-----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, GSfEq/mO0fiwR1ax6WLhoxAiamjg+IphFH9TY1LEUk5vvxeCtnSg3zPJxfzVnIbe vX8CICldiNBg0KB9XZj0qg== 0000320321-98-000084.txt : 19981118 0000320321-98-000084.hdr.sgml : 19981118 ACCESSION NUMBER: 0000320321-98-000084 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98751889 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 9/30/98 FORM 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 September 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 November 6, 1998, 63,393,735 shares of Common Stock, par value $0.10 per share, were outstanding. ================================================================================ INDEX
PAGE NUMBER Part I. Financial Information Item 1. Unaudited Consolidated Financial Statements Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1998 and 1997.................. 1 Consolidated Balance Sheets - September 30, 1998 and December 31, 1997.......................................... 2 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1998 and 1997.............................. 3 Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 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......................................... 10 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K.................................. 19 Signatures...................................................................... 20
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 Nine Months Ended September 30, September 30, ------------------------------ ------------------------------ 1998 1997 1998 1997 -------------- ------------- -------------- ------------- Revenues: Oil and gas operations................................... $ 79,862 $ 108,543 $ 256,415 $ 338,953 Alaska transmission and distribution..................... 13,237 12,112 62,538 63,455 -------------- ------------- -------------- ------------- 93,099 120,655 318,953 402,408 Costs of Operations: Operations and maintenance............................... 40,702 39,744 119,083 123,620 Alaska transmission and distribution cost of gas sold.... 5,021 4,557 27,127 28,523 Exploration charges...................................... 22,032 15,217 40,328 31,516 Depreciation, depletion and amortization................. 46,990 42,787 127,845 130,559 Impairment of long-lived assets.......................... 77,827 - 77,827 - General and administrative............................... 9,344 4,894 15,784 10,317 -------------- ------------- -------------- ------------- 201,916 107,199 407,994 324,535 -------------- ------------- -------------- ------------- Operating Profit (Loss)..................................... (108,817) 13,456 (89,041) 77,873 Other (Income) Expense: Interest expense......................................... 10,638 9,990 28,490 29,985 Interest income and other................................ 174 (626) (2,027) (1,539) -------------- ------------- -------------- ------------- 10,812 9,364 26,463 28,446 -------------- ------------- -------------- ------------- Income (Loss) Before Income Taxes and Extraordinary Item.... (119,629) 4,092 (115,504) 49,427 Income Tax Expense (Benefit)................................ (33,022) 890 (31,001) 26,350 -------------- ------------- -------------- ------------- Net Income (Loss) Before Extraordinary Item................. (86,607) 3,202 (84,503) 23,077 Extraordinary Item.......................................... (1,031) - (1,031) - -------------- ------------- -------------- ------------- Net Income (Loss)........................................... $ (87,638) $ 3,202 $ (85,534) $ 23,077 ============== ============= ============== ============= Earnings (Loss) Before Extraordinary Item Per Share: Basic.................................................... $ (1.37) $ 0.05 $ (1.34) $ 0.37 ============== ============= ============== ============= Diluted.................................................. $ (1.37) $ 0.05 $ (1.34) $ 0.36 ============== ============= ============== ============= Earnings (Loss) Per Share: Basic.................................................... $ (1.39) $ 0.05 $ (1.36) $ 0.37 ============== ============= ============== ============= Diluted.................................................. $ (1.39) $ 0.05 $ (1.36) $ 0.36 ============== ============= ============== ============= Weighted Average Number of Common Shares Outstanding: Basic.................................................... 63,141 63,160 63,072 62,986 ============== ============= ============== ============= Diluted.................................................. 63,141 63,933 63,072 63,746 ============== ============= ============== =============
See accompanying Notes to Consolidated Financial Statements. 1 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands Except Share Data)
September 30, December 31, 1998 1997 -------------- ------------ (Unaudited) ASSETS: Current Assets: Cash and cash equivalents......................................... $ 13,884 $ 45,654 Accounts receivable, net.......................................... 109,078 147,442 Inventories....................................................... 18,840 13,635 Prepaid expenses and other........................................ 17,385 16,240 -------------- ------------ Total Current Assets............................................ 159,187 222,971 Property, Plant and Equipment - at cost............................. 2,341,234 2,053,683 Accumulated Depreciation, Depletion and Amortization................ 1,105,398 908,849 -------------- ------------ 1,235,836 1,144,834 Other Assets........................................................ 46,440 43,261 -------------- ------------ Total Assets........................................................ $ 1,441,463 $ 1,411,066 ============== ============ LIABILITIES AND SHAREHOLDERS' EQUITY: Current Liabilities: Accounts and note payable......................................... $ 145,807 $ 159,138 Accrued expenses.................................................. 30,245 47,625 Current maturities of long-term debt.............................. 6,967 7,097 -------------- ------------ Total Current Liabilities....................................... 183,019 213,860 Long-Term Debt...................................................... 622,314 469,017 Other Noncurrent Liabilities........................................ 58,121 51,168 Deferred Income Taxes............................................... - 14,126 Redeemable Bearer Shares............................................ 15,542 15,691 Commitments and Contingencies....................................... - - Shareholders' Equity: Common Stock, $.10 par value; authorized 100,000,000 shares; issued 64,255,017 shares (1998) and 63,877,442 shares (1997)... 6,426 6,388 Additional paid-in capital........................................ 497,413 493,829 Retained earnings................................................. 79,401 164,935 Less - note receivable from employee stock ownership plan......... (2,990) (2,990) Less - 861,282 shares (1998) and 861,314 shares (1997) of Common Stock held in Treasury, at cost.......................... (14,958) (14,958) Less - note receivable for stock.................................. (1,212) - Less - deferred compensation...................................... (1,613) - -------------- ------------ Total Shareholders' Equity...................................... 562,467 647,204 -------------- ------------ Total Liabilities and Shareholders' Equity......................... $ 1,441,463 $ 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)
Nine Months Ended September 30, ------------------------------------ 1998 1997 ----------------- --------------- Operating Activities: Net income (loss)...................................................... $ (85,534) $ 23,077 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation, depletion and amortization............................. 127,845 130,559 Impairment of long-lived assets...................................... 77,827 - Amortization of deferred financing costs............................. 1,460 1,629 Deferred income taxes................................................ (38,149) 2,914 Dry hole expense..................................................... 21,537 13,844 Extraordinary item................................................... 1,031 - Other................................................................ 507 549 ----------------- --------------- 106,524 172,572 Changes in operating assets and liabilities, net of acquisitions: Decrease in accounts receivable.................................... 41,296 47,596 Increase in inventories, prepaid expenses and other................ (11,572) (16,706) Decrease in accounts and notes payable............................. (27,928) (12,151) Decrease in accrued expenses and other............................. (12,178) (15,378) ----------------- --------------- Net Cash Provided By Operating Activities.............................. 96,142 175,933 Investing Activities: Capital expenditures................................................... (193,079) (205,564) Acquisitions of oil and gas properties, net of cash acquired........... (101,731) (7,421) Acquisitions of other assets and liabilities, net of cash acquired..... (1,833) - Proceeds from sales of property, plant and equipment................... 760 1,191 ----------------- --------------- Net Cash Used In Investing Activities.................................. (295,883) (211,794) Financing Activities: Proceeds from debt..................................................... 393,254 695,297 Principal payments on debt ............................................ (225,738) (656,858) Proceeds from sales of common stock.................................... 599 5,586 Purchase of treasury stock............................................. - (5,667) Premiums paid on debt purchased........................................ (934) - Other.................................................................. 790 (1,998) ----------------- --------------- Net Cash Provided By Financing Activities.............................. 167,971 36,360 Effect of exchange rate changes on cash.................................. - (28) ----------------- --------------- Increase (Decrease) In Cash And Cash Equivalents....................... (31,770) 471 Cash And Cash Equivalents At Beginning Of Period......................... 45,654 15,284 ----------------- --------------- Cash And Cash Equivalents At End Of Period............................... $ 13,884 $ 15,755 ================= ===============
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 Nine Months Ended September 30, September 30, ----------------------------- --------------------------- 1998 1997 1998 1997 ------------- ------------- ------------- ------------ Net income (loss).................................... $ (87,638) $ 3,202 $ (85,534) $ 23,077 Other comprehensive income, net of tax: Foreign currency translation adjustment........... - 35 - (820) ------------- ------------- ------------- ------------ Comprehensive income (loss).......................... $ (87,638) $ 3,237 $ (85,534) $ 22,257 ============= ============= ============= ============
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 September 30, 1998, and the results of its operations and cash flows for the three and nine months ended September 30, 1998 and 1997. All adjustments made, other than the impairment charges and one-time compensation charges discussed in Note 2 and the extraordinary item discussed in Note 5, are of a normal, recurring nature. The results of operations for the three and nine months ended September 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 September 30, 1998: Basic..................................... $ (87,638) 63,141 $ (1.39) Effect of dilutive stock options.......... - - -------------------- ---------------------- Diluted................................... $ (87,638) 63,141 $ (1.39) ==================== ====================== Quarter Ended September 30, 1997: Basic..................................... $ 3,202 63,160 $ 0.05 Effect of dilutive stock options.......... - 773 ------------------- ---------------------- Diluted................................... $ 3,202 63,933 $ 0.05 ==================== ======================
5 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Weighted Average Earnings (Loss) Common Shares Per-Share Net Income (Loss) Outstanding Amount -------------------- ---------------------- -------------------- Nine Months Ended September 30, 1998: Basic..................................... $ (85,534) 63,072 $ (1.36) Effect of dilutive stock options.......... - - -------------------- ---------------------- Diluted................................... $ (85,534) 63,072 $ (1.36) ==================== ====================== Nine Months Ended September 30, 1997: Basic..................................... $ 23,077 62,986 $ 0.37 Effect of dilutive stock options.......... - 760 -------------------- ---------------------- Diluted................................... $ 23,077 63,746 $ 0.36 ==================== ======================
The effects of the assumed exercise of stock options for the first nine months of 1998 and the third quarter of 1998 have an anti-dilutive effect on the computation of loss per diluted share for these periods. Therefore, weighted average options to purchase 4,621,507 and 4,859,702 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 first nine months of 1998 and the third quarter of 1998, respectively. Weighted average options to purchase 1,748,523 at $20.00 to $26.38 per share and 1,636,272 shares of common stock at $23.50 to $26.38 per share were outstanding during the first nine months of 1997 and the third 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. Derivative Financial Instruments -- From time to time, the Company enters into a variety of commodity derivative financial instruments (futures, swaps and options contracts) for non-trading purposes. In 1998 and 1997, the Company made limited use of these derivative financial instruments as a hedging strategy to manage commodity prices associated with oil and gas sales and to reduce the impact of commodity price fluctuations. 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 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. To qualify as hedges, these instruments must highly correlate to anticipated future production and prices such that the Company's exposure to the effects of price changes is reduced. 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. 6 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) The Company recorded costs of $0.6 million and $8 million for the nine months ended September 30, 1998 and 1997, respectively, related to equity hedging activities, including costs related to the monetary production payment hedges of approximately $0.6 million and $2 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 third quarter of 1998 and 1997, all of the Company's equity hedging costs of $0.1 million and $0.6 million, respectively, related to the monetary production payment hedges. The Company also recorded hedging costs related to third-party marketing activities of $3.8 million and $0.8 million for the nine months ended September 30, 1998 and 1997, respectively, and $2.3 million and $0.6 million for the third quarter of 1998 and 1997, respectively. At September 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 25 Bcf related to sales for the period from October 1998 through July 1999. At September 30, 1998, the fair value related to the Company's commodity hedging activities was $0.6 million of costs related to open contracts. 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 its financial condition or results of operations. Note 2. Special Charges Impairment of Long-Lived Assets -- The Company performs a review for impairment of proved oil and gas properties on a depletable unit basis when circumstances suggest there is a need for such a review. For each depletable unit determined to be impaired, an impairment loss equal to the difference between the carrying value and the fair value of the depletable unit will be recognized. Fair value, on a 7 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) depletable unit basis, is estimated to be the present value of expected future cash flows computed by applying estimated future oil and gas prices, as determined by management, to estimated future production of oil and gas reserves over the economic lives of the reserves. In the third quarter of 1998, the Company recorded impairment charges of $74 million related to its oil and gas properties and approximately $4 million related to certain of its pipeline assets. The oil and gas asset impairment charges resulted primarily from disappointing well performance, much lower oil and natural gas prices and a lack of any perceived significant near-term improvement in oil prices that has led to a reduction in reserves at certain of Seagull's Egyptian concessions. The impairment of the pipeline assets is a result of the Company's decision to dispose of these assets. No impairment charges were recorded during 1997. One-Time Compensation Charges -- During the third quarter of 1998, Seagull recorded approximately $6 million in compensation expenses included in general and administrative expense, related to the retirement of Barry J. Galt and the appointment of James T. Hackett as the Company's Chief Executive Officer. Note 3. Acquisitions and Dispositions Acquisition of Oil and Gas Assets -- 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) Nine Months Ended September 30, 1998 -------------------------- Revenues................................................................................. $327,624 Net loss................................................................................. (87,001) Basic loss per share..................................................................... (1.38) Diluted loss per share................................................................... (1.38)
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. Relinquishment of Darag Concession -- The Company's Egyptian concessions include a 50%, non-operated working interest in the Darag block, which is located in the northern portion of the Gulf of Suez. Future plans for this concession have been uncertain as the working interest owners and the Egyptian national oil company ("EGPC") have been unable to secure the necessary drilling permits from 8 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) marine authorities. In the third quarter of 1998, the working interest owners agreed to relinquish the concession to EGPC in exchange for reimbursement of substantially all of their costs incurred in connection with the concession. Seagull's share of the reimbursement is expected to be approximately $6 million. The effect of this reimbursement is not expected to be material to the Company's results of operations. Disposition of Pipeline Assets -- During the third quarter of 1998, the Company decided to liquidate its nonstrategic pipeline assets in late 1998 or early 1999. As a result of this decision, the Company recorded a noncash impairment of pipeline assets of approximately $4 million during the third quarter of 1998 to reduce the asset carrying value to net realizable value. The pipeline assets to be disposed of contributed $3 million and $4 million in revenues for the three months ended September 30, 1998 and 1997, respectively, and $9 million and $11 million in revenues for the nine months ended September 30, 1998 and 1997, respectively, but did not have a material effect on operating profit for any of these periods. These assets have a net book value after impairment of approximately $3 million at September 30, 1998. Note 4. Supplemental Disclosures of Cash Flow Information
(Amounts in Thousands) Nine Months Ended September 30, ------------------------------- 1998 1997 --------- --------- Cash paid during the period for: Interest, net of amount capitalized... $36,143 $35,801 Income taxes.......................... $ 8,277 $20,305
Note 5. Long-term Debt During the third quarter of 1998, the Company repurchased in open-market transactions approximately $50 million in aggregate principal amount of its 8 5/8% Senior Subordinated Notes due 2005. These purchases were funded using borrowings under Seagull's revolving credit facility. In connection with this repurchase, the Company recorded an after-tax extraordinary loss of $1 million, or $0.02 per basic and diluted share during the third quarter of 1998. The extraordinary item includes a tax benefit of approximately $0.6 million. Note 6. Commitments and Contingencies 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. 9 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 financial position and results of operations of Seagull Energy Corporation ("Seagull" or the "Company") 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 Nine Months Ended September 30, September 30, ------------------------------- ------------------------------------ 1998 1997 1998 1997 --------------- ------------- --------------- ----------------- Revenues: Oil and gas operations....................... $ 79,862 $ 108,543 $ 256,415 $ 338,953 Alaska transmission and distribution......... 13,237 12,112 62,538 63,455 --------------- ------------- --------------- ----------------- $ 93,099 $ 120,655 $ 318,953 $ 402,408 =============== ============= =============== ================= Operating Profit (Loss): Oil and gas operations....................... $ (99,574) $ 18,603 $ (83,808) $ 77,363 Alaska transmission and distribution......... 1,146 548 13,436 12,985 Corporate.................................... (10,389) (5,695) (18,669) (12,475) --------------- ------------- --------------- ----------------- $ (108,817) $ 13,456 $ (89,041) $ 77,873 =============== ============= =============== ================= Net income (loss).............................. $ (87,638) $ 3,202 $ (85,534) $ 23,077 Net cash provided by operating activities before changes in operating assets and liabilities.. $ 21,683 $ 48,623 $ 106,524 $ 172,572 Net cash provided by operating activities...... $ 31,901 $ 49,939 $ 96,142 $ 175,933
For both the three and nine months ended September 30, 1998, Seagull experienced decreases in revenues, operating profit, net income and net cash provided by operating activities versus the same periods in 1997. These decreases can be primarily attributed to the following key items: - - A noncash impairment charge of $78 million in the third quarter of 1998 related to the impairment of the Company's oil and gas and pipeline assets; - - Substantial decreases in worldwide oil prices and moderate decreases in domestic gas prices from the 1997 periods; - - Substantial increases in exploration charges for the quarter and nine months of 1998 versus the equivalent 1997 periods; 10 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - - The absence of contributions from the Company's Canadian oil and gas operations which were sold in October 1997; - - One-time compensation costs of approximately $6 million associated with the retirement of Barry J. Galt and the appointment of James T. Hackett as the Company's Chief Executive Officer; and - - A change in the Company's tax expense from approximately 53% of earnings before taxes for the nine months ended September 30, 1997 to an approximate 27% benefit for the first nine months of 1998, reflecting primarily the tax benefits of the impairment of long-lived assets and one-time compensation matters.
OIL AND GAS OPERATIONS (Amounts in Thousands) Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------- --------------------------------- 1998 1997 1998 1997 --------------- ------------- -------------- -------------- Revenues: Natural gas............................... $ 54,970 $ 70,374 $ 173,287 $ 224,093 Oil and NGL............................... 19,583 32,986 66,258 96,220 Pipeline and marketing.................... 5,309 5,183 16,870 18,640 --------------- ------------- -------------- -------------- 79,862 108,543 256,415 338,953 --------------- ------------- -------------- -------------- Production operating expenses............... 28,651 27,967 82,961 87,091 Pipeline and marketing expenses............. 7,109 6,860 20,524 20,840 Exploration charges......................... 22,032 15,217 40,328 31,516 Depreciation, depletion and amortization.... 43,817 39,896 118,583 122,143 Impairment of long-lived assets............. 77,827 - 77,827 - --------------- ------------- -------------- -------------- Operating profit.......................... $ (99,574) $ 18,603 $ (83,808) $ 77,363 =============== ============= ============== ==============
The decline in commodity prices was the significant factor in the 26% and 24% decreases in revenues for the Oil and Gas Operations ("O&G") segment to $80 million and $256 million for the three and nine months ended September 30, 1998, respectively. Domestic natural gas prices realized by the Company decreased 9% from $2.28 per Mcf in the first nine months of 1997 to $2.07 per Mcf for the same period in 1998. This price decrease and a 5% decrease in domestic gas production combined to create a $26 million decrease in domestic natural gas revenues. Worldwide oil prices realized by the Company showed a decrease of 33%, from $17.40 per Bbl in 1997's first nine months to $11.62 per Bbl in 1998. While declining oil prices were the primary factor for the decrease in oil revenues, this was partially offset by an increase in oil and NGL production in the U.S. and Egypt as Seagull realized additional contributions from several new domestic wells and three Egyptian concessions - Qarun, where additional facilities became operational during mid-1997, East Beni Suef, where production began in mid-1998, and West Abu Gharadig, which was purchased in late 1997. For the third quarter of 1998, the Company's oil and gas production was essentially unchanged from the third quarter of 1997, excluding 11 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Canadian production. However, worldwide oil and gas prices realized by the Company during the third quarter of 1998 reflected the similar downward trends expressed during the first nine months of 1998 versus the same period in 1997. Seagull sold its Canadian oil and gas operations in October 1997. These Canadian operations contributed approximately $8 million and $26 million in revenues and $4 million and $8 million in operating profit for the three and nine months ended September 30, 1997, respectively.
