cash flow per
share, (2) reserve replacement ratio, (3) return on capital investment, and (4)
return on equity. Because these factors are weighted equally, proportionate
awards are made if targets for at least one of the factors are met. In 2000, the
cash flow per share, reserve replacement and return on capital investment
maximum performance levels were achieved. The return on equity minimum
performance level was not achieved. Discretionary awards for these executives
are based on a subjective evaluation of the executive's performance by the
Compensation Committee. Discretionary awards may be influenced by the
performance of individual business segments, but are primarily intended to
provide an incentive to recognize exceptional performance by an individual.
Stock Incentive Plan. The CEO and other executive officers are also
eligible to participate in the Company's 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 2000
performance were made at a price equal to the Fair Market Value on the date of
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 2000 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.
In 1993, the annual component of the Company's former Annual and
Long-Term Incentive Compensation Plan (the "Prior Plan") was replaced by the
Company's Incentive Compensation Plan, discussed above. The long-term component
of the Prior Plan was replaced by the 1993 Stock Incentive Plan for performance
periods beginning after January 1, 1993, and the 2000 Stock Incentive Plan for
performance periods beginning in 2000.
8
Payouts of awards previously granted and payouts of awards related to five-year
performance periods ending each year through December 31, 1997, will continue to
be made under the Prior Plan through 2001. Key employees were selected annually
to participate in the Prior Plan based on their ability to have a significant
impact on the performance of the Company. Under the long-term incentive
component of the Prior Plan, cash awards were based on the Company's performance
during overlapping five-year periods. A new five-year performance period began
each year on January 1, with the final five-year performance period beginning
January 1, 1993. For all participants, awards were based equally on the
compounded five-year growth in earnings per share and the cumulative five-year
return on equity. Any award earned was payable at the rate of 20% per year,
commencing at the end of each five-year performance cycle.
Mr. Korell's base salary was $418,000 for 2000, and has been increased
to $433,000 for 2001. Mr. Korell had a targeted annual bonus award of 50% of
base salary, with minimum and maximum awards of 15% and 80%, respectively,
depending upon the achievement of corporate performance measures. Of these
awards, a portion is an automatic award based upon the achievement of the
corporate financial objectives as described under the subheading, "Incentive
Compensation Plan" above, and a portion is discretionary based on a subjective
evaluation of Mr. Korell's performance by the Compensation Committee and the
Board of Directors and may be influenced by the performance of individual
business segments. The Company's attainment of certain performance measures in
2000, plus the discretionary component resulted in Mr. Korell being awarded a
bonus of $265,000, or 63% of his base salary.
In addition to the factors described above, in determining the salary
and other forms of compensation for Mr. Korell, the Compensation Committee took
into consideration Mr. Korell's substantial experience and standing in the
industry.
ROBERT L. HOWARD, CHAIRMAN
JOHN PAUL HAMMERSCHMIDT
KENNETH R. MOURTON
Members of the Compensation Committee
9
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 2000, 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 Granted
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 2000, for their services as directors, Messrs. Lewis E. Epley, Jr.,
John Paul Hammerschmidt, Robert L. Howard, Kenneth R. Mourton, and Charles E.
Scharlau were paid $35,500, $32,500, $36,500, $37,000 and $32,000, respectively.
As an advisor to the Company, Mr. Scharlau also received consulting fees for
$234,000 under a consulting agreement with the Company, $3,490 for the Company
portion of health insurance and $47,445 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 $3,490 for the Company portion of health
insurance. Each outside director serving as of December 31, 2000, was granted an
option to purchase 8,000 shares of the Company's Common Stock at $9.75 per
share, representing the Fair Market Value on the date of grant. During 2000, the
Board of Directors held eight meetings, the Audit Committee held four meetings,
the Compensation Committee held two meetings, and the Retirement Committee held
one meeting.
