Document:

ex10.htm

    
      

    

    PETROLEUM
DEVELOPMENT CORPORATION

    2009
LONG-TERM INCENTIVE PROGRAM

    

    

    ARTICLE
1

     

    INTRODUCTION

     

     1.1 2004 Petroleum Development
Corporation Long-Term Equity Compensation Plan.  Petroleum
Development Corporation, a Nevada Corporation (hereinafter referred to as the
"Company") has established an incentive compensation plan known as the "2004
Petroleum Development Corporation Long-Term Equity Compensation Plan"
(hereinafter referred to as the "Plan").  The Plan permits the grant
of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares and Performance Units (individually
an "Award" and collectively "Awards").  The Plan became effective as
of April 27, 2004.  Awards may be granted under the Plan until April
25, 2014.

     

     1.2 Committee
Authority.  The Plan is administered by the Compensation
Committee of the Board (hereinafter referred to as the
"Committee").  Under the Plan, the Committee has, among its other
powers, the authority to select Employees who shall participate in the Plan,
determine the size and types of Awards, and determine the terms and conditions
of the Awards in a manner consistent with the Plan.

     

     1.3 Objectives of the
Program.  Pursuant to the authority granted to the Committee
under Article 9 and Article 10 of the Plan concerning the grant of Performance
Shares, the Committee established, effective as of January 1, 2009, the
Petroleum Development Corporation 2009 Long-Term Incentive Program (hereinafter
referred to as the "Program") for the benefit of its Covered
Employees.  The Program includes 2009 Performance Share Awards and the
share price thresholds for the three year, four year, and five year performance
periods ending on December 31, 2011, December 31, 2012, and December 31, 2013
respectively.

     

    ARTICLE
2    

                           

    PERFORMANCE SHARE
AWARD

     

     2.1 Grant to Covered
Employees.  Each Covered Employee listed in the table below
shall receive an Award of Performance Shares as indicated below.  Such
Performance Shares shall be subject to the terms and conditions specified in
this Program.  The amount of Performance Shares awarded to the Covered
Employee shall be determined by dividing the Compensation Target for such
Covered Employee by the Estimated Risk Adjusted Expected Value of a Performance
Share.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    	
                                            Covered Employee

                                          	 	
                                            Estimated
      Risk Adjusted Expected Value of a Performance Share

                                          	 	
                                            Compensation Target

                                          	 	
                                            Performance

                                            Shares Awarded

                                          
	
                                            Rick
      McCullough

                                          	 	
                                            $16.17

                                          	 	
                                            $196,875

                                          	 	
                                            12,175

                                          
	
                                            Eric
      R. Stearns

                                          	 	
                                            $16.17

                                          	 	
                                            $116,091

                                          	 	
                                            7,179

                                          
	
                                            Bart
      Brookman

                                          	 	
                                            $16.17

                                          	 	
                                            $74,250

                                          	 	
                                            4,592

                                          
	
                                            Dan
      Amidon

                                          	 	
                                            $16.17

                                          	 	
                                            $67,568

                                          	 	
                                            4,179

                                          

                                  

                                

                              

                            

                          

                        

                      

                    

                     

                     

                  

                

              

            

          

        

      

    

     2.2 Performance
Metric.  With regard to Covered Employees employed on the last
day of a Performance Period, the performance measure to be used for purposes of
the Program shall be the Share Price at the end of a Performance
Period.  For this purpose, the “Share Price” shall be the average
daily closing price of the Shares on the NASDAQ Global Select Market (or such
successor market) as reported in the Wall Street Journal during the months of
December 2011, December 2012, and December 2013, as the case may
be.

     

    Except as
provided in Section 2.3 and Section 2.6, Performance Shares awarded shall vest
only if (i) the Covered Employee is employed by the Company on the last day
of a given Performance Period, and (ii) certain minimum thresholds of Share
Price Performance, as set forth in the table below, are attained as of the last
day of the three year Performance Period, the four year Performance Period or
the five year Performance Period, as the case may be:

     

    
      
        
          
            
              
                
                  
                    	
                            Share
      Price

                            3
      Year Period

                            Ending 12/31/11

                          	 	
                            Share
      Price

                            4
      Year Period

                            Ending 12/31/12

                          	 	
                            Share
      Price

                            5
      Year Period

                            Ending 12/31/13

                          	 	
                             

                            Vested
      Percentage

                          
	
                            $30.50

                          	 	
                            $34.00

                          	 	
                            $38.00

                          	 	
                            50%

                          
	
                            $34.00

                          	 	
                            $39.00

                          	 	
                            $45.50

                          	 	
                            75%

                          
	
                            $37.50

                          	 	
                            $45.00

                          	 	
                            $54.00

                          	 	
                            100%

                          

                  

                

              

            

          

        

      

    

    

    There
shall be no interpolation of a vested percentage for a Share Price result
between price levels.  By way of example, if the Share Price is $32.00
at the end of the three year Performance Period, the Covered Employees shall be
fifty percent (50%) vested in the Performance Shares.