EXPLORATION AND PRODUCTION OPERATING DATA Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------------- ----------------------------------------------------- Net Daily Production Unit Price Net Daily Production Unit Price 1998 1997 1998 1997 1998 1997 1998 1997 ----------- ------------- ----------- ----------- ------------- ------------- ----------- ------------- Gas Sales(1): Domestic............. 293 299 $ 1.94 $ 2.19 289 304 $ 2.07 $ 2.28 Canada(2) ........... - 49 - 1.38 - 49 - 1.63 Cote d'Ivoire........ 7 7 1.59 1.77 9 6 1.57 1.81 Indonesia............ 8 8 1.97 3.58 9 11 2.32 3.54 Other................ 1 - 1.40 1.07 1 - 1.36 1.02 ----------- ------------- ----------- ----------- ------------- ------------- ----------- ------------- 309 363 $ 1.94 $ 2.11 308 370 $ 2.06 $ 2.22 =========== ============= =========== =========== ============= ============= =========== ============= Oil and NGL Sales(1): Domestic............. 5,151 5,292 $ 10.79 $ 16.52 5,094 4,689 $ 11.88 $ 18.03 Canada(2)............ - 932 - 15.37 - 889 - 16.46 Egypt................ 10,085 9,838 12.07 18.02 10,555 8,987 12.67 18.30 Cote d'Ivoire........ 782 1,146 7.34 17.44 993 1,285 10.90 19.06 Tatarstan............ 4,201 4,113 6.74 13.94 4,060 4,224 8.57 14.34 Indonesia............ 115 94 12.84 22.01 172 166 16.09 20.99 Other................ 9 9 7.33 15.49 8 15 10.78 17.18 ----------- ------------- ----------- ----------- ------------- ------------- ----------- ------------- 20,343 21,424 $ 10.46 $ 16.74 20,882 20,255 $ 11.62 $ 17.40 =========== ============= =========== =========== ============= ============= =========== =============
(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. Income and costs related to the Company's commodity hedging activities are recognized in oil and gas revenues when the commodities are produced. The Company recorded costs of $0.6 million and $8 million for the nine months ended September 30, 1998 and 1997, respectively, related to equity hedging activities, including costs related to the monetary production payment hedges of approximately $0.6 million and $2 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 12 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations properties). For the third quarter of 1998 and 1997, all of the Company's equity hedging costs of $0.1 million and $0.6 million, respectively, related to the monetary production payment hedges. The Company also recorded hedging costs related to third-party marketing activities of $3.8 million and $0.8 million for the nine months ended September 30, 1998 and 1997, respectively, and $2.3 million and $0.6 million for the third quarter of 1998 and 1997, respectively. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards 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 its financial condition or results of operations. In comparison to 1997, exploration charges for 1998 were approximately $7 million and $9 million higher for the third quarter and nine months, respectively, primarily due to increases in dry hole expense and impairment of leaseholds on certain of the Company's Egyptian concessions. The decrease in depreciation, depletion and amortization ("DD&A") expense to $119 million for the nine months ended September 30, 1998 from $122 million for the prior year 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 Egypt and an increase in the DD&A expense per equivalent unit of production related to the Company's Egyptian operations. The DD&A expense per equivalent unit of production for oil and gas producing activities increased to $5.95 per Boe from $5.41 per Boe for the first nine months of 1998 and 1997, respectively. For the third quarter, DD&A expense increased nearly $4 million from 1997's $40 million also due to the increase in the DD&A expense per equivalent unit of production related to the Company's Egyptian operations. During the third quarter of 1998, the Company recorded a noncash impairment charge of $74 million related to its oil and gas assets. The impairments of the oil and gas assets were primarily a result of disappointing well performance, much lower oil and natural gas prices and a lack of any perceived significant near-term improvement in oil prices that has led to a reduction in reserves at certain of Seagull's Egyptian concessions. During this quarter, the Company also decided to liquidate nonstrategic pipeline assets which resulted in an additional noncash impairment of $4 million. Even if worldwide oil and gas prices improve materially in the remainder of 1998, O&G operating results will be substantially lower in 1998 versus the prior year. As the O&G segment represents the majority of the Company's operations, a substantial decrease in O&G operating results will have a significant impact on the Company's total operating results. 13 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 Nine Months Ended September 30, September 30, --------------------------------- -------------------------------------- 1998 1997 1998 1997 -------------- ------------- ---------------- ----------------- Revenues.................................. $ 13,237 $ 12,112 $ 62,538 $ 63,455 Cost of gas sold.......................... 5,021 4,557 27,127 28,523 -------------- ------------- ---------------- ----------------- Gross margin............................ 8,216 7,555 35,411 34,932 Operations and maintenance expense........ 4,942 4,917 15,598 15,689 Depreciation, depletion and amortization.. 2,128 2,090 6,377 6,258 -------------- ------------- ---------------- ----------------- Operating profit........................ $ 1,146 $ 548 $ 13,436 $ 12,985 ============== ============= ================ ================= OPERATING DATA: Degree days (*)......................... 1,050 762 6,332 6,053 Sales and transport volumes (MMcf)...... 7,280 7,543 29,544 31,362 Sales and transport margin per MMcf..... $ 1.13 $ 1.00 $ 1.20 $ 1.11
(*) 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 third quarter of 1998 increased from the 1997 period primarily as a result of cooler temperatures, increased customer count and 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. OTHER During the third quarter of 1998, Seagull recorded approximately $6 million in compensation expenses, related to the retirement of Barry J. Galt and the appointment of James T. Hackett as the Company's Chief Executive Officer, included in general and administrative ("G&A") expense. Additional compensation costs related to Mr. Galt's retirement of approximately $1 million will be recorded in G&A expense throughout the remainder of 1998 and the first half of 1999. 14 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 Nine Months Ended September 30, September 30, ---------------------------------- --------------------------------------- 1998 1997 1998 1997 -------------- -------------- ---------------- ----------------- Capital expenditures: Exploration and production: Leasehold........................... $ 13,988 $ 3,634 $ 18,412 $ 17,893 Exploration......................... 27,361 28,456 59,695 73,089 Development......................... 34,805 30,359 101,715 101,109 -------------- -------------- ---------------- ----------------- 76,154 62,449 179,822 192,091 Pipeline and marketing................ 85 162 1,302 207 -------------- -------------- ---------------- ----------------- Oil and gas operations.............. 76,239 62,611 181,124 192,298 Alaska transmission and distribution.. 2,974 3,081 6,978 6,532 Corporate............................. 1,261 2,524 4,977 6,734 -------------- -------------- ---------------- ----------------- $ 80,474 $ 68,216 $ 193,079 $ 205,564 ============== ============== ================ ================= Acquisitions............................. $ 673 $ 6,600 $ 128,142 $ 7,421 ============== ============== ================ =================
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 $12 million for the first nine months of 1998 versus 1997 due to the sale of the Company's Canadian operations, which had expenditures of $13 million in the first nine months of 1997, and a decline in domestic capital expenditures, 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 September 30, 1998, there was $205 million borrowed under the Credit Facility and $277 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 $143 million was available for payment of cash dividends on common stock or to repurchase common stock as of September 30, 1998. During the third quarter of 1998, the Company repurchased in open-market transactions approximately $50 million in aggregate principal amount of its 8 5/8% Senior Subordinated Notes due 2005. These purchases were funded using borrowings under the Credit Facility. In connection with this repurchase, the Company recorded an extraordinary loss of $1 million, or $0.02 per basic and 15 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations diluted share. At current interest rates under the Credit Facility, the Company expects to save approximately $1.6 million in annual interest expense by refinancing the $50 million of Senior Subordinated Notes under the Credit Facility. On June 1, 1998, the Company completed the purchase of the stock of BRG Petroleum, Inc. 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. 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 packages of properties to be liquidated in the fourth quarter of 1998. During the third quarter of 1998, the Company also decided to liquidate its nonstrategic pipeline assets in late 1998 or early 1999. The Company also announced its intentions to exit its third-party marketing business and to explore alternatives for marketing its equity production, including outsourcing. YEAR 2000 ISSUES Historically, most computer systems (including microprocessors embedded into field equipment and other machinery) utilized software that recognized a calendar year by its last two digits. Beginning in the year 2000, these systems will require modification to distinguish twenty-first century dates from twentieth century dates ("Year 2000 issues"). Accordingly, the Company has initiated a comprehensive plan to address the Year 2000 issues associated with its operations and business. Seagull's Board of Directors has been briefed about the Year 2000 problem generally and as it may affect Seagull. The Board has created a committee consisting of senior executives and a representative from the Board to oversee the adoption and implementation of a Year 2000 plan covering all of Seagull's business units. The plan has been developed, and the aim of the plan is to take reasonable steps to prevent Seagull's mission-critical functions from being impaired due to the Year 2000 problem. 16 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The plan includes several phases - (i) assessment of all of the Company's systems and technology; (ii) implementation and testing of modifications to or replacements of existing systems and technology, both financial and operational; (iii) communication with key business partners; and (iv) contingency planning. In planning and developing the project, Seagull has considered both its information technology ("IT") and its non-IT systems. The term "computer equipment and software" includes systems that are commonly thought of as IT systems, including accounting, data processing, telephone systems, scanning equipment, and other miscellaneous systems. Those items not considered IT technology include alarm systems, fax machines, monitors for field operations, or other miscellaneous systems. Both IT and non-IT systems may contain embedded technology, which complicates Seagull's Year 2000 identification, assessment, remediation, and testing efforts. Based upon its identification and assessment efforts to date, Seagull is in the process of replacing the computer equipment and software it currently uses to become Year 2000 compliant. In addition, in the ordinary course of replacing computer equipment and software, Seagull plans to obtain replacements that are in compliance with Year 2000. During 1997, the Company utilized both internal and external resources to reprogram, or replace, and test much of its IT systems, primarily financial and operational software, for necessary modifications identified in its assessment of Year 2000 issues. As of the date of this filing, the Company estimates that approximately 80% of its Year 2000 plan for these IT systems has been implemented and anticipates that the remainder of the plan, including any necessary remedial action, will be completed by March 31, 1999. During September 1998, the Company began utilizing internal and external resources to evaluate its vulnerability to Year 2000 issues related to its non-IT systems, primarily field operational systems and equipment. The Company has also initiated formal communications with all of its key business partners to determine the extent to which the Company is vulnerable to those third parties' potential failure to remediate their own Year 2000 issues. While the evaluation of non-IT systems and communications with key business partners is just beginning, the Company estimates that the remainder of the Year 2000 plan concerning these areas will be complete by March 31, 1999. During the fourth quarter of 1998, the Company plans to develop contingency plans for both financial and operational systems. Seagull's contingency plans are being designed to minimize the disruptions or other adverse effects resulting from Year 2000 incompatibilities regarding these systems, and to facilitate the early identification and remediation of Year 2000 problems that first manifest themselves after January 1, 2000. The failure to correct a material Year 2000 issue could result in an interruption in, or a failure of, certain normal business activities, thereby having a material, adverse affect on the Company's results of operations, liquidity and financial position. The Company's remediation efforts are expected to significantly reduce the Company's level of uncertainty about Year 2000 compliance and the possibility of interruptions of normal operations. 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 17 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations by another company, or a conversion that is incompatible with the Company's systems, would not have a material adverse effect on the Company. Disruptions to the oil and gas transportation networks controlled by third-party carriers could result in reduced production volumes delivered to market. In addition, risks associated with foreign operations may increase with the uncertainty of Year 2000 compliance by foreign governments and their supporting infrastructures. The total costs for the Year 2000 compliance review, evaluation, assessment and remediation efforts are not expected to be in excess of $1,000,000. Of this amount, approximately $300,000 had been incurred as of September 30, 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. 18 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: #*10.1 Employment and Consulting Agreement by and between the Company and Barry J. Galt. #*10.2 Severance Agreement, including Amendment and Second Amendment to Severance Agreement, between the Company and Barry J. Galt. #*10.3 Form of Severance Agreement, including Form of Amendment and Second Amendment to Severance Agreement, between the Company and Richard F. Barnes, John N. Goodpasture, and William L. Transier. #*10.4 Second and Third Amendments to Seagull Energy Corporation Management Stability Plan. #*10.5 Third Amendment to the Outside Directors' Deferred Fee Plan. #*10.6 Employment Agreement by and between the Company and James T. Hackett. #*10.7 Executive Supplemental Retirement Plan Membership Agreement by and between the Company and James T. Hackett. #*10.8 Severance Agreement between the Company and James T. Hackett. #*10.9 Severance Agreement, including Amendment and Second Amendment to Severance Agreement, between the Company and Gerald R. Colley. #*10.10 Severance Agreement, including Amendment and Second Amendment, between the Company and Carl B. King. #*10.11 Third Amendment to the Company's Executive Supplemental Retirement Plan. #*10.12 Third Amendment to Supplemental Benefit Plan. #*27.1 Financial Data Schedule. * Filed herewith. # Identifies management contracts and compensatory plans or arrangements. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the three months ended September 30, 1998. 19 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, Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: November 16, 1998 By: /s/ Gordon L. McConnell Gordon L. McConnell, Vice President and Controller (Principal Accounting Officer) Date: November 16, 1998 EXHIBIT INDEX EXHIBIT PAGE NUMBER DESCRIPTION NUMBER - ----------------- ------------------------------------------------------------------------------- ------------- #*10.1 Employment and Consulting Agreement by and between the Company and Barry J. Galt. #*10.2 Severance Agreement, including Amendment and Second Amendment to Severance Agreement, between the Company and Barry J. Galt. #*10.3 Form of Severance Agreement, including Form of Amendment and Second Amendment to Severance Agreement, between the Company and Richard F. Barnes, John N. Goodpasture, and William L. Transier. #*10.4 Second and Third Amendments to Seagull Energy Corporation Management Stability Plan. #*10.5 Third Amendment to the Outside Directors' Deferred Fee Plan. #*10.6 Employment Agreement by and between the Company and James T. Hackett. #*10.7 Executive Supplemental Retirement Plan Membership Agreement by and between the Company and James T. Hackett. #*10.8 Severance Agreement between the Company and James T. Hackett. #*10.9 Severance Agreement, including Amendment and Second Amendment to Severance Agreement, between the Company and Gerald R. Colley. #*10.10 Severance Agreement, including Amendment and Second Amendment, between the Company and Carl B. King. #*10.11 Third Amendment to the Company's Executive Supplemental Retirement Plan. #*10.12 Third Amendment to Supplemental Benefit Plan. #*27.1 Financial Data Schedule.
- ---------------- * Filed herewith. # Identifies management contracts and compensatory plans or arrangements. EX-10.1 2 EMPLOYMENT AND CONSULTING AGREEMENT - GALT EMPLOYMENT AND CONSULTING AGREEMENT THIS EMPLOYMENT AND CONSULTING AGREEMENT ("Agreement"), effective as of August 24, 1998 (the "Effective Date"), is by and between SEAGULL ENERGY CORPORATION, a Texas corporation ("Seagull"), and BARRY J. GALT, an individual who resides in Houston, Texas ("Galt"). W I T N E S S E T H : WHEREAS, Galt is currently employed by Seagull; and WHEREAS, Seagull and Galt entered into an Employment Agreement dated December 30, 1983, which has been previously amended in certain minor respects and is currently in effect (the "Employment Agreement"); and WHEREAS, Seagull and Galt desire to enter into an agreement that replaces the Employment Agreement and that reflects their desire for Galt to perform certain services as a Seagull employee during a transition period beginning on the Effective Date and subsequently to perform certain services as a consultant after such transition period; NOW THEREFORE, the parties, in consideration of the mutual promises, covenants and obligations contained herein, do hereby agree as follows: 1. Effect of Agreement. Effective as of the Effective Date, this Agreement supersedes and replaces the Employment Agreement in its entirety and the Employment Agreement shall be null and void and of no further force and effect. 2. Employment. Galt has resigned (a) as President and Chief Executive Officer of Seagull, effective as of James T. Hackett's first day of employment with Seagull (the "Resignation Effective Date"), (b) as a member of the Executive Committee and its Chairman, effective as of the Resignation Effective Date, (c) as a member of any other committee of Seagull on which Galt serves, effective as of the Resignation Effective Date, (d) as Chairman of the Board of Directors of Seagull (the "Board of Directors"), effective as of December 31, 1998, provided that Galt has been designated as Vice Chairman of Seagull effective as of January, 1, 1999, and continuing through the adjournment of Seagull's 1999 Annual Meeting of Shareholders (the "1999 Annual Meeting"), (e) as Chairman of Seagull's ENSTAR Natural Gas Company division and as Chairman of the ENSTAR Natural Gas Company Advisory Board, effective as of December 31, 1998 (but not as a member of such Advisory Board), and (f) from any other office, trusteeship or position that Galt holds with -1- Seagull (other than as a director or employee of Seagull) or any subsidiary or division of Seagull (other than as a member of the ENSTAR Natural Gas Company Advisory Board) or any employee benefit plan (other than as a participant or beneficiary of any employee benefit plan) relating to Seagull, in each case effective as of the Resignation Effective Date. Effective at the close of business on May 31, 1999, Galt shall cease to be an employee of Seagull. Galt acknowledges that, effective as of January 1, 1999, he has been designated as Vice Chairman of Seagull. 3. Vice Chairman. Effective as of January 1, 1999, the Board of Directors has elected Galt to serve as Vice Chairman of the Board of Directors. As Vice Chairman, Galt shall have such powers and duties as designated in Seagull's bylaws and as from time to time may be assigned to him by the Board of Directors or the Chairman of the Board of Directors. The designation of Vice Chairman shall continue through the adjournment of the 1999 Annual Meeting. 4. Directorship. Galt shall serve the remainder of his current term as a director of Seagull. Any renomination of Galt for a subsequent term as a director of Seagull shall be considered in the same manner as other directors of Seagull. 5. Consultancy. Effective June 1, 1999, and continuing for the remainder of the Term of this Agreement pursuant to Paragraph 7 (the "Period of Consultancy"), Galt shall serve as a consultant to the management of Seagull with respect to such areas as are requested by the management of Seagull, including the prosecution, defense, or other resolution of any litigation, now pending or future. It is understood that during the Period of Consultancy, Galt may be rendering services to others and, in using the services of Galt hereunder, Seagull will exercise due regard for other commitments of Galt. Galt shall faithfully render his best efforts and professional judgment in performance of these services consistent with good consulting practice and to the promotion, advancement and successful conduct of the business of Seagull. In providing such consultation, Galt shall provide Seagull with such of his ideas, assessments, and evaluations as Seagull may deem necessary. Galt agrees to be available for such meetings as Seagull deems necessary for proper communication of his consultation. 6. Compensation, Benefits and Perquisites. In consideration for the services to be rendered pursuant to this Agreement, Seagull agrees to the following: (a) Compensation and Benefits During Period of Employment. During the period beginning on the Effective Date and ending on May 31, 1999 (the "Period of Employment"), Seagull shall provide to Galt the following compensation and benefits: (i) Signing Bonus. Within five business days after the date of execution hereof, Seagull shall pay to Galt a lump sum cash payment in the amount of $1,800,000. -2- (ii) Base Salary. Seagull shall pay to Galt a base salary of $49,166.67 per month ($590,000 annual rate) in accordance with Seagull's standard policy regarding payment of compensation to executives, but no less frequently than monthly. (iii) Bonuses. For the 1998 performance year, Galt shall be eligible to receive an annual bonus under the 1998 Seagull Energy Corporation Executive Incentive Plan (the "EIP"), based on an Incentive Target (as such term is used in the EIP) of 50% of Galt's annual base salary, with a Maximum Incentive (as such term is used in the EIP) of 100% of Galt's annual base salary; provided however, that the amount of such annual bonus shall not be less than $295,000. In lieu of participation in the EIP for the 1999 performance year, Seagull shall pay Galt a lump sum cash payment in the amount of $122,917 within five business days after May 31, 1999. (iv) Stock Options. On August 24, 1998, Seagull shall grant to Galt the option to purchase 100,000 shares of Seagull's common stock ("Stock") pursuant to the Seagull Energy Corporation 1998 Omnibus Stock Plan (the "Plan") and effective as of January 1, 1999, Seagull shall grant to Galt an option to purchase 50,000 shares of Stock pursuant to the Plan (jointly, the "Options"). The purchase price for each share of Stock subject to the Options shall be equal to the Fair Market Value (as such term is defined in the Plan) of a share of Stock as of the date of grant thereof. Subject to the terms of the Plan and the agreements to be executed by Seagull and Galt evidencing the Options, each Option shall (A) be a nonqualified stock option, (B) have a term that expires on May 31, 2004 and (C) become fully exercisable as of May 31, 1999 (prior to which date it shall not be exercisable, except to the extent otherwise provided pursuant to the terms of the Plan). (v) Loan. After the Effective Date, Seagull shall lend, or cause to be lent to Galt (the "Loan"), an amount sufficient to enable Galt to exercise his option to purchase 192,000 shares of Stock, which expires September 20, 1998 (the "Expiring Option"), and to pay any applicable taxes imposed on Galt by reason of the exercise of the Expiring Option. The loan shall (A) be recourse, (B) be secured by a pledge of the Stock underlying the Expiring Option, (C) have a term maturing on May 31, 2002 and (D) bear interest at a rate that is not less than the applicable Federal rate as such term is defined in -3- section 7872(f)(2) of the Internal Revenue Code of 1986, as amended (the "Code") at the time thereof. (vi) Outstanding Stock Options. Effective as of May 31, 1999, Seagull shall cause Galt's options to purchase Stock outstanding as of such date to be amended to provide that each such option shall be fully exercisable on such date and shall continue to be exercisable until May 31, 2004, subject to the expiration date contained in such options. Galt acknowledges and agrees that the extension of the such outstanding stock options may cause any such options intended to be incentive stock options within the meaning of section 422(b) of the Code ("ISOs") to be treated as options that do not constitute ISOs. (vii) Executive Supplemental Retirement Plan. Prior to May 31, 1999, Seagull shall establish a trust (the "Trust") in connection with the Seagull Executive Supplemental Retirement Plan (the "ESRP"). The Trust is not intended to result in the ESRP being treated as funded for purposes of the Code and Title I of the Employee Retirement Income Security Act of 1974, as amended, and shall conform to the terms of the model rabbi trust set forth in Revenue Procedure 92-64, 1992-2 C.B. 422. Prior to May 31, 1999, Seagull shall contribute to the Trust the Actuarially Equivalent (as such term is defined in the ESRP) present value of Galt's Accrued Benefit (as such term is defined in the ESRP) under the ESRP. Further, Seagull shall cause the ESRP to be amended to expand Section 7.01 to provide that no amendment to the ESRP shall deprive any Member (as such term is defined in the ESRP) of any Accrued Benefit under the ESRP to the extent that such Member has a Vested Interest (as such term is defined in the ESRP) in such Accrued Benefit at the time of such amendment. (viii) Supplemental Benefit Plan. Seagull shall cause the Seagull Supplemental Benefit Plan (the "SBP") to be amended to provide that benefits under the SBP shall be paid upon the later of a Participant's (as such term is defined in the SBP) termination of employment or termination of service as a consultant of Seagull. (ix) Seagull Benefit Plans. Galt and, to the extent applicable, Galt's spouse, dependents and beneficiaries, shall be allowed to participate in all benefits, plans and programs, including -4- improvements or modifications of the same, which are now, or may hereafter be, available to other executive employees of Seagull. Such benefits, plans and programs shall include, without limitation, the SBP, any profit sharing plan, thrift plan, employee stock ownership plan, health insurance or health care plan, life insurance, disability insurance, pension plan, supplemental retirement plan, vacation and sick leave plan, and the like that may be maintained by Seagull. Seagull shall not, however, by reason of this Paragraph be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such benefit plan or program, so long as such changes are similarly applicable to executive employees generally. (b) Other Items. Seagull shall reimburse Galt for reasonable out-of-pocket legal expenses that he has incurred in connection with the transition of his employment. Such reimbursement shall occur within five business days after the date of execution hereof or the date that Galt submits a copies of the invoices for such legal expenses, whichever is later. Prior to May 31, 1999, Seagull shall cause the following items to be transferred to Galt, AS IS, WHERE IS, without warranty (i) the Seagull memberships in the River Oaks Country Club, the Coronado Club, the Houston Petroleum Club and the Ramada Club and (ii) Galt's current office furnishings, all of which shall be used in the office provided pursuant to Paragraph (d)(vi) for as long as Galt maintains an office at Seagull's offices or otherwise provided by Seagull. (c) Compensation and Benefits During Period of Consultancy. During the Period of Consultancy, Seagull shall provide to Galt the following compensation and benefits: (i) Consulting Fees. Within five business days after the first day of each month during the Period of Consultancy, Seagull shall pay Galt a monthly consulting fee in the amount of $35,416.67 ($425,000 annual rate). (ii) Economic Value of Seagull Benefit Plan Participation. On January 1, 1999, Seagull shall pay to Galt a lump sum cash payment in the amount of $400,000, which shall represent the economic value of participation in Seagull's benefit plans (based on an annual salary rate of $590,000) for the Period of Consultancy. (d) Perquisites During Term of Agreement. During the Term of this Agreement, Seagull shall provide to Galt the following perquisites: -5- (i) Annual Life Insurance Premiums. On the date and in the manner designated by Galt, which date shall be within ninety days of the date specified below, Seagull shall tender annual premiums in the amounts specified below by check payable to the insurance company designated by Galt to be applied by such company to the insurance policy designated by Galt. Due Date Amount 2-9-99 $6,355 2-9-00 7,225 2-9-01 8,100 2-9-02 8,990
