-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, W2ZJYlTqpvfOZC5sWIr/3L7ZhbLj8qRUF2Sd7ytQ1I5JyLFKaCZQv5dcQkXAgcof bdpD21alZPZBZ9g2doyoIQ== 0000320321-98-000068.txt : 19980807 0000320321-98-000068.hdr.sgml : 19980807 ACCESSION NUMBER: 0000320321-98-000068 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980806 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEAGULL ENERGY CORP CENTRAL INDEX KEY: 0000320321 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 741764876 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08094 FILM NUMBER: 98678615 BUSINESS ADDRESS: STREET 1: 1001 FANNIN STE 1700 STREET 2: 1001 FIRST CITY TOWER CITY: HOUSTON STATE: TX ZIP: 77002-6714 BUSINESS PHONE: 7139514700 MAIL ADDRESS: STREET 1: 1001 FANNIN, SUITE 1700 STREET 2: 1001 FIRST CITY TOWER CITY: HOUSTON STATE: TX ZIP: 77002-6714 FORMER COMPANY: FORMER CONFORMED NAME: SEAGULL PIPELINE CORP DATE OF NAME CHANGE: 19830815 10-Q 1 SECOND QUARTER 1998 10-Q ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 1-8094 SEAGULL ENERGY CORPORATION (Exact name of registrant as specified in its charter TEXAS 74-1764876 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1001 FANNIN, SUITE 1700, HOUSTON, TEXAS 77002-6714 (Address of principal executive offices) (Zip code) (713) 951-4700 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . As of July 31, 1998, 63,058,384 shares of Common Stock, par value $0.10 per share, were outstanding. ================================================================================ SEAGULL ENERGY CORPORATION AND SUBSIDIARIES INDEX
PAGE NUMBER PART I. FINANCIAL INFORMATION Item 1. Unaudited Consolidated Financial Statements Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1998 and 1997....................... 1 Consolidated Balance Sheets - June 30, 1998 and December 31, 1997......................................... 2 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1998 and 1997.................................. 3 Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 1998 and 1997......... 4 Notes to Consolidated Financial Statements.................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 9 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders......... 15 Item 6. Exhibits and Reports on Form 8-K............................ 15 SIGNATURES ............................................................... 16
(i) ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS SEAGULL ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in Thousands Except Per Share Data) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, -------------------------------- ------------------------------- 1998 1997 1998 1997 --------------- -------------- --------------- -------------- Revenues: Oil and gas operations........................... $ 86,104 $ 105,406 $ 176,553 $ 230,410 Alaska transmission and distribution............ 17,425 16,774 49,301 51,343 -------------- -------------- -------------- ------------- 103,529 122,180 225,854 281,753 Costs of Operations: Operations and maintenance...................... 38,501 41,005 78,381 83,876 Alaska transmission and distribution cost of gas sold.............................. 7,343 7,244 22,106 23,966 Exploration charges............................. 8,178 7,346 18,296 16,299 Depreciation, depletion and amortization........ 40,876 45,661 80,855 87,772 General and administrative...................... 3,056 3,113 6,440 5,423 -------------- -------------- -------------- ------------- 97,954 104,369 206,078 217,336 -------------- -------------- -------------- ------------- Operating Profit................................... 5,575 17,811 19,776 64,417 Other (Income) Expense: Interest expense................................ 9,305 9,585 17,852 19,995 Interest income and other....................... (1,669) (215) (2,201) (913) -------------- -------------- -------------- ------------- 7,636 9,370 15,651 19,082 -------------- -------------- -------------- ------------- Income (Loss) Before Income Taxes.................. (2,061) 8,441 4,125 45,335 Income Tax Expense (Benefit)....................... (1,010) 5,820 2,021 25,460 -------------- -------------- -------------- ------------- Net Income (Loss).................................. $ (1,051) $ 2,621 $ 2,104 $ 19,875 ============== ============== ============== ============= Earnings (Loss) Per Share: Basic........................................... $ (0.02) $ 0.04 $ 0.03 $ 0.32 ============== ============== ============== ============= Diluted......................................... $ (0.02) $ 0.04 $ 0.03 $ 0.31 ============== ============== ============== ============= Weighted Average Number of Common Shares Outstanding: Basic......................................... 63,052 63,007 63,036 62,897 ============== ============== ============== ============= Diluted....................................... 63,052 63,627 63,480 63,632 ============== ============== ============== =============
See accompanying Notes to Consolidated Financial Statements. 1 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands Except Share Data) (Unaudited)
JUNE 30, 1998 December 31, 1997 ------------------ --------------------- ASSETS: Current Assets: Cash and cash equivalents......................................... $ 15,094 $ 45,654 Accounts receivable, net.......................................... 133,948 147,442 Inventories....................................................... 17,616 13,635 Prepaid expenses and other........................................ 13,802 16,240 ------------------ --------------------- Total Current Assets............................................ 180,460 222,971 Property, Plant and Equipment - at cost............................. 2,284,310 2,053,683 Accumulated Depreciation, Depletion and Amortization................ 988,929 908,849 ------------------ --------------------- 1,295,381 1,144,834 Other Assets........................................................ 43,256 43,261 ------------------ --------------------- Total Assets........................................................ $ 1,519,097 $ 1,411,066 ================== ===================== LIABILITIES AND SHAREHOLDERS' EQUITY: Current Liabilities: Accounts and note payable......................................... $ 161,379 $ 159,138 Accrued expenses.................................................. 32,953 47,625 Current maturities of long-term debt.............................. 7,117 7,097 ------------------ --------------------- Total Current Liabilities....................................... 201,449 213,860 Long-Term Debt...................................................... 566,914 469,017 Other Noncurrent Liabilities........................................ 51,950 51,168 Deferred Income Taxes............................................... 33,225 14,126 Redeemable Bearer Shares............................................ 15,620 15,691 Commitments and Contingencies....................................... - - Shareholders' Equity: Common Stock, $.10 par value; authorized 100,000,000 shares; issued 63,915,150 shares (1998) and 63,877,442 shares (1997).... 6,392 6,388 Additional paid-in capital........................................ 494,533 493,829 Retained earnings................................................. 167,039 164,935 Less - note receivable from employee stock ownership plan......... (3,067) (2,990) Less - 861,314 shares of Common Stock held in Treasury, at cost... (14,958) (14,958) ------------------ --------------------- Total Shareholders' Equity...................................... 649,939 647,204 ------------------ --------------------- Total Liabilities and Shareholders' Equity......................... $ 1,519,097 $ 1,411,066 ================== =====================
See accompanying Notes to Consolidated Financial Statements. 2 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) (Unaudited)
Six Months Ended June 30, ------------------------------------------ 1998 1997 ------------------- ------------------- OPERATING ACTIVITIES: Net income............................................................... $ 2,104 $ 19,875 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization............................... 80,855 87,772 Amortization of deferred financing costs............................... 978 1,215 Deferred income taxes.................................................. (5,479) 11,336 Dry hole expense....................................................... 6,154 3,401 Other.................................................................. 229 350 ------------------- ------------------- 84,841 123,949 Changes in operating assets and liabilities, net of acquisitions: Decrease in accounts receivable...................................... 16,426 44,096 Increase in inventories, prepaid expenses and other.................. (2,486) (9,685) Decrease in accounts and notes payable............................... (19,556) (16,688) Decrease in accrued expenses and other............................... (14,984) (15,678) ------------------- ------------------- Net Cash Provided By Operating Activities................................ 64,241 125,994 INVESTING ACTIVITIES: Capital expenditures..................................................... (112,605) (137,348) Acquisitions of oil and gas properties, net of cash acquired............. (101,554) (821) Acquisitions of other assets and liabilities, net of cash acquired....... (1,337) - Proceeds from sales of property, plant and equipment..................... 463 1,156 ------------------- ------------------- Net Cash Used In Investing Activities.................................... (215,033) (137,013) FINANCING ACTIVITIES: Proceeds from debt....................................................... 241,555 368,003 Principal payments on debt .............................................. (122,044) (344,007) Proceeds from sales of common stock...................................... 556 2,798 Other.................................................................... 165 (1,530) ------------------- ------------------- Net Cash Provided By Financing Activities................................ 120,232 25,264 Effect of exchange rate changes on cash.................................... - (64) ------------------- ------------------- Increase (Decrease) In Cash And Cash Equivalents......................... (30,560) 14,181 Cash And Cash Equivalents At Beginning Of Period........................... 45,654 15,284 ------------------- ------------------- Cash And Cash Equivalents At End Of Period................................. $ 15,094 $ 29,465 =================== ===================
See accompanying Notes to Consolidated Financial Statements. 3 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in Thousands) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, ----------------------------- ---------------------------- 1998 1997 1998 1997 --------------- -------------- -------------- ------------- $ (1,051) $ 2,621 $ 2,104 $ 19,875 Net income (loss).................................... Other comprehensive income, net of tax: Foreign currency translation adjustment........... - 341 - (855) --------------- -------------- -------------- ------------- Comprehensive income (loss).......................... $ (1,051) $ 2,962 $ 2,104 $ 19,020 ============== ============ ============== ============
See accompanying Notes to Consolidated Financial Statements. 4 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. PRESENTATION OF FINANCIAL INFORMATION In the opinion of management, the unaudited consolidated financial statements presented herein contain all adjustments necessary to present fairly the financial position of Seagull Energy Corporation and Subsidiaries (the "Company" or "Seagull") as of June 30, 1998, and the results of its operations and cash flows for the three and six months ended June 30, 1998 and 1997. All adjustments made are of a normal, recurring nature. The results of operations for the three and six months ended June 30, 1998 and 1997 are not necessarily indicative of the results to be expected for the full year. The financial information presented herein should be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Comprehensive Income -- Effective January 1, 1998, the Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." This statement established standards for reporting and display of comprehensive income and its components in the Company's financial statements. Comprehensive income includes all changes in the Company's equity except those resulting from investments by and distributions to owners. Earnings Per Share -- The following table provides a reconciliation between basic and diluted earnings (loss) per share (stated in thousands except per share data):
