-----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, P1T2JY/mlHdrULLbTWGojjc7Feq9sdLtjkxyFz9fwt7OODHknIyK81+ycVn8Oljr teDC6uTZOwLnyD+4Igcs7w== 0000950129-96-001710.txt : 19960812 0000950129-96-001710.hdr.sgml : 19960812 ACCESSION NUMBER: 0000950129-96-001710 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960809 SROS: NYSE 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: 1934 Act SEC FILE NUMBER: 001-08094 FILM NUMBER: 96606492 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 SEAGULL ENERGY CORPORATION - FORM 10-Q - 06/30/96 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR - ----- 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 ------------------------------------------------ OR TRANSITION REPORT PURSUANT TO SECTION - --------- 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------------- ------------------------ 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 _____. APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT AUGUST 5, 1996 ----- ----------------------------- Common Stock, $.10 par value 36,772,878
2 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES INDEX PAGE PART I. FINANCIAL INFORMATION NUMBER - ------------------------------ ------ Presentation of Financial Information ............................... 3 Consolidated Statements of Earnings - Three and Six Months Ended June 30, 1996 and 1995 (Unaudited) .......................... 4 Consolidated Balance Sheets - June 30, 1996 and December 31, 1995 (Unaudited) ................................. 5 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1996 and 1995 (Unaudited) .......................... 6 Notes to Consolidated Financial Statements (Unaudited) .............. 7 Management's Discussion and Analysis of Financial Condition and Results of Operations (Unaudited) ............................ 10 PART II. OTHER INFORMATION ........................................... 20 - --------------------------- SIGNATURES ............................................................ 23 - ---------- -2- 3 SEAAGULL ENERGY CORPORATION AND SUBSIDIARIES PART I. FINANCIAL INFORMATION PRESENTATION OF FINANCIAL INFORMATION In the opinion of management, the following unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of Seagull Energy Corporation and Subsidiaries (the "Company" or "Seagull") as of June 30, 1996, and the results of its operations for the three and six months ended June 30, 1996 and 1995, and cash flows for the six month periods then ended. As discussed in Note 1 to the Company's Consolidated Financial Statements, Seagull adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," effective March 31, 1995. Under SFAS No. 121, the Company recorded a non-cash impairment of gas and oil properties as a separate line item in the accompanying unaudited consolidated statement of earnings for the six months ended June 30, 1995. All other adjustments made are of a normal, recurring nature. The results of operations for the three and six months ended June 30, 1996 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, 1995. Item 2 of this document includes "forward looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Important factors that could cause the actual results to differ materially from the Company's expectations are disclosed in conjunction with the forward looking statements included herein ("Cautionary Disclosures"). Subsequent written and oral forward looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Disclosures. -3- 4 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in Thousands Except Per Share Amounts) (Unaudited)
Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 1996 1995 1996 1995 ----------- ---------- ---------- ----------- Revenues: Gas and oil operations ...................... $ 70,085 $ 63,927 $ 145,302 $ 122,487 Alaska transmission and distribution ........ 15,703 17,560 51,133 53,850 ---------- ---------- ---------- ---------- 85,788 81,487 196,435 176,337 Costs of Operations: Alaska transmission and distribution cost of gas sold .......................... 6,257 7,923 22,457 26,488 Operations and maintenance .................. 25,961 27,814 51,013 56,742 Exploration charges ......................... 10,675 4,137 14,841 14,019 Depreciation, depletion and amortization .... 31,056 31,773 62,320 66,584 Impairment of gas and oil properties ........ -- -- -- 44,376 ---------- ---------- ---------- ---------- 73,949 71,647 150,631 208,209 ---------- ---------- ---------- ---------- Operating Profit (Loss) ....................... 11,839 9,840 45,804 (31,872) Other (Income) Expense: General and administrative .................. 4,577 9,847 7,933 12,501 Interest expense ............................ 11,223 13,934 22,654 27,931 Interest income and other ................... (344) (186) (852) (749) ---------- ---------- ---------- ---------- 15,456 23,595 29,735 39,683 ---------- ---------- ---------- ---------- Earnings (Loss) Before Income Taxes ........... (3,617) (13,755) 16,069 (71,555) Income Tax Expense (Benefit) .................. 2,290 (6,630) 7,130 (25,880) ---------- ---------- ---------- ---------- Net Earnings (Loss) ........................... $ (5,907) $ (7,125) $ 8,939 $ (45,675) ========== ========== ========== ========== Earnings (Loss) Per Share ..................... $ (0.16) $ (0.20) $ 0.24 $ (1.27) ========== ========== ========== ========== Weighted Average Number of Common Shares Outstanding (in thousands) .................. 36,445 36,108 37,062 36,107 ========== ========== ========== ==========
See Accompanying Notes to Unaudited Consolidated Financial Statements. -4- 5 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
JUNE 30, December 31, 1996 1995 ------------ ------------ ASSETS Current Assets: Cash and cash equivalents ................................... $ 14,404 $ 11,205 Accounts receivable, net .................................... 107,583 119,898 Inventories ................................................. 5,488 4,947 Prepaid expenses and other .................................. 6,502 11,331 ------------ ------------ Total Current Assets ...................................... 133,977 147,381 Property, Plant and Equipment - at cost (successful efforts method for gas and oil properties) ...... 1,645,282 1,581,002 Accumulated Depreciation, Depletion and Amortization .......... 627,612 569,587 ------------ ------------ 1,017,670 1,011,415 Other Assets .................................................. 39,917 40,000 ------------ ------------ Total Assets .................................................. $ 1,191,564 $ 1,198,796 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable ............................................ $ 79,975 $ 83,111 Accrued expenses ............................................ 33,518 33,080 Current maturities of long-term debt ........................ 1,214 1,214 ------------ ------------ Total Current Liabilities ................................. 114,707 117,405 Long-Term Debt ................................................ 522,632 545,343 Other Noncurrent Liabilities .................................. 53,581 52,276 Deferred Income Taxes ......................................... 41,111 36,104 Shareholders' Equity: Common Stock, $.10 par value; authorized a100,000,000 shares; issued 36,771,678 shares (1996) and 36,561,290 shares (1995) ............................... 3,677 3,656 Additional paid-in capital .................................. 329,683 326,918 Retained earnings ........................................... 133,530 124,591 Foreign currency translation adjustment ..................... 529 389 Less - note receivable from employee stock ownership plan ............................................. (4,922) (4,922) Less - 308,812 shares of Common Stock held in Treasury, at cost .......................................... (2,964) (2,964) ------------ ------------ Total Shareholders' Equity ................................ 459,533 447,668 Commitments and Contingencies ------------ ------------ Total Liabilities and Shareholders' Equity .................... $ 1,191,564 $ 1,198,796 ============ ============
See Accompanying Notes to Unaudited Consolidated Financial Statements. -5- 6 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Six Months Ended June 30, ------------------------ 1996 1995 ---------- ---------- OPERATING ACTIVITIES: Net earnings (loss) ........................................... $ 8,939 $ (45,675) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation, depletion and amortization .................... 63,993 68,236 Impairment of gas and oil properties ........................ -- 44,376 Amortization of deferred financing costs .................... 1,755 1,716 Deferred income taxes ....................................... 4,976 (26,523) Dry hole expense ............................................ 7,749 5,961 Other ....................................................... (210) (1,272) ---------- ---------- 87,202 46,819 Changes in operating assets and liabilities, net of acquisitions: Decrease in accounts receivable ........................... 12,353 26,819 Decrease (Increase) in inventories, prepaid expenses and other ................................................ 2,642 (3,786) Decrease in accounts payable .............................. (3,445) (37,548) Decrease in prepaid gas and oil sales ..................... -- (2,732) Increase in accrued expenses and other .................... 4,131 6,658 ---------- ---------- Net Cash Provided By Operating Activities .............. 102,883 36,230 INVESTING ACTIVITIES: Capital expenditures .......................................... (52,468) (34,791) Acquisitions, net of cash acquired ............................ (25,669) -- Proceeds from sales of property, plant and equipment .......... 831 321 ---------- ---------- Net Cash Used In Investing Activities .................. (77,306) (34,470) FINANCING ACTIVITIES: Proceeds from revolving lines of credit and other borrowings .. 130,260 330,511 Principal payments on revolving lines of credit and other borrowings ............................................. (148,482) (325,024) Principal payments on monetary production payment liability ... (4,650) -- Proceeds from sales of common stock ........................... 2,334 44 Other ......................................................... (1,978) (1,337) ---------- ---------- Net Cash Provided by (Used In) Financing Activities .... (22,516) 4,194 Effect of Exchange Rate Changes on Cash ......................... 138 84 ---------- ---------- Increase In Cash And Cash Equivalents .................. 3,199 6,038 Cash And Cash Equivalents At Beginning Of Period ................ 11,205 6,432 ---------- ---------- Cash And Cash Equivalents At End Of Period ...................... $ 14,404 $ 12,470 ========== ==========
See Accompanying Notes to Unaudited Consolidated Financial Statements. -6- 7 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Supplemental Disclosures of Cash Flow Information. - -------------------------------------------------------------------------------- (Dollars in Thousands) Six Months Ended June 30, ------------------------- Cash paid during the period for: 1996 1995 ------------------------- Interest, net of amount capitalized ....... $21,528 $26,483 Income taxes .............................. $ 3,015 $ 655 - -------------------------------------------------------------------------------- Gas And Oil Properties. Effective March 31, 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This SFAS requires that an impairment loss be recognized when the carrying amount of an asset exceeds the sum of the estimated future cash flows (undiscounted) of the asset. Under SFAS No. 121, the Company reviewed the impairment of gas and oil properties on a depletable unit basis. 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 was recognized. Fair value, on a depletable unit basis, was estimated to be the present value of expected future cash flows computed by applying estimated future gas and oil prices, as determined by management, to estimated future production of gas and oil reserves over the economic lives of the reserves. As a result of the adoption of SFAS No. 121, the Company recognized a non-cash pre-tax charge against earnings during the first quarter of 1995 of $44.4 million. Earnings Per Share. The weighted average number of common shares outstanding for the computation of earnings per share for the six months ended June 30, 1996 gives effect to the assumed exercise of dilutive stock options as of the beginning of the period. The effect of the assumed exercise of stock options as of the beginning of the period has an anti-dilutive effect on the computation of loss per share for the three months ended June 30, 1996 and the three and six months ended June 30, 1995 and has therefore not been included in the weighted average number of common shares outstanding. Changes in Financial Presentation. Certain reclassifications have been made in the 1995 unaudited financial statements to conform to the presentation used in 1996. -7- 8 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 2. LONG-TERM DEBT On May 28, 1996, Seagull's U.S. and Canadian revolving credit facilities (the "Credit Facilities") were amended to extend the maturity date two years and reduce stated interest rate margins. The Credit Facilities have a maximum commitment of $750 million. Under the new terms of the Credit Facilities, the commitments thereunder begin to decline on March 31, 1999 in equal quarterly reductions of approximately $46 million and a final reduction of approximately $56 million on December 31, 2002. The Credit Facilities bear interest, at Seagull's option, at various market-sensitive rates plus an applicable margin or a competitive bid rate. NOTE 3. 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 and results of operations, if any, will not be material. NOTE 4. SUBSEQUENT EVENT On July 22, 1996, Seagull announced that it agreed to purchase the stock of Esso Suez, Inc. ("ESI") and certain assets of Esso Egypt Limited (the "EEL Assets") for approximately $68 million net in cash (the "Esso Suez Acquisition"). The effective date for the acquisition is January 1, 1996 with a gross purchase price, including cash and receivables, of approximately $168 million. The prompt collectibility of the receivables will preclude any necessity for financing beyond the $68 million net cash payment, funded through additional borrowings under the Credit Facilities. ESI holds a 100% interest in the East Zeit oil producing concession in the offshore Gulf of Suez, and the EEL Assets consist of the entire working interest in the South Hurghada concession located onshore on the coast of the Gulf of Suez approximately 250 miles south of Cairo. Seagull estimates that the ESI concession area will contain at closing 17.4 million net barrels of proved oil reserves. The 63,000-acre South Hurghada concession contains a number of currently drillable exploratory prospects with substantial potential, plus two existing oil discoveries. Also, on July 22, 1996, Seagull announced plans for a stock merger with Global Natural Resources Inc. ("GNR") (the "Global Merger"). The Board of Directors of both Seagull and GNR have approved a definitive agreement calling for a stock merger whereby each share of GNR common stock would be converted into a right to receive between 0.72 and 0.88 shares of Seagull common stock. If Seagull's average price for a specified 20-day period is not greater than $22.50 per share, the exchange ratio would be fixed at 0.88 shares of Seagull. Conversely, if the average price equals or exceeds $27.50 per share, the exchange ratio would be fixed at 0.72 -8- 9 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 4. SUBSEQUENT EVENT, Continued shares of Seagull. Within the specified price range, the exchange ratio would be determined by interpolation. Accordingly, the indicated value of the transaction, would be nearly $600 million. The Global Merger will be accounted for as a pooling of interests. GNR is engaged in worldwide oil and gas exploration and production with properties located in the U.S. (primarily in the Gulf of Mexico and along the Gulf Coast), Egypt, Cote d'Ivoire, Indonesia and Tatarstan, Russia. The following table presents the unaudited pro forma results of the combined operations of Seagull, ESI, the EEL Assets and GNR for the six months ended June 30, 1996 and 1995 as though the Esso Acquisition and the Global Merger had occurred on January 1, 1995. The unaudited pro forma information presented does not purport to be indicative of actual results if the combination had been in effect on the date or for the period indicated, or of future results. (Dollars in Thousands Except Per Share Amounts) - -------------------------------------------------------------------------------- Six Months Ended Six Months Ended June 30, 1996 June 30, 1995 -------------------- --------------------- Actual Pro Forma Actual Pro Forma -------- --------- -------- --------- Revenues ..................... $196,435 $278,853 $176,337 $253,953 Net earnings (loss) .......... 