(ii) Company Automobile. Seagull will provide to Galt for his personal and business use a top-of-the-line automobile, and shall provide, or reimburse Galt for, maintenance and insurance (liability and collision coverage insuring both Seagull and Galt and covering both business and personal use) for such automobile. Such automobile shall be owned or leased by Seagull, or an affiliate of Seagull, and, if requested by Galt, shall be replaced, provided that more than three years have elapsed since the last such replacement. At any time during the term of this Agreement, Galt shall have the right to purchase the automobile provided by Seagull as of the date of execution hereof, and any other automobile subsequently provided by Seagull for an amount equal to Seagull's book value at the time of any such purchase. (iii) Business and Entertainment Expenses. Seagull will reimburse Galt for, or pay on behalf of Galt, reasonable and appropriate expenses incurred and properly accounted for by Galt for Seagull business related purposes, including dues and fees to industry and professional organizations, costs of entertainment and business development, and costs reasonably incurred as a result of Galt's spouse accompanying Galt on business travel. (iv) Club Dues. In addition to the other business and entertainment expenses reimbursable pursuant to Paragraph 6(d)(iii), Seagull shall pay the membership fees, dues and assessments for Galt's memberships in the Eldorado Country Club, the Castle Pines Golf Club, the River Oaks Country Club, the Southern Hills Country -6- Club, the Coronado Club, the Houston Petroleum Club and the Ramada Club. (v) Annual Physical Examination. Seagull shall pay for the cost of an annual physical examination to be conducted by a doctor or clinic of Galt's choosing in Houston, Texas. (vi) Office, Secretary and Parking. Seagull shall provide Galt with an office and secretary within Seagull's Houston offices. Further, Seagull shall provide at no expense to Galt a parking place convenient to Galt's office. Notwithstanding the foregoing, during the period beginning June 1, 2002 and ending May 31, 2004, Seagull shall provide Galt with (A) an office in the same office building, but outside of Seagull's principal executive offices, (B) Seagull support services with respect to such office, and (C) at no expense to Galt a parking place convenient to such office. (vii) Medicare Supplemental Coverage. In the event that Seagull amends its health insurance or health care plan during the Term of this Agreement in order to provide for Medicare supplemental coverage for retirees, Galt and any of his eligible dependents shall be allowed to participate in such coverage; provided, however, that if such amendment occurs during the Period of Consultancy, and Galt and his dependents are not otherwise eligible for such coverage, Galt shall receive, within five business days of the effective date of such amendment, a lump sum payment in amount equal to the economic value of such coverage for the remainder of the Term of this Agreement. Galt acknowledges and hereby agrees that the compensation payable pursuant to this Paragraph is for all services rendered pursuant to this Agreement and that he shall receive no separate fees or other compensation, benefits or perquisites with respect to his services as a director, Vice Chairman or any other offices of Seagull. 7. Term and Termination of Agreement. Seagull agrees to retain the services of Galt and Galt agrees to provide such services pursuant to this Agreement for a term of beginning on the Effective Date and ending on May 31, 2002 (the "Term"), subject to earlier termination as provided below. Notwithstanding the foregoing, the parties hereto may terminate Galt's services prior to the end of such Term pursuant to Paragraphs (a) or (b) below. -7- (a) Seagull shall have the right to terminate Galt's services under this Agreement at any time for any of the following reasons: (i) Upon Galt's death; (ii) Upon Galt's becoming incapacitated by accident, sickness or other circumstance which renders him mentally or physically incapable of performing the duties and services required of him hereunder on a full-time basis with reasonable accommodation for a period of at least 120 consecutive days or for a period of 180 business days during any twelve-month period; (iii) For cause, which for purposes of this Agreement shall mean a finding by the Board of Directors of Galt's gross negligence or wilful misconduct in the rendering of services required of him pursuant to this Agreement or Galt's final conviction of a felony or of a misdemeanor involving moral turpitude, excluding misdemeanor convictions relating to the operation of a motor vehicle; (iv) For Galt's material breach of any material provision of this Agreement, which, if correctable, remains uncorrected for 30 days following written notice of such breach to Galt by Seagull; or (v) For any other reason whatsoever in the sole discretion of the Board of Directors. (b) Galt shall have the right to terminate his services under this Agreement at any time for any of the following reasons: (i) For Seagull's material breach of any material provision of this Agreement, which, if correctable, remains uncorrected for 30 days following written notice of such breach to Seagull by Galt; or (ii) For any other reason whatsoever in the sole discretion of Galt. -8- (c) If Seagull or Galt desires to terminate Galt's services hereunder at any time prior to the expiration of the Term of this Agreement, it or he shall do so by giving written notice to the other party that it or he has elected to terminate Galt's services hereunder and stating the effective date and reason for such termination; provided that no such action shall alter or amend any other provisions hereof or rights arising hereunder. (d) In the event that Galt's services are terminated by Seagull as provided in (a) above prior to the expiration of the Term of this Agreement, then, upon such termination, the compensation, benefits and perquisites payable pursuant to Paragraph 6 shall terminate contemporaneously with the termination of such services, except that if such termination shall be pursuant to (a)(i), (a)(ii) or (a)(v), such compensation, benefits and perquisites shall continue for the balance of the Term of this Agreement; provided, however, that (i) if such termination occurs prior to January 1, 1999, the stock option scheduled to be granted on such date pursuant to Paragraph 6(a)(iv) shall be granted outside the Plan and shall be fully exercisable on the date of grant thereof, and (ii) if such termination occurs prior to May 31, 1999, (A) effective as of the date of such termination, Galt's outstanding options as of such date shall become fully exercisable and shall continue to be exercisable until May 31, 2004, subject to the expiration date contained in such options and (B) Galt shall receive the Economic Value of participation in the Seagull Benefit Plans for the period after the date of such termination and before May 31, 1999. (e) In the event that Galt's services are terminated by Galt as provided in (b) above prior to the expiration of the Term of this Agreement, then, upon such termination, the compensation, benefits and perquisites payable pursuant to Paragraph 6 shall terminate contemporaneously with the termination of such services, except that if such termination shall be pursuant to (b)(i), such compensation, benefits and perquisites shall continue for the balance of the Term of this Agreement provided, however, that (i) if such termination occurs prior to January 1, 1999, the stock option scheduled to be granted on such date pursuant to Paragraph 6(a)(iv) shall be granted outside the Plan and shall be fully exercisable on the date of grant thereof, and (ii) if such termination occurs prior May 31, 1999, (A) effective as of the date of such termination, Galt's outstanding options as of such date shall become fully exercisable and shall continue to be exercisable until May 31, 2004, subject to the expiration date contained in such options and (B) Galt shall receive the Economic Value of participation in the Seagull Benefit Plans for the period after the date of such termination and before May 31, 1999. 8. Protection of Information. Galt acknowledges that Seagull's business is highly competitive and that Seagull's methods, strategies, books, records, and documents, Seagull's -9- technical information concerning its products, equipment, services, and processes, procurement procedures and pricing techniques, and the names of and other information (such as credit and financial data) concerning Seagull's customers, business affiliates, affairs, and operations all comprise confidential business information and/or trade secrets ("Confidential Information") of Seagull which are valuable, special, and unique assets of Seagull which Seagull uses in its business to obtain a competitive advantage over its competitors which do not know or use this information. Galt further acknowledges that protection of Seagull's Confidential Information against unauthorized disclosure and use is of critical importance to Seagull in maintaining its competitive position. Accordingly, Galt hereby agrees that, notwithstanding any other provisions of this Agreement other than those contained in the following sentences, he will not at any time during the Term of this Agreement make any unauthorized disclosure of any Confidential Information of Seagull or make any unauthorized use thereof. However, Galt's obligations under this paragraph shall not extend to: (a) Information which is or becomes a part of the public domain or is available to the public by publication or otherwise without disclosure by Galt; (b) Information which was within Galt's knowledge or in his possession prior to his initial employment by Seagull; (c) Information which, either prior or subsequent to Seagull's disclosure to Galt, was disclosed to Galt, without an obligation of confidentiality, by a third party who did not acquire such information, directly or indirectly from Galt, Seagull, or from any third party who is under an obligation of confidentiality; or (d) Any disclosure of Confidential Information by Galt which is required by law, including deposition or trial testimony by Galt pursuant to subpoena. If Galt is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, Galt will promptly notify Seagull of such request or requirements so that Seagull may seek an appropriate protective order or waive compliance with the provisions of this Agreement. Galt acknowledges and agrees that money damages would not be sufficient remedy for any breach of this Paragraph concerning Confidential Information by Galt, and Seagull shall be entitled to seek specific performance and injunctive relief as remedies for such breach or threatened breach, as well as reasonable and necessary attorneys' fees, experts' fees, and costs incurred in the connection with such breach or threatened breach. Such remedies shall not be deemed the exclusive remedies for -10- such a breach by Galt but shall be in addition to all remedies available at law or in equity to Seagull, including the recovery of damages from Galt. For purposes of this Paragraph, Seagull shall be construed to include any parent, subsidiary, or other affiliate of Seagull. 9. Ownership by Seagull. Seagull shall, without further remuneration to Galt, own, be entitled to possession of, and have the right to use, publish, and disclose any results, reports, product, or data developed by Galt during the course of his services hereunder, but identification of Galt with such results, reports, or data shall not be made without Galt's express consent. 10. Noncompetition Provisions. As part of the consideration for the compensation, benefits and perquisites to be paid to Galt pursuant to Paragraph 6 hereunder; to protect the trade secrets and confidential information of Seagull and its affiliates that have been and will in the future be disclosed or entrusted to Galt, the business good will of Seagull and its affiliates that has been and will in the future be developed in Galt, or the business opportunities that have been and will in the future be disclosed or entrusted to Galt by Seagull and its affiliates; and as an additional incentive for Seagull to enter into this Agreement, Seagull and Galt agree to the noncompetition obligations hereunder. Galt shall not, directly or indirectly for Galt or for others, in any geographic area or market where Seagull or any of its affiliates are conducting any business as of the Effective Date or have during the previous twelve months conducted such business: (a) engage in any business competitive with the business conducted by Seagull; (b) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with the business conducted by Seagull with respect to such competitive business; or (c) induce any employee of Seagull or any of its affiliates to terminate his or her employment with Seagull or such affiliates, or hire or assist in the hiring of any such employee by any person, association, or entity not affiliated with Seagull. These noncompetition obligations shall apply during the period that Galt is employed by Seagull, is a consultant to Seagull or following the termination of employment or consultancy, is receiving compensation, benefits or perquisites pursuant to Paragraph 6. Notwithstanding the preceding sentence, these noncompetition obligations shall not apply after a termination for a reason encompassed by Paragraph 7(a)(v) or (b)(i). Galt understands that the restrictions set forth in this Paragraph may limit Galt's ability to engage in certain businesses anywhere in the world during the period provided for above, but acknowledges that Galt will receive sufficiently high remuneration under this Agreement to justify such restriction. Galt acknowledges that money damages would not be sufficient remedy for any breach of this Paragraph by Galt, and Seagull shall be entitled to enforce -11- the provisions of this Paragraph by terminating any payments then owing to Galt under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach; provided, however, that payments then owing to Galt may not be terminated unless the Board of Directors determines that such breach by Galt has directly resulted or could reasonably be expected to result in a material adverse economic impact on Seagull's business. Such remedies shall not be deemed the exclusive remedies for a breach of this Paragraph, but shall be in addition to all remedies available at law or in equity to Seagull, including without limitation, the recovery of damages from Galt and Galt's agents involved in such breach and remedies available to Seagull pursuant to other agreements with Galt. It is expressly understood and agreed that Seagull and Galt consider the restrictions contained in this Paragraph to be reasonable and necessary to protect the proprietary information of Seagull. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. 11. Release. As part of the consideration for the compensation, benefits and perquisites to be paid to Galt pursuant to Paragraph 6 and as an additional incentive for Seagull to enter into this Agreement, Galt hereby agrees to execute a release, at the time and in the form established by Seagull, releasing Seagull, its shareholders, partners, officers, directors, employees and agents from any and all claims and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of Galt's employment with Seagull or his separation therefrom, other than claims or causes of action arising out of the provisions of this Agreement. 12. Withholding of Taxes and Other Employee Deductions. During the Period of Employment, Seagull may withhold from any benefits and payments made pursuant to this Agreement all federal, state, city and other taxes as may be required pursuant to any law or governmental regulation or ruling and all other normal employee deductions made with respect to Seagull's employees generally. 13. Independent Contractor. During the Period of Consultancy, Galt's relationship to Seagull hereunder will be that of an independent contractor. Nothing in this Agreement is intended to create an employer/employee relationship between Seagull and Galt during the Period of Consultancy or to allow Seagull to exercise control or direction over the manner or method by which Galt performs the consulting services which are the subject matter of this Agreement during such period. Galt shall be responsible for payment of all income, self-employment, or other taxes attributable to compensation paid hereunder by Seagull to Galt during the Period of Consultancy, and Galt agrees to hold Seagull harmless for withholding or payment of such taxes. -12- 14. Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States, registered or certified mail, return receipt requested, postage prepaid, if addressed as follows: If to Seagull, to: Seagull Energy Corporation 1700 First City Tower 1001 Fannin Houston, Texas 77002 Attention: Chairman of the Board If to Galt, to: Mr. Barry J. Galt 1811 Kirby Drive Houston, Texas 77019 or such other addresses as either party may furnish to the other in writing, in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 15. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 16. Governing Law. This Agreement is entered into under and shall be governed for all purposes by the laws of the State of Texas. 17. No Waiver. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time. 18. Severability. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. 19. Assignment. This Agreement shall be binding upon and inure to the benefit of Seagull and any successor of Seagull, by merger or otherwise. Further, this Agreement shall be binding and inure to the benefit of Galt, his spouse, Kathryn M. Galt, and his estate. If Galt shall die prior to full payment of amounts due pursuant to this Agreement, such amounts shall be payable pursuant to the terms of this Agreement to his spouse, Kathryn M. Galt, if then living, or if Kathryn M. Galt is not then living, to his estate. Except as provided in the preceding sentences, this -13- Agreement and the rights and obligations of the parties hereunder are personal, and neither this Agreement nor any right, benefit, or obligation of either party hereto shall be subject to voluntary or involuntary assignment, alienation, or transfer, whether by operation of law or otherwise, without the prior written consent of the other party. 20. Entire Agreement. Except as provided in (i) the written benefit plans and programs referenced in Paragraph 6, (ii) any signed agreement contemporaneously executed by Seagull and Galt and (iii) the Severance Agreement dated March 17, 1997, as amended, between Seagull and Galt, this Agreement represents the entire agreement between the parties hereto with respect to the matters covered herein and may not be changed, altered, or modified in any respect except by an instrument in writing signed by both the parties hereto. IN WITNESS WHEREOF, Seagull has caused this Agreement to be duly executed by one of its officers thereunto duly authorized and Galt has executed this Agreement, this 21st day of September, 1998, to be effective as of the Effective Date. SEAGULL ENERGY CORPORATION By: /s/William L. Transier William L. Transier Executive Vice President and Chief Financial Officer /s/Barry J. Galt BARRY J. GALT VEHOU02:119746.1 -14- EX-10.2 3 SEVERANCE AGREEMENT - GALT SEVERANCE AGREEMENT AGREEMENT between SEAGULL ENERGY CORPORATION, a Texas corporation (the "Company"), and Barry J. Galt ("Executive"), W I T N E S S E T H : WHEREAS, the Company desires to retain certain key employee personnel and, accordingly, the Board of Directors of the Company (the "Board") has approved the Company entering into a severance agreement with Executive in order to encourage his continued service to the Company; and WHEREAS, Executive is prepared to commit such services in return for specific arrangements with respect to severance compensation and other benefits; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the Company and Executive agree as follows: 1. Definitions. (a) "Change in Duties" shall mean the occurrence, within two years after the date upon which a Change of Control occurs, of any one or more of the following: (i) A significant reduction in the duties of Executive from those applicable to him immediately prior to the date on which a Change of Control occurs; (ii) A reduction in Executive's annual salary or target opportunity under any applicable bonus or incentive compensation plan from that provided to him immediately prior to the date on which a Change of Control occurs; (iii) Receipt of employee benefits (including but not limited to medical, dental, life insurance, accidental, death, and dismemberment, and long-term disability plans) and perquisites by Executive that are materially inconsistent with the employee benefits and perquisites provided by the Company to executives with comparable duties; or (iv) A change in the location of Executive's principal place of employment by the Company by more than 50 miles from the location where he was principally employed immediately prior to the date on which a Change of Control occurs. (b) "Change of Control" means the occurrence of either of the following events: (i) The Company (A) 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) or (B) is to be dissolved and liquidated, and as a result of or in connection such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board; or -1- (ii) Any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 20% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Compensation" shall mean the greater of: (i) Executive's annual salary plus his Targeted EIP Award immediately prior to the date on which a Change of Control occurs, or (ii) Executive's annual salary plus his Targeted EIP Award at the time of his Involuntary Termination. (e) "EIP" shall mean the Seagull Energy Corporation Executive Incentive Plan or any successor thereto. (f) "Involuntary Termination" shall mean any termination of Executive's employment with the Company which: (i) does not result from a resignation by Executive (other than a resignation pursuant to clause (ii) of this subparagraph (f) or a resignation at the request of the Company); or (ii) results from a resignation by Executive on or before the date which is sixty days after the date upon which Executive receives notice of a Change in Duties; provided, however, the term "Involuntary Termination" shall not include a Termination for Cause or any termination as a result of death, disability under circumstances entitling him to benefits under the Company's long-term disability plan, or Retirement. (g) "Retirement" shall mean Executive's resignation on or after the date he reaches age sixty-five. (h) "Severance Amount" shall mean an amount equal to 2.99 times Executive's Compensation, reduced by the present value of any salary continuation or severance payments payable to Executive under any other Company plan, policy or agreement, other than a "plan" within the meaning of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended. Such present value shall be determined using the rate of interest referred to in Paragraph 4 hereof as of the last day of Executive's employment with the Company. -2- (i) "Targeted EIP Award" shall mean Executive's Incentive Target as set forth under the EIP in effect for the year with respect to which such award is being determined, if any, or for the last preceding year in which an EIP was in effect, expressed as a dollar amount based on such Executive's annual salary for such year. (j) "Termination for Cause" shall mean termination of Executive's employment by the Company (or its subsidiaries) by reason of Executive's (i) gross negligence in the performance of his duties, (ii) willful and continued failure to perform his duties, (iii) willful engagement in conduct which is materially injurious to the Company or its subsidiaries (monetarily or otherwise) or (iv) conviction of a felony or a misdemeanor involving moral turpitude. (k) "Welfare Benefit Coverages" shall mean the medical, dental, life insurance, accidental death and dismemberment and long-term disability coverages provided by the Company to its active employees. 2. Services. Executive agrees that he will render services to the Company (as well as any subsidiary thereof or successor thereto) during the period of his employment to the best of his ability and in a prudent and businesslike manner and that he will devote substantially the same time, efforts and dedication to his duties as heretofore devoted. 3. Severance Benefits. If Executive's employment by the Company or any subsidiary thereof or successor thereto shall be subject to an Involuntary Termination which occurs within two years after the date upon which a Change of Control occurs, then Executive shall be entitled to receive, as additional compensation for services rendered to the Company (including its subsidiaries), the following severance benefits: (a) A lump sum cash payment in an amount equal to Executive's Severance Amount. (b) A lump sum cash payment in an amount equal to the remaining portion of any award to Executive under any prior years' EIP. Further, if Executive's Involuntary Termination occurs on or after the date an award has been earned under the EIP, but prior to the date such award is paid, Executive shall receive an additional lump sum cash payment in an amount equal to his Targeted EIP Award. (c) Executive shall be entitled to continue the Welfare Benefit Coverages for himself and, where applicable, his eligible dependents following his Involuntary Termination for up to thirty-six months, as long as Executive continues either to pay the premiums paid by active employees of the Company for such coverages or to pay the actual (nonsubsidized) cost of such coverages for which the Company does not subsidize for active employees. Such benefit rights shall apply only to those Welfare Benefit Coverages which the Company has in effect from time to time for active employees, and the applicable payments shall adjust as premiums for active employees of the Company or actual costs, whichever is applicable, change. Welfare Benefit Coverage(s) shall immediately end upon Executive's obtainment of new employment and eligibility for similar Welfare -3- Benefit Coverage(s) (with Executive being obligated hereunder to promptly report such eligibility to the Company). Nothing herein shall be deemed to adversely affect in any way the additional rights, after consideration of this extension period, of Executive and his eligible dependents to health care continuation coverage as required pursuant to Part 6 of Title I of the Employee Retirement Income Security Act of 1974, as amended. (d) Executive shall be entitled to receive out-placement services in connection with obtaining new employment up to a maximum cost of $6,000. (e) The severance benefits payable under this Agreement shall be paid to an Executive on or before the fifth day after the last day of Executive's employment with the Company. Any severance benefits paid pursuant to this Paragraph will be deemed to be a severance payment and not compensation for purposes of determining benefits under the Company's qualified plans and shall be subject to any required tax withholding. 4. Interest on Late Benefit Payments. If any payment provided for in Paragraph 3(a) or 3(b) hereof is not made when due, the Company shall pay to Executive interest on the amount payable from the date that such payment should have been made under such paragraph until such payment is made, which interest shall be calculated at the prime or base rate of interest announced by Texas Commerce Bank N.A. (or any successor thereto) at its principal office in Houston, Texas and shall change when and as any such change in such prime or base rate shall be announced by such bank. 5. Certain Additional Payments by the Company. Notwithstanding anything in this Agreement to the contrary, if the severance benefits provided for in Paragraph 3, together with any other payments which Executive has the right to receive from the Company, would constitute a "parachute payment " (as defined in Section 280G(b)(2) of the Code), the severance benefits provided hereunder shall be either (a) reduced (but not below zero) so that the present value of such total amounts received by Executive from the Company will be one dollar ($1.00) less than three times Executive's base amount (as defined in Section 280G of the Code) and so that no portion of such amounts received by Executive shall be subject to the excise tax imposed by Section 4999 of the Code or (b) paid in full, whichever produces the better net after-tax position to Executive (taking into account any applicable excise tax under Section 4999 of the Code and any applicable income tax). The Company and Executive shall make an initial determination as to whether a reduction is required and, if so required, the amount of any such reduction. Executive shall notify the Company immediately in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to make a reduction (or a further reduction in excess of that, if any, initially determined by the Company and Executive) within five days of the receipt of such claim. The Company shall notify Executive in writing at least five days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Company decides to contest such claim, Executive shall cooperate fully with the Company in such action; provided, however, the Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action. If, as a result of the Company's action with respect to a claim, the amount of the reduction is found to have been in excess of the correct -4- reduction amount, the Company shall promptly pay to Executive the difference between such amounts with respect to such claim. 6. General. (a) Term. The effective date of this Agreement is March 17, 1997. Within sixty days from and after the expiration of two years after said effective date and within sixty days after each successive two-year period of time thereafter that this Agreement is in effect, the Company shall have the right to review this Agreement, and in its sole discretion either continue and extend this Agreement, terminate this Agreement, and/or offer Executive a different agreement. The Board (excluding any member of the Board who is covered by this Agreement or by a similar agreement with the Company) will vote on whether to so extend, terminate, and/or offer Executive a different agreement and will notify Executive of such action within said sixty-day time period mentioned above. This Agreement shall remain in effect until so terminated and/or modified by the Company. Failure of the Board to take any action within said sixty days shall be considered as an extension of this Agreement for an additional two-year period of time. Notwithstanding anything to the contrary contained in this "sunset provision," it is agreed that if a Change of Control occurs while this Agreement is in effect, then this Agreement shall not be subject to termination or modification under this "sunset provision," and shall remain in force for a period of two years after such Change of Control, and if within said two years the contingency factors occur which would entitle Executive to the benefits as provided herein, this Agreement shall remain in effect in accordance with its terms. If, within such two years after a Change of Control, the contingency factors that would entitle Executive to said benefits do not occur, thereupon this two-year "sunset provision" shall again be applicable with the sixty-day time period for Board action to thereafter commence at the expiration of said two years after such Change of Control and on each two-year anniversary date thereafter. (b) Indemnification. If Executive shall obtain any money judgment or otherwise prevail with respect to any litigation brought by Executive or the Company to enforce or interpret any provision contained herein, the Company, to the fullest extent permitted by applicable law, hereby indemnifies Executive for his reasonable attorneys' fees and disbursements incurred in such litigation and hereby agrees (i) to pay in full all such fees and disbursements and (ii) to pay prejudgment interest on any money judgment obtained by Executive from the earliest date that payment to him should have been made under this Agreement until such judgment shall have been paid in full, which interest shall be calculated at the prime or base rate of interest announced by Texas Commerce Bank N.A. (or any successor thereto) at its principal office in Houston, Texas, and shall change when and as any such change in such prime or base rate shall be announced by such bank. (c) Payment Obligations Absolute. The Company's obligation to pay (or cause one of its subsidiaries to pay) Executive the amounts and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company (including its subsidiaries) may have against him or anyone else. All amounts payable by the Company (including its subsidiaries hereunder) shall be paid without notice or demand. Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and, except as provided in Paragraph 3(c) hereof, the -5- obtaining of any such other employment shall in no event effect any reduction of the Company's obligations to make (or cause to be made) the payments and arrangements required to be made under this Agreement. (d) Successors. This Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company, by merger or otherwise. This Agreement shall also be binding upon and inure to the benefit of Executive and his estate. If Executive shall die prior to full payment of amounts due pursuant to this Agreement, such amounts shall be payable pursuant to the terms of this Agreement to his estate. (e) Severability. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction by reason of applicable law shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) Non-Alienation. Executive shall not have any right to pledge, hypothecate, anticipate or assign this Agreement or the rights hereunder, except by will or the laws of descent and distribution. (g) Notices. Any notices or other communications provided for in this Agreement shall be sufficient if in writing. In the case of Executive, such notices or communications shall be effectively delivered if hand delivered to Executive at his principal place of employment or if sent by registered or certified mail to Executive at the last address he has filed with the Company. In the case of the Company, such notices or communications shall be effectively delivered if sent by registered or certified mail to the Company at its principal executive offices. (h) Controlling Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. Further, Executive agrees that any legal proceeding to enforce the provisions of this Agreement shall be brought in Houston, Harris County, Texas, and hereby waives his right to any pleas regarding subject matter or personal jurisdiction and venue. (i) Release. As a condition to the receipt of any benefit under Paragraph 3 hereof, Executive shall first execute a release, in the form established by the Company, releasing the Company, its shareholders, partners, officers, directors, employees and agents from any and all claims and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of Executive's employment with the Company or the termination of such employment. (j) Full Settlement. If Executive is entitled to and receives the benefits provided hereunder, performance of the obligations of the Company hereunder will constitute full settlement of all claims that Executive might otherwise assert against the Company on account of his termination of employment. (k) Unfunded Obligation. The obligation to pay amounts under this Agreement is an unfunded obligation of the Company (including its subsidiaries), and no such obligation shall -6- create a trust or be deemed to be secured by any pledge or encumbrance on any property of the Company (including its subsidiaries). (l) Not a Contract of Employment. This Agreement shall not be deemed to constitute a contract of employment, nor shall any provision hereof affect (i) the right of the Company (or its subsidiaries) to discharge Executive at will or (ii) the terms and conditions of any other agreement between the Company and Executive except as provided herein. (m) Number and Gender. Wherever appropriate herein, words used in the singular shall include the plural and the plural shall include the singular. The masculine gender where appearing herein shall be deemed to include the feminine gender. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the 29th day of April, 1997. "EXECUTIVE" /s/Barry J. Galt "COMPANY" SEAGULL ENERGY CORPORATION By: /s/Jack M. Robertson Name: Jack M. Robertson Title: Vice President, Human Resources VEHOU02:68909.1 -7- AMENDMENT TO SEVERANCE AGREEMENT WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") and Barry J. Galt ("Executive") have entered into a severance agreement effective as of March 17, 1997 (the "Agreement"); and WHEREAS, the Company and Executive desire to amend the Agreement in certain respects; NOW, THEREFORE, the Agreement shall be amended as follows, effective as of July 15, 1998: 1. Paragraph 5 of the Agreement shall be deleted and the following shall be substituted therefor: "5. Certain Additional Payments by the Company. Notwithstanding anything to the contrary in this Agreement, in the event that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are hereinafter collectively referred to as the "Excise Tax"), the Company shall pay to Executive an additional payment (a "Gross-up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed on any Gross-up Payment, Executive retains an amount of the Gross-up Payment equal to the Excise Tax imposed upon the Payment. The Company and Executive shall make an initial determination as to whether a Gross-up Payment is required and the amount of any such Gross-up Payment. Executive shall notify the Company in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to make a Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially determined by the Company and Executive) within ten days of the receipt of such claim. The Company shall notify Executive in writing at least ten days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Company decides to contest such claim, Executive shall cooperate fully with the Company in such action; provided, however, the Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of the Company's action. If, as a result of the Company's action with respect to a claim, Executive receives a refund of any amount paid by the Company with respect to such claim, Executive shall promptly pay such refund to the -1- Company. If the Company fails to timely notify Executive whether it will contest such claim or the Company determines not to contest such claim, then the Company shall immediately pay to Executive the portion of such claim, if any, which it has not previously paid to Executive." 2. As amended hereby, the Agreement is specifically ratified and reaffirmed. EXECUTED this 19th day of August, 1998. "EXECUTIVE" /s/ Barry J. Galt "COMPANY" SEAGULL ENERGY CORPORATION By: /s/ Jack M. Robertson Name: Jack M. Robertson Title: Vice President, Human Resources VEHOU02:114735.1 -2- SECOND AMENDMENT TO SEVERANCE AGREEMENT WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") and Barry J. Galt ("Executive") have entered into a severance agreement effective as of March 17, 1997 (the "Agreement"); and WHEREAS, the Company and Executive desire to amend the Agreement in certain respects; NOW, THEREFORE, the Agreement shall be amended as follows, effective as of September 16, 1998: 1. Paragraph 1(b) of the Agreement shall be deleted and the following shall be substituted therefor: "(b) 'Change of Control' means the occurrence of one of the following events: (i) The Company (A) 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) or (B) is to be dissolved and liquidated, and as a result of or in connection such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board; (ii) Any person or entity, including a 'group' as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 20% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board; or (iii) The Company sells all or substantially all of the assets of the Company to any other person or entity (other than a wholly-owned subsidiary of the Company) in a transaction that requires shareholder approval pursuant to the Texas Business Corporation Act." -1- 2. Paragraph 1(g) of the Agreement shall be deleted and the following shall be substituted therefor: "(g) 'Retirement' shall mean Executive's voluntary resignation on or after the date he reaches age sixty-five (other than a resignation within sixty days after the date Executive receives notice of a Change in Duties or a resignation at the request of the Company)." 3. Paragraph 1(j) of the Agreement shall be deleted and the following shall be substituted therefor: "(j) 'Termination for Cause' shall mean termination of Executive's employment by the Company (or its subsidiaries) by reason of Executive's gross negligence, gross neglect or willful misconduct in the performance of his duties or Executive's final conviction of a felony or of a misdemeanor involving moral turpitude, excluding misdemeanor convictions relating to the operation of a motor vehicle." 4. Paragraph 3(d) of the Agreement shall be deleted and the following shall be substituted therefor: "(d) Executive shall be entitled to receive out-placement services in connection with obtaining new employment up to a maximum cost of $6,000, or an equivalent cash payment, if Executive either has or is not seeking new employment." 5. Paragraph 4 of the Agreement shall be deleted and the following shall be substituted therefor: "4. Interest on Late Benefit Payments. If any payment provided for in Paragraph 3(a) or 3(b) hereof is not made when due, the Company shall pay to Executive interest on the amount payable from the date that such payment should have been made under such paragraph until such payment is made, which interest shall be calculated at a rate equal to two percentage points over the prime or base rate of interest announced by Chase Bank of Texas, N.A. (or any successor thereto) at its principal office in Houston, Texas and shall change when and as any such change in such prime or base rate shall be announced by such bank." 6. Paragraph 6(b) of the Agreement shall be deleted and the following shall be substituted therefor: "(b) Indemnification. If Executive shall obtain any money judgment or otherwise prevail with respect to any litigation brought by Executive or the Company to enforce or interpret any provision contained herein, the Company, to the fullest -2- extent permitted by applicable law, hereby indemnifies Executive for his reasonable attorneys' fees and disbursements incurred in such litigation and hereby agrees (i) to pay in full all such fees and disbursements and (ii) to pay prejudgment interest on any money judgment obtained by Executive from the earliest date that payment to him should have been made under this Agreement until such judgment shall have been paid in full, which interest shall be calculated at a rate equal to two percentage points over the prime or base rate of interest announced by Chase Bank of Texas, N.A. (or any successor thereto) at its principal office in Houston, Texas, and shall change when and as any such change in such prime or base rate shall be announced by such bank." 7. As amended hereby, the Agreement is specifically ratified and reaffirmed. EXECUTED this 28th day of October, 1998. "EXECUTIVE" /s/ Barry J. Galt "COMPANY" SEAGULL ENERGY CORPORATION By: /s/ William L. Transier Name: William L. Transier Title: Executive Vice President & Chief Financial Officer VEHOU02:121318.1 -3- EX-10.3 4 FORM OF SEVERANCE AGREEMENT AND AMENDMENTS SEVERANCE AGREEMENT AGREEMENT between SEAGULL ENERGY CORPORATION, a Texas corporation (the "Company"), and ___________________________________________ ("Executive"), W I T N E S S E T H : WHEREAS, the Company desires to retain certain key employee personnel and, accordingly, the Board of Directors of the Company (the "Board") has approved the Company entering into a severance agreement with Executive in order to encourage his continued service to the Company; and WHEREAS, Executive is prepared to commit such services in return for specific arrangements with respect to severance compensation and other benefits; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the Company and Executive agree as follows: 1. Definitions. (a) "Change in Duties" shall mean the occurrence, within two years after the date upon which a Change of Control occurs, of any one or more of the following: (i) A significant reduction in the duties of Executive from those applicable to him immediately prior to the date on which a Change of Control occurs; (ii) A reduction in Executive's annual salary or target opportunity under any applicable bonus or incentive compensation plan from that provided to him immediately prior to the date on which a Change of Control occurs; (iii) Receipt of employee benefits (including but not limited to medical, dental, life insurance, accidental, death, and dismemberment, and long-term disability plans) and perquisites by Executive that are materially inconsistent with the employee benefits and perquisites provided by the Company to executives with comparable duties; or (iv) A change in the location of Executive's principal place of employment by the Company by more than 50 miles from the location where he was principally employed immediately prior to the date on which a Change of Control occurs. (b) "Change of Control" means the occurrence of either of the following events: (i) The Company (A) 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) or (B) is to be dissolved and liquidated, and as a result of or in connection such transaction, the persons who were -1- directors of the Company before such transaction shall cease to constitute a majority of the Board; or (ii) Any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 20% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Compensation" shall mean the greater of: (i) Executive's annual salary plus his Targeted EIP Award immediately prior to the date on which a Change of Control occurs, or (ii) Executive's annual salary plus his Targeted EIP Award at the time of his Involuntary Termination. (e) "EIP" shall mean the Seagull Energy Corporation Executive Incentive Plan or any successor thereto. (f) "Involuntary Termination" shall mean any termination of Executive's employment with the Company which: (i) does not result from a resignation by Executive (other than a resignation pursuant to clause (ii) of this subparagraph (f) or a resignation at the request of the Company); or (ii) results from a resignation by Executive on or before the date which is sixty days after the date upon which Executive receives notice of a Change in Duties; provided, however, the term "Involuntary Termination" shall not include a Termination for Cause or any termination as a result of death, disability under circumstances entitling him to benefits under the Company's long-term disability plan, or Retirement. (g) "Retirement" shall mean Executive's resignation on or after the date he reaches age sixty-five. (h) "Severance Amount" shall mean an amount equal to 2.99 times Executive's Compensation. (i) "Targeted EIP Award" shall mean Executive's Incentive Target as set forth under the EIP in effect for the year with respect to which such award is being determined, if any, or -2- for the last preceding year in which an EIP was in effect, expressed as a dollar amount based on such Executive's annual salary for such year. (j) "Termination for Cause" shall mean termination of Executive's employment by the Company (or its subsidiaries) by reason of Executive's (i) gross negligence in the performance of his duties, (ii) willful and continued failure to perform his duties, (iii) willful engagement in conduct which is materially injurious to the Company or its subsidiaries (monetarily or otherwise) or (iv) conviction of a felony or a misdemeanor involving moral turpitude. (k) "Welfare Benefit Coverages" shall mean the medical, dental, life insurance, accidental death and dismemberment and long-term disability coverages provided by the Company to its active employees. 2. Services. Executive agrees that he will render services to the Company (as well as any subsidiary thereof or successor thereto) during the period of his employment to the best of his ability and in a prudent and businesslike manner and that he will devote substantially the same time, efforts and dedication to his duties as heretofore devoted. 3. Severance Benefits. If Executive's employment by the Company or any subsidiary thereof or successor thereto shall be subject to an Involuntary Termination which occurs within two years after the date upon which a Change of Control occurs, then Executive shall be entitled to receive, as additional compensation for services rendered to the Company (including its subsidiaries), the following severance benefits: (a) A lump sum cash payment in an amount equal to Executive's Severance Amount. (b) A lump sum cash payment in an amount equal to the remaining portion of any award to Executive under any prior years' EIP. Further, if Executive's Involuntary Termination occurs on or after the date an award has been earned under the EIP, but prior to the date such award is paid, Executive shall receive an additional lump sum cash payment in an amount equal to his Targeted EIP Award. (c) Executive shall be entitled to continue the Welfare Benefit Coverages for himself and, where applicable, his eligible dependents following his Involuntary Termination for up to thirty-six months, as long as Executive continues either to pay the premiums paid by active employees of the Company for such coverages or to pay the actual (nonsubsidized) cost of such coverages for which the Company does not subsidize for active employees. Such benefit rights shall apply only to those Welfare Benefit Coverages which the Company has in effect from time to time for active employees, and the applicable payments shall adjust as premiums for active employees of the Company or actual costs, whichever is applicable, change. Welfare Benefit Coverage(s) shall immediately end upon Executive's obtainment of new employment and eligibility for similar Welfare Benefit Coverage(s) (with Executive being obligated hereunder to promptly report such eligibility to the Company). Nothing herein shall be deemed to adversely affect in any way the additional rights, after consideration of this extension period, of Executive and his eligible dependents to health care -3- continuation coverage as required pursuant to Part 6 of Title I of the Employee Retirement Income Security Act of 1974, as amended. (d) Executive shall be entitled to receive out-placement services in connection with obtaining new employment up to a maximum cost of $6,000. (e) The severance benefits payable under this Agreement shall be paid to an Executive on or before the fifth day after the last day of Executive's employment with the Company. Any severance benefits paid pursuant to this Paragraph will be deemed to be a severance payment and not compensation for purposes of determining benefits under the Company's qualified plans and shall be subject to any required tax withholding. 4. Interest on Late Benefit Payments. If any payment provided for in Paragraph 3(a) or 3(b) hereof is not made when due, the Company shall pay to Executive interest on the amount payable from the date that such payment should have been made under such paragraph until such payment is made, which interest shall be calculated at the prime or base rate of interest announced by Texas Commerce Bank N.A. (or any successor thereto) at its principal office in Houston, Texas and shall change when and as any such change in such prime or base rate shall be announced by such bank. 5. Certain Additional Payments by the Company. Notwithstanding anything in this Agreement to the contrary, if the severance benefits provided for in Paragraph 3, together with any other payments which Executive has the right to receive from the Company, would constitute a "parachute payment " (as defined in Section 280G(b)(2) of the Code), the severance benefits provided hereunder shall be either (a) reduced (but not below zero) so that the present value of such total amounts received by Executive from the Company will be one dollar ($1.00) less than three times Executive's base amount (as defined in Section 280G of the Code) and so that no portion of such amounts received by Executive shall be subject to the excise tax imposed by Section 4999 of the Code or (b) paid in full, whichever produces the better net after-tax position to Executive (taking into account any applicable excise tax under Section 4999 of the Code and any applicable income tax). The Company and Executive shall make an initial determination as to whether a reduction is required and, if so required, the amount of any such reduction. Executive shall notify the Company immediately in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to make a reduction (or a further reduction in excess of that, if any, initially determined by the Company and Executive) within five days of the receipt of such claim. The Company shall notify Executive in writing at least five days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Company decides to contest such claim, Executive shall cooperate fully with the Company in such action; provided, however, the Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action. If, as a result of the Company's action with respect to a claim, the amount of the reduction is found to have been in excess of the correct reduction amount, the Company shall promptly pay to Executive the difference between such amounts with respect to such claim. -4- 6. General. (a) Term. The effective date of this Agreement is March 17, 1997. Within sixty days from and after the expiration of two years after said effective date and within sixty days after each successive two-year period of time thereafter that this Agreement is in effect, the Company shall have the right to review this Agreement, and in its sole discretion either continue and extend this Agreement, terminate this Agreement, and/or offer Executive a different agreement. The Board (excluding any member of the Board who is covered by this Agreement or by a similar agreement with the Company) will vote on whether to so extend, terminate, and/or offer Executive a different agreement and will notify Executive of such action within said sixty-day time period mentioned above. This Agreement shall remain in effect until so terminated and/or modified by the Company. Failure of the Board to take any action within said sixty days shall be considered as an extension of this Agreement for an additional two-year period of time. Notwithstanding anything to the contrary contained in this "sunset provision," it is agreed that if a Change of Control occurs while this Agreement is in effect, then this Agreement shall not be subject to termination or modification under this "sunset provision," and shall remain in force for a period of two years after such Change of Control, and if within said two years the contingency factors occur which would entitle Executive to the benefits as provided herein, this Agreement shall remain in effect in accordance with its terms. If, within such two years after a Change of Control, the contingency factors that would entitle Executive to said benefits do not occur, thereupon this two-year "sunset provision" shall again be applicable with the sixty-day time period for Board action to thereafter commence at the expiration of said two years after such Change of Control and on each two-year anniversary date thereafter. (b) Indemnification. If Executive shall obtain any money judgment or otherwise prevail with respect to any litigation brought by Executive or the Company to enforce or interpret any provision contained herein, the Company, to the fullest extent permitted by applicable law, hereby indemnifies Executive for his reasonable attorneys' fees and disbursements incurred in such litigation and hereby agrees (i) to pay in full all such fees and disbursements and (ii) to pay prejudgment interest on any money judgment obtained by Executive from the earliest date that payment to him should have been made under this Agreement until such judgment shall have been paid in full, which interest shall be calculated at the prime or base rate of interest announced by Texas Commerce Bank N.A. (or any successor thereto) at its principal office in Houston, Texas, and shall change when and as any such change in such prime or base rate shall be announced by such bank. (c) Payment Obligations Absolute. The Company's obligation to pay (or cause one of its subsidiaries to pay) Executive the amounts and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company (including its subsidiaries) may have against him or anyone else. All amounts payable by the Company (including its subsidiaries hereunder) shall be paid without notice or demand. Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and, except as provided in Paragraph 3(c) hereof, the obtaining of any such other employment shall in no event effect any reduction of the Company's obligations to make (or cause to be made) the payments and arrangements required to be made under this Agreement. -5- (d) Successors. This Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company, by merger or otherwise. This Agreement shall also be binding upon and inure to the benefit of Executive and his estate. If Executive shall die prior to full payment of amounts due pursuant to this Agreement, such amounts shall be payable pursuant to the terms of this Agreement to his estate. (e) Severability. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction by reason of applicable law shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) Non-Alienation. Executive shall not have any right to pledge, hypothecate, anticipate or assign this Agreement or the rights hereunder, except by will or the laws of descent and distribution. (g) Notices. Any notices or other communications provided for in this Agreement shall be sufficient if in writing. In the case of Executive, such notices or communications shall be effectively delivered if hand delivered to Executive at his principal place of employment or if sent by registered or certified mail to Executive at the last address he has filed with the Company. In the case of the Company, such notices or communications shall be effectively delivered if sent by registered or certified mail to the Company at its principal executive offices. (h) Controlling Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. Further, Executive agrees that any legal proceeding to enforce the provisions of this Agreement shall be brought in Houston, Harris County, Texas, and hereby waives his right to any pleas regarding subject matter or personal jurisdiction and venue. (i) Release. As a condition to the receipt of any benefit under Paragraph 3 hereof, Executive shall first execute a release, in the form established by the Company, releasing the Company, its shareholders, partners, officers, directors, employees and agents from any and all claims and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of Executive's employment with the Company or the termination of such employment. (j) Full Settlement. If Executive is entitled to and receives the benefits provided hereunder, performance of the obligations of the Company hereunder will constitute full settlement of all claims that Executive might otherwise assert against the Company on account of his termination of employment. (k) Unfunded Obligation. The obligation to pay amounts under this Agreement is an unfunded obligation of the Company (including its subsidiaries), and no such obligation shall create a trust or be deemed to be secured by any pledge or encumbrance on any property of the Company (including its subsidiaries). -6- (l) Not a Contract of Employment. This Agreement shall not be deemed to constitute a contract of employment, nor shall any provision hereof affect (i) the right of the Company (or its subsidiaries) to discharge Executive at will or (ii) the terms and conditions of any other agreement between the Company and Executive except as provided herein. (m) Number and Gender. Wherever appropriate herein, words used in the singular shall include the plural and the plural shall include the singular. The masculine gender where appearing herein shall be deemed to include the feminine gender. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the ______ day of __________________, 1997. "EXECUTIVE" ------------------------------------------ "COMPANY" SEAGULL ENERGY CORPORATION By:________________________ Name:______________________ Title:_____________________ VEHOU02:68893.1 -7- AMENDMENT TO SEVERANCE AGREEMENT WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") and ____________________________ ("Executive") have entered into a severance agreement effective as of _____________________ (the "Agreement"); and WHEREAS, the Company and Executive desire to amend the Agreement in certain respects; NOW, THEREFORE, the Agreement shall be amended as follows, effective as of July 15, 1998: 1. Paragraph 5 of the Agreement shall be deleted and the following shall be substituted therefor: "5. Certain Additional Payments by the Company. Notwithstanding anything to the contrary in this Agreement, in the event that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are hereinafter collectively referred to as the "Excise Tax"), the Company shall pay to Executive an additional payment (a "Gross-up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed on any Gross-up Payment, Executive retains an amount of the Gross-up Payment equal to the Excise Tax imposed upon the Payment. The Company and Executive shall make an initial determination as to whether a Gross-up Payment is required and the amount of any such Gross-up Payment. Executive shall notify the Company in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to make a Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially determined by the Company and Executive) within ten days of the receipt of such claim. The Company shall notify Executive in writing at least ten days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Company decides to contest such claim, Executive shall cooperate fully with the Company in such action; provided, however, the Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of the Company's action. If, as a result of the Company's action with respect to a claim, Executive receives a refund of any amount paid by the Company with respect to such claim, Executive shall promptly pay such refund to the -1- Company. If the Company fails to timely notify Executive whether it will contest such claim or the Company determines not to contest such claim, then the Company shall immediately pay to Executive the portion of such claim, if any, which it has not previously paid to Executive." 2. As amended hereby, the Agreement is specifically ratified and reaffirmed. EXECUTED this ______ day of ________________, 1998. "EXECUTIVE" "COMPANY" SEAGULL ENERGY CORPORATION By: Name: Title: VEHOU02:114735.1 -2- SECOND AMENDMENT TO SEVERANCE AGREEMENT WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") and _______________ _________ ("Executive") have entered into a severance agreement effective as of _____________________ (the "Agreement"); and WHEREAS, the Company and Executive desire to amend the Agreement in certain respects; NOW, THEREFORE, the Agreement shall be amended as follows, effective as of September 16, 1998: 1. Paragraph 1(b) of the Agreement shall be deleted and the following shall be substituted therefor: "(b) 'Change of Control' means the occurrence of one of the following events: (i) The Company (A) 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) or (B) is to be dissolved and liquidated, and as a result of or in connection such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board; (ii) Any person or entity, including a 'group' as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 20% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board; or (iii) The Company sells all or substantially all of the assets of the Company to any other person or entity (other than a wholly-owned subsidiary of the Company) in a transaction that requires shareholder approval pursuant to the Texas Business Corporation Act." -1- 2. Paragraph 1(g) of the Agreement shall be deleted and the following shall be substituted therefor: "(g) 'Retirement' shall mean Executive's voluntary resignation on or after the date he reaches age sixty-five (other than a resignation within sixty days after the date Executive receives notice of a Change in Duties or a resignation at the request of the Company)." 3. Paragraph 1(j) of the Agreement shall be deleted and the following shall be substituted therefor: "(j) 'Termination for Cause' shall mean termination of Executive's employment by the Company (or its subsidiaries) by reason of Executive's gross negligence, gross neglect or willful misconduct in the performance of his duties or Executive's final conviction of a felony or of a misdemeanor involving moral turpitude, excluding misdemeanor convictions relating to the operation of a motor vehicle." 4. Paragraph 3(d) of the Agreement shall be deleted and the following shall be substituted therefor: "(d) Executive shall be entitled to receive out-placement services in connection with obtaining new employment up to a maximum cost of $6,000, or an equivalent cash payment, if Executive either has or is not seeking new employment." 5. Paragraph 4 of the Agreement shall be deleted and the following shall be substituted therefor: "4. Interest on Late Benefit Payments. If any payment provided for in Paragraph 3(a) or 3(b) hereof is not made when due, the Company shall pay to Executive interest on the amount payable from the date that such payment should have been made under such paragraph until such payment is made, which interest shall be calculated at a rate equal to two percentage points over the prime or base rate of interest announced by Chase Bank of Texas, N.A. (or any successor thereto) at its principal office in Houston, Texas and shall change when and as any such change in such prime or base rate shall be announced by such bank." 6. Paragraph 6(b) of the Agreement shall be deleted and the following shall be substituted therefor: "(b) Indemnification. If Executive shall obtain any money judgment or otherwise prevail with respect to any litigation brought by Executive or the Company to enforce or interpret any provision contained herein, the Company, to the fullest -2- extent permitted by applicable law, hereby indemnifies Executive for his reasonable attorneys' fees and disbursements incurred in such litigation and hereby agrees (i) to pay in full all such fees and disbursements and (ii) to pay prejudgment interest on any money judgment obtained by Executive from the earliest date that payment to him should have been made under this Agreement until such judgment shall have been paid in full, which interest shall be calculated at a rate equal to two percentage points over the prime or base rate of interest announced by Chase Bank of Texas, N.A. (or any successor thereto) at its principal office in Houston, Texas, and shall change when and as any such change in such prime or base rate shall be announced by such bank." 7. As amended hereby, the Agreement is specifically ratified and reaffirmed. EXECUTED this ______ day of October, 1998. "EXECUTIVE" "COMPANY" SEAGULL ENERGY CORPORATION By: Name: Title: VEHOU02:121318.1 -3- EX-10.4 5 2ND AMENDMENT TO MANAGEMENT STABILITY PLAN SECOND AMENDMENT TO SEAGULL ENERGY CORPORATION MANAGEMENT STABILITY PLAN WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore adopted and currently maintains the SEAGULL ENERGY CORPORATION MANAGEMENT STABILITY PLAN (the "Plan"); and WHEREAS, the Company desires to amend the Plan in certain respects; NOW, THEREFORE, the Plan is hereby amended, effective as of July 15, 1998: 1. Section 2.5 of the Plan shall be deleted and the following shall be substituted therefor: "2.5 Certain Additional Payments by the Employer. Notwithstanding anything to the contrary in the Plan, in the event that any payment or distribution by the Employer to or for the benefit of a Covered Employee, whether paid or payable or distributed or distributable pursuant to the terms of the Plan or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are hereinafter collectively referred to as the "Excise Tax"), the Employer shall pay to the Covered Employee an additional payment (a "Gross-up Payment") in an amount such that after payment by the Covered Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed on any Gross-up Payment, the Covered Employee retains an amount of the Gross-up Payment equal to the Excise Tax imposed upon the Payment. The Employer and the Covered Employee shall make an initial determination as to whether a Gross-up Payment is required and the amount of any such Gross-up Payment. The Covered Employee shall notify the Employer in writing of any claim by the Internal Revenue Service which, if successful, would require the Employer to make a Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially determined by the Employer and the Covered Employee) within ten days of the receipt of such claim. The Employer shall notify the Covered Employee in writing at least ten days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Employer decides to contest such claim, the Covered Employee shall cooperate fully with the Employer in such action; provided, however, the Employer shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action and shall indemnify and hold the Covered Employee harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of the Employer's action. If, as a result of the Employer's action with respect to a claim, the Covered Employee receives a refund of any amount paid by the Employer with respect to such -1- claim, the Covered Employee shall promptly pay such refund to the Employer. If the Employer fails to timely notify the Covered Employee whether it will contest such claim or the Employer determines not to contest such claim, then the Employer shall immediately pay to the Covered Employee the portion of such claim, if any, which it has not previously paid to the Covered Employee." 