Weighted Average Earnings (Loss) Common Shares Per-Share Net Income (Loss) Outstanding Amount -------------------- ---------------------- ------------------- QUARTER ENDED JUNE 30, 1998: BASIC..................................... $ (1,051) 63,052 $ (0.02) EFFECT OF DILUTIVE STOCK OPTIONS.......... - - -------------------- ---------------------- DILUTED................................... $ (1,051) 63,052 $ (0.02) ==================== ====================== Quarter Ended June 30, 1997: Basic..................................... $ 2,621 63,007 $ 0.04 Effect of dilutive stock options.......... - 620 -------------------- ---------------------- Diluted................................... $ 2,621 63,627 $ 0.04 ==================== ====================== SIX MONTHS ENDED JUNE 30, 1998: BASIC..................................... $ 2,104 63,036 $ 0.03 EFFECT OF DILUTIVE STOCK OPTIONS.......... - 444 -------------------- ---------------------- DILUTED................................... $ 2,104 63,480 $ 0.03 ==================== ====================== Six Months Ended June 30, 1997: Basic..................................... $ 19,875 62,897 $ 0.32 Effect of dilutive stock options.......... - 735 -------------------- ---------------------- Diluted................................... $ 19,875 63,632 $ 0.31 ==================== ======================
5 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Weighted average options to purchase 2,817,546, 1,756,099 and 1,827,369 shares of common stock at $17.38 to $26.38 per share were outstanding during the first half of 1998, the first half of 1997 and the second quarter of 1997, respectively, but were not included in the computation of earnings per diluted share because the options' exercise prices were greater than the average market price of the common shares. Outstanding options expire at various dates from 2003 to 2008. The effect of the assumed exercise of stock options as of the beginning of the second quarter of 1998 has an anti-dilutive effect on the computation of loss per diluted share for the period. Therefore, weighted average options to purchase 4,476,368 shares of common stock at $5.89 to $26.38 per share have not been included in the weighted average number of common shares outstanding for the second quarter of 1998. Derivative Financial Instruments -- The Company enters into a variety of commodity derivative financial instruments (futures contracts, price swaps and options) only for non-trading purposes as a hedging strategy to manage commodity prices associated with oil and gas sales and to reduce the impact of price fluctuations. To qualify as hedges, these instruments must highly correlate to anticipated future production such that the Company's exposure to the effects of price changes is reduced. The Company uses the hedge or deferral method of accounting for these instruments and, as a result, gains and losses on commodity derivative financial instruments are generally offset by similar changes in the realized prices of the commodities. Income and costs related to these hedging activities are recognized in oil and gas revenues when the commodities are produced. Income and costs on commodity derivative financial instruments that are closed before the hedged production occurs are also deferred until the production month originally hedged. In the event of a loss of correlation between changes in oil and gas reference prices under a commodity derivative financial instrument and actual oil and gas prices, income or costs are recognized currently to the extent the financial instrument has not offset changes in actual oil and gas prices. Any realized income and costs that are deferred at the balance sheet date and any margin accounts for futures contracts are included as net current assets. While commodity derivative financial instruments are intended to reduce the Company's exposure to declines in the market price of oil and natural gas, the commodity derivative financial instruments may also limit the Company's gain from increases in those market prices. The Company recorded $0.5 million and $8 million for the six months ended June 30, 1998 and 1997, respectively, in costs related to equity hedging activities, including costs related to the monetary production payment hedges of approximately $0.5 million and $1 million in 1998 and 1997, respectively. By the end of the first quarter of 1997, the Company's equity hedging activities had been substantially reduced, leaving primarily the commodity hedges of approximately 11 MMcf per day through December 1998, which were required by the monetary production payment (related to the 1995 sale of the Company's Section 29 tax credit-bearing properties). For the second quarter of 1998 and 1997, all of the Company's equity hedging costs of $0.3 million and $0.2 million, respectively, related to the monetary production payment hedges. The Company also recorded hedging costs related to third-party marketing activities of $1.5 million and $0.2 million for the six months ended June 30, 1998 and 1997, respectively, and $1 million and none for the second quarter of 1998 and 1997, respectively. At June 30, 1998, the Company had open natural gas futures, swaps and option contracts related to its equity and third-party marketing hedging activities totaling 20 Bcf related to purchases and 33 Bcf related to sales for the period from July 1998 through July 1999. At June 30, 1998, the fair value related to the Company's commodity hedging activities was $0.1 million of costs related to open contracts. 6 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Accounting Pronouncements -- In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments be included in interim reports issued to shareholders. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This statement establishes standards for disclosure for pensions and other postretirement benefits in annual financial statements. These statements are effective for financial statements for periods beginning after December 15, 1997. As both SFAS Nos. 131 and 132 establish standards for reporting and display, the Company does not expect the adoption of these statements to have a material impact on its financial condition or results of operations. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes standards of accounting for and disclosures of derivative instruments and hedging activities. This statement is effective for fiscal years beginning after June 15, 1999. The Company has not yet determined the impact of this statement on the Company's financial condition or results of operations. NOTE 2. ACQUISITIONS On June 1, 1998, the Company completed the purchase of the stock of BRG Petroleum, Inc. ("BRG"), a closely held private company, and the assets of BRG's limited partnerships and programs for $103 million in cash, excluding cash acquired of $2 million and noncash deferred tax liabilities of $25 million. The Company funded this acquisition through existing credit facilities. The following table presents the unaudited pro forma results of Seagull as though the acquisition of the acquired assets had occurred on January 1, 1998:
PRO FORMA INFORMATION (Amounts in Thousands Except Per Share Data) SIX MONTHS ENDED JUNE 30, 1998 ----------------- Revenues................................................ $234,525 Net income.............................................. 1,081 Basic earnings (loss) per share......................... 0.02 Diluted earnings (loss) per share....................... 0.02
7 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The unaudited pro forma information does not purport to be indicative of actual results, if the acquisition of the BRG assets had been in effect for the period indicated, or of future results. NOTE 3. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(Amounts in Thousands) Six Months Ended June 30, -------------------------- 1998 1997 ------------ ---------- Cash paid during the period for: Interest, net of amount capitalized...... $16,204 $20,913 Income taxes............................. $ 8,628 $13,377
NOTE 4. COMMITMENTS AND CONTINGENCIES Year 2000 Issue -- Historically, most computer systems (including microprocessors embedded into field equipment and other machinery) utilized software that processed transactions using two digits to represent the year of the transaction (i.e., 97 represents the year 1997). This software requires modification to properly process dates beyond December 31, 1999 (the "Year 2000 Issue"). During 1997, the Company utilized both internal and external resources to reprogram, or replace, and test software for necessary modifications identified in its assessment of the Year 2000 Issue. By December 31, 1997, the Company's Year 2000 remediation was substantially complete and approximately $300,000 had been expensed related to this assessment and remediation. The Company presently believes that, as a result of these efforts, the Year 2000 Issue will not have a material adverse effect on the Company's operations. The Company has initiated formal communications with all of its significant suppliers and large customers to determine the extent to which the Company is vulnerable to those third parties' potential failure to remediate their own Year 2000 Issue. However, there can be no guarantee that the systems of other companies, on which the Company's systems rely, will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. Other -- The Company is a party to ongoing litigation in the normal course of business. Management regularly analyzes current information and, as necessary, provides accruals for probable liabilities on the eventual disposition of these matters. While the outcome of lawsuits or other proceedings against the Company cannot be predicted with certainty, management believes that the effect on its financial condition, results of operations and cash flows, if any, will not be material. 8 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion is intended to assist in an understanding of the Company's financial position and results of operations for each of the periods indicated. The Company's accompanying unaudited financial statements and the notes thereto and the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 contain detailed information that should be referred to in conjunction with the following discussion. RESULTS OF OPERATIONS
CONSOLIDATED HIGHLIGHTS (Amounts in Thousands) Three Months Ended Six Months Ended June 30, June 30, ------------------------------- ----------------------------------- 1998 1997 1998 1997 -------------- ------------- -------------- --------------- Revenues: Oil and gas operations....................... $ 86,104 $ 105,406 $ 176,553 $ 230,410 Alaska transmission and distribution......... 17,425 16,774 49,301 51,343 -------------- ------------- -------------- --------------- $ 103,529 $ 122,180 $ 225,854 $ 281,753 -------------- ------------- -------------- --------------- Operating Profit: Oil and gas operations....................... $ 6,835 $ 19,681 $ 15,766 $ 58,760 Alaska transmission and distribution......... 2,749 1,971 12,290 12,437 Corporate.................................... (4,009) (3,841) (8,280) (6,780) -------------- ------------- -------------- --------------- $ 5,575 $ 17,811 $ 19,776 $ 64,417 ============== ============= ============== =============== Net income (loss).............................. $ (1,051) $ 2,621 $ 2,104 $ 19,875 Net cash provided by operating activities before changes in operating assets and liabilities............. $ 39,781 $ 50,836 $ 84,841 $ 123,949 Net cash provided by operating activities................................... $ 31,238 $ 52,479 $ 64,241 $ 125,994