8,939 21,716 (45,675) (42,538) Earnings (loss) per share .... 0.24 0.34 (1.27) (0.69) ================================================================================ The following table sets forth the pro forma consolidated total assets and pro forma capitalization of the Company as of June 30, 1996 as though the Esso Suez Acquisition and the Global Merger had occurred on June 30, 1996. (Dollars in Thousands) - -------------------------------------------------------------------------------- June 30, 1996 ------------------------- Actual Pro Forma ------------------------- Total assets ....................................... $1,191,564 $1,429,148 ================================================================================ Long-term portion of debt .......................... $522,632 $606,882 Redeemable bearer shares ........................... -- 16,265 Shareholders' equity ............................... 459,533 576,256 - -------------------------------------------------------------------------------- Total capitalization ............................... $982,165 $1,199,403 ================================================================================ Long-term portion of debt to total capitalization .. 53.2% 52.0% ================================================================================ -9- 10 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) GENERAL The following discussion is intended to assist in an understanding of the Company's financial position and results of operations for each of the periods indicated. The Company's accompanying unaudited financial statements and the notes thereto and the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995 contain detailed information that should be referred to in conjunction with the following discussion. RESULTS OF OPERATIONS CONSOLIDATED HIGHLIGHTS - -------------------------------------------------------------------------------- (Dollars in Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- Percent ---------------------- Percent 1996 1995 Change 1996 1995 Change ------------------------------------------------------------------- Revenues: Gas and oil operations (*) ................ $70,085 $63,927 + 10 $145,302 $122,487 + 19 Alaska transmission and distribution ...... 15,703 17,560 - 11 51,133 53,850 - 5 - ------------------------------------------------------------------------------------------------------------------- $85,788 $81,487 + 5 $196,435 $176,337 + 11 =================================================================================================================== Operating Profit (Loss): Gas and oil operations (*) ................ $9,754 $7,363 + 32 $31,914 $(44,800) +171 Alaska transmission and distribution ...... 2,085 2,477 - 16 13,890 12,928 + 7 - ------------------------------------------------------------------------------------------------------------------- $11,839 $9,840 + 20 $45,804 $(31,872) +244 =================================================================================================================== Net Earnings (Loss) ......................... $(5,907) $(7,125) + 17 $8,939 $(45,675) +120 Earnings (Loss) Per Share ................... (0.16) (0.20) + 20 0.24 (1.27) +119 Net Cash Provided by Operating Activities Before Changes in Operating Assets and Liabilities ............................... 34,989 19,253 + 82 87,202 46,819 + 86 Net Cash Provided by Operating Activities ... 64,028 3,449 +1,756 102,883 36,230 +184 Weighted Average Number of Common Shares Outstanding (in thousands) ................ 36,445 36,108 + 1 37,062 36,107 + 3 ===================================================================================================================
(*) The Company restated its results of operations for the three and six months ended June 30, 1995, to combine the former Exploration and Production segment and Pipeline and Marketing segment into Gas and Oil Operations. Substantially all of the Company's gas processing and gas gathering assets were sold in September 1995. These assets disposed of contributed $6.8 million and $13.5 million in revenues and $2.5 and $4.1 million in operating profit for the three and six months ended June 30, 1995, respectively. Revenues and operating profit are discussed in the respective segment sections. The increase in net earnings for the six months ended June 30, 1996 versus the prior year period was due to the increase in operating profit and decreases in general and administrative expense and interest expense, which were partially offset by an increase in income taxes (see "Other (Income) Expense" section below). The increase in operating profit was primarily due to the Gas and Oil Operations segment's 30% increase in natural gas prices and the absence of pre-tax non-cash impairment of gas and oil properties of $44.4 million recorded in the first quarter of 1995. -10- 11 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) CONSOLIDATED HIGHLIGHTS, CONTINUED Net loss for the three months ended June 30, 1996 improved over the second quarter of 1995 primarily as a result of an increase in operating profit, lower general and administrative expense and a reduction in interest expense, partially offset by increased income tax expense. Net cash provided by operating activities before and after changes in operating assets and liabilities increased in the three and six month periods of 1996 versus the 1995 periods primarily due to increases in natural gas prices and the absence of one-time pre-tax charges, included in general and administrative expense, of $8 million to account for the expenses involved in the workforce reduction and consolidation recorded during the second quarter of 1995. On September 25, 1995, the Company and three other sellers completed the sale of their disparate interests in 19 natural gas gathering systems and a gas processing plant (the "Pipeline Assets"). Net proceeds after payment of transaction costs were used to reduce the Company's borrowings under its two revolving credit facilities (the "Credit Facilities"). For the three and six months ended June 30, 1995, the Pipeline Assets contributed $6.8 million and $13.5 million, respectively, in revenues and $2.5 million and $4.1 million, respectively, to the operating profit of the Gas and Oil Operations segment. With the sale of the Pipeline Assets, the Company's former Exploration and Production segment and Pipeline and Marketing segment have been combined into Gas and Oil Operations. -11- 12 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) GAS AND OIL OPERATIONS (1) - -------------------------------------------------------------------------------- (Dollars in Thousands Except Per Unit Amounts)
Three Months Ended Six Months Ended June 30, June 30, ------------------- Percent ------------------- Percent 1996 1995 Change 1996 1995 Change ------------------------------------------------------------- Revenues .................................... $ 70,085 $ 63,927 + 10 $145,302 $122,487 + 19 Direct Operating Expense .................... 18,365 18,738 - 2 34,984 37,954 - 8 General Operating Expense ................... 2,211 3,901 - 43 5,202 8,296 - 37 Exploration Charges ......................... 10,675 4,137 +158 14,841 14,019 + 6 Depreciation, Depletion and Amortization .... 29,080 29,788 - 2 58,361 62,642 - 7 Impairment of Gas and Oil Properties ........ -- -- -- -- 44,376 -100 - ------------------------------------------------------------------------------------------------------------- Operating Profit (Loss) ..................... $ 9,754 $ 7,363 + 32 $ 31,914 $(44,800) +171 ============================================================================================================= EXPLORATION AND PRODUCTION OPERATING DATA: Natural Gas Sales (2): Revenues .................................. $ 60,774 $ 49,096 + 24 $121,128 $ 92,758 + 31 Net Daily Production (MMcf) ............... 343.7 349.3 - 2 346.3 346.4 -- Average Sales Price per Mcf ............... $ 1.94 $ 1.54 + 26 $ 1.92 $ 1.48 + 30 Oil and Condensate Sales (2): Revenues .................................. $ 5,645 $ 5,283 + 7 $ 10,712 $ 10,466 + 2 Net Daily Production (Bbl) ................ 3,132 3,317 - 6 3,067 3,413 - 10 Average Sales Price per Bbl ............... $ 19.81 $ 17.49 + 13 $ 19.19 $ 16.94 + 13 Natural Gas Liquids Sales (2): Revenues .................................. $ 1,181 $ 641 + 84 $ 2,338 $ 1,421 + 65 Net Daily Production (Bbl) ................ 1,176 726 + 62 1,217 788 + 54 Average Sales Price per Bbl ............... $ 11.05 $ 9.71 + 14 $ 10.56 $ 9.97 + 6 Combined Net Daily Production (MMcfe) (3) ... 369.6 373.6 - 1 371.9 371.6 -- Combined Average Sales Price per Mcfe (3) ... $ 1.99 $ 1.61 + 24 $ 1.97 $ 1.55 + 27 Lifting Costs per Mcfe: Lease Operating ........................... $ 0.28 $ 0.26 + 8 $ 0.27 $ 0.26 + 4 Workovers ................................. 0.04 0.01 +300 0.03 0.02 + 50 Production Taxes .......................... 0.06 0.06 -- 0.06 0.06 -- Transportation ............................ 0.10 0.07 + 43 0.10 0.07 + 43 Ad Valorem Taxes .......................... 0.03 0.02 + 50 0.03 0.03 -- - ------------------------------------------------------------------------------------------------------------- Total ..................................... $ 0.51 $ 0.43 + 19 $ 0.49 $ 0.44 + 11 - ------------------------------------------------------------------------------------------------------------- General operating expense per Mcfe .......... $ 0.03 $ 0.08 - 63 $ 0.04 $ 0.08 - 50 DD&A Rate per Mcfe .......................... $ 0.86 $ 0.87 - 1 $ 0.86 $ 0.91 - 5 ============================================================================================================= THIRD-PARTY GAS MARKETING OPERATING DATA: Revenues (4) ................................ $ 423 $ 638 - 34 $ 6,919 $ 1,238 +459 Average Daily Volumes (MMcf) ................ 359 195 + 84 392 191 +105 =============================================================================================================
(1) The Company restated its results of operations for the three and six months ended June 30, 1995, to combine the former Exploration and Production segment and Pipeline and Marketing segment into Gas and Oil Operations. Substantially all of the Company's gas processing and gas gathering assets were sold in September 1995. The Pipeline Assets contributed $6.8 million and $13.5 million in revenues and $2.5 and $4.1 million in operating profit for the three and six months ended June 30, 1995, respectively. (2) Natural gas stated in million cubic feet ("MMcf") or thousand cubic feet ("Mcf"); oil and condensate and natural gas liquids stated in barrels ("Bbl"). (3) MMcfe and Mcfe represent the equivalent of one million and one thousand cubic feet of natural gas, respectively. Oil and condensate and natural gas liquids are converted to gas at a ratio of one barrel of liquids per six Mcf of gas, based on relative energy content. (4) Marketing revenues are net of cost of gas and third-party delivery fees. -12- 13 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) GAS AND OIL OPERATIONS, CONTINUED The increase in operating profit of the Gas and Oil Operations segment for the six months ended June 30, 1996 as compared to the 1995 period was primarily due to a 19% increase in revenues, decreased depreciation, depletion and amortization ("DD&A") expense and a non-cash charge for impairment of gas and oil properties in 1995, which was partially offset by an increase in exploration charges. The increase in operating profit for the 1996 second quarter as compared to the 1995 period was primarily due to a 10% increase in revenues and a decrease in general operating expense, partially offset by a substantial increase in exploration charges. The increase in revenues for the three and six months ended June 30, 1996 as compared to 1995 was primarily the result of 26% and 30%, respectively, increases in the Company's average realized price of natural gas sold, slightly offset by a decrease in revenues related to the Pipeline Assets. Revenues for the six month period were also impacted by a significant increase in net third-party marketing revenues. While the Company had voluntary curtailments during 1995 as a result of the low natural gas price environment, there have been no voluntary curtailments in the U.S. since October 1995. The resulting increase in natural gas production was offset by normal declines in production from developed properties combined with the impact of substantially lower levels of development expenditures in late 1994 and all of 1995, which was also a result of the low natural gas price environment. In late 1995, Seagull began expanding its marketing activities by adding staff, upgrading facilities and expanding the marketing services offered to third parties. This ongoing expansion combined with substantially improved margins in the first quarter of 1996 was responsible for the significant increase in third-party marketing revenues for the six months ended June 30, 1996 in comparison with 1995. Direct operating expenses decreased for the three and six months ended June 30, 1996 primarily due to the absence of substantially all of the Pipelines and Gas Processing operations and maintenance costs as a result of the sale of the Pipeline Assets. This decrease in direct operating expenses was partially offset as increased workovers and transportation expense led to slightly higher lifting costs per equivalent unit for gas and oil production. General operating expense for both the three and six month periods decreased from the prior year largely due to the workforce reduction and consolidation implemented by Seagull during the second quarter of 1995. Exploration charges increased for the three and six months ended June 30, 1996 due to an increase in the number of exploratory wells drilled during the second quarter of 1996. Eight of fifteen exploratory wells drilled, substantially all occurring during the second quarter, were successful and six wells were drilling or being evaluated as of the beginning of August 1996 in comparison to five successes out of twelve exploratory wells drilled for the 1995 period. -13- 14 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) GAS AND OIL OPERATIONS, CONTINUED Effective March 31, 1995, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". As a result of the adoption of SFAS No. 121, the Company recognized a non-cash pre-tax charge against earnings during the first quarter of 1995 of $44.4 million. As a result of the impairment and a change in the mix of properties being produced, the Company's average DD&A rate per equivalent unit of production decreased from $0.91 per Mcfe for the first six months of 1995 to $0.86 per Mcfe for the 1996 period, thereby decreasing DD&A expense for the six months ended June 30, 1996 as compared to the 1995 period. In late 1995, the Company initiated an active risk management program for both its own E&P production and third party activities, utilizing such derivative financial instruments as futures contracts, options and swaps. The primary objective of the risk management program is to help ensure more stable cash flow. The risk management program is also an important part of the Company's third party marketing efforts, allowing the Company to convert a customer's requested price to a price structure that is consistent with the Company's overall pricing strategy. The Company accounts for its commodity derivative contracts as hedging activities and, accordingly, the effect of hedging activities are included in revenues when the commodities are produced. As of July 18, 1996, the Company had entered into natural gas price options, with an approximate cost of $0.6 million, to place a "floor" on Seagull's realized natural gas price for 150,000 million British thermal units ("MMBtu") per day for July through October 1996. In addition, the Company has basis swap agreements that hedge against potential adverse effects of fluctuation in the price differential between the New York Mercantile Exchange ("NYMEX") price at Henry Hub and the price at the market location of the Company's production or a customer's market location requirements. These natural gas price basis swaps decline from 94,000 MMBtu per day in July 1996 to 59,000 MMBtu per day in December 1996, with only minor contracts extending beyond December 1996. Under current price differentials, Seagull has deferred realized and unrealized income of $0.7 million and $4.0 million, respectively, related to its basis swaps. The Company also has natural gas price basis swaps associated with production related to its monetary production payment for 13,200 MMBtu per day through December 1998. At June 30, 1996, the Company has no open futures positions related to its equity production. -14- 15 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) ALASKA TRANSMISSION AND DISTRIBUTION - -------------------------------------------------------------------------------- (Dollars in Thousands)