     

    Performance
Shares vested for a Performance Period shall not be subject to divestment in the
event the Share Price subsequently decreases below the threshold for a
subsequent Performance Period or if the Covered Employee subsequently ceases to
be employed by the Company for any reason.  By way of example, if the
Share Price is $34.00 at the end of the three year Performance Period and $35.00
at the end of the four year Performance Period, Covered Employees shall be
seventy-five percent (75%) vested in the Performance Shares as of December 31,
2011 and shall be entitled to payment as provided in Section 2.5.  No
adjustment or recapture of the Performance Shares already vested shall occur at
December 31, 2012, despite the fact that Performance Shares would otherwise be
considered at a fifty percent (50%) vested level as of December 31,
2012.  Performance Shares which are not vested at December 31,
2013 shall be forfeited.

     

    If a
minimum threshold is attained for a Performance Period, no further Performance
Shares shall be vested unless a higher vested percentage is achieved for the
Performance Shares in a subsequent Performance Period.  By way of
example, assume the Covered Employee is employed with the Company through
December 31, 2013.  If the Share Price is $30.50 as of December 31,
2011, the Covered Employee is fifty percent (50%) vested as of such date (and
therefore paid fifty percent (50%) of his Performance Shares).  If the
Share Price is $34.50 as of December 31, 2012, the Covered Employee is not
entitled to any further Performance Shares as of that
date because neither the seventy-five percent (75%) nor one hundred percent
(100%) thresholds have been met as of that date nor shall the Covered Employee
be entitled to any further Performance Shares as of December 31, 2013 unless the
Share Price at December 31, 2013 is at the 75% ($45.50) or 100% ($54.00)
threshold as of the end of that year.

     

     

     

     2.3 Termination of Employment
Due to Death, Disability, By the Company For a Reason Other Than Cause or By the
Covered Employee for Good Reason.  In the event there is a
termination of employment of the Covered Employee prior to December 31, 2013 due
to death, Disability, by the Company for a reason other than Cause or by the
Covered Employee for Good Reason, the Company shall determine (i) the vested
percentage associated with the compound annualized growth rate (CAGR) for the
Performance Shares as of such date of termination, based on the table below (the
“Vested Percentage”); and (ii) the percentage associated with employment for
Performance Shares, derived by dividing the number of completed calendar
quarters of employment by the Covered Employee with the Company after December
31, 2008 by twenty (20) (the “Time-Based Vested Percentage”).

     

    The
Vested Percentage shall be based on the following table:

     

    
      
        
          
            	
                     

                     

                    CAGR

                  	 	
                     

                    Vested
      Percentage

                  
	
                    12%

                  	 	
                    50%

                  
	
                    16%

                  	 	
                    75%

                  
	
                    20%

                  	 	
                    100%

                  

          

        

      

    

    

     

     The Performance Shares shall be
multiplied by the product of the Vested Percentage and the Time-Based Vested
Percentage.  From such result, there shall be subtracted any
previously paid Shares in order to determine the amount payable to the Covered
Employee.  If such calculation results in a positive amount, such
amount shall be paid in Shares to the Covered Employee as soon as practicable
following such determination.  For purposes of determining the Vested
Percentage as of the date of termination, the CAGR shall be derived from (i) the
Share Price as of the date of termination, being the average daily closing price
of the Shares on the NASDAQ Global Select Market (or such successor market) as
reported in the Wall Street Journal during the thirty (30) day calendar period
preceding the date of termination compared to (ii) $41.37 (which was the average
daily closing price of the Shares on the NASDAQ Global Select Market as reported
in the Wall Street Journal for December 2008).  There shall be no
interpolation of a Vested Percentage for a Share Price result between price
levels.

     

    By way of
example, assume a Covered Employee is awarded 10,000 Performance Shares and
terminates due to Disability on January 30, 2011.  If the Share Price
is determined to be $36.00 at the date of termination it will equate to a CAGR
of over 20% as of such date of termination and will result in a 100% Vested
Percentage.  The Time-Based Vested Percentage will be 8/20 or
40%.  The Performance Shares awarded to the Covered Employee will be
10,000 X (100% x 40%) or 4,000 Performance Shares.

     

     

    As a
further example, assume a Covered Employee is awarded 10,000 Performance Shares,
is 75% vested as of December 31, 2011, and receives 7,500
Shares.  Further assume that the Covered Employee incurs Disability at
July 1, 2012 at which point the Vested Percentage is determined to be
75%.  The Time-Based Vested Percentage at July 1, 2012 is 14/20 or
70%.  The Covered Employee is not entitled to any portion of the
remaining 2,500 unvested Performance Shares because 10,000 Performance Shares x
(70% x 75%) is 5,250 Performance Shares which is less than the 7,500 Performance
Shares previously paid to the Covered Employee.

