APPENDIX A

 

SOUTHWESTERN ENERGY COMPANY

 

2004 STOCK INCENTIVE PLAN

(As Adopted February 17, 2004)

 

1.    Purpose of the Plan

 

This Southwestern Energy Company 2004 Stock Incentive Plan is intended to promote the interests of the Company and its shareholders by providing the employees of the Company who are largely responsible for the management, growth and protection of the business of the Company, and non-employee directors of Southwestern Energy Company, with incentives and rewards to encourage them to continue in the service of the Company. The Plan is designed to meet this intent by providing such employees and non-employee directors with a proprietary interest in pursuing the long-term growth, profitability and financial success of the Company.

 

2.    Definitions

 

As used in the Plan, the following definitions apply to the terms indicated below:

 

(a)  “Board of Directors” shall mean the Board of Directors of Southwestern.

 

(b)  “Cause” when used in connection with the termination of a Participant’s employment with the Company, shall, unless otherwise specified in a Participant’s agreement evidencing an Incentive Award under the Plan, mean the termination of the Participant’s employment by the Company on account of (i) the willful and continued failure by the Participant to substantially perform his duties and obligations (other than any such failure resulting from his incapacity due to physical or mental illness), (ii) the Participant’s willful and serious misconduct which has resulted in or could reasonably be expected to result in material injury to the business, financial condition or reputation of the Company, (iii) the Participant’s commission of a crime that constitutes a felony or serious misdemeanor or (iv) the breach by the Participant of any written covenant or agreement with the Company not to disclose any information pertaining to the Company or not to compete or interfere with the Company.

 

(c)  “Change in Control” shall mean the occurrence of any of the following:

 

(i)  any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), an “Acquiring Person”) becomes the “beneficial owner” (as such term is defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Southwestern representing 20% or more of the combined voting power of Southwestern’s then outstanding securities, provided, however, that any acquisition by (A) Southwestern or any of its subsidiaries, or any employee benefit plan (or related trust) sponsored or maintained by Southwestern or any of its subsidiaries or (B) any corporation with respect to which, immediately following such acquisition, more than 60% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, in the aggregate by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Southwestern Common Stock and Southwestern voting securities immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the outstanding Southwestern Common Stock and Southwestern voting securities, as the case may be, shall not constitute a Change in Control;

 

(ii)  consummation by Southwestern of a reorganization, merger or consolidation (a “Business Combination”), in each case, with respect to which all or substantially all of the individuals and entities who

 

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were the respective beneficial owners of the outstanding Southwestern Common Stock and Southwestern voting securities immediately prior to such Business Combination do not in the aggregate, immediately following such Business Combination, beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination in substantially the same proportion as their ownership immediately prior to such Business Combination of the outstanding Southwestern Common Stock and Southwestern voting securities, as the case may be;

 

(iii)  individuals who constituted the Board of Directors as of January 1, 2004 (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board of Directors, provided that any individual becoming a director subsequent to January 1, 2004 whose appointment to fill a vacancy or to fill a new Board of Directors’ position or whose nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with any actual or threatened solicitation of proxies (other than by the Company) that is or would be subject to Rule 14a-12(c) promulgated under the Exchange Act;

 

(iv)  a “change in control” of Southwestern of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act occurs;

 

(v)  (A) a complete liquidation or dissolution of Southwestern or (B) a sale or other disposition of all or substantially all of the assets of both the Exploration and Production and the Utility business segments of Southwestern other than to a corporation with respect to which, immediately following such sale or disposition, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, in the aggregate by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Southwestern Common Stock and Southwestern voting securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Southwestern Common Stock and Southwestern voting securities, as the case may be, immediately prior to such sale or disposition;

 

(vi)  other than with respect to a person who is employed in the Utility business segment of Southwestern, the sale or other disposition of all or substantially all the assets of the Exploration and Production business segment other than to a corporation with respect to which, immediately following such sale or disposition, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, in the aggregate by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the outstanding Southwestern Common Stock and Southwestern voting securities immediately prior to such sale or disposition in substantially the same proportion as their ownership of the outstanding Southwestern Common Stock and Southwestern voting securities, as the case may be, immediately prior to such sale or disposition; or

 

(vii)  a majority of the Board determines in its sole and absolute discretion that there has been a Change in Control of Southwestern or that there will be a Change in Control of Southwestern upon the occurrence of certain specified events and such events occur.

 

(d)  “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

 

(e)  “Committee” shall mean the Compensation Committee of the Board of Directors or such other committee as the Board of Directors shall appoint from time to time to administer the Plan and to otherwise exercise and perform the authority and functions assigned to the Committee under the terms of the Plan.

 

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(f)  “Common Stock” shall mean Southwestern’s Common Stock, $.10 par value per share, or any other security into which the common stock shall be changed pursuant to the adjustment provisions of Section 10 of the Plan.

 

(g)  “Company” shall mean Southwestern and each of its Subsidiaries.

 

(h)  “Covered Employee” shall mean a Participant who at the time of reference is a “covered employee” as defined in Code Section 162(m) and the regulations promulgated under Code Section 162(m), or any successor statute.

 

(i)  “Director” shall mean a member of the Board of Directors who is not at the time of reference an employee of the Company.

 

(j)  “Disability” shall mean a condition entitling a Participant to benefits under the long-term disability policy maintained by the Company and applicable to him and for a Director shall mean any physical or mental condition that prevents a Director from being able to perform the duties of a director for a period of twelve consecutive months.

 

(k)  “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

(l)  “Fair Market Value” shall mean, with respect to a share of Common Stock, as of the applicable date of determination (i) the closing sales price on the immediately preceding business day of a share of Common Stock as reported on the principal securities exchange on which shares of Common Stock are then listed or admitted to trading or (ii) if not so reported, the average of the closing bid and ask prices on the immediately preceding business day as reported on the National Association of Securities Dealers Automated Quotation System or (iii) if not so reported, as furnished by any member of the National Association of Securities Dealers, Inc. selected by the Committee. In the event that the price of a share of Common Stock shall not be so reported or furnished, the Fair Market Value of a share of Common Stock shall be determined by the Committee in its absolute discretion.

 

(m)  “Incentive Award” shall mean an Option, SAR, a share of Restricted Stock or a Restricted Stock Unit granted to a Participant pursuant to the terms of the Plan.

 

(n)  “Incentive Stock Option” shall mean an Option granted to a Participant who is not a Director which Option, at the date of grant, is intended to be an “incentive stock option” within the meaning of Section 422 of the Code and which is identified as an Incentive Stock Option in the agreement by which it is evidenced.