Three Months Ended Six Months Ended June 30, June 30, ------------------ Percent ----------------- Percent 1996 1995 Change 1996 1995 Change ---------------------------------------------------------- Revenues .................................... $15,703 $17,560 -11 $51,133 $53,850 - 5 Cost of Gas Sold ............................ 6,257 7,923 -21 22,457 26,488 -15 - --------------------------------------------------------------------------------------------------------- Gross Margin ................................ 9,446 9,637 - 2 28,676 27,362 + 5 Operations and Maintenance Expense .......... 5,385 5,175 + 4 10,827 10,492 + 3 Depreciation, Depletion and Amortization .... 1,976 1,985 -- 3,959 3,942 -- - --------------------------------------------------------------------------------------------------------- Operating Profit ............................ $ 2,085 $ 2,477 -16 $13,890 $12,928 + 7 ========================================================================================================= OPERATING DATA: Degree Days (1) ............................. 1,470 1,508 - 3 5,823 5,685 + 2 Volumes (Bcf)(2): Gas Sold .................................. 4.0 4.5 -11 14.4 15.0 - 4 Gas Transported ........................... 4.6 4.2 +10 9.9 7.8 +27 Combined .................................. 8.6 8.7 - 1 24.3 22.8 + 7 Margins ($ per Mcf): Gas Sold .................................. 1.84 1.76 + 5 1.68 1.61 + 4 Gas Transported ........................... 0.45 0.41 +10 0.47 0.42 +12 Combined .................................. 1.10 1.11 - 1 1.18 1.20 - 2 =========================================================================================================
(1) A measure of weather severity calculated by subtracting the mean temperature for each day from 65 degrees Fahrenheit. More degree days equate to colder weather. (2) Natural gas stated in billion cubic feet ("Bcf"). Operating profit of the Alaska transmission and distribution segment (ENSTAR Natural Gas Company, a division of the Company, and Alaska Pipeline Company, a wholly owned subsidiary, (collectively referred to herein as "ENSTAR Alaska")) for the six months ended June 30, 1996 improved from the 1995 period primarily as a result of higher volumes due to customer growth and colder weather in the utility's service area. For the quarter ended June 30, 1996, operating profit decreased from the prior year principally due to warmer weather in the utility's service area and slightly higher operating and maintenance expenses. In 1995, several large commercial customers that previously purchased gas from ENSTAR Alaska began purchasing gas directly from gas producers. ENSTAR Alaska currently transports the customers' gas supplies for a fee that is comparable to the margin (revenues net of the associated cost of gas sold) it previously earned. Accordingly, operating profit for the Alaska transmission and distribution segment was basically unaffected by this change. This segment's business is seasonal with approximately 65% of its revenues earned in the first and fourth quarters of each year. -15- 16 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) OTHER (INCOME) EXPENSE - -------------------------------------------------------------------------------- (Dollars in Thousands)
Three Months Ended Six Months Ended June 30, June 30, -------------------- Percent -------------------- Percent 1996 1995 Change 1996 1995 Change ----------------------------------------------------------------- General and Administrative... $ 4,577 $ 9,847 -54 $ 7,933 $ 12,501 -37 Interest Expense ............ 11,223 13,934 -19 22,654 27,931 -19 Interest Income and Other.... (344) (186) +85 (852) (749) +14 - -------------------------------------------------------------------------------------------------- $ 15,456 $ 23,595 -34 $ 29,735 $ 39,683 -25 ==================================================================================================
General and administrative expenses decreased substantially for both the three and six months ended June 30, 1996 in comparison to 1995 primarily due to the absence of one-time pre-tax charges of $8 million during the second quarter of 1995 to account for expenses involved in the Company's workforce reduction and consolidation, partially offset by increases in the costs relating to potential acquisitions which were not consummated, accrued incentive compensation expense and costs associated with three compensation plans, one for outside directors, one for key managers, and the other for all Seagull employees, that are tied directly to the price of Seagull Common Stock. The closing price of Seagull Common Stock increased 10% in the second quarter of 1996 from $22.625 at March 31, 1996 to $25.00 on June 30, 1996 compared to a 16% decrease in the 1995 period. The closing price of Seagull Common Stock increased 12% for the six months ended June 30, 1996 from $22.25 at December 31, 1995 to $25.00 on June 30, 1996, compared to a 14% decrease in the 1995 period. Decreases in interest expense for the three and six months ended June 30, 1996 were a result of lower levels of outstanding debt and lower average interest rates since the 1995 periods. With proceeds from the sale of the Pipeline Assets in September 1995, the Company repaid a portion of the balances outstanding under the Credit Facilities. The average interest rates on the Credit Facilities were 6.2% and 7.1% for the six months ended June 30, 1996 and 1995, respectively, and 5.9% and 7.0% for the three months ended June 30, 1996 and 1995, respectively. After giving effect to the Company's interest rate swaps, approximately 50% to 60% of the Company's long-term debt bears interest at various fixed rates through the end of 1996. The remainder of the outstanding long-term debt bears interest at various market-sensitive interest rates. -16- 17 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) INCOME TAXES The increase in income taxes for the three months ended June 30, 1996 was primarily a result of an adjustment to increase the forecasted annual effective tax rate for 1996 from 24.6% in the first quarter to 44.4% for the six months, the increase in earnings before income taxes for the period and the absence of Internal Revenue Code Section 29 Tax Credits ("Section 29 Credits") which reduced the Company's 1995 effective tax rate. The Company's forecasted annual effective tax rate for the six months ended June 30, 1996 and 1995 was different than the amount computed using the federal statutory rate (35%) for the following reasons:
June 30, 1996 June 30, 1995 ------------- ------------- Federal statutory tax rate .......................... 35.0% 35.0% Increases (reductions) in federal tax resulting from: Foreign tax effect .............................. 7.9 (8.3) Section 29 Credits .............................. -- 6.2 State taxes (net of federal benefit) ............ 2.6 1.7 Other ........................................... (1.1) 1.8 ------------- ------------- Effective tax rate .................................. 44.4% 36.4% ============= =============
LIQUIDITY AND CAPITAL RESOURCES CAPITAL EXPENDITURES - -------------------------------------------------------------------------------- (Dollars in Thousands)
Three Months Ended Six Months Ended June 30, June 30, ------------------ Percent ----------------- Percent 1996 1995 Change 1996 1995 Change -------------------------------------------------------- Gas and Oil Operations: Lease acquisitions ................... $ 2,062 $ 1,696 + 22 $ 3,163 $ 2,223 +42 Exploration costs .................... 18,098 5,439 +233 22,614 15,661 +44 Development costs .................... 16,121 6,480 +149 22,464 13,483 +67 - -------------------------------------------------------------------------------------------------- 36,281 13,615 +166 48,241 31,367 +54 Alaska Transmission and Distribution ... 2,169 1,802 + 20 3,347 2,814 +19 Other .................................. 514 76 +576 880 610 +44 - -------------------------------------------------------------------------------------------------- $38,964 $15,493 +151 $52,468 $34,791 +51 ==================================================================================================
The increase in capital expenditures for the three and six months ended June 30, 1996 is primarily due to the substantial increase in the number of exploratory and development wells drilled. In accordance with Seagull's long-standing policy that total capital expenditures will not be allowed to exceed net cash flow from operating activities before changes in operating assets -17- 18 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) LIQUIDITY AND CAPITAL RESOURCES, CONTINUED and liabilities, exploratory and development capital expenditures were reduced in 1995 because natural gas prices remained below acceptable levels. As natural gas prices increased in late 1995 and remained strong through the second quarter, planned capital expenditures have resumed. In May, 1996, the Board of Directors approved an increase in Seagull's planned capital expenditures for 1996 of $20 million, to approximately $152 million, including about $142 million in Gas and Oil Operations. The increase of $20 million will be applied to exploration and development spending in the Company's domestic drilling activities. On May 28, 1996, the Credit Facilities were amended to extend the maturity date two years and reduce stated interest rate margins. The Credit Facilities have a maximum commitment of $750 million. Under the new terms of the Credit Facilities, the commitments thereunder begin to decline on March 31, 1999 in equal quarterly reductions of approximately $46 million and a final reduction of approximately $56 million on December 31, 2002. The Credit Facilities bear interest, at Seagull's option, at various market-sensitive rates (LIBOR, Banker's Acceptance or the prime rate of the agent bank) plus the applicable margin or a competitive bid rate. The amount of senior indebtedness available to the Company under the provisions of the Credit Facilities is subject to a borrowing base (the "Borrowing Base"), based upon the proved reserves of the Company's Gas and Oil Operations segment and the financial performance of the Company's other business segment. The Borrowing Base is generally determined annually but may be redetermined, at the option of either Seagull or the banks, one additional time each year, and will be redetermined upon the sale of certain assets included in the Borrowing Base. Currently, the available commitment under the Credit Facilities is subject to a $500 million Borrowing Base and is determined after consideration of outstanding borrowings under Seagull's other senior debt facilities. As of August 5, 1996, borrowings outstanding under the Credit Facilities were $174 million, leaving immediately available unused commitments of approximately $221 million, net of outstanding letters of credit of $3 million, $100 million of borrowings outstanding under the Company's senior notes and $2 million of borrowings outstanding under Seagull's money market facilities. On July 22, 1996, Seagull announced that it agreed to purchase the stock of Esso Suez, Inc. ("ESI") and certain assets of Esso Egypt Limited (the "EEL Assets") for approximately $68 million net in cash. The effective date for the acquisition is January 1, 1996 with a gross purchase price, including cash and receivables, of approximately $168 million. The prompt collectibility of the receivables will preclude any necessity for financing beyond the $68 million net cash payment, funded through additional borrowings under the Credit Facilities. ESI holds a 100% interest in -18- 19 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) LIQUIDITY AND CAPITAL RESOURCES, CONTINUED the East Zeit oil producing concession in the offshore Gulf of Suez, and the EEL Assets consist of the entire working interest in the South Hurghada concession located onshore on the coast of the Gulf of Suez approximately 250 miles south of Cairo. Seagull estimates that the ESI concession area will contain at closing 17.4 million net barrels of proved oil reserves. The 63,000-acre South Hurghada concession contains a number of currently drillable exploratory prospects with substantial potential, plus two existing oil discoveries. Also, on July 22, 1996, Seagull announced plans for a stock merger with Global Natural Resources Inc. ("GNR") (the "Global Merger"). The Board of Directors of both Seagull and GNR have approved a definitive agreement calling for a stock merger whereby each share of GNR common stock would be converted into a right to receive between 0.72 and 0.88 shares of Seagull common stock. If Seagull's average price for a specified 20-day period is not greater than $22.50 per share, the exchange ratio would be fixed at 0.88 shares of Seagull. Conversely, if the average price equals or exceeds $27.50 per share, the exchange ratio would be fixed at 0.72 shares of Seagull. Within the specified price range, the exchange ratio would be determined by interpolation. Accordingly, the indicated value of the transaction, would be nearly $600 million. The Global Merger would be accounted for as a pooling of interests. GNR is engaged in worldwide oil and gas exploration and production with properties located in the U.S. (primarily in the Gulf of Mexico and along the Gulf Coast), Egypt, Cote d'Ivoire, Indonesia and Tatarstan, Russia. In addition to the facilities discussed above, Seagull has money market facilities with two major U. S. banks with a combined maximum commitment of $70 million. These lines of credit bear interest at rates made available by the banks at their discretion and may be canceled at either Seagull's or the banks' discretion. The lines are subject to annual renewal. -19- 20 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of Shareholders of the Company held on May 14, 1996, the shareholders voted to elect three directors to serve until the 1999 Annual Meeting of Shareholders, adopt an amendment to the Seagull Energy Corporation 1993 Nonemployee Directors' Stock Option Plan and ratify the selection of KPMG Peat Marwick LLP as independent auditors of the Company for the fiscal year ended December 31, 1996. Votes cast were as follows:
