Document:

CONSULTING AGREEMENT

 

CONSULTING AGREEMENT

     THIS CONSULTING AGREEMENT (“Agreement”) is made and entered into as of May
15, 2002, at Fayetteville, Washington County, Arkansas, by and between
SOUTHWESTERN ENERGY COMPANY, an Arkansas business corporation, designated
herein as SWEN, and CHARLES E. SCHARLAU, designated herein as Scharlau.

W  I  T  N  E  S  S  E  T  H:

     A.     PARTIES:

     1.     SOUTHWESTERN ENERGY COMPANY (“SWEN”) is an Arkansas business
corporation with its principal office being situated in Houston, Harris County,
Texas, and it is the parent company of the following wholly-owned subsidiary
corporations (“Subsidiaries”):

		
	 	     (a) Arkansas Western Gas Company. Arkansas Western Gas Company
(“AWG”) is an Arkansas business corporation with its home office being
situated in Fayetteville, Washington County, Arkansas, and it is a
natural gas distribution public utility in the State of Arkansas;
	 
	 	     (b) SEECO, Inc. SEECO, Inc. (“SEECO”) is an Arkansas business
corporation with its home office situated in Fayetteville, Washington
County, Arkansas, and it is engaged in the natural gas exploration,
development and production business in the State of Arkansas;
	 
	 	     (c) Southwestern Energy Production Company. Southwestern Energy
Production Company (“SEPCO”) is an Arkansas business corporation with its
home office situated in Houston, Harris County, Texas, and it is engaged
in the oil and gas exploration, development and production business in
the States of Arkansas, Oklahoma, Texas, Louisiana and other areas in the
United States and in the Gulf of Mexico; and
	 
	 	     (d) AW Realty Company. AW Realty Company (“AWR”) is an Arkansas
business corporation with its home office situated in Fayetteville,
Washington County, Arkansas, and it is engaged in real estate development
and sales and owning and operating rental properties in Arkansas.

     2.     Charles E. Scharlau. Charles E. Scharlau (“Scharlau”) is a natural
person, he is now and since June of 1951, he has been a licensed attorney at
law in the State of Arkansas; and he first became an employee of AWG in 1951,
and he served the organization as the head of the legal department until 1968,
when he became the President and the Chief Executive Officer of the
organization. In
 addition, he is now and at all times since 1968 he has been a member of and the
Chairman of the Board of Directors.

 

 

     B.     RECITALS.

     1.     SWEN, as the parent corporation of all the Subsidiaries, is engaged in
the business of oil and gas exploration and development; the sale and
distribution of oil and gas; the natural gas public utility business; the real
estate development business; and the ownership of real estate for sale and
rental, all for the production of income.

     2.     Scharlau is a regularly licensed attorney in the State of Arkansas, and
is an experienced corporate executive in the field of oil and gas exploration
and development, the sale and distribution of oil and gas, the natural gas
utility distribution business, the development and sale of real property and
the ownership and operation of rental real estate.

     3.     SWEN wishes to be assured of the consulting services of Scharlau,
particularly with reference to the operation of the businesses now conducted by
SWEN and the Subsidiaries as specified above and in the areas indicated.

     4.     The purposes of this Agreement are:

		
	 	     (a) To provide for the engagement of Scharlau as a business
consultant and advisor to SWEN and its Subsidiaries;
	 
	 	     (b) To secure for SWEN and all of its Subsidiaries the advisory and
consulting services of Scharlau (the “Services”) and to provide for the
payment of compensation to Scharlau for the Services to be rendered
directly to SWEN and the Subsidiaries and any other entities that are now
owned or which may be owned by SWEN and/or the Subsidiaries in the
future; and
	 
	 	     (c) To assure that Scharlau shall not compete with SWEN and/or any
of its Subsidiaries in any undertaking of any advisory and consulting
services in the area of the operations of SWEN and the Subsidiaries
during the term hereof and for two (2) years after the expiration of this
Agreement.

     C.     AGREEMENT. FOR AND IN CONSIDERATION of the foregoing recitals and of
the mutual and interdependent promises contained herein, SWEN hereby engages
Scharlau as an independent consultant and Scharlau accepts such engagement, in
accordance with the terms set forth herein:

		
	 	     1. Term. This Agreement shall commence with SWEN’s Annual Meeting
in 2002 and, subject to the other provisions hereof, shall continue in
full force and effect until SWEN’s Annual Meeting in 2005 (the “Term”).
This Agreement may be extended beyond the initial Term by the mutual
agreement of SWEN and Scharlau. Any such extension of the initial Term
shall be executed no later than thirty (30) days prior to the expiration
of the initial Term. During the Term of this Agreement, Scharlau shall
perform such Services to SWEN and represent SWEN in such manner as may be
reasonably requested by the Chief Executive Officer or the Board of
Directors of SWEN.

