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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
-------------------------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998
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: 000-21843
TITAN EXPLORATION, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2671582
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization
500 W. TEXAS, SUITE 500 79701
MIDLAND, TEXAS (Zip Code)
(Address of principal executive offices)
(915) 498-8600
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of November 2, 1998, 37,874,675 shares of common stock, par value
$.01 per share of Titan Exploration, Inc. were outstanding.
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TABLE OF CONTENTS
-----------------
Forward Looking Information and Risk Factors................................ 1
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998 (Unaudited)
and December 31, 1997............................................ 2
Unaudited Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1998 and 1997.................... 3
Unaudited Consolidated Statements of Cash Flows for the Three and
Nine Months Ended September 30, 1998 and 1997.................... 4
Notes to Consolidated Financial Statements......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 9
PART II -- OTHER INFORMATION
Item 3. Legal Proceedings................................................. 18
Item 4. Submission of Matters to a Vote of Security Holders............... 18
Item 5. Other Information................................................. 18
Item 6. Exhibits and Reports on Form 8-K.................................. 19
Signatures........................................................ 20
<PAGE>
TITAN EXPLORATION, INC.
FORWARD LOOKING INFORMATION AND RISK FACTORS
Titan Exploration, Inc. (the "Company") or its representatives may make
forward looking statements, oral or written, including statements in this
report's Management's Discussion and Analysis of Financial Condition and Results
of Operations, press releases and filings with the Securities and Exchange
Commission, regarding estimated future net revenues from oil and natural gas
reserves and the present value thereof, planned capital expenditures (including
the amount and nature thereof), increases in oil and gas production, the number
of wells the Company anticipates drilling through 1998 and the Company's
financial position, business strategy and other plans and objectives for future
operations. Although the Company believes that the expectations reflected in
these forward looking statements are reasonable, there can be no assurance that
the actual results or developments anticipated by the Company will be realized
or, even if substantially realized, that they will have the expected effects on
its business or operations. Among the factors that could cause actual results
to differ materially from the Company's expectations are general economic
conditions, inherent uncertainties in interpreting engineering data, operating
hazards, delays or cancellations of drilling operations for a variety of
reasons, competition, fluctuations in oil and gas prices, government regulations
and other factors set forth in the Company's Annual Report on Form 10-K. All
subsequent oral and written forward looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by these factors. The Company assumes no obligation to update any of
these statements.
1
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ITEM 1. FINANCIAL STATEMENTS
TITAN EXPLORATION, INC.
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
-------------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,088 $ 1,603
Restricted investments -- 2,331
Accounts receivable:
Oil and gas 10,957 13,663
Other 88 2,900
Inventories 1,271 624
Prepaid expenses and other current assets 785 531
--------- --------
Total current assets 15,189 21,652
--------- --------
Property, plant and equipment, at cost:
Oil and gas properties, using the successful efforts method of accounting:
Proved properties 372,220 341,163
Unproved properties 25,213 24,942
Other property and equipment 6,279 2,421
Accumulated depletion, depreciation and amortization (119,658) (94,387)
--------- --------
284,054 274,139
--------- --------
Investments in affiliates and others 56,320 55,900
Other assets, net of accumulated amortization of $582 in 1998 and $413 in 1997 936 892
--------- --------
$ 356,499 $352,583
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities:
Trade $ 8,658 $ 16,983
Accrued interest 443 307
Other 5,312 4,334
--------- --------
Total current liabilities 14,413 21,624
--------- --------
Long-term debt 135,300 85,450
Other liabilities 2,558 2,720
Deferred income tax payable 1,467 10,368
Stockholders' equity:
Preferred Stock, $.01 par value, 10,000,000 shares authorized; none issued
and outstanding -- --
Common Stock, $.01 par value, 60,000,000 shares authorized; 40,474,675 and
40,332,497 shares issued and outstanding at September 30, 1998 and December
31, 1997, respectively 405 403
Additional paid-in capital 278,020 277,500
Treasury stock, at cost; 2,400,000 and 55,000 shares at September 30, 1998
and December 31, 1997, respectively (18,820) (504)
Deferred compensation (6,318) (10,108)
Retained deficit (50,526) (34,870)
--------- --------
Total stockholders' equity 202,761 232,421
--------- --------
Commitments and contingencies (Note 3)
$ 356,499 $352,583
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
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TITAN EXPLORATION, INC.
Unaudited Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------- --------------------------------------
1998 1997 1998 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues -
Oil and gas sales $ 16,671 $17,932 $ 57,139 $52,100
-------- ------- -------- -------
Expenses:
Oil and gas production 6,111 3,338 21,288 12,601
Production and other taxes 1,263 1,321 4,355 4,026
General and administrative 2,347 1,294 7,672 3,637
Amortization of stock option awards 1,263 1,263 3,790 3,790
Exploration and abandonments 1,876 586 6,077 1,342
Depletion, depreciation and amortization 6,481 5,828 19,456 15,927
Impairment of long-lived assets 5,126 -- 13,143 --
-------- ------- -------- -------
Total expenses 24,467 13,630 75,781 41,323
-------- ------- -------- -------
Operating income (loss) (7,796) 4,302 (18,642) 10,777
-------- ------- -------- -------
Other income (expense):
Interest income 24 37 125 134
Interest expense (2,349) (339) (6,040) (825)
Equity in net loss of affiliates (108) -- (349) --
Other 91 (61) 447 10
-------- ------- -------- -------
Income (loss) before income taxes (10,138) 3,939 (24,459) 10,096
-------- ------- -------- -------
Income tax expense (benefit) (3,706) 1,379 (8,803) 3,534
-------- ------- -------- -------
Net income (loss) $ (6,432) $ 2,560 $(15,656) $ 6,562
======== ======= ======== =======
Net income (loss) per share $ (.17) $ .08 $ (.40) $ .19
======== ======= ======== =======
Net income (loss) per share - assuming
dilution $ (.17) $ .07 $ (.40) $ .18
======== ======= ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
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TITAN EXPLORATION, INC.
Unaudited Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (6,432) $ 2,560 $(15,656) $ 6,562
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion, depreciation and amortization 6,481 5,828 19,456 15,927
Impairment of long-lived assets 5,126 -- 13,143 --
Amortization of stock option awards 1,263 1,263 3,790 3,790
Exploration and abandonments 974 -- 3,506 --
Equity in net loss of affiliates 108 -- 349 --
Loss (gain) on sale of assets (4) -- 7 --
Deferred income taxes (3,706) 1,379 (8,803) 3,534
Other items 83 -- 282 --
Changes in assets and liabilities:
Accounts receivable (79) (771) 4,044 (527)
Prepaid expenses and other current assets 282 (262) (909) (481)
Other assets (21) -- (39) --
Accounts payable and accrued liabilities 784 (1,829) (6,062) 1,751
-------- -------- -------- --------
Total adjustments 11,291 5,608 28,764 23,994
-------- -------- -------- --------
Net cash provided by operating activities 4,859 8,168 13,108 30,556
-------- -------- -------- --------
Cash flows from investing activities:
Redemption of restricted investment -- -- 2,331 --
Investing in oil and gas properties (18,698) (12,158) (42,709) (43,089)
Additions to other property and equipment (163) (744) (3,858) (744)
Capital contribution in equity investments (368) -- (931) --
Other investing activities 1,381 518 1,396 (74)
-------- -------- -------- --------
Net cash used in investing activities (17,848) (12,384) (43,771) (43,907)
-------- -------- -------- --------
Cash flows from financing activities:
Proceeds from debt 22,300 4,700 51,200 8,200
Payments of debt -- -- (1,350) --
Exercise of stock options 209 7 424 7
Purchase of treasury stock (7,986) -- (18,316) --
Other financing activities (576) -- (810) --
-------- -------- -------- --------
Net cash provided by financing activities 13,947 4,707 31,148 8,207
-------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents 958 491 485 (5,144)
Cash and cash equivalents, beginning of period 1,130 655 1,603 6,290
-------- -------- -------- --------
Cash and cash equivalents, end of period $ 2,088 $ 1,146 $ 2,088 $ 1,146
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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TITAN EXPLORATION, INC.
Notes to Consolidated Financial Statements
September 30, 1998 and 1997
(Unaudited)
(1) BASIS OF PRESENTATION
In the opinion of management, the unaudited consolidated financial
statements of Titan Exploration, Inc. (the "Company") as of September 30, 1998
and for the three and nine months ended September 30, 1998 and 1997 include all
adjustments and accruals, consisting only of normal recurring accrual
adjustments, which are necessary for a fair presentation of the results for the
interim period. These interim results are not necessarily indicative of results
for a full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission. These consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's 1997 Form 10-K.
Preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Reclassifications
Certain reclassifications have been made to the 1997 amounts to conform to
the 1998 presentations.
(2) DEBT
Line of Credit
On October 31, 1996, the Company entered into a credit agreement, as
amended (the "Credit Agreement"), with The Chase Manhattan Bank, N.A. which
establishes a four year revolving credit facility, up to the maximum amount of
$250 million subject to a borrowing base. All amounts outstanding are due and
payable in full by January 1, 2001. The borrowing base, which was $200 million
at September 30, 1998, is subject to redetermination semiannually by the lenders
based on certain proved oil and gas reserves and other assets of the Company
with the next redetermination date scheduled for April 1999. At September 30,
1998, the Company was not in compliance with certain coverage tests required by
its Credit Agreement. The Company obtained amendments to the Credit Agreement
that adequately resolve the events of non-compliance. At September 30, 1998, the
outstanding principal balance was $130.5 million and the amount available to
borrow was approximately $69.4 million.
Unsecured Credit Agreement
In April 1997, the Company entered into a credit agreement, as amended (the
"Unsecured Credit Agreement"), with Chase Bank of Texas, N.A. (the "Bank"), an
affiliate of The Chase Manhattan Bank, N.A., which establishes a revolving
credit facility, up to the maximum of $5 million. All outstanding amounts
pursuant to the Unsecured Credit Agreement are due and payable in full on or
before December 31, 1999. The interest rate of each loan under the Unsecured
Credit Agreement is at a rate determined by agreement between the Company and
the Bank. The rate shall not exceed the maximum interest rate permitted under
applicable laws. Interest rates generally are at the Bank's cost of funds plus
1% per annum. At September 30, 1998, the outstanding principal balance was $4.8
million.
5
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(3) COMMITMENTS AND CONTINGENCIES
Litigation
The following is a brief description of certain litigation to which the
Company is subject, as a result of assuming the obligations of Offshore Energy
Development Corporation ("OEDC"). The Company believes it has meritorious
defenses to the claims and intends to vigorously defend against such claims.
The Company does not believe that it has a probable and estimable loss with
respect to any such litigation in excess of currently provided reserves, if any.
If such loss becomes probable and estimable, the amount of any recorded
liability could have a material adverse effect on the Company's (i) results of
operations for the period in which such liability is recorded, (ii) consolidated
financial position as a whole and (iii) liquidity and capital resources.
However, the Company does not expect that any such liability will have a
material adverse effect on its consolidated financial position as a whole or on
its liquidity or capital resources. Due to the uncertainties inherent in
litigation, no assurance can be given to the ultimate outcome of these matters.
OEDC and certain of its officers and directors, as well as Natural Gas
Partners, L.P. ("NGP"), the managing underwriters of OEDC's initial public
offering and an analyst from each of the managing underwriters, have been named
as defendants in a suit styled Eric Baron and Edward C. Allen, On behalf of
Themselves and all Others Similarly Situated, v. David B. Strassner, Douglas H.
Kiesewetter, David R. Albin, Natural Gas Partners, L.P., David Garcia, John J.