For Against Abstained ------------------------------------ Election of Thomas H. Cruikshank as a Director of the Company ....... 31,220,985 -- 37,474 Election of John W. Elias as a Director of the Company .............. 31,224,555 -- 33,904 Election of Sam F. Segnar as a Director of the Company .............. 31,225,485 -- 32,974 Adoption of the Amendment to the 1993 Nonemployee Directors' Stock Option Plan ....................................................... 26,634,445 2,847,361 1,776,653 Ratification of Selection of KPMG Peat Marwick LLP as Independent Auditors for 1996 ...................... 30,018,714 1,217,641 22,104
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: *4.1 Credit Agreement, U. S. $175 million Reducing Revolving Credit Facility, dated December 30, 1993 by and among Seagull Energy Canada Ltd., each of the banks signatory thereto, and Chemical Bank of Canada, The Bank of Nova Scotia and Canadian Imperial Bank of Commerce, as co-agents (without exhibits) (incorporated by reference to Exhibit 2.4 to Current Report on Form 8-K filed January 19, 1994; the First Amendment dated May 24, 1994 (without exhibits) is incorporated by reference to Exhibit 4.5 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994; the Second Amendment dated June 30, 1994 is incorporated by reference to Exhibit 4.16 to Annual Report on Form 10-K for the year ended December 31, 1994; the Third Amendment dated March 10, 1995 is incorporated by reference to Exhibit 4.17 to Annual Report on Form 10-K for the year ended December 31, 1994; the Fourth Amendment dated January 12, 1996 is incorporated by reference to Exhibit 4.10 to Annual Report on Form 10-K for the year ended December 31, 1995; the Fifth Amendment dated May 28, 1996 is filed herewith). -20- 21 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED *4.2 Credit Agreement, $725 million Reducing Revolving Credit and Competitive Bid Facility, dated May 24, 1994 by and among Seagull, each of the banks signatory thereto and Texas Commerce Bank National Association and Chemical Bank, as co-agents (without exhibits and schedules) (incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994; the First Amendment dated June 30, 1994 is incorporated by reference to Exhibit 4.21 to Annual Report on Form 10-K for the year ended December 31, 1994; the Second Amendment dated March 10, 1995 is incorporated by reference to Exhibit 4.22 to Annual Report on Form 10-K for the year ended December 31, 1994; the Third Amendment dated January 12, 1996 is incorporated by reference to Exhibit 4.17 to Annual Report on Form 10-K for the year ended December 31, 1995; the Fourth Amendment dated May 28, 1996 is filed herewith). *#10.1 Seagull Energy Corporation 1993 Nonemployee Directors' Stock Option Plan including forms of agreements (the Plan is incorporated by reference to Exhibit 10.37 to Annual Report on Form 10-K for the year ended December 31, 1992; the amended form of Nonstatutory Stock Option Agreement is incorporated by reference to Exhibit 10.29 to Annual Report on Form 10-K for the year ended December 31, 1993; the Amendment to Nonemployee Directors' Stock Option Agreement(s) is filed herewith). *#10.2 Outside Directors Deferred Fee Plan of the Company, as amended and restated. *#10.3 Consulting Agreement effective May 1, 1996, by and between Seagull Energy Corporation and Robert W. Shower. *#10.4 Severance Agreement between Seagull Energy Corporation and William L. Transier. -21- 22 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED *#10.5 Restricted Stock Agreement between Seagull Energy Corporation and William L. Transier made as of 14th day of May, 1996. *27 Financial Data Schedule. (b) Reports on Form 8-K: None. - --------------- * Filed herewith. # Identifies management contracts and compensatory plans or arrangements. -22- 23 SEAGULL ENERGY CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SEAGULL ENERGY CORPORATION By: /s/ William L. Transier ----------------------------------- William L. Transier, Senior Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 8, 1996 ----------------------------------- By: /s/ Rodney W. Bridges ----------------------------------- Rodney W. Bridges, Vice President and Controller (Principal Accounting Officer) Date: August 8, 1996 ----------------------------------- -23- 24 EXHIBIT INDEX
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER - ------ --------------------------------------------------------------- ------ Exhibits: *4.1 Credit Agreement, U. S. $175 million Reducing Revolving Credit Facility, dated December 30, 1993 by and among Seagull Energy Canada Ltd., each of the banks signatory thereto, and Chemical Bank of Canada, The Bank of Nova Scotia and Canadian Imperial Bank of Commerce, as co-agents (without exhibits) (incorporated by reference to Exhibit 2.4 to Current Report on Form 8-K filed January 19, 1994; the First Amendment dated May 24, 1994 (without exhibits) is incorporated by reference to Exhibit 4.5 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994; the Second Amendment dated June 30, 1994 is incorporated by reference to Exhibit 4.16 to Annual Report on Form 10-K for the year ended December 31, 1994; the Third Amendment dated March 10, 1995 is incorporated by reference to Exhibit 4.17 to Annual Report on Form 10-K for the year ended December 31, 1994; the Fourth Amendment dated January 12, 1996 is incorporated by reference to Exhibit 4.10 to Annual Report on Form 10-K for the year ended December 31, 1995; the Fifth Amendment dated May 28, 1996 is filed herewith). *4.2 Credit Agreement, $725 million Reducing Revolving Credit and Competitive Bid Facility, dated May 24, 1994 by and among Seagull, each of the banks signatory thereto and Texas Commerce Bank National Association and Chemical Bank, as co-agents (without exhibits and schedules) (incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994; the First Amendment dated June 30, 1994 is incorporated by reference to Exhibit 4.21 to Annual Report on Form 10-K for the year ended December 31, 1994; the Second Amendment dated March 10, 1995 is incorporated by reference to Exhibit 4.22 to Annual Report on Form 10-K for the year ended December 31, 1994; the Third Amendment dated January 12, 1996 is incorporated by reference to Exhibit 4.17 to Annual Report on Form 10-K for the year ended December 31, 1995; the Fourth Amendment dated May 28, 1996 is filed herewith).
25
EXHIBIT PAGE NUMBER DESCRIPTION NUMBER - ------ --------------------------------------------------------------- ------ Exhibits: *#10.1 Seagull Energy Corporation 1993 Nonemployee Directors' Stock Option Plan including forms of agreements (the Plan is incorporated by reference to Exhibit 10.37 to Annual Report on Form 10-K for the year ended December 31, 1992; the amended form of Nonstatutory Stock Option Agreement is incorporated by reference to Exhibit 10.29 to Annual Report on Form 10-K for the year ended December 31, 1993; the Amendment to Nonemployee Directors' Stock Option Agreement(s) is filed herewith). *#10.2 Outside Directors Deferred Fee Plan of the Company, as amended and restated. *#10.3 Consulting Agreement effective May 1, 1996, by and between Seagull Energy Corporation and Robert W. Shower. *#10.4 Severance Agreement between Seagull Energy Corporation and William L. Transier. *#10.5 Restricted Stock Agreement between Seagull Energy Corporation and William L. Transier made as of 14th day of May, 1996. *27 Financial Data Schedule.
- ---------------- * Filed herewith. # Identifies management contracts and compensatory plans or arrangements. EX-4.1 2 CREDIT AGREEMENT - $175 MILLION - DATED 12/30/93 1 EXHIBIT 4.1 FIFTH AMENDMENT TO CREDIT AGREEMENT THIS FIFTH AMENDMENT TO CREDIT AGREEMENT ("Fifth Amendment") dated as of May 28, 1996 (the "Fifth Amendment Effective Date") is made and entered into by and among SEAGULL ENERGY CANADA LTD. (the "Borrower"), a corporation duly organized and validly existing under the laws of the Province of Alberta, Canada, the banking institutions from time to time a party to the Credit Agreement (as hereinafter defined) as amended by this Fifth Amendment (each, together with its successors and assigns, a "Bank" and collectively, the "Banks"), CHEMICAL BANK OF CANADA, as arranger and as administrative agent for the Banks (in such capacity, the "Administrative Agent"), THE BANK OF NOVA SCOTIA, as paying agent and co-agent for the Banks (in such capacity, the "Paying Agent"), and CANADIAN IMPERIAL BANK OF COMMERCE (in such capacity, the "Co-Agent"), as co-agent for the Banks. RECITALS: WHEREAS, the Borrower, the Administrative Agent, the Paying Agent, the Co-Agent and the Banks are parties to a Credit Agreement dated as of December 30, 1993, as amended (the "Credit Agreement"); and WHEREAS, the Borrower, the Administrative Agent, the Paying Agent, the Co-Agent and the Banks have agreed, on the terms and conditions herein set forth, that the Credit Agreement be amended in certain respects; NOW, THEREFORE, IT IS AGREED: Section 1. Definitions. Terms used herein which are defined in the Credit Agreement shall have the same meanings when used herein unless otherwise provided herein. Section 2. Amendments to the Credit Agreement. On and after the Fifth Amendment Effective Date, the Credit Agreement shall be amended as follows: (a) The definition of "Applicable Margin" set forth in Section 1 of the Credit Agreement is hereby amended to read in its entirety as follows: "Applicable Margin" shall mean, on any day and with respect to any Loan, the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Debt/Capitalization Ratio as of the last day of the most recently ending fiscal quarter of the Parent and its Subsid0iaries with respect to which the Administrative Agent shall have received the financial 2 statements and other information (the "Current Information") required to be delivered to the Administrative Agent pursuant to Section 9.1 hereof (said calculation to be made by the Administrative Agent as soon as practicable after receipt by the Administrative Agent of all required Current Information):
Applicable Margin For Alternate Base Rate Applicable Loans and Canadian Margin for Prime Rate Eurodollar Debt/Capitalization Ratio Loans Loans Greater than or equal to 60% 0.375 1.375 Greater than or equal to 55% but less than 60% 0.00 1.00 Greater than or equal to 50% but less than 55% 0.00 0.75 Less than 50% 0.00 0.625
Notwithstanding the foregoing, at all times that a Borrowing Base Deficiency shall exist and is continuing for more than 30 days, the Applicable Margins provided for in this definition shall each be increased by adding 1.00%. Each change in the Applicable Margin based on a change in the Current Information shall be effective as of the fifteenth day of the month during which the Current Information used to calculate the new Applicable Margin was delivered to the Administrative Agent. (b) The definition of "Revolving Credit Availability Period" set forth in Section 1 of the Credit Agreement is hereby amended to read in its entirety as follows: "Revolving Credit Availability Period" shall mean the period from and including the date hereof to but not including December 31, 2002 or the date the Commitments are terminated pursuant to Section 11.1, whichever is first to occur. (c) The definition of "Revolving Credit Commitment Fee Percentage" set forth in Section 1 of the Credit Agreement is hereby amended to read in its entirety as follows: "Revolving Credit Commitment Fee Percentage" shall mean 0.30% per annum. 3 (d) Section 2.3(a)(i) of the Credit Agreement is hereby amended to read in its entirety as follows: (i) The total Commitment of the Banks shall be reduced as follows: Reduction Resulting Revolving Reduction Date Amount Credit Commitment March 31, 1999 U.S. $6,250,000 U.S. $93,750,000 June 30, 1999 U.S. $6,250,000 U.S. $87,500,000 September 30, 1999 U.S. $6,250,000 U.S. $81,250,000 December 31, 1999 U.S. $6,250,000 U.S. $75,000,000 March 31, 2000 U.S. $6,250,000 U.S. $68,750,000 June 30, 2000 U.S. $6,250,000 U.S. $62,500,000 September 30, 2000 U.S. $6,250,000 U.S. $56,250,000 December 31, 2000 U.S. $6,250,000 U.S. $50,000,000 March 31, 2001 U.S. $6,250,000 U.S. $43,750,000 June 30, 2001 U.S. $6,250,000 U.S. $37,500,000 September 30, 2001 U.S. $6,250,000 U.S. $31,250,000 December 31, 2001 U.S. $6,250,000 U.S. $25,000,000 March 31, 2002 U.S. $6,250,000 U.S. $18,750,000 June 30, 2002 U.S. $6,250,000 U.S. $12,500,000 September 30, 2002 U.S. $6,250,000 U.S. $6,250,000 December 31, 2002 U.S. $6,250,000 U.S. $0 Section 3. Maximum Outstanding Amount. The Maximum Outstanding Amount is hereby designated as U.S. $95,000,000 as of the Fifth Amendment Effective Date (subject to revision as provided in the Credit Agreement). Section 4. Modification to Notes. The reference to "December 31, 2000" in each of the Notes is hereby amended to read "December 31, 2002". Section 5. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Credit Agreement or any of the other Loan Documents, or (b) except as expressly set forth herein, prejudice any right or rights which the Banks may now have or may have in the future under or in connection with the Credit Agreement, the Loan Documents or any of the other documents referred to therein. Except as expressly modified hereby or by express written amendments thereof, the terms and provisions of the Credit Agreement, the Notes and any other Loan Documents or any other documents or instruments executed in connection with any of the foregoing are and shall remain in full force and effect. In the event of a conflict between this Fifth Amendment and any of the foregoing documents (other than the Intercreditor Agreement), the terms of this Fifth Amendment shall be controlling. 4 Section 6. Payment of Expenses. The Borrower agrees, whether or not the transactions hereby contemplated shall be consummated, to reimburse and save the Agents harmless from and against liability for the payment of all reasonable substantiated out-of-pocket costs and expenses arising in connection with the preparation, execution, delivery, amendment, modification, waiver and enforcement of, or the preservation of any rights under this Fifth Amendment, including, without limitation, the reasonable fees and expenses of any local or other counsel for the Administrative Agent, and all stamp taxes (including interest and penalties, if any), recording taxes and fees, filing taxes and fees, and other charges which may be payable in respect of, or in respect of any modification of, the Credit Agreement and the other Loan Documents. The provisions of this Section shall survive the termination of the Credit Agreement and the repayment of the Loans. Section 7. Governing Law. THIS FIFTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER THAN THE CONFLICT OF LAWS RULES) OF THE PROVINCE OF ALBERTA AND OF CANADA FROM TIME TO TIME IN EFFECT. Section 8. Descriptive Headings, etc. The descriptive headings of the several Sections of this Fifth Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 9. Entire Agreement. This Fifth Amendment and the documents referred to herein represent the entire understanding of the parties hereto regarding the subject matter hereof and supersede all prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof, including, without limitation, any commitment letters regarding the transactions contemplated by this Fifth Amendment. Section 10. Counterparts. This Fifth Amendment may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. Section 11. Amended Definitions. As used in the Credit Agreement (including all Exhibits thereto) and all other instruments and documents executed in connection therewith, on and subsequent to the Fifth Amendment Effective Date the term "Agreement" shall mean the Credit Agreement as amended by this Fifth Amendment. 