 

(o)  “Issue Date” shall mean the date established by the Committee on which certificates representing shares of Restricted Stock shall be issued by Southwestern pursuant to the terms of Section 8(a) hereof.

 

(p)  “Non-Qualified Stock Option” shall mean an Option granted to a Participant that is not an Incentive Stock Option.

 

(q)  “Option” shall mean an option to purchase shares of Common Stock granted to a Participant pursuant to the terms of the Plan. Each Option shall be identified as either an Incentive Stock Option or a Non-Qualified Stock Option in the agreement by which it is evidenced.

 

(r)  “Participant” shall mean a Director or employee of the Company who is eligible to participate in the Plan and to whom one or more Incentive Awards have been granted pursuant to the Plan and, following the death of any such employee, his successors, heirs, executors and administrators, as the case may be.

 

(s)  “Performance-Based Compensation” shall mean compensation that satisfies the requirements of Section 162(m) of the Code for deductibility of remuneration paid to Covered Employees.

 

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(t)  “Performance Measures” shall mean measures as described in Section 9 on which the performance goals are based and which are approved by the Company’s shareholders pursuant to the Plan in order to qualify certain awards granted hereunder as Performance-Based Compensation.

 

(u)  “Performance Period” shall mean the period of time during which the performance goals must be met in order to determine the degree of payout and/or vesting with respect to an Incentive Award.

 

(v)  “Person” shall mean a “person,” as such term is used in Section 13(d) or 14(d) of the Exchange Act.

 

(w)  “Plan” shall mean this Southwestern Energy Company 2004 Stock Incentive Plan, as it may be amended from time to time.

 

(x)  “Prior Plans” shall mean the Southwestern Energy Company 2000 Stock Incentive Plan and the Southwestern Energy Company 2002 Employee Stock Incentive Plan.

 

(y)  “Restricted Stock” shall mean a share of Common Stock which is granted to a Participant pursuant to Section 8 hereof and which is subject to the restrictions set forth in Section 8(c) hereof for so long as such restrictions continue to apply to such share.

 

(z)  “Restricted Stock Unit” shall mean a share of Common Stock which is granted to a Participant pursuant to Section 8 hereof, except no shares of Common Stock are actually awarded to the Participant on the date of grant, and which is subject to the restrictions set forth in Section 8(c) hereof for so long as such restrictions continue to apply to such Restricted Stock Unit.

 

(aa)  “Retirement” shall mean the termination of the employment of a Participant with the Company for reasons other than Cause (i) either on or after (A) the first date on which the Participant has both attained age 55 and completed 5 years of service with the Company or (B) the date on which the Participant attains age 65 and (ii) which the Committee has approved as a Retirement for purposes of the Plan and/or any Incentive Award.

 

(bb)  “SAR” shall mean a stock appreciation right granted to a Participant pursuant to Section 7 hereof which is not related to any Option.

 

(cc)  “Securities Act” shall mean the Securities Act of 1933, as amended.

 

(dd)  “Southwestern” shall mean Southwestern Energy Company, an Arkansas corporation, and any successor thereto.

 

(ee)  “Subsidiary” shall mean any “subsidiary corporation” within the meaning of Section 425(f) of the Code.

 

(ff)  “Vesting Date” shall mean the date established by the Committee on which a share of Restricted Stock or a Restricted Stock Unit may vest.

 

3.    Stock Subject to the Plan

 

Under the Plan, the Committee may grant to Participants (i) Options, (ii) SARs, (iii) shares of Restricted Stock and (iv) Restricted Stock Units.

 

(a)  Subject to adjustment as provided in Section 10 hereof, the maximum number of shares of Common Stock available for issuance to Participants under the Plan shall be 2,100,000 shares of Common Stock.

 

(b)  Subject to the limit set forth in Section 3(a) on the number of shares of Common Stock that may be issued in the aggregate under the Plan, in order to comply with the requirements of Code Section 422 and the

 

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regulations thereunder, the maximum number of shares of Common Stock available for issuance pursuant to Incentive Stock Options, Non-Qualified Stock Options and SARs shall be 1,750,000. The maximum number of shares of Common Stock available for issuance pursuant to Restricted Stock and Restricted Stock Units shall be 550,000.

 

Shares of Common Stock covered by Incentive Awards shall only be counted as used to the extent they are actually issued and delivered to a Participant (or such Participant’s permitted transferees as described in the Plan). Shares of Restricted Stock that do not vest and are forfeited back to the Company shall not be counted as used for purposes of determining the maximum number of shares available for issuance under the Plan and such forfeited shares shall be available for issuance under the Plan. Moreover, if any portion of the exercise price of any Option granted under the Plan or the tax withholding requirements with respect to any Incentive Award are satisfied by tendering shares of Common Stock to the Company (by either actual delivery or by attestation) or if an SAR is exercised, or, with respect to tax withholding requirements only, if shares are withheld to satisfy such requirements from the shares that would otherwise be delivered to the Participant, to the extent permitted under the requirements of Code Section 422, only the shares issued, net of the shares tendered or withheld, if any, will be deemed delivered for purposes of determining the maximum number of shares available for delivery under the Plan. Except to the extent otherwise required by applicable law or stock exchange rule, the maximum number of shares of Common Stock available for issuance under the Plan shall not be reduced to reflect any dividends or dividend equivalents that are reinvested into additional shares of Common Stock or credited as additional Restricted Stock or Restricted Stock Units.

 

(c)  Subject to adjustment as provided in Section 10 hereof, the following individual limits shall apply to grants of Incentive Awards under the Plan:

 

(i)  The maximum aggregate number of shares of Common Stock with respect to which Options and SARs may be granted in any one Plan year to any one Participant shall be 400,000; and

 

(ii)  The maximum aggregate number of shares of Common Stock with respect to which Restricted Stock or Restricted Stock Units in any one Plan year to any one Participant shall be 300,000.

 

(d)  Any shares of Common Stock that are available for issuance under the Prior Plans but that have not been issued and are not subject to outstanding awards under the Company’s Prior Plans as of February 17, 2004 shall be available for grant under the Plan. In addition, any shares of Common Stock subject to outstanding awards as of February 17, 2004 under the Prior Plans that on or after February 17, 2004, cease for any reason to be subject to such awards (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested and nonforfeitable shares of Common Stock), shall be available for grant under the Plan.