10
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, 2000, pursuant to their
filed Schedule 13G under the Securities Exchange Act of 1934:
Amount and Nature of Percent
Title of Name and Address of Beneficial of
Class Beneficial Owner Ownership Class
----- ---------------- --------- -----
Common Stock Westport Asset Management, Inc. 1,878,700 (1) 7.5%
253 Riverside Avenue
Westport, CT 06880
Common Stock Dimensional Fund Advisors, Inc. 1,877,600 (2) 7.5%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401
Common Stock Alliance Capital Management L.P. 1,795,511 (3) 7.1%
1345 Avenue of the Americas
New York, NY 10105
Common Stock State Street Research & 1,373,300 (4) 5.5%
Management Company
One Financial Center
30th Floor
Boston, MA 02111-2690
Common Stock Wellington Management 1,262,300 (5) 5.0%
Company, LLP
75 State Street
Boston, MA 02109
Common Stock Fidelity Management and 1,262,100 (6) 5.0%
Research Company
82 Devonshire Street
Boston, MA 02109-3605
[FN]
(1) 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 1,045,600 shares,
sole dispositive power on 672,100 shares, and shared disposition power of
1,206,600 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) 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 sole voting power on 1,486,000 shares,
shared voting power on 22,855 shares, and sole dispositive power on
1,795,511 shares.
(4) State Street Research & Management Company (State Street) is an investment
advisor registered pursuant to the Investment Advisors Act of 1940 and
holds the reported shares on behalf of its clients. State Street holds
sole voting power on 1,306,800 shares and sole dispositive power on
1,373,300 shares. State Street disclaims beneficial ownership on all
shares.
(5) Wellington Management Company, LLP (Wellington) is an investment advisor
in accordance with Rule 13d-1(b)(1)(ii)(E). Wellington holds shared voting
power on 682,600 shares and shared dispositive power on 1,262,300 shares.
Wellington disclaims beneficial ownership of all such securities.
(6) Fidelity Management and Research Company (Fidelity) is an investment
advisor registered under the Investment Advisors Act of 1940 and a wholly
owned subsidiary of FMR Corp. Edward C. Johnson 3rd, Chairman of FMR
Corp., and FMR Corp., through control of Fidelity and the Funds has sole
power to dispose of the 1,262,100 shares owned by the Funds. Neither FMR
Corp. nor Edward C. Johnson 3rd, has the sole power to vote or direct the
voting of the shares owned directly by the Fidelity Funds, which power
resides with the Funds' Board of Trustees. Fidelity carries out the voting
of the shares under written guidelines established by the Funds' Boards of
Trustees.
11
EXECUTIVE COMPENSATION
The following table contains information with respect to executive
compensation paid or set aside by the Company for services in all capacities of
the CEO and the next four most highly paid executive officers of the Company and
its subsidiaries, and a former executive of two of the Company's subsidiaries,
during the years indicated below.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------------------ ----------------------- ---------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Salary Bonus Compensation Awards Options/ Payouts Compensation
Name and Principal Position Year ($) ($) ($) ($) (2) SARs (#) ($) ($)
---------------------------- ---- ------- -------- ------------ ---------- ---------- --------- -------------
Harold M. Korell 2000 418,000 265,000 92,975 (3) 109,703 200,000 - 15,244 (4)
President, Chief Executive 1999 410,000 160,000 51,854 57,000 129,750 - 14,957
Officer and Director 1998 329,167 135,000 28,405 26,947 75,000 - 12,032
Alan H. Stevens 2000 290,000 168,000 14,694 (5) 11,156 16,000 - 40,046 (6)
President and Chief 1999 264,000 100,000 24,924 28,500 68,250 - 40,661
Operating Officer, 1998 250,000 125,000 133,004 215,063 120,000 - 67,400
Southwestern Energy
Production Company and