5 IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be duly executed and delivered by their respective duly authorized offices as of the date first above written. SEAGULL ENERGY CANADA LTD. By: Name: Title: 6 CHEMICAL BANK OF CANADA, individually and as Arranger and as Administrative Agent By: Name: Title: 7 THE BANK OF NOVA SCOTIA, as Paying Agent, as Co-Agent and as a Bank By: Name: Title: 8 CANADIAN IMPERIAL BANK OF COMMERCE, as Co-Agent and as a Bank By: Name: Title: 9 ABN AMRO BANK CANADA By: Name: Title: By: Name: Title: 10 MELLON BANK CANADA By: Name: Title: 11 FIRST CHICAGO NBD BANK, CANADA By: Name: Title: By: Name: Title: 12 SOCIETE GENERALE (CANADA) By: Name: Title: 13 BANK OF MONTREAL By: Name: Title: 14 The undersigned hereby joins in the execution of this Amendment to evidence its consent hereto and its acknowledgment that the Guarantee shall continue to apply to the Credit Agreement, as amended hereby. SEAGULL ENERGY CORPORATION By: Name: Title: EX-4.2 3 CREDIT AGREEMENT - $725 MILLION - DATED 05/24/94 1 EXHIBIT 4.2 FOURTH AMENDMENT TO CREDIT AGREEMENT THIS FOURTH AMENDMENT TO CREDIT AGREEMENT ("Fourth Amendment") dated as of May 28, 1996 (the "Fourth Amendment Effective Date") is made and entered into by and among SEAGULL ENERGY CORPORATION (the "Borrower"), a Texas corporation, the banking institutions from time to time a party to the Credit Agreement (as hereinafter defined) as amended by this Fourth Amendment (each, together with its successors and assigns, a "Bank" and collectively, the "Banks"), CHEMICAL BANK, as Auction Agent (in such capacity, the "Auction Agent") and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as administrative agent for the Banks (in such capacity, the "Administrative Agent"). RECITALS: WHEREAS, the Borrower, the Administrative Agent, the Auction Agent and the Banks are parties to a Credit Agreement dated as of May 24, 1994, as amended (the "Credit Agreement"); and WHEREAS, the Borrower, the Administrative Agent, the Auction Agent and the Banks have agreed, on the terms and conditions herein set forth, that the Credit Agreement be amended in certain respects; NOW, THEREFORE, IT IS AGREED: Section 1. Definitions. Terms used herein which are defined in the Credit Agreement shall have the same meanings when used herein unless otherwise provided herein. Section 2. Amendments to the Credit Agreement. On and after the Fourth Amendment Effective Date, the Credit Agreement shall be amended as follows: (a) The definition of "Applicable Margin" set forth in Section 1 of the Credit Agreement is hereby amended to read in its entirety as follows: "Applicable Margin" shall mean, on any day and with respect to any Loan, the applicable per annum percentage set forth at the appropriate intersection in the table shown below, based on the Debt/Capitalization Ratio as of the last day of the most recently ending fiscal quarter of the Company and its Subsidiaries with respect to which the Administrative Agent shall have received the financial statements and other information (the "Current Information") required to be delivered to the Administrative Agent pursuant to Section 9.1 hereof (said calculation to be made by the Administrative Agent as soon as practicable after receipt by the Administrative Agent of all required Current Information): 2
Eurodollar Alternate Base Rate Loan Loan Applicable Applicable Debt/Capitalization Ratio Margin Margin Greater than or equal to 60% 0.375 1.1875 Greater than or equal to 55% but less than 60% 0.00 0.8125 Greater than or equal to 50% but less than 55% 0.00 0.5625 Less than 50% 0.00 0.4375
Notwithstanding the foregoing, at all times that a Borrowing Base Deficiency shall exist and is continuing for more than 30 days, the Applicable Margins provided for in this definition shall each be increased by adding 1.00%. Each change in the Applicable Margin based on a change in the Current Information shall be effective as of the fifteenth day of the month during which the Current Information used to calculate the new Applicable Margin was delivered to the Administrative Agent. (b) The definition of "Revolving Credit Availability Period" set forth in Section 1 of the Credit Agreement is hereby amended to read in its entirety as follows: "Revolving Credit Availability Period" shall mean the period from and including the date hereof to but not including December 31, 2002 or the date the Commitments are terminated pursuant to Section 11.1, whichever is first to occur. (c) Section 2.3(a) of the Credit Agreement is hereby amended to read in its entirety as follows: (a) Mandatory. (i) The total Commitment of the Banks shall be reduced as follows: Reduction Resulting Revolving Reduction Date Amount Credit Commitment March 31, 1999 $40,000,000 $610,000,000 June 30, 1999 $40,000,000 $570,000,000 September 30, 1999 $40,000,000 $530,000,000 December 31, 1999 $40,000,000 $490,000,000 March 31, 2000 $40,000 000 $450,000,000 3 June 30, 2000 $40,000,000 $410,000,000 September 30, 2000 $40,000,000 $370,000,000 December 31, 2000 $40,000,000 $330,000,000 March 31, 2001 $40,000,000 $290,000,000 June 30, 2001 $40,000,000 $250,000,000 September 30, 2001 $40,000,000 $210,000,000 December 31, 2001 $40,000,000 $170,000,000 March 31, 2002 $40,000,000 $130,000,000 June 30, 2002 $40,000,000 $90,000,000 September 30, 2002 $40,000,000 $50,000,000 December 31, 2002 $50,000,000 $0 (ii) On December 31, 2002, all Commitments shall be terminated in their entirety unless terminated at an earlier date pursuant to Section 11.1. Section 3. Borrowing Base Component Values. The Borrowing Base Component Values are as follows: (i) Oil and Gas Reserves Component Value - $440,000,000 (of which $95,000,000 is attributable to the assets of Novalta Resources Inc.), (ii) Alaskan Gas Component Value - $60,000,000, (iii) Pipeline Component Value - $0, for a total Borrowing Base of $500,000,000. Section 4. Maximum Outstanding Amount. The "Maximum Outstanding Amount" under the Canadian Facility has been set at $95,000,000 concurrently herewith. Section 5. Modification to Notes. The reference to "December 31, 2000" in each of the Notes is hereby amended to read "December 31, 2002". Section 6. Limitations. The amendments set forth herein are limited precisely as written and shall not be deemed to (a) be a consent to, or waiver or modification of, any other term or condition of the Credit Agreement or any of the other Loan Documents, or (b) except as expressly set forth herein, prejudice any right or rights which the Banks may now have or may have in the future under or in connection with the Credit Agreement, the Loan Documents or any of the other documents referred to therein. Except as expressly modified hereby or by express written amendments thereof, the terms and provisions of the Credit Agreement, the Notes, the Security Documents and any other Loan Documents or any other documents or instruments executed in connection with any of the foregoing are and shall remain in full force and effect. In the event of a conflict between this Fourth Amendment and any of the foregoing documents, the terms of this Fourth Amendment shall be controlling. 4 Section 7. Payment of Expenses. The Borrower agrees, whether or not the transactions hereby contemplated shall be consummated, to reimburse and save the Administrative Agent harmless from and against liability for the payment of all reasonable substantiated out-of-pocket costs and expenses arising in connection with the preparation, execution, delivery, amendment, modification, waiver and enforcement of, or the preservation of any rights under this Fourth Amendment, including, without limitation, the reasonable fees and expenses of any local or other counsel for the Administrative Agent, and all stamp taxes (including interest and penalties, if any), recording taxes and fees, filing taxes and fees, and other charges which may be payable in respect of, or in respect of any modification of, the Credit Agreement and the other Loan Documents. The provisions of this Section shall survive the termination of the Credit Agreement and the repayment of the Loans. Section 8. Governing Law. This Fourth Amendment and the rights and obligations of the parties hereunder and under the Credit Agreement shall be construed in accordance with and be governed by the laws of the State of Texas and the United States of America. Section 9. Descriptive Headings, etc. The descriptive headings of the several Sections of this Fourth Amendment are inserted for convenience only and shall not be deemed to affect the meaning or construction of any of the provisions hereof. Section 10. Entire Agreement. This Fourth Amendment and the documents referred to herein represent the entire understanding of the parties hereto regarding the subject matter hereof and supersede all prior and contemporaneous oral and written agreements of the parties hereto with respect to the subject matter hereof, including, without limitation, any commitment letters regarding the transactions contemplated by this Fourth Amendment. Section 11. Counterparts. This Fourth Amendment may be executed in any number of counterparts and by different parties on separate counterparts and all of such counterparts shall together constitute one and the same instrument. Section 12. Changes to Banks. The parties hereto acknowledge and consent to the following: (i) NBD Bank, N.A. has assigned its interests as a Bank to First National Bank of Chicago; (ii) Citibank, N.A has assigned its interests as a Bank to Chase Manhattan Bank, N.A.; (iii) The Bank of Tokyo, Ltd., Dallas Agency has assigned its interests as a Bank to The Bank of Tokyo-Mitsubishi, Ltd.; and (iv) First Interstate Bank of Texas, N.A. has assigned its interests as a Bank to Wells Fargo Bank. 5 Section 13. Amended Definitions. As used in the Credit Agreement (including all Exhibits thereto) and all other instruments and documents executed in connection therewith, on and subsequent to the Fourth Amendment Effective Date the term "Agreement" shall mean the Credit Agreement as amended by this Fourth Amendment. IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be duly executed and delivered by their respective duly authorized offices as of the date first above written. NOTICE PURSUANT TO TEX. BUS. & COMM. CODE ss.26.02 THIS FOURTH AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREE MENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. SEAGULL ENERGY CORPORATION, a Texas corporation By: Name: Title: 6 CHEMICAL BANK, as Auction Agent By: Name: Title: 7 TEXAS COMMERCE BANK NATIONAL ASSOCIATION, individually and as Administrative Agent By: Name: Title: 8 THE CHASE MANHATTAN BANK, N.A. By: Name: Title: 9 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: Name: Title: 10 NATIONSBANK OF TEXAS, N.A. By: Name: Title: 11 THE FIRST NATIONAL BANK OF BOSTON By: Name: Title: 12 ABN AMRO BANK N.V., HOUSTON AGENCY By: ABN AMRO North America, Inc., as agent By: Name: Title: By: Name: Title: 13 THE BANK OF NEW YORK By: Name: Title: 14 BANQUE PARIBAS HOUSTON AGENCY By: Name: Title: By: Name: Title: 15 CREDIT LYONNAIS NEW YORK BRANCH By: Name: Title: 16 THE FUJI BANK, LIMITED HOUSTON AGENCY By: Name: Title: 17 FIRST NATIONAL BANK OF CHICAGO By: Name: Title: 18 SOCIETE GENERALE, SOUTHWEST AGENCY By: Name: Title: 19 THE BANK OF TOKYO-MITSUBISHI, LTD. By: Name: Title: 20 BANK OF SCOTLAND By: Name: Title: 21 CAISSE NATIONALE DE CREDIT AGRICOLE By: Name: Title: 22 CHRISTIANIA BANK OG KREDITKASSE By: Name: Title: By: Name: Title: 23 DEN NORSKE BANK AS By: Name: Title: By: Name: Title: 24 MIDLAND BANK PLC, NEW YORK BRANCH By: Name: Title: 25 WELLS FARGO BANK By: Name: Title: 26 THE BANK OF NOVA SCOTIA By: Name: Title: 27 CIBC, INC. By: Name: Title: 28 MELLON BANK By: Name: Title: 29 FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: First Union Corporation of North Carolina By: Name: Title: 30 BANK OF MONTREAL By: Name: Title: EX-10.1 4 1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN 1 EXHIBIT 10.1 AMENDMENT TO NONEMPLOYEE DIRECTOR'S STOCK OPTION AGREEMENT(S) WHEREAS, SEAGULL ENERGY CORPORATION, a Texas corporation (the "Company") has previously adopted the SEAGULL ENERGY CORPORATION 1993 NONEMPLOYEE DIRECTORS' STOCK OPTION PLAN (the "Directors' Option Plan"); and WHEREAS, certain nonstatutory stock options (collectively, "Options") have heretofore been granted to the optionee, a nonemployee director of the Company (the "Director"), that are currently outstanding under the Directors' Option Plan, each of such Options being listed on the schedule attached hereto and evidenced by a Nonemployee Director's Stock Option Agreement (collectively, the "Agreements"); and WHEREAS, the Company desires to amend the Agreements in certain respects; and WHEREAS, the Board of Directors of the Company has adopted an amendment to the Agreements and such amendment has been approved by the shareholders of the Company; NOW, THEREFORE, the Agreements shall be amended as follows, effective as of May 14, 1996: 1. Paragraph 3 of the Agreements shall be deleted and the following shall be substituted therefor: "3. Exercise of Option. Subject to the earlier expiration of this Option as herein provided, this Option may be exercised, by written notice to the Company at its principal executive office addressed to the attention of its Chairman, President and Chief Executive Officer, at any time and from time to time after the date of grant hereof, but, except as otherwise provided below, this Option shall not be exercisable for more than a percentage of the aggregate number of shares offered by this Option determined by the number of full years from the date of grant hereof to the date of such exercise, in accordance with the following schedule: 2 Percentage of Shares Number of Full Years That May Be Purchased Less than 1 year 0% 1 year 20% 2 years 40% 3 years 60% 4 years 80% 5 years or more 100% This Option is not transferable by Director otherwise than by will or the laws of descent and distribution, and may be exercised only by Director (or Director's guardian or legal representative) during Director's lifetime. If a Director's membership on the Board of Directors of the Company (the "Board") terminates, this Option may be exercised as follows: (a) If Director's membership on the Board terminates for cause or voluntarily by Director not at the request of the Board, this Option may be exercised by Director at any time during the period of three months following such termination, or by Director's estate (or the person who acquires this Option by will or the laws of descent and distribution or otherwise by reason of the death of Director) during a period of one year following Director's death if Director dies during such three-month period, but in each case only as to the number of shares Director was entitled to purchase hereunder upon exercise of this Option as of the date Director's membership on the Board so terminates. For purposes of this Agreement, "cause" shall mean Director's gross negligence or willful misconduct in performance of his duties as a director, or Director's final conviction of a felony or of a misdemeanor involving moral turpitude. For purposes of this Agreement, a Director's termination by reason of the mandatory retirement policy of the Board shall not constitute a voluntary termination, and the provisions of clause (b) shall be applicable to any such termination by reason of mandatory retirement. (b) If Director's membership on the Board terminates for any reason other than as described in clause (a) above (including without limitation because of Director's death, disability or by reason of mandatory retirement pursuant to the policy of the Board), this Option may be exercised in full by Director at any time until (i) three years after such termination or (ii) one year after Director's death, whichever 3 is later. After Director's death, this Option shall be exercisable for the periods stated in the immediately preceding sentence by Director's estate (or the person who acquires this Option by will or the laws of descent and distribution or otherwise by reason of the death of Director). After Director's termination as a director by reason of disability, this Option shall be exercisable for the periods stated in the first sentence of this clause (b) by Director or by Director's guardian or legal representative. This Option shall not be exercisable in any event after the expiration of ten years from the date of grant hereof. The purchase price of shares as to which this Option is exercised shall be paid in full at the time of exercise (A) in cash (including check, bank draft or money order payable to the order of the Company), (B) by delivering to the Company shares of Stock having a fair market value equal to the purchase price, or (C) any combination of cash or Stock. No fraction of a share of Stock shall be issued by the Company upon exercise of an Option or accepted by the Company in payment of the purchase price thereof; rather, Director shall provide a cash payment for such amount as is necessary to effect the issuance and acceptance of only whole shares of Stock. Unless and until a certificate or certificates representing such shares shall have been issued by the Company to Director, Director (or the person permitted to exercise this Option in the event of Director's death) shall not be or have any of the rights or privileges of a shareholder of the Company with respect to shares acquirable upon an exercise of this Option." 