Myers, Offshore Energy Development Corporation, Morgan Keegan & Company, Inc.
and Principal Securities Inc., which was filed October 20, 1997, in the Texas
State District Court of Harris County, Texas 270th Judicial District. The
defendants removed plaintiffs' claims to federal court in the United States
Southern District of Texas. Plaintiffs motion to have the case remanded to the
state court was granted by the federal judge in April 1998. The suit seeks
class certification on behalf of certain holders of common stock of OEDC,
excluding the defendants and holders related to or affiliated with the
defendants. The state court has denied class certification at this time, in
deference to a parallel federal court action, which is described below. The
state court suit alleges generally that the defendants wrongfully made false or
misleading statements or omissions relating to OEDC's business and prospects in
the course of OEDC's initial public offering and subsequent thereto. The state
court suit seeks rescission of sales of common stock of OEDC and unspecified
monetary damages, including punitive damages.
OEDC and certain of its officers and directors, as well as NGP, have also
been named defendants in a suit styled John W. Robertson, et al. v. David B.
Strassner, Douglas H. Kiesewetter, David R. Albin, Natural Gas Partners, L.P.
and Offshore Energy Development Corporation, which was filed February 6, 1998,
in the United States Southern District of Texas, Houston Division. This suit
mirrors the allegations of the foregoing matter, but adds request for relief
under federal securities laws. It, too, seeks certification of a class of
certain purchasers of common stock of OEDC. The suit seeks compensatory
damages, including rescissory damages, where applicable.
The Company is involved in other various claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
Letters of Credit
At September 30, 1998, the Company had outstanding letters of credit of
$144,000, which were issued through the Credit Agreement.
6
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(4) COMMON STOCK
In May 1997, the Company announced a plan to repurchase up to $25 million
of the Companys common stock. The repurchases will be made periodically,
depending on market conditions, and will be funded with cash flow from
operations and, as necessary, borrowings under the Credit Agreement. At
September 30, 1998 and December 31, 1997, the Company had purchased 2,400,000
and 55,000 shares of its common stock for approximately $18,820,000 and
$504,000, respectively.
(5) NET INCOME (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per common share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1998 1997 1998 1997
------- ------- -------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) and numerator for basic and
diluted net income (loss) per common share -
income available to common stockholders $(6,432) $ 2,560 $(15,656) $ 6,562
------- ------- -------- -------
Denominator:
Denominator for basic net income (loss) per common
share - weighted average common shares 38,252 33,943 39,109 33,942
Effect of dilutive securities - employee stock
options -- 1,958 -- 1,860
------- ------- -------- -------
Denominator for diluted net income (loss) per
common share - adjusted weighted average common
shares and assumed conversions 38,252 35,901 39,109 35,802
======= ======= ======== =======
Basic net income (loss) per common share $ (.17) $ .08 $ (.40) $ .19
======= ======= ======== =======
Diluted net income (loss) per common share $ (.17) $ .07 $ (.40) $ .18
======= ======= ======== =======
</TABLE>
Employee stock options to purchase 3,809,109, 0, 3,809,109 and 169,500
shares of common stock were outstanding during the three and nine months ended
September 30, 1998 and 1997, respectively, but were not included in the
computation of diluted net income (loss) per common share because either (i) the
employee stock options' exercise price was greater than the average market price
of the common stock of the Company or (ii) the Company had a loss from
continuing operations and, therefore, the effect would be antidilutive.
7
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(6) DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes various swap contracts and other financial instruments
to hedge the effect of price changes on future gas production. The following
table sets forth the future volumes hedged by year and the range of prices to be
received based upon the fixed price of the commodity price collars and other
financial instruments outstanding as of September 30, 1998:
<TABLE>
<CAPTION>
Gas
Volume Price per
Year (MMcf) Mcf
---- ------ ---
<S> <C> <C>
Gas commodity price collars:
1998 3,864 $1.81 to $3.10
1999 11,134 $1.81 to $3.10
2000 1,365 $1.98 to $2.33
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is an independent energy company engaged in the exploitation,
development, exploration and acquisition of oil and gas properties. The
Company's strategy is to grow reserves, production and net income per share
through (i) the exploitation and development of its reserve base, (ii) the
acquisition of producing properties that provide significant development and
exploratory drilling potential, (iii) the exploration for oil and gas reserves,
(iv) capitalization on advanced technology to identify, explore and exploit
projects, (v) financial flexibility, and (vi) a low overhead and operating cost
structure. The Company has grown rapidly through the acquisition and
exploitation of oil and gas properties, consummating the 1995 Acquisition for a
purchase price of approximately $41.0 million, the 1996 Acquisition for
approximately $136.0 million and the Pioneer Acquisition, in 1997, for
approximately $55.8 million. In addition, in December 1997, the Company issued
5,486,734 shares and 899,965 shares of the Company's common stock in connection
with the Offshore Energy Development Corporation ("OEDC") acquisition and the
Carrollton Resources, L.L.C. ("Carrollton") acquisition, respectively.
The Company's growth from acquisitions has impacted its financial results in
a number of ways. Acquired properties may not have received focused attention
prior to sale. After acquisition, certain of these properties required
extensive maintenance, workovers, recompletions and other remedial activity that
while not constituting capital expenditures may initially increase lease
operating expenses. The Company may dispose of certain of the properties it
determines are outside the Company's strategic focus. The increased production
and revenue resulting from the rapid growth of the Company has required it to
recruit and develop operating, accounting and administrative personnel
compatible with its increased size. As a result, the Company has incurred
increases in its general and administrative expense levels. The Company
believes that with its current inventory of drilling locations and the
additional staff it will be well positioned to follow a more balanced program of
exploration and exploitation activities to complement its acquisition efforts.
The Company uses the successful efforts method of accounting for its oil and
gas producing activities. Costs to acquire mineral interests in oil and gas
properties, to drill and equip exploratory wells that result in proved reserves,
and to drill and equip development wells are capitalized. Costs to drill
exploratory wells that do not result in proved reserves, and geological and
geophysical costs are expensed. Costs of significant nonproducing properties,
wells in the process of being drilled and significant development projects are
excluded from depletion until such time as the related project is developed and
proved reserves are established or impairment is determined.
IMPACT OF CRUDE OIL PRICES
During the nine months ended September 30, 1998, the posted price of West
Texas intermediate crude oil (the "West Texas Crude Oil Price") ranged from
$15.75 to $9.00 per barrel. These low prices are thought to be caused primarily
by an oversupply of crude oil inventory created, in part, by an unusually warm
winter in the United States and Europe, the apparent unwillingness of OPEC
countries to abide by their respective crude oil production quotas and a
possible decline in demand in certain Asian markets.
If the West Texas Crude Oil Price worsens or persists for a protracted
period, it would adversely affect the Company's revenues, net income and cash
flows from operations. Also, if these prices maintain their present level for
an extended time period or decline further the Company may delay or postpone
certain of its capital projects.
If the posted price for West Texas Crude Oil Price remains at current levels
or continues to decline, the Company would expect that it may be required to
record an impairment to its oil and gas properties in 1998. The extent of an
impairment, if any, cannot be determined.
RECENT DEVELOPMENTS
The Company has drilled the Vermillion Block 253 #A-1 well, in the Gulf of
Mexico, to a depth of approximately 11,035' and is preparing to run a production
liner. Mud log shows supported by open hole logs and sidewall cores indicate
potential oil and gas zones from multiple pay intervals. Although the Company
is
9
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enthusiastic about these shows and the potential of this well, production
testing and additional drilling is necessary before the Company can accurately
determine the effect on future cash flows and reserves. The Company is the
operator and has a 50% working interest in this Block.
The Company drilled the Vermillion Block 252 #F-4 and has completed the well
as a dual flowing well. The gas condensate completion has been completed and the
well is flowing approximately 1,025 barrels of condensate per day and 1.3 Mmcf
of gas per day. The oil zone is awaiting pipeline construction to an adjacent
platform and oil production is expected to commence during the first quarter of
1999. The Company is the operator of the block and owns a 41.25% working
interest.
The Eller #1 has been completed in the deep, downdip overpressured Austin
Chalk and is expected to commence production by mid-November 1998. The Company
owns a 33% working interest in this non-operated well and plans additional
drilling on other joint venture acreage in the area in the near future.
The Habanero #1, the Company's first Webb County, Texas, well, is currently
flowing at a rate of approximately 600 Mcf per day, of which the Company has a
50% working interest. The rate and pressure are down from an initial rate of
approximately 2.5 Mmcf per day and significantly higher flowing tubing
pressures. The Company is currently considering additional testing to determine
whether stimulation might achieve greater production levels. While the Company
is disappointed in the initial results of this first well on its 190,000 acres,
the presence of natural gas coupled with good reservoir quality supports
additional drilling activities. The Company will spud its second Webb County
well, which it has a 100% working interest, during November 1998 to further test
the acreage.
The Company is currently targeting assets, which it believes to be non-
strategic in its West Texas, Gulf Coast and Gulf of Mexico regions for
disposition. The dispositions of properties would allow the Company to (a)
reduce its long-term debt, (b) redeploy capital to higher return projects or
acquisitions and (c) eliminate certain administrative costs.
The Company recently reduced its staff in its Gulf Coast and Gulf of Mexico
regions as part of integrating the December 1997 OEDC and Carrollton
acquisitions and as part of its plans to divest non-strategic assets in these
regions. The Company believes it will further reduce its administrative costs
in these regions upon completion of the dispositions. However, the full impact
of these cost reductions may not be visible until the first or second quarter of
1999.
YEAR 2000 ISSUES
The Company is working to resolve the potential impact of the "Year 2000
Issue" on the ability of the Company's information technology systems and
embedded technology to accurately process information that may be date-
sensitive. Any of the Company's software programs or embedded technology that
recognize a date using "00" as the year 1900 rather than the year 2000 could
result in system failures or miscalculations causing disruptions of operations.
The Company has reviewed the effect of the Year 2000 Issue relating to its
information systems. Upgrades or replacement of the Company's software and
hardware, if necessary, to be year 2000 compliant is underway. The Company
plans, once it believes its systems are year 2000 compliant, to test its systems
in the first half of 1999. The Company has determined that the Year 2000 Issue
directly related to its information systems will not have a material impact on
its business, operations or its financial position.
The Company has begun communications with its significant suppliers and
purchasers to determine if those parties have appropriate plans to remedy Year
2000 Issue when their systems interface with the Company's systems or may
otherwise impact the operations of the Company. However, the Company cannot
determine what effect, if any, the Year 2000 Issue affecting its vendors,
customers, other businesses and the numerous local, state, federal and other
U.S. and foreign governmental entities with which it conducts business or by
which it is
10
<PAGE>
regulated, governed or taxed will have on its business or financial position. If
these outside parties fail to become year 2000 compliant it could result in an
interruption of the Company's business.
The Company does not have a formal contingency plan. If unforeseen problems
are encountered that relate to the Year 2000 Issue, possible solutions will be
evaluated and the most efficient will be enacted.
The costs of the Company's Year 2000 evaluation and modifications and the
date on which the Company plans to complete the Year 2000 evaluations and
modifications are based on estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third-party modification plans and other factors. However, there can
be no assurance that these estimates will be achieved. Actual results could
differ materially from the projections. Specific factors that might cause a
material change include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer programs and microprocessors, and similar uncertainties.