 

(e)  In no event shall any new Incentive Awards be issued in substitution for outstanding Incentive Awards previously granted to Participants, nor shall any repricing (within the meaning of U.S. generally accepted accounting practices or any applicable stock exchange rule) of Incentive Awards issued under the Plan be permitted at any time under any circumstances, in each case unless the shareholders of the Company expressly approve such substitution or repricing.

 

(f)  Shares of Common Stock issued under the Plan may be either authorized and unissued shares or treasury shares, at the discretion of the Committee.

 

4.    Administration of the Plan

 

The Plan shall be administered by the Committee, which shall consist of two or more persons, at least two of whom qualify as a “disinterested person,” within the meaning of Rule 16b-3 promulgated under Section 16 of the Exchange Act, and an “outside director,” within the meaning of Treasury Regulation Section 1.162-27(e)(2).

 

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The Committee shall, consistent with the terms of the Plan, from time to time designate the employees of the Company who shall be granted Incentive Awards under the Plan and the amount, type and other terms and conditions of such Incentive Awards. All of the powers and responsibilities of the Committee under the Plan may be delegated by the Committee, in writing, to any subcommittee thereof. In addition, the Committee may authorize an executive officer of Southwestern to grant Incentive Awards of a specified type, covering a specified aggregate number of shares of Common Stock and, in the case of any such grant of Options or SARs, at a specified exercise or base price (which may not be less than Fair Market Value on the date of grant) to a specified group of employees (other than Covered Employees) and within a specified period of time.

 

The Committee shall have full, discretionary authority to administer the Plan, including discretionary authority to interpret and construe any and all provisions of the Plan and the terms of any Incentive Award (and any agreement evidencing any Incentive Award) granted thereunder and to adopt and amend from time to time such rules and regulations for the administration of the Plan as the Committee may deem necessary or appropriate. Decisions of the Committee shall be final, binding and conclusive on all parties.

 

At or after the date of grant of an Incentive Award under the Plan, the Committee may (i) accelerate the date on which any such Incentive Award becomes vested, exercisable or transferable, as the case may be, (ii) extend the term of any such Incentive Award, including, without limitation, extending the period following a termination of a Participant’s employment during which any such Incentive Award may remain outstanding, or (iii) waive any conditions to the vesting, exercisability or transferability, as the case may be, of any such Incentive Award.

 

Whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment shall be determined by the Committee.

 

Neither the Company nor any member of the Committee shall be liable for any action, omission, or determination relating to the Plan, and Southwestern shall indemnify and hold harmless each member of the Committee and each other director or employee of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any action, omission or determination relating to the Plan, unless, in either case, such action, omission or determination was taken or made by such member, director or employee in bad faith and without reasonable belief that it was in the best interests of the Company.

 

5.    Eligibility

 

The Persons who shall be eligible to receive Incentive Awards pursuant to the Plan shall be those employees of the Company that the Committee shall select from time to time, including those key employees (including officers of Southwestern, whether or not they are directors of Southwestern) who are largely responsible for the management, growth and protection of the business of the Company, and Directors. All Incentive Awards granted under the Plan shall be evidenced by a separate written agreement entered into by the Company and the recipient of such Award.

 

6.    Options

 

The Committee may from time to time grant Options pursuant to the Plan to Participants, which Options shall be evidenced by agreements in such form as the Committee shall from time to time approve. Options shall comply with and be subject to the following terms and conditions:

 

(a)  Identification of Options

 

All Options granted under the Plan shall be identified in the agreement evidencing such Options as either Incentive Stock Options or Non-Qualified Stock Options.

 

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(b)  Exercise Price

 

The exercise price per share of Common Stock covered by any Option granted under the Plan shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date on which such Option is granted.

 

(c)  Term and Exercise of Options

 

(1) Each Option shall become vested and exercisable on such date or dates, during such period and for such number of shares of Common Stock as shall be determined by the Committee on or after the date such Option is granted; provided, however, that no Option shall be exercisable after the expiration of seven (7) years from the date such Option is granted; and, provided, further, that each Option shall be subject to earlier termination, expiration or cancellation as provided in the Plan or in the agreement evidencing such Option.

 

(2)  Each Option may be exercised in whole or in part, to the extent such Option is vested on the date of exercise; provided, that no partial exercise of an Option shall be for an aggregate exercise price of less than $1,000. The partial exercise of an Option shall not cause the expiration, termination or cancellation of the remaining portion thereof.

 

(3)  An Option shall be exercised by delivering notice to Southwestern’s principal office, to the attention of its Secretary, no less than three business days in advance of the effective date of the proposed exercise. Such notice shall specify the number of shares of Common Stock with respect to which the Option is being exercised and the effective date of the proposed exercise and shall be signed by the Participant. The Participant may withdraw such notice at any time prior to the close of business on the business day immediately preceding the effective date of the proposed exercise. Payment for shares of Common Stock purchased upon the exercise of an Option shall be made on the effective date of such exercise either (i) in cash, by certified check, bank cashier’s check or wire transfer, (ii) through the directed brokerage service, if any, approved by the Committee or (iii) in shares of Common Stock that have been owned by the Participant for at least six months prior to the effective date of exercise and valued at their Fair Market Value on the effective date of such exercise, or partly in shares of Common Stock with the balance in cash, by certified check, bank cashier’s check or wire transfer. Any payment in shares of Common Stock shall be effected by the delivery of such shares to the Secretary of Southwestern, duly endorsed in blank or accompanied by stock powers duly executed in blank, together with any other documents and evidences as the Secretary of Southwestern shall require from time to time.

 

(4)  Certificates for shares of Common Stock purchased upon the exercise of an Option shall be issued in the name of the Participant and delivered to the Participant as soon as practicable following the effective date on which the Option is exercised.

 

(5)  During the lifetime of a Participant, each Option granted to him or her shall be exercisable only by the Participant. No Option shall be assignable or transferable otherwise than by will or by the laws of descent and distribution. Notwithstanding the foregoing, with the prior consent of the Committee, any Non-Qualified Stock Option, including the right to exercise such option, may be transferred by a Participant during the Participant’s lifetime, but only to: (i) one or more of a Participant’s spouse or natural or adopted lineal descendants; or (ii) a trust, partnership, or corporation or other similar entity which is owned solely by one or more of the Participant’s spouse or natural or adopted lineal descendants or which will hold such Non-Qualified Stock Options solely for the benefit of one or more of such persons.

 

(d)  Limitations on Grant of Incentive Stock Options

 

(1)  Incentive Stock Options may not be granted to Directors.