2. As amended hereby, the Agreements are specifically ratified and reaffirmed. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by its officer thereunto duly authorized, and Director has executed this Agreement, effective as of May 14, 1996. SEAGULL ENERGY CORPORATION By:___________________________ Chairman, President and Chief Executive Officer --------------------------- Director EX-10.2 5 OUTSIDE DIRECTORS DEFERRED FEE PLAN 1 EXHIBIT 10.2 SEAGULL ENERGY CORPORATION OUTSIDE DIRECTORS DEFERRED FEE PLAN 1. History and Purposes of the Plan The Seagull Energy Corporation Outside Directors Deferred Fee Plan ("Plan") was originally adopted on May 16, 1983 by Seagull Energy Corporation (the "Company"), formerly known as Seagull Pipeline Corporation, and is intended to provide a method for attracting and retaining qualified outside directors for the Company and to encourage them to devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its shareholders. Effective as of May 1, 1991, the Company restated the Plan for purposes of amending the Plan in certain respects. 2. Administration of the Plan The Plan shall be administered by a committee (the "Committee") appointed by the Board of Directors of the Company (the "Board"). No director who is eligible to participate in the Plan shall be eligible to be a member of the Committee. The Committee is authorized to interpret the Plan and may from time to time adopt such rules and regulations, consistent with the provisions of the Plan, as it may deem advisable to carry out the Plan. All decisions made by the Committee shall be final. All expenses incurred in connection with the administration of the Plan shall be borne by the Company. 3. Participation in the Plan (a) Participation. Each outside director of the Company shall become a participant in the Plan ("Participant"). For purposes of the foregoing sentence, an individual shall be deemed to be an outside director if he is a validly elected director of the Company and he does not perform any services for the Company in a common-law employee capacity. (b) Deferral of Director's Fees. The receipt of one-half of the annual retainer fee earned by each Participant shall be deferred under this Plan. Further, a Participant may elect to defer additional director's fees (whether annual, periodic or special) 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. (c) Time and Manner of Making Elections. Any deferral election which may be made by a Participant under the Plan shall be made with respect to a twelve consecutive month period ("Service Period") during which services are rendered by such Participant and must be made not later than the date immediately preceding the first day of such Service Period. On and after 2 January 1, 1992, the Service Period for each Participant shall commence on January 1 of each year. As a result of this change, there shall be short Service Periods which commence on or after May 1, 1991 and end December 31, 1991. All elections shall be made in the manner and form prescribed by the Committee. (d) Nature of Elections. A Participant's election to defer receipt of all or a designated portion of his fees for a Service Period shall continue in force and effect for future Service Periods unless modified or revoked by such Participant. Any such modification or revocation shall be effective only as of the first day of a Service Period and must be made not later than the date immediately preceding the first day of such Service Period. A modification or revocation of an existing deferral election shall be made in the manner and form prescribed by the Committee. Any deferral election (whether in the nature of an initial election, an unrevised continuing election or a revised continuing election) with respect to a Service Period shall be irrevocable as of the first day of such Service Period. 4. Crediting of Deferred Fees to Plan Accounts (a) Establishment of Plan Accounts. The Committee shall establish memorandum bookkeeping accounts (the "Plan Accounts") for each Participant in the Plan. Each Participant shall have two accounts, a Required Deferral Account to which mandatory deferrals under Paragraph 3(b) are credited and an Elective Deferral Account to which other deferrals under Paragraph 3(b) are credited. During each quarter within a Service Period, the Committee shall credit to each Participant's Plan Accounts the Participant's deferred fees as of the date such fees are earned by the Participant. (b) Crediting of Interest Equivalents. As of the last day of each quarter within a Service Period or as of the last day of any quarter subsequent to a Service Period upon which a Participant has a balance credited to his Plan Accounts, the Committee shall credit to each Participant's Elective Deferral Account, as additional deferred fees, a dollar amount equal to simple interest on the amounts credited to such Account (excluding any amounts being credited during such quarter) computed at the sum of: (1) the prime rate published in The Wall Street Journal on the last business day of such quarter, plus (2) a rate based upon the number of complete years which have elapsed since the date the Participant was first elected to the Board by the shareholders of the Company or by the Board under applicable corporate law, in accordance with the following schedule: 3 Number of Years Additional Rate of Interest Less than 5 0% 5 but less than 10 1% 10 or more 2% (c) Alternative Investment in Stock Units. In lieu of having his Elective Deferral Account credited with interest equivalents pursuant to Paragraph (b) above, a Participant may elect in accordance with the provisions of Paragraph (d) below to have the value of such Account determined as if it had been credited with a number of shares of stock (the "Phantom Stock") equal to the number of shares of common stock of the Company which could have been purchased with such Account on the date of such election, or for any amounts subsequently credited to the Participant's Account, on the date so credited, based upon the average of the closing prices of common stock of the Company on the twenty trading days preceding such date. As of the last day of each quarter within a Service Period and as of any other date which the Committee shall determine, the Committee shall redetermine the value of each Participant's Account which is credited with Phantom Stock based upon the increase or decrease in the value of the common stock of the Company during such quarter plus credit for dividends paid during such quarter; for the purpose of such redetermination, one share of Phantom Stock shall be deemed to be the equivalent of one share of the common stock of the Company. Except as provided in Paragraph (d) below, amounts credited to each Participant's Required Deferral Account shall be credited with Phantom Stock pursuant to this Paragraph. (d) Crediting Election. Prior to the first day of each quarter during a Service Period, a Participant may elect to have amounts credited to his Elective 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 revokes an election made pursuant to this Paragraph as of the first day of any quarter during a Service Period, 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 until paid to such Participant pursuant to Section 5 and any amounts subsequently credited to such Participant's Elective Deferral Account shall be credited with interest equivalents pursuant to Paragraph (b) above. 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. Notwithstanding any Plan provision to the contrary, a Participant whose Plan Accounts will be paid pursuant to Paragraph 5(a) in a mode other than lump sum may revoke his election pursuant to this Paragraph with respect to any 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, effective as of the first day of the first month following his final Service Period or final portion thereof; provided, however, that a Participant shall not be eligible to revoke or make an election pursuant to this sentence until he has ceased to be a member of the Board. If a Participant revokes or makes an election pursuant to the preceding sentence, 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. 4 5. Payment of Deferred Fees (a) Payment Election Generally. Prior to the first day of each Service Period, a Participant shall elect, subject to the provisions of Paragraphs (b), (c) and (d) below, the time (which may not be prior to the date on which he ceases to be a member of 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 such Service Period. Any such elections regarding the time and mode of payment of amounts credited to a Participant's Plan Accounts shall be irrevocable once made. 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 date the Participant ceased to be a director of the Company. (b) Payment Upon Death. In the event of a Participant's death, the balance of such Participant's Plan Accounts, computed as of the date of his death, shall be paid in one lump sum to his designated beneficiary within the first four months following the date of such Participant's death. A Participant, by written instrument filed with the Committee in such manner and form as it may prescribe, may designate one or more beneficiaries to receive payment of the amounts credited to his Plan Accounts in the event of his death. Any such beneficiary designation may be changed from time to time prior to the death of the Participant. In the absence of a beneficiary designation on file with the Committee at the time of a Participant's death, the executors or administrator of the Participant's estate shall be deemed to be his designated beneficiary. (c) Payment Upon Plan Termination. In the event the Plan is terminated by the Company, the balance of each Participant's Plan Accounts, computed as of the day immediately following the six-month anniversary of the date of such Plan termination, shall be paid to such Participant in one lump sum as soon as practicable after such date. (d) Payment Upon Change of Control. With respect to any Participant that ceases to be a director of the Company (or any successor) as a result of or in connection with 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, such Participant's Plan Accounts, computed as of the later of the date such Participant ceases to be a director of the Company or the date of such change of control, shall be paid to such Participant in one lump sum as soon as practicable, but no later than thirty days following such date. For purposes of the Plan, "change of control" shall be deemed to have occurred if (i) any person (other than Participant or the Company) including a "group" as determined in accordance with Section 5 13(d)(3) of the Securities Exchange Act of 1934, becomes the beneficial owner of shares of the Company having 40% or more of the total number of votes that may be cast for the election of Directors; or (ii) as a result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions (a "Transaction"), the persons who were Directors before the Transaction shall cease to constitute a majority of the Board of Directors of the Company or any successor thereto. The determinations of whether a change of control has occurred, whether such change of control was not approved, recommended or supported by the Directors in actions taken prior to, and with respect to, such change of control and whether any Participant ceased to be a director of the Company as a result of or in connection with such change of control shall be made by the Committee as existing at least six months prior to the occurrence of such change of control and its determination shall be final. (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 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 time which he has elected to commence receiving such payments 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 aggregate 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 time which he has elected to commence receiving such payments 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 6 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. (f) Form of Payment. All payments under the Plan shall be solely in the form of cash. Without limiting the generality of the foregoing, nothing in the Plan shall be construed as giving any Participant any rights as a holder of common stock or any other equity security of the Company as a result of such Participant's participation in this Plan or his election to credit his Plan Accounts with Phantom Stock. (g) Debiting of Plan Accounts. Once an amount has been paid to a Participant or his beneficiary, such amount or the Phantom Stock equivalent thereof shall be debited from the Participant's Plan Accounts. 6. Hardship Distributions In the event of hardship incurred by a Participant, as determined in the sole discretion of the Committee, payment of all or a portion of the amount credited to his Elective Deferral Account which is being credited with interest equivalents pursuant to Paragraph 4(b), if any, shall be accelerated by being paid, in one lump sum, as soon as practicable following the Committee's determination of the existence of such hardship. For purposes of this paragraph, hardship shall mean any financial emergency or extreme hardship affecting the personal or family affairs of the Participant and having a significant financial effect. The Committee may find that financial emergency or extreme hardship exists in situations in which a distribution is necessary for purposes such as, but not limited to, the following: (i) for the purpose of enabling a Participant to meet financial requirements of an illness or disability of the Participant or a member of his family; (ii) for the purpose of purchasing a principal home or preserving a principal home in which the Participant lives or will live; (iii) for the purpose of providing for the education of a Participant's children; and (iv) for the purpose of defraying major legal expenses and liability assessments or judgments arising out of legal proceedings involving the Participant or a member of his family. The decision of the Committee regarding the existence or nonexistence of a hardship of a Participant shall be final and binding. The Committee shall have the authority to require a Participant to provide such proof as it deems necessary to establish the existence and significant nature of the Participant's hardship. 7. Prohibition Against Assignment or Encumbrance No right, title, interest or benefit hereunder shall ever be liable for or charged with any of the torts or obligations of a Participant or a person claiming under a Participant, or be subject to seizure by any creditor of a Participant or any person claiming under a Participant. No Participant or any person claiming under a Participant shall have the power to anticipate or dispose of any right, title, interest or benefit hereunder in any manner until same shall have been actually distributed free and clear of the terms of the Plan. 7 8. Nature of the Plan The Plan and any election agreements executed thereunder constitute an unfunded, unsecured liability of the Company to make payments in accordance with the provisions hereof, and neither a Participant nor any person claiming under the Participant shall have any security or other interest in any specific assets of the Company by virtue of this Plan. Neither the establishment of the Plan, the crediting of amounts to Plan Accounts nor the setting aside of any funds shall be deemed to create a trust. The Company at its election may fund the payment of benefits under the Plan by setting aside and investing, in an account on the Company's books, such funds as the Company may from time to time determine. Legal and equitable title to any funds so set aside shall remain in the Company, and no Participant shall have any security or other interest in such funds. Any funds so set aside shall remain subject to the claims of the creditors of the Company, present and future. 