11
<PAGE>
OPERATING DATA
The following table sets forth the Company's historical operating data for
the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
------- ------ ------- -------
Production:
Oil (MBbls) 618 501 1,877 1,396
Gas (MMcf) 6,392 5,639 20,516 15,938
Total (MMcfe) 10,100 8,645 31,778 24,314
Average Sales Prices Per Unit (excluding
effects of hedging activities):
Oil (Bbl) $ 11.70 $17.29 $ 12.31 $ 18.64
Gas (Mcf) $ 1.40 $ 1.61 $ 1.52 $ 1.63
Total (Mcfe) $ 1.60 $ 2.06 $ 1.65 $ 2.14
Average Sales Prices Per Unit (including
effects of hedging activities):
Oil (Bbl) $ 11.70 $17.48 $ 12.42 $ 18.64
Gas (Mcf) $ 1.48 $ 1.61 $ 1.65 $ 1.63
Total (Mcfe) $ 1.65 $ 2.06 $ 1.80 $ 2.14
Expenses Per Mcfe:
Production costs, excluding production
and other taxes $ .61 $ .39 $ .67 $ .52
Production and other taxes $ .13 $ .15 $ .14 $ .16
General and administrative $ .23 $ .15 $ .24 $ .15
Depletion, depreciation and amortization $ .64 $ .67 $ .61 $ .66
</TABLE>
12
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1997
Oil and Gas Revenues. Revenues from oil and gas operations totaled $16.7
million for the three months ended September 30, 1998 compared to $17.9 million
for the three months ended September 30, 1997. The decrease is primarily
attributable to a significant decrease in commodity prices, partially offset by
an increase in production attributable to the acquisitions made in December
1997 and continued exploitation of the Company's oil and gas properties. Of
total oil and gas revenues for the three months ended September 30, 1998,
revenues of approximately $4.4 million are attributable to the acquisitions made
in December 1997. The average oil price received decreased 33% from $17.48 to
$11.70 per Bbl and the average gas price received decreased 8% from $1.61 to
$1.48 per Mcf for the three months ended September 30, 1997 compared to the
three months ended September 30, 1998. During the three months ended
September 30, 1998 and 1997, oil and gas revenues included approximately
$496,000 and $93,000 associated with hedging activities, respectively.
Production Costs. Oil and gas production costs, including production and other
taxes, were $7.4 million ($.74 per Mcfe) for the three months ended September
30, 1998 compared to $4.7 million ($.54 per Mcfe) for the three months ended
September 30, 1997. The increase in production costs was primarily attributable
to production costs associated with the properties from the acquisitions made in
December 1997, which were approximately $2.2 million ($1.01 per Mcfe).
Initially, recently acquired properties generally incur significant rework
expenses, which are costs incurred to perform required maintenance, workovers
and other remedial activities. The properties acquired in the Pioneer
Acquisition were primarily oil in nature and generally have a higher per unit
operating cost as compared to gas properties. The Company expects as it
integrates the acquired properties into its structure that the per unit
operating costs should be reduced.
Depletion, Depreciation and Amortization Expense. Depletion, depreciation and
amortization expense was $6.5 million for the three months ended September 30,
1998 ($.64 per Mcfe) compared to $5.8 million ($.67 per Mcfe) for the three
months ended September 30, 1997. The 4% decrease per Mcfe is primarily due to
the effects of the impairment taken in the fourth quarter of 1997, offset by the
higher finding cost per Mcfe of the properties acquired in the 1997 acquisitions
as compared to previous acquisitions. Included for the three months ended
September 30, 1998 and 1997 is approximately $.03 per Mcfe and $.01 per Mcfe of
depreciation and amortization associated with other property and equipment and
other assets, respectively.
Impairment of Long-Lived Assets. In the fourth quarter of 1997, the Company
recorded an impairment related to its long-lived assets of approximately $69
million, which was primarily related to significantly depressed commodity
prices. In the third quarter of 1998, the Company recorded an impairment,
unrelated to commodity price levels, of its long-lived assets of approximately
$5.1 million. The impairment is primarily related to the loss of proved
reserves from lower than expected development drilling results on wells in two
fields in the Company's Gulf Coast region.
General and Administrative Expense. General and administrative expense was $2.3
million ($.23 per Mcfe) for the three months ended September 30, 1998 compared
to $1.3 million ($.15 per Mcfe) for the three months ended September 30, 1997.
The increase is due to increased staff costs associated with the Company's 1997
growth and the additional staff of the acquired OEDC and Carrollton entities.
The Company plans to reduce annualized general and administrative costs as it
integrates the acquisitions and achieves economies of scale.
Exploration and Abandonment Expense. Exploration and abandonment expense
increased to $1.9 million for the three months ended September 30, 1998 from
$586,000 for the three months ended September 30, 1997. The increase is
primarily related to the Company's increased exploration activities.
Equity in Net Loss of Affiliates. The equity in net loss of affiliates is
attributable to the Company's ownership in Dauphin Island Gathering Partners
("DIGP") and Mobile Bay Processing Partners ("MBPP") obtained in the OEDC
acquisition. Included in the equity in net loss is approximately $158,000 of
amortization of the Company's cost basis in excess of the underlying historical
net assets of DIGP.
13
<PAGE>
Interest Expense. Interest expense was $2.3 million for the three months ended
September 30, 1998 compared to $339,000 for the three months ended September 30,
1997. This increase is primarily due to an increase in the Company's average
outstanding debt. In 1997, average outstanding debt was low due to the recently
completed common stock offering in December 1996. In 1998, the average
outstanding debt increased over the comparable 1997 period, due primarily to the
Pioneer Acquisition in December 1997, the purchase of treasury stock, the
Company's capital program and the assumption of $15.8 million in debt associated
with the OEDC and Carrollton acquisitions.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1997
Oil and Gas Revenues. Revenues from oil and gas operations totaled $57.1
million for the nine months ended September 30, 1998 compared to $52.1 million
for the nine months ended September 30, 1997. The increase is primarily
attributable to the increase in production as a result of the acquisitions made
in December 1997 and continued exploitation of the Company's oil and properties,
offset by a significant decrease in the average price received for oil. Of
total oil and gas revenues for the nine months ended September 30, 1998,
revenues of $13.8 million are attributable to the acquisitions made in December
1997. The average oil price received decreased 33% from $18.64 to $12.42 per
Bbl and the average gas price received increased 1% from $1.65 to $1.63 per Mcf
for the nine months ended September 30, 1997 compared to the nine months ended
September 30, 1998, respectively. During the nine months ended September 30,
1998 and 1997, oil and gas revenues included approximately $2.8 million and
$93,000 associated with hedging activities, respectively.
Production Costs. Oil and gas production costs, including production and other
taxes, were $25.6 million ($.81 per Mcfe) for the nine months ended September
30, 1998 compared to $16.6 million ($.68 per Mcfe) for the nine months ended
September 30, 1997. The increase in production costs was primarily attributable
to production costs associated with the properties from the acquisitions made in
December 1997, which were approximately $10.0 million ($1.49 per Mcfe).
Initially, recently acquired properties generally incur significant rework
expenses, which are costs incurred to perform required maintenance, workovers
and other remedial activities. The properties acquired in the Pioneer
Acquisition were primarily oil in nature and generally have a higher per unit
operating cost as compared to gas properties. The Company expects as it
integrates the acquired properties into its structure that the per unit
operating costs should be reduced.
Depletion, Depreciation and Amortization Expense. Depletion, depreciation and
amortization expense was $19.5 million ($.61 per Mcfe) for the nine months ended
September 30, 1998 compared to $15.9 million ($.66 per Mcfe) for the nine months
ended September 30, 1997. The 7.6% decrease per Mcfe is primarily due to the
effects of the impairment taken in the fourth quarter of 1997, offset by the
higher finding cost per Mcfe of the properties acquired in the 1997 acquisitions
as compared to previous acquisitions. Included for the nine months ended
September 30, 1998 and 1997 is approximately $.02 per Mcfe and $.01 per Mcfe of
depreciation and amortization associated with other property and equipment and
other assets, respectively.
Impairment of Long-Lived Assets. In the fourth quarter of 1997, the Company
recorded an impairment related to its long-lived assets of approximately $69
million, which was primarily related to significantly depressed commodity
prices. In the second and third quarters of 1998, the Company recorded
impairments, unrelated to commodity price levels, of its long-lived assets of
approximately $13.1 million. This impairment is primarily related to (a) a $3.6
million impairment resulting from the loss of offshore proved reserves
attributable to downhole mechanical problems encountered during a rework
operation and (b) a $9.5 million impairment resulting from the loss of proved
reserves from lower than expected development drilling results on wells
primarily in the Gulf Coast region.
General and Administrative Expense. General and administrative expense was $7.7
million ($.24 per Mcfe) for the nine months ended September 30, 1998 compared to
$3.6 million ($.15 per Mcfe) for the nine months ended September 30, 1997. The
increase is due to increased staff costs associated with the Company's 1997
growth and the additional staff of the acquired OEDC and Carrollton entities.
The Company plans to reduce annualized general and administrative costs as it
integrates the acquisitions and achieves economies of scale.
14
<PAGE>
Exploration and Abandonment Expense. Exploration and abandonment expense
increased to $6.1 million for the nine months ended September 30, 1998 from $1.3
million for the nine months ended September 30, 1997. The increase is primarily
related to the Company's increased exploration activities
Equity in Net Loss of Affiliates. The equity in net loss of affiliates is
attributable to the Company's ownership in DIGP and MBPP as a result of the OEDC
acquisition. Included in the equity in net loss is approximately $474,000 of
amortization of the Company's cost basis in excess of the underlying historical
net assets of DIGP.
Interest Expense. Interest expense was $6.0 million for the nine months ended
September 30, 1998 compared to $825,000 for the nine months ended September 30,
1997. This increase is primarily due to an increase in the average outstanding
debt. In 1997, average outstanding debt was low due to the recently completed
common stock offering in December 1996. In 1998, the average outstanding debt
increased over the comparable 1997 period, due primarily to the Pioneer
Acquisition in December 1997, the purchase of treasury stock, the Company's
capital program and the assumption of $15.8 million in debt associated with the
OEDC and Carrollton acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital have been its initial
capitalization, private equity sales, bank financing, cash flow from operations
and the Company's initial public offering. The Company requires capital
primarily for the exploration, development, exploitation and acquisition of oil
and gas properties, the repayment of indebtedness and general working capital
needs.
Net Cash Provided by Operating Activities. Net cash provided by operating
activities, before changes in operating assets and liabilities, was $3.9 and
$16.1 million for the three and nine months ended September 30, 1998 compared to
$11.0 and $29.8 million for the three and nine months ended September 30, 1997.
The decrease was primarily attributable to the decrease in oil prices realized
during 1998 and an increase in general and administrative, production,
exploration and interest costs, offset by an increase in net revenues from the
acquisitions completed in 1997.
Capital Expenditures. For 1998, the Company budgeted to spend (i) approximately
$25.1 million to drill proved undeveloped properties, (ii) approximately $3.6
million on probable projects, (iii) approximately $9.6 million to explore
unproven locations, (iv) approximately $15.3 million on development projects
following successful exploration efforts, (v) approximately $10.4 million to
acquire additional acreage and seismic, (vi) $16.0 million to fund development
of pipeline and processing project investments and (vii) $3.8 million on other
items. The final determination with respect to the drilling of any well,
including those currently budgeted, will depend on a number of factors,
including (i) the results of exploration efforts and the review and analysis of
the seismic data, (ii) the availability of sufficient capital resources by the
Company and other participants for drilling prospects, (iii) economic and
industry conditions at the time of drilling, including prevailing and
anticipated prices for natural gas and oil and the availability and costs of
drilling rigs and crews, (iv) the financial resources and results of the
Company, and (v) the availability of leases on reasonable terms and permitting
for the potential drilling location. There can be no assurance that the
budgeted wells will encounter, if drilled, recompleted or worked over,
reservoirs of commercial quantities of natural gas or oil. Through September
30, 1998, the Company has spent less than 56% of its annual budget. At the
present time, the Company expects that it will not spend all of its 1998 budget
primarily as a result of deferring some of its exploration and production
projects (mainly oil) and the $16 million pipeline and processing project
investments due to uncertainties over future commodity price levels.
While the Company regularly engages in discussions relating to potential
acquisitions of oil and gas properties, the Company has no present agreement,
commitment or understanding with respect to any such acquisition, other than the
acquisition of oil and gas properties and interests in its normal course of
business. Any future acquisitions may require additional financing and will be
dependent upon available financing which may be required in the future to fund
the Company's acquisition and drilling programs.
Cash expenditures for investing in oil and gas properties were $18.7 and
$42.7 million for the three and nine months ended September 30, 1998. This
includes $3.2 million for the acquisition of developed and
15
<PAGE>
undeveloped properties and $39.5 million for development and exploratory costs
for the nine months ended September 30, 1998.