SEECO, Inc. (1)
Greg D. Kerley 2000 252,000 143,000 48,737 (7) 55,781 100,000 2,446 9,190 (8)
Executive Vice President 1999 235,000 100,000 26,763 28,500 68,250 2,446 8,573
and Chief Financial Officer 1998 203,875 90,000 21,878 21,938 20,000 2,446 7,305
George A. Taaffe 2000 200,000 70,000 32,672 (9) 37,187 15,000 - 16,837 (10)
Senior Vice President, 1999 72,820 21,400 24,369 32,325 18,600 - 7,231
General Counsel and 1998 - - - - - - -
Secretary
Richard F. Lane 2000 177,000 86,000 34,573 (11) 48,344 50,000 - 6,455 (12)
Senior Vice President 1999 167,733 40,000 24,255 30,000 18,000 - 6,139
Exploration and Production, 1998 124,449 25,000 24,874 35,328 25,000 - 14,925
Southwestern Energy Production
Company and SEECO, Inc. (1)
Debbie J. Branch 2000 143,600 (13) - 4,950 - - - 108,779 (14)
Senior Vice President, 1999 179,500 60,000 27,615 6,900 10,000 - 6,548
Southwestern Energy 1998 175,000 65,000 30,485 10,969 11,100 - 6,279
Services Company and
Southwestern Energy
Pipeline Company (1)
------------------------
[FN]
(1) Southwestern Energy Production Company, SEECO, Inc., Southwestern
Energy Services Company, and Southwestern Energy Pipeline Company are
wholly-owned subsidiaries of the Company.
(2) Restricted stock awards for executives typically vest ratably over
three years. In connection with the employment of Mr. Taaffe in 1999,
he was awarded 3,000 shares of restricted stock that vests ratably over
12
three years. In connection with the employment of Messrs. Lane and
Stevens in 1998, Mr. Lane was awarded 1,820 shares and Mr. Stevens was
awarded 15,000 shares of restricted stock that vests ratably over three
years. The value of all nonvested restricted shares held by Messrs.
Korell, Stevens, Kerley, Taaffe, Lane and Ms. Branch at December 31,
2000, was $248,170, $58,785, $122,384, $80,925, $108,938 and $0,
respectively.
(3) Includes $85,595 as a bonus for the payment of income taxes related to
the restricted stock grants made during 2000.
(4) Includes $12,540 as the Company matching portion of Nonqualified Plan
contributions and $2,704 as the cost of life insurance.
(5) Includes $7,314 as a bonus for the payment of income taxes related to
the restricted stock grants made during 2000.
(6) Includes $8,700 as the Company matching portion of Nonqualified Plan
contributions, $1,876 as the cost of life insurance, $4,470 of imputed
interest income related to a $125,000 loan the Company made to Mr.
Stevens in connection with his employment, and $25,000 of the loan
which was forgiven in 2000. Under the terms of the loan agreement, the
$125,000 loan is forgiven at the rate of 20% per year.
(7) Includes $41,357 as a bonus for the payment of income taxes related to
the restricted stock grants made during 2000.
(8) Includes $7,560 as the Company matching portion of 401(k) and
Nonqualified Plan contributions and $1,630 as the cost of life
insurance.
(9) Includes $25,292 as a bonus for the payment of income taxes related to
the restricted stock grants made during 2000.
(10) Includes $6,265 of moving and relocation expenses, $5,100 as the
Company matching portion of 401(k) Plan contributions, $1,294 as the
cost of life insurance and $4,178 of imputed interest income related to
a $75,000 loan the Company made to Mr. Taaffe in connection with his
employment. Under the terms of the loan agreement, the $75,000 loan is
forgiven at the rate of 20% per year.
(11) Includes $27,193 as a bonus for the payment of income taxes related to
the restricted stock grants made during 2000.
(12) Includes $5,310 as the Company matching portion of Nonqualified Plan
contributions, and $1,145 as the cost of life insurance.
(13) Represents salary and services rendered for January 1, 2000, through
September 30, 2000.
(14) Includes $4,308 as the Company matching portion of Nonqualified Plan
contributions, $871 as the cost of life insurance, and $103,600 of
severance pay related to her resignation from the Company during 2000.