9. Amendment and Termination of Plan The Company shall have the right to alter or amend the Plan or any part thereof from time to time, except the Company shall not make any alteration or amendment which would impair the rights of a Participant with respect to amounts theretofore credited to that Participant's Plan Accounts. The Company may terminate the Plan at any time. If not sooner terminated under the provisions of this paragraph, the Plan shall terminate as of the date on which all amounts theretofore credited to Plan Accounts have been paid. 10. Laws Governing The Plan and any documents executed in connection therewith shall be construed in accordance with and governed by the laws of the State of Texas. SEAGULL ENERGY CORPORATION By ______________________________________ Joe T. Rye, Senior Vice President and Chief Financial Officer 8 FIRST 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 May 1, 1993: 1. Paragraph 4(c) of the Plan shall be deleted and the following shall be substituted therefor: "(c) Alternative Investment in Stock Units. (1) In lieu of having his Elective Deferral Account credited with interest equivalents pursuant to Paragraph (b) above, a Participant may elect in accordance with the provisions of Paragraph (d) below to have the value of such Account determined as if it had been credited with a number of shares of stock (the "Phantom Stock") equal to the number of shares of common stock of the Company which could have been purchased with such Account on the date of such election, or for amounts which are subsequently credited to the Participant's Account, on the date so credited, based upon the average of the closing prices of the common stock of the Company on the twenty trading days preceding such date. Except as provided in Paragraph (d) below, amounts credited to each Participant's Required Deferral Account shall be credited with Phantom Stock pursuant to this Paragraph. (2) As of the last day of each quarter within a Service Period and as of any other date which the Committee shall determine, the Committee shall redetermine the value of each Participant's Account which is credited with Phantom Stock based upon the increase or decrease in the value of the common stock of the Company during such quarter; for the purpose of such redetermination, one share of Phantom Stock shall be deemed to be the equivalent of one share of common stock of the Company. Further, each Participant's Account which is credited with such Phantom Stock shall be credited with the amount of any cash dividends paid with respect to the common stock of the Company during such quarter in accordance with Paragraph (c)(1) above. 9 (3) If, and whenever, the Company shall effect a subdivision or consolidation of the common stock of the Company or the payment of a stock dividend on the common stock of the Company (including, without limitation, the two-for-one stock split proposed to be effected with a record date of May 21, 1993), (i) in the event of an increase in the number of outstanding shares of the common stock of the Company, the number of shares of Phantom Stock credited to each Participant's Account shall be proportionately increased and (ii) in the event of an reduction in the number of outstanding shares of the common stock of the Company, the number of shares of Phantom Stock credited to each Participant's Account shall be proportionately reduced." 2. As amended hereby, the Plan is specifically ratified and reaffirmed. EXECUTED this _____ day of _____________________, 1993. SEAGULL ENERGY CORPORATION By _________________________________ 10 SECOND 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 March 1, 1996; 1. Paragraph 3(c) of the Plan shall be deleted and the following shall be substituted therefore: "(c) Time and Manner of Making Elections. Any deferral election which may be made by a Participant under the Plan shall be made with respect to the period commencing on January 1 (or, if later, the date the Participant is first elected or appointed to the Board) and ending on December 31 of each year ("Service Period') during which services are rendered by such Participant and must be made not later than the date immediately preceding the first day of such Service Period. All elections shall be made in the manner and form prescribed by the Committee." 2. As amended hereby, the Plan is specifically ratified and reaffirmed. EXECUTED this 18th day of May, 1996. SEAGULL ENERGY CORPORATION By_____________________________ Barry J. Galt Chairman of the Board, Chief Executive Officer and President EX-10.3 6 CONSULTING AGREEMENT - ROBERT W. SHOWER - 05/01/96 1 EXHIBIT 10.3 CONSULTING AGREEMENT THIS CONSULTING AGREEMENT ("Agreement"), effective as of May 1, 1996 ("Effective Date"), is by and between SEAGULL ENERGY CORPORATION, a Texas corporation ("Seagull"), and ROBERT W. SHOWER, an individual who resides in Dallas, Texas ("Shower"). W I T N E S S E T H : WHEREAS, Shower's employment with Seagull terminated on April 30, 1996; and WHEREAS, Seagull desires Shower to perform certain professional services after the termination of his employment with Seagull and Shower is qualified by experience and training and desires to perform such services for Seagull; NOW THEREFORE, the parties, in consideration of the mutual promises, covenants and obligations contained herein, do hereby agree as follows: 1. During the term of this Agreement, Shower shall serve as a consultant to the management of Seagull with respect to such areas as requested by the management of Seagull. It is understood that Shower may be rendering services to others during the term of this Agreement and, in using the services of Shower hereunder, Seagull will exercise due regard for other commitments of Shower. Shower 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, Shower shall provide Seagull with such of his ideas, assessments, and evaluations as Seagull may deem necessary. Further, Shower agrees to be available for such meetings as Seagull deems necessary for proper communication of his consultation. 2. In consideration for the consulting services to be rendered pursuant to this Agreement, Seagull agrees to the following: (a) During the term of this Agreement, Seagull shall pay Shower on the first day of each calendar quarter, a fee to be determined based upon the following schedule: 2 Payment Date Quarterly Fee July 1, 1996 $25,000 October 1, 1996 $25,000 January 1, 1997 $15,000 April 1, 1997 $15,000 July 1, 1997 $10,000 October 1, 1997 $10,000 January 1, 1998 $10,000 April 1, 1998 $10,000 (b) The Restricted Stock Agreement dated March 17, 1995, between Seagull and Shower shall be amended pursuant to the amendment attached hereto as Exhibit A to provide that the forfeiture restrictions thereunder shall lapse as of March 17, 1998 if Shower performs substantial services pursuant to this Agreement or, if earlier, the date Shower dies or becomes disabled (as such term is defined under Seagull's long-term disability plan) or the date the Compensation Committee of the Board of Directors of Seagull in its sole discretion waives such forfeiture restrictions. (c) The Nonstatutory Stock Option Agreement dated March 20, 1992, between Seagull and Shower shall be amended pursuant to the amendment attached hereto as Exhibit B to provide that the option granted thereunder shall be fully exercisable during the period beginning on the Effective Date of this Agreement and ending on January 31, 1998. 3. Unless sooner terminated pursuant to other provisions hereof, Seagull agrees to retain the services of Shower for the period beginning on the Effective Date of this Agreement and ending on April 30, 1998. (a) Notwithstanding the provisions of the preceding sentence of this Paragraph, Seagull shall have the right to terminate this Agreement and Shower's services hereunder at any time for any of the following reasons: (i) Upon Shower's death; (ii) Upon Shower's becoming disabled as such term is defined under Seagull's long-term disability plan; (iii) For cause, which for purposes of this Agreement shall mean a finding by the Board of Directors of Seagull of Shower's gross negligence or wilful misconduct in the rendering of services required of him pursuant to this Agreement or Shower's final conviction of a felony or of a misdemeanor involving moral turpitude; 3 (iv) For Shower'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 Shower by Seagull; or (v) For any other reason whatsoever in the sole discretion of the Board of Directors of Seagull. (b) Notwithstanding the provisions of the first sentence of this Paragraph, Shower shall have the right to terminate this Agreement and his services hereunder 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 Shower; or (ii) For any other reason whatsoever in the sole discretion of Shower. (c) If Seagull or Shower desires to terminate Shower'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 Shower'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 shower'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 payable pursuant to paragraph 2(a) 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 shall continue for the balance of the term of this agreement. (e) in the event that shower's services are terminated by shower as provided in (b) above prior to the expiration of the term of this agreement, then, upon such termination, the compensation payable pursuant to paragraph 2(a) shall terminate contemporaneously with the termination of such services, except that if such termination shall be pursuant to (b)(i), such compensation shall continue for the balance of the term of this agreement. 4. During the term of this Agreement, Shower shall be entitled to use the nonresident membership in his name at the River Oaks Country Club, Houston, Texas, but Shower shall not be reimbursed by Seagull for the membership fees, dues or assessments with respect to such membership. 4 5. All reasonable out-of-pocket expenses incurred by Shower in the performance of his services hereunder and properly accounted for shall be borne by Seagull. If not paid directly by Seagull, Shower shall be reimbursed by Seagull for the cost of such expenses. 6. Shower acknowledges that Seagull's business is highly competitive and that Seagull's methods, strategies, books, records, and documents, Seagull's 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. Shower 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, Shower 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, Shower'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 Shower; (b) Information which was within Shower's knowledge or in his possession prior to his employment by Seagull; (c) Information which, either prior or subsequent to Seagull's disclosure to Shower, was disclosed to Shower, without an obligation of confidentiality, by a third party who did not acquire such information, directly or indirectly from Shower, Seagull, or from any third party who is under an obligation of confidentiality; or (d) Any disclosure of Confidential Information by Shower which is required by law, including deposition or trial testimony by Shower pursuant to subpoena. If Shower 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, if reasonably possible under the circumstances as determined in good faith by Shower, Shower 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. Money damages would not be sufficient remedy for any breach of this Paragraph concerning Confidential Information by Shower, and Seagull shall be entitled to 5 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 such a breach by Shower but shall be in addition to all remedies available at law or in equity to Seagull, including the recovery of damages from Shower. For purposes of this Paragraph, Seagull shall be construed to include any parent, subsidiary, or other affiliate of Seagull. 7. Seagull shall, without further remuneration to Shower, own, be entitled to possession of, and have the right to use, publish, and disclose any results, reports, product, or data developed by Shower during the course of his services hereunder, but identification of Shower with such results, reports, or data shall not be made without Shower's express consent. 8. Shower is engaged by Seagull only for the purposes and to the extent set forth in this Agreement, and his relationship to Seagull hereunder is that of an independent contractor. Nothing in this Agreement is intended to create an employer/employee relationship between Seagull and Shower or to allow Seagull to exercise control or direction over the manner or method by which Shower performs the services which are the subject matter of this Agreement. Shower shall be responsible for payment of all income, self-employment, or other taxes attributable to all compensation paid hereunder by Seagull to Shower, and Shower agrees to hold Seagull harmless for withholding or payment of such taxes. 9. 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 Shower, to: Mr. Robert W. Shower 7224 Village Lane Dallas, Texas 75248-6047 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. 10. This Agreement is entered into under and shall be governed for all purposes by the laws of the State of Texas. 6 11. 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. 12. 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. 13. 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. 14. 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. 15. 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 Shower has executed this Agreement, all as of the day and year first above written. SEAGULL ENERGY CORPORATION By: ROBERT W. SHOWER 7 EXHIBIT A AMENDMENT TO RESTRICTED STOCK AGREEMENT WHEREAS, SEAGULL ENERGY CORPORATION ("Seagull") entered into a restricted stock agreement (the "Agreement") with ROBERT W. SHOWER ("Shower") effective March 17, 1995; and WHEREAS, in conjunction with, and as part of the consideration for, a consulting agreement by and between Seagull and Shower for consulting services to be provided during the period beginning on May 1, 1996 and ending on April 30, 1998, Seagull desires to amend the Agreement in certain respects; NOW THEREFORE, the Agreement shall be amended as follows, effective as of May 1, 1996: 1. All references to the term "Employee" in the Agreement shall be deleted and the term "Consultant" shall be substituted therefor. 2. Paragraph 2 of the Agreement shall be deleted and the following shall be substituted therefor: "2. Forfeiture Restrictions. The Stock issued and/or disposed of to Consultant pursuant to this Agreement may not be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered or disposed of to the extent then subject to the Forfeiture Restrictions (as hereinafter defined) and upon the occurrence of a Performance Forfeiture Event (as hereinafter defined), Consultant shall, for no consideration, forfeit to the Company all Stock to the extent then subject to the Forfeiture Restrictions. The prohibition against transfer and the obligation to forfeit and surrender Stock to the Company upon Consultant's failure to perform substantial services under the Consulting Agreement are herein referred to as 'Forfeiture Restrictions,' and the shares which are then subject to the Forfeiture Restrictions are herein sometimes referred to as 'Restricted Shares' The Forfeiture Restrictions shall be binding upon and enforceable against any transferee of the Stock. For purposes of this Agreement, a 'Performance Forfeiture Event' shall occur upon a good faith determination by the Compensation Committee of the Board of Directors (the 'Committee') that Consultant has failed to perform substantial services under the Consulting Agreement effective May 1, 1996, by and between the Company and Consultant (the 'Consulting Agreement') for any reason (other than as described in (2) and (3) below). The Forfeiture Restrictions shall lapse as to all Stock issued to Consultant pursuant to this Agreement on the earlier of (1) the third anniversary of the date of this Agreement, (2) the date Consultant dies or becomes disabled (as such term is defined under the Company's long-term disability plan) or (3) the date, if any, the Committee in its sole discretion waives the Forfeiture Restrictions." 