 

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(2)  The aggregate fair market value (within the meaning of Section 422 of the Code) of the shares of Common Stock covered by “incentive stock options” (within the meaning of Section 422 of the Code) granted under the Plan and under any other plan, agreement or arrangement of the Company (or any “subsidiary” of Southwestern as such term is defined in Section 425 of the Code) which may become exercisable for the first time by a Participant during any calendar year shall not exceed $100,000. To the extent, if any, that such aggregate fair market value limitation is exceeded, then Incentive Stock Options granted hereunder to such Participant shall, to the extent and in the order required by regulations promulgated under the Code, automatically be deemed to be Non-Qualified Stock Options, but all other terms and provisions of such Incentive Stock Options shall remain unchanged.

 

(3)  No Incentive Stock Option may be granted to an individual if, at the time of the proposed grant, such individual owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of Southwestern or any Subsidiary thereof, unless (i) the exercise price of such Incentive Stock Option is at least one hundred and ten percent of the Fair Market Value of a share of Common Stock at the time such Incentive Stock Option is granted and (ii) such Incentive Stock Option is not exercisable after the expiration of five (5) years from the date such Incentive Stock Option is granted.

 

(e)  Effect of Termination of Employment – Participants Other than Directors

 

(1) Unless the Committee provides otherwise on or after the date of grant, in the event that the employment of a Participant with the Company and its Subsidiaries shall terminate for any reason other than Disability, Retirement, Cause or death (i) Options granted to such Participant, to the extent that they were vested and exercisable at the time of such termination, shall remain exercisable until the expiration of ninety days after such termination, on which date they shall expire to the extent not exercised, and (ii) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; provided, however, that no Option shall be exercisable after the expiration of its original term.

 

(2) Unless the Committee provides otherwise on or after the date of grant, in the event that the employment of a Participant with the Company and its Subsidiaries shall terminate on account of the Disability or Retirement of the Participant, such Participant shall be entitled to exercise at any time or from time to time after such termination and until the first anniversary of such termination, Options granted to him hereunder to the extent that such Options were vested and exercisable at the time of such termination provided however, that no Option shall be exercisable after the expiration of its original term.

 

(3) Unless the Committee provides otherwise on or after the date of grant, in the event that the employment of a Participant with the Company and its Subsidiaries shall terminate on account of the death of the Participant, such Participant’s estate or beneficiary under his will shall be entitled to exercise, at any time or from time to time until the first anniversary of such termination, Options granted to him hereunder to the extent that such Options were exercisable at the time of such termination; provided, however, that no Option shall be exercisable after the expiration of its original term. Options that are not exercised prior to the first anniversary of such termination shall expire on such anniversary date.

 

(4)  In the event of the termination of a Participant’s employment with the Company and its Subsidiaries for Cause, all outstanding Options granted to such Participant shall expire at the commencement of business on the date of such termination.

 

(5)  For purposes of this Section 6(e), an Option shall be deemed to be exercisable on the date of the termination of the employment of a Participant with the Company to the extent, if any, it becomes exercisable by acceleration by the Committee.

 

(6)  For purposes of clarification, Options held by a Participant employed by an entity that is a Subsidiary of the Company will terminate immediately when such entity ceases to be a Subsidiary of the Company, unless the Committee determines otherwise.

 

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(f)  Effect of Discontinuance of Director’s Term

 

(1)  In the event that the term of a Director’s membership on the Board of Directors expires because the Director loses an election for a position on the Board of Directors, resigns from the Board of Directors prior to his completing ten years of service as a director or attaining age 72 or fails to seek reelection to the Board of Directors for a term commencing prior to his completing ten years of service as a director or attaining age 72 (in any case, other than on account of death or Disability) (a) Options granted to such Director, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the expiration of three months after such termination, on which date they shall expire to the extent not exercised, and (b) Options granted to such Director, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; provided, however, that no Options shall be exercisable after the expiration of its original term.

 

(2)  In the event that the term of a Director’s membership on the Board of Directors expires (i) because of the Director’s resignation on or after age 72 or after completing ten years of service, (ii) because of his failure to seek reelection on or after age 72 or after completing ten years of service or (iii) because of the Director’s Disability or death (A) Options granted to such Director, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the expiration of one year after such termination, on which date they shall expire to the extent not exercised, and (B) Options granted to such Director, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; provided, however, that no Option shall be exercisable after the expiration of its original term.

 

(3)  In the event that a Director is removed from the Board of Directors by the shareholders of the Company, all outstanding Options granted to such Director shall expire at the commencement of business on the date of such removal.

 

(g)   Effect of Change in Control

 

Upon the occurrence of a Change in Control, each Option granted under the Plan and outstanding at such time shall become fully and immediately vested and exercisable and shall remain exercisable until its expiration, termination or cancellation pursuant to the terms of the Plan and the agreement evidencing such Option.

 

(h)  Cash Tax Bonuses

 

The Committee may grant to any Participant a cash tax bonus in an amount determined by the Committee to enable the Participant to pay any federal, state or local income taxes arising out of the exercise of an Option.

 

7.    Stock Appreciation Rights

 

The Committee may grant SARs pursuant to the Plan, which SARs shall be evidenced by an agreement in such form as the Committee shall from time to time approve. SARs shall comply with and be subject to the following terms and conditions:

 

(a)  Exercise Price

 

The exercise price per share of Common Stock covered by any SAR granted under the Plan shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date on which such SAR is granted.

 

(b)  Benefit Upon Exercise

 

The exercise of an SAR with respect to any number of shares of Common Stock prior to the occurrence of a Change in Control shall entitle the Participant to (i) a cash payment, for each such share, equal to the

 

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excess of (A) the Fair Market Value of a share of Common Stock on the effective date of such exercise over (B) the per share exercise price of the SAR, (ii) the issuance or transfer to the Participant of the greatest number of whole shares of Common Stock which on the date of the exercise of the SAR have an aggregate Fair Market Value equal to such excess or (iii) a combination of cash and shares of Common Stock in amounts equal to such excess, all as determined by the Committee. The exercise of an SAR with respect to any number of shares of Common Stock upon or after the occurrence of a Change in Control shall entitle the Participant to a cash payment, for each such share, equal to the excess of (i) the greater of (A) the highest price per share of Common Stock paid in connection with such Change in Control, or (B) the Fair Market Value of a share of Common Stock on the effective date of exercise, over (ii) the per share exercise price of the SAR. Such payment, transfer or issuance shall occur as soon as practical, but in no event later than five business days, after the effective date of the exercise.