Capital Resources. The Company's primary capital resources are net cash
provided by operating activities and borrowings under the Credit Agreement.
Credit Agreement. The Credit Agreement established a four year revolving credit
facility, up to the maximum amount of $250 million, subject to a borrowing base
to be redetermined semi-annually by the lenders based on certain proved oil and
gas reserves and other assets of the Company. The borrowing base at September
30, 1998 was $200 million. To the extent that the borrowing base is less than
the aggregate principal amount of all outstanding loans and letters of credit
under the Credit Agreement, such deficiency must be cured by the Company ratably
within 180 days, by either prepaying a portion of the outstanding amounts under
the Credit Agreement or pledging additional collateral to the lenders. A
portion of the credit facility is available for the issuance of up to $15.0
million of letters of credit, of which $144,000 was outstanding at September 30,
1998. All outstanding amounts under the Credit Agreement are due and payable in
full on January 1, 2001. The Company's outstanding long-term debt under the
Credit Agreement was $130.5 million on September 30, 1998.
At the Company's option, borrowings under the Credit Agreement bear interest
at either the "Base Rate" (i.e., the higher of the applicable prime commercial
lending rate, or the federal funds rate plus .5% per annum) or the Eurodollar
rate, plus 1% to 1.50% per annum, depending on the level of the Company's
aggregate outstanding borrowings. In addition, the Company is committed to pay
quarterly in arrears a fee of .30% to .375% of the unused borrowing base.
The Credit Agreement contains certain covenants and restrictions that are
customary in the oil and gas industry. In addition, the line of credit is
secured by substantially all of the Company's oil and gas properties.
Liquidity and Working Capital. At September 30, 1998, the Company had $2.1
million of cash and cash equivalents as compared to $1.6 million at December 31,
1997. The Company's ratio of current assets to current liabilities was 1.05 at
September 30, 1998, compared to 1.00 at December 31, 1997. The Company's
working capital increased $748,000 from $28,000 at December 31, 1997 to $776,000
at September 30, 1998. The Company maintains low cash levels for cash
management purposes.
Unsecured Credit Agreement. In April 1997, the Company entered into a credit
agreement (the "Unsecured Credit Agreement") with Chase Bank of Texas, N.A. (the
"Bank"), which establishes a revolving credit facility, up to the maximum of
$5.0 million. All outstanding amounts pursuant to the Unsecured Credit
Agreement are due and payable in full on or before December 31, 1999. Proceeds
of the Unsecured Credit Agreement are utilized to fund short-term needs (less
than thirty days). The Company owed $4.8 million under the Unsecured Credit
Agreement at September 30, 1998.
The interest rate of amounts outstanding under the Unsecured Credit Agreement
is at a rate determined by agreement between the Company and the Bank. The rate
shall not exceed the maximum interest rate permitted under applicable laws.
Interest rates generally are the Bank's cost of funds plus 1% per annum.
16
<PAGE>
OTHER MATTERS
Hedging Activities
The Company uses swap agreements and other financial instruments in an
attempt to reduce the risk of fluctuating oil and gas prices and interest rates.
The Company is party to various agreements with numerous counterparties for
purposes of utilizing financial instruments, of which the Company assesses the
creditworthiness of its counterparties. Among other counterparties, the Company
has utilized Enron Capital & Trade Resources Corp. (an affiliate of a
significant stockholder of the Company) as a counterparty. Settlement of gains
or losses on the hedging transactions are generally based on the difference
between the contract price and a formula using New York Mercantile Exchange
("NYMEX") or other major indices related prices and is reported as a component
of oil and gas revenues as the associated production occurs. The Company, at
September 30, 1998, had entered into hedging transactions with respect to
approximately 3,864, 11,134 and 1,365 MMcfe of its 1998, 1999 and 2000,
estimated production, respectively.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" which establishes standards for reporting information about
operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. SFAS No. 131 is
effective for financial statements for periods beginning after December 15, 1997
but the statement need not be applied to interim financial statements in the
initial year of application. The Company does not expect SFAS No. 131 to
materially affect the Company's reporting practices.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which establishes standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. It establishes conditions
under which a derivative may be designated as a hedge, and establishes standards
for reporting changes in the fair value of a derivative. SFAS No. 133 is
required to be implemented for the first quarter of the fiscal year ended 2000.
Early adoption is permitted. The Company has not evaluated the effects of
implementing SFAS No. 133.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No significant changes in legal proceedings. See Note 3 of notes to
consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Lease Amendment to the Lease Agreement dated April 4, 1997
between Fasken Center, LTD. and Titan Exploration, Inc.
10.2 Titan Matching Plan, effective as of September 1, 1998.
10.3 Amended and Restated Titan 401(k) Plan, effective as of
September 1, 1998. (filed as Exhibit 4.1 to the Company's
Registration Statement on Form S-8, Registration No. 333-
62115, and incorporated herein by reference).
27 Financial Data Schedule
(b) Reports Submitted on Form 8-K:
None.
19
<PAGE>
SIGNATURE
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.
TITAN EXPLORATION, INC.
By: /s/ Jack Hightower
-------------------------------------
Jack Hightower
President and Chief Executive Officer
By: /s/ William K. White
-------------------------------------
William K. White
Vice President and Chief Financial
Officer
Date: November 13, 1998
20
<PAGE>
EXHIBIT 10.1
LEASE AMENDMENT
---------------
TITAN EXPLORATION, INC.
FASKEN CENTER, LTD., a Texas Limited Partnership, (hereinafter called
"Lessor") and TITAN EXPLORATIION, INC., (hereinafter called "Lessee"), regarding
that certain Lease Agreement dated April 4, 1997, covering approximately 44,270
square feet of Net Rentable Area located on Levels Two (2), Four (4) and Five
(5) of One Fasken Center at 500 West Texas Avenue, Midland, Texas 79701,
collectively known as Suite 500, do hereby amend said document under the
following terms and conditions:
1. Lessor agrees to lease to Lessee and Lessee agrees to lease from Lessor
an additional approximately 6,667 square feet of Net Rentable Area
located on Level Six (6) of One Fasken Center and further described as
"Expansion Space" on the attached floor plan identified as Exhibit "A".
2. The rental for the Expansion Space shall be Fifty-Six Thousand Six
Hundred Sixty-Nine and 50/100 Dollars ($ 56,669.50) per year payable in
monthly installments of Four Thousand Seven Hundred Twenty-Two and
46/100 Dollars ($ 4,722.46) each.
3. The Lease Term for this Lease Amendment shall run coterminous with the
original Lease Agreement beginning on June 1, 1998 and expiring on March
14, 2002.
4. Lessee shall accept the Expansion Space in "As Is" condition. All
finish-out costs associated with the remodeling of the Expansion Space
shall be Lessee's sole responsibility.
EXCEPT as hereby expressly amended, Lessor and Lessee do hereby ratify and
affirm all of the terms, conditions and covenants of said Lease Agreement.
WITNESS the execution hereby this the 19th day of August, 1998.
FASKEN CENTER, LTD. TITAN EXPLORATION, INC.
a Texas Limited Partnership
By: 550 Texas, Inc., General Partner
a Texas Corporation
By /s/ Wendell L. Brown, Jr. By /s/ W.K. White
-------------------------------- --------------------------------
Name: Wendell L. Brown, Jr. Name: W.K. White
---------------------------- -----------------------------
Title: Vice President Title: Vice President
--------------------------- ----------------------------
<PAGE>
EXHIBIT 10.2
TITAN MATCHING PLAN
<PAGE>
TITAN MATCHING PLAN
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
PREAMBLE................................................................................ 1
ARTICLE I. DEFINITIONS AND CONSTRUCTION.............................................. 1
Section 1.1 Definitions................................................. 1
Section 1.2 Construction................................................ 5
ARTICLE II. ELIGIBILITY AND PARTICIPATION............................................. 5
Section 2.1 Eligibility and Participation............................... 5
ARTICLE III. CONTRIBUTIONS, LIMITATIONS AND FORFEITURES................................ 6
Section 3.1 Matching Contributions...................................... 6
Section 3.2 Crediting of Contributions.................................. 6
Section 3.3 Return of Matching Contributions............................ 6
Section 3.4 Limitations on Contributions................................ 6
Section 3.5 Application and Allocation of Forfeitures...................10
ARTICLE IV. TRUST FUND, INVESTMENTS AND VALUATIONS....................................10
Section 4.1 Trust and Trustee...........................................10
Section 4.2 Trust Investment Options....................................10
Section 4.3 Valuation and Adjustment of Accounts........................11
ARTICLE V. VESTING...................................................................11
Section 5.1 Vesting of Matching Accounts................................11
ARTICLE VI. DISTRIBUTIONS.............................................................12
Section 6.1 Time and Form of Distribution...............................12
Section 6.2 Distribution of Retirement or Permanent Disability
Benefit...................................................12
Section 6.3 Distribution of Death Benefit...............................14
Section 6.4 Distribution of Separation from Employment Benefit..........15
Section 6.5 Forfeitures.................................................16
Section 6.6 Distributions to Minors and Persons Under Legal
Disability................................................17
Section 6.7 Benefits Payable to Missing Participant or Beneficiary......17
Section 6.8 Transfer of Eligible Rollover Distribution..................17
Section 6.9 Qualified Domestic Relations Orders.........................18
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE VII. PLAN ADMINISTRATION.......................................................19
Section 7.1 Committee...................................................19
Section 7.2 Powers, Duties and Liabilities of the Committee.............19
Section 7.3 Rules, Records and Reports..................................19
Section 7.4 Administration Expenses and Taxes...........................20
ARTICLE VIII. AMENDMENT AND TERMINATION.................................................20
Section 8.1 Amendment...................................................20
Section 8.2 Termination.................................................20
ARTICLE IX. TOP-HEAVY PROVISIONS......................................................20
Section 9.1 Top-Heavy Definitions.......................................20
Section 9.2 Minimum Contribution Requirement............................22
ARTICLE X. MISCELLANEOUS GENERAL PROVISIONS..........................................22
Section 10.1 Spendthrift Provision......................................22
Section 10.2 Claims Procedure...........................................23
Section 10.3 Maximum Contribution Limitation............................23
Section 10.4 Employment Noncontractual..................................23
Section 10.5 Limitations on Responsibility..............................24
Section 10.6 Merger or Consolidation....................................24
Section 10.7 Applicable Law.............................................24
</TABLE>
-ii-
<PAGE>
TITAN MATCHING PLAN
THIS MONEY PURCHASE PENSION PLAN, made and executed by TITAN RESOURCES I,
INC., a Delaware corporation, is being established to provide a means by which
the Employers may provide retirement benefits for their eligible employees.
ARTICLE I.
DEFINITIONS AND CONSTRUCTION
Section 1.1 Definitions. Unless the context clearly indicates otherwise,
when used in this Plan:
(a) "Affiliated Company" means any corporation or organization, other
than an Employer, which is a member of a controlled group of corporations
(within the meaning of Section 414(b) of the Code) or of an affiliated
service group (within the meaning of Section 414(m) of the Code) with
respect to which an Employer is also a member, and any other incorporated
or unincorporated trade or business which along with an Employer is under
common control (within the meaning of the regulations from time to time
promulgated by the Secretary of the Treasury pursuant to Section 414(c) of
the Code); provided, however, that for the purposes of Section 10.3 of the
Plan, Section 414(b) and (c) of the Code shall be applied as modified by
Section 415(h) of the Code.
(b) A "Change of Control" shall be deemed to have occurred for
purposes of the Plan if (i) Titan Exploration, Inc. enters into any merger,
consolidation or recapitalization pursuant to which the persons serving as
directors of Titan Exploration, Inc. immediately before such transaction
cease to constitute at least 40% of the members of the board of directors
of the surviving entity (whether Titan Exploration, Inc. or another entity)
following consummation of such transaction, (ii) Titan Exploration, Inc.
sells, leases or exchanges or agrees to sell, lease or exchange all or
substantially all of its assets to any other person or entity, or (iii)
Titan Exploration, Inc. is to be dissolved and liquidated.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed by the Board of
Directors of the Company to administer the Plan.