3. Paragraph 8 of the Agreement shall be deleted and the following shall be substituted therefor: '8. Consulting Relationship. Any question as to whether Consultant has provided or failed to provide substantial services under the Consulting Agreement shall be determined by the Committee, and its determination shall be final." 4. As amended hereby, the Agreement is specifically ratified and reaffirmed. IN WITNESS WHEREOF, the Company has caused this amendment to be duly executed by one of its officers thereunto duly authorized, and Shower has executed this amendment, effective as of May 1, 1996. SEAGULL ENERGY CORPORATION By _______________________ ROBERT W. SHOWER 8 EXHIBIT B AMENDMENT TO NONSTATUTORY STOCK OPTION AGREEMENT WHEREAS, SEAGULL ENERGY CORPORATION ("Seagull") has previously adopted the SEAGULL ENERGY CORPORATION 1990 STOCK OPTION PLAN (the "Option Plan"); and WHEREAS, a certain nonstatutory stock option (the "Option") to purchase 90,000 shares of the common stock of Seagull was granted to ROBERT W. SHOWER ("Shower"), an employee of Seagull, on March 20, 1992, and such Option is currently outstanding under the Option Plan and is evidenced by a Nonstatutory Stock Option Agreement (the "Agreement"); and WHEREAS, in conjunction with, and as part of the consideration for, a consulting agreement by and between Seagull and Shower for consulting services to be provided during the period beginning on May 1, 1996 and ending on April 30, 1998, Seagull desires to amend the Agreement in certain respects; NOW, THEREFORE, the Agreement shall be amended as follows, effective as of May 1, 1996: 1. The vesting schedule contained in the Agreement shall be waived and the Option outstanding under such Agreement shall be exercisable in full by Shower, his estate or the person who acquires the Option by will or the laws of descent and distribution, at any time on or before January 31, 1998. 2. As amended hereby, the Agreement is specifically ratified and reaffirmed. IN WITNESS WHEREOF, the Company has caused this amendment to be duly executed by one of its officers thereunto duly authorized, and Shower has executed this amendment, effective as of May 1, 1996. SEAGULL ENERGY CORPORATION By ______________________ -------------------------- ROBERT W. SHOWER EX-10.4 7 SEVERANCE AGREEMENT - WILLIAM L. TRANSIER 1 EXHIBIT 10.4 SEVERANCE AGREEMENT AGREEMENT between SEAGULL ENERGY CORPORATION, A Texas corporation (the "Company"), and William L. Transier ("Executive"), W I T N E S S E T H : WHEREAS, the Company desires to retain certain key employee personnel and, accordingly, the Bard 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 2 (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 (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) "Objective EIP Award" shall mean, with respect to Executive, the amount, if any, earned under the objective criterion of the EIP in effect for the calendar year preceding such Employee's Involuntary Termination. (h) "Retirement" shall mean Rxecutive's resignation on or after the date he reaches age sixty-five. (i) "Severance Amount" shall mean an amount equal to 2.99 times Executive's Compensation. 3 (j) "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. (k) "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. (l) "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 two times his Objective 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 4 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 reduction amount, the Company shall promptly pay to Executive the difference between such amounts with respect to such claim. 5 6. General. (a) Term. The effective date of this Agreement is May 14, 1996. The initial term of this Agreement shall 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 within sixty days following the expiration of each two-year period of time that this Agreement is in effect. This Agreement shall remain in effect until so terminated and/or modified by the Company. Failure of the Board to take any action within sixty days following the expiration of each two- year period of time that this Agreement is in effect 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 6 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. 7 (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 (a) the right of the Company (or its subsidiaries) to discharge executive at will or (b) 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 as of the 14th day of May, 1996. "EXECUTIVE" ---------------------------------------- "COMPANY" SEAGULL ENERGY CORPORATION By: ____________________________________ Name:_______________________________ Title:______________________________ EX-10.5 8 RESTRICTED STOCK AGREEMENT - WILLIAM L. TRANSIER 1 EXHIBIT 10.5 RESTRICTED STOCK AGREEMENT THIS AGREEMENT is made as of the 14th day of May, 1996 between SEAGULL ENERGY CORPORATION, a Texas corporation (the "Company"), and William L. Transier ("Employee"). To carry out the purposes of the SEAGULL ENERGY CORPORATION 1995 OMNIBUS STOCK PLAN (the "Plan"), by affording Employee the opportunity to acquire shares of common stock of the Company ("Stock"), and in consideration of the mutual agreements and other matters set forth herein and in the Plan, the Company and Employee hereby agree as follows: 1. Award of Shares. Upon execution of this Agreement, the Company shall issue and/or dispose of 3,000 shares of the common stock of the Company ("Stock") shall be issued and/or disposed of to Employee. Employee acknowledges receipt of a copy of the Plan, and agrees that this award of Stock shall be subject to all of the terms and conditions set forth herein and in the Plan, including future amendments thereto, if any, pursuant to the terms thereof, which Plan is incorporated herein by reference as a part of this Agreement. 2. Forfeiture Restrictions. The Stock issued and/or disposed of to Employee pursuant to this Agreement may not be sold, assigned, pledged, exchanged, hypothecated or otherwise transferred, encumbered or disposed of to the extent then subject to the Forfeiture Restrictions (as hereinafter defined), and in the event of termination of Employee's employment with the Company for any reason (other than as described in (3) and (4) below), Employee shall, for no consideration, forfeit to the Company all Stock to the extent then subject to the Forfeiture Restrictions. The prohibition against transfer and the obligation to forfeit and surrender Stock to the Company upon termination of employment are herein referred to as "Forfeiture Restrictions," and the shares which are then subject to the Forfeiture Restrictions are herein sometimes referred to as "Restricted Shares." The Forfeiture Restrictions shall be binding upon and enforceable against any transferee of the Stock. The Forfeiture Restrictions shall lapse as to all Stock issued to Employee pursuant to this Agreement on the earlier of (1) the third anniversary of the date of this Agreement, (2) the date a Change of Control occurs, (3) the date Employee's employment with the Company is terminated by reason of death, disability under circumstances entitling him to benefits under the Company's long- term disability plan, or Involuntary Termination within two years after a Change of Control (as such terms are defined in the Severance Agreement effective May 14, 1996 between the Company and Employee), or (4) if Employee's employment with the Company is terminated for any other reason, the date, if any, the Committee in its sole discretion waives the Forfeiture Restrictions. 3. Certificates. A certificate evidencing the Restricted Shares shall be issued by the Company in Employee's name, pursuant to which Employee shall have voting rights and shall be entitled to receive dividends and other distributions (provided, however, that dividends or other distributions paid in 2 the form of the Company's securities shall be subject to the Forfeiture Restrictions). The certificate shall bear the following legend: The shares evidenced by this certificate have been issued pursuant to an agreement made as of May 14, 1996, a copy of which is attached hereto and incorporated herein, between the Company and the registered holder of the shares, and are subject to forfeiture to the Company under certain circumstances described in such agreement. The sale, assignment, pledge or other transfer of the shares of stock evidenced by this certificate is prohibited under the terms and conditions of such agreement, and such shares may not be sold, assigned, pledged or otherwise transferred except as provided in such agreement. The Company may cause the certificate to be delivered upon issuance to the Secretary of the Company as a depository for safekeeping until the forfeiture occurs or the Forfeiture Restrictions lapse pursuant to the terms of this Agreement. Upon request of the Company, Employee shall deliver to the Company a stock power, endorsed in blank, relating to the Restricted Shares then subject to the Forfeiture Restrictions. Upon the lapse of the Forfeiture Restrictions without forfeiture, the Company shall cause a new certificate or certificates to be issued without legend in the name of Employee in exchange for the certificate evidencing the Restricted Shares. 4. Consideration. It is understood that the consideration for the issuance of Restricted Shares shall be past services of Employee rendered to the Company prior to the date of issuance of the Restricted Shares, having a value not less than the par value of such Restricted Shares. 5. Withholding of Tax. To the extent that the receipt of the Restricted Shares or the lapse of any Forfeiture Restrictions results in income to Employee for federal or state income tax purposes, Employee shall deliver to the Company at the time of such receipt or lapse, as the case may be, such amount of money or shares of unrestricted Stock as the Company may require to meet its obligation under applicable tax laws or regulations, and, if Employee fails to do so, the Company is authorized to withhold from any cash or Stock remuneration then or thereafter payable to Employee any tax required to be withheld by reason of such resulting compensation income. 6. Tax Election. If Employee makes the election authorized by section 83(b) of the Internal Revenue Code of 1986, as amended (the "Code"), Employee shall submit to the Company a copy of the statement filed by Employee to make such election. 7. Status of Stock. Employee agrees that the Restricted Shares will not be sold or otherwise disposed of in any manner that would constitute a violation of any applicable federal or state securities laws. Employee also agrees (i) that the certificates representing the Restricted Shares may bear such legend or legends as the Committee deems appropriate in order to ensure compliance with applicable securities laws, (ii) that the Company may refuse to register the transfer of the Restricted Shares on the stock transfer records of 3 the Company if such proposed transfer would in the opinion of counsel satisfactory to the Company constitute a violation of any applicable securities law and (iii) that the Company may give related instructions to its transfer agent, if any, to stop registration of the transfer of the Restricted Shares. 8. Employment Relationship. For purposes of this Agreement, Employee shall be considered to be in the employment of the Company as long as Employee remains an employee of either the Company, any successor corporation or a parent or subsidiary corporation (as defined in section 424 of the Code) of the Company or any successor corporation. Any question as to whether and when there has been a termination of such employment, and the cause of such termination, shall be determined by the Committee, and its determination shall be final. 9. Committee's Powers. No provision contained in this Agreement shall in any way terminate, modify or alter, or be construed or interpreted as terminating, modifying or altering any of the powers, rights or authority vested in the Committee pursuant to the terms of the Plan, including, without limitation, the Committee's rights to make certain determinations and elections with respect to the Restricted Shares. 10. Certain Additional Payments by the Company. Notwithstanding anything in this Agreement to the contrary, if the lapse of the Forfeiture Restrictions in Paragraph 2, together with any other payments which Employee has the right to receive from the Company, would constitute a "parachute payment" (as defined in Section 280G(b)(2) of the Code), the lapse of the Forfeiture Restrictions shall be coordinated with such other payments and, after taking into account all permitted reductions in cash payments to Employee, the Forfeiture Restrictions shall lapse with respect to that number of shares of Stock (a) that would result in the present value of such total amounts received by Employee from the Company being one dollar ($1.00) Less than three times Employee's base amount (as defined in Section 280G of the Code) and so that no portion of such amounts received by Employee shall be subject to the excise tax imposed by Section 4999 of the Code or (b) all shares of Stock, whichever produces the better net after-tax position to Employee (taking into account any applicable excise tax under Section 4999 of the Code and any applicable income tax). The Company and Employee shall make the determination as to the number of shares of Stock as to which the Forfeiture Restrictions should lapse. Employee shall notify the Company immediately in writing of any claim by the Internal Revenue Service which, if successful, would require the Company to reduce the number of shares with respect to which the Forfeiture Restrictions lapse within five days of the receipt of such claim. The Company shall notify Employee 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, Employee 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, after taking into account all permitted increases in cash payments to Employee, the number shares of stock as to which the Forfeiture 4 Restrictions lapsed is found to have been less than the correct number of shares of Stock, the Forfeiture Restrictions shall immediately lapse with respect to such additional shares of Stock. 11. Binding Effect. This Agreement shall be binding upon and inure to the benefit of any successors to the Company and all persons lawfully claiming under Employee. 12. Non-Alienation. Employee 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 dis tribution. 13. Not a Contract of Employment. This Agreement shall not be deemed to constitute a contract of employment, nor shall any provision hereof affect (a) the right of the Company (or its subsidiaries) to discharge Employee at will or (b) the terms and conditions of any other agreement between the Company and Employee except as provided herein. 14. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Texas. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by an officer thereunto duly authorized, and Employee has executed this Agreement, all effective as of the date first above written. SEAGULL ENERGY CORPORATION By: Employee EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JUN-30-1996 14,404 0 107,583 0 5,488 133,977 1,645,282 627,612 1,191,564 114,707 0 3,677 0 0 455,856 1,191,564 196,435 196,435 22,457 150,631 7,081 0 22,654 16,069 7,130 8,939 0 0 0 8,939 .24 .24
-----END PRIVACY-ENHANCED MESSAGE-----