2. As amended hereby, the Plan is specifically ratified and reaffirmed. EXECUTED this 21st day of July, 1998. SEAGULL ENERGY CORPORATION By: /s/Jack M. Robertson Name: Jack M. Robertson Title: Vice President, Human Resources VEHOU02:114751.1 -2- THIRD AMENDMENT TO SEAGULL ENERGY CORPORATION MANAGEMENT STABILITY PLAN WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore adopted and currently maintains the SEAGULL ENERGY CORPORATION MANAGEMENT STABILITY PLAN (the "Plan"); and WHEREAS, the Company desires to amend the Plan in certain respects; NOW, THEREFORE, the Plan is hereby amended, effective as of September 16, 1998: 1. Section 1.1(c) of the Plan shall be deleted and the following shall be substituted therefor: "(c) 'Change of Control' shall mean the occurrence of one of the following events: (1) the Company (A) 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) or (B) is to be dissolved and liquidated, and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction cease to constitute a majority of the Board; (2) any person or entity, including a 'group' as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 20% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction cease to constitute a majority of the Board; or (3) the Company sells all or substantially all of the assets of the Company to any other person or entity (other than a wholly-owned subsidiary of the Company) in a transaction that requires shareholder approval pursuant to the Texas Business Corporation Act." -1- 2. Section 1.1(p) of the Plan shall be deleted and the following shall be substituted therefor: "(g) 'Retirement' shall mean the Covered Employee's voluntary resignation on or after the date he reaches age sixty-five (other than a resignation within sixty days after the date the Covered Employee receives notice of a Change in Duties or a resignation at the request of the Company)." 3. As amended hereby, the Plan is specifically ratified and reaffirmed. EXECUTED this 14th day of October, 1998. SEAGULL ENERGY CORPORATION By: /s/ Jack M. Robertson Name: Jack M. Robertson Title: Vice President, Human Resources VEHOU02:121333.1 -2- EX-10.5 6 3RD AMEND. TO OUTSIDE DIRECTORS DEFERRED FEE PLAN THIRD AMENDMENT TO SEAGULL ENERGY CORPORATION OUTSIDE DIRECTORS DEFERRED FEE PLAN WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore adopted the SEAGULL ENERGY CORPORATION OUTSIDE DIRECTORS DEFERRED FEE PLAN (the "Plan"); and WHEREAS, the Company desires to amend the Plan; NOW, THEREFORE, the Plan shall be amended as follows, effective as of the date of adoption hereof: 1. The following sentence shall be added to Paragraph 3(b) of the Plan: "Finally, a Participant may elect to defer Senior Advisory Council fees to be earned by such Participant for services rendered by filing with the Committee an election to defer receipt of all or a designated portion of such fees." 2. Paragraph 4(d) of the Plan shall be deleted and the following shall be substituted therefor: "(d) Crediting Election. (1) Prior to the first day of each quarter during a Service Period or prior to the first day of each quarter subsequent to a Service Period upon which a Participant has a balance credited to his Plan Accounts, a Participant may elect to have amounts credited to his Elective Deferral Account and, if the Participant has ceased to be a member of the Board, his Required Deferral Account, credited with Phantom Stock pursuant to Paragraph (c) above for such quarter. Any such election shall be effective until revoked by the Participant. If a Participant fails to make any election under this Paragraph, his Elective Deferral Account shall be credited with interest equivalents pursuant to Paragraph (b) above. (2) Prior to the first day of any quarter during a Service Period or prior to the first day of any quarter subsequent to a Service Period upon which a Participant has a balance credited to his Plan Accounts, a Participant may revoke his election pursuant to Paragraph (d)(1) above to have amounts credited to his Elective Deferral Account credited with Phantom Stock pursuant to Paragraph (c) above and, if the Participant has ceased to be a member of the Board, revoke his election pursuant to Paragraph (d)(1) above to have amounts credited to his Required Deferral Account credited with Phantom Stock pursuant to Paragraph (c) above or elect to have his Required Deferral Account credited with interest equivalents pursuant to Paragraph (b) above, effective as of the first day of such quarter. If the Participant is a member -1- of the Board when he revokes his election pursuant to Paragraph (d)(1) above, any amounts previously credited to such Participant's Elective Deferral Account which have been credited with Phantom Stock pursuant to Paragraph (c) above shall remain so credited and any amounts subsequently credited to such Participant's Elective Deferral Account shall be credited with interest equivalents pursuant to Paragraph (b) above. Notwithstanding any Plan provision to the contrary, a Participant who has ceased to be a member of the Board may revoke his election pursuant to Paragraph (d)(1) above with respect to amounts of Phantom Stock credited to his Elective Deferral Account and may elect to have his Required Deferral Account credited with interest equivalents pursuant to Paragraph (b) above, prior to and effective as of the first day of the first month following the date he ceased to be a member of the Board. If a Participant who has ceased to be a member of the Board revokes or makes an election pursuant to this Paragraph (d)(2), such Participant's Account or Accounts shall be credited with the value of the number of shares of Phantom Stock credited to such Account or Accounts as of the preceding day, based upon the average of the closing prices of common stock of the Company on the twenty trading days preceding such date." 3. Paragraph 5(a) of the Plan shall be deleted and the following shall be substituted therefor: "(a) Payment Election Generally. A Participant shall elect, subject to the provisions of Paragraphs (b), (c) and (d) below, the time (which may not be prior to the later of (i) the date on which he ceases to be a member of the Board or (ii) the date on which he ceases to be a member of the Senior Advisory Council to the Board) and the mode (which may either be a lump sum payment or monthly, quarterly, or annual installment payments over a specified term certain) for payment of amounts credited to his Plan Accounts during each Service Period. A Participant may revise his election regarding the time and mode of payment of amounts credited to his Plan Accounts, but such revised election shall not be effective until the later of (A) the January 1 following the date of such revised election or (B) the date that is six months after the date of such revised election. In the absence of direction by a Participant regarding the time or mode of payment of amounts credited to his Plan Accounts during a Service Period, such amounts shall be distributed in monthly installments over a period of ten years, beginning on the first day of the first month after the later of (i) the date on which he ceases to be a member of the Board or (ii) the date on which he ceases to be a member of the Senior Advisory Council to the Board." 4. Paragraph 5(e) of the Plan shall be deleted and the following shall be substituted therefor: "(e) Conversion of Plan Accounts for Purposes of Payment. If a Participant has elected to receive payment of his Plan Accounts in a lump sum -2- pursuant to Paragraph (a) above, the value of his Plan Accounts shall be determined as of the last day of the month preceding the time which he has elected to receive such payment and an amount equal to such value shall be paid to the Participant. If such Participant has elected to have his Plan Accounts credited based on Phantom Stock pursuant to Paragraph 4(d), the value of his Plan Accounts shall be based upon the average of the closing prices of common stock of the Company on the twenty trading days preceding such date. If a Participant has elected to receive payment of his Plan Accounts in any other mode pursuant to Paragraph (a) above and his Plan Accounts are being credited with Interest Equivalents pursuant to Paragraph 4(b), the value of his Plan Accounts shall be determined as of the last day of the month preceding the date of any such payment and each subsequent interval thereafter, and an amount equal to the value of such Plan Accounts multiplied by a fraction, the numerator of which is one and the denominator of which is the remaining number of payments which the Participant elected, shall be paid as of each interval such Participant elected; provided, however, that any balance credited to such Participant's Plan Accounts shall continue to be credited with Interest Equivalents pursuant to Paragraph 4(b), except that the Interest Equivalents so credited shall be paid directly to the Participant. If a Participant has elected, pursuant to Paragraph (a) above, to receive payment of his Plan Accounts in a mode other than a lump sum and has elected to have his Plan Accounts credited based on Phantom Stock pursuant to Paragraph 4(d), the number of shares of Phantom Stock credited to his Plan Accounts shall be determined as of the last day of the month preceding the date of any such payment and each subsequent interval thereafter, and such number shall be multiplied by a fraction, the numerator of which is one and the denominator of which is the remaining number of payments which the Participant elected, and an amount equal to the value of the resulting number of shares of Phantom Stock, based upon the average of the closing prices of common stock of the Company on the twenty trading days preceding such date, shall be paid to such Participant. If Paragraphs (b), (c) or (d) above apply, the value of a Participant's Plan Accounts shall be determined as of the date specified in the applicable Paragraph and an amount equal to such value shall be paid to the Participant or his designated beneficiary; provided, however, that if the Participant has elected to have his Plan Accounts credited based on Phantom Stock pursuant to Paragraph 4(d), the value of his Plan Accounts shall be based upon the average of the closing prices of common stock of the Company on the twenty trading days preceding such date." 5. As amended hereby, the Plan is specifically ratified and reaffirmed. -3- EXECUTED this 13th day of May, 1998. SEAGULL ENERGY CORPORATION By /s/ William L. Transier William L. Transier Senior Vice President and Chief Financial Officer VEHOU02:104496.1 -4- EX-10.6 7 EMPLOYMENT AGREEMENT - HACKETT EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made by and between SEAGULL ENERGY CORPORATION, a Texas corporation ("Company"), and James T. Hackett ("Executive"). W I T N E S S E T H: WHEREAS, Company is desirous of employing Executive in an executive capacity on the terms and conditions, and for the consideration, hereinafter set forth and Executive is desirous of being employed by Company on such terms and conditions and for such consideration; NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, Company and Executive agree as follows: ARTICLE 1: EMPLOYMENT AND DUTIES 1.1 Employment; Effective Date. Company agrees to employ Executive and Executive agrees to be employed by Company, beginning as of the Effective Date (as hereinafter defined) and continuing for the period of time set forth in Article 2 of this Agreement, subject to the terms and conditions of this Agreement. For purposes of this Agreement, the "Effective Date" shall be the first date that Executive reports for work at the offices of the Company, but no later than October 15, 1998. 1.2 Positions. Effective as of the Effective Date, Company shall cause Executive to be appointed President and Chief Executive Officer of Company and to be elected a member of the Board of Directors of Company (the "Board of Directors"). Effective as of January 1, 1999, Company shall cause Executive to be elected as Chairman of the Board of Directors. Company shall maintain Executive in such positions, or in such other positions as the parties mutually may agree, for the full term of Executive's employment hereunder. 1.3 Duties and Services. Executive agrees to serve in the positions referred to in paragraph 1.2 and to perform diligently and to the best of his abilities the duties and services appertaining to such office, as well as such additional duties and services appropriate to such office which the parties mutually may agree upon from time to time. Executive's employment shall also be subject to the policies maintained and established by Company, as the same may be amended from time to time. 1.4 Other Interests. Executive agrees, during the period of his employment by Company, to devote his primary business time, energy and best efforts to the business and affairs of Company and its affiliates and not to engage, directly or indirectly, in any other business or businesses, whether or not similar to that of Company, except with the consent of the Board of Directors. The foregoing notwithstanding, the parties recognize and agree that Executive may engage in passive personal investments and other civic, charitable and business activities that do not conflict with the business -1- and affairs of Company or interfere with Executive's performance of his duties hereunder without the necessity of obtaining the consent of the Board of Directors. 1.5 Duty of Loyalty. Executive acknowledges and agrees that Executive owes a fiduciary duty of loyalty, fidelity, and allegiance to act at all times in the best interests of Company. In keeping with these duties, Executive shall make full disclosure to Company of all business opportunities pertaining to Company's business and shall not appropriate for Executive's own benefit business opportunities concerning the subject matter of the fiduciary relationship. ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT 2.1 Term. Unless sooner terminated pursuant to other provisions hereof, Company agrees to employ Executive for the period beginning on the Effective Date and ending on the third anniversary of the Effective Date. Beginning with the first anniversary of the Effective Date, said term of employment shall be extended automatically for an additional successive one-year period as of each anniversary date of the Effective Date that occurs while this Agreement is in effect; provided, however, that if, at any time prior to any such anniversary date of the Effective Date, either party shall give written notice to the other that no such automatic extension shall occur, then Executive's employment shall terminate on the last day of the two-year period beginning on the anniversary date of the Effective Date that next occurs after such notice is given. 2.2 Company's Right to Terminate. Notwithstanding the provisions of paragraph 2.1, Company shall have the right to terminate Executive's employment under this Agreement at any time for any of the following reasons: (i) upon Executive's death; (ii) upon Executive's becoming incapacitated by accident, sickness or other circumstance which renders him mentally or physically incapable of performing the duties and services required of him hereunder on a full-time basis with reasonable accommodation for a period of at least 120 consecutive days or for a period of 180 business days during any twelve-month period; (iii) for cause, which for purposes of this Agreement shall mean Executive's gross negligence, gross neglect or willful misconduct in the performance of the duties required of him hereunder or Executive's final conviction of a felony or of a misdemeanor involving moral turpitude, excluding misdemeanor convictions relating to the operation of a motor vehicle; (iv) for Executive's material breach of any material provision of this Agreement which, if correctable, remains uncorrected for 30 days following written notice to Executive by Company of such breach; or (v) for any other reason whatsoever, in the sole discretion of the Board of Directors. -2- 2.3 Executive's Right to Terminate. Notwithstanding the provisions of paragraph 2.1, Executive shall have the right to terminate his employment under this Agreement at any time for any of the following reasons: (i) for (A) Company's material breach of any material provision of this Agreement, (B) Company's assignment to Executive of duties and responsibilities that are materially inconsistent with the positions referred to in paragraph 1.2, (C) Company's failure to appoint or elect or reappoint or reelect Executive to the positions referred to in paragraph 1.2 or (D) a change in the location of Executive's principal place of employment by the Company by more than 50 miles from the location where he was principally employed immediately prior to such change; provided, however, that, prior to Executive's termination of employment under (A), (B) or (C) of this paragraph 2.3(i), Executive must give written notice to Company of any such breach, assignment or failure and such breach, assignment or failure must remain uncorrected for 30 days following such written notice; or (ii) for any other reason whatsoever, in the sole discretion of Executive. 2.4 Notice of Termination. If Company or Executive desires to terminate Executive's employment hereunder at any time prior to expiration of the term of employment as provided in paragraph 2.1, it or he shall do so by giving written notice to the other party that it or he has elected to terminate Executive's employment hereunder and stating the effective date and reason for such termination, provided that no such action shall alter or amend any other provisions hereof or rights arising hereunder, including, without limitation, the provisions of Article 4 hereof. Such notice shall also, to the extent material to any right or obligation hereunder, constitute notice under paragraph 2.1 of the discontinuance of any further automatic extensions of the term of paragraph 2.1. ARTICLE 3: COMPENSATION AND BENEFITS 3.1 Base Salary. During the period of this Agreement, Executive shall receive a minimum annual base salary of $500,000. The Compensation Committee of the Board of Directors (the "Compensation Committee") shall review Executive's annual base salary on an annual basis and shall make a recommendation to the Board of Directors regarding possible increases in such annual base salary, and the Board of Directors, in its sole discretion, may increase, but not decrease, Executive's annual base salary. Executive's annual base salary shall be paid in equal installments in accordance with the Company's standard policy regarding payment of compensation to executives but no less frequently than monthly. Notwithstanding the foregoing, in lieu of annual base salary (other than the amount necessary to provide certain Company benefits, which is not expected to exceed $5,000 annually) for the period beginning on the Effective Date and ending on December 31, 1999, on the Effective Date, Company shall grant to Executive an option (the "Option") to purchase 200,000 shares of Company's common stock ("Stock") under the Seagull Energy Corporation 1998 Omnibus Stock Plan (the "1998 Plan"). The purchase price for each share of Stock subject to the Option shall be equal to the Fair Market Value (as such term is defined in the 1998 Plan) of a share of Stock as of the Effective Date. Subject to the terms of the 1998 Plan and the agreement, in the form attached hereto as Exhibit A1, to be executed by Company and Executive evidencing the -3- Option, such Option shall (i) be a nonqualified stock option, (ii) have a ten-year term, (iii) be fully exercisable on the date of grant thereof. The grant of the Option shall be deemed to satisfy Company's obligation to pay Executive's annual base salary under this Agreement including, without limitation, pursuant to this paragraph 3.1 and the termination provisions of Article 7, with respect to the period beginning on the Effective Date and ending on December 31, 1999. 3.2 Signing Bonus. On the Effective Date, Executive shall be entitled to a signing bonus in the amount of $580,000, which Company shall cause to be credited to Executive's Deferred Compensation Account under the Seagull Energy Corporation Supplemental Benefit Plan (the "SBP"), and which Executive agrees shall be credited with Phantom Stock (as such term is defined in the SBP) for at least one year following the Effective Date. 3.3 Annual Bonuses. For the 1999 performance year and subsequent performance years ending during the period of this Agreement, Executive shall be eligible to receive an annual bonus under the Seagull Energy Corporation Executive Incentive Plan (or any successor thereto) (the "EIP") as established from time to time by the Compensation Committee, based on an Incentive Target (as such term is used in the EIP) of 60% of Executive's annual base salary (or the annual base salary that Executive would have received if he had not received an Option in lieu of such annual salary pursuant to paragraph 3.1), with a Maximum Incentive (as such term is used in the EIP) of 120% of Executive's annual base salary (or the annual base salary that Executive would have received if he had not received an Option in lieu of such annual salary pursuant to paragraph 3.1). 3.4 Initial Stock Option. On the Effective Date, Company shall grant to Executive an option (the "Initial Option") to purchase 191,996 shares of Stock pursuant to the Seagull Energy Corporation 1995 Omnibus Stock Plan (the "1995 Plan"). The purchase price for each share of Stock subject to the Initial Option shall be equal to the Fair Market Value (as such term is defined in the 1995 Plan) of a share of Stock as of the Effective Date. Subject to the terms of the 1995 Plan and the agreement, in the forms attached hereto as Exhibits A2 and A3, to be executed by Company and Executive evidencing the Initial Option, the Initial Option shall (i) be an incentive stock option to the extent permitted under applicable law and a nonqualified stock option to the extent of the remainder of the grant, if any, (ii) have a ten-year term, (iii) become exercisable in 25% increments on each of the first four anniversaries of the Effective Date. 3.5 Initial Restricted Stock Awards. Company shall grant to Executive 300,000 restricted shares of Stock (the "Initial Restricted Stock Awards") as follows: (i) Effective as of the Effective Date, Company shall grant to Executive 58,004 restricted shares of Stock pursuant to the 1995 Plan. Subject to the terms of the Plan and the agreement, in the form attached hereto as Exhibit B1, to be executed by Company and Executive evidencing such award, such award shall contain forfeiture restrictions that shall lapse with respect to (A) 25,000 of the shares subject thereto on December 31, 1998, (B) the remainder of the shares subject thereto, if any, in 331/3% increments on each of the first three anniversaries of the Effective Date. -4- (ii) Effective as of January 1, 1999, Company shall grant to Executive 241,996 restricted shares of Stock pursuant to the 1998 Plan. Subject to the terms of the Plan and the agreement, in the form attached hereto as Exhibit B2, to be executed by Company and Executive evidencing such award, such award shall contain forfeiture restrictions that shall lapse with respect to (A) 1/3 of the shares subject thereto on the first anniversary of the Effective Date, (B) an additional 1/3 of the shares subject thereto on the second anniversary of the Effective Date, and (C) and an additional 1/3 of the shares subject thereto on the third anniversary of the Effective Date. 3.6 Subsequent Stock Options. On each of the first, second and third anniversaries of the Effective Date, Company shall grant to Executive options to purchase a number of shares of Stock (the "Subsequent Options") pursuant to the 1998 Plan or any other appropriate Company stock plan (the "Company Stock Plan") in accordance with the following schedule: Anniversary of Effective Date Number of Shares First Anniversary 75,000 Second Anniversary 50,000 Third Anniversary 25,000
The purchase price for each share of Stock subject to each Subsequent Option shall be equal to the Fair Market Value (as such term is defined in the Company Stock Plan) of a share of Stock as of the date of grant of such Subsequent Option. Subject to the terms of the Company Stock Plan and the agreement to be executed by Company and Executive evidencing each Subsequent Option, each Subsequent Option shall (i) be an incentive stock option to the extent permitted under applicable law and a nonqualified stock option to the extent of the remainder of the grant, if any, (ii) have a ten-year term, (iii) become exercisable in 25% increments on each of the first four anniversaries of the date of grant of such Subsequent Option. To the extent the grant of a Subsequent Stock Option would exceed the applicable limitations under any Company Stock Plan, such grant or portion thereof shall be subject to the approval by the shareholders of Company of an amendment to such Company Stock Plan that would permit such grant or portion thereof. In the event of any such limitation, Company shall (a) cause the 1998 Plan to be amended, (b) submit such amendment to Company's shareholders at Company's 1999 Annual Meeting of Shareholders and (c) use its reasonable best efforts to secure approval by the shareholders of Company of such amendment. 3.7 Subsequent Restricted Stock Awards. On each of the first, second and third anniversaries of the Effective Date, Company shall grant to Executive a number of restricted shares of Stock (the "Subsequent Restricted Stock Awards") in accordance with the following schedule: Anniversary of Effective Date Number of Restricted Shares First Anniversary 25,000 Second Anniversary 50,000 Third Anniversary 75,000
-5- Subject to the terms of the agreement to be executed by Company and Executive evidencing each Subsequent Restricted Stock Award, each Subsequent Restricted Stock Award shall contain forfeiture restrictions that shall lapse with respect to (i) 1/3 of the shares subject thereto on the first anniversary of the grant thereof, (ii) an additional 1/3 of the shares subject thereto on the second anniversary of the grant thereof, and (iii) and an additional 1/3 of the shares subject thereto on the third anniversary of the grant thereof. Company shall file a registration statement on Form S-8 (or other applicable form) with the Securities and Exchange Commission in connection with Executive's receipt of shares pursuant to the Subsequent Restricted Stock Awards. 3.8 Life Insurance. Company will provide, or cause to be provided, to Executive, at no cost to Executive, $1,0000,000 of term life insurance coverage payable to a beneficiary to be designated in writing by Executive, together with a tax gross-up payment in the amount necessary to offset any applicable taxes imposed on Executive by reason of such coverage and such tax gross-up payment. Notwithstanding the foregoing, however, if Executive fails to qualify medically for such insurance coverage at standard rates for his age group, Company shall not be required to provide such coverage unless Executive pays the cost of such coverage that is in excess of the standard rate cost. Such insurance, including replacement or substitute policies therefor, shall be maintained for the same period as Executive's compensation hereunder is continued pursuant to Article 7 hereof. 3.9 Other Perquisites. During his employment hereunder, Executive shall be afforded the following benefits as incidences of his employment: (i) Business and Entertainment Expenses - Subject to Company's standard policies and procedures with respect to expense reimbursement as applied to its executive employees generally, Company shall reimburse Executive for, or pay on behalf of Executive, reasonable and appropriate expenses incurred by Executive for business related purposes, including dues and fees to industry and professional organizations and costs of entertainment and business development. (ii) Club Memberships - In addition to the other business and entertainment expenses reimbursable pursuant to subparagraph 3.9(i) above, Company shall pay (A) 50% of the initiation fee for the Castle Pines Golf Club and (B) the membership fees, dues and assessments for (1) the Castle Pines Golf Club, (2) the River Oaks Country Club, (3) the Merit Club in Chicago, Illinois, (4) a luncheon club located in Houston, Texas, to be selected by Executive, and (5) such other luncheon or country club memberships as the Compensation Committee may deem to be justified by business usage. The foregoing notwithstanding, Company shall not be obligated to buy from Executive, or to reimburse Executive for the price of, his membership in any club of which Executive is a member prior to the Effective Date, other than the Castle Pines Golf Club. (iii) Annual Physical Examination - Company shall pay for the cost of an annual physical examination to be conducted by a doctor or clinic of Executive's choosing in Houston, Texas. -6- (iv) Parking - Company shall provide at no expense to Executive a parking place convenient to Executive's office. (v) Executive Supplemental Retirement Plan - Executive shall be allowed to participate in the Company's Executive Supplemental Retirement Plan (the "ESRP"). For purposes of the ESRP, Executive's Applicable Percentage (as such term is defined in the ESRP) shall be 50% and Executive's Vested Interest (as such term is defined in the ESRP) in his benefit under the ESRP shall be determined in accordance with the following schedule: Vested Interest Prior to First Anniversary of Effective Date 50% As of First Anniversary of Effective Date* 60% As of Second Anniversary of Effective Date* 70% As of Third Anniversary of Effective Date* 80% As of Fourth Anniversary of Effective Date* 90% As of Fifth Anniversary of Effective Date* 100%