     

    For
purposes of this Program, "Cause" and "Good Reason" shall have the meaning
ascribed to such terms under the respective Employment Agreements, as in effect
from time to time, for the Covered Employee. 2.4 Voluntary Termination of
Employment By the Covered Employee or Termination of Employment by the Company
For Cause.  In the event the Covered Employee voluntarily
terminates his employment prior to December 31, 2013 or the Company terminates
the Covered Employee for Cause prior to December 31, 2013, the non-vested Shares
of the Covered Employee shall be forfeited upon termination.

     

     2.5 Payment of Performance
Shares at the End of a Performance Period.  Performance Shares
vested pursuant to Section 2.2 and payable to a Covered Employee following the
last day of a Performance Period shall be paid to the Covered Employee in Shares
within seventy-five (75) days after the last day of the Performance Period in
which such vesting occurs.

     

     2.6 Change in
Control.  In the event of a Change in Control of the Company
triggered by the sale of Shares, the sales price of a Share in the subject
Change in Control shall be the Share Price for purposes of this
Section.  In the event of a Change of Control triggered by an event
other than the sale of Shares, the Share Price for purposes of this Section
shall be determined in good faith by the Committee, in its sole
discretion.  The determination of the Share Price by the Committee
shall be conclusive and binding on all parties.  The vested percentage
of the Covered Employees shall be determined by comparing such Share Price with
the Share Price thresholds in Section 2.2 at the end of the then current
Performance Period.

     

     2.7 Share
Withholding.  At the covered employee's request, the Company
may withhold such amount of Shares from Shares paid to Covered Employees as is
necessary to satisfy any tax withholding obligations.

     

     2.8 Dividends.  No
dividends shall be paid or accrued on any Performance Shares prior to the date
such Performance Shares are vested.  Dividends declared on vested
Performance Shares prior to the date that such vested Performance Shares are
paid to the Covered Employee, shall be payable to the Covered Employees, without
interest.

     

     2.9 Voting
Rights.  A Covered Employee shall not have any voting rights on
any Performance Shares prior to the date such Performance Shares are
vested.

     

     2.10 Fractional
Shares.  The Company will not be required to issue any
fractional Shares pursuant to this Program.  The Committee may provide
for the elimination of fractions or for the settlement of fractions in
cash.

     

    ARTICLE
3

     

    GENERAL

     

     3.1 Capitalized
Terms.  All capitalized terms shall have the meaning ascribed
to them under this Program or, if not otherwise defined in this Program, then
such capitalized terms shall have the meaning ascribed to them under the
Plan.

     

     3.2 Construction.  The
provisions of this Program shall be construed in a manner consistent with the
Plan.  In the event of any inconsistency between the terms of the
Program and the terms of the Plan, the terms of the Plan shall
control.

     

     3.3 Compliance with Section 409A
of the Internal Revenue Code.  Notwithstanding anything in this
Program to the contrary, to the extent that this Agreement constitutes a
nonqualified deferred compensation plan to which Internal Revenue Code Section
409A applies, the administration of this Program (including time and manner of
payments under the Program) shall comply with Section 409A.ex10_1.htm

    
      

    

    

     

    AGREEMENT

     

     

    This
Agreement (this “Agreement”) is made and entered into as of March 5, 2009, by
and between Southern Union Company, a Delaware corporation (the “Company”), and
the entities listed on Schedule A hereto
(collectively, the “Sandell Group”) (each of the Company and the Sandell Group,
a “Party” to this Agreement, and collectively, the “Parties”).

     

     

    RECITALS

     

     

    A. The Sandell Group beneficially owns,
in the aggregate, 10,636,806 shares of the Company’s outstanding common stock,
par value $1.00 per share (the “Common Stock”), and has notified the Company of
its intention to nominate directors in anticipation of initiating a proxy
solicitation (the “Proxy Solicitation”) to elect four individuals to the
Company’s Board of Directors (the “Board”);

     

     

    B. The Parties have agreed that the
Sandell Group shall withdraw its nominees to the Board and terminate the Proxy
Solicitation and that the Sandell Group will not present any nominees or
proposals at the Company’s 2009 and 2010 Annual Meetings of Stockholders
(including any adjournments or postponements thereof, the “Annual
Meetings”);

     

     

    C. The Corporate Governance Committee
has recommended to the Board and the Board has determined that it is in the best
interests of the stockholders of the Company to nominate Stephen Beasley and
Michael Egan (each of such nominees a “Nominee” and together, the “Nominees”),
to the Board for election at the Annual Meetings as additions to
the  members of the Board and to recommend the Nominees for election
to the Board;

     

     

    D. The Sandell Group has agreed to
certain restrictions with respect to the Company prior to the end of the
Standstill Period (as defined below), including refraining from submitting any
stockholder proposal or director nominations at the Annual Meetings or at any
other meetings of stockholders which may be held prior to the end of the
Standstill Period and to vote in favor of the Company’s nominees for directors
at the Annual Meetings;

     

     

    E. The Company and the Sandell Group
desire, in connection with the foregoing, to make certain covenants and
agreements with one another pursuant to this Agreement.