13
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term (3)
--------------------------------------------------------------------------- ----------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
% of Total
Number of Options/
Securities SARs
Underlying Granted to Exercise
Options/ Employees or Base
SARs in Fiscal Price Expiration
Name Granted (1) Year ($/Sh) (2) Date 0% ($) 5% ($) 10% ($)
-------------------- ----------- ---------- ----------- ---------- ---------- ----------- -------------
Harold M. Korell 200,000 30.0% 7.4375 12/14/10 - 935,481 2,370,692
Alan H. Stevens 16,000 2.4% 7.4375 12/14/10 - 74,838 189,655
Greg D. Kerley 100,000 15.0% 7.4375 12/14/10 - 467,740 1,185,346
George A. Taaffe 15,000 2.3% 7.4375 12/14/10 - 70,161 177,802
Richard F. Lane 50,000 7.5% 7.4375 12/14/10 - 233,870 592,673
------------------------
[FN]
(1) All 2000 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 2000 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 options granted at $7.4375 would
result in the price of the Company's stock increasing to $12.11 and
$19.29, respectively. Realization by optionees of the amounts shown are
dependent on future increases in the price of the Company's Common
Stock and the continued employment of the optionee with the Company.
The options have no value if the Company's Common Stock does not
appreciate, as shown in the 0% column.
14
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/SARs
Options/SARs at FY-End (#) at FY-End ($) (3)
----------------------------------- -----------------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) (1) Exercisable (2) Unexercisable (2) Exercisable (2) Unexercisable (2)
-------------------- ------------ ---------------- --------------- ----------------- --------------- -----------------
Harold M. Korell - - 193,250 311,500 342,344 1,042,500
Alan H. Stevens - - 102,750 101,500 140,364 266,480
Greg D. Kerley - - 80,341 187,306 140,364 513,230
George A. Taaffe - - 6,200 27,400 17,625 79,313
Richard F. Lane - - 22,667 70,333 46,668 209,582
------------------------
[FN]
(1) Reflects the difference between exercise price and issuance price on
the number of shares exercised. During 2000 no options were exercised.
(2) All 1995 through 2000 grants vest and become exercisable ratably over
three years beginning one year from the date of grant or immediately
upon a "change in control." All 1994 grants vest and become exercisable
ratably over the four year period beginning six years from the date of
grant or sooner upon achievement of certain performance objectives,
upon a "change in control" as defined under "Agreements Concerning
Employment and Changes in Control," or upon retirement. All grants made
prior to 1993 are presently exercisable and expire on the earlier of
(a) ten years and one day from the date of grant, or (b) termination of
employment other than for retirement due to age or disability. All 1993
through 2000 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, 2000 ($10.3750/share).
15
AGREEMENTS CONCERNING EMPLOYMENT AND CHANGES IN CONTROL
On January 15, 2001, the Company entered into an agreement with Mr.
Stevens regarding his part-time employment effective March 1, 2001. Mr. Stevens
will be paid an annual salary of $77,500 and he will remain a participant in the
Company's Incentive Compensation Plan. All options and restricted stock will
continue to vest pursuant to the existing agreements. Mr. Stevens' agreement
will expire on December 31, 2001, however, the agreement may be extended through
December 31, 2002 at the Company's request.
Effective February 17, 1999, the Company entered into amended Severance
Agreements with Messrs. Korell, Stevens and Kerley that replaced substantially
similar severance agreements which were currently in place. The Company entered
into Severance Agreements with Messrs. Taaffe and Lane on July 27, 1999, and
January 15, 2001, 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, the officer is entitled to a payment
equal to the product of 2.99 and the officer's "base amount." "Base amount" is
defined as base salary as of the executive's termination date plus the maximum
bonus opportunity available to the executive under the Incentive Compensation
Plan. In addition, the officer will be entitled to continued participation in
certain insurance plans and fringe benefits from the date of the termination of
employment until the earliest of (a) the expiration of three years, (b) death,
or (c) the date he is afforded a comparable benefit at comparable cost by a
subsequent employer. Mr. Stevens' Severance Agreement will expire effective June
30, 2001, at which time he will receive a severance agreement which provides for
compensation at two times his then current total annual compensation.