 

(c)  Term and Exercise of SARs

 

(1)  Each SAR shall be exercisable on such date or dates, during such period and for such number of shares of Common Stock as shall be determined by the Committee and set forth in the SAR agreement with respect to such SAR; provided, however, that no SAR shall be exercisable after the expiration of seven (7) years from the date such SAR is granted; and, provided, further, that each SAR shall be subject to earlier termination, expiration or cancellation as provided in the Plan or in the agreement evidencing such SAR.

 

(2)  Each SAR may, to the extent vested and exercisable, be exercised in whole or in part; provided, that no partial exercise of an SAR shall be for an aggregate exercise price of less than $1,000. The partial exercise of an SAR shall not cause the expiration, termination or cancellation of the remaining portion thereof.

 

(3)  An SAR shall be exercised by delivering notice to Southwestern’s principal office, to the attention of its Secretary, no less than three business days in advance of the effective date of the proposed exercise. Such notice shall specify the number of shares of Common Stock with respect to which the SAR is being exercised and the effective date of the proposed exercise and shall be signed by the Participant. The Participant may withdraw such notice at any time prior to the close of business on the business day immediately preceding the effective date of the proposed exercise.

 

(4)  During the lifetime of a Participant, each SAR granted to him shall be exercisable only by the Participant. No SAR shall be assignable or transferable otherwise than by will or by the laws of descent and distribution.

 

(d)  Effect of Termination of Employment – Participants other than Directors

 

(1)  Unless the Committee provides otherwise on or after the date of grant, in the event that the employment of a Participant with the Company and its Subsidiaries shall terminate for any reason other than Cause, Disability, Retirement or death (i) SARs granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the expiration of ninety days after such termination, on which date they shall expire to the extent not exercised, and (ii) SARs granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; provided, however, that no SAR shall be exercisable after the expiration of its original term.

 

(2)  Unless the Committee provides otherwise on or after the date of grant, in the event that the employment of a Participant with the Company and its Subsidiaries shall terminate on account of the Disability, Retirement or death of the Participant (i) SARs granted to such Participant, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the expiration of one year after such termination, on which date they shall expire to the extent not exercised, and (ii) SARs granted to

 

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such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; provided, however, that no SAR shall be exercisable after the expiration of its original term.

 

(3)  In the event of the termination of a Participant’s employment with the Company and its Subsidiaries for Cause, all outstanding SARs granted to such Participant shall expire at the commencement of business on the date of such termination.

 

(4)  For purposes of clarification, SARs held by a Participant employed by an entity that is a Subsidiary of the Company will terminate immediately when such entity ceases to be a Subsidiary of the Company, unless the Committee determines otherwise.

 

(e)  Effect of Discontinuance of Director’s Term

 

(1)  In the event that the term of a Director’s membership on the Board of Directors expires because the Director loses an election for a position on the Board of Directors, resigns from the Board of Directors prior to his completing ten years of service as a director or attaining age 72 or fails to seek reelection to the Board of Directors for a term commencing prior to his completing ten years of service as a director or attaining age 72 (in any case, other than on account of death or Disability) (a) SARs granted to such Director, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the expiration of three months after such termination, on which date they shall expire to the extent not exercised, and (b) SARs granted to such Director, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; provided, however, that no SARs shall be exercisable after the expiration of its original term.

 

(2)  In the event that the term of a Director’s membership on the Board of Directors expires (i) because of the Director’s resignation on or after age 72 or after completing ten years of service, (ii) because of his failure to seek reelection on or after age 72 or after completing ten years of service or (iii) because of the Director’s Disability or death (A) SARs granted to such Director, to the extent that they were exercisable at the time of such termination, shall remain exercisable until the expiration of one year after such termination, on which date they shall expire to the extent not exercised, and (B) SARs granted to such Director, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; provided, however, that no SAR shall be exercisable after the expiration of its original term.

 

(3)  In the event that a Director is removed from the Board of Directors by the shareholders of the Company, all outstanding SARs granted to such Director shall expire at the commencement of business on the date of such removal.

 

(f)  Effect of Change in Control

 

Upon the occurrence of a Change in Control, any SAR granted under the Plan and outstanding at such time shall become fully and immediately vested and exercisable and shall remain exercisable until its expiration, termination or cancellation pursuant to the terms of the Plan.

 

8.    Restricted Stock and Restricted Stock Units

 

The Committee may grant shares of Restricted Stock or Restricted Stock Units pursuant to the Plan. Each grant of shares of Restricted Stock or Restricted Stock Units shall be evidenced by an agreement in such form as the Committee shall from time to time approve. Each grant of shares of Restricted Stock or Restricted Stock Units shall comply with and be subject to the following terms and conditions:

 

(a)  Issue Date and Vesting Date

 

At the time of the grant of shares of Restricted Stock or Restricted Stock Units, the Committee shall establish an Issue Date or Issue Dates (in the case of the grant of shares of Restricted Stock) and a Vesting Date

 

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or Vesting Dates (in the case of Restricted Stock or Restricted Stock Units) with respect to such shares and the conditions, if any, which must be satisfied on or prior to such Vesting Date for the Participant’s rights with respect to such shares of Restricted Stock or Restricted Stock Units to become vested. The Committee may divide such shares or units into classes and assign a different Issue Date and/or Vesting Date and different conditions for each class. Except as provided in Section 8(c) and 8(f) hereof, upon the occurrence of the Issue Date with respect to a share of Restricted Stock, a share of Restricted Stock shall be issued in accordance with the provisions of Section 8(d) hereof. Provided that all conditions to the vesting of a share of Restricted Stock imposed pursuant to Section 8(b) hereof and any agreement evidencing such Restricted Stock are satisfied, and except as provided in Section 8(c) and 8(f) hereof, upon the occurrence of the Vesting Date with respect to a share of Restricted Stock, the Participant’s rights with respect to such share shall become fully vested and the restrictions of Section 8(c) hereof shall cease to apply to such share. Provided that all conditions to the vesting of a Restricted Stock Unit imposed pursuant to Section 8(b) hereof and any agreement evidencing such Restricted Stock Unit are satisfied, and except as provided in Section 8(c) and 8(f) hereof, upon the occurrence of the Vesting Date with respect to Restricted Stock Unit, the Participant’s rights with respect to such Restricted Stock Unit shall become fully vested and the Company shall settle such Restricted Stock Unit award in accordance with the provisions of Section 8(e).