*provided that Executive is employed by Company on such date and has been so employed by Company on a full-time basis during the twelve-month period immediately preceding such date. Notwithstanding the foregoing, Executive's Vested Interest in his benefit under the ESRP shall be 100% in the event of his Involuntary Termination (as such term is defined in the Severance Agreement between Company and Executive (the "Severance Agreement")) within two years after the date upon which a Change of Control (as such term is defined in the Severance Agreement) occurs. Further, Company shall cause the ESRP to be amended (A) to expand the definition of the term "Compensation" in Section 1.01(8) with respect to Executive to include (1) "deemed salary" equal to the annual base salary that Executive would have received if he had not received an Option in lieu of such annual salary pursuant to paragraph 3.1 and (2) bonuses under the EIP, (B) to remove Section 5.02, which provides for the forfeiture of a Member's Accrued Benefit (as such term is defined in the ESRP) for competition with the Company and (C) to expand Section 7.01 to provide that no amendment to the ESRP shall deprive any Member of any Accrued Benefit under the ESRP to the extent that such Member has a Vested Interest in such Accrued Benefit at the time of such amendment. (vi) Supplemental Benefit Plan - Executive shall be allowed to participate in the SBP. Further, Executive shall receive the Supplemental Thrift Benefit pursuant to Section 3.2(a) of the SBP. Finally, Company shall cause the SBP to be amended (A) to remove Section 6.4 thereof, which provides for reductions of benefits to avoid imposition of the sanctions imposed under sections 280G and 4999 of the Code and (B) to provide for the crediting of an additional benefit thereunder which, with respect to Executive, shall not be less than the Supplemental Thrift Benefit and the -7- Supplemental ESOP Benefit under the SBP, the Employer Contributions under the Seagull Thrift Plan and the Employer Contributions under the Seagull Employee Stock Ownership Plan that Executive would have received if he had made the maximum allowable contributions under such plans, and based on the annual base salary that Executive would have received if he had not received an Option in lieu of such annual base salary pursuant to paragraph 3.1. (vii) Other Company Benefits - Executive and, to the extent applicable, Executive's spouse, dependents and beneficiaries, shall be allowed to participate in all benefits, plans and programs, including improvements or modifications of the same, which are now, or may hereafter be, available to other executive employees of Company. Such benefits, plans and programs shall include, without limitation, any profit sharing plan, thrift plan, employee stock ownership plan, health insurance or health care plan, life insurance, disability insurance, pension plan, supplemental retirement plan, vacation and sick leave plan, and the like which may be maintained by Company. Company shall not, however, by reason of this paragraph be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such benefit plan or program, so long as such changes are similarly applicable to executive employees generally. In the event that Executive (or his beneficiaries) are provided welfare benefits under Company's benefit plans that are less than the welfare benefits that would have been provided to Executive (or his beneficiaries) if Executive had not received an Option in lieu of annual base salary pursuant to paragraph 3.1, Company shall provide, or cause to be provided, to Executive (or his beneficiaries) any such welfare benefits lost as a result of Executive's receipt of the Option in lieu of annual base salary. (viii) Vacation - During each year of his employment, Executive shall be entitled to five weeks of paid vacation in accordance with Company's vacation policy. (ix) Tax and Financial Planning - Company shall reimburse Executive for reasonable expenses incurred by Executive for tax return preparation and financial planning. ARTICLE 4: PROTECTION OF INFORMATION 4.1 Disclosure to Executive. Company shall disclose to Executive, or place Executive in a position to have access to or develop, trade secrets or confidential information of Company or its affiliates; and/or shall entrust Executive with business opportunities of Company or its affiliates; and/or shall place Executive in a position to develop business good will on behalf of Company or its affiliates. 4.2 Disclosure to and Property of Company. All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed, or acquired by Executive, individually or in conjunction with others, during Executive's employment by Company (whether during business hours or otherwise and whether on Company's -8- premises or otherwise) which relate to Company's business, products, or services (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing terms, evaluations, opinions, interpretations, acquisitions prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks) shall be disclosed to Company and are and shall be the sole and exclusive property of Company. Moreover, all documents, drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, E-mail, voice mail, electronic databases, maps, and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries, and inventions are and shall be the sole and exclusive property of Company. Upon termination of Executive's employment by Company, for any reason, Executive promptly shall deliver the same, and all copies thereof, to Company. 4.3 No Unauthorized Use or Disclosure. Executive will not, at any time during or after Executive's employment by Company, make any unauthorized disclosure of any confidential business information or trade secrets of Company or its affiliates, or make any use thereof, except in the carrying out of Executive's employment responsibilities hereunder. Affiliates of the Company shall be third party beneficiaries of Executive's obligations under this paragraph. As a result of Executive's employment by Company, Executive may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Company and its affiliates. Executive also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as Company's confidential business information and trade secrets. 4.4 Ownership by Company. If, during Executive's employment by Company, Executive creates any work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations, or acquisitions, computer programs, E-mail, voice mail, electronic databases, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to Company's business, products, or services, whether such work is created solely by Executive or jointly with others (whether during business hours or otherwise and whether on Company's premises or otherwise), Company shall be deemed the author of such work if the work is prepared by Executive in the scope of Executive's employment; or, if the work is not prepared by Executive within the scope of Executive's employment but is specially ordered by Company as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and Company shall be the author of the work. If such work relates in any way to the business of Company but is neither prepared by Executive within the scope of Executive's employment nor a work specially ordered that is deemed to be a work made for hire, then Executive hereby agrees to assign, and by these presents does assign, to Company all of Executive's worldwide right, title, and interest in and to such work and all rights of copyright therein. 4.5 Assistance by Executive. Both during the period of Executive's employment by Company and thereafter, Executive shall assist Company and its nominee, at any time, in the protection of Company's worldwide right, title, and interest in and to information, ideas, concepts, -9- improvements, discoveries, and inventions, and its copyrighted works, including without limitation, the execution of all formal assignment documents requested by Company or its nominee and the execution of all lawful oaths and applications for patents and registration of copyright in the United States and foreign countries. 4.6 Remedies. Executive acknowledges that money damages would not be sufficient remedy for any breach of this Article by Executive, and Company shall be entitled to enforce the provisions of this Article by terminating payments then owing to Executive under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach; provided, however, that payments then owing to Executive may not be terminated unless the Board of Directors determines that such breach by Executive has directly resulted or could reasonably be expected to result in a material adverse economic impact on the Company's business. Such remedies shall not be deemed the exclusive remedies for a breach of this Article, but shall be in addition to all remedies available at law or in equity to Company, including the recovery of damages from Executive and his agents involved in such breach and remedies available to Company pursuant to this and other agreements with Executive. ARTICLE 5: NONCOMPETITION AND NONSOLICITATION 5.1 In General. As part of the consideration for the compensation and benefits to be paid to Executive hereunder; to protect the trade secrets and confidential information of Company and its affiliates that have been and will in the future be disclosed or entrusted to Executive, the business good will of Company and its affiliates that has been and will in the future be developed in Executive, or the business opportunities that have been and will in the future be disclosed or entrusted to Executive by Company and its affiliates; and as an additional incentive for Company to enter into this Agreement, Company and Executive agree to the noncompetition and the nonsolicitation obligations hereunder. 5.2 Noncompetition. Executive shall not, directly or indirectly for Executive or for others, in any geographic area or market where Company or any of its affiliates are conducting any business or have during the previous twelve months conducted such business: (i) engage in any business competitive with the business conducted by Company; or (ii) render advice or services to, or otherwise assist, any other person, association, or entity who is engaged, directly or indirectly, in any business competitive with the business conducted by Company with respect to such competitive business. These noncompetition obligations shall apply (A) during the period that Executive is employed by Company, (B) during any period after Executive's termination of employment by Company for a reason encompassed by paragraph 2.2(ii) when Company is providing Executive with Termination Benefits pursuant to Article 7, and (C) if Executive terminates his employment with Company for a -10- reason encompassed by paragraph 2.3(ii) within two years after the Effective Date, during the two-year period commencing on the date of Executive's termination of employment. 5.3 Nonsolicitation. Executive shall not, directly or indirectly for Executive or for others, in any geographic area or market where Company or any of its affiliates are conducting any business or have during the previous twelve months conducted such business, induce any employee of Company or any of its affiliates to terminate his or her employment with Company or such affiliates, or hire or assist in the hiring of any such employee by any person, association, or entity not affiliated with Company. These nonsolicitation obligations shall apply during the period that Executive is employed by Company and during the one-year period commencing on the date of Executive's termination of employment for any reason. Notwithstanding the foregoing, the provisions of this paragraph 5.3 shall not restrict the ability of Company to take actions with respect to the employment or the termination of employment of any of its employees, or for Executive to participate in any such actions in his capacity as an officer of Company. 5.4 Enforcement and Remedies. Executive acknowledges that money damages would not be sufficient remedy for any breach of this Article by Executive, and Company shall be entitled to enforce the provisions of this Article by terminating any payments then owing to Executive under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach; provided, however, that payments then owing to Executive may not be terminated unless the Board of Directors determines that such breach by Executive has directly resulted or could reasonably be expected to result in a material adverse economic impact on the Company's business. Such remedies shall not be deemed the exclusive remedies for a breach of this Article, but shall be in addition to all remedies available at law or in equity to Company, including without limitation, the recovery of damages from Executive and Executive's agents involved in such breach and remedies available to Company pursuant to this and other agreements with Executive. 5.5 Reformation. It is expressly understood and agreed that Company and Executive consider the restrictions contained in this Article to be reasonable and necessary to protect the proprietary information of Company. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such court so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. ARTICLE 6: STATEMENTS CONCERNING COMPANY 6.1 In General. Executive shall refrain, both during the employment relationship and after the employment relationship terminates, from publishing any oral or written statements about Company, any of its affiliates, or any of such entities' officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose private or confidential information about Company, any of its affiliates, or any of such entities' business affairs, officers, employees, agents, or representatives; or that constitute an intrusion into the seclusion or private lives of any of such entities' officers, employees, agents, or representatives; or that give rise to unreasonable adverse publicity about the private lives of any of such entities' officers, employees, agents, or representatives; or that place Company, any of its affiliates, or any of such entities' officers, employees, agents, or -11- representatives in a false light before the public; or that constitute a misappropriation of the name or likeness of Company, any of its affiliates, or any of such entities' officers, employees, agents, or representatives, except where any of such actions are disclosures required by operation of law or judicial process. A violation or threatened violation of this prohibition may be enjoined by the courts. The rights afforded Company and its affiliates under this provision are in addition to any and all rights and remedies otherwise afforded by law. ARTICLE 7: EFFECT OF TERMINATION ON COMPENSATION 7.1 By Expiration. If Executive's employment hereunder shall terminate upon expiration of the term provided in paragraph 2.1 hereof, then all compensation and all benefits to Executive hereunder shall terminate contemporaneously with termination of his employment. 7.2 By Company. If Executive's employment hereunder shall be terminated by Company prior to expiration of the term provided in paragraph 2.1, then, upon such termination, regardless of the reason therefor, all compensation and benefits to Executive hereunder shall terminate contemporaneously with the termination of such employment; provided, however, that if such termination shall be for any reason other than those encompassed by paragraphs 2.2 (iii) or (iv), then Company shall provide Executive with the Termination Benefits. For purposes of this Agreement, the term "Termination Benefits" shall mean the following: (i) Company shall continue to pay to Executive his base salary then in effect pursuant to paragraph 3.1 (but not less than $500,000 for the period beginning on January 1, 2000) for the unexpired portion of the term set forth in paragraph 2.1; (ii) all outstanding stock options granted by Company to Executive shall become immediately exercisable in full upon Executive's termination of employment and shall remain exercisable thereafter for the period provided pursuant to the terms thereof, which period shall not be less than twelve months (but in no event shall any such stock option be exercisable after the expiration of the original term of such stock option); (iii) the forfeiture restrictions with respect to all outstanding restricted stock issued to Executive shall lapse upon Executive's termination of employment, (iv) within five business days after the date of Executive's termination of employment, Company shall pay to Executive a lump sum cash payment equal to the sum of (A) the product of Executive's Incentive Target set forth in paragraph 3.3 multiplied by Executive's annual base salary at the time of such termination (the "Target Bonus") and (B) the Target Bonus amount prorated for the number of months in the performance year of Executive's termination of employment that have elapsed prior to such termination, (v) the life insurance coverage and annual tax gross-up pursuant to paragraph 3.8 shall continue to be provided to Executive for the unexpired portion of the term set forth in paragraph 2.1, (vi) Company shall continue to pay to Executive his club dues pursuant to paragraph 3.9(ii) for the unexpired portion of the term set forth in paragraph 2.1, (vii) within five business days after the date of Executive's termination of employment, Company shall pay to Executive a lump sum cash payment equal to the amounts credited to his accounts under the Seagull Thrift Plan, the Seagull Employee Stock Ownership Plan and the SBP that are forfeitable in accordance with the terms of such plans and (viii) during the period, if any (but in no event for more -12- than 18 months after the date of Executive's termination of employment), that Executive elects to continue coverage for himself and any of his eligible dependents under Company's group health plans pursuant to the continuation of coverage provisions contained in Sections 601 through 608 of the Employee Retirement Income Security Act of 1974, as amended, Executive's premiums for such coverage shall be no greater than that charged by Company generally to its active executive employees for coverage under such plans. In the event the Company does not fulfill its obligations under paragraph 1.1 to employ Executive and appoint him to the positions set forth in paragraph 1.2, then Executive shall be entitled to the Initial Option, which shall be fully exercisable, and the Initial Restricted Stock Awards (or to the extent such Initial Restricted Stock Awards cannot be granted to Executive, the economic value thereof), which shall be fully nonforfeitable, and to Termination Benefits as if Executive's employment terminated on the Effective Date. 7.3 By Executive. If Executive's employment hereunder shall be terminated by Executive prior to expiration of the term provided in paragraph 2.1, then, upon such termination, regardless of the reason therefor, all compensation and benefits to Executive hereunder shall terminate contemporaneously with the termination of such employment; provided, however, that if such termination shall occur for the reason encompassed by paragraph 2.3(i), then Company shall provide Executive with the Termination Benefits. 7.5 No Duty to Mitigate Losses. Executive shall have no duty to find new employment following the termination of his employment under circumstances which require Company to pay any amount to Executive pursuant to this Article 7. Any salary or remuneration received by Executive from a third party for the providing of personal services (whether by employment or by functioning as an independent contractor) following the termination of his employment under circumstances pursuant to which this Article 7 apply shall not reduce Company's obligation to make a payment to Executive (or the amount of such payment) pursuant to the terms of this Article 7. Notwithstanding the preceding sentence, if, and to the extent that, following the termination of his employment under circumstances pursuant to which this Article 7 apply, Executive becomes entitled to receive benefits from a third party that are comparable to the Termination Benefits set forth in paragraphs 7.2(v), (vi) and (viii), Company's obligation to provide such Termination Benefits to Executive shall cease. 7.6 Liquidated Damages. In light of the difficulties in estimating the damages for an early termination of this Agreement, Company and Executive hereby agree that the payments, if any, to be received by Executive pursuant to this Article 7 shall be received by Executive as liquidated damages. 7.7 Incentive and Deferred Compensation. This Agreement governs the rights and obligations of Executive and Company with respect to Executive's base salary and certain perquisites of employment. Except as expressly provided herein, Executive's rights and obligations both during the term of his employment and thereafter with respect to stock options, restricted stock, incentive and deferred compensation, life insurance policies insuring the life of Executive, and other benefits under the plans and programs maintained by Company shall be governed by the separate agreements, plans and other documents and instruments governing such matters. Without limiting the scope of the preceding sentence, Executive acknowledges that he has no right to grants of stock options or -13- restricted stock either under the stock plans maintained by the Company or otherwise other than (i) as provided in paragraphs 3.1, 3.4, 3.5, 3.6 or 3.7 hereof or (ii) in the discretion of the Compensation Committee or the Board of Directors. ARTICLE 8: MISCELLANEOUS 8.1 Notices. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Company to: Seagull Energy Corporation 1700 First City Tower 1001 Fannin Houston, Texas 77002 Attention: Chairman of the Board of Directors If to Executive to: James T. Hackett 3372 Del Monte Houston, Texas 77019 or to such other address as either party may furnish to the other in writing in accordance herewith, except that notices or changes of address shall be effective only upon receipt. 8.2 Applicable Law. This Agreement is entered into under, and shall be governed for all purposes by, the laws of the State of Texas. 8.3 No Waiver. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 8.4 Severability. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement, and all other provisions shall remain in full force and effect. 8.5 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. 8.6 Withholding of Taxes and Other Employee Deductions. Company may withhold from any benefits and payments made pursuant to this Agreement all federal, state, city and other taxes as may be required pursuant to any law or governmental regulation or ruling and all other normal employee deductions made with respect to Company's employees generally. Company shall -14- cause the agreements evidencing the Initial Restricted Stock Awards and the Subsequent Restricted Stock Awards to provide that, upon lapse of the forfeiture restrictions contained therein, Company will withhold (a) at Executive's election, shares of Stock subject to such Awards to satisfy Company's withholding obligation under applicable tax laws or regulations and (b) such additional shares of Stock subject to such Awards as may be requested in writing by Executive. 8.7 Headings. The paragraph headings have been inserted for purposes of convenience and shall not be used for interpretive purposes. 8.8 Gender and Plurals. Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural and conversely. 8.9 Affiliate. As used in this Agreement, the term "affiliate" shall mean any entity which owns or controls, is owned or controlled by, or is under common ownership or control with, Company. 8.10 Assignment. This Agreement shall be binding upon and inure to the benefit of Company and any successor of Company, by merger or otherwise. Except as provided in the preceding sentence, this Agreement, and the rights and obligations of the parties hereunder, are personal and neither this Agreement, nor any right, benefit, or obligation of either party hereto, shall be subject to voluntary or involuntary assignment, alienation or transfer, whether by operation of law or otherwise, without the prior written consent of the other party. 8.11 Term. This Agreement has a term co-extensive with the term of employment provided in paragraph 2.1. Termination shall not affect any right or obligation of any party which is accrued or vested prior to such termination. Without limiting the scope of the preceding sentence, the provisions of Articles 4, 5 and 6 shall survive any termination of the employment relationship and/or of this Agreement. 8.12 Entire Agreement. Except as provided in (i) the written benefit plans and programs and agreements referenced in Article 3, (ii) the Severance Agreement between Company and Executive dated August 25, 1998 (the "Severance Agreement"), and (iii) any signed written agreement contemporaneously or hereafter executed by Company and Executive, this Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to employment of Executive by Company. Without limiting the scope of the preceding sentence, all prior understandings and agreements among the parties hereto relating to the subject matter hereof are hereby null and void and of no further force and effect. Further, without limiting the scope of this paragraph, this Agreement supersedes and replaces the Employment Agreement between Company and Executive dated August 25, 1998 (the "Prior Agreement") in its entirety and the Prior Agreement shall be null and void and of no further force and effect, and any references to the Prior Agreement in any other agreement including, without limitation, the Severance Agreement, shall be deemed to be references to this Agreement. Any modification of this Agreement will be effective only if it is in writing and signed by the party to be charged. -15- 8.13 Representation By Executive. Executive hereby represents and warrants to Company that, as of August 25, 1998 and the date of execution of this Agreement, he is not a party to any employment or other agreement with any third party which would preclude him from accepting employment with Company and performing his obligations under this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the 16th day of September, 1998 to be effective as of the Effective Date. SEAGULL ENERGY CORPORATION By: /s/ William L. Transier Name: William L. Transier Title: Executive Vice President and Chief Financial Officer "COMPANY" /s/ James T. Hackett James T. Hackett "EXECUTIVE" VEHOU02:119869.1 -16- EX-10.7 8 MEMBERSHIP AGREEMENT TO ESRP - HACKETT SEAGULL ENERGY CORPORATION EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN MEMBERSHIP AGREEMENT WHEREAS, JAMES T. HACKETT ("Employee") has been selected as eligible to become a Member of the SEAGULL ENERGY CORPORATION EXECUTIVE SUPPLEMENT RETIREMENT PLAN (the "Plan"); and WHEREAS, the Plan provides that each Member shall execute a Membership Agreement setting forth the terms and conditions of his membership; and WHEREAS, Employee desires to become a Member of the Plan on the terms and conditions set forth therein, in the Employment Agreement between the Company and Employee (the "Employment Agreement"), and in this Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1. Employee agrees to become a Member of the Plan, effective as of September 16, 1998. 2. For purposes of Section 1.01(5) of the Plan, Employee's considered period shall be his last thirty-six consecutive months of employment or, if less, all of his completed months of employment. 3. For purposes of Section 1.01(8) of the Plan, Employee's Compensation shall include (a) "deemed salary" equal to the base salary that Employee would have received if he had not received an option to purchase common stock of the Company in lieu of such salary pursuant to paragraph 3.1 of the Employment Agreement and (b) Employee's annual bonus under the Seagull Energy Corporation Executive Incentive Plan (or any successor thereto). 4. Employee's Applicable Percentage under the Plan shall be 50%. 5. Employee's Vested Interest in his benefit under the Plan shall be determined in accordance with the following Vesting Schedule: Vested Interest Prior to September 16, 1999 50% As of September 16, 1999* 60% As of September 16, 2000* 70% As of September 16, 2001* 80% As of September 16, 2002* 90% As of September 16, 2003* 100%
*provided that Employee is employed by Company on such date and has been so employed by Company on a full-time basis during the twelve-month period immediately preceding such date. -1- Notwithstanding the foregoing, Employee's Vested Interest in his benefit under the Plan shall be 100% in the event of his Involuntary Termination (as such term is defined in the Severance Agreement between the Company and Employee (the "Severance Agreement")) within two years after the date upon which a Change of Control (as such term is defined in the Severance Agreement) occurs. 6. Section 5.02 of the Plan shall not apply with respect to Employee. EXECUTED this 4th day of November, 1998. SEAGULL ENERGY CORPORATION By: /s/ William L. Transier Name: William L. Transier Title: Executive Vice President and Chief Financial Officer EMPLOYEE /s/ James T. Hackett James T. Hackett VEHOU02:121810.1 -2- EX-10.8 9 SEVERANCE AGREEMENT - HACKETT SEVERANCE AGREEMENT AGREEMENT between SEAGULL ENERGY CORPORATION, a Texas corporation (the "Company"), and James T. Hackett ("Executive"), W I T N E S S E T H : WHEREAS, the Company desires to retain certain key employee personnel and, accordingly, the Board of Directors of the Company (the "Board") has approved the Company entering into a severance agreement with Executive in order to encourage his continued service to the Company; and WHEREAS, Executive is prepared to commit such services in return for specific arrangements with respect to severance compensation and other benefits; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the Company and Executive agree as follows: 1. Definitions. (a) "Change in Duties" shall mean the occurrence, within two years after the date upon which a Change of Control occurs, of any one or more of the following: (i) A significant reduction in the duties of Executive from those applicable to him immediately prior to the date on which a Change of Control occurs; (ii) A reduction in Executive's annual salary or target opportunity under any applicable bonus or incentive compensation plan from that provided to him immediately prior to the date on which a Change of Control occurs; (iii) Receipt of employee benefits (including but not limited to medical, dental, life insurance, accidental, death, and dismemberment, and long-term disability plans) and perquisites by Executive that are materially inconsistent with the employee benefits and perquisites provided by the Company to executives with comparable duties; (iv) A change in the location of Executive's principal place of employment by the Company by more than 50 miles from the location where he was principally employed immediately prior to the date on which a Change of Control occurs; or (v) A termination encompassed by paragraph 2.3(i) of the Employment Agreement dated August 25, 1998, between Executive and the Company. -1- (b) "Change of Control" means the occurrence of either of the following events: (i) The Company (A) 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) or (B) is to be dissolved and liquidated, and as a result of or in connection such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board; (ii) Any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 20% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board; or (iii) The Company sells all or substantially all of the assets of the Company to any other person or entity (other than a wholly-owned subsidiary of the Company) in a transaction that requires shareholder approval pursuant to the Texas Business Corporation Act. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Compensation" shall mean the greater of: (i) Executive's annual salary plus his Targeted EIP Award immediately prior to the date on which a Change of Control occurs, or (ii) Executive's annual salary plus his Targeted EIP Award at the time of his Involuntary Termination. (e) "EIP" shall mean the Seagull Energy Corporation Executive Incentive Plan or any successor thereto. (f) "Involuntary Termination" shall mean any termination of Executive's employment with the Company which: (i) does not result from a resignation by Executive (other than a resignation pursuant to clause (ii) of this subparagraph (f) or a resignation at the request of the Company); or (ii) results from a resignation by Executive on or before the date which is sixty days after the date upon which Executive receives notice of a Change in Duties; -2- provided, however, the term "Involuntary Termination" shall not include a Termination for Cause or any termination as a result of death, disability under circumstances entitling him to benefits under the Company's long-term disability plan, or Retirement. (g) "Retirement" shall mean Executive's voluntary resignation on or after the date he reaches age sixty-five (other than a resignation within sixty days after the date Executive receives notice of a Change in Duties or a resignation at the request of the Company). (h) "Severance Amount" shall mean an amount equal to 2.99 times Executive's Compensation, reduced by the present value of any salary continuation or bonus amounts payable to Executive under the Employment Agreement between the Company and the Executive dated August 25, 1998 or any successor thereto. Such present value shall be determined using the rate of interest referred to in Paragraph 4 hereof as of the last day of Executive's employment with the Company. (i) "Targeted EIP Award" shall mean Executive's Incentive Target as set forth under the EIP in effect for the year with respect to which such award is being determined, if any, or for the last preceding year in which an EIP was in effect, expressed as a dollar amount based on such Executive's annual salary for such year. (j) "Termination for Cause" shall mean termination of Executive's employment by the Company (or its subsidiaries) by reason of Executive's gross negligence, gross neglect or willful misconduct in the performance of his duties or Executive's final conviction of a felony or of a misdemeanor involving moral turpitude, excluding misdemeanor convictions relating to the operation of a motor vehicle. (k) "Welfare Benefit Coverages" shall mean the medical, dental, life insurance, accidental death and dismemberment and long-term disability coverages provided by the Company to its active employees. 2. Services. Executive agrees that he will render services to the Company (as well as any subsidiary thereof or successor thereto) during the period of his employment to the best of his ability and in a prudent and businesslike manner. 3. Severance Benefits. If Executive's employment by the Company or any subsidiary thereof or successor thereto shall be subject to an Involuntary Termination which occurs within two years after the date upon which a Change of Control occurs, then Executive shall be entitled to receive, as additional compensation for services rendered to the Company (including its subsidiaries), the following severance benefits: (a) A lump sum cash payment in an amount equal to Executive's Severance Amount. (b) A lump sum cash payment in an amount equal to the remaining portion of any award to Executive under any prior years' EIP. Further, if Executive's Involuntary Termination -3- occurs on or after the date an award has been earned under the EIP, but prior to the date such award is paid, Executive shall receive an additional lump sum cash payment in an amount equal to his Targeted EIP Award. (c) Executive shall be entitled to continue the Welfare Benefit Coverages for himself and, where applicable, his eligible dependents following his Involuntary Termination for up to thirty-six months, as long as Executive continues either to pay the premiums paid by active employees of the Company for such coverages or to pay the actual (nonsubsidized) cost of such coverages for which the Company does not subsidize for active employees. Such benefit rights shall apply only to those Welfare Benefit Coverages which the Company has in effect from time to time for active employees, and the applicable payments shall adjust as premiums for active employees of the Company or actual costs, whichever is applicable, change. Welfare Benefit Coverage(s) shall immediately end upon Executive's obtainment of new employment and eligibility for similar Welfare Benefit Coverage(s) (with Executive being obligated hereunder to promptly report such eligibility to the Company). Nothing herein shall be deemed to adversely affect in any way the additional rights, after consideration of this extension period, of Executive and his eligible dependents to health care continuation coverage as required pursuant to Part 6 of Title I of the Employee Retirement Income Security Act of 1974, as amended. (d) Executive shall be entitled to receive out-placement services in connection with obtaining new employment up to a maximum cost of $6,000, or an equivalent cash payment, if Executive either has or is not seeking new employment. (e) The severance benefits payable under this Agreement shall be paid to an Executive on or before the fifth day after the last day of Executive's employment with the Company. Any severance benefits paid pursuant to this Paragraph will be deemed to be a severance payment and not compensation for purposes of determining benefits under the Company's qualified plans and shall be subject to any required tax withholding. 