Messrs. Korell, Stevens, Kerley, Taaffe, and Lane 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."
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.
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.
16
PENSION PLANS
Prior to January 1, 1998, the Company maintained a traditional defined
benefit plan (the "Pension Plan") with benefits payable based upon average final
compensation and years of service. Effective January 1, 1998, the Company
amended its Pension Plan to become a "cash balance" plan on a prospective basis
for its non-bargaining employees. A cash balance plan provides benefits based
upon a fixed percentage of an employee's annual compensation.
Employees who were participants in the Pension Plan as of January 1,
1998 are entitled to annual benefits payable upon retirement based upon current
remuneration and years of service through December 31, 1997 as follows:
Years of Service Through December 31, 1997
------------------------------------------------------------------------------
Remuneration 5 10 15 20 30 40
-------------- ---------- ---------- ----------- ----------- ---------- -----------
$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
Name 12/31/97 the Plans (1)
---- ------------ -----------------
Harold M. Korell 1 418,000
Alan H. Stevens - 290,000
Greg D. Kerley 8 252,000
George A. Taaffe - 200,000
Richard F. Lane - 177,000
------------------------
[FN]
(1) The Internal Revenue Code (the "Code") limits both the amount of
compensation that may be used for purposes of calculating a participant's
Pension Plan benefit and the maximum annual benefit payable to a
participant under the Pension Plan. For the 2000 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 $135,000. 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 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
17
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 and 3.7% for Mr.
Kerley.
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, 2000, is $76,341 for Mr. Korell, $24,568 for Mr. Stevens, $102,009 for Mr.
Kerley, $17,634 for Mr. Taaffe, and $49,261 for Mr. Lane. These projections are
based on the following assumptions; (1) participant remains employed until age
65; (2) the 2000 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.
18
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, 1995, and that
all dividends were reinvested.
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
Southwestern Enery Company $100 $121 $105 $ 63 $ 57 $ 91
S&P Smallcap 600 Index 100 121 152 150 169 189
Dow Jones Oil-Secondary Index 100 126 126 86 99 160
PROPOSALS FOR 2002 ANNUAL MEETING
Shareholder's proposals intended to be presented at the 2002 Annual
Meeting of Shareholders must be received by the Company at its principal offices
not later than November 30, 2001, for inclusion in the 2002 Proxy Statement and
form of proxy. Proposals intended to be the subject of a separate solicitation
may be brought before the 2002 Annual Meeting by shareholders provided that
written notice of any such proposal is received at the Company's principal
executive offices not less than 50 nor more than 75 days prior to the called
meeting date. If less than 65 days notice of the 2001 Annual Meeting is given,
written notice of any such proposal must be received no later than the close of
business on the 15th day following the day on which notice of the annual meeting
date was mailed. The Company's by-laws require that notices of shareholder
proposals contain certain information about any proposal and the proposing
shareholder. A copy of the relevant by-law provisions may be obtained by
contacting Mr. George A. Taaffe, Secretary, Southwestern Energy Company, 1083
Sain Street, P. O. Box 1408, Fayetteville, Arkansas 72702-1408, (501) 521-1141.
19
OTHER BUSINESS
While the Notice of Annual Meeting of Shareholders calls for
transaction of such other business as may properly come before the meeting, the
Company's management has no knowledge of any matters to be presented for action
by shareholders at the meeting other than as set forth in this Proxy Statement.
If any other business should come before the meeting, the persons named in the
proxy have discretionary authority to vote in accordance with their best
judgment. Shareholders may bring additional proposals before the meeting
provided written notice of any such proposal is received at the Company's
principal executive offices no later than the close of business on April 13,
2001. The Company's by-laws require that this notice must contain certain
information about any proposal and the proposing shareholder. A copy of the
relevant by-law provisions may be obtained by contacting Mr. George A. Taaffe,
Secretary, Southwestern Energy Company, 1083 Sain Street, P. O. Box 1408,
Fayetteville, Arkansas 72702-1408, (501) 521-1141.