 

(b)  Conditions to Vesting

 

At the time of the grant of shares of Restricted Stock or Restricted Stock Units, the Committee may impose such restrictions or conditions, not inconsistent with the provisions hereof, to the vesting of such shares as it deems appropriate. By way of example and not by way of limitation, the Committee may require, as a condition to the vesting of any class or classes of shares of Restricted Stock or Restricted Stock Units, that the Participant or the Company achieve such Performance Measures or other performance criteria as the Committee may specify at the time of the grant of such shares or that the Participant continue in the employment of the Company for a specified period of time.

 

(c)  Restrictions on Transfer Prior to Vesting

 

Prior to the vesting of a share of Restricted Stock, such share of Restricted Stock shall not be transferable under any circumstances and no transfer of a Participant’s rights with respect to such share, whether voluntary or involuntary, by operation of law or otherwise, shall vest the transferee with any interest or right in or with respect to such share, but immediately upon any attempt to transfer such rights, such share, and all of the rights related thereto, shall be cancelled and shall be forfeited by the Participant and the transfer shall be of no force or effect. Prior to the vesting of a Restricted Stock Unit, such Restricted Stock Unit shall not be transferable under any circumstances and no transfer of a Participant’s rights with respect to such Restricted Stock Unit, whether voluntary or involuntary, by operation of law or otherwise, shall vest the transferee with any interest or right in or with respect to such Restricted Stock Unit, but immediately upon any attempt to transfer such rights, such Restricted Stock Unit, and all of the rights related thereto, shall be cancelled and shall be forfeited by the Participant and the transfer shall be of no force or effect.

 

(d)  Issuance of Certificates

 

(1)  Except as provided in Section 8(c) or 8(f) hereof, reasonably promptly after the Issue Date with respect to shares of Restricted Stock, the Company shall cause to be issued stock certificates, registered in the name of the Participant to whom such shares were granted, evidencing such shares; provided, that the Company shall not cause to be issued such a stock certificate unless it has received a stock power duly endorsed in blank with respect to such shares. Each such stock certificate shall bear the following legend:

 

The transferability of this certificate and the shares of stock represented hereby are subject to the restrictions, terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the Southwestern Energy Company 2004 Stock Incentive Plan and an

 

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Agreement entered into between the registered owner of such shares and Southwestern Energy Company. A copy of the Plan and Agreement are on file in the principal executive offices of the Company.

 

Such legend shall not be removed from the certificate evidencing such shares unless and until such shares become vested and the restrictions on the transfer thereof lapse pursuant to the terms hereof and any agreement evidencing such Restricted Stock.

 

(2)  Each certificate issued pursuant to Section 8(d)(1) hereof, together with the stock powers relating to the shares of Restricted Stock evidenced by such certificate, shall be held by the Company as custodian.

 

(e)  Benefits Upon Vesting

 

Upon the vesting of a share of Restricted Stock pursuant to the terms hereof, the restrictions of Section 8(c) hereof shall cease to apply to such share. Reasonably promptly after a share of Restricted Stock vests pursuant to the terms hereof, the Company shall cause to be issued and delivered to the Participant to whom such shares were granted, a certificate evidencing such share, free of the legend set forth in Section 8(d)(1) hereof, together with any other property of the Participant held by the Company as custodian pursuant to Section 8(d)(2) hereof.

 

Upon the vesting of a Restricted Stock Unit pursuant to the terms hereof, the Participant shall be entitled to receive, within 30 days of the applicable Vesting Date or such later date as the Committee shall determine, a payment in cash, shares of Common Stock, or a combination of cash and shares of Common Stock as the Committee, in its sole discretion, shall determine with a value equal to the sum of (i) the Fair Market Value of a share of Common Stock on the applicable Vesting Date with respect to each such Restricted Stock Unit and (ii) the aggregate amount of cash dividends, if any, paid with respect to a share of Common Stock during the period commencing on the date on which such Restricted Stock Unit was granted to the Participant and terminating on the applicable Vesting Date for such Restricted Stock Unit.

 

(f)  Effect of Termination of Employment – Participants Other than Directors

 

(1)  Unless the Committee provides otherwise on or after the date of grant, in the event that the employment of a Participant with the Company and its Subsidiaries shall terminate for any reason other than Cause prior to the vesting of Restricted Stock or Restricted Stock Units granted to such Participant, a portion of such Restricted Stock or Restricted Stock Units, to the extent not forfeited or cancelled on or prior to such termination pursuant to any provision hereof or any agreement evidencing such Restricted Stock or Restricted Stock Units, shall vest on the date of such termination. The portion referred to in the preceding sentence shall be determined by the Committee and may be based on the achievement of any conditions imposed by the Committee with respect to such Restricted Stock or Restricted Stock Units pursuant to Section 8(b). Such portion may be zero.

 

(2)  In the event of the termination of a Participant’s employment with the Company and its Subsidiaries for Cause, all Restricted Stock or Restricted Stock Units granted to such Participant which have not vested as of the date of such termination shall immediately be cancelled and forfeited.

 

(3)  For purposes of clarification, unvested Restricted Stock and Restricted Stock Units held by a Participant employed by an entity that is a Subsidiary of the Company will terminate and be forfeited immediately when such entity ceases to be a Subsidiary of the Company, unless the Committee determines otherwise.

 

(g)  Effect of Discontinuance of Director’s Term

 

(1)  Unless the Committee provides otherwise on or after the date of grant, in the event that the term of a Director’s membership on the Board of Directors expires for any reason other than a removal of the

 

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Director from the Board of Directors by the shareholders of the Company prior to the Vesting Date with respect to Restricted Stock or Restricted Stock Units granted to such Director, a portion of such shares or units, as the case may be, to the extent not forfeited or cancelled on or prior to such termination pursuant to any provision hereof or of the agreement evidencing such Restricted Stock or Restricted Stock Units, shall vest on the date of such termination. The portion referred to in the preceding sentence shall be determined by the Committee at or after the time of the grant of such Restricted Stock or Restricted Stock Units and may be based on the achievement of any conditions imposed by the Committee with respect to such Restricted Stock or Restricted Stock Units pursuant to Section 8(b). Such portion may be zero.

 

(2)  In the event that a Director is removed from the Board of Directors by the shareholders of the Company, all Restricted Stock and Restricted Stock units granted to such Director which have not vested as of the date of such termination shall immediately be forfeited.

 

(h)   Effect of Change in Control

 

Upon the occurrence of a Change in Control, all shares of Restricted Stock which have not theretofore vested (including those with respect to which the Issue Date has not yet occurred), or been cancelled or forfeited pursuant to any provision hereof or any agreement evidencing such Restricted Stock, shall immediately vest.