Revenues decreased $19 million and $56 million, respectively, and operating profit declined $12 million and $45 million, respectively, for the three and six month periods ending June 30, 1998 versus the same periods of 1997 principally due to three factors: (i) significant decreases in worldwide oil prices, (ii) declines in domestic gas production and (iii) the sale of the Company's Canadian oil and gas operations in October 1997. The effect of these three factors was partially offset by higher oil production from the Company's Egyptian operations for both the three and six months ended June 30, 1998 and an increase in domestic oil volumes in the first half of 1998 compared to the same period in 1997. Net income (loss) decreased from $3 million for the second quarter of 1997 to $(1) million for the same period in 1998 and declined from $20 million for the six months of 1997 compared to $2 million for the first half of 1998 due to the lower commodity prices discussed above. 9 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OIL AND GAS OPERATIONS (Amounts in Thousands) Three Months Ended June 30, Six Months Ended June 30, ------------------------------------- ---------------------------------- 1998 1997 1998 1997 ---------------- ---------------- -------------- --------------- Revenues: Natural gas............................... $ 57,757 $ 68,219 $ 118,317 $ 153,719 Oil and NGL............................... 22,390 32,411 46,675 63,234 Pipeline and marketing.................... 5,957 4,776 11,561 13,457 ---------------- ---------------- -------------- --------------- 86,104 105,406 176,553 230,410 ---------------- ---------------- -------------- --------------- Production operating expenses............... 26,866 29,241 54,310 59,124 Pipeline and marketing expenses............. 6,429 6,289 13,415 13,980 Exploration charges......................... 8,178 7,346 18,296 16,299 Depreciation, depletion and amortization.... 37,796 42,849 74,766 82,247 ---------------- ---------------- -------------- --------------- Operating profit.......................... $ 6,835 $ 19,681 $ 15,766 $ 58,760 ================ ================ =============== ===============
The decline in commodity prices was the significant factor in the 65% and 73% decreases in operating profit for the Oil and Gas Operations ("O&G") segment to $7 million and $16 million for the three and six months ended June 30, 1998, respectively. Domestic natural gas prices realized by the Company decreased 8% from $2.32 per Mcf in the first half of 1997 to $2.14 per Mcf for the same period in 1998. This price decrease and a 6% decrease in domestic gas production combined to create an $18 million decrease in domestic natural gas revenues. Worldwide oil prices realized by the Company showed a significant decrease of 31%, from $17.77 per Bbl in 1997's first half to $12.19 per Bbl in 1998. While declining oil prices were the primary factor for the decrease in oil revenues, this was partially offset by a 23% increase in oil production in the U.S. and Egypt as Seagull realized additional contributions from several new domestic wells and two Egyptian concessions - Qarun, where additional facilities became operational during mid-1997, and West Abu Gharadig, which was purchased in late 1997. For the second quarter of 1998, domestic gas prices realized by the Company increased $0.10 per Mcf over the 1997 quarter's $2.04 per Mcf. However, domestic gas production and worldwide oil prices reflected the same trends as the first half of 1998. In addition, 1998 reflects the absence of the Company's Canadian operations which were sold in October 1997. These Canadian operations contributed approximately $7 million and $18 million in revenues and $(0.2) million and $4 million in operating profit (loss) for the three and six months ended June 30, 1997, respectively. Pipeline and marketing revenues declined $2 million for the first half of 1998 due to a decrease in third party marketing margins and revenues related to the Company's gas gathering and processing facilities. This decrease in gas gathering and processing revenues was substantially offset by a decrease in the related cost of gas. 10 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXPLORATION AND PRODUCTION OPERATING DATA Three Months Ended June 30, Six Months Ended June 30, ------------------------------------------------------------------------------------------------------- Net Daily Production Unit Price Net Daily Production Unit Price 1998 1997 1998 1997 1998 1997 1998 1997 ----------- ------------- ----------- ----------- ------------- ------------- ----------- ------------- Gas Sales(1): Domestic............. 281.9 310.7 $ 2.14 $ 2.04 286.8 306.7 $ 2.14 $ 2.32 Canada(2) ........... - 51.1 - 1.34 - 49.6 - 1.75 Cote d'Ivoire........ 9.5 5.7 1.64 1.78 9.9 5.3 1.57 1.83 Indonesia............ 7.7 10.3 1.92 3.58 9.7 12.0 2.46 3.53 Other................ 1.1 0.2 1.39 0.99 0.8 0.2 1.34 1.00 ----------- ------------- ----------- ----------- ------------- ------------- ----------- ------------- 300.2 378.0 $ 2.11 $ 1.98 307.2 373.8 $ 2.13 $ 2.28 =========== ============= =========== =========== ============= ============= =========== ============= Oil and NGL Sales(1): Domestic............. 5,078 5,085 $ 11.29 $ 17.68 5,066 4,383 $ 12.44 $ 18.96 Canada(2)............ - 857 - 14.54 - 867 - 17.06 Egypt................ 11,081 9,241 12.75 17.37 10,794 8,555 12.95 18.46 Cote d'Ivoire........ 1,102 1,264 14.04 18.12 1,101 1,356 12.19 19.75 Tatarstan............ 3,985 5,139 7.51 13.00 3,989 4,281 9.56 14.54 Indonesia............ 128 149 15.42 22.00 201 203 17.03 20.75 Other................ 7 16 12.70 16.02 8 16 12.65 17.71 ----------- ------------- ----------- ----------- ------------- ------------- ----------- ------------- 21,381 21,751 $ 11.51 $ 16.37 21,159 19,661 $ 12.19 $ 17.77 =========== ============= =========== =========== ============= ============= =========== =============
(1) Natural gas is stated in MMcf and $ per Mcf. Oil and NGLs are stated in Bbl and $ per Bbl. (2) All of the Company's Canadian oil and gas operations were sold in October 1997. While production expenses decreased by $2 million to $27 million for the second quarter of 1998 and by $5 million to $54 million for the first half of 1998, production expenses per equivalent unit of production increased to $4.13 per Boe versus $3.79 per Boe in the second quarter of 1998 and 1997, respectively, and to $4.15 per Boe versus $3.99 per Boe for the first six months of 1998 and 1997, respectively. While the overall amount of production expenses decreased due to the absence of the Company's Canadian operations, production expenses per equivalent unit of production increased slightly due to increases in lease operating expenses in the Company's domestic operations. Exploration charges increased $2 million for the first half of 1998 over 1997 principally due to increased dry hole costs offset by the absence of exploration charges related to Canada. The decrease in E&P depreciation, depletion and amortization ("DD&A") expense to $37 million and $74 million for the three and six months ended June 30, 1998, respectively, from $42 million and $81 million for the prior year periods is primarily due to the decrease in domestic gas production and the sale of the Company's Canadian operations, partially offset by increased oil production in the U.S. and Egypt. The DD&A expense per equivalent unit of production for oil and gas producing activities increased slightly to $5.65 per Boe from $5.49 per Boe for the first half of 1998 and 1997, respectively. 11 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ALASKA TRANSMISSION AND DISTRIBUTION (Amounts in Thousand Except Operating Data) Three Months Ended June 30, Six Months Ended June 30, ---------------------------------- ------------------------------------- 1998 1997 1998 1997 --------------- ------------- ---------------- ---------------- Revenues.................................. $ 17,425 $ 16,774 $ 49,301 $ 51,343 Cost of gas sold.......................... 7,343 7,244 22,106 23,966 --------------- ------------- ---------------- ---------------- Gross margin............................ 10,082 9,530 27,195 27,377 Operations and maintenance expense ....... 5,206 5,475 10,656 10,772 Depreciation, depletion and amortization.. 2,127 2,084 4,249 4,168 --------------- ------------- ---------------- ---------------- Operating profit........................ $ 2,749 $ 1,971 $ 12,290 $ 12,437 =============== ============= ================ ================ OPERATING DATA: Degree days (1)......................... 1,585 1,571 5,282 5,291
(1) A measure of weather severity calculated by subtracting the mean temperature for each day from 65 degrees Fahrenheit. More degree days equate to colder weather. Operating profit of the Alaska transmission and distribution segment for the second quarter of 1998 increased from the 1997 period primarily as a result of increased gross margin due to a change in the mix of customers. This segment's business is seasonal with approximately 65%-70% of its sales made in the first and fourth quarters of each year. 12 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES AND ACQUISITIONS (Amounts in Thousands) Three Months Ended June 30, Six Months Ended June 30, ---------------------------------- -------------------------------------- 1998 1997 1998 1997 --------------- --------------- --------------- ---------------- Exploration and production: Leasehold.............................. $ 2,816 $ 13,426 $ 4,424 $ 14,259 Exploration............................ 11,796 22,796 32,334 44,633 Development............................ 34,847 40,979 66,910 70,750 --------------- --------------- --------------- ---------------- 49,459 77,201 103,668 129,642 Pipeline and marketing................... 661 8 1,217 45 --------------- --------------- --------------- ---------------- Oil and gas operations................. 50,120 77,209 104,885 129,687 Alaska transmission and distribution..... 2,465 2,046 4,004 3,451 Corporate................................ 1,886 2,666 3,716 4,210 --------------- --------------- --------------- ---------------- $ 54,471 $ 81,921 $ 112,605 $ 137,348 =============== =============== =============== ================ Acquisitions............................. $ 127,092 $ 720 $ 127,469 $ 821 =============== =============== =============== ================
Seagull's capital expenditure program is designed to fulfill the Company's goals of growing its reserve base and production capacity. Capital expenditures, excluding acquisitions, decreased by nearly $25 million for the first half of 1998 over 1997 as expenditures declined domestically and because of the sale of the Company's Canadian operations with expenditures of $8 million in the first half of 1997, partially offset by increased expenditures related to the Company's Egyptian operations. The Company has a revolving credit facility (the "Credit Facility") with a maximum commitment of $500 million. At June 30, 1998, there was $100 million borrowed under the Credit Facility and $359 million of the unused commitment was immediately available. The Credit Facility contains certain covenants and restrictive provisions, including limitations on the incurrence of additional debt or liens, the declaration or payment of dividends and the repurchase or redemption of capital stock and the maintenance of certain financial ratios. Under the most restrictive of these provisions, approximately $266 million was available for payment of cash dividends on common stock or to repurchase common stock as of June 30, 1998. On June 1, 1998, the Company completed the purchase of the BRG and its related partnership interests for $103 million in cash, excluding cash acquired of $2 million and noncash deferred tax liabilities of $25 million. The Company funded this acquisition through its existing credit facility. 13 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The assets acquired include proved oil and gas reserves of 102 billion cubic feet of natural gas equivalents ("Bcfe"). BRG operated approximately 70 percent of 600 currently producing oil and gas wells in approximately 140 fields. Daily production from the properties net to the combined BRG interests averaged approximately 18 million cubic feet of gas and 400 barrels of oil and natural gas liquids in 1997. The most significant of these assets are concentrated in East Texas, primarily in Freestone, Upshur, Rusk and Nacogdoches counties. Management believes the Company's internally generated funds and bank borrowing capabilities will be sufficient to finance current and forecasted operations, including capital expenditures. In March 1998, Seagull announced it may include some of its less strategic E&P properties located away from its various core assets in a package of properties to be liquidated later in 1998. DEFINED TERMS Natural gas is stated herein in billion cubic feet ("Bcf"), million cubic feet ("MMcf") or thousand cubic feet ("Mcf"). Oil, condensate and natural gas liquids ("NGL") are stated in barrels ("Bbl") or thousand barrels ("MBbl"). MMcfe and Mcfe represent the equivalent of one million and one thousand cubic feet of natural gas, respectively. Oil, condensate and NGL are converted to gas at a ratio of one barrel of liquids per six Mcf of gas, based on relative energy content. MMBoe, MBoe and Boe represent one million barrels, one thousand barrels and one barrel of oil equivalent, respectively, with six Mcf of gas converted to one barrel of liquid. FORWARD LOOKING STATEMENTS Item 2 of this document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended. Although Seagull believes that such forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will in fact occur. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, political developments in foreign countries, federal and state regulatory developments, the timing and extent of changes in commodity prices, the timing and extent of success in discovering, developing and producing or acquiring oil and gas reserves, the availability of skilled personnel, materials and equipment, operating hazards attendant to the industry, and conditions of the capital and equity markets during the periods covered by the forward-looking statements, as well as the other factors discussed in Seagull's Annual Report on Form 10-K for the year ended December 31, 1997. 14 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Shareholders of the Company held on May 13, 1998, the shareholders voted to elect four directors to serve until the 2001 Annual Meeting of Shareholders, approve the Seagull Energy Corporation 1998 Omnibus Stock Plan and ratify the appointment of KPMG Peat Marwick LLP as independent auditors of the Company for the fiscal year ended December 31, 1998. Votes cast were as follows: Broker For Against Non-Votes Abstained --------------- -------------- --------------- ------------- Election as a Director of the Company of: Richard J. Burgess.......................... 51,267,754 - - 1,035,072 Thomas H. Cruikshank........................ 51,264,657 - - 1,038,169 Robert F. Vagt.............................. 51,305,014 - - 997,812 R.A. Walker................................. 51,271,186 - - 1,031,640 Approval of 1998 Omnibus Stock Plan............. 41,508,052 10,565,159 50,000 179,615 Ratification of Selection of KPMG Peat Marwick LLP as Independent Auditors for 1998........................................ 51,935,016 295,366 - 72,444
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: *3.1 Articles of Incorporation of the Company, as amended, and that certain Statement of Resolution Establishing Series of Shares of Series B Junior Participating Preferred Stock of Seagull Energy Corporation filed March 21, 1989 with the Secretary of State of the State of Texas. *#10.1 1998 Omnibus Stock Plan. *27.1 Financial Data Schedule. (b) Reports on Form 8-K: On June 4, 1998, the Company filed a current Report on Form 8-K dated June 1, 1998 with respect to Seagull's acquisition of BRG. The items reported in such Current Report were Item 2 (Acquisition or Disposition of Assets) and Item 7 (Financial Statements and Exhibits). * Filed herewith. # Identifies management contracts and compensatory plans or arrangements. 15 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SEAGULL ENERGY CORPORATION By: /s/ William L.Transier William L. Transier, Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 6,1998 By: /s/ Gordon L. McConnell Gordon L. McConnell, Vice President and Controller (Principal Accounting Officer) Date: August 6, 1998 16 EXHIBIT INDEX EXHIBIT PAGE NUMBER DESCRIPTION NUMBER - ---------------- ------------------------------------------------------------------------------ -------------- *3.1 Articles of Incorporation of the Company, as amended, and that certain Statement of Resolution Establishing Series of Shares of Series B Junior Participating Preferred Stock of Seagull Energy Corporation filed March 21, 1989 with the Secretary of State of the State of Texas. *#10.1 1998 Omnibus Stock Plan. *27.1 Financial Data Schedule.
- ---------------- * Filed herewith. # Identifies management contracts and compensatory plans or arrangements. EX-3.(I) 2 EXHIBIT 3.1 EXHIBIT 3.1 TO ANNUAL REPORT ON FORM 10-K AMENDED ARTICLES OF INCORPORATION* OF SEAGULL ENERGY CORPORATION ARTICLE ONE The name of the corporation is Seagull Energy Corporation. ARTICLE TWO The period of its duration is perpetual. ARTICLE THREE The purpose or purposes for which the corporation is organized are: To engage in, carry on, conduct and operate the oil pipe line business, the business of transporting natural gas, oil, petroleum products and related products and the business of purchasing, selling and dealing in petroleum, petroleum products, natural gas, oil and related products; provided however, that the corporation shall not engage in the petroleum oil producing business in the State of Texas; -1- To enter into, make and perform contracts in connection with the foregoing with any person, firm, association, corporation, municipality, country, state, political subdivision or government or colony or dependency thereof; and, in connection with the foregoing, to lease, purchase, sell or subdivide real property both within and outside of incorporated towns, cities, villages and their suburbs; To enter into any associations, partnerships, partnerships in commendam, limited partnerships, joint ventures and other lawful arrangements for sharing profits, union of interest, reciprocal concessions or co-operation whether domestic or foreign, with any corporation, partnership, association, firm, syndicate, entity, person or governmental, municipal or public authority, domestic or foreign, in the carrying on of any business which the corporation is authorized to carry on or any business or transaction deemed necessary, convenient or incidental to carrying out any of the purposes of the corporation; To deal in and transact business with respect to real and personal property and services subject to the Texas Business Corporation Act and to Part Four of the Texas Miscellaneous Corporation Laws Act; and In general, to carry out any other business permitted by Texas law, to have and exercise all the powers conferred by the laws of Texas upon corporations formed under the Texas Business Corporation Act, to engage in the transaction of any or all lawful business for which a corporation may be incorporated under the Texas Business Corporation Act, and to do any and all of the things hereinbefore set forth to the same extent as natural persons might or could do. ARTICLE FOUR The total number of shares of all classes of stock which the Corporation shall have authority to issue is twenty-five million (25,000,000) shares, divided into five million (5,000,000) shares of Preferred Stock of the par value of one dollar ($1.00) per share, and twenty million (20,000,000) shares of Common Stock of the par value of ten cents ($.10) per share. Each share of Common Stock shall be entitled to one vote. No stockholder shall have a preemptive right to acquire any shares or securities of any class, whether now or hereafter authorized, which may at any time be issued, sold or offered for sale by the Corporation. The Preferred Stock may be divided into and issued from time to time in one or more series as may be fixed and determined by the Board of Directors. The relative rights and preferences of the Preferred Stock of each series shall be such as shall be stated in any resolution or resolutions adopted by the Board of Directors setting forth the designation of the series and fixing and determining the relative rights and preferences thereof, any such resolution or resolutions being herein called a "Directors' Resolution". The Board of Directors is hereby authorized to fix and determine such variations in the designations, preferences, and relative, participating, optional or other special rights (including, without limitation, rights of conversion into Common Stock or other securities, redemption provisions or sinking fund provisions) as between series and as between the Preferred Stock or any series thereof and the Common Stock, and the qualifications, limitations or restrictions of such rights, all as shall be stated in a Directors' Resolution, and the shares of Preferred Stock or any series thereof may have full or limited voting powers, or be without voting powers, all as shall be stated in a Directors' Resolution. ARTICLE FIVE The corporation will not commence business until there is received for the issuance of its shares consideration of the value of One Thousand Dollars ($1,000), consisting of money, labor done or property actually received. ARTICLE SIX The post office address of its initial registered office is 811 Dallas, c/o CT Corporation, Houston, Texas 77002, and the name of its registered agent at such address is CT Corporation. ARTICLE SEVEN The number of directors constituting the initial Board of Directors was three (3), and the names and addresses of the persons who served as directors until the first annual meeting of shareholders or until their successors were elected and qualified were: J. C. Walter, Jr. 242 The Main Building Houston, Texas 77002 P. Fox Benton, Jr. 242 The Main Building Houston, Texas 77002 Evangeline G. Williams 242 The Main Building Houston, Texas 77002 Cumulative voting for the election of directors is expressly prohibited. ARTICLE EIGHT The names and addresses of the incorporators were: Robert S. Baird 2100 First City National Bank Bldg. Houston, Texas 77002 William D. Greenhill 2100 First City National Bank Bldg. Houston, Texas 77002 S. Tevis Grinstead 2100 First City National Bank Houston, Texas 77002 ARTICLE NINE Except as may be provided in the Bylaws, the Board of Directors of this corporation is expressly authorized to alter, amend or repeal the bylaws of this corporation or adopt new bylaws, without any action on the part of the shareholders, but the bylaws made by the directors and the powers so conferred may be altered or repealed by the shareholders. ARTICLE TEN All persons serving, or who have served, as officers or directors of the Corporation, or who may have served at the Corporation's request as officers or directors of another corporation in which this Corporation owns shares of capital stock or of which it is a creditor, shall be indemnified by this Corporation against expenses actually and necessarily incurred by them in connection with the defense of any action, suit, or proceeding in which they, or any of them, are made parties, or a party, by reason of having been or being directors or officers or a director or an officer of this Corporation, or of such other corporation, except in relation to matters as to which any such director or officer or former director or officer or person shall be adjudged in such action, suit or proceeding to be liable for negligence or misconduct in the performance of duty. Such indemnification shall not be deemed exclusive of any other rights to which those indemnified may be entitled, under any bylaw, agreement, vote of stockholders or otherwise. ARTICLE ELEVEN A director of the corporation shall not be liable to the corporation or its shareholders for monetary damages for an act or omission in the director's capacity as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for any transaction from which the director received an improper benefit, whether or not the benefit resulted from an action taken within the scope of the director's office; (iv) for acts or omissions for which the liability of a director is expressly provided for by statute; or (v) for acts related to an unlawful stock repurchase or dividend payment. Any repeal or amendment of this Article by the shareholders of the corporation shall be prospective only, and shall not adversely affect any limitation on the liability of a director of the corporation existing at the time of such repeal or amendment. In addition to the circumstances in which a director of the corporation is not liable as set forth in the preceding sentences, a director shall not be liable to the fullest extent permitted by any provision of the statutes of Texas hereafter enacted that further limits the liability of a director. - -------- * The Articles of Incorporation of the Company have not been restated within the meaning of the Texas Business Corporation Act (the "TBCA"). This restatement has been prepared solely to comply with the requirements of Item 600(b)(3) of Regulation S-K. Although Directors' Resolutions (as defined below) are deemed under the TBCA to amend the Articles of Incorporation, Directors' Resolutions for the Company's $2.25 Convertible Exchangeable Preferred Stock, Series A and Series B Junior Participating Preferred Stock have not been set forth herein, but are filed separately herewith. STATEMENT OF RESOLUTION ESTABLISHING SERIES OF SHARES of SERIES B JUNIOR PARTICIPATING PREFERRED STOCK of SEAGULL ENGERY CORPORATION (Pursuant to Article 2.13 of the Texas Business Corporation Act) STATEMENT OF RESOLUTION ESTABLISHING SERIES OF SHARES TO THE SECRETARY OF STATE OF THE STATE OF TEXAS: Pursuant to the provision of Article 2.13 of the Texas Business Corporation Act, the undersigned corporation submits the following statement for the purpose of establishing and designating a series of shares and fixing and determining the relative rights and preferences thereof: 1. The name of the corporation is SEAGULL ENERGY CORPORATION (the "Corporation"). 