Any shareholder who has not received a copy of the Company's Annual
Report and Form 10-K may obtain a copy free of charge by contacting Mr. George
A. Taaffe, Southwestern Energy Company, 1083 Sain Street, P.O. Box 1408,
Fayetteville, Arkansas 72702-1408.
By Order of the Board of Directors
GEORGE A. TAAFFE
Senior Vice President,
General Counsel & Secretary
Dated: March 30, 2001
20
APPENDIX A
SOUTHWESTERN ENERGY COMPANY
AUDIT COMMITTEE CHARTER
(As Revised February 14, 2001)
The Audit Committee is a committee of the Board of Directors. Its
primary function is to assist the Board in fulfilling its oversight
responsibilities by reviewing financial information which will be provided to
the shareholders and others, the systems of internal controls which management
and the Board of Directors have established, and the audit process.
In meeting its responsibilities, the Audit Committee is expected to:
1. Provide an open avenue of communication between the independent
accountants, management, and the Board of Directors.
2. Review and update the Committee's charter annually with approval
by the Board of Directors. The Company's annual Proxy Statement
to Shareholders will disclose that a charter has been adopted. A
copy of the charter will be included as an appendix to the Proxy
Statement at least once every three years.
3. Recommend to the Board of Directors the independent accountants
to be nominated, approve the compensation of the independent
accountants, and review and approve the discharge of the
independent accountants. Independent accountants are ultimately
accountable to the Board of Directors and to the Audit
Committee.
4. Consider and review the Company's requirements for internal
audit staffing, and review and concur in the appointment,
replacement, reassignment, or dismissal of a director of
internal auditing.
5. Confirm and take or recommend any appropriate actions to assure
the independence of the independent accountants. Obtain
disclosures regarding the accountants' independence as required
by Independence Standards Board Standard No. 1, as may be
modified or supplemented, and discuss with the accountants all
significant relationships to determine the accountants'
independence.
6. Inquire of management and the independent accountants about
significant risks or exposures and assess the steps management
has taken to minimize such risk to the Company.
7. Consider and review, in consultation with the independent
accountants and management, the audit scopes and annual plans of
internal audits and plans for audits performed by the
independent accountants.
8. Review with management and the independent accountants the
coordination of audit effort to assure completeness of coverage,
reduction of redundant efforts, and the effective use of audit
resources.
9. Consider and review with the independent accountants and
management:
(a) The adequacy of the Company's internal controls including
computerized information system controls and security.
(b) Any related significant findings and recommendations of the
independent accountants together with management's
responses thereto.
10. Review with management and the independent accountants at the
completion of the annual examination:
(a) The Company's annual financial statements and related
footnotes.
A-1
(b) The independent accountants' audit of the financial
statements and their report thereon.
(c) Any significant changes required in the independent
accountants' audit plan.
(d) Any serious difficulties or disputes with management
encountered during the course of the audit.
(e) Other matters related to the conduct of the audit, which
are to be communicated to the Committee under generally
accepted auditing standards.
11. Consider and review with management for internal audits
performed:
(a) Significant findings during the year and management's
responses thereto.
(b) Any difficulties encountered in the course of internal
audits, including any restrictions on the scope of work or
access to required information.
(c) Any changes required in the planned scope of audit plans.
(d) The overall adequacy of the internal audit function.
12. Review with management and the independent accountants interim
financial information prior to public release of quarterly
results and filing of Form 10-Q.
13. Review annual filings on Form 10-K and any registration
statements containing the Company's financial statements prior
to filing with the Securities and Exchange Commission.
14. Review with management any acts of noncompliance with the
Company's Standards of Conduct.
15. Review legal and regulatory matters that may have a material
impact on the financial statements and related Company
compliance policies.
