2002 PERFORMANCE UNIT PLAN



 



SOUTHWESTERN ENERGY COMPANY

2002 PERFORMANCE UNIT PLAN


1. Purpose of the Plan


This Southwestern Energy Company 2002 Performance Unit 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, with incentives and rewards for
their contribution to the increase in the value of the Company and to encourage
them to continue in the service of the Company.


2. Definitions


Whenever used herein, the masculine pronoun shall be deemed to include the
feminine, the singular to include the plural, unless the context clearly
indicates otherwise, and the following capitalized words and phrases are used
herein with the meaning thereafter ascribed:



	 	(a)	 	“Account” shall mean a bookkeeping account on the Company’s
books established pursuant to Section 5(b) of this Plan. The
Account shall initially reflect the number of Performance Units
granted to a Participant pursuant to Section 5(a) of this Plan.
	 
	 	(b)	 	“Board of Directors” shall mean the Board of Directors of
Southwestern.
	 
	 	(c)	 	“Cause”, when used in connection with the termination of a
Participant’s employment with the Company, shall 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), after a written
demand for substantial performance has been delivered to the
Participant by the Company or by the Participant’s
supervisor, which demand identifies in reasonable detail the
manner in which the Participant is believed to have not
substantially performed his or her duties;
	 
	 	(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 conviction of, or entering of
a plea of nolo contendere to, a crime that constitutes a
felony or serious misdemeanor; or



1






 




	 	(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.
	 



	 	(d)	 	“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 were their 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;



2






 






	 	(iii)	 	any individual who is nominated by the Board of
Directors for election to the Board of Directors on any date
fails to be so elected as a direct or indirect result of any
proxy fight or contested election for positions on the Board
of Directors;
	 
	 	(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 of Directors determines
in its sole and absolute discretion that there has been a
Change in Control of Southwestern or that



3






 




	 	 	there will be a Change in Control of Southwestern upon the
occurrence of certain specified events and such events
occur.
	 
	 


	 	(e)	 	“Commencement Date” shall mean, with respect to a particular
grant of Performance Units hereunder, the first day of the Plan Year
immediately following the date of grant of such Performance Units.	 
	 
	 	(f)	 	“Company” shall mean Southwestern and each of its
Subsidiaries.	 
	 
	 	(g)	 	“Disability” shall mean a condition entitling a Participant
to benefits under the long-term disability policy maintained by the
Company and applicable to him.	 
	 
	 	(h)	 	“Grant Agreement” shall mean a written document issued to a
Participant that shall specify the grant of Performance Units to the
Participant, the applicable Performance Measures set by the Plan
Administrator and conditions to which the grant is subject.	 
	 
	 	(i)	 	“Participant” shall mean an employee of the Company who is
eligible to participate in the Plan and to whom one or more
Performance Units have been granted pursuant to the Plan and,
following the death of any such employee, his or her successors,
heirs, executors and administrators, as the case may be.	 
	 
	 	(j)	 	“Payment Value” shall mean, as of the end of each Performance
Period, the value, expressed in dollars, of each Performance Unit
issued under the Plan. The Payment Value will be determined by
multiplying the target value by the percentage or percentages
assigned to the level of the Company’s actual financial performance,
based on the Performance Measures and based on associated
percentages assigned to the various levels of performance of the
Performance Measures at the beginning of the Performance Period. If
the attainment of a Performance Measure occurs between the stated
levels, the Payment Value will be determined by linear
extrapolation.	 
	 
	 	(k)	 	“Performance Measures” shall mean the possible standards for
measuring the Payment Value of the Performance Units, as determined
by the Plan Administrator on the date of grant and as more
particularly set forth in the Grant Agreement.	 
	 
	 	 	 	Relative performance will be measured against goals or against
peers, as determined by the Plan Administrator on the date of
grant.	 
	 
	 	(l)	  	“Performance Period” shall mean the time period over which
the Performance Measures will be analyzed for purposes of
determining the Payment Value of the Performance Units granted to a
Participant. Unless otherwise specified by the Plan Administrator,
the Performance Period shall be thirty-six months from the
Commencement Date.	 



4






 




	 	(m)	 	“Performance Unit” shall mean a unit of interest under the
Plan the value of which depends upon the financial performance of
the Company in comparison to the Performance Measures specified for
the applicable Performance Period.
	 
	 	(n)	 	“Plan” shall mean this Southwestern Energy Company 2002
Performance Unit Plan, as it may be amended from time to time.
	 
	 	(o)	 	“Plan Administrator” shall mean the individual or individuals
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 Plan Administrator under the
terms of the Plan, as set forth in Section 3 of this Plan.
	 
	 	(p)	 	“Plan Year” shall mean Southwestern’s fiscal year.
	 
		(q)	 	“Southwestern” shall mean Southwestern Energy Company, an
Arkansas corporation, and any successor thereto.
	 