2. The following resolution, establishing and designating a series of shares and fixing and determining the relative rights and preferences thereof, was duly adopted by the Board of Directors of the Corporation on March 1, 1989: RESOLVED, that the Board of Directors of the Corporation hereby establishes and designates a series of Preferred Stock, par value $1.00 per share, of the Corporation, and hereby states the designation and number of shares, and fixes and determines the relative rights and preferences thereof as follows: SERIES B JUNIOR PARTICIPATING PREFERRED STOCK: Section 1. Designation and Amount. The shares of such series shall be designated as "Series B Junior Participating Preferred Stock" (the "Series B Preferred Stock") and the number of shares constituting the Series B Preferred Stock shall be 500,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, that no decrease shall reduce the number of shares of Series b Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series B Preferred Stock. Section 2. Dividends and Distributions. (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series B Preferred Stock with respect to dividends, the holders f shares of Series B Preferred Stock, in preference to the holders of Common Stock , par value $1.00 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the last business day of march, June, September, and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series B Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, if any, and 100 times the aggregate per share amount (payable in king) of all non-cash dividends or other distributions, if any, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or faction of a share of Series B Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock , or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series B Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series B Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series B Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of such shares, unless the date of issuance of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issuance of such shares, or unless the date of issuance is a Quarterly Dividend Payment Date or is date after the record date for the determination of holders of shares of Series B Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series B Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series B Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series B Preferred Stock shall have the following voting rights: (A) Each share of Series B Preferred Stock shall entitle the holder thereof to one vote on all matters submitted to a vote of the shareholders of the Corporation. (B) Except as otherwise provided herein, in any other Statement of Resolution Establishing Series of Shares creating a series of Preferred Stock or any similar stock, or by law, the holders of shares of Series B Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matter submitted to a vote of shareholders of the Corporation. (C) Except as set forth herein or in the Articles of Incorporation of the Corporation as in effect on the date hereof, or as otherwise provided by law, holders of Series B Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series B Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series B Preferred Stock outstanding shall have been paid in full, or declared and a sum sufficient for the payment therefor be set apart for payment and be in the process of payment, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock. (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred Stock, except dividends paid ratably on the Series B Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series B Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series B Preferred Stock, or any shares of stock ranking on a parity with the Series B Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series B Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. Al such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any other Statement of Resolution Establishing Series of Shares creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Preferred Stock unless, prior thereto, the holders of shares of Series B Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distribution thereon, whether or not declared, to the date of such payment, provided that the holders of shares f Series B Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount, if any, to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Preferred Stock, except distributions made ratably on the Series B Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each case the aggregate amount to which holders of shares of Series B Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series B Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series B Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series B Preferred Stock shall not be redeemable. Section 9. Rank. The Series B Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, on liquidation or otherwise, junior to all series of any class of the Corporation's Preferred Stock , including without limitations the Corporation's $2.25 Convertible Exchangeable Preferred Stock, Series A. Section 10. Amendment. The Articles of Incorporation and Bylaws of the Corporation, and this Statement of Resolution Establishing Series of Shares, shall not be amended in any manner that would materially alter or change the powers, preferences, privileges or special rights of the Series B Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series B Preferred Stock, voting together as a single class. IN WITNESS WHEREOF, this Statement of Resolution Establishing Series of Shares is executed on behalf of the Corporation by its Chairman of the Board. Dated: March 20, 1989 SEAGULL ENERGY CORPORATION By: /s/Barry J. Galt Barry J. Galt Chairman of the Board STATE OF TEXAS COUNTY OF HARRIS Before me, a notary public, on this day personally appeared Barry J. Galt, known to me to be the person whose name is subscribed to the foregoing document and, being by me first duly sworn, declared that the statements therein contained are true and correct. Given under my hand and seal of office this 20th day of March ___, A.D., 1989. /s/Kari A. Hlavinka ------------------------ (Printed or stamped name) Notary Public, State of Texas (Notarial Seal) My commission expires: 8-4-92 ------------------------ The State of Texas SECRETARY OF STATE CERTIFICATE OF AMENDMENT OF SEAGULL ENERGY CORPORATION - -------------------------------------------------------------------------------- The undersigned, as Secretary of State of the State of Texas, hereby certifies that the attached Articles of Amendment, duly executed, have been received in this Office and are found to conform to law. ACCORDINGLY the undersigned, as such Secretary of State, and by virtue of the authority vested in the Secretary by law, issues this Certificate and attaches hereto a copy. Dated May 21 , 1991 Secretary of State ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF SEAGULL ENGERY CORPORATION Pursuant to the provisions of Article 4.04 of the Texas Business Corporation Act, the undersigned corporation adopts the following Articles of Amendment of its Articles of Incorporation: ARTICLE ONE The name of the corporation is Seagull Energy Corporation. ARTICLE TWO The following amendment of the Articles of Incorporation was adopted by the shareholders of the corporation on May 14, 1991. The amendment changes the first paragraph of Article Four of the original or amended Articles of Incorporation of the corporation and the full text of the provision altered is as follows: "ARTICLE FOUR The total number of shares of stock that the corporation shall have authority to issue is 45,000,000 shares, divided into 5,000,000 shares of Preferred Stock of the par value of $1.00 per share, and 40,000,000 shares of Common Stock of the par value of $.10 per share. Each share of Common Stock shall be entitled to one vote." ARTICLE THREE The number of shares of the corporation outstanding on the record date at which the amendment was adopted by the shareholders was 11,217,750, and the number of shares entitled to vote thereon was 11,217,750. No shares were entitled to vote thereon as a class. ARTICLE FOUR The number of shares voted for such amendment was 8,161,860; and the number of shares voted against such amendment was 1,927,557. The number of shares abstaining was 34,193. ARTICLE FIVE The amendment does not effect a change in the amount of stated capital of the corporation: Dated: May 17, 1991. SEAGULL ENERGY CORPORATION By:_________________________ Joe T. Rye Senior Vice President and Chief Financial Officer The State of Texas SECRETARY OF STATE CERTIFICATE OF AMENDMENT OF SEAGULL ENERGY CORPORATION - -------------------------------------------------------------------------------- The undersigned, as Secretary of State of the State of Texas, hereby certifies that the attached Articles of Amendment for the above named entity have been receive in this office and are found to conform law. ACCORDINGLY the undersigned, as Secretary of State, and by virtue of the authority vested in the Secretary by law, hereby issues this Certificate of Amendment. Dated May 21 , 1993 Effective May 21, 1993 at xxx a.m./p.m. Secretary of State ARTICLES OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF SEAGULL ENGERY CORPORATION Pursuant to the provisions of Article 4.04 of the Texas Business Corporation Act, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: ARTICLE ONE The name of the corporation is Seagull Energy Corporation. ARTICLE TWO The following amendment to the Articles of Incorporation was adopted by the shareholders of the corporation on May 11, 1993. The amendment changes the first paragraph of Article Four of the original or amended Articles of Incorporation of the corporation and the full text of the provision altered is as follows: "ARTICLE FOUR The total number of shares of stock that the corporation shall have authority to issue is 105,000,000 shares, divided into 5,000,000 shares of Preferred Stock of the par value of $1.00 per share, and 100,000,000 shares of Common Stock of the par value of $.10 per share. Each share of Common Stock shall be entitled to one vote." ARTICLE THREE The number of shares of the corporation outstanding on the record date at which the amendment was adopted by the shareholders was 17,885,395; and the number of shares entitled to vote thereon was 17,885,395. No shares were entitled to vote thereon as a class. ARTICLE FOUR The number of shares voted for such amendment was 14,634,117; and the number of shares voted against such amendment was 773,197. The number of shares abstaining was 65,381. ARTICLE FIVE The amendment does not effect a change in the amount of stated capital of the corporation: Dated: May 20, 1993. SEAGULL ENERGY CORPORATION By:________________________ Sylvia Sanchez Secretary - -------- The Article of Incorporation of the Company have not been restated within the meaning of the Texas Business Corporation Act (the "TBCA"). This restatement has been prepared solely to comply with the requirements of Item 600(b)(3) of Regulation S-K. Although Directors' Resolutions (as defined below) are deemed under the TBCA to amend the Articles of Incorporation, Directors' Resolutions for the Company's $2.25 Convertible Exchangeable Preferred Stock, Series A and Series B Junior Participating Preferred Stock have not been set forth herein, but are filed separately herewith. EX-10.1 3 1998 OMNIBUS STOCK PLAN SEAGULL ENERGY CORPORATION 1998 OMNIBUS STOCK PLAN I. PURPOSE The purpose of the SEAGULL ENERGY CORPORATION 1998 OMNIBUS STOCK PLAN (the "Plan") is to provide a means through which SEAGULL ENERGY CORPORATION, a Texas corporation (the "Company"), and its subsidiaries may attract able persons to enter the employ of the Company and to provide a means whereby