     

     

    NOW THEREFORE, in consideration of the
covenants and premises set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Parties hereto hereby agree as follows:

     

     

    1.           Upon
the issuance of the press release referred to in Section 8 of this Agreement,
the Sandell Group withdraws its nomination of Stephen Beasley, Michael Egan,
Keith Gollust and Nick Graziano, and withdraws and terminates the Proxy
Solicitation.

     

    2.           (a)
The Company agrees that, (i) the Nominees will be nominated by the Board for
election at the Annual Meetings, (ii) the Board will recommend a vote “for” the
Nominees at the Annual Meetings, and shall solicit its stockholders to vote for
such Nominees, (iii) proxies solicited by the Board will be voted “for” the
Nominees at the Annual Meetings and (iv) each of the Nominees will serve on at
least one committee of the Board, with any such committee assignment to be
determined by the Board.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (b) The Company further agrees that,
except as otherwise set forth herein, during the term of his office as a
director, in the event that a Nominee dies or is unable or unwilling to perform
his duties as a director, the Company will consult with the Sandell Group (so
long as it continues to own more than five percent (5%) of the outstanding
Common Stock) regarding any replacement for such Nominee.

     

     

    (c) The Company agrees that, prior to
the 2011 Annual Meeting of Stockholders, it will not increase the size of the
Board to more than 12 directors except in connection with a business combination
transaction.

     

     

    3.           The
Sandell Group will cause all shares of Common Stock beneficially owned by it and
its controlled affiliates to be present for quorum purposes and to be voted at
the Annual Meetings in favor of election of the Company’s slate of director
nominees for the Annual Meetings (including the Nominees). For purposes of this
Agreement, “affiliate” has the meaning set forth in Rule 12b-2 promulgated by
the SEC under the Exchange Act.

     

     

    4.           During
the period commencing with the execution of this Agreement and ending on the
earlier to occur of (a) the date that is one hundred and thirty (130) calendar
days prior to the anniversary of the date the Company’s proxy statement is
released to stockholders in connection with the 2010 Annual Meeting of
Stockholders (provided, however, that if the Board takes any action to amend the
Company’s bylaws in such a manner as to increase the time period prior to the
2011 Annual Meeting of Stockholders by which a holder of the Company’s Common
Stock must provide timely notice to the Company of (i) its nomination of a
person or persons to the Board at a meeting of the Company’s stockholders, or
(ii) its proposal to bring business before a meeting of the Company’s
stockholders (clause (i) and (ii) together, the “Stockholder Matters”), then the
Standstill Period shall expire ten (10) days prior to the date on which a
stockholder must give notice to the Company with respect to any Stockholder
Matters for the 2011 Annual Meeting), and (b) a material breach by the Company
of its obligations under this Agreement (the “Standstill Period”), neither the
Sandell Group nor any of its controlled affiliates shall, without the prior
written consent of the Company:

     

     

    (a) other than as provided in this
Agreement, seek or propose to influence or control the management or the
policies of the Company (provided that either Nominee’s actions (or those of his
replacement as contemplated by Section 2 of this Agreement) as a member of the
Board shall not be deemed to violate the foregoing) or to obtain representation
on the Board (other than the nomination of the Nominees), directly or indirectly
engage in any activities in opposition to the recommendation of the Board
(including the recommendation of the Nominees to be elected at the Annual
Meetings), submit any proposal (whether pursuant to Rule 14a-8 or otherwise) or
nomination of a director or directors for stockholder action, or solicit, or
encourage or in any way participate in the solicitation of, any proxies or
consents with respect to any voting securities of the Company; provided,
however, that the foregoing shall not prohibit the Sandell Group from (i) making
public statements (including statements contemplated by Rule 14a-1(l)(2)(iv)
under the Exchange Act), (ii) engaging in discussions with other stockholders
(so long as the Sandell Group does not seek directly or indirectly, either on
its own or another’s behalf, the power to act as proxy for a security holder and
does not furnish or otherwise request, or act on behalf of a person who
furnishes or requests, a form of revocation, abstention, consent or
authorization, and such discussions are in compliance with subsection (d)
hereof) (clause (i) and (ii), together, “Permitted Actions”) with respect to any
transaction that has been publicly announced by the Company involving a
recapitalization of the Company, an acquisition, disposition or sale of assets
or a business by the Company where the consideration to be received or paid in
such transaction exceeds $500 million in the aggregate, or a change of control
of the Company (each, a “Material Transaction”), (iii) voting as it sees fit on
any matter other than with respect to the election of directors or (iv)
privately contacting the Board or management of the Company to express its views
regarding Company matters so long as such contact or communication will not
require or result in an amendment to or other public disclosure in connection
with the Schedule 13D filed by the Sandell Group or any of its controlled
affiliates with respect to the Company;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (b) make any public announcement with
respect to, or publicly offer to effect, seek or propose (with or without
conditions) a merger, consolidation, business combination or other extraordinary
transaction with or involving the Company or any of its subsidiaries or any of
its or their securities or assets; provided, however, that nothing in this
subsection (c) shall prevent the Sandell Group from taking Permitted Actions
with respect to a Material Transaction;