	 	(r)	 	“Subsidiary” shall mean any “subsidiary corporation” within
the meaning of Section 425(f) of the Internal Revenue Code of 1986,
as amended from time to time.
	 
	 	(s)	 	“Vesting Date” shall mean the date established by the Plan
Administrator on which a Performance Unit may vest and becomes
non-forfeitable except as set forth in Section 5 of this Plan.




3. Administration of the Plan

The Plan shall be administered by a committee of the Board of Directors
consisting of two or more persons, at least two of whom qualify as a
“non-employee director,” 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). The Plan Administrator shall,
consistent with the terms of the Plan, from time to time designate the
employees of the Company who shall be granted Performance Units under the Plan.
All of the powers and responsibilities of the Plan Administrator under the
Plan may be delegated by the Plan Administrator, in writing, to any subplan
administrator thereof. In addition, the Plan Administrator may authorize an
executive officer of Southwestern to grant Performance Units to a specified
group of employees and within a specified period of time.


The Plan Administrator 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 Performance Unit (and any
agreement evidencing any Performance Unit) granted thereunder and to adopt and
amend from time to time such rules and regulations for the administration of
the Plan as the Plan Administrator may deem necessary or appropriate.
Decisions of the Plan Administrator shall be final, binding and conclusive on
all parties.


At or after the date of grant of a Performance Unit under the Plan, the Plan
Administrator may


5






 




	 	(a)	 	accelerate the date on which any such Performance Unit
becomes vested or paid,
	 
	 	(b)	 	extend the term of any such Performance Unit, including,
without limitation, extending the period following a termination of
a Participant’s employment during which any Performance Unit may
remain outstanding, or
	 
	 	(c)	 	waive any conditions to vesting of any such Performance Unit.



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


No member of the Plan Administrator shall be liable for any action, omission or
determination relating to the Plan, and Southwestern shall indemnify and hold
harmless each member of the Plan Administrator 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 Plan Administrator) 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.


4. Eligibility


The employees who shall be eligible to receive Performance Units pursuant to
the Plan shall be those employees of the Company that the Plan Administrator
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. All Performance Units granted under the Plan shall be
evidenced by a separate Grant Agreement entered into by the Company and the
recipient of such award.


5. Performance Units


The Plan Administrator may grant Performance Units pursuant to the Plan. Each
grant of a Performance Unit shall be evidenced by a Grant Agreement in such
form as the Plan Administrator shall from time to time approve. Each grant of
a Performance Unit shall comply with and be subject to the following terms and
conditions:



	 	(a)	 	Grants
	 
	 	 	 	For each Performance Period, the Plan Administrator shall determine
whether to grant any Performance Units and, if Performance Units
are granted, the Plan Administrator shall notify those Participants
who are to receive grants, which shall be evidenced by a Grant
Agreement between Southwestern and the Participant. The number of
Performance Units to be granted to a Participant shall be
determined by the Plan Administrator based on the Participant’s
role and



6






 





	 	 	 	responsibilities and competitive levels of long-term compensation.
No fractional Performance Units shall be granted.
	 
	 	 	 	For each Performance Period, the Plan Administrator shall determine
the Performance Measures for the Performance Period, determine the
weighting of the Performance Measures for the Performance Period
and specify such approvals in the Grant Agreement.
	 
	 	(b)	 	Interests of a Participant
	 
	 	 	 	The Company shall create individual Accounts on its books to
reflect the number of Performance Units credited to each
Participant for a Performance Period. No Participant or any other
person shall under any circumstances acquire any property interest
in any specific assets of the Company, and the Plan shall be
unfunded. Nothing contained in this Plan and no action taken
pursuant hereto shall create or be construed to create a fiduciary
relationship between the Company, the Plan Administrator or the
Board of Directors and any Participant or any other person. To the
extent that any person acquires a right to receive payment from the
Company hereunder, such right shall be no greater than the right of
any unsecured general creditor of the Company.
	 
	 	(c)	 	Vesting
	 
	 	 	 	Except as provided in Section 5(f) or as specified in the Grant
Agreement, each Participant’s right to the Performance Units
awarded for any Performance Period shall vest one-third per year
starting on the day of the first anniversary of the date of grant,
provided that the Participant has not terminated employment.
	 
	 	(d)	 	Effect of Termination of Employment
	 



	 	(i)	 	Unless the Plan Administrator provides otherwise
on or after the date of grant, in the event that the
employment of a Participant with the Company shall terminate
for any reason other than Cause all unvested Performance Units
granted to such Participant shall expire at the commencement
of business on the date of such termination, and no payment
shall be made to the Participant with respect thereto. Except
as otherwise provided herein or in the Grant Agreement,
Southwestern shall make payment respecting vested Performance
Units upon expiration of the original Performance Period under
the original terms for such vested Performance Units.
	 