those key employees upon whom the responsibilities of the successful administration and management of the Company rest, and whose present and potential contributions to the welfare of the Company are of importance, can acquire and maintain stock ownership, thereby strengthening their concern for the welfare of the Company and their desire to remain in its employ. A further purpose of the Plan is to provide such key employees with additional incentive and reward opportunities designed to enhance the profitable growth of the Company. Accordingly, the Plan provides for granting Incentive Stock Options (subject to the provisions of Paragraph VII(c)), options which do not constitute Incentive Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Long-Term Incentive Awards, or any combination of the foregoing, as is best suited to the circumstances of the particular employee as provided herein. II. DEFINITIONS The following definitions shall be applicable throughout the Plan unless specifically modified by any paragraph: (a) "Award" means, individually or collectively, any Option, Restricted Stock Award, Long-Term Incentive Award or Stock Appreciation Right. (b) "Award Agreement" means any Option Agreement, Restricted Stock Agreement, Long-Term Incentive Award Agreement or Stock Appreciation Rights Agreement. (c) "Board" means the Board of Directors of the Company. (d) "Change of Control" means the occurrence of any of the following events: (i) the Company shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company), (ii) the Company sells, leases or exchanges all or substantially all of its assets to any other person or entity (other than a wholly-owned subsidiary of the Company), (iii) the Company is to be dissolved and liquidated, (iv) any person or entity, including a "group" as contemplated by Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control (including, without limitation, power to vote) of more than 40% of the outstanding shares of the Company's voting stock (based upon voting power), or (v) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election shall cease to constitute a majority of the Board. (e) "Change of Control Value" shall mean (i) the per share price offered to shareholders of the Company in any merger, consolidation, reorganization, sale of assets or dissolution transaction, (ii) the price per share offered to shareholders of the Company in any tender offer or exchange offer whereby a Change of Control takes place, or (iii) if the Change of Control occurs other than pursuant to a tender or exchange offer, the Fair Market Value per share of the shares into which Awards are exercisable, as determined by the Committee. In the event that the consideration offered to shareholders of the Company in a Change of Control consists of anything other than cash, the Committee shall determine the fair cash equivalent of the portion of the consideration offered which is other than cash. (f) "Code" means the Internal Revenue Code of 1986, as amended. Reference in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to any section and any regulations under such section. (g) "Committee" means the Compensation Committee of the Board which shall be (i) constituted so as to permit the Plan to comply with Rule 16b-3 and (ii) comprised solely of two or more "outside directors," within the meaning of section 162(m) of the Code and applicable interpretive authority thereunder. (h) "Company" means Seagull Energy Corporation. (i) "Director" means an individual elected to the Board by the shareholders of the Company or by the Board under applicable corporate law who is serving on the Board on the date the Plan is adopted by the Board or is elected to the Board after such date. (j) An "employee" means any person (including an officer or a Director) in an employment relationship with the Company or any parent or subsidiary corporation (as defined in section 424 of the Code). (k) "1934 Act" means the Securities Exchange Act of 1934, as amended. (l) "Fair Market Value" means, as of any specified date, the reported closing price of the Stock on the New York Stock Exchange Composite Tape on that date, or if no closing price is reported on that date, on the last preceding date on which such closing price of the Stock is so reported. In the event Stock is not publicly traded at the time a determination of its value is required to be made hereunder, the determination of its fair market value shall be made by the Committee in such manner as it deems appropriate. (m) "Holder" means an employee who has been granted an Award. (n) "Incentive Stock Option" means an incentive stock option within the meaning of section 422 of the Code. (o) "Long-Term Incentive Award" means an Award granted under Paragraph X of the Plan. (p) "Long-Term Incentive Award Agreement" means a written agreement between the Company and a Holder with respect to a Long-Term Incentive Award. (q) "Option" means an Award granted under Paragraph VII of the Plan and includes both Incentive Stock Options to purchase Stock and Options which do not constitute Incentive Stock Options to purchase Stock. (r) "Option Agreement" means a written agreement between the Company and a Holder with respect to an Option. (s) "Plan" means the Seagull Energy Corporation 1998 Omnibus Stock Plan, as amended from time to time. (t) "Restricted Stock Agreement" means a written agreement between the Company and a Holder with respect to a Restricted Stock Award. (u) "Restricted Stock Award" means an Award granted under Paragraph IX of the Plan. (v) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as such may be amended from time to time, and any successor rule, regulation or statute fulfilling the same or a similar function. (w) "Spread" means, in the case of a Stock Appreciation Right, an amount equal to the excess, if any, of the Fair Market Value of a share of Stock on the date such right is exercised over the exercise price of such Stock Appreciation Right. (x) "Stock" means the common stock, par value $0.10 per share, of the Company. (y) "Stock Appreciation Right" means an Award granted under Paragraph VIII of the Plan. (z) "Stock Appreciation Rights Agreement" means a written agreement between the Company and a Holder with respect to an Award of Stock Appreciation Rights. III. EFFECTIVE DATE AND DURATION OF THE PLAN The Plan shall be effective upon the date of its adoption by the Board, provided the Plan is approved by the shareholders of the Company within twelve months thereafter. Notwithstanding any provision in the Plan or in any Award Agreement, no Option or Stock Appreciation Right granted on or after the effective date of the Plan shall be exercisable and no Restricted Stock Award or Long-Term Incentive Award shall be made prior to such shareholder approval. No further Awards may be granted under the Plan after the expiration of ten years from the date of its adoption by the Board. The Plan shall remain in effect until all Awards granted under the Plan have been satisfied or expired. IV. ADMINISTRATION (a) Committee. The Plan shall be administered by the Committee. (b) Powers. Subject to the provisions of the Plan, the Committee shall have sole authority, in its discretion, to determine which employees shall receive an Award, the time or times when such Award shall be made, the type of Award, the number of shares of Stock which may be issued under each Option, Stock Appreciation Right or Restricted Stock Award, and number of shares subject to or the value of each Long-Term Incentive Award. In making such determinations the Committee may take into account the nature of the services rendered by the respective employees, their present and potential contribution to the Company's success and such other factors as the Committee in its discretion shall deem relevant. (c) Additional Powers. The Committee shall have such additional powers as are delegated to it by the other provisions of the Plan. Subject to the express provisions of the Plan, the Committee is authorized to construe the Plan and the respective Award Agreements executed thereunder, to prescribe such rules and regulations relating to the Plan as it may deem advisable to carry out the Plan, and to determine the terms, restrictions and provisions of each Award, including such terms, restrictions and provisions as shall be requisite in the judgment of the Committee to cause designated Options to qualify as Incentive Stock Options, and to make all other determinations necessary or advisable for administering the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in any Award Agreement in the manner and to the extent it shall deem expedient to carry it into effect. The determinations of the Committee on the matters referred to in this Paragraph IV shall be conclusive. V. GRANT OF AWARDS; SHARES SUBJECT TO THE PLAN (a) Stock Grant and Award Limits. The Committee may from time to time grant Awards to one or more employees determined by it to be eligible for participation in the Plan in accordance with the provisions of Paragraph VI. Subject to adjustment in the same manner as provided in Paragraph XI with respect to shares of Stock subject to Awards then outstanding, the aggregate number of shares of Stock that may be issued under the Plan shall not exceed 2,500,000 shares. Shares shall be deemed to have been issued under the Plan only (i) to the extent actually issued and delivered pursuant to an Award, or (ii) to the extent an Award is settled in cash. To the extent that an Award lapses or the rights of its Holder terminate, any shares of Stock subject to such Award shall again be available for the grant of an Award. Notwithstanding any provision in the Plan to the contrary, the maximum number of shares of Stock that may be subject to Awards granted to any one employee during any calendar year may not exceed 250,000 shares of Stock (subject to adjustment in the same manner as provided in Paragraph XI with respect to shares of Stock subject to Awards then outstanding). The limitation set forth in the preceding sentence shall be applied in a manner which will permit compensation generated under the Plan to constitute "performance-based" compensation for purposes of section 162(m) of the Code, including, without limitation, counting against such maximum number of shares, to the extent required under section 162(m) of the Code and applicable interpretive authority thereunder, any shares subject to Awards that are canceled or repriced. Further, notwithstanding any provision of the Plan to the contrary, the aggregate number of shares of Stock that may be granted as either Restricted Stock Awards under Paragraph IX or Long-Term Incentive Awards under Paragraph X during the term of the Plan is 300,000 shares of Stock (subject to adjustment in the same manner as provided in Paragraph XI with respect to shares of Stock subject to Awards then outstanding). (b) Stock Offered. The stock to be offered pursuant to the grant of an Award may, at the discretion of the Committee, be authorized but unissued Stock or Stock previously issued and outstanding and reacquired by the Company. VI. ELIGIBILITY Awards may be granted only to persons who, at the time of grant, are employees. Awards may not be granted to any Director who is not an employee. An Award may be granted on more than one occasion to the same person, and, subject to the limitations set forth in the Plan, such Award may include an Incentive Stock Option or an Option which is not an Incentive Stock Option, a Stock Appreciation Right, a Restricted Stock Award, a Long-Term Incentive Award or any combination thereof. VII. STOCK OPTIONS (a) Option Period. The term of each Option shall be as specified by the Committee at the date of grant. (b) Limitations on Exercise of Option. An Option shall be exercisable in whole or in such installments and at such times as determined by the Committee. (c) Special Limitations on Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined at the time the respective Incentive Stock Option is granted) of Stock with respect to which Incentive Stock Options granted after 1986 are exercisable for the first time by an individual during any calendar year under all incentive stock option plans of the Company and its parent and subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be treated as Options which do not constitute Incentive Stock Options. The Committee shall determine, in accordance with applicable provisions of the Code, Treasury Regulations and other administrative pronouncements, which of a Holder's Incentive Stock Options will