     

     

    (c) (i) form, join or in any way
participate in a “group” as defined in Section 13(d)(3) of the Exchange Act, and
the rules and regulations promulgated thereunder, other than a “group” that
includes only all or some lesser number of persons identified as members of the
Sandell Group and their controlled affiliates, or (ii) enter into any
negotiations, arrangements or understandings with any third parties, other than
members of the Sandell Group and their controlled affiliates, in connection with
becoming a “group” as defined in Section 13(d)(3) of the Exchange Act;
or

     

     

    (d) publicly seek or request permission
to do any of the foregoing, publicly request to amend or waive any provision of
this paragraph (including, without limitation, any of clauses (a)-(d) hereof) so
long as any private request to amend or waive any provision will not require or
result in an amendment to or other public disclosure in connection with the
Schedule 13D filed by the Sandell Group or any of its controlled affiliates with
respect to the Company, or make or seek permission to make any public
announcement with respect to any of the foregoing.

     

     

    5.           The
Sandell Group agrees that, during the Standstill Period, it shall not offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend (other than in a customary commingled brokerage account in the
ordinary course of business), or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable, directly or indirectly, for Common Stock, whether
any such transaction described above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise (any such action a
“Transfer”), in each case without the prior written consent of the Company;
provided that the foregoing shall not restrict the Sandell Group from (i) a
Transfer of any shares to a controlled affiliate which agrees to be bound by the
terms of this Agreement and executes a Joinder Agreement in the form attached
hereto as Exhibit
B, (ii) subject to compliance with law, the Transfer of shares in either
(1) brokers’ transactions (within the meaning of Rule 144(g) of the Securities
Act of 1933 (the “Securities Act”)), but not in transactions directly with a
market maker (as defined in Section 3(a)(38) of the Exchange Act), or (2)
private Transfers (including transactions with, or indirectly through, a market
maker), in a single Transfer or series of related Transfers, which would not
result in the ultimate transferee of such shares of Common Stock from the
Sandell Group beneficially owning, together with its affiliates, following such
Transfer or Transfers, in excess of 5% of the Company’s Common Stock in the
aggregate, or (iii) Transfers made pursuant to (x) tender offers in respect of
the Company’s Common Stock made by the Company or any third party, or (y)
repurchase offers in respect of the Company’s Common Stock made directly with
the Company.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    6.           The
Company agrees that, during the Standstill Period, the Company will make its
representatives available periodically, but not more than quarterly, to meet
with representatives of the Sandell Group to discuss the business and operations
of the Company.

     

     

    7.           If
at any time during the Standstill Period the Sandell Group fails to beneficially
own at least five percent (5%) of the outstanding Common Stock, the Sandell
Group shall cause both of the Nominees to promptly tender their resignation from
the Board and any committees of the Board on which the Nominees then
sit.  In furtherance of this Section 7 and the provisions of Section
9, each Nominee has on the date hereof delivered and executed an irrevocable
resignation as director in the form attached hereto as Exhibit D (and, in
case of replacement nominees, such replacement shall deliver his or her executed
irrevocable resignation as director in such form prior to being appointed to the
Board).  For purposes of this Section 7, to the extent a person enters
into a transaction for the purpose and with the effect of disposing of such
person’s economic interests in shares of the Company, including pursuant to any
hedging transaction or other derivative security, contract or instrument, then
such person shall be deemed to have disposed of such person’s beneficial
ownership in a ratable portion of such shares.

     

     

    8.           (a)
Promptly following the execution of this Agreement, the Company and the Sandell
Group shall jointly issue a mutually agreeable press release announcing the
terms of this Agreement, in the form attached hereto as Exhibit
A.

     

     

    (b) With respect to the Company, during
the period ending on the date described in Section 4(a) so long as there has not
been a material breach of this Agreement by the Sandell Group or any member
thereof, and with respect to the Sandell Group, during the Standstill Period,
neither the Company nor the Sandell Group, nor any of their respective
affiliates will, directly or indirectly, make or issue or cause to be made or
issued any disclosure, announcement or statement (including without limitation
the filing of any document or report with the SEC or any other governmental
agency or any disclosure to any journalist, member of the media or securities
analyst) concerning the other Party or any of its controlled affiliates, which
disparages such Party or any of its controlled affiliates as individuals
(provided that each Party, after consultation with counsel, may make any
disclosure that it determines in good faith is required to be made under
applicable law; and provided further, that the foregoing shall not prohibit the
Sandell Group from taking a Permitted Action with respect to any Material
Transaction).