(e) "Company" means Titan Resources I, Inc., a Delaware corporation,
and any successor thereto.
(f) "Compensation" means the sum of (i) the wages within the meaning
of Section 3401(a) of the Code, but determined without regard to any rules
that limit the remuneration included in wages based on the nature or
location of the employment or
<PAGE>
the services performed (such as the exception for agricultural labor in
Section 3401(a)(2) of the Code), payable by an Employer to an Employee for
personal services rendered to an Employer for a Plan Year, (ii) the amount
of any contributions made by an Employer on behalf of such Employee
pursuant to a qualified cash or deferred arrangement (within the meaning of
Section 401(k) of the Code) maintained by such Employer (including Deferral
Contributions made on behalf of such Employee to the Titan 401(k) Plan),
and (iii) any salary reduction amounts elected by such Employee for the
purchase of benefits pursuant to a cafeteria plan (within the meaning of
Section 125(d) of the Code) maintained by an Employer; provided, however,
that except for purposes of determining whether an Employee is a Highly
Compensated Employee or a Key Employee (as defined in Section 9.1(c)), the
Compensation of an Employee taken into account under the Plan for any Plan
Year shall not exceed $150,000 (as adjusted to take into account any cost-
of-living increases authorized pursuant to Section 401(a)(17)(B) of the
Code).
(g) "Covered Employee" means any Employee other than (i) a member of a
collective bargaining unit with which an Employer negotiates and with
respect to whom no coverage under this Plan has been provided by collective
bargaining agreement, (ii) a nonresident alien with respect to the United
States who receives no earned income from an Employer which constitutes
income from sources within the United States, (iii) a temporary or seasonal
Employee as determined in accordance with the Employer's normal personnel
policies, (iv) an individual performing services for an Employer whom the
Employer treats as an independent contractor for employment tax purposes,
or (v) an individual who is treated as a leased employee by an Employer.
(h) "Employee" means any individual employed by an Employer.
(i) "Employer" shall include the Company and any other incorporated or
unincorporated trade or business which may subsequently adopt this Plan
with the consent of the Board of Directors of the Company.
(j) "Employment Date" means the date a Covered Employee first performs
an Hour of Service.
(k) "Entry Date" means the first day of each calendar quarter.
(l) "Highly Compensated Employee" means for a Plan Year:
(1) any Employee who during such Plan Year or during the
preceding Plan Year was at any time a 5 percent owner (as defined in
Section 416(i)(1) of the Code) of an Employer or Affiliated Company;
or
(2) any Employee who during the preceding Plan Year received
Compensation greater than $80,000 (as adjusted to take into account
any cost-of-
-2-
<PAGE>
living increases authorized pursuant to Section 414(q)(1) of the Code)
and, if the Company so elects, who is in the group consisting of the
top 20% (when ranked on the basis of Compensation received during such
preceding year) of all Employees, except those excluded pursuant to
Section 414(q)(5) of the Code.
Solely for purposes of this definition, (i) an employee of an Affiliated
Company shall be deemed to be an Employee, (ii) compensation received from
an Affiliated Company shall be deemed to be Compensation, and (iii) a
nonresident alien who receives no earned income from an Employer or
Affiliated Company which constitutes income from sources within the United
States shall not be considered an Employee.
(m) "Hour of Service" means an hour for which an Employee is directly
or indirectly compensated or entitled to compensation (including back pay,
regardless of mitigation of damages) by an Employer for the performance of
duties for an Employer or for reasons (such as vacation, sickness or
disability) other than the performance of duties for an Employer. An
Employee will be credited with eight Hours of Service per day for any
customary work period during which such Employee is on leave of absence
authorized by his or her Employer. Leaves of absence shall be granted by
an Employer to its Employees on a uniform, nondiscriminatory basis. In no
event shall more than 501 Hours of Service be credited on account of any
single continuous period during which the individual performs no duties.
An Employee's Hours of Service shall be credited to the appropriate Plan
Years determined in accordance with the provisions of Section 2530.200b-
2(b) and (c) of the Department of Labor Regulations, which are incorporated
herein by this reference. In determining Hours of Service for the purposes
of this Plan, periods of employment by an Affiliated Company and periods of
employment as a leased employee (within the meaning of Section 414(n) of
the Code) of an Employer or Affiliated Company shall be deemed to be
periods of employment by an Employer.
Solely for purposes of determining whether an Employee incurs a One Year
Break in Service, Hours of Service shall also include hours (not to exceed
501 such hours) that would normally be credited to an Employee but for an
absence from work due to the pregnancy of the Employee, the birth of a
child of the Employee, the placement of a child with the Employee in
connection with the adoption of such child by such Employee, or caring for
such child for a period beginning immediately following such birth or
placement. If the number of hours described in the preceding sentence
cannot be determined, an Employee shall be credited with eight Hours of
Service per normal work day of such absence. Such Hours of Service shall be
credited only in the computation period in which such absence from work
begins if such Employee would be prevented from incurring a One Year Break
in Service in such year due to the crediting of such hours, or in any other
case, in the immediately following computation period.
(n) "Investment Fund" means any fund authorized for the investment of
Trust assets pursuant to Section 4.2.
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(o) "Matching Account" means the account established and maintained
under this Plan by the Committee to record a Participant's interest under
this Plan attributable to any Matching Contributions made by an Employer
for such Participant.
(p) "Matching Contribution" means a contribution made by an Employer
to this Plan for a Participant pursuant to Section 3.1.
(q) "Maximum Basic Deferral Contribution" means a Basic Deferral
Contribution made by an Employer to the Titan 401(k) Plan on behalf of a
Participant for a pay period which is equal to 5% of his or her
Compensation for such pay period.
(r) "Non-Highly Compensated Employee" means for a Plan Year any
Employee who is not a Highly Compensated Employee for such Plan Year.
(s) The "Normal Retirement Date" of a Participant means the day such
Participant attains the age of 65 years.
(t) "One Year Break in Service" means a Plan Year during which an
Employee is credited with not more than 500 Hours of Service.
(u) "Participant" means any individual meeting the eligibility and
participation requirements of Article II, and whose Vested Interest under
this Plan has not been fully distributed.
(v) "Permanent Disability" means the total and permanent incapacity of
a Participant to perform the usual duties of his or her employment with an
Employer or Affiliated Company as determined by the Committee. Such
incapacity shall be deemed to exist when certified by a physician
acceptable to the Committee.
(w) "Plan" means this Titan Matching Plan, effective as of September
1, 1998, and as from time to time in effect thereafter.
(x) "Plan Year" means the calendar year.
(y) "Qualified Joint and Survivor Annuity" means an annuity which is
payable for the life of the Participant with a survivor annuity payable for
the life of his or her spouse equal to 50% of the amount of the annuity
payable during the life of the Participant; provided, however, that in the
case of a Participant who is not married, a Qualified Joint and Survivor
Annuity means an annuity which is payable for the life of the Participant.
(z) "Qualified Preretirement Survivor Annuity" means an annuity
which is payable for the life of the Participant's surviving spouse.
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(aa) "Retirement" means the Participant's separation from the
employment of an Employer or Affiliated Company on or after his or her
Normal Retirement Date for any reason other than death or transfer to the
employment of another Employer or Affiliated Company.
(bb) "Titan 401(k) Plan" means the Titan 401(k) Plan (As Amended and
Restated Effective as of September 1, 1998), as in effect from time to
time.
(cc) "Trust" means the trust fund established pursuant to Section
4.1.
(dd) "Trustee" means the individual or corporate trustee or trustees
from time to time appointed and acting as trustee or trustees of the Trust
established pursuant to the Plan.
(ee) "Valuation Date" means each business day.
(ff) The "Vested Interest" of a Participant means the then vested
portion of the amount credited to the Matching Account of such Participant
at the particular point in time in question.
(gg) "Year of Service" means a Plan Year during which an Employee
completes at least 1,000 Hours of Service, including a Plan Year prior to
the effective date of the Plan.
Section 1.2 Construction. The titles to the Articles and the headings of
the Sections in this Plan are placed herein for convenience of reference only
and in case of any conflict the text of this instrument, rather than such titles
or headings, shall control. Whenever a noun or pronoun is used in this Plan in
plural form and there be only one person or entity within the scope of the word
so used, or in singular form and there be more than one person or entity within
the scope of the word so used, such noun or pronoun shall have a plural or
singular meaning as appropriate under the circumstance.
ARTICLE II.
ELIGIBILITY AND PARTICIPATION
Section 2.1 Eligibility and Participation. Each Covered Employee shall
become a Participant in this Plan on the Entry Date next following his or her
Employment Date. Any Participant who ceases to be a Covered Employee shall
thereupon cease to participate in the Plan; provided, however, that if any such
Participant is thereafter reemployed as a Covered Employee, he or she shall
resume participation in the Plan as of the date of such reemployment.
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ARTICLE III.
CONTRIBUTIONS, LIMITATIONS AND FORFEITURES
Section 3.1 Matching Contributions. For each pay period an Employer
shall make to the Plan for each Participant in its employ who elects to have the
Maximum Basic Deferral Contribution made to the Titan 401(k) Plan on his or her
behalf for such pay period a Matching Contribution equal to 200 percent of such
Maximum Basic Deferral Contribution. Contributions made by an Employer to the
Plan for a Plan Year shall be paid to the Trustee as soon as practicable, but no
later than the time prescribed by law, including extensions thereof, for the
filing of the Employer's federal income tax return for such year.
Section 3.2 Crediting of Contributions. The Committee shall establish
and maintain a Matching Account for each Participant. All Matching
Contributions made for a Participant shall be credited to such Participant's
Matching Account.
Section 3.3 Return of Matching Contributions. Contributions to this Plan
are conditioned upon the initial qualification of this Plan under Section 401(a)
of the Code and upon being currently deductible under Section 404 of the Code.
Any provision of this Plan to the contrary notwithstanding, upon an Employer's
request, any such contribution or portion thereof made to this Plan by such
Employer which (i) was made under a mistake of fact which is subsequently
discovered, (ii) is disallowed as a deduction under Section 404 of the Code, or
(iii) was made prior to the denial by the Internal Revenue Service of the
initial qualification of this Plan under Section 401(a) of the Code, shall be
returned to such Employer to the extent not previously distributed to
Participants or their beneficiaries; provided, however, that the amounts
returnable to an Employer pursuant to this Section shall be reduced by any Trust
losses allocable thereto and shall be returned to such Employer only if such
return is made within one year after the mistaken payment of the contribution,
the date of the disallowance of the deduction, or the date of the denial of the
initial qualification of the Plan, as the case may be. Except as provided in
this Section, no contribution made by an Employer pursuant to this Plan shall
ever revert to or be recoverable by any Employer.
Section 3.4 Limitations on Contributions.