not constitute Incentive Stock Options because of such limitation and shall notify the Holder of such determination as soon as practicable after such determination. No Incentive Stock Option shall be granted to an individual if, at the time the Option is granted, such individual owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporation, within the meaning of section 422(b)(6) of the Code, unless (i) at the time such Option is granted the option price is at least 110% of the Fair Market Value of the Stock subject to the Option and (ii) such Option by its terms is not exercisable after the expiration of five years from the date of grant. An Incentive Stock Option shall not be transferable otherwise than by will or the laws of descent and distribution, and shall be exercisable during the Holder's lifetime only by such Holder or the Holder's guardian or legal representative. Notwithstanding any provision in the Plan or in any Option Agreement, (1) no Incentive Stock Option shall be granted after the expiration of 12 months from the date of the adoption of the Plan by the Board unless the Plan has been approved by the stockholders of the Company within such 12-month period in a manner that satisfies the requirements of section 422 of the Code and (2) any Option granted prior to the expiration of such 12-month period that was intended to constitute an Incentive Stock Option shall constitute an Option that is not an Incentive Stock Option if the Plan has not been approved by the stockholders of the Company within such 12-month period in a manner that satisfies the requirements of section 422 of the Code. (d) Option Agreement. Each Option shall be evidenced by an Option Agreement in such form and containing such provisions not inconsistent with the provisions of the Plan as the Committee from time to time shall approve, including, without limitation, provisions to qualify an Incentive Stock Option under section 422 of the Code. An Option Agreement may provide for the payment of the option price, in whole or in part, (i) in cash or (ii) by the delivery of a number of shares of Stock (plus cash if necessary) having a Fair Market Value equal to such option price. Each Option Agreement shall specify the effect of termination of employment on the exercisability of the Option. Moreover, an Option Agreement may provide for a "cashless exercise" of the Option pursuant to procedures established by the Committee (as the same may be amended from time to time).Such Option Agreement may also include, without limitation, provisions relating to (1) subject to the provisions hereof accelerating such vesting on a Change of Control, vesting of Options, (2) tax matters (including provisions (A) permitting the delivery of additional shares of Stock or the withholding of shares of Stock from those acquired upon exercise to satisfy federal or state income tax withholding requirements and (B) dealing with any other applicable employee wage withholding requirements), and (3) any other matters not inconsistent with the terms and provisions of this Plan that the Committee shall in its sole discretion determine. The terms and conditions of the respective Option Agreements need not be identical. (e) Option Price and Payment. The price at which a share of Stock may be purchased upon exercise of an Option shall be determined by the Committee, but, subject to adjustment as provided in Paragraph XI, such purchase price shall not be less than the Fair Market Value of a share of Stock on the date such Option is granted. The Option or portion thereof may be exercised by delivery of an irrevocable notice of exercise to the Company in a manner specified by the Committee. The purchase price of the Option or portion thereof shall be paid in full in the manner prescribed by the Committee. Separate stock certificates shall be issued by the Company for those shares acquired pursuant to the exercise of an Incentive Stock Option and for those shares acquired pursuant to the exercise of any Option which does not constitute an Incentive Stock Option. (f) Shareholder Rights and Privileges. The Holder shall be entitled to all the privileges and rights of a shareholder only with respect to such shares of Stock as have been purchased under the Option and for which certificates of stock have been registered in the Holder's name. (g) Options and Rights in Substitution for Stock Options Granted by Other Corporations. Options and Stock Appreciation Rights may be granted under the Plan from time to time in substitution for stock options held by individuals employed by corporations who become employees as a result of a merger or consolidation of the employing corporation with the Company or any subsidiary, or the acquisition by the Company or a subsidiary of the assets of the employing corporation, or the acquisition by the Company or a subsidiary of stock of the employing corporation with the result that such employing corporation becomes a subsidiary. VIII. STOCK APPRECIATION RIGHTS (a) Stock Appreciation Rights. A Stock Appreciation Right is the right to receive an amount equal to the Spread with respect to a share of Stock upon the exercise of such Stock Appreciation Right. Stock Appreciation Rights may be granted in connection with the grant of an Option, in which case the Option Agreement will provide that exercise of Stock Appreciation Rights will result in the surrender of the right to purchase the shares under the Option as to which the Stock Appreciation Rights were exercised. Alternatively, Stock Appreciation Rights may be granted independently of Options in which case each Award of Stock Appreciation Rights shall be evidenced by a Stock Appreciation Rights Agreement which shall contain such terms and conditions as may be approved by the Committee. The terms and conditions of the respective Stock Appreciation Rights Agreements need not be identical. The Spread with respect to a Stock Appreciation Right may be payable either in cash, shares of Stock with a Fair Market Value equal to the Spread or in a combination of cash and shares of Stock. With respect to Stock Appreciation Rights that are subject to Section 16 of the 1934 Act, however, the Committee shall, except as provided in Paragraph XI hereof, retain final authority (i) to determine whether a Holder shall be permitted to receive cash in full or partial settlement of Stock Appreciation Rights or (ii) to approve an election by a Holder to receive cash in full or partial settlement of Stock Appreciation Rights. Each Stock Appreciation Rights Agreement shall specify the effect of termination of employment on the exercisability of the Stock Appreciation Rights. (b) Exercise Price. The exercise price of each Stock Appreciation Right shall be determined by the Committee, but such exercise price (i) shall not be less than the Fair Market Value of a share of Stock on the date the Stock Appreciation Right is granted (or such greater exercise price as may be required if such Stock Appreciation Right is granted in connection with an Incentive Stock Option that must have an exercise price equal to 110% of the Fair Market Value of the Stock on the date of grant pursuant to Paragraph VII(c)), and (ii) shall be subject to adjustment as provided in Paragraph XI. (c) Exercise Period. The term of each Stock Appreciation Right shall be as specified by the Committee at the date of grant. (d) Limitations on Exercise of Stock Appreciation Right. A Stock Appreciation Right shall be exercisable in whole or in such installments and at such times as determined by the Committee. In the case of any Stock Appreciation Right that is granted in connection with an Incentive Stock Option, such right shall be exercisable only when the Fair Market Value of the Common Stock exceeds the price specified therefor in the Option or the portion thereof to be surrendered. IX. RESTRICTED STOCK AWARDS (a) Forfeiture Restrictions To Be Established by the Committee. Shares of Stock that are the subject of a Restricted Stock Award shall be subject to restrictions on disposition by the Holder and an obligation of the Holder to forfeit and surrender the shares to the Company under certain circumstances (the "Forfeiture Restrictions"). The Forfeiture Restrictions shall be determined by the Committee in its sole discretion, and the Committee may provide that the Forfeiture Restrictions shall lapse upon (i) the attainment of one or more performance targets established by the Committee that are based on (1) the price of a share of Stock, (2) the Company's earnings per share, (3) the Company's revenue, (4) the revenue of a business unit of the Company designated by the Committee, (5) the return on stockholders' equity achieved by the Company, (6) the Company's pre-tax cash flow from operations, (7) finding costs, (8) reserve additions, (9) acquisitional growth, or (10) cost containment, (ii) the Holder's continued employment with the Company for a specified period of time, (iii) the occurrence of any event or the satisfaction of any other condition specified by the Committee in its sole discretion, or (iv) any a combination of the foregoing. Each Restricted Stock Award may have different Forfeiture Restrictions, in the discretion of the Committee. The Forfeiture Restrictions applicable to a particular Restricted Stock Award shall not be changed except as permitted by Paragraph IX(b) or Paragraph XI. (b) Other Terms and Conditions. Stock awarded pursuant to a Restricted Stock Award shall be represented by a stock certificate registered in the name of the Holder of such Restricted Stock Award. The Holder shall have the right to receive dividends with respect to Stock subject to a Restricted Stock Award, to vote Stock subject thereto and to enjoy all other shareholder rights, except that (i) the Holder shall not be entitled to delivery of the stock certificate until the Forfeiture Restrictions have expired, (ii) the Company shall retain custody of the Stock until the Forfeiture Restrictions have expired, (iii) the Holder may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the Stock until the Forfeiture Restrictions have expired, and (iv) a breach of the terms and conditions established by the Committee pursuant to the Restricted Stock Agreement shall cause a forfeiture of the Restricted Stock Award. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms, conditions or restrictions relating to Restricted Stock Awards, including, but not limited to, rules pertaining to the termination of employment (by retirement, disability, death or otherwise) of a Holder prior to expiration of the Forfeiture Restrictions. Such additional terms, conditions or restrictions shall be set forth in a Restricted Stock Agreement made in conjunction with the Award. Such Restricted Stock Agreement may also include, without limitation, provisions relating to (1) subject to the provisions hereof accelerating vesting on a Change of Control, vesting of Awards, (2) tax matters (including provisions (A) covering any applicable employee wage withholding requirements and (B) prohibiting an election by the Holder under section 83(b) of the Code), and (3) any other matters not inconsistent with the terms and provisions of this Plan that the Committee shall in its sole discretion determine. The terms and conditions of the respective Restricted Stock Agreements need not be identical. (c) Payment for Restricted Stock. The Committee shall determine the amount and form of any payment for Stock received pursuant to a Restricted Stock Award, provided that in the absence of such a determination, a Holder shall not be required to make any payment for Stock received pursuant to a Restricted Stock Award, except to the extent otherwise required by law. (d) Agreements. At the time any Award is made under this Paragraph IX, the Company and the Holder shall enter into a Restricted Stock Agreement setting forth each of the matters contemplated hereby and such other matters as the Committee may determine to be appropriate. The terms and provisions of the respective Restricted Stock Agreements need not be identical. X. LONG-TERM INCENTIVE AWARDS (a) Long-Term Incentive Awards. The Committee shall establish the maximum number of shares of Stock subject to each Long-Term Incentive Award at the time of such Award. (b) Performance Period. The Committee shall establish, with respect to and at the time of each Long-Term Incentive Award, a performance period over which the performance targets shall be measured. (c) Performance Targets. A Long-Term Incentive Award shall be awarded to a Holder contingent upon