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    9.           The
Sandell Group agrees that (a) following election of the Nominees to the Board at
the 2009 Annual Meeting and during such time that any Nominee is a director of
the Company, the Sandell Group will not offer or pay any form of remuneration,
including any contingent remuneration, to any such Nominee, (b) with respect to
Mr. Beasley (i) the compensation arrangements between the Sandell Group and Mr.
Beasley will be amended in such a manner as to terminate any compensation
otherwise owed to Mr. Beasley from and after the time that he becomes a director
of the Company, and (ii) from and after the date that Mr. Beasley becomes a
director of the Company and during his service as a director of the Company, Mr.
Beasley will not perform any consulting or other services for the Sandell Group,
and (c) if there is a breach of any of the provisions of Section 9(b) or any
Nominee is in breach of sub-section (ii) of the second paragraph of the
irrevocable resignation attached hereto as Exhibit D, the
applicable Nominee will be deemed to have tendered his resignation in accordance
with the irrevocable resignation as director in the form attached hereto as
Exhibit D and
the Sandell Group shall not be entitled to any rights with respect to a
replacement Nominee pursuant to Section 2(b) of this Agreement.

     

     

    10.           The
Sandell Group agrees it will cause its controlled affiliates to comply with the
terms of this Agreement.

     

     

    11.           All
notices, consents, requests, instructions, approvals and other communications
provided for herein and all legal process in regard hereto shall be in writing
and shall be deemed validly given, made or served, if (a) given by facsimile,
when such facsimile is transmitted to the facsimile number set forth below and
the appropriate confirmation is received or (b) if given by any other means,
when actually received during normal business hours at the address specified in
Exhibit C or
such other address as may be given pursuant to this notice
provision.

     

     

    12.           This
Agreement constitutes the entire agreement between the Parties with respect to
the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof. No modifications of this Agreement can be made except in
writing signed by an authorized representative of each the Company and the
Sandell Group. This Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and assigns, and nothing in
this Agreement is intended to confer on any person other than the parties hereto
or their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.

     

     

    13.           If
at any time subsequent to the date hereof, any provision of this Agreement shall
be held by any court of competent jurisdiction to be illegal, void or
unenforceable, such provision shall be of no force and effect, but the
illegality or unenforceability of such provision shall have no effect upon the
legality or enforceability of any other provision of this
Agreement.

     

     

    14.           Each
Party agrees to take or cause to be taken such further actions, and to execute,
deliver and file or cause to be executed, delivered and filed such further
documents and instruments, and to obtain such consents, as may be reasonably
required or requested by the other party in order to effectuate fully the
purposes, terms and conditions of this Agreement. The Sandell Group has
heretofore provided to the Company all information required by the rules and
regulations of the SEC to be included with respect to the Nominees in the
Company’s proxy statement for the Annual Meetings. The Sandell Group
acknowledges that the Nominees (or any replacement as contemplated by Section 2
of this Agreement) will be subject to all of the Company’s policies and
procedures applicable to independent directors, including the Company’s policies
concerning trading in the Company’s securities, and acknowledges that it is
aware of the restrictions imposed by the federal securities laws on trading in
securities.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    15.           Each
of the Parties acknowledges and agrees that irreparable injury to the other
Parties hereto would occur in the event any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached and that such injury would not be adequately compensable in damages. It
is accordingly agreed by each of the Parties that a Party so moving (the “Moving
Party”) shall each be entitled to specific enforcement of, and injunctive relief
to prevent any violation of, the terms hereof and the other Parties hereto will
not take action, directly or indirectly, in opposition to the Moving Party
seeking such relief on the grounds that any other remedy or relief is available
at law or in equity.

     

     

    16.           This
Agreement shall be governed by and construed and enforced in accordance with the
laws of the State of Delaware without reference to the conflict of laws
principles thereof. Each of the Parties hereto irrevocably agrees that any legal
action or proceeding with respect to this Agreement and the rights and
obligations arising hereunder, or for recognition and enforcement of any
judgment in respect of this Agreement and the rights and obligations arising
hereunder brought by any other Party hereto or its successors or assigns, shall
be brought and determined exclusively in the Delaware Court of Chancery and any
state appellate court therefrom within the State of Delaware (or, if the
Delaware Court of Chancery declines to accept jurisdiction over a particular
matter, any state or federal court within the State of Delaware). Each of the
Parties hereto hereby irrevocably submits with regard to any such action or
proceeding for itself and in respect of its property, generally and
unconditionally, to the personal jurisdiction of the aforesaid courts and agrees
that it will not bring any action relating to this Agreement in any court other
than the aforesaid courts.

     

     

    17.           This
Agreement may be executed in one or more counterparts which together shall
constitute a single agreement.

     

     

    [Remainder of this page intentionally
left blank.]

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    IN WITNESS WHEREOF, each of the parties
hereto has executed this Agreement, or caused the same to be executed by its
duly authorized representative as of the date first above written.

     

     

    

     

    
      	 
      	 
      	 
      
	
                                                                    SOUTHERN
      UNION COMPANY

            
	 
      	 
      
	
                                                                             By:

            	 
      	
              /s/
      Eric D. Herschmann

            
	
                                                                             Name:

            	 
      	
              Eric
      D. Herschmann

            
	
                                                                             Title:

            	 
      	
              President
      & Chief Operating Officer

            

    

     

    

     

     

    [Signature Page to Settlement
Agreement]

     

    
      	 
      	 
      	 
      

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    
      	
                                                                              SANDELL
      ASSET MANAGEMENT CORP.