(a) Any provision of this Plan to the contrary notwithstanding, if
for any Plan Year the contribution percentage for the group of Highly
Compensated Employees eligible to receive an allocation of Matching
Contributions or Discretionary Matching Contributions under the Titan
401(k) Plan for such Plan Year or to make After-Tax Contributions to the
Titan 401(k) Plan for such Plan Year fails to satisfy one of the following
tests:
(1) the contribution percentage for said group of Highly
Compensated Employees is not more than 1.25 times the contribution
percentage for the preceding Plan Year for all Non-Highly Compensated
Employees eligible for the preceding Plan Year to receive an
allocation of Matching Contributions or
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Discretionary Matching Contributions under the Titan 401(k) Plan or to
make After-Tax Contributions to the Titan 401(k) Plan, or
(2) the excess of the contribution percentage for said group of
Highly Compensated Employees over the contribution percentage for the
preceding Plan Year for all Non-Highly Compensated Employees eligible
for the preceding Plan Year to receive an allocation of Matching
Contributions or Discretionary Matching Contributions under the Titan
401(k) Plan or to make After-Tax Contributions to the Titan 401(k)
Plan is not more than two percentage points, and the contribution
percentage for said group of Highly Compensated Employees is not more
than two times the contribution percentage for the preceding Plan Year
for all Non-Highly Compensated Employees eligible for the preceding
Plan Year to receive an allocation of Matching Contributions or
Discretionary Matching Contributions under the Titan 401(k) Plan or to
make After-Tax Contributions to the Titan 401(k) Plan,
then the contribution percentage of Participants who are members of said
group of Highly Compensated Employees shall be reduced by reducing the
contribution percentages of the Highly Compensated Employees with the
largest individual contribution percentages to the largest uniform
contribution percentage (commencing with the Highly Compensated Employee
with the largest contribution percentage and reducing his or her
contribution percentage to the extent necessary to satisfy one of the above
tests or to lower such contribution percentage to the contribution
percentage of the Highly Compensated Employee with the next highest
contribution percentage, and repeating this process as necessary) that
permits the contribution percentage for said group of Highly Compensated
Employees to satisfy one of said tests. For purposes of this subsection
(a), the term "contribution percentage" for a specified group of Employees
for a Plan Year means the average of the ratios (calculated separately for
each Employee in such group and after application of the reduction and
forfeiture provisions of subsections (a) and (b) of Section 3.6 of the
Titan 401(k) Plan) of (i) the aggregate amount of Matching Contributions
made to this Plan and Discretionary Matching Contributions and After-Tax
Contributions made to the Titan 401(k) Plan by or for such Employee for
that year and, at the election of the Committee, all or a portion of the
Deferral Contributions made on behalf of such Employee for that year which
are not in excess of the amount of such contributions that are permitted to
be taken into account under Sections 401(k) and (m) of the Code and the
regulations thereunder, to (ii) the amount of such Employee's Compensation
for that year or, in the Committee's discretion, only for such portion of
that year during which the Employee was eligible to participate in the
Plan. If two or more plans to which matching contributions or employee
after-tax contributions are made are considered as one plan for purposes of
Section 410(b) of the Code (other than for purposes of the average benefit
percentage test), such plans shall be treated as one plan for purposes of
determining the contribution percentages for this subsection (a). If a
Highly Compensated Employee is a participant in two or more plans to which
matching contributions or employee after-tax contributions are made, then
for purposes of determining the contribution ratio of such
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Employee, all such plans (other than those that may not be permissively
aggregated) shall be treated as one plan.
(b) The aggregate amount of any Matching Contributions made to this
Plan and Discretionary Matching Contributions and After-Tax Contributions
made to the Titan 401(k) Plan by or for Participants which cannot be
credited to Participants' Accounts for a Plan Year because of the
limitation contained in subsection (a) of this Section (along with any
income allocable to such contributions for such Plan Year, but not for the
gap period following such Plan Year), calculated by adding together the
dollar amount of excess aggregate contributions determined in subsection
(a) of this Section for each affected Highly Compensated Employee, shall be
forfeited if forfeitable, but if not forfeitable, distributed to such
Participants no later than 2 1/2 months after the end of such year with the
amount to be distributed to particular Participants to be determined on the
basis of the amount of Matching Contributions made to this Plan and the
amount of Discretionary Matching Contributions and After-Tax Contributions
made to the Titan 401(k) Plan by or for each such Participant (commencing
with the Highly Compensated Employee with the largest total amount of
Matching Contributions and Discretionary Matching Contributions and After-
Tax Contributions under the Titan 401(k) Plan for such Plan Year and
reducing first his or her After-Tax Contributions made to the Titan 401(k)
Plan, then Discretionary Matching Contributions made to the Titan 401(k)
Plan and then, if necessary, Matching Contributions made to this Plan to
the extent necessary to distribute such aggregate amount or to lower such
amount to the total amount of Matching Contributions and Discretionary
Matching Contributions and After-Tax Contributions under the Titan 401(k)
Plan of the Highly Compensated Employee with the next highest amount of
such contributions, and repeating this process as necessary). The income
allocable to any such excess aggregate contributions for a Participant for
a Plan Year shall be determined by multiplying the amount of income
allocable to such Participant's Matching Account or Discretionary Matching
Account or After-Tax Account under the Titan 401(k) Plan, whichever is
applicable, for such year by a fraction, the numerator of which is the
amount of the excess aggregate contributions for such year and the
denominator of which is the sum of the amount credited to such
Participant's Matching Account or Discretionary Matching Account or After-
Tax Account under the Titan 401(k) Plan, whichever is applicable, as of the
beginning of such year plus the amount of the Matching Contributions or
Discretionary Matching Contributions or After-Tax Contributions to the
Titan 401(k) Plan, whichever is applicable, made by or for such Participant
for such year.
(c) Any provision of this Plan to the contrary notwithstanding, in
addition to the above limitations of this Section, the sum of the actual
deferral percentage and the contribution percentage for the group of Highly
Compensated Employees as determined pursuant to and after any reduction in
such percentages required by subsection (a) of this Section and subsections
(a) and (d) of Section 3.6 of the Titan 401(k) Plan shall not exceed the
"aggregate limit." The "aggregate limit" shall be equal to the greater of:
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(1) the sum of: (i) 1.25 times the greater of the relevant
actual deferral percentage or the relevant contribution percentage,
and (ii) two percentage points plus the lesser of the relevant actual
deferral percentage or the relevant contribution percentage, provided
that the amount in this clause (ii) shall not exceed two times the
lesser of the relevant actual deferral percentage or the relevant
contribution percentage; or
(2) the sum of: (i) 1.25 times the lesser of the relevant
actual deferral percentage or the relevant contribution percentage,
and (ii) two percentage points plus the greater of the relevant actual
deferral percentage or the relevant contribution percentage, provided
that the amount in this clause (ii) shall not exceed two times the
greater of the relevant actual deferral percentage or the relevant
contribution percentage.
The "relevant actual deferral percentage" means the actual deferral
percentage determined for the preceding Plan Year pursuant to subsection
(a) of Section 3.6 of the Titan 401(k) Plan for the group of Non-Highly
Compensated Employees eligible during the preceding Plan Year to have
Deferral Contributions made to the Titan 401(k) Plan. The "relevant
contribution percentage" means the contribution percentage determined for
the preceding Plan Year pursuant to subsection (a) of this Section and
Section 3.6(c) of the Titan 401(k) Plan for the group of Non-Highly
Compensated Employees eligible for the preceding Plan Year to receive an
allocation of Matching Contributions or Discretionary Matching
Contributions under the Titan 401(k) Plan or eligible to make After-Tax
Contributions to the Titan 401(k) Plan. In the event that the aggregate
limit is exceeded in any year, then the actual deferral percentage and/or
contribution percentage for Participants who are members of the group of
Highly Compensated Employees shall be reduced by reducing first any After-
Tax Contributions made to the Titan 401(k) Plan, then any Deferral
Contributions made to the Titan 401(k) Plan, then any Discretionary
Matching Contributions made to the Titan 401(k) Plan and finally any
Matching Contributions made to this Plan for such Year by, for or on behalf
of the Highly Compensated Employees with the largest individual actual
deferral percentages and/or contribution percentages to the largest uniform
actual deferral percentage and/or contribution percentage (proceeding in
the manner prescribed in subsections (a) and (c) of Section 3.6 of the
Titan 401(k) Plan and subsection (a) of this Section) that permits the sum
of the actual deferral percentage and contribution percentage for said
group of Highly Compensated Employees to satisfy the above restrictions.
The provisions of Section 3.6(b) and (d) of the Titan 401(k) Plan and
subsection (b) of this Section shall apply with respect to any After-Tax
Contributions, Deferral Contributions and Discretionary Matching
Contributions under the Titan 401(k) Plan and Matching Contributions which
cannot be credited to After-Tax Accounts, Deferral Accounts and
Discretionary Matching Accounts under the Titan 401(k) Plan and Matching
Accounts under the Titan Matching Plan, as the case may be, because of the
limitation contained in this subsection (c).
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(d) If any portion of a Deferral Contribution is distributed to a
Participant pursuant to Section 3.6(b) of the Titan 401(k) Plan, any
portion of a Matching Contribution (along with any income allocable
thereto) made to this Plan for such Participant that matches the
distributed Deferral Contribution shall be forfeited. If any portion of a
Deferral Contribution under the Titan 401(k) Plan is distributed to a
Participant pursuant to Section 3.1(e), any portion of a Matching
Contribution (along with any income allocable thereto) made to this Plan
for such Participant that matches the distributed Deferral Contribution
shall be forfeited.
(e) Any provision of this Section to the contrary notwithstanding, the
Company may elect, in accordance with Section 401(k) and (m) of the Code
and any regulations or other Treasury pronouncements pertaining thereto, to
use data for the current Plan Year, rather than the preceding Plan Year, in
determining the actual deferral percentage and the contribution percentage
required by this Section for Non-Highly Compensated Employees.
Section 3.5 Application and Allocation of Forfeitures. All amounts
forfeited during a Plan Year shall first be applied to restore any forfeited
Matching Account required to be restored pursuant to Sections 6.5 and 6.7, and
any forfeitures in excess of the amount needed to restore any such Matching
Account shall be allocated among and credited to the Matching Accounts of (A)
those Participants who both (i) were employed by (or on authorized leave of
absence from) an Employer as a Covered Employee on the last day of such Plan
Year and (ii) completed at least 500 Hours of Service during such Plan Year and
(B) those Participants whose Retirement, Permanent Disability or death occurred
while employed by (or on authorized leave of absence from) an Employer as a
Covered Employee during such Plan Year, in the proportion that the Compensation
for each such Participant while both a Participant and a Covered Employee during
that year bears to the Compensation of all such Participants while both
Participants and Covered Employees during that year.
ARTICLE IV.
TRUST FUND, INVESTMENTS AND VALUATIONS
Section 4.1 Trust and Trustee. All of the contributions paid to the
Trustee pursuant to this Plan, together with the income therefrom and the
increments thereof, shall be held in trust by the Trustee under the terms and
provisions of the separate trust agreement between the Trustee and the Company,
a copy of which is attached hereto and incorporated herein by this reference for
all purposes, establishing a trust fund known as the TITAN MATCHING TRUST for
the exclusive benefit of the Participants and their beneficiaries.
Section 4.2 Trust Investment Options. All amounts credited to a
Participant's Matching Account shall be invested in one or more of the
Investment Funds, at the direction of such Participant in accordance with the
provisions of this Section. The assets of the Trust shall be divided into such
number and kind of separate and distinct Investment Funds as the Committee
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in its absolute discretion shall authorize from time to time. The Trust assets
allocated to a particular Investment Fund shall be invested by the Trustee
and/or one or more investment managers duly appointed in accordance with the
provisions of the Trust, as the case may be, in such type of property, whether
real, personal or mixed, as the Trustee is directed to acquire and hold for such
Investment Fund. Upon becoming a Participant in the Plan, each Participant shall
direct, in the manner prescribed by the Committee, that all amounts credited to
his or her Matching Account shall be invested, in such percentage multiples as
the Committee shall prescribe, in one or more of the Investment Funds authorized
by the Committee. Subject to such conditions and limitations as the Committee
may prescribe from time to time for application to all Participants on a uniform
basis, a Participant may change his or her investment direction with respect to
future contributions or redirect the investment of the amounts credited to his
or her Matching Account provided that notice of such change is delivered to or
in the manner directed by the Committee within such reasonable period of time
prior to the effective date thereof as the Committee may require.