future performance of the Company or any subsidiary, division or department thereof by or in which such Holder is employed during the performance period. The Committee shall establish the performance targets applicable to such performance either (i) prior to the beginning of the performance period or (ii) within 90 days after the beginning of the performance period if the outcome of the performance targets is substantially uncertain at the time such targets are established, but not later than the date 25% of the performance period has elapsed. The performance targets may be absolute, relative to one or more other companies, or relative to one or more indices. The performance targets established by the Committee may be based upon (1) the price of a share of Stock, (2) the Company's earnings per share, (3) the Company's revenue, (4) the revenue of a business unit of the Company designated by the Committee, (5) the return on stockholders' equity achieved by the Company, (6) the Company's pre-tax cash flow from operations, (7) finding costs, (8) reserve additions, (9) acquisitional growth, or (10) cost containment, or a combination of any of the foregoing. (d) Awards Criteria. In determining the number of shares of Stock subject to Long-Term Incentive Awards, the Committee shall take into account a Holder's responsibility level, performance, potential, other Awards and such other considerations as it deems appropriate. The Committee, in its sole discretion, may provide for a reduction in the value of a Holder's Long-Term Incentive Award during the performance period. (e) Payment. Following the end of the performance period, the Holder of a Long-Term Incentive Award shall be entitled to receive payment of an amount, not exceeding the maximum value of the Long-Term Incentive Award, based on the achievement of the performance targets for such performance period, as determined by the Committee. Payment of a Long-Term Incentive Award may be made in cash, Stock or a combination thereof, as determined by the Committee. Payment shall be made in a lump sum or in installments as prescribed by the Committee. Any payment to be made in cash shall be based on the Fair Market Value of the Stock on the payment date. If a payment of cash is to be made on a deferred basis, the Committee shall establish whether interest shall be credited, the rate thereof and any other terms and conditions applicable thereto. (f) Termination of Employment. A Long-Term Incentive Award shall terminate if the Holder does not remain continuously in the employ of the Company at all times during the applicable performance period, except as may be determined by the Committee. (g) Agreements. At the time any Award is made under this Paragraph X, the Company and the Holder shall enter into a Long-Term Incentive Award Agreement setting forth each of the matters contemplated hereby, and, in addition such matters as are set forth in Paragraph IX(b) as the Committee may determine to be appropriate. The terms and provisions of the respective agreements need not be identical. XI. RECAPITALIZATION OR REORGANIZATION (a) The shares with respect to which Awards may be granted are shares of Stock as presently constituted, but if, and whenever, prior to the expiration of an Award theretofore granted, the Company shall effect a subdivision or consolidation of shares of Stock or the payment of a stock dividend on Stock without receipt of consideration by the Company, the number of shares of Stock with respect to which such Award may thereafter be exercised or satisfied, as applicable, (i) in the event of an increase in the number of outstanding shares shall be proportionately increased, and the purchase price per share shall be proportionately reduced, and (ii) in the event of a reduction in the number of outstanding shares shall be proportionately reduced, and the purchase price per share shall be proportionately increased. Any fractional share resulting from such adjustment shall be rounded up to the next whole share. (b) If the Company recapitalizes, reclassifies its capital stock, or otherwise changes its capital structure (a "recapitalization"), thereafter upon any exercise or satisfaction, as applicable, of an Award theretofore granted the Holder shall be entitled to (or entitled to purchase, if applicable) under such Award, in lieu of the number of shares of Stock then covered by such Award, the number and class of shares of stock and securities to which the Holder would have been entitled pursuant to the terms of the recapitalization if, immediately prior to such recapitalization, the Holder had been the holder of record of the number of shares of Stock then covered by such Award. (c) In the event of a Change of Control, and except as provided in any Award Agreement, outstanding Awards shall immediately vest and become exercisable or satisfiable, as applicable. The Committee, in its discretion, may determine that upon the occurrence of a Change of Control, each Award outstanding hereunder shall terminate within a specified number of days after notice to the Holder, and such Holder shall receive, with respect to each share of Stock subject to such Award, cash in an amount equal to the excess, if any, of the Change of Control Value over the exercise price, if applicable, under such Award for such share. The provisions contained in this paragraph shall not terminate any rights of the Holder to further payments pursuant to any other agreement with the Company following a Change of Control. (d) In the event of changes in the outstanding Stock by reason of recapitalization, reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes in capitalization occurring after the date of the grant of any Award and not otherwise provided for by this Paragraph XII, any outstanding Awards and any Award Agreements shall be subject to adjustment by the Committee at its discretion as to the number and price of shares of Stock or other consideration subject to such Awards. In the event of any such change in the outstanding Stock, the aggregate number of shares available under the Plan may be appropriately adjusted by the Committee, whose determination shall be conclusive. (e) The existence of the Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of debt or equity securities ahead of or affecting Stock or the rights thereof, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act of proceeding. (f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d) above shall be subject to any required shareholder action. (g) Except as hereinbefore expressly provided, the issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares of obligations of the Company convertible into such shares or other securities, and in any case whether or not for fair value, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of shares of Stock subject to Awards theretofore granted or the purchase price per share, if applicable. XII. AMENDMENT AND TERMINATION OF THE PLAN The Board in its discretion may terminate the Plan at any time with respect to any shares for which Awards have not theretofore been granted. The Board shall have the right to alter or amend the Plan or any part thereof from time to time; provided that no change in any Award theretofore granted may be made which would impair the rights of the Holder without the consent of the Holder and provided, further, that the Board may not, without approval of the shareholders, amend the Plan (a) to increase the maximum aggregate number of shares of Stock that may be issued under the Plan or (b) to change the class of employees eligible to receive Awards under the Plan. XIII. MISCELLANEOUS (a) No Right To An Award. Neither the adoption of the Plan by the Company nor any action of the Board or the Committee shall be deemed to give an employee any right to be granted an Award or any of the rights hereunder except as may be evidenced by an Award or by an Option Agreement, Stock Appreciation Rights Agreement, Restricted Stock Agreement or Long-Term Incentive Award Agreement duly executed on behalf of the Company, and then only to the extent and on the terms and conditions expressly set forth therein. The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of funds or assets to assure the payment of any Award. (b) No Employment Rights Conferred. Nothing contained in the Plan shall (i) confer upon any employee any right with respect to continuation of employment with the Company or any subsidiary or (ii) interfere in any way with the right of the Company or any subsidiary to terminate his or her employment at any time. (c) Other Laws; Withholding. The Company shall not be obligated to issue any Stock pursuant to any Award granted under the Plan at any time when the shares covered by such Award have not been registered under the Securities Act of 1933 and such other state and federal laws, rules or regulations as the Company or the Committee deems applicable and, in the opinion of legal counsel for the Company, there is no exemption from the registration requirements of such laws, rules or regulations available for the issuance and sale of such shares. No fractional shares of Stock shall be delivered, nor shall any cash in lieu of fractional shares be paid. The Company shall have the right to deduct in connection with all Awards any taxes required by law to be withheld and to require any payments required to enable it to satisfy its withholding obligations. (d) No Restriction on Corporate Action. Nothing contained in the Plan shall be construed to prevent the Company or any subsidiary from taking any corporate action which is deemed by the Company or such subsidiary to be appropriate or in its best interest, whether or not such action would have an adverse effect on the Plan or any Award made under the Plan. No employee, beneficiary or other person shall have any claim against the Company or any subsidiary as a result of any such action. (e) Restrictions on Transfer. An Award (other than an Incentive Stock Option, which shall be subject to the transfer restrictions set forth in Paragraph VII (c)) shall not be transferable otherwise than (i) by will or the laws of descent and distribution, (ii) pursuant to a "qualified domestic relations order" as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder, or (iii) with the consent of the Committee. (f) Rule 16b-3. It is intended that the Plan and any grant of an Award made to a person subject to Section 16 of the 1934 Act meet all of the requirements of Rule 16b-3 so that any transaction under the Plan involving a grant, award, or other acquisition from the Company or disposition to the Company is exempt from Section 16(b) of the 1934 Act. If any provision of the Plan or any such Award would result in any such transaction not being exempt from Section 16(b) of the 1934 Act, such provision or Award shall be construed or deemed amended so that such transaction will be exempt from Section 16(b) of the 1934 Act. (g) Section 162(m). It is intended that the Plan comply fully with and meet all the requirements of Section 162(m) of the Code so that Options, Stock Appreciation Rights, Long-Term Incentive Awards hereunder and, if determined by the Committee, Restricted Stock Awards, shall constitute "performance-based" compensation within the meaning of such section. If any provision of the Plan would disqualify the Plan or would not otherwise permit the Plan to comply with Section 162(m) as so intended, such provision shall be construed or deemed amended to conform to the requirements or provisions of Section 162(m); provided that no such construction or amendment shall have an adverse effect on the economic value to a Holder of any Award previously granted hereunder. (h) Facsimile Signature. Any Award Agreement or related document may be executed by facsimile signature. If any officer who shall have signed or whose facsimile signature shall have been placed upon any such Award Agreement or related document shall have ceased to be such officer before the related Award is granted by the Company, such Award may nevertheless be issued by the Company with the same effect as if such person were such officer at the date of grant. (i) Governing Law. This Plan shall be construed in accordance with the laws of the State of Texas. EX-27.1 4 FDS 6/30/98
5 1,000 6-MOS DEC-31-1998 JUN-30-1998 15,094 0 133,948 0 17,616 180,460 2,284,310 988,929 1,519,097 201,449 566,914 0 0 6,392 643,547 1,519,097 225,854 225,854 22,106 199,638 (2,201) 0 17,852 4,125 2,021 2,104 0 0 0 2,104 0.03 0.03
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