16. At least semi-annually, meet with the Company's Controller, the
independent accountants, and management in separate executive
sessions to discuss any matters that the Committee or these
groups believe should be discussed privately with the Audit
Committee.
17. Report Committee actions to the Board of Directors with such
recommendations as the Committee may deem appropriate.
18. The Audit Committee shall have the power to conduct or authorize
investigations into any matters within the Committee's scope of
responsibilities. The Committee shall be empowered to retain
independent counsel, accountants, or others to assist it in the
conduct of any investigation.
19. The Committee shall meet at least four times per year or more
frequently as circumstances require. The Committee may ask
members of management or others to attend the meeting and
provide pertinent information as necessary.
20. The Audit Committee will issue a report annually to be included
in the Company's Annual Proxy Statement to Shareholders. This
report will disclose that the Audit Committee has:
(a) Reviewed and discussed audited financial statements with
management.
(b) Discussed with the independent accountants the matters
required to be discussed by Statement on Auditing Standards
No. 61, as may be modified or supplemented.
(c) Received from and discussed with the independent
accountants disclosures regarding the independent
accountants' independence.
A-2
(d) Based on its reviews and discussions, has recommended to
the Board of Directors that the audited financial
statements be included in the Company's Annual Report on
Form 10-K for the last fiscal year for filing with the
Securities and Exchange Commission.
21. The Committee will perform such other functions as assigned by
law, the Company's charter or bylaws, or the Board of Directors.
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors and free
from any relationship to the Company that, in the opinion of the Board, would
interfere with the exercise of his or her independent judgment. The Company's
annual Proxy Statement to Shareholders will contain a disclosure that Audit
Committee members are independent.
The following relationships would disqualify a director from serving on
the Audit Committee:
- Employment by the Company or any of its affiliates currently or for the past
three years.
- Accepting compensation from the Company or any of its affiliates currently or
in the past three years, unless the Board of Directors certifies its belief
that the acceptance of compensation would not impact a director's
independence.
- Being an immediate family member of a person who is or has been in the past
three years an executive officer of the Company or any of its affiliates.
- Being a partner, controlling shareholder, or executive officer of an
organization to which the Company has made or received payments, unless the
Board of Directors certifies its belief that the payments or receipts would
not impact a director's independence. No certification is necessary once
three years elapse following the termination of the relationship between
either (1) the relevant organization and the Company, or (2) the director and
the relevant organization.
- Being an executive of a corporation if any executive of the Company sits on
the compensation committee of such other corporation.
All members of the Committee shall have a working familiarity with
basic finance and accounting practices, and at least one member of the Committee
shall have accounting or related financial management expertise. It will be at
the Board of Directors discretion as to each Committee member's ability to meet
these requirements.
The members of the Committee shall be appointed by the Board at the
annual organizational meeting of the Board or until their successors shall be
duly appointed and qualified. Unless a Chair is appointed by the full Board, the
members of the Committee may designate a Chair by majority vote of the full
Committee membership.
A-3
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 14, 2001,
at the Annual Meeting of Shareholders to be held on May 17, 2001, or any
adjournment or adjournments thereof.
You are encouraged to specify your choice by marking the appropriate
box, but you need not mark either box if you wish to vote FOR the election of
all nominees. The Proxies cannot vote your shares unless you sign and return
this card.
1. Election of Directors
_ _
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.___________________________________________
In their discretion, the Proxies are authorized to vote on such other
business as may properly come before the meeting.
The signer hereby revokes all proxies heretofore given by the signer to
vote at said meeting or any adjournments thereof. This proxy is revocable at any
time before it is exercised, the signer retaining the right to attend the
meeting and vote in person.
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR the election of
directors.
NOTE: Please sign exactly as name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or
other authorized officer. If a partnership, please sign in
partnership name by an authorized person.
SIGNATURE(S) ________________________________________________ DATE __________
PLEASE MARK, SIGN, DATE, AND
RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.