4. Interest on Late Benefit Payments. If any payment provided for in Paragraph 3(a) or 3(b) hereof is not made when due, the Company shall pay to Executive interest on the amount payable from the date that such payment should have been made under such paragraph until such payment is made, which interest shall be calculated at a rate equal to two percentage points over the prime or base rate of interest announced by Chase Bank of Texas, N.A. (or any successor thereto) at its principal office in Houston, Texas and shall change when and as any such change in such prime or base rate shall be announced by such bank. 5. Certain Additional Payments by the Company. Notwithstanding anything to the contrary in this Agreement, in the event that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are hereinafter collectively referred to as the "Excise Tax"), the Company shall pay to Executive an additional payment (a "Gross-up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed -4- with respect to such taxes), including any Excise Tax imposed on any Gross-up Payment, Executive retains an amount of the Gross-up Payment equal to the Excise Tax imposed upon the Payment. The Company and Executive shall make an initial determination as to whether a Gross-up Payment is required and the amount of any such Gross-up Payment. Executive shall notify the Company in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to make a Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially determined by the Company and Executive) within ten days of the receipt of such claim. The Company shall notify Executive in writing at least ten days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Company decides to contest such claim, Executive shall cooperate fully with the Company in such action; provided, however, the Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of the Company's action. If, as a result of the Company's action with respect to a claim, Executive receives a refund of any amount paid by the Company with respect to such claim, Executive shall promptly pay such refund to the Company. If the Company fails to timely notify Executive whether it will contest such claim or the Company determines not to contest such claim, then the Company shall immediately pay to Executive the portion of such claim, if any, which it has not previously paid to Executive. 6. General. (a) Term. The effective date of this Agreement is August 25, 1998. The initial term of this Agreement shall be the period beginning on said effective date and ending on the two-year anniversary of said effective date. Within sixty days after the expiration of this Agreement and within sixty days after each successive two-year period of time thereafter that this Agreement is in effect, the Company shall have the right to review this Agreement, and in its sole discretion either continue and extend this Agreement, terminate this Agreement, and/or offer Executive a different agreement. The Board (excluding any member of the Board who is covered by this Agreement or by a similar agreement with the Company) will vote on whether to so extend, terminate, and/or offer Executive a different agreement and will notify Executive of such action before the end of said sixty-day time period mentioned above. This Agreement shall remain in effect until so terminated and/or modified by the Company. Failure of the Board to take any action within said sixty-day time period shall be considered as an extension of this Agreement for an additional two-year period of time. Notwithstanding anything to the contrary contained in this "sunset provision," it is agreed that if a Change of Control occurs while this Agreement is in effect, then this Agreement shall not be subject to termination or modification under this "sunset provision," and shall remain in force for a period of two years after such Change of Control, and if within said two years the contingency factors occur which would entitle Executive to the benefits as provided herein, this Agreement shall remain in effect in accordance with its terms. If, within such two years after a Change of Control, the contingency factors that would entitle Executive to said benefits do not occur, thereupon this two-year "sunset provision" shall again be applicable with the sixty-day time period for Board action to thereafter commence at the expiration of said two years after such Change of Control and on each two-year anniversary date thereafter. -5- (b) Indemnification. If Executive shall obtain any money judgment or otherwise prevail with respect to any litigation brought by Executive or the Company to enforce or interpret any provision contained herein, the Company, to the fullest extent permitted by applicable law, hereby indemnifies Executive for his reasonable attorneys' fees and disbursements incurred in such litigation and hereby agrees (i) to pay in full all such fees and disbursements and (ii) to pay prejudgment interest on any money judgment obtained by Executive from the earliest date that payment to him should have been made under this Agreement until such judgment shall have been paid in full, which interest shall be calculated at a rate equal to two percentage points over the prime or base rate of interest announced by Chase Bank of Texas, N.A. (or any successor thereto) at its principal office in Houston, Texas, and shall change when and as any such change in such prime or base rate shall be announced by such bank. (c) Payment Obligations Absolute. The Company's obligation to pay (or cause one of its subsidiaries to pay) Executive the amounts and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company (including its subsidiaries) may have against him or anyone else. All amounts payable by the Company (including its subsidiaries hereunder) shall be paid without notice or demand. Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and, except as provided in Paragraph 3(c) hereof, the obtaining of any such other employment shall in no event effect any reduction of the Company's obligations to make (or cause to be made) the payments and arrangements required to be made under this Agreement. (d) Successors. This Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company, by merger or otherwise. This Agreement shall also be binding upon and inure to the benefit of Executive and his estate. If Executive shall die prior to full payment of amounts due pursuant to this Agreement, such amounts shall be payable pursuant to the terms of this Agreement to his estate. (e) Severability. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction by reason of applicable law shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) Non-Alienation. Executive shall not have any right to pledge, hypothecate, anticipate or assign this Agreement or the rights hereunder, except by will or the laws of descent and distribution. (g) Notices. Any notices or other communications provided for in this Agreement shall be sufficient if in writing. In the case of Executive, such notices or communications shall be effectively delivered if hand delivered to Executive at his principal place of employment or if sent by registered or certified mail to Executive at the last address he has filed with the Company. In the -6- case of the Company, such notices or communications shall be effectively delivered if sent by registered or certified mail to the Company at its principal executive offices. (h) Controlling Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. Further, Executive agrees that any legal proceeding to enforce the provisions of this Agreement shall be brought in Houston, Harris County, Texas, and hereby waives his right to any pleas regarding subject matter or personal jurisdiction and venue. (i) Release. As a condition to the receipt of any benefit under Paragraph 3 hereof, Executive shall first execute a release, in the form established by the Company, releasing the Company, its shareholders, partners, officers, directors, employees and agents from any and all claims and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of Executive's employment with the Company or, with the exception of rights provided in any other agreement between the Company and Executive, the termination of such employment. (j) Full Settlement. If Executive is entitled to and receives the benefits provided hereunder, performance of the obligations of the Company hereunder will constitute full settlement of all claims that Executive might otherwise assert against the Company on account of his termination of employment, except such claims as may be asserted pursuant to any other agreement between the Company and Executive. (k) Unfunded Obligation. The obligation to pay amounts under this Agreement is an unfunded obligation of the Company (including its subsidiaries), and no such obligation shall create a trust or be deemed to be secured by any pledge or encumbrance on any property of the Company (including its subsidiaries). (l) Not a Contract of Employment. This Agreement shall not be deemed to constitute a contract of employment, nor shall any provision hereof affect (i) the right of the Company (or its subsidiaries) to discharge Executive at will, subject to the terms of any other agreement between the Company (or its subsidiaries) and Executive, or (ii) the terms and conditions of any other agreement between the Company and Executive except as provided herein. (m) Number and Gender. Wherever appropriate herein, words used in the singular shall include the plural and the plural shall include the singular. The masculine gender where appearing herein shall be deemed to include the feminine gender. (n) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. -7- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the 25th day of August, 1998. "EXECUTIVE" /s/James T. Hackett "COMPANY" SEAGULL ENERGY CORPORATION By: /s/William L. Transier Name: William L. Transier Title: Senior Vice President and Chief Financial Officer VEHOU02:117215.1 -8- EX-10.9 10 SEVERANCE AGREEMENT - COLLEY SEVERANCE AGREEMENT AGREEMENT between SEAGULL ENERGY CORPORATION, a Texas corporation (the "Company"), and Gerald R. Colley ("Executive"), W I T N E S S E T H : WHEREAS, the Company desires to retain certain key employee personnel and, accordingly, the Board of Directors of the Company (the "Board") has approved the Company entering into a severance agreement with Executive in order to encourage his continued service to the Company; and WHEREAS, Executive is prepared to commit such services in return for specific arrangements with respect to severance compensation and other benefits; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the Company and Executive agree as follows: 1. Definitions. (a) "Change in Duties" shall mean the occurrence, within two years after the date upon which a Change of Control occurs, of any one or more of the following: (i) A significant reduction in the duties of Executive from those applicable to him immediately prior to the date on which a Change of Control occurs; (ii) A reduction in Executive's annual salary or target opportunity under any applicable bonus or incentive compensation plan from that provided to him immediately prior to the date on which a Change of Control occurs; (iii) Receipt of employee benefits (including but not limited to medical, dental, life insurance, accidental, death, and dismemberment, and long-term disability plans) and perquisites by Executive that are materially inconsistent with the employee benefits and perquisites provided by the Company to executives with comparable duties; or (iv) A change in the location of Executive's principal place of employment by the Company by more than 50 miles from the location where he was principally employed immediately prior to the date on which a Change of Control occurs. (b) "Change of Control" means the occurrence of either of the following events: (i) The Company (A) 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) or (B) is to be dissolved and liquidated, and as a result of or in connection such transaction, the persons who were -1- directors of the Company before such transaction shall cease to constitute a majority of the Board; or (ii) Any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 20% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Compensation" shall mean the greater of: (i) Executive's annual salary plus his Targeted EIP Award immediately prior to the date on which a Change of Control occurs, or (ii) Executive's annual salary plus his Targeted EIP Award at the time of his Involuntary Termination. (e) "EIP" shall mean the Seagull Energy Corporation Executive Incentive Plan or any successor thereto. (f) "Involuntary Termination" shall mean any termination of Executive's employment with the Company which: (i) does not result from a resignation by Executive (other than a resignation pursuant to clause (ii) of this subparagraph (f) or a resignation at the request of the Company); or (ii) results from a resignation by Executive on or before the date which is sixty days after the date upon which Executive receives notice of a Change in Duties; provided, however, the term "Involuntary Termination" shall not include a Termination for Cause or any termination as a result of death, disability under circumstances entitling him to benefits under the Company's long-term disability plan, or Retirement. (g) "Retirement" shall mean Executive's resignation on or after the date he reaches age sixty-five. (h) "Severance Amount" shall mean an amount equal to 2.99 times Executive's Compensation. (i) "Targeted EIP Award" shall mean Executive's Incentive Target as set forth under the EIP in effect for the year with respect to which such award is being determined, if any, or -2- for the last preceding year in which an EIP was in effect, expressed as a dollar amount based on such Executive's annual salary for such year. (j) "Termination for Cause" shall mean termination of Executive's employment by the Company (or its subsidiaries) by reason of Executive's (i) gross negligence in the performance of his duties, (ii) willful and continued failure to perform his duties, (iii) willful engagement in conduct which is materially injurious to the Company or its subsidiaries (monetarily or otherwise) or (iv) conviction of a felony or a misdemeanor involving moral turpitude. (k) "Welfare Benefit Coverages" shall mean the medical, dental, life insurance, accidental death and dismemberment and long-term disability coverages provided by the Company to its active employees. 2. Services. Executive agrees that he will render services to the Company (as well as any subsidiary thereof or successor thereto) during the period of his employment to the best of his ability and in a prudent and businesslike manner and that he will devote substantially the same time, efforts and dedication to his duties as heretofore devoted. 3. Severance Benefits. If Executive's employment by the Company or any subsidiary thereof or successor thereto shall be subject to an Involuntary Termination which occurs within two years after the date upon which a Change of Control occurs, then Executive shall be entitled to receive, as additional compensation for services rendered to the Company (including its subsidiaries), the following severance benefits: (a) A lump sum cash payment in an amount equal to Executive's Severance Amount. (b) A lump sum cash payment in an amount equal to the remaining portion of any award to Executive under any prior years' EIP. Further, if Executive's Involuntary Termination occurs on or after the date an award has been earned under the EIP, but prior to the date such award is paid, Executive shall receive an additional lump sum cash payment in an amount equal to his Targeted EIP Award. (c) Executive shall be entitled to continue the Welfare Benefit Coverages for himself and, where applicable, his eligible dependents following his Involuntary Termination for up to thirty-six months, as long as Executive continues either to pay the premiums paid by active employees of the Company for such coverages or to pay the actual (nonsubsidized) cost of such coverages for which the Company does not subsidize for active employees. Such benefit rights shall apply only to those Welfare Benefit Coverages which the Company has in effect from time to time for active employees, and the applicable payments shall adjust as premiums for active employees of the Company or actual costs, whichever is applicable, change. Welfare Benefit Coverage(s) shall immediately end upon Executive's obtainment of new employment and eligibility for similar Welfare Benefit Coverage(s) (with Executive being obligated hereunder to promptly report such eligibility to the Company). Nothing herein shall be deemed to adversely affect in any way the additional rights, after consideration of this extension period, of Executive and his eligible dependents to health care -3- continuation coverage as required pursuant to Part 6 of Title I of the Employee Retirement Income Security Act of 1974, as amended. (d) Executive shall be entitled to receive out-placement services in connection with obtaining new employment up to a maximum cost of $6,000. (e) The severance benefits payable under this Agreement shall be paid to an Executive on or before the fifth day after the last day of Executive's employment with the Company. Any severance benefits paid pursuant to this Paragraph will be deemed to be a severance payment and not compensation for purposes of determining benefits under the Company's qualified plans and shall be subject to any required tax withholding. 4. Interest on Late Benefit Payments. If any payment provided for in Paragraph 3(a) or 3(b) hereof is not made when due, the Company shall pay to Executive interest on the amount payable from the date that such payment should have been made under such paragraph until such payment is made, which interest shall be calculated at the prime or base rate of interest announced by Chase Bank of Texas, N.A. (or any successor thereto) at its principal office in Houston, Texas and shall change when and as any such change in such prime or base rate shall be announced by such bank. 5. Certain Additional Payments by the Company. Notwithstanding anything in this Agreement to the contrary, if the severance benefits provided for in Paragraph 3, together with any other payments which Executive has the right to receive from the Company, would constitute a "parachute payment " (as defined in Section 280G(b)(2) of the Code), the severance benefits provided hereunder shall be either (a) reduced (but not below zero) so that the present value of such total amounts received by Executive from the Company will be one dollar ($1.00) less than three times Executive's base amount (as defined in Section 280G of the Code) and so that no portion of such amounts received by Executive shall be subject to the excise tax imposed by Section 4999 of the Code or (b) paid in full, whichever produces the better net after-tax position to Executive (taking into account any applicable excise tax under Section 4999 of the Code and any applicable income tax). The Company and Executive shall make an initial determination as to whether a reduction is required and, if so required, the amount of any such reduction. Executive shall notify the Company immediately in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to make a reduction (or a further reduction in excess of that, if any, initially determined by the Company and Executive) within five days of the receipt of such claim. The Company shall notify Executive in writing at least five days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Company decides to contest such claim, Executive shall cooperate fully with the Company in such action; provided, however, the Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action. If, as a result of the Company's action with respect to a claim, the amount of the reduction is found to have been in excess of the correct reduction amount, the Company shall promptly pay to Executive the difference between such amounts with respect to such claim. -4- 6. General. (a) Term. The effective date of this Agreement is January 1, 1998. The initial term of this Agreement shall be the period beginning on said effective date and ending on the two-year anniversary of said effective date. At any time during the initial term of this Agreement or within sixty days after the expiration thereof and within sixty days after each successive two-year period of time thereafter that this Agreement is in effect, the Company shall have the right to review this Agreement, and in its sole discretion either continue and extend this Agreement, terminate this Agree ment, and/or offer Executive a different agreement. The Board (excluding any member of the Board who is covered by this Agreement or by a similar agreement with the Company) will vote on whether to so extend, terminate, and/or offer Executive a different agreement and will notify Executive of such action before the end of said sixty-day time period mentioned above. This Agreement shall remain in effect until so terminated and/or modified by the Company. Failure of the Board to take any action within said sixty-day time period shall be considered as an extension of this Agreement for an additional two-year period of time. Notwithstanding anything to the contrary contained in this "sunset provision," it is agreed that if a Change of Control occurs while this Agreement is in effect, then this Agreement shall not be subject to termination or modification under this "sunset provision," and shall remain in force for a period of two years after such Change of Control, and if within said two years the contingency factors occur which would entitle Executive to the benefits as provided herein, this Agreement shall remain in effect in accordance with its terms. If, within such two years after a Change of Control, the contingency factors that would entitle Executive to said benefits do not occur, thereupon this two-year "sunset provision" shall again be applicable with the sixty-day time period for Board action to thereafter commence at the expiration of said two years after such Change of Control and on each two-year anniversary date thereafter. (b) Indemnification. If Executive shall obtain any money judgment or otherwise prevail with respect to any litigation brought by Executive or the Company to enforce or interpret any provision contained herein, the Company, to the fullest extent permitted by applicable law, hereby indemnifies Executive for his reasonable attorneys' fees and disbursements incurred in such litigation and hereby agrees (i) to pay in full all such fees and disbursements and (ii) to pay prejudgment interest on any money judgment obtained by Executive from the earliest date that payment to him should have been made under this Agreement until such judgment shall have been paid in full, which interest shall be calculated at the prime or base rate of interest announced by Chase Bank of Texas, N.A. (or any successor thereto) at its principal office in Houston, Texas, and shall change when and as any such change in such prime or base rate shall be announced by such bank. (c) Payment Obligations Absolute. The Company's obligation to pay (or cause one of its subsidiaries to pay) Executive the amounts and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company (including its subsidiaries) may have against him or anyone else. All amounts payable by the Company (including its subsidiaries hereunder) shall be paid without notice or demand. Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and, except as provided in Paragraph 3(c) hereof, the obtaining of any such other employment shall in no event effect any reduction of the Company's -5- obligations to make (or cause to be made) the payments and arrangements required to be made under this Agreement. (d) Successors. This Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company, by merger or otherwise. This Agreement shall also be binding upon and inure to the benefit of Executive and his estate. If Executive shall die prior to full payment of amounts due pursuant to this Agreement, such amounts shall be payable pursuant to the terms of this Agreement to his estate. (e) Severability. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction by reason of applicable law shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) Non-Alienation. Executive shall not have any right to pledge, hypothecate, anticipate or assign this Agreement or the rights hereunder, except by will or the laws of descent and distribution. (g) Notices. Any notices or other communications provided for in this Agreement shall be sufficient if in writing. In the case of Executive, such notices or communications shall be effectively delivered if hand delivered to Executive at his principal place of employment or if sent by registered or certified mail to Executive at the last address he has filed with the Company. In the case of the Company, such notices or communications shall be effectively delivered if sent by registered or certified mail to the Company at its principal executive offices. (h) Controlling Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. Further, Executive agrees that any legal proceeding to enforce the provisions of this Agreement shall be brought in Houston, Harris County, Texas, and hereby waives his right to any pleas regarding subject matter or personal jurisdiction and venue. (i) Release. As a condition to the receipt of any benefit under Paragraph 3 hereof, Executive shall first execute a release, in the form established by the Company, releasing the Company, its shareholders, partners, officers, directors, employees and agents from any and all claims and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of Executive's employment with the Company or the termination of such employment. (j) Full Settlement. If Executive is entitled to and receives the benefits provided hereunder, performance of the obligations of the Company hereunder will constitute full settlement of all claims that Executive might otherwise assert against the Company on account of his termination of employment. (k) Unfunded Obligation. The obligation to pay amounts under this Agreement is an unfunded obligation of the Company (including its subsidiaries), and no such obligation shall -6- create a trust or be deemed to be secured by any pledge or encumbrance on any property of the Company (including its subsidiaries). (l) Not a Contract of Employment. This Agreement shall not be deemed to constitute a contract of employment, nor shall any provision hereof affect (i) the right of the Company (or its subsidiaries) to discharge Executive at will or (ii) the terms and conditions of any other agreement between the Company and Executive except as provided herein. (m) Number and Gender. Wherever appropriate herein, words used in the singular shall include the plural and the plural shall include the singular. The masculine gender where appearing herein shall be deemed to include the feminine gender. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the 24th day of March, 1998. "EXECUTIVE" /s/ Gerald R. Colley "COMPANY" SEAGULL ENERGY CORPORATION By: /s/ Jack M. Robertson Name: Jack M. Robertson Title: Vice President, Human Resources VEHOU02:102307.1 -7- AMENDMENT TO SEVERANCE AGREEMENT WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") and Gerald R. Colley ("Executive") have entered into a severance agreement effective as of January 1, 1998 (the "Agreement"); and WHEREAS, the Company and Executive desire to amend the Agreement in certain respects; NOW, THEREFORE, the Agreement shall be amended as follows, effective as of July 15, 1998: 1. Paragraph 5 of the Agreement shall be deleted and the following shall be substituted therefor: "5. Certain Additional Payments by the Company. Notwithstanding anything to the contrary in this Agreement, in the event that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are hereinafter collectively referred to as the "Excise Tax"), the Company shall pay to Executive an additional payment (a "Gross-up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed on any Gross-up Payment, Executive retains an amount of the Gross-up Payment equal to the Excise Tax imposed upon the Payment. The Company and Executive shall make an initial determination as to whether a Gross-up Payment is required and the amount of any such Gross-up Payment. Executive shall notify the Company in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to make a Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially determined by the Company and Executive) within ten days of the receipt of such claim. The Company shall notify Executive in writing at least ten days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Company decides to contest such claim, Executive shall cooperate fully with the Company in such action; provided, however, the Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of the Company's action. If, as a result of the Company's action with respect to a claim, Executive receives a refund of any amount paid by the Company with respect to such claim, Executive shall promptly pay such refund to the -1- Company. If the Company fails to timely notify Executive whether it will contest such claim or the Company determines not to contest such claim, then the Company shall immediately pay to Executive the portion of such claim, if any, which it has not previously paid to Executive." 2. As amended hereby, the Agreement is specifically ratified and reaffirmed. EXECUTED this 1 day of August, 1998. "EXECUTIVE" /s/ Gerald R. Colley "COMPANY" SEAGULL ENERGY CORPORATION By: /s/ Jack M. Robertson Name: Jack M. Robertson Title: Vice President, Human Resources VEHOU02:114735.1 -2- SECOND AMENDMENT TO SEVERANCE AGREEMENT WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") and Gerald R. Colley ("Executive") have entered into a severance agreement effective as of January 1, 1998 (the "Agreement"); and WHEREAS, the Company and Executive desire to amend the Agreement in certain respects; NOW, THEREFORE, the Agreement shall be amended as follows, effective as of September 16, 1998: 1. Paragraph 1(b) of the Agreement shall be deleted and the following shall be substituted therefor: "(b) 'Change of Control' means the occurrence of one of the following events: (i) The Company (A) 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) or (B) is to be dissolved and liquidated, and as a result of or in connection such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board; (ii) Any person or entity, including a 'group' as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 20% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board; or (iii) The Company sells all or substantially all of the assets of the Company to any other person or entity (other than a wholly-owned subsidiary of the Company) in a transaction that requires shareholder approval pursuant to the Texas Business Corporation Act." -1- 2. Paragraph 1(g) of the Agreement shall be deleted and the following shall be substituted therefor: "(g) 'Retirement' shall mean Executive's voluntary resignation on or after the date he reaches age sixty-five (other than a resignation within sixty days after the date Executive receives notice of a Change in Duties or a resignation at the request of the Company)." 3. Paragraph 1(j) of the Agreement shall be deleted and the following shall be substituted therefor: "(j) 'Termination for Cause' shall mean termination of Executive's employment by the Company (or its subsidiaries) by reason of Executive's gross negligence, gross neglect or willful misconduct in the performance of his duties or Executive's final conviction of a felony or of a misdemeanor involving moral turpitude, excluding misdemeanor convictions relating to the operation of a motor vehicle." 4. Paragraph 3(d) of the Agreement shall be deleted and the following shall be substituted therefor: "(d) Executive shall be entitled to receive out-placement services in connection with obtaining new employment up to a maximum cost of $6,000, or an equivalent cash payment, if Executive either has or is not seeking new employment." 