 

(i)   Cash Tax Bonuses

 

The Committee may grant to any Participant a cash tax bonus in an amount determined by the Committee to enable the Participant to pay any federal, state or local income taxes arising out of the award or vesting of Restricted Stock or Restricted Stock Units.

 

9.     Performance Measures

 

(a)   Performance Measures

 

The following are the Performance Measures upon which the payment or vesting of an Incentive Award to a Covered Employee issued under this Plan that is intended to qualify as Performance-Based Compensation shall be based until the first annual meeting of shareholders of the Company that occurs in the fifth year following the year in which the shareholders approve the adoption of this Plan, unless the Committee earlier proposes for shareholder vote and the shareholders approve a change in the general Performance Measures: (1) Present Value per Dollar Invested; (2) Relative Total Shareholder Return; (3) Reserve Replacement Efficiency; (4) Total O&M Costs per Therm; (5) Therms Delivered per Employee; (6) Return on Assets; (7) Cash Flow per Share; (8) Earnings per Share; (9) Return on Equity; (10) Net Income; (11) Production; and (12) Reserve Additions.

 

Any Performance Measure(s) may be used to measure the performance of the Company or a Subsidiary as a whole or any business unit of the Company or any Subsidiary or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Measures as compared to the performance of a group of comparable companies, or a published or special index that the Committee, in its sole discretion, deems appropriate. The Committee has the authority to make the grant, vesting or settlement of any Incentive Award issued or to be issued under the Plan contingent upon the achievement of the Performance Measures specified in this Article 9. The Committee also has the authority to provide for accelerated vesting of any award based on the achievement of performance goals pursuant to the Performance Measures specified in this Article 9. The Committee also has the authority to use any other performance measures in connection with awards under the Plan that are not intended to qualify as Performance-Based Compensation.

 

(b)   Committee Discretion

 

In the event that the requirements of Section 162(m) and the regulations thereunder change to permit Committee discretion to alter the governing Performance Measures without obtaining shareholder approval of

 

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such changes, the Committee shall have sole discretion to make such changes without obtaining shareholder approval. In addition, in the event that the Committee determines that it is advisable to grant awards that shall not qualify as Performance-Based Compensation and/or to amend previously granted awards in a way that would disqualify them as Performance-Based Compensation, the Committee may make such grants without satisfying the requirements of Code Section 162(m) and may base vesting on Performance Measures other than those set forth in Section 9 and/or make such amendments.

 

10.    Adjustment Upon Changes in Common Stock

 

(a)  Adjustment upon Certain Events

 

In the event of any change in the shares of Common Stock outstanding by reason of any stock dividend or split, recapitalization, merger, consolidation, combination, spin-off, reclassification or exchange of shares or similar corporate change (such change, an “Adjustment Event”), (i) the maximum aggregate number of shares of Common Stock with respect to which Incentive Awards may be granted under the Plan, the maximum number of Incentive Awards that may be granted to any individual Participant in a calendar year, (ii) the type or class of securities with respect to which Incentive Awards may be granted under the Plan, (iii) the number, type and class of securities covered by any then outstanding Options and SARs and the respective exercise prices applicable under any then outstanding Options and SARs and (iv) the number, type and class of securities covered by any other then outstanding Incentive Awards and the respective limitations or other criteria applicable to any then outstanding Incentive Awards may be appropriately adjusted as the Committee shall determine to prevent enlargement or dilution of the rights of Participants hereunder and the Committee’s determination hereunder shall be conclusive. In the event of any change in the shares of Common Stock outstanding by reason of any other event or transaction, the Committee may, but need not, make such adjustments in the number, type and class of shares of securities with respect to which Incentive Awards may be granted or that are subject to then outstanding Incentive Awards, and the other terms and conditions of then outstanding Incentive Awards, as the Committee may deem appropriate to prevent enlargement or dilution of the rights of Participants hereunder and the Committee determination shall be conclusive.

 

(b)  Outstanding Restricted Stock and Restricted Stock Units

 

Unless the Committee otherwise determines, any securities or other property (including dividends paid in cash) issued or paid with respect to shares of Restricted Stock or shares of Common Stock underlying Restricted Stock Units that are outstanding as of the date an Adjustment Event occurs which have not vested as of such date shall be promptly deposited with the Company pursuant to Section 8(d)(2) and shall not become vested or transferable to the Participant unless and until such Participant’s rights with respect to the related shares of Restricted Stock or shares of Common Stock underlying the Restricted Stock Units become vested.

 

(c)  Outstanding Options and SARs – Certain Transactions

 

Notwithstanding any other provision of the Plan, in the event of (i) a dissolution or liquidation of Southwestern, (ii) a sale of all or substantially all of Southwestern’s assets or (iii) a merger or consolidation involving Southwestern, the Committee shall have the power to:

 

(A)  cancel, effective immediately prior to the occurrence of such event, each Option and SAR outstanding immediately prior to such event (whether or not then vested or exercisable), and, in full consideration of such cancellation, pay to the Participant to whom such Option or SAR was granted an amount in cash, for each share of Common Stock subject to such Option or SAR, respectively, immediately prior to such event, equal to the excess of (A) the value, as determined by the Committee of the property (including cash) received by the holder of a share of Common Stock as a result of such event over (B) the exercise price of such Option or SAR; or

 

(B)  provide for the exchange of all or a portion of such Options and/or SARs outstanding immediately prior to such event (whether or not then vested or exercisable) for equivalent options or stock appreciation

 

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rights covering securities of the acquiring entity (or the ultimate parent thereof) and, incident thereto, make an equitable adjustment as determined by the Committee in the exercise price of such exchanged option or stock appreciation right, and/or the number, type and class of securities subject to such exchanged option or stock appreciation right or, if appropriate, provide for a cash payment to the Participant to whom such Option or SAR was granted in partial consideration for the exchange of the Option or SAR.

 

(d)  No Other Rights

 

Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger or consolidation of Southwestern or any other corporation. Except as expressly provided in the Plan, no issuance by Southwestern of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reasons thereof shall be made with respect to, the number of shares of Common Stock subject to an Incentive Award or the exercise price of any Option or SAR.

 

11.    Rights as a Stockholder

 

No person shall have any rights as a stockholder with respect to any shares of Common Stock covered by or relating to any Incentive Award granted pursuant to the Plan until the date of the issuance of a stock certificate with respect to such shares. Except as otherwise expressly provided in Section 10 hereof, no adjustment of any Incentive Award shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued.