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	 	     2. Compensation. As compensation for the Services, SWEN shall pay
to Scharlau the sum of $5,000 per year (the “Consulting Fee”). The
Consulting Fee for the first year of the Term shall be paid to Scharlau
no later than June 1, 2002. The Consulting Fee for the second year of
the Term shall be paid on the date of SWEN’s Annual Meeting in 2003 and
the Consulting Fee for the third year of the Term shall be paid on the
date of SWEN’s Annual Meeting in 2004.
	 
	 	     3. Expenses. Scharlau shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by Scharlau in
connection with the provision of Services hereunder. Reimbursement shall
be made in accordance with the Company’s policies and procedures for
reimbursing third party consultants.
	 
	 	     4. Meetings, Conventions and Seminars. Scharlau is encouraged and
is expected to attend seminars, professional meetings and conventions,
and educational courses. The cost of travel, tuition or registration,
food and lodging for attending those activities will be paid by SWEN.
Other costs are Scharlau’s expense, unless SWEN authorizes those costs.
If those other costs are authorized expenses, Scharlau will be reimbursed
after satisfying SWEN’s policies and procedures for such reimbursement
(which may include a requirement that Scharlau submit an itemized expense
voucher).
	 
	 	     5. Promotional Expenses. Scharlau is encouraged and is expected,
from time to time, to incur reasonable expenses for promoting SWEN’s
business. Such promotional expenses include travel, entertainment,
professional advancement and community service expenses. Scharlau agrees
to bear those expenses except to the extent that those expenses are
incurred at SWEN’s specific direction or those expenses are specifically
authorized by SWEN as expenses that SWEN may pay directly or indirectly
through reimbursement to Scharlau.
	 
	 	     6. Outside Activities. During the Term of this Agreement, Scharlau
may (i) serve on corporate, civic or charitable boards or committees;
(ii) deliver lectures, fulfill speaking engagements or teach at
educational institutions; (iii) manage personal investments and (iv)
engage as an attorney, consultant, advisor or investor in any business
enterprise, provided that (i) there is no conflict of interest with SWEN as outlined in
Section 7 below and (ii) such activities do not significantly interfere
with the performance of Scharlau’s Services to SWEN. To the extent that
any such activities have been conducted by Scharlau before the execution
date of this Agreement, such prior conduct of activities and any
subsequent conduct of activities similar in nature and scope may not be
deemed to interfere with the performance of Scharlau’s Services to SWEN.
	 
	 	     7. Non-Compete Agreement. For a period of two (2) years from and
after the date of the termination of this Agreement, Scharlau agrees that
he will not, without the prior consent of SWEN and the Subsidiaries,
either directly or indirectly, (i) be engaged as chief operating officer,
manager, employee or director of, or agent, consultant or business
advisor for, or (ii) own a substantial ownership interest in, any
incorporated or 

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	 	unincorporated oil and gas exploration, production and
sales entity in the geographical area of SWEN’s and the Subsidiaries’
area of operation. SWEN agrees that it will not unreasonably withhold
its consent to Scharlau acting as attorney, advisor or consultant to any
such entity if there is no conflict of interest with SWEN.

		
	 	     8. Non-Assignability. Neither this Agreement nor any rights
hereunder shall be assignable by either party.
	 
	 	     9. Inurement. Except as provided in Section 8 above, this Agreement
shall be binding upon and inure to the benefit of the parties hereto,
their executors, administrators heirs-at-law, successors and assigns.
	 
	 	     10. Independent Contractor. The parties agree that the Services to
be rendered by Scharlau are as an independent contractor and not as an
employee, partner or agent of SWEN or its Subsidiaries.
	 
	 	     11. Complete Agreement. This Agreement contains all the agreements,
conditions and understandings between the parties with respect to the
subject matter hereof and supersedes all prior understandings and
agreements (whether oral or written). No amendments to this Agreement
shall be effective or binding on any party unless the same shall be in
writing and signed by all parties.
	 
	 	     12. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Arkansas, excluding
any choice of law rules which may direct the application of the laws of
another jurisdiction. In the event that any portion of the Services
provided to SWEN by Scharlau constitute “Lobbying” under Arkansas law,
Scharlau shall comply with all rules and regulations that are applicable
to “Lobbyists” under Arkansas law.