            
	 
      	 
      
	
                                                                               By:

            	 
      	
              /s/ Thomas E.
      Sandell

            
	
                                                                               Name:

            	 
      	
              Thomas
      E. Sandell

            
	
                                                                               Title:

            	 
      	
              CEO

            
	 
      
	
                                                                              CASTLERIGG
      MASTER INVESTMENTS LTD.

            
	 
      	 
      
	
                                                                               By:

            	 
      	
              

                /s/ Thomas E.
      Sandell

              

            
	
                                                                               Name:

            	 
      	
              Thomas
      E. Sandell

            
	
                                                                              
      Title:

            	 
      	
              Authorized
      Signatory

            
	 
      
	
                                                                              CASTLERIGG
      INTERNATIONAL LIMITED

            
	 
      	 
      
	
                                                                              By:

            	 
      	
              

                /s/ Thomas E.
      Sandell

              

            
	
                                                                              Name:

            	 
      	
              Thomas
      E. Sandell

            
	
                                                                              Title:

            	 
      	
              Director

            
	 
      
	
                                                                              CASTLERIGG
      INTERNATIONAL HOLDINGS LIMITED

            
	 
      	 
      
	
                                                                              By:

            	 
      	
              

                /s/ Thomas E.
      Sandell

              

            
	
                                                                              Name:

            	 
      	
              Thomas
      E. Sandell

            
	
                                                                              Title:

            	 
      	
              Authorized
      Signatory

            
	 
      
	 
      

    

    

    

    [Signature Page to Settlement
Agreement]

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    SCHEDULE
A

     

    SANDELL
GROUP

     

     

    Sandell
Asset Management Corp.

     

     

    Castlerigg
Master Investments Ltd.

     

     

    Castlerigg
International Limited

     

     

    Castlerigg
International Holdings Limited

     

    

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      EXHIBIT
A

       

      FORM OF PRESS
RELEASE

       

       

      SOUTHERN
UNION AND SANDELL ASSET MANAGEMENT REACH AGREEMENT

       

       

      HOUSTON, Texas. (March 5, 2009) – Southern Union
Company (NYSE: SUG) and Sandell Asset Management Corp. (“Sandell”), affiliates
of which own 8.6% of the Company’s outstanding shares, today announced that they
have reached an agreement that will avoid a proxy contest at the Company’s 2009
annual meeting of stockholders.

       

       

      The
settlement agreement, which will be incorporated into a report on Form 8-K to be
filed by Southern Union, provides that two candidates previously nominated by
Sandell to the Board of Directors of Southern Union will be nominated for
election at the 2009 and 2010 annual meetings as additions to the members of the
Board.  Also, as part of the settlement, Sandell has agreed to abide by
certain standstill provisions.

       

       

      “We are
pleased that this matter has been resolved in a manner that serves the best
interests of all Southern Union stockholders,” said Eric D. Herschmann,
President and Chief Operating Officer of Southern Union. “This agreement will
enable Southern Union’s management to focus its efforts on the Company’s
operations and avoid a costly and time consuming proxy contest.”

       

       

      Thomas
Sandell said, “We are pleased that we were able to work constructively with
Southern Union and reach an agreement to avoid a protracted proxy contest. 
We look forward to working with the Company to maximize value for the benefit of
all shareholders.  In that regard, we have always believed it is important
for Southern Union to maintain its investment grade rating.  Therefore, in
the current economic environment, we do not believe the Company should undertake
extraordinary transactions such as the creation of an MLP, sales of LDC assets
or payment of a special dividend or increased dividends.”

       

       

      About Southern Union
Company

       

      Southern
Union Company, headquartered in Houston, is one of the nation’s leading
diversified natural gas companies, engaged primarily in the transportation,
storage, gathering, processing and distribution of natural gas. The company owns
and operates one of the nation’s largest natural gas pipeline systems with
approximately 20,000 miles of gathering and transportation pipelines and North
America’s largest liquefied natural gas import terminal, along with serving more
than half a million natural gas end-user customers in Missouri and
Massachusetts.  For further information, visit www.sug.com.

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      About
Sandell Asset Management Corp.  

       

      Sandell
Asset Management Corp. is a multi-billion dollar global investment management
firm, founded by Thomas E. Sandell, that focuses on corporate events, credit
opportunities and restructurings throughout North America, Continental Europe,
the United Kingdom, Latin America and the Asia-Pacific theatres. Sandell
frequently will take an “active involvement” in facilitating financial or
organizational improvements accruing to the benefit of investors.