Section 4.3 Valuation and Adjustment of Accounts. As of each Valuation
Date, the Trustee shall determine the fair market value of all assets of the
Trust with the value of the assets of each Investment Fund being separately
determined. On the basis of such valuations and in accordance with such
procedures as may be specified from time to time by the Committee, the portion
of each Matching Account invested in a particular Investment Fund shall be
adjusted by the Committee to reflect its proportionate share of the income
collected and accrued, realized and unrealized profits and losses, expenses and
all other transactions attributable to that particular Investment Fund for the
valuation period then ended. The amount of any distribution or forfeiture shall
be determined on the basis of the most recent valuation preceding the date of
distribution or forfeiture, as the case may be.
ARTICLE V.
VESTING
Section 5.1 Vesting of Matching Accounts. The amounts credited to the
Matching Account of a Participant shall become fully vested upon the occurrence
of any of the following events while the Participant is in the employ of (or on
authorized leave of absence from) an Employer or Affiliated Company: (i) the
completion of an Hour of Service by the Participant on or after his or her
Normal Retirement Date, (ii) the Participant's death, (iii) the Participant's
Permanent Disability, or (iv) a Change of Control. Unless sooner vested
pursuant to the preceding sentence, the amounts credited to a Participant's
Matching Account shall vest in accordance with the following schedule:
Years of Service
Completed by Participant Percentage Vested
------------------------ -----------------
Less than 1 year None
1 year 25%
2 years 50%
3 years 75%
4 or more years 100%
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ARTICLE VI.
DISTRIBUTIONS
Section 6.1 Time and Form of Distribution. Distribution to a Participant
or beneficiary under this Article shall be made or commence being made no later
than 60 days after the close of the Plan Year in which the latest of the
following occurs: (i) the Participant's Normal Retirement Date, (ii) the tenth
anniversary of the year in which the Participant commenced participation in the
Plan, or (iii) the Participant's separation from the employment of an Employer
for any reason other than his or her transfer to the employment of another
Employer or Affiliated Company. In addition and any provision of this Plan to
the contrary notwithstanding, in the case of a Participant who is a five-percent
owner (as defined in Section 416(i) of the Code), distribution to such
Participant under the Plan shall be made or commence being made no later than
April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2. Distributions that commence being made pursuant
to the preceding sentence to a Participant who has not separated from the
employment of an Employer or Affiliated Company shall be made pursuant to
Section 6.2 as if the Participant had terminated employment at such time and
shall be made in accordance with the minimum distribution requirements of
Section 401(a)(9) of the Code and the regulations thereunder; provided, however,
that if a Participant elects to waive payment in the form of a Qualified Joint
and Survivor Annuity in accordance with Section 6.2, the alternative form of
distribution shall be payment of the minimum amounts required to be distributed
pursuant to Section 401(a)(9) of the Code and the regulations thereunder,
without recalculation of life expectancy (unless the Participant requests that
life expectancy be recalculated in accordance with Section 401(a)(9) of the Code
at the time and in the manner prescribed by the Committee), and with any amount
remaining upon the termination of the Participant's employment or death to be
paid in accordance with Section 6.2 or Section 6.3, whichever is applicable, but
with any payments adjusted or accelerated as necessary to satisfy the
requirements of Section 401(a)(9) of the Code and the regulations thereunder.
Subject to the provisions of this Article requiring that distributions be made
in the form of an annuity contract, distributions from the Plan shall be made in
cash. Any provision of this Plan to the contrary notwithstanding, all
distributions from the Plan shall be made in accordance with Section 401(a)(9)
of the Code and the regulations thereunder.
Section 6.2 Distribution of Retirement or Permanent Disability Benefit.
(a) Except as otherwise provided in this Section, upon the
Retirement or Permanent Disability of a Participant, the Vested Interest of
such Participant shall be distributed to such Participant by the Trustee at
the direction of the Committee in the form of a Qualified Joint and
Survivor Annuity contract to be purchased from a company
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selected by the Committee and commencing in payment as soon as practicable
unless the Participant's Vested Interest does not exceed and has never
exceeded $5,000, in which event it will be distributed to the Participant
as soon as practicable following his or her Retirement or Permanent
Disability in the form of a single distribution. Notwithstanding the
provisions of this Section 6.2, no distribution shall be made upon the
Permanent Disability of a Participant prior to his or her Normal Retirement
Date unless (i) such Participant elects to receive such distribution, or
(ii) such Participant's Vested Interest does not exceed and has never
exceeded $5,000.
(b) Not more than 90 days prior to the date the Qualified Joint and
Survivor Annuity contract is to commence in payment to a Participant, the
Committee shall provide such Participant with a written explanation of (i)
the terms and conditions of the Qualified Joint and Survivor Annuity, (ii)
his or her right to make, and the effect of, an election to waive the
Qualified Joint and Survivor Annuity form of benefit, (iii) the rights of
his or her spouse with respect to the receipt and waiver of the Qualified
Joint and Survivor Annuity, and (iv) the right to make, and the effect of,
a revocation of an election to waive the Qualified Joint and Survivor
Annuity. The written explanation shall be required at least 30 days prior
to the date the Qualified Joint and Survivor Annuity contract is to
commence in payment; provided, however, that a Participant may elect (with
any applicable spousal consent) to waive such requirement if the
distribution to the Participant commences no earlier than 8 days after such
explanation is provided.
(c) After receiving the explanation described in (b) above, the
Participant may elect at any time during the 90-day period ending on the
date the annuity contract is to commence in payment to waive the Qualified
Joint and Survivor Annuity form of benefit and also may revoke any such
election during such period. Any such election to waive a Qualified Joint
and Survivor Annuity form of benefit by a married Participant will be
effective only if the spouse of such Participant consents in writing within
the 90-day period preceding the date distributions are to commence to both
the election and the optional form of benefit selected by the Participant
and such consent is witnessed by a notary public.
(d) Any amount payable under the Plan upon the Retirement or
Permanent Disability of a Participant who has elected to waive the
Qualified Joint and Survivor Annuity form of benefit as provided above
shall be distributed to such Participant by the Trustee at the direction of
the Committee in one of the following forms to be selected by the
Participant:
(i) by payment of the entire amount in a single distribution; or
(ii) by payment of the entire amount in substantially equal monthly,
quarterly, or annual installments over a fixed period not
extending beyond the life expectancy of the Participant or the
joint life and last survivor expectancy of the Participant and
his or her designated beneficiary. If a Participant who elected
installment payments dies prior to the distribution of the
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entire amount of his or her Vested Interest, the remaining
portion thereof shall be distributed to his or her beneficiary
or beneficiaries, as determined in accordance with Section 6.3.
Section 6.3 Distribution of Death Benefit.
(a) Except as otherwise provided in this Section, upon the death of a
Participant who is married, the Vested Interest of such Participant shall
be distributed by the Trustee at the direction of the Committee to his or
her surviving spouse in the form of a Qualified Preretirement Survivor
Annuity contract to be purchased from a company selected by the Committee
and commencing in payment as soon as practicable following the
Participant's death.
(b) The Committee shall provide each Participant with a written
explanation of the Qualified Preretirement Survivor Annuity provided above,
including the Participant's right to waive the distribution of such
Qualified Preretirement Survivor Annuity with the consent of his or her
spouse and to revoke any such waiver, within whichever of the following
periods ends last: (i) the period beginning with the first day of the Plan
Year in which the Participant attains the age of 32 and ending with the
close of the Plan Year preceding the Plan Year in which the Participant
attains the age of 35, (ii) the one-year period after the individual
becomes a Participant, or (iii) the one-year period after separation from
employment in the case of a Participant who separates before attaining age
35.
(c) Each Participant may elect at any time beginning on the first
day of the Plan Year in which the Participant attains age 35 and ending on
the date of such Participant's death to waive the Qualified Preretirement
Survivor Annuity form of benefit provided above so that his or her entire
benefit may be paid to his or her designated beneficiary. No election to
waive the Qualified Preretirement Survivor Annuity will be effective upon
the Participant's death unless such election designates a beneficiary that
cannot be changed without spousal consent, the Participant's surviving
spouse consents in writing to such election and such consent is witnessed
by a notary public. A Participant may revoke any such election to waive the
Qualified Preretirement Survivor Annuity at any time prior to his or her
death.
(d) Any amount payable under the Plan upon the death of a Participant
who is not married or who is married but who has elected, as provided
above, to waive the Qualified Preretirement Survivor Annuity and has
designated a beneficiary, shall be distributed to the beneficiary
designated by such Participant. Such designation shall be made in writing
on a form prescribed by the Committee and, when filed with the Committee,
shall become effective and remain in effect until changed by the
Participant by the filing of a new beneficiary designation form with the
Committee. If an unmarried Participant fails to so designate a beneficiary
or in the event all of a Participant's designated beneficiaries are
individuals who predecease the Participant, then the
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<PAGE>
Committee shall direct the Trustee to distribute the amount payable under
the Plan to such Participant's surviving spouse, if any, but if none, to
such Participant's estate.
(e) All distributions under this Section, other than the Qualified
Preretirement Survivor Annuity provided above, shall be made to the
beneficiary or beneficiaries by the Trustee at the direction of the
Committee in a single distribution as soon as practicable following a
Participant's death; provided, however, that if the Participant's Vested
Interest exceeds or has ever exceeded $5,000, a Participant may elect (or
if the Participant does not elect, his or her designated beneficiary may
elect) that distributions be made in substantially equal monthly, quarterly
or annual installments over a fixed period of time not extending beyond the
life expectancy of the Participant's designated beneficiary.
(f) Any provision of this Section 6.3 to the contrary notwithstanding,
the surviving spouse of any deceased Participant may elect in writing after
the Participant's death to receive the benefits otherwise payable to such
surviving spouse in one of the forms provided in Section 6.3(e) above or in
the form of a Qualified Preretirement Survivor Annuity commencing in
payment as of such later date as the surviving spouse may elect, provided
that such delayed payment commencement date complies with the provisions of
Section 401(a)(9) of the Code and the regulations thereunder.
Section 6.4 Distribution of Separation from Employment Benefit. If a
Participant separates from the employment of an Employer or Affiliated Company
for any reason other than his or her Retirement, Permanent Disability, death or
transfer to the employment of another Employer or Affiliated Company, the
Matching Account of such Participant shall be retained in trust and shall
continue to be credited with applicable earnings as provided in Section 4.3, and
the Vested Interest of such Participant shall be distributed to such Participant
by the Trustee at the direction of the Committee upon such Participant's Normal
Retirement Date by payment of the entire amount in the form of a Qualified Joint
and Survivor Annuity contract to be purchased from a company selected by the
Committee and commencing in payment as soon as practicable thereafter (or, if
the Participant dies prior to his or her Normal Retirement Date, the Vested
Interest of such Participant under the Plan shall be distributed upon his or her
death in accordance with Section 6.3); provided, however, that (i) each such
Participant shall have the right to receive an early distribution of his or her
Vested Interest under the Plan in the form of a Qualified Joint and Survivor
Annuity contract to be purchased from a company selected by the Committee and
commencing in payment as soon as practicable following such election, or upon
satisfaction of the notice and waiver requirements of Section 6.2, in any other
form provided for distributions upon Retirement or Permanent Disability pursuant
to Section 6.2, and (ii) the Committee shall require a lump sum distribution of
any such Participant's entire Vested Interest as soon as practicable if such
Participant's Vested Interest does not exceed and has never exceeded $5,000.
-15-
<PAGE>
Section 6.5 Forfeitures.
(a) Unless sooner forfeited as provided below, any unvested portion of
the Matching Account of a Participant who separates from the employment of
an Employer or Affiliated Company for any reason other than his or her
Retirement, Permanent Disability, death or transfer to the employment of
another Employer or Affiliated Company shall be forfeited upon the earlier
of the date of such Participant's death or the date such Participant incurs
five consecutive One Year Breaks in Service unless such Participant is
reemployed by an Employer or Affiliated Company prior to such date.
(b) (i) If a Participant receives a complete distribution of his or
her Vested Interest under Section 6.4 by the end of the second Plan Year
following the year in which his or her separation from employment occurred
under Section 6.4, any portion of such Participant's Matching Account which
is not vested at the time of such distribution shall be forfeited at such
time.