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
original triplicates on the date first hereinabove written.

	 	 	 	 	 
	 	 	SOUTHWESTERN ENERGY COMPANY;

ARKANSAS WESTERN GAS COMPANY;

SEECO, INC.; SOUTHWESTERN ENERGY

PRODUCTION COMPANY; AND AW REALTY

COMPANY
	 	 	 	 	 
	 	 	
By:
	 	Compensation Committee of the

Board of Directors
	ATTEST:	 	 	 	
	 	 	 	 	/s/ Robert L. Howard

	 	 	 	 	Robert L. Howard
	 	 	 	 	 
	/s/ Mark K. Boling
	 	 	 	/s/ Kenneth R.
Mourton

	Mark K. Boling, Secretary	 	 	 	Kenneth R. Mourton
	 	 	 	 	 
	 	 	 	 	/s/ John Paul
Hammerschmidt

	 	 	 	 	John Paul Hammerschmidt
	 	 	 	 	 
	 	 	 	 	 
	 	 	EMPLOYEE:
	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 
	 	 	/s/ Charles E. Scharlau

Charles E. Scharlau

52002 EMPLOYEE STOCK INCENTIVE PLAN

 

SOUTHWESTERN ENERGY COMPANY

2002 EMPLOYEE STOCK INCENTIVE PLAN

(As Adopted October 23, 2002)

1.     Purpose of the Plan

        The purpose of the Southwestern Energy Company 2002 Employee Stock
Incentive Plan is to enable the Company to attract and retain employees that
(i) are not officers or directors of Southwestern Energy Company for purposes
of Section 16 of the Exchange Act and (ii) are the best available personnel for
positions of substantial responsibility, to reward such employees for superior
performance and to strengthen the mutuality of interests between such employees
and Southwestern’s shareholders. The Plan is designed to meet this intent by
providing such employees with a proprietary interest in pursuing the long-term
growth, profitability and financial success of the Company in order to provide
them with additional motivation to continue in the Company’s employ and to
further its profitable growth.

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 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 (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) the Company, or any employee benefit plan (or related trust)
sponsored or maintained by the Company, 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 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)     any individual who is nominated by the Board for election to the
Board 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;

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

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          (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.

          (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 collectively Southwestern and each of its
Subsidiaries, or individually, Southwestern or one of its Subsidiaries as the
context requires.

          (h)      “Disability” shall mean a condition entitling a Participant to
benefits under the long-term disability policy maintained by the Company and
applicable to him or her.

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

          (j)      “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 for a share of Common Stock on the
immediately preceding business day (x) as reported on the National Association
of Securities Dealers Automated Quotation System or (y) 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, the Fair Market Value of a share of Common
Stock shall be determined by the Committee in its absolute discretion.

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

          (l)      “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 9(a) hereof.

          (m)      “Option” shall mean an Option to purchase shares of Common Stock
granted to a Participant pursuant to the terms of the Plan, which Option is
subject to the terms and conditions in any agreement evidencing such Option.
All Options shall be non-qualified stock options; i.e. Options that do not meet
the requirements of Section 422 of the Code.

          (n)      “Participant” shall mean an employee of the Company who is not a
director or officer of Southwestern for purposes of Section 16 of the Exchange
Act, is a full-time employee of the Company, is an “exempt employee” as defined
under the Fair Labor Standards Act of 1938, and is granted one or more
Incentive Awards 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.

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

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          (p)      “Phantom Stock” shall mean the right granted to a Participant to
receive a payment in cash equal to the Fair Market Value of a share of Common
Stock, which right is granted pursuant to Section 8 hereof and subject to the
terms and conditions contained therein and in any agreement evidencing such
share of Phantom Stock.

          (q)      “Plan” shall mean this Southwestern Energy Company 2002 Employee Stock
Incentive Plan, as it may be amended from time to time.

          (r)      “Restricted Stock” shall mean a share of Common Stock which is granted
to a Participant pursuant to Section 9 hereof and which is subject to the
restrictions set forth in Section 9(c) hereof for so long as such restrictions
continue to apply to such share, and such other terms and conditions contained
in any agreement evidencing such Restricted Stock.

          (s)      “Retirement” shall mean the termination of the employment of a
Participant with the Company on or after (i) the first date on which the
Participant has both attained age 55 and completed 5 years of service with the
Company or (ii) the date on which the Participant attains age 65.