       

       

      Forward-looking
Statements

       

       

      This
release contains forward-looking statements relating to Southern Union Company’s
settlement agreement with Sandell Asset Management Corp.  The words
“believe,” “expect,” “intend,” “anticipate,” variations of such words, and
similar expressions identify forward-looking statements, but their absence does
not mean that the statement is not forward looking. Although Southern Union
believes that its expectations are based on reasonable assumptions, it can give
no assurance that such assumptions will materialize.  Important
factors that could cause actual results to differ materially from those in the
forward-looking statements herein are enumerated in Southern Union’s Forms 10-K
and 10-Q as filed with the Securities and Exchange
Commission.  Southern Union assumes no obligation to publicly update
or revise any forward-looking statements made herein or any other
forward-looking statements made by Southern Union, whether as a result of new
information, future events, or otherwise. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this release. Southern Union undertakes no obligation to update publicly
any forward-looking statements to reflect new information, events or
circumstances after the date of this release or to reflect the occurrence of
unanticipated events.

       

       

      Contacts:

       

      
        	 
      	 
      	 
      
	
                John
      F. Walsh

                Vice
      President - Investor Relations

                Southern
      Union Company

                212-659-3208

                 

              	 
      	
                Thomas
      Sandell

                Chief
      Executive Officer

                 Sandell
      Asset Management Corp.

                212/603-5700

              

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

    

    EXHIBIT
B

     

    FORM OF JOINDER
AGREEMENT

     

     

    The
undersigned hereby agrees, effective as of the date hereof, to become a party to
that certain Agreement, dated as of March 5, 2009, by and among Southern Union
Company, a Delaware corporation (the “Company”), and the entities listed on
Schedule A
thereto (collectively, the “Sandell Group”) (the “Settlement Agreement”). By
executing this joinder agreement, the undersigned hereby agrees to be, and shall
be, deemed a “Party” and a member of the “Sandell Group” for all purposes of the
Settlement Agreement, entitled to the rights and subject to the obligations
thereunder with respect to the voting securities of the Company acquired from
the Sandell Group.

     

     

    The
address and facsimile number to which notices may be sent to the undersigned is
as follows:

     

     

                                  Address:

     

              Facsimile No.:

     

    

     

    
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	
              Name:

              Date:

            	 
      	 
      
	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      	 
      

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    EXHIBIT
C

     

    ADDRESSES FOR
NOTICE

     

    If to the
Company:

     

    Southern
Union Company

    5444
Westheimer Road

    Houston,
TX 77056

    Attention:
Senior Vice President & General Counsel

    Facsimile:
713-989-1213

    Telephone:
713-989-7567

    Email:
monica.gaudiosi@sug.com

    

     

    with a
copy to:

     

    Sullivan & Cromwell,
LLP

    125 Broad Street

    New York, NY 10004

    Attention: Joseph B.
Frumkin

    Facsimile: 212-558-3588

    Telephone: 212-558-4101

    Email:
frumkinj@sullcrom.com

    

    

    If to the
Sandell Group:

    

    Sandell Asset Management
Corp.

    40 West 57th
Street

    New York, NY 10019

    Attention: Thomas E.
Sandell

    Facsimile: 212-603-5710

    Telephone: 212-603-5700

    Email:

    

    with a
copy to:

    

    Schulte Roth & Zabel
LLP

    919 Third Avenue

    New York, NY 10022

    Attention: David Rosewater/Marc
Weingarten

    Facsimile: 212-593-5955

    Telephone:
212-756-2208/212-756-2280

    Email:
Davidrosewater@SRZ.com/Marcweingarten@SRZ.com

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
D

    FORM OF IRREVOCABLE
RESIGNATION

    

    March 5,
2009

    

    Attention:
Chairman of the Board of Directors

    

    Reference
is made to that certain Settlement Agreement (the “Settlement Agreement”), dated
as of March 5, 2009, between Southern Union Company (the “Company”) and Sandell
Asset Management Corp., Castlerigg Master Investments Ltd., Castlerigg
International Limited, and Castlerigg International Holdings Limited
(collectively, the “Sandell Group”). Capitalized terms used but not defined
herein (and terms otherwise defined in the Settlement Agreement and used herein)
shall have the meanings assigned to such terms in the Settlement
Agreement.

    

    In
accordance with Section 7 of the Settlement Agreement, regarding stock ownership
of the Sandell Group, and in respect of certain of my relationships, effective
upon my election as a director, I hereby tender my conditional resignation as a
director of the Board and as a member of any committee of the Board of which I
am then a member, provided that this resignation shall be effective upon the
Board’s acceptance of this resignation, and only in the event that (i) at any
time during the Standstill Period, the Sandell Group fails to beneficially own
at least five percent (5%) of the outstanding Common Stock and/or (ii) I [For
Beasley only -- (a) fail to resign as a director of Williams Pipeline Partners
L.P. if requested by the Board at any time I am a director of the Company or
there is a breach of any of the provisions of Section 9(b) of the Settlement
Agreement, (b)] [(a)] fail to obtain the written approval of the Board prior to
accepting any directorship or consulting engagement with a company in the
natural gas industry, [(c)] [(b)] communicate directly with representatives of
the Sandell Group while serving as a director of the Company or [(d)] [(c)]
receive any remuneration in violation of Section 9(a) of the Settlement
Agreement.

    

    This
resignation may not be withdrawn by me at any time.

    

    

    Very truly yours,

    

    

    ____________________

    [Name]

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