5. Paragraph 4 of the Agreement shall be deleted and the following shall be substituted therefor: "4. Interest on Late Benefit Payments. If any payment provided for in Paragraph 3(a) or 3(b) hereof is not made when due, the Company shall pay to Executive interest on the amount payable from the date that such payment should have been made under such paragraph until such payment is made, which interest shall be calculated at a rate equal to two percentage points over the prime or base rate of interest announced by Chase Bank of Texas, N.A. (or any successor thereto) at its principal office in Houston, Texas and shall change when and as any such change in such prime or base rate shall be announced by such bank." 6. Paragraph 6(b) of the Agreement shall be deleted and the following shall be substituted therefor: "(b) Indemnification. If Executive shall obtain any money judgment or otherwise prevail with respect to any litigation brought by Executive or the Company to enforce or interpret any provision contained herein, the Company, to the fullest -2- extent permitted by applicable law, hereby indemnifies Executive for his reasonable attorneys' fees and disbursements incurred in such litigation and hereby agrees (i) to pay in full all such fees and disbursements and (ii) to pay prejudgment interest on any money judgment obtained by Executive from the earliest date that payment to him should have been made under this Agreement until such judgment shall have been paid in full, which interest shall be calculated at a rate equal to two percentage points over the prime or base rate of interest announced by Chase Bank of Texas, N.A. (or any successor thereto) at its principal office in Houston, Texas, and shall change when and as any such change in such prime or base rate shall be announced by such bank." 7. As amended hereby, the Agreement is specifically ratified and reaffirmed. EXECUTED this 26th day of October, 1998. "EXECUTIVE" /s/ Gerald R. Colley "COMPANY" SEAGULL ENERGY CORPORATION By: /s/ William L. Transier Name: William L. Transier Title: Executive Vice President & Chief Financial Officer VEHOU02:121318.1 -3- EX-10.10 11 SEVERANCE AGREEMENT - KING SEVERANCE AGREEMENT AGREEMENT between SEAGULL ENERGY CORPORATION, a Texas corporation (the "Company"), and Carl B. King ("Executive"), W I T N E S S E T H : WHEREAS, the Company desires to retain certain key employee personnel and, accordingly, the Board of Directors of the Company (the "Board") has approved the Company entering into a severance agreement with Executive in order to encourage his continued service to the Company; and WHEREAS, Executive is prepared to commit such services in return for specific arrangements with respect to severance compensation and other benefits; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the Company and Executive agree as follows: 1. Definitions. (a) "Change in Duties" shall mean the occurrence, within two years after the date upon which a Change of Control occurs, of any one or more of the following: (i) A significant reduction in the duties of Executive from those applicable to him immediately prior to the date on which a Change of Control occurs; (ii) A reduction in Executive's annual salary or target opportunity under any applicable bonus or incentive compensation plan from that provided to him immediately prior to the date on which a Change of Control occurs; (iii) Receipt of employee benefits (including but not limited to medical, dental, life insurance, accidental, death, and dismemberment, and long-term disability plans) and perquisites by Executive that are materially inconsistent with the employee benefits and perquisites provided by the Company to executives with comparable duties; or (iv) A change in the location of Executive's principal place of employment by the Company by more than 50 miles from the location where he was principally employed immediately prior to the date on which a Change of Control occurs. (b) "Change of Control" means the occurrence of either of the following events: (i) The Company (A) 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) or (B) is to be dissolved and liquidated, and as a result of or in connection such transaction, the persons who were -1- directors of the Company before such transaction shall cease to constitute a majority of the Board; or (ii) Any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 20% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Compensation" shall mean the greater of: (i) Executive's annual salary plus his Targeted EIP Award immediately prior to the date on which a Change of Control occurs, or (ii) Executive's annual salary plus his Targeted EIP Award at the time of his Involuntary Termination. (e) "EIP" shall mean the Seagull Energy Corporation Executive Incentive Plan or any successor thereto. (f) "Involuntary Termination" shall mean any termination of Executive's employment with the Company which: (i) does not result from a resignation by Executive (other than a resignation pursuant to clause (ii) of this subparagraph (f) or a resignation at the request of the Company); or (ii) results from a resignation by Executive on or before the date which is sixty days after the date upon which Executive receives notice of a Change in Duties; provided, however, the term "Involuntary Termination" shall not include a Termination for Cause or any termination as a result of death, disability under circumstances entitling him to benefits under the Company's long-term disability plan, or Retirement. (g) "Retirement" shall mean Executive's resignation on or after the date he reaches age sixty-five. (h) "Severance Amount" shall mean an amount equal to 2.99 times Executive's Compensation. (i) "Targeted EIP Award" shall mean Executive's Incentive Target as set forth under the EIP in effect for the year with respect to which such award is being determined, if any, or -2- for the last preceding year in which an EIP was in effect, expressed as a dollar amount based on such Executive's annual salary for such year. (j) "Termination for Cause" shall mean termination of Executive's employment by the Company (or its subsidiaries) by reason of Executive's (i) gross negligence in the performance of his duties, (ii) willful and continued failure to perform his duties, (iii) willful engagement in conduct which is materially injurious to the Company or its subsidiaries (monetarily or otherwise) or (iv) conviction of a felony or a misdemeanor involving moral turpitude. (k) "Welfare Benefit Coverages" shall mean the medical, dental, life insurance, accidental death and dismemberment and long-term disability coverages provided by the Company to its active employees. 2. Services. Executive agrees that he will render services to the Company (as well as any subsidiary thereof or successor thereto) during the period of his employment to the best of his ability and in a prudent and businesslike manner and that he will devote substantially the same time, efforts and dedication to his duties as heretofore devoted. 3. Severance Benefits. If Executive's employment by the Company or any subsidiary thereof or successor thereto shall be subject to an Involuntary Termination which occurs within two years after the date upon which a Change of Control occurs, then Executive shall be entitled to receive, as additional compensation for services rendered to the Company (including its subsidiaries), the following severance benefits: (a) A lump sum cash payment in an amount equal to Executive's Severance Amount. (b) A lump sum cash payment in an amount equal to the remaining portion of any award to Executive under any prior years' EIP. Further, if Executive's Involuntary Termination occurs on or after the date an award has been earned under the EIP, but prior to the date such award is paid, Executive shall receive an additional lump sum cash payment in an amount equal to his Targeted EIP Award. (c) Executive shall be entitled to continue the Welfare Benefit Coverages for himself and, where applicable, his eligible dependents following his Involuntary Termination for up to thirty-six months, as long as Executive continues either to pay the premiums paid by active employees of the Company for such coverages or to pay the actual (nonsubsidized) cost of such coverages for which the Company does not subsidize for active employees. Such benefit rights shall apply only to those Welfare Benefit Coverages which the Company has in effect from time to time for active employees, and the applicable payments shall adjust as premiums for active employees of the Company or actual costs, whichever is applicable, change. Welfare Benefit Coverage(s) shall immediately end upon Executive's obtainment of new employment and eligibility for similar Welfare Benefit Coverage(s) (with Executive being obligated hereunder to promptly report such eligibility to the Company). Nothing herein shall be deemed to adversely affect in any way the additional rights, after consideration of this extension period, of Executive and his eligible dependents to health care -3- continuation coverage as required pursuant to Part 6 of Title I of the Employee Retirement Income Security Act of 1974, as amended. (d) Executive shall be entitled to receive out-placement services in connection with obtaining new employment up to a maximum cost of $6,000. (e) The severance benefits payable under this Agreement shall be paid to an Executive on or before the fifth day after the last day of Executive's employment with the Company. Any severance benefits paid pursuant to this Paragraph will be deemed to be a severance payment and not compensation for purposes of determining benefits under the Company's qualified plans and shall be subject to any required tax withholding. 4. Interest on Late Benefit Payments. If any payment provided for in Paragraph 3(a) or 3(b) hereof is not made when due, the Company shall pay to Executive interest on the amount payable from the date that such payment should have been made under such paragraph until such payment is made, which interest shall be calculated at the prime or base rate of interest announced by Texas Commerce Bank N.A. (or any successor thereto) at its principal office in Houston, Texas and shall change when and as any such change in such prime or base rate shall be announced by such bank. 5. Certain Additional Payments by the Company. Notwithstanding anything in this Agreement to the contrary, if the severance benefits provided for in Paragraph 3, together with any other payments which Executive has the right to receive from the Company, would constitute a "parachute payment " (as defined in Section 280G(b)(2) of the Code), the severance benefits provided hereunder shall be either (a) reduced (but not below zero) so that the present value of such total amounts received by Executive from the Company will be one dollar ($1.00) less than three times Executive's base amount (as defined in Section 280G of the Code) and so that no portion of such amounts received by Executive shall be subject to the excise tax imposed by Section 4999 of the Code or (b) paid in full, whichever produces the better net after-tax position to Executive (taking into account any applicable excise tax under Section 4999 of the Code and any applicable income tax). The Company and Executive shall make an initial determination as to whether a reduction is required and, if so required, the amount of any such reduction. Executive shall notify the Company immediately in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to make a reduction (or a further reduction in excess of that, if any, initially determined by the Company and Executive) within five days of the receipt of such claim. The Company shall notify Executive in writing at least five days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Company decides to contest such claim, Executive shall cooperate fully with the Company in such action; provided, however, the Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action. If, as a result of the Company's action with respect to a claim, the amount of the reduction is found to have been in excess of the correct reduction amount, the Company shall promptly pay to Executive the difference between such amounts with respect to such claim. -4- 6. General. (a) Term. The effective date of this Agreement is February 9, 1998. The initial term of this Agreement shall be the period beginning on said effective date and ending on the two-year anniversary of said effective date. At any time during the initial term of this Agreement or within sixty days after the expiration thereof and within sixty days after each successive two-year period of time thereafter that this Agreement is in effect, the Company shall have the right to review this Agreement, and in its sole discretion either continue and extend this Agreement, terminate this Agree ment, and/or offer Executive a different agreement. The Board (excluding any member of the Board who is covered by this Agreement or by a similar agreement with the Company) will vote on whether to so extend, terminate, and/or offer Executive a different agreement and will notify Executive of such action before the end of said sixty-day time period mentioned above. This Agreement shall remain in effect until so terminated and/or modified by the Company. Failure of the Board to take any action within said sixty-day time period shall be considered as an extension of this Agreement for an additional two-year period of time. Notwithstanding anything to the contrary contained in this "sunset provision," it is agreed that if a Change of Control occurs while this Agreement is in effect, then this Agreement shall not be subject to termination or modification under this "sunset provision," and shall remain in force for a period of two years after such Change of Control, and if within said two years the contingency factors occur which would entitle Executive to the benefits as provided herein, this Agreement shall remain in effect in accordance with its terms. If, within such two years after a Change of Control, the contingency factors that would entitle Executive to said benefits do not occur, thereupon this two-year "sunset provision" shall again be applicable with the sixty-day time period for Board action to thereafter commence at the expiration of said two years after such Change of Control and on each two-year anniversary date thereafter. (b) Indemnification. If Executive shall obtain any money judgment or otherwise prevail with respect to any litigation brought by Executive or the Company to enforce or interpret any provision contained herein, the Company, to the fullest extent permitted by applicable law, hereby indemnifies Executive for his reasonable attorneys' fees and disbursements incurred in such litigation and hereby agrees (i) to pay in full all such fees and disbursements and (ii) to pay prejudgment interest on any money judgment obtained by Executive from the earliest date that payment to him should have been made under this Agreement until such judgment shall have been paid in full, which interest shall be calculated at the prime or base rate of interest announced by Texas Commerce Bank N.A. (or any successor thereto) at its principal office in Houston, Texas, and shall change when and as any such change in such prime or base rate shall be announced by such bank. (c) Payment Obligations Absolute. The Company's obligation to pay (or cause one of its subsidiaries to pay) Executive the amounts and to make the arrangements provided herein shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company (including its subsidiaries) may have against him or anyone else. All amounts payable by the Company (including its subsidiaries hereunder) shall be paid without notice or demand. Executive shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and, except as provided in Paragraph 3(c) hereof, the obtaining of any such other employment shall in no event effect any reduction of the Company's -5- obligations to make (or cause to be made) the payments and arrangements required to be made under this Agreement. (d) Successors. This Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company, by merger or otherwise. This Agreement shall also be binding upon and inure to the benefit of Executive and his estate. If Executive shall die prior to full payment of amounts due pursuant to this Agreement, such amounts shall be payable pursuant to the terms of this Agreement to his estate. (e) Severability. Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction by reason of applicable law shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) Non-Alienation. Executive shall not have any right to pledge, hypothecate, anticipate or assign this Agreement or the rights hereunder, except by will or the laws of descent and distribution. (g) Notices. Any notices or other communications provided for in this Agreement shall be sufficient if in writing. In the case of Executive, such notices or communications shall be effectively delivered if hand delivered to Executive at his principal place of employment or if sent by registered or certified mail to Executive at the last address he has filed with the Company. In the case of the Company, such notices or communications shall be effectively delivered if sent by registered or certified mail to the Company at its principal executive offices. (h) Controlling Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. Further, Executive agrees that any legal proceeding to enforce the provisions of this Agreement shall be brought in Houston, Harris County, Texas, and hereby waives his right to any pleas regarding subject matter or personal jurisdiction and venue. (i) Release. As a condition to the receipt of any benefit under Paragraph 3 hereof, Executive shall first execute a release, in the form established by the Company, releasing the Company, its shareholders, partners, officers, directors, employees and agents from any and all claims and from any and all causes of action of any kind or character, including but not limited to all claims or causes of action arising out of Executive's employment with the Company or the termination of such employment. (j) Full Settlement. If Executive is entitled to and receives the benefits provided hereunder, performance of the obligations of the Company hereunder will constitute full settlement of all claims that Executive might otherwise assert against the Company on account of his termination of employment. (k) Unfunded Obligation. The obligation to pay amounts under this Agreement is an unfunded obligation of the Company (including its subsidiaries), and no such obligation shall -6- create a trust or be deemed to be secured by any pledge or encumbrance on any property of the Company (including its subsidiaries). (l) Not a Contract of Employment. This Agreement shall not be deemed to constitute a contract of employment, nor shall any provision hereof affect (i) the right of the Company (or its subsidiaries) to discharge Executive at will or (ii) the terms and conditions of any other agreement between the Company and Executive except as provided herein. (m) Number and Gender. Wherever appropriate herein, words used in the singular shall include the plural and the plural shall include the singular. The masculine gender where appearing herein shall be deemed to include the feminine gender. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the 1st day of March, 1998. "EXECUTIVE" /s/ Carl B. King "COMPANY" SEAGULL ENERGY CORPORATION By: /s/ William L. Transier Name: William L. Transier Title: Senior Vice President and Chief Financial Officer VEHOU02:96803.1 -7- AMENDMENT TO SEVERANCE AGREEMENT WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") and Carl B. King ("Executive") have entered into a severance agreement effective as of February 9, 1998 (the "Agreement"); and WHEREAS, the Company and Executive desire to amend the Agreement in certain respects; NOW, THEREFORE, the Agreement shall be amended as follows, effective as of July 15, 1998: 1. Paragraph 5 of the Agreement shall be deleted and the following shall be substituted therefor: "5. Certain Additional Payments by the Company. Notwithstanding anything to the contrary in this Agreement, in the event that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest or penalties, are hereinafter collectively referred to as the "Excise Tax"), the Company shall pay to Executive an additional payment (a "Gross-up Payment") in an amount such that after payment by Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax imposed on any Gross-up Payment, Executive retains an amount of the Gross-up Payment equal to the Excise Tax imposed upon the Payment. The Company and Executive shall make an initial determination as to whether a Gross-up Payment is required and the amount of any such Gross-up Payment. Executive shall notify the Company in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to make a Gross-up Payment (or a Gross-up Payment in excess of that, if any, initially determined by the Company and Executive) within ten days of the receipt of such claim. The Company shall notify Executive in writing at least ten days prior to the due date of any response required with respect to such claim if it plans to contest the claim. If the Company decides to contest such claim, Executive shall cooperate fully with the Company in such action; provided, however, the Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with such action and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of the Company's action. If, as a result of the Company's action with respect to a claim, Executive receives a refund of any amount paid by the Company with respect to such claim, Executive shall promptly pay such refund to the -1- Company. If the Company fails to timely notify Executive whether it will contest such claim or the Company determines not to contest such claim, then the Company shall immediately pay to Executive the portion of such claim, if any, which it has not previously paid to Executive." 2. As amended hereby, the Agreement is specifically ratified and reaffirmed. EXECUTED this 10 day of August, 1998. "EXECUTIVE" /s/ Carl B. King "COMPANY" SEAGULL ENERGY CORPORATION By: /s/ Jack M. Robertson Name: Jack M. Robertson Title: Vice President, Human Resources VEHOU02:114735.1 -2- SECOND AMENDMENT TO SEVERANCE AGREEMENT WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") and Carl B. King ("Executive") have entered into a severance agreement effective as of February 9, 1998 (the "Agreement"); and WHEREAS, the Company and Executive desire to amend the Agreement in certain respects; NOW, THEREFORE, the Agreement shall be amended as follows, effective as of September 16, 1998: 1. Paragraph 1(b) of the Agreement shall be deleted and the following shall be substituted therefor: "(b) 'Change of Control' means the occurrence of one of the following events: (i) The Company (A) 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) or (B) is to be dissolved and liquidated, and as a result of or in connection such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board; (ii) Any person or entity, including a 'group' as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of 20% or more of the outstanding shares of the Company's voting stock (based upon voting power), and as a result of or in connection with such transaction, the persons who were directors of the Company before such transaction shall cease to constitute a majority of the Board; or (iii) The Company sells all or substantially all of the assets of the Company to any other person or entity (other than a wholly-owned subsidiary of the Company) in a transaction that requires shareholder approval pursuant to the Texas Business Corporation Act." -1- 2. Paragraph 1(g) of the Agreement shall be deleted and the following shall be substituted therefor: "(g) 'Retirement' shall mean Executive's voluntary resignation on or after the date he reaches age sixty-five (other than a resignation within sixty days after the date Executive receives notice of a Change in Duties or a resignation at the request of the Company)." 3. Paragraph 1(j) of the Agreement shall be deleted and the following shall be substituted therefor: "(j) 'Termination for Cause' shall mean termination of Executive's employment by the Company (or its subsidiaries) by reason of Executive's gross negligence, gross neglect or willful misconduct in the performance of his duties or Executive's final conviction of a felony or of a misdemeanor involving moral turpitude, excluding misdemeanor convictions relating to the operation of a motor vehicle." 4. Paragraph 3(d) of the Agreement shall be deleted and the following shall be substituted therefor: "(d) Executive shall be entitled to receive out-placement services in connection with obtaining new employment up to a maximum cost of $6,000, or an equivalent cash payment, if Executive either has or is not seeking new employment." 5. Paragraph 4 of the Agreement shall be deleted and the following shall be substituted therefor: "4. Interest on Late Benefit Payments. If any payment provided for in Paragraph 3(a) or 3(b) hereof is not made when due, the Company shall pay to Executive interest on the amount payable from the date that such payment should have been made under such paragraph until such payment is made, which interest shall be calculated at a rate equal to two percentage points over the prime or base rate of interest announced by Chase Bank of Texas, N.A. (or any successor thereto) at its principal office in Houston, Texas and shall change when and as any such change in such prime or base rate shall be announced by such bank." 6. Paragraph 6(b) of the Agreement shall be deleted and the following shall be substituted therefor: "(b) Indemnification. If Executive shall obtain any money judgment or otherwise prevail with respect to any litigation brought by Executive or the Company to enforce or interpret any provision contained herein, the Company, to the fullest -2- extent permitted by applicable law, hereby indemnifies Executive for his reasonable attorneys' fees and disbursements incurred in such litigation and hereby agrees (i) to pay in full all such fees and disbursements and (ii) to pay prejudgment interest on any money judgment obtained by Executive from the earliest date that payment to him should have been made under this Agreement until such judgment shall have been paid in full, which interest shall be calculated at a rate equal to two percentage points over the prime or base rate of interest announced by Chase Bank of Texas, N.A. (or any successor thereto) at its principal office in Houston, Texas, and shall change when and as any such change in such prime or base rate shall be announced by such bank." 7. As amended hereby, the Agreement is specifically ratified and reaffirmed. EXECUTED this 23 day of October, 1998. "EXECUTIVE" /s/ Carl B. King "COMPANY" SEAGULL ENERGY CORPORATION By: /s/ William L. Transier Name: William L. Transier Title: Executive Vice President and Chief Financial Officer VEHOU02:121318.1 -3- EX-10.11 12 3RD AMENDMENT TO ESRP THIRD AMENDMENT TO SEAGULL ENERGY CORPORATION EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN WHEREAS, SEAGULL ENERGY CORPORATION (the "Company"), has heretofore adopted and currently maintains the SEAGULL ENERGY CORPORATION EXECUTIVE SUPPLEMENT RETIREMENT PLAN (the "Plan"); and WHEREAS, the Company desires to amend the Plan; NOW, THEREFORE, the Plan shall be amended as follows, effective as of August 24, 1998; 1. The following sentence shall be added to Paragraph (1) of Section 1.01 of the Plan: "Notwithstanding the foregoing, for purposes of recognizing the expense of a Member's benefit under the Plan, the Member's benefit shall be deemed to accrue in accordance with the Vesting Schedule set forth in the Member's Membership Agreement." 2. Paragraph (8) of Section 1.01 of the Plan shall be deleted and the following shall be substituted therefor: "(8) Compensation: Except as otherwise provided in a Member's Membership Agreement, the total of all amounts paid by the Company to or for the benefit of a Member for services rendered or labor performed while a Member, including elective contributions made on a Member's behalf by the Company that are not includable in income under section 125 or section 402(e)(3) of the Code and elective deferrals of compensation other than incentive bonuses under a nonqualified deferred compensation program, but excluding non-cash remuneration, income incurred as a result of the exercise of stock options or stock appreciation rights, incentive bonuses or other supplemental pay (whether paid in cash or in kind) and, except as expressly included herein, Company contributions to any other deferred compensation program." 3. The following new paragraphs (18A), (18B) and (18C) shall be added to Section 1.01 of the Plan: Trust: The trust, if any, established under the Trust Agreement. (18B) Trust Agreement: The agreement, if any, entered into between the Company and the Trustee pursuant Article II. -1- (18C) Trust Fund: The funds and properties, if any, held pursuant to the provisions of the Trust Agreement, together with all income, profit, and increments thereto." 4. The following new paragraph shall be added to Article II of the Plan: "The Committee in its sole discretion, may establish the Trust and direct the Company to enter into the Trust Agreement. In such event, the Company shall remain the owner of all assets in the Trust Fund and the assets shall be subject to the claims of the Company's creditors if the Company ever becomes insolvent. For purposes hereof, the Company shall be considered 'insolvent' if (a) the Company is unable to pay its debts as they become due, or (b) the Company is subject to a pending proceeding as a debtor under the United Sates Bankruptcy Code (or any successor federal statute). The chief executive officer of the Company and its board of directors shall have the duty to inform the Trustee in writing if the Company becomes insolvent. When so informed, the Trustee shall suspend payments to the Members and hold the assets for the benefit of the Company's general creditors. If the Trustee receives a written allegation that the Company is insolvent, the Trustee shall suspend payments to the Members and hold the Trust Fund for the benefit of the Company's general creditors, and shall determine whether the Company is insolvent. If the Trustee determines that the Company is not insolvent, the Trustee shall resume payments to the Members. No Member or beneficiary shall have any preferred claim to, or any beneficial ownership interest in, any assets of the Trust Fund." 5. Section 5.02 of the Plan shall be deleted and the following shall be substituted therefor: "5.02 Competition with the Company Except as otherwise provided in a Member's Membership Agreement, if a Member engages in competitive activities against the Company and its subsidiaries to the material detriment of the Company and its subsidiaries following his termination of employment, he shall forfeit all right and entitlement to any amount of Accrued Benefit under the Plan (regardless of whether payment of same has commenced) at the time he engages in such competitive activities." 6. The first sentence of Section 7.01 of the Plan shall be deleted and the following shall be substituted therefor: "The Company reserves the right to amend the Plan at any time; provided, however, that no such amendment shall deprive any Member of any Accrued Benefit under the Plan to the extent that such Member has a Vested Interest in such Accrued Benefit." -2- 7. As amended hereby, the Plan is specifically ratified and reaffirmed. EXECUTED effective as of August 24, 1998. SEAGULL ENERGY CORPORATION By: /s/ William L. Transier Name: William L. Transier Title: Executive Vice President and Chief Finanical Officer VEHOU02:123718.1 -3- EX-10.12 13 3RD AMENDMENT TO SUPPLEMENTAL RETIREMENT PLAN THIRD AMENDMENT TO SEAGULL ENERGY CORPORATION SUPPLEMENTAL BENEFIT PLAN WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore adopted the SEAGULL ENERGY CORPORATION SUPPLEMENTAL BENEFIT PLAN (the "Plan"); and WHEREAS, the Company desires to amend the Plan; NOW, THEREFORE, the Plan shall be amended as follows, effective as of August 24, 1998: 1. The following new Section 3.3A shall be added to Article III of the Plan: "3.3A Amount of Additional Benefits. As of any day during a Plan Year, a Participant's Accounts shall be credited with such additional amounts as may be determined by the Committee in its sole discretion or as shall be otherwise contemplated by the terms of any written agreement between a Participant and the Company that is approved by the Committee or the Directors." 2. Article V of the Plan shall be deleted and the following shall be substituted therefor: "ARTICLE V FORM AND TIMING OF BENEFITS Upon the termination of a Participant's employment or, if later, the termination of a Participant's consulting relationship with the Company, his benefit under this Plan shall be paid to him (or his beneficiary) in a lump sum in cash as soon as practicable following such termination. Notwithstanding the preceding sentence, in the event of a change of control that is not approved, recommended and supported by at least two-thirds of the Directors that were also Directors prior to the occurrence of any such change of control in actions taken prior to, and with respect to, such change of control, each Participant's benefit under this Plan shall be paid to him (or his beneficiary) in a lump sum in cash as soon as practicable, but no later than thirty days following the date on which such change of control occurs. If a Participant has elected to have his Accounts credited with Phantom Stock pursuant to Section 3.4(c), the Participant shall be paid an amount equal to the value of his Accounts as of the last day of the calendar month preceding his termination or the change of control as described in the preceding sentence, based upon the average of the closing prices of common stock of the Company on the twenty trading days preceding such date. If -1- a Participant's termination occurs by reason of death, his benefit under this Plan shall be paid to the same recipient or recipients as are paid his benefits under the Thrift Plan." 3. Section 6.4 of the Plan shall be deleted. 4. As amended hereby, the Plan is specifically ratified and reaffirmed. EXECUTED effective as of August 24, 1998. SEAGULL ENERGY CORPORATION By: /s/ William L. Transier Name: William L. Transier Title: Executive Vice President and Chief Financial Officer VEHOU02:123720.1 -2- EX-27.1 14 FDS -- 9/30/98
5 1,000 9-MOS DEC-31-1998 SEP-30-1998 13,884 0 109,078 0 18,840 159,187 2,341,234 1,105,398 1,441,463 183,019 622,314 0 0 6,426 556,041 1,441,463 318,953 318,953 27,127 392,210 (2,027) 0 28,490 (115,504) (31,001) (84,503) 0 (1,031) 0 (85,534) (1.36) (1.36)
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