 

12.    No Special Employment Rights; No Right to Incentive Award

 

Nothing contained in the Plan or any Incentive Award shall confer upon any Participant any right with respect to the continuation of his employment by or service to the Company or interfere in any way with the right of the Company at any time to terminate such employment or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Incentive Award.

 

No person shall have any claim or right to receive an Incentive Award hereunder. The Committee’s granting of an Incentive Award to a Participant at any time shall neither require the Committee to grant an Incentive Award to such Participant or any other Participant or other person at any time nor preclude the Committee from making subsequent grants to such Participant or any other Participant or other person.

 

13.    Securities Matters

 

(a) Southwestern shall be under no obligation to effect the registration pursuant to the Securities Act of any shares of Common Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, Southwestern shall not be obligated to cause to be issued or delivered any certificates evidencing shares of Common Stock pursuant to the Plan unless and until Southwestern is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Common Stock are traded. The Committee may require, as a condition to the issuance and delivery of certificates evidencing shares of Common Stock pursuant to the terms hereof, that the recipient of such shares make such covenants, agreements and representations, and that such certificates bear such legends, as the Committee deems necessary or desirable.

 

(b) The exercise of any Option granted hereunder shall only be effective at such time as counsel to Southwestern shall have determined that the issuance and delivery of shares of Common Stock pursuant to such exercise is in compliance with all applicable laws, regulations of governmental authority and the requirements of

 

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any securities exchange on which shares of Common Stock are traded. Southwestern may, in its sole discretion, defer the effectiveness of an exercise of an Option hereunder or the issuance or transfer of shares of Common Stock pursuant to any Incentive Award pending or to ensure compliance under federal or state securities laws. Southwestern shall inform the Participant in writing of its decision to defer the effectiveness of the exercise of an Option or the issuance or transfer of shares of Common Stock pursuant to any Incentive Award. During the period that the effectiveness of the exercise of an Option has been deferred, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto.

 

14.    Withholding Taxes

 

(a)  Cash Remittance

 

Whenever shares of Common Stock are to be issued upon the exercise of an Option or the grant or vesting of an Incentive Award, Southwestern shall have the right to require the Participant to remit to Southwestern in cash an amount sufficient to satisfy federal, state and local withholding tax requirements, if any, attributable to such exercise, grant or vesting prior to the delivery of any certificate or certificates for such shares or the effectiveness of the lapse of such restrictions. In addition, upon the exercise or settlement of any Incentive Award in cash, Southwestern shall have the right to withhold from any cash payment required to be made pursuant thereto an amount sufficient to satisfy the federal, state and local withholding tax requirements, if any, attributable to such exercise or settlement.

 

(b)  Stock Remittance

 

At the election of the Participant, subject to the approval of the Committee, when shares of Common Stock are to be issued upon the exercise, grant or vesting of an Incentive Award, the Participant may tender to Southwestern a number of shares of Common Stock that have been owned by the Participant for at least six months having a Fair Market Value at the tender date determined by the Committee to be sufficient to satisfy the federal, state and local withholding tax requirements, if any, attributable to such exercise, grant or vesting but not greater than such withholding obligations. Such election shall satisfy the Participant’s obligations under Section 14(a) hereof, if any.

 

(c)  Stock Withholding

 

At the election of the Participant, subject to the approval of the Committee, when shares of Common Stock are to be issued upon the exercise, grant or vesting of an Incentive Award, Southwestern shall withhold a number of such shares having a Fair Market Value at the exercise date determined by the Committee to be sufficient to satisfy the federal, state and local withholding tax requirements, if any, attributable to such exercise, grant or vesting but not greater than such withholding obligations. Such election shall satisfy the Participant’s obligations under Section 14(a) hereof, if any.

 

15.  Amendment or Termination of the Plan

 

The Board of Directors may at any time suspend or discontinue the Plan or revise or amend it in any respect whatsoever; provided, however, that without approval of the shareholders, the Board of Directors may not amend Section 3(e) of the Plan, and, provided, further, that without approval of the shareholders, no revision or amendment shall (i) except as provided in Section 10 hereof, increase the number of shares of Common Stock that may be issued under the Plan, (ii) materially increase the benefits accruing to individuals holding Incentive Awards granted pursuant to the Plan, or (iii) materially modify the requirements as to eligibility for participation in the Plan. Nothing herein shall restrict the Committee’s ability to exercise its discretionary authority hereunder pursuant to Section 4 hereof, which discretion may be exercised without amendment to the Plan. No action hereunder may, without the consent of a Participant, reduce the Participant’s rights under any previously granted and outstanding Incentive Award. Nothing herein shall limit the right of the Company to pay compensation of any kind outside the terms of the Plan.

 

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16.  No Obligation to Exercise

 

The grant to a Participant of an Option or SAR shall impose no obligation upon such Participant to exercise such Option or SAR.

 

17.  Transfers Upon Death

 

Subject to Section 6(c)(5), upon the death of a Participant, outstanding Incentive Awards granted to such Participant may be exercised only by the executors or administrators of the Participant’s estate or by any person or persons who shall have acquired such right to exercise by will or by the laws of descent and distribution. Subject to Section 6(c)(5), no transfer by will or the laws of descent and distribution of any Incentive Award, or the right to exercise any Incentive Award, shall be effective to bind Southwestern unless the Committee shall have been furnished with (a) written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and (b) an agreement by the transferee to comply with all the terms and conditions of the Incentive Award that are or would have been applicable to the Participant and to be bound by the acknowledgements made by the Participant in connection with the grant of the Incentive Award. Except as provided in this Section 17, Section 6(c)(5), or as determined by the Committee at or after the date of grant, no Incentive Award shall be transferable, and shall be exercisable only by a Participant during the Participant’s lifetime.

 

18.    Expenses and Receipts

 

The expenses of the Plan shall be paid by Southwestern. Any proceeds received by Southwestern in connection with any Incentive Award will be used for general corporate purposes.

 

19.    Failure to Comply

 

In addition to the remedies of Southwestern elsewhere provided for herein, failure by a Participant to comply with any of the terms and conditions of the Plan or the agreement executed by such Participant evidencing an Incentive Award, unless such failure is remedied by such Participant within ten days after having been notified of such failure by the Committee, shall be grounds for the cancellation and forfeiture of such Incentive Award, in whole or in part, as the Committee may determine.

 

20.    Effective Date and Term of Plan

 

The Plan was adopted by the Board of Directors on February 17, 2004, subject to the approval of the Plan by the shareholders of Southwestern. All Incentive Awards granted under the Plan shall be void unless such shareholder approval is obtained. No grants may be made under the Plan after February 17, 2014.