          (t)      “SAR” shall mean a stock appreciation right granted to a Participant
pursuant to Section 7 hereof which is not related to any Option, which SAR is
subject to the terms and conditions contained in any agreement evidencing such
SAR.

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

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

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

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

3.     Stock Subject to the Plan

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

         Subject to adjustment as provided in Section 10 hereof and the following
provisions of this Section 3, the maximum number of shares of Common Stock that
may be covered by Incentive Awards granted under the Plan shall be 300,000
shares.

         The number of shares of Common Stock to which an Incentive Award relates
shall be counted against the number of shares of Common Stock reserved and
available under the Plan at the time of grant of the Incentive Award, unless
such number of shares of Common Stock cannot be determined at that time, in
which case the number of shares of Common Stock actually distributed pursuant
to the Incentive Award shall be counted against the number of shares of Common
Stock reserved and available under the Plan at the time of distribution;
provided, however, that Incentive Awards related to or retroactively added to,
or granted in tandem with, substituted for or converted into, other Incentive
Awards shall be counted or not counted against the number of shares of Common
Stock reserved and available under the Plan in accordance with procedures
adopted by the Committee so as to ensure appropriate counting, but avoid double
counting; and, provided further, that the number of shares of Common Stock
deemed to be

4

 

issued under the Plan upon exercise of an Option or another stock-based award
in the nature of a stock purchase right shall be reduced by the number of
shares of Common Stock surrendered by the Participant in payment of the
exercise or purchase price of the Incentive Award.

          If any shares of Common Stock to which an Incentive Award relates are
forfeited, or payment is made to the Participant in the form of cash, cash
equivalents or other property other than shares of Common Stock, or the
Incentive Award otherwise terminates without payment being made to the
Participant in the form of shares of Common Stock, any shares of Common Stock
counted against the number of shares of Common Stock reserved and available
under the Plan with respect to such Incentive Award shall, to the extent of any
such forfeiture, alternative payment or termination, again be available for
Incentive Awards under the Plan.

          Shares of Common Stock issued under the Plan may be either newly issued
shares or treasury shares, at the discretion of the Committee.

4.     Administration of the Plan

          The Plan shall be administered by the Committee. 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 the Corporation
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 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.

          No 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

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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 employees who shall be eligible to receive Incentive Awards pursuant
to the Plan shall be those employees of the Company who are not officers or
directors of Southwestern for the purposes of Section 16 of the Exchange Act,
who are full-time employees of the Company and who are “exempt employees” as
defined under the Fair Labor Standards Act of 1938 that the Committee shall
select from time to time. 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 non-qualified stock options.

          (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
ten 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 written 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,

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(ii)  through a directed brokerage service, if any is made available to
Participants by Southwestern or (iii) subject to the approval of the Committee,
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 shall
be exercisable only by him. 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, an
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 Options solely for the benefit of one or
more of such persons.

	 	(d)	 	Effect of Termination of Employment

                      (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 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 vested and 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 shall
terminate on account of the Disability or Retirement of the Participant, (i)
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 or her 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, and (ii) Options granted to such Participant, to the extent that
they were not vested and exercisable at the time of such termination, shall
expire at the close of business on the date of such termination. Options that
are not exercised prior to the first anniversary of such termination shall
expire on such anniversary date.

                      (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 shall
terminate on account of the death of the Participant, (i) such Participant’s
estate or beneficiary under his or her 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 or her 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, and
(ii) Options granted to such Participant, to the extent that they were not
vested and exercisable

7

 

at the time of such termination, shall expire at the close of business on
the date of such termination. 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 for
Cause, all outstanding Options granted to such Participant, whether or not then
vested or exercisable, shall expire at the commencement of business on the date
of such termination; provided, however, that no Participant shall be deemed to
have been terminated for Cause during the two year period following any Change
in Control.

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

	 	(e)	 	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.

	 	(f)	 	Cash Tax Bonuses and Loans

                      (1)     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.

                      (2)     The Committee may provide a loan to any Participant in an amount
determined by the Committee to enable the Participant to pay (i) any federal,
state or local income taxes arising out of the exercise of an Option or (ii)
the exercise price with respect to any Option. Any such loan (i) shall be for
such term and at such rate of interest as the Committee may determine, (ii)
shall be evidenced by a promissory note in a form determined by the Committee
and executed by the Participant and (iii) shall be subject to such other terms
and conditions as the Committee may determine.