(ii) If a Participant who separates from the employment of an
Employer or Affiliated Company for any reason other than his or her
Retirement, Permanent Disability, death or transfer to the employment of
another Employer or Affiliated Company, is not entitled to receive any
distribution from the Plan due to the fact that such Participant has no
Vested Interest, such Participant shall be deemed to have received a
distribution from the Plan of his or her entire Vested Interest under the
Plan and any amount credited to such Participant's Matching Account shall
be forfeited at the time of such separation from employment.
(iii) If a Participant, any portion of whose Matching Account is
forfeited pursuant to this subsection (b), is reemployed as a Covered
Employee prior to incurring five consecutive One Year Breaks in Service,
the amount so forfeited shall be restored to such individual's Matching
Account out of current-year forfeitures or, if such forfeitures are
insufficient, by an additional Employer contribution; provided, however,
that no amount shall be restored to the Matching Account of an individual
who previously received a distribution of the vested portion of his or her
Matching Account unless he or she repays to the Plan for crediting to his
or her Matching Account, while a Covered Employee and within five years of
the date of such reemployment, the full amount previously distributed from
such Account.
(c) If a Participant who has not yet incurred five consecutive One
Year Breaks in Service receives a distribution under Section 6.4 after the
end of the second Plan Year following the year in which his or her
separation from employment occurred, any portion of such Participant's
Matching Account which is not vested at the time of such distribution shall
be retained in such Account and shall be forfeited upon the earlier of the
date of such Participant's death or the date such Participant incurs five
consecutive One Year Breaks in Service unless such Participant is
reemployed by an Employer or Affiliated Company prior to such date. If a
Participant receives a distribution from the Plan after the end of the
second Plan Year following the year in which his or her separation from
employment occurred and is reemployed by an Employer or Affiliated Company
prior to incurring five consecutive One Year Breaks in Service, then the
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<PAGE>
unvested balance in his or her Matching Account shall be transferred to a
segregated account for such Participant and the amount that the Participant
is entitled to receive from such segregated account as of any later date
shall be an amount equal to X, which amount shall be determined in
accordance with the following formula: X = P(AB + D) - D, where P is the
Participant's vested percentage at such later date, AB is the amount in his
or her segregated account at such later date, and D is the amount
distributed to the Participant in connection with his or her earlier
separation from employment.
(d) All amounts forfeited under the Plan shall be credited to a
forfeiture account and invested by the Trustee at the direction of the
Committee in its discretion until such forfeited amounts and any earnings
attributable thereto are applied in accordance with Section 3.5.
Section 6.6 Distributions to Minors and Persons Under Legal Disability.
If any distribution under the Plan becomes payable to a minor or other person
under a legal disability, such distribution may be made to the duly appointed
guardian or other legal representative of the estate of such minor or person
under legal disability.
Section 6.7 Benefits Payable to Missing Participant or Beneficiary. If
the Committee cannot locate a Participant or beneficiary entitled to a
distribution under this Plan within a period of three years after such
Participant or beneficiary becomes entitled to the distribution, the amounts
credited to the Matching Account of such Participant or beneficiary shall be
forfeited; provided, however, that if a claim for any such forfeited amounts is
subsequently made by any person entitled to the distribution, such forfeited
amounts shall be restored (without adjustment for earnings or appreciation) out
of current-year forfeitures, or if such forfeitures are insufficient, by an
additional Employer contribution.
Section 6.8 Transfer of Eligible Rollover Distribution. If a Participant
is entitled to receive an eligible rollover distribution (as defined in Section
402(c) of the Code and the regulations thereunder) from the Plan, such
Participant may elect to have the Committee direct the Trustee to transfer the
entire amount of such distribution directly to any of the following specified by
such Participant: an individual retirement account described in Section 408(a)
of the Code, an individual retirement annuity described in Section 408(b) of the
Code (other than an endowment contract), a defined contribution plan qualified
under Section 401(a) of the Code the terms of which permit rollover
contributions or an annuity plan described in Section 403(a) of the Code. If
the surviving spouse of a deceased Participant is entitled to receive an
eligible rollover distribution from the Plan, such surviving spouse may elect to
have the Committee direct the Trustee to transfer the entire amount of such
distribution directly to either an individual retirement account described in
Section 408(a) of the Code or an individual retirement annuity described in
Section 408(b) of the Code (other than an endowment contract) specified by such
surviving spouse. If an alternate payee under a qualified domestic relations
order (as defined in Section 414(p) of the Code) is the spouse or former spouse
of the Participant specified in the qualified domestic relations order, this
Section shall apply to such alternate payee as if the alternate payee were a
Participant. A distributee of an eligible rollover distribution who is
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<PAGE>
entitled to make an election under this Section may specify that some portion
less than the entire amount of such distribution be transferred in accordance
with this Section.
Section 6.9 Qualified Domestic Relations Orders. Any provision of this
Plan to the contrary notwithstanding:
(a) The Committee shall establish and maintain for each alternate
payee named with respect to a Participant under a domestic relations order
which is determined by the Committee to be a qualified domestic relations
order (as defined in Section 414(p) of the Code) such separate accounts as
the Committee may deem to be necessary or appropriate to reflect such
alternate payee's interest in the Matching Account of such Participant.
Such alternate payee's accounts shall be credited with the alternate
payee's interest in the Participant's Matching Account as determined under
such qualified domestic relations order. The alternate payee may change
investment direction with respect to his or her account balances in
accordance with Section 4.2 in the same manner as the Participant.
(b) Except to the extent otherwise provided in the qualified domestic
relations order naming an alternate payee with respect to a Participant,
(i) the alternate payee may designate a beneficiary on a form prescribed by
and filed with the Committee, (ii) if no such beneficiary is validly
designated or if the designated beneficiary is a person who predeceases the
alternate payee, the beneficiary of the alternate payee shall be the
alternate payee's estate, and (iii) the beneficiary of the alternate payee
shall be accorded under the Plan all of the rights and privileges of the
beneficiary of a Participant.
(c) An alternate payee named with respect to a Participant shall be
entitled to receive a distribution from the Plan in accordance with the
qualified domestic relations order naming such alternate payee. Such
distribution may be made only in a form provided under the Plan and shall
include only such amounts as are vested. If a qualified domestic relations
order so provides, a lump sum distribution of the total vested amount
credited to the alternate payee's account may be made to the alternate
payee at any time prior to the date the Participant named in such qualified
domestic relations order attains his or her earliest retirement age (as
defined in Section 414(p)(4)(B) of the Code).
(d) If a portion of any unvested amount credited to the Matching
Account of a Participant named in the qualified domestic relations order is
credited to the account of the alternate payee named in such qualified
domestic relations order, the portion credited to such account of the
alternate payee shall vest and/or be forfeited at the same time and in the
same manner as such Matching Account of the Participant.
-18-
<PAGE>
ARTICLE VII.
PLAN ADMINISTRATION
Section 7.1 Committee. The Company shall be the plan administrator of the
Plan. The Plan shall be administered on behalf of the Company by a Committee
composed of at least three individuals appointed by the Board of Directors of
the Company. Each member of the Committee so appointed shall serve in such
office until his or her death, resignation or removal by the Board of Directors
of the Company. The Board of Directors of the Company may remove any member of
the Committee at any time by giving written notice thereof to the members of the
Committee. Vacancies shall likewise be filled from time to time by the Board of
Directors of the Company. The members of the Committee shall receive no
remuneration from the Plan for their services as Committee members.
Section 7.2 Powers, Duties and Liabilities of the Committee. The
Committee shall have discretionary and final authority to interpret and
implement the provisions of the Plan, including without limitation authority to
determine eligibility for benefits under the Plan, and shall perform all of the
duties and exercise all of the powers and discretion granted to it under the
terms of the Plan. The Committee shall act by a majority of its members at the
time in office and such action may be taken either by a vote at a meeting or in
writing without a meeting. The Committee may by such majority action authorize
any one or more of its members to execute any document or documents on behalf of
the Committee, in which event the Committee shall notify the Trustee in writing
of such action and the name or names of its member or members so authorized to
act. Every interpretation, choice, determination or other exercise by the
Committee of any discretion given either expressly or by implication to it shall
be conclusive and binding upon all parties directly or indirectly affected,
without restriction, however, on the right of the Committee to reconsider and
redetermine such actions. In performing any duty or exercising any power herein
conferred, the Committee shall in no event perform such duty or exercise such
power in any manner which discriminates in favor of Highly Compensated
Employees. The Employers shall indemnify and hold harmless each member of the
Committee against any claim, cost, expense (including attorneys' fees), judgment
or liability (including any sum paid in settlement of a claim with the approval
of the Employers) arising out of any act or omission to act as a member of the
Committee appointed under this Plan, except in the case of willful misconduct.
Section 7.3 Rules, Records and Reports. The Committee may adopt such
rules and procedures for the administration of the Plan as are consistent with
the terms hereof, and shall keep adequate records of the Committee's proceedings
and acts and of the status of the Participants' Matching Accounts. The
Committee may employ such agents, accountants and legal counsel (who may be
agents, accountants or legal counsel for an Employer) as may be appropriate for
the administration of the Plan. The Committee shall at least annually provide
each Participant with a report reflecting the status of his or her Matching
Account in the Trust and shall cause such other information, documents or
reports to be prepared, provided and/or filed as may be necessary to comply with
the provisions of the Employee Retirement Income Security Act of 1974 or any
other law.
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<PAGE>
Section 7.4 Administration Expenses and Taxes. The Employers may, but
shall not be required to, pay all reasonable and necessary expenses (including
the fees of agents, accountants and legal counsel) incurred by the Committee in
connection with the administration of the Plan. Unless otherwise paid by the
Employers in their absolute discretion, such expenses shall be paid from and
charged against the assets of the Trust. Should any tax of any character
(including transfer taxes) be levied upon the Trust assets or the income
therefrom, such tax shall be paid from and charged against the assets of the
Trust.
ARTICLE VIII.
AMENDMENT AND TERMINATION
Section 8.1 Amendment. The Company shall have the right and power at any
time and from time to time to amend this Plan, in whole or in part, on behalf of
all Employers. Any such amendment made by the Company shall be made by or
pursuant to a resolution duly adopted by the Board of Directors of the Company,
and shall be evidenced by such resolution or by a written instrument executed by
such person as the Board of Directors of the Company shall authorize for such
purpose. With the consent of the Company and subject to such procedure as it
may prescribe, each Employer shall have the right and power at any time and from
time to time to amend this Plan, in whole or in part, with respect to the Plan's
application to the Participants of the particular amending Employer and the
assets held in the Trust for their benefit, or to transfer such assets or any
portion thereof to a new trust for the benefit of such Participants. However,
in no event shall any amendment or new trust permit any portion of the trust
fund to be used for or diverted to any purpose other than the exclusive benefit
of the Participants and their beneficiaries, nor shall any amendment or new
trust reduce a Participant's Vested Interest under the Plan.
Section 8.2 Termination. The Board of Directors of the Company shall
have the right and power at any time to terminate this Plan on behalf of all
Employers, or to terminate this Plan as it applies to the Participants who are
or were employees of any particular Employer, by giving written notice of such
termination to the Committee and Trustee. Any provision of this Plan to the
contrary notwithstanding, upon the termination or partial termination of the
Plan as to any Employer, or in the event any Employer should completely
discontinue making contributions to the Plan without formally terminating it,
all amounts credited to the Matching Accounts of the affected Participants of
that particular Employer shall be fully vested.
ARTICLE IX.
TOP-HEAVY PROVISIONS
Section 9.1 Top-Heavy Definitions. Unless the context clearly indicates
otherwise, when used in this Article:
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<PAGE>
(a) "Top-Heavy Plan" means this Plan if, as of the Determination Date,
the aggregate of the Matching Accounts of Key Employees under the Plan
exceeds 60% of the aggregate of the Matching Accounts of all Participants
and former Participants under the Plan. The