	 	(ii)	 	In the event of the termination of a
Participant’s employment for Cause, all outstanding
Performance Units granted to such Participant shall expire at
the commencement of business on the date of such termination,
and no payment shall be made to the Participant with respect
thereto.
	 



	 	(e)	 	Performance Unit Benefit



7






 






	 	 	 	The Performance Units will have a Payment Value at the end of the
applicable Performance Period contingent upon the attainment of the
Performance Measures, as specified in the Participant’s Grant
Agreement, as determined by the Plan Administrator.
	 
	 	 	 	The Plan Administrator shall use Southwestern’s year end audited
financial statements in determining the extent to which the
Performance Measures were achieved during the relevant Performance
Period. The Plan Administrator shall certify in writing whether
and the extent to which the Performance Measure for each
Performance Period has been met within 120 days following the
issuance of such financial statements (the “Certification Period”).
	 
	 	 	 	The amount of the Payment Value due a Participant shall be made in
cash.
	 
	 	 	 	Except as otherwise provided herein or in the Grant Agreement,
Southwestern shall pay the Participant the total amount of Payment
Value due the Participant at the conclusion of a Performance Period
on such date following the conclusion of such Performance Period as
the Plan Administrator shall designate, but in no event later than
the end of the Certification Period.
	 
	 	 	 	The Plan Administrator may permit a Participant to defer the
receipt of some or all of the payment due under this Section and
have any such sum credited to a deferred compensation plan
maintained by the Company, provided that such election is made
before Payment Value is calculated and due, as specified by the
applicable deferred compensation plan.
	 
	 	(f)	 	Effect of Change in Control
	 
	 	 	 	Upon the occurrence of a Change in Control, each Performance Unit
granted under the Plan and outstanding at such time shall become
fully and immediately vested. In full satisfaction of amounts due
under the Performance Units, Southwestern shall pay the Participant
the target value (as specified in the Grant Agreement) or, if
greater and the Plan Administrator, in its sole discretion, elects,
an amount that the Plan Administrator determined to be the
projected amount that would have been payable had the Performance
Period run its cycle. Such amounts shall be paid within five (5)
business days after the Change in Control.



6. No Special Employment Rights; No Right to Performance Unit


Nothing contained in the Plan or any Performance Unit shall confer upon any
Participant any right with respect to the continuation of his employment by 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 a
Performance Unit.


8






 


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


7. Withholding Taxes


Upon the payment to the Participant of the Payment Value of the Performance
Unit or any deferral of such payment, Southwestern shall have the right to
withhold from any such payment required to be made pursuant thereto or such
deferral an amount sufficient to satisfy the Federal, state and/or local
withholding tax requirements, if any, attributable to such payment.


8. Amendment or Termination of the Plan


The Board of Directors or Plan Administrator may at any time suspend or
discontinue the Plan or revise or amend it in any respect whatsoever.


Nothing herein shall restrict the Plan Administrator’s ability to exercise its
discretionary authority hereunder pursuant to Section 3 hereof, which
discretion may be exercised without amendment to the Plan. However, no action
hereunder may, without the consent of a Participant, reduce the Participant’s
rights under any previously granted and outstanding Performance Units. Nothing
herein shall limit the right of the Company to pay compensation of any kind
outside the terms of the Plan.


9. Transferability of Performance Unit


During the lifetime of a Participant, each Performance Unit to the Participant
shall be exercisable by such Participant. No Performance Unit shall be
assignable or transferable otherwise than by will or by the laws of descent and
distribution.


10. 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 a Performance
Unit, unless such failure is remedied by such Participant within ten days after
having been notified of such failure by the Plan Administrator, shall be
grounds for the cancellation and forfeiture of such Performance Unit, in whole
or in part, as the Plan Administrator may determine.


11. Adjustment.


Upon the occurrence of any event which could reasonably be expected to have an
impact on the stock or Performance Measures of the Company or its peer
companies, the Plan Administrator shall have the right, but not the obligation,
in its sole discretion, to make such adjustments to the calculations of the
payments to be made hereunder as it deems appropriate to reflect such events,


9






 


provided that no such adjustments shall reduce the Participant’s rights under
any previously granted and outstanding Performance Units.


12. No Effect on Benefit Plans.


No amounts payable hereunder shall count in computing any benefits payable
under any other benefit plans maintained by the Company except to extent such
plans otherwise incorporate such payments by express reference to the Plan.


13. Governing Law


The interpretation, performance and enforcement of this Plan shall be governed
by the laws of the State of Arkansas, to the extent not preempted by Federal
law.


14. Effective Date and Term of Plan


The Plan was adopted by the Board of Directors on December 11, 2002 and
effective as of December 11, 2002. No grants may be made under the Plan after
December 31, 2005.


10