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 base 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

8

 

share, equal to the 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 base 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 and (B) the Fair
Market Value of a share of Common Stock on the effective date of exercise over
(ii) the per share base 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 ten
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 base 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 written 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 or her
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

                       (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 shall
terminate for any reason other than Cause, Disability, Retirement or death (i)
SARs 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) SARs granted to such Participant,
to the extent that they were not vested and 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 vested and 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 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

9

 

vested and 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
such Participant, to the extent that they were not vested and 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 for
Cause, all outstanding SARs granted to such Participant, whether or not then
vested or exercisable, shall expire at the commencement of business on the date
of such termination; provided, however, that no Participant shall be deemed to
have been terminated for Cause during the two year period following any Change
in Control.

	 	(e)	 	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.      Phantom Stock

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

	 	(a)	 	Vesting Date

                       At the time of the grant of shares of Phantom Stock, the Committee shall
establish a Vesting Date or Vesting Dates 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 Phantom Stock to
become vested. The Committee may divide such shares into classes and assign a
different Vesting Date and different conditions for each class. Provided that
all conditions to the vesting of a share of Phantom Stock imposed pursuant to
Section 8(c) hereof and any agreement evidencing such Phantom Stock are
satisfied and except as provided in Section 8(d) hereof, upon the occurrence of
the Vesting Date with respect to a share of Phantom Stock, the Participant’s
rights with respect to such share shall become fully vested and nonforfeitable.

	 	(b)	 	Benefit Upon Vesting

                       Upon the vesting of a share of Phantom Stock, a Participant shall be
entitled to receive in cash, within 30 days of the applicable Vesting Date or
at such later date as the Committee shall determine, an amount in cash in a
lump sum equal to the sum of (i) the Fair Market Value of a share of Common
Stock on the applicable Vesting Date with respect to such share of Phantom
Stock and (ii) the aggregate amount of cash dividends paid with respect to a
share of Common Stock during the period commencing on the date on which such
share of Phantom Stock was granted to the Participant and terminating on the
applicable Vesting Date for such share.

	 	(c)	 	Conditions to Vesting

                       At the time of the grant of shares of Phantom Stock, the Committee may
impose such restrictions or conditions, not inconsistent with the provisions
hereof, to the vesting of such shares as it

10

 

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 Phantom Stock, that the Participant and/or the Company achieve such
performance criteria as the Committee may specify at the time of the grant of
such shares of Phantom Stock and/or that the Participant continue in the
employment of the Company for a specified period of time.

	 	(d)	 	Effect of Termination of Employment

                       (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 shall
terminate for any reason other than Cause prior to the Vesting Date of shares
of Phantom Stock granted to such Participant, a portion of such shares, to the
extent not forfeited or cancelled on or prior to such termination pursuant to
any provision hereof or of the agreement evidencing such Phantom Stock, 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 shares of Phantom Stock and may be based on the achievement of any
conditions imposed by the Committee with respect to such shares pursuant to
Section 8(c). Such portion may be zero.

                       (2)     In the event of the termination of a Participant’s employment for
Cause, all shares of Phantom Stock granted to such Participant which have not
vested as of the date of such termination shall immediately be forfeited and
cancelled.

	 	(e)	 	Effect of Change in Control

                      Upon the occurrence of a Change in Control, all shares of Phantom Stock
which have not theretofore vested, or been cancelled or forfeited pursuant to
any provision hereof or of the agreement evidencing such Phantom Stock, shall
immediately vest and become nonforfeitable.

9.     Restricted Stock

        The Committee may grant shares of Restricted Stock pursuant to the Plan.
Each grant of shares of Restricted Stock 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 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, the Committee
shall establish an Issue Date or Issue Dates and a Vesting Date or Vesting
Dates 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 to become vested. The Committee may
divide such shares into classes and assign a different Issue Date and/or
Vesting Date and different conditions for each class. 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
9(d) hereof. Provided that all conditions to the vesting of a share of
Restricted Stock imposed pursuant to Section 9(b) hereof and any agreement
evidencing such Restricted Stock are satisfied, and except as provided in
Section 9(c) and 9(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 9(c)
hereof shall cease to apply to such share.

11

 

	 	(b)	 	Conditions to Vesting

                       At the time of the grant of shares of Restricted Stock, 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, that the
Participant and/or the Company achieve such performance criteria as the
Committee may specify at the time of the grant of such shares and/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.

	 	(d)	 	Issuance of Certificates

                       (1)     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 2002 Employee Stock Incentive Plan and an
Agreement entered into between the registered owner of such
shares and Southwestern Energy Company. A copy of the Plan
and Agreement is on file in the office of the Secretary of
Southwestern Energy Company, 2350 N. Sam Houston Parkway
East, Suite 300, Houston, Texas 77032.	                       

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 9(d)(1) hereof, together
with the stock powers relating to the shares of Restricted Stock evidenced by
such certificate, shall be deposited by the Company with a custodian designated
by the Company until the applicable shares become vested. The Company shall
cause such custodian to issue to the Participant a receipt evidencing the
certificates held by it which are registered in the name of the Participant.

	 	(e)	 	Consequences Upon Vesting

                       Upon the vesting of a share of Restricted Stock pursuant to the terms
hereof, the restrictions of Section 9(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

12

 

the Participant to whom such shares were granted, a certificate evidencing such
share, free of the legend set forth in Section 9(d)(1) hereof, together with
any other property of the Participant held by the custodian pursuant to Section
9(d)(2) hereof.

	 	(f)	 	Effect of Termination of Employment

                       (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 shall
terminate for any reason other than Cause prior to the vesting of shares of
Restricted Stock granted to such Participant, a portion of such shares, 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, 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
shares pursuant to Section 9(b). Such portion may zero.

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

	 	(g)	 	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 and all restrictions applicable thereto shall lapse.

	 	(h)	 	Cash Tax Bonuses and Loans

                       (1)     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.

                       (2)     The Committee may provide a loan to any Participant 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.
Any such loan (i) shall be for such term and at such rate of interest as the
Committee may determine, (ii) shall be evidenced by a promissory note in a form
determined by the Committee and executed by the Participant and (iii) shall be
subject to such other terms and conditions as the Committee may determine.

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, reorganization,
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, (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 and base prices
applicable under any then outstanding Options and SARs and (iv) the number,
type and class of securities covered by any then

13

 

outstanding shares of Phantom Stock or Restricted Stock and the respective
limitations or other criteria applicable to any then outstanding shares of
Phantom Stock or Restricted Stock may be appropriately adjusted by the
Committee as it shall determine is appropriate to prevent enlargement or
dilution of the rights of Participants hereunder. 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.

	 	(b)	 	Outstanding Restricted Stock

                       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 that are outstanding as of the date an Adjustment
Event occurs which have not become vested as of such date shall be promptly
deposited with the custodian designated pursuant to Paragraph 9(d)(2) hereof
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 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, consolidation, or similar
business transaction involving Southwestern, the Committee shall have the power
to:

                       (A)     cancel, effective immediately prior to the occurrence of such event,
all or a portion of the Options and SARs outstanding immediately prior to such
event (whether or not then vested or exercisable), and, in full consideration
for 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 each such
cancelled Option or SAR, respectively, immediately prior to such event, equal
to the excess of (A) the value, as determined by the Committee (as constituted
immediately prior to such event) 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 or base 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 rights covering
securities of the acquiring entity (or the ultimate parent thereof) and,
incident thereto, make an equitable adjustment as determined by the Committee
(as constituted immediately prior to such event) in the exercise or base 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

14

 

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 or base 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 this Plan until the date of the issuance of a stock certificate
with respect to such shares. Except as otherwise expressly provided in Section
8, 9 or 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 or her 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 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 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.

15

 

14.     Withholding Taxes

	 	(a)	 	Cash Remittance

                       Whenever shares of Common Stock are to be issued upon the exercise of an
Option or SAR or the grant of Restricted Stock or restrictions on shares of
Restricted Stock are to lapse, 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 lapse 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 of an SAR or receipt of, or
payment in respect of, a share of Phantom Stock, 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, receipt or payment.

	 	(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 of an
Option or SAR or the grant of Restricted Stock, or when restrictions on
Restricted Stock lapse, 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 or grant 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 of an
Option or SAR or the grant of Restricted Stock, or when restrictions on
Restricted Stock lapse, 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 lapse of
restrictions, 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 any
revision or amendment to the Plan that requires the approval of shareholders
pursuant to New York Stock Exchange Listing Requirements or applicable law
shall not be made until such approval of shareholders is obtained. 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, materially reduce the Participant’s rights under any
previously granted and outstanding Incentive Award. Nothing herein shall limit
the right of Southwestern to pay compensation of any kind outside the terms of
the Plan.

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.

16

 

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 Section 17 or Section 6(c)(5), 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 October 23, 2002. No
grants may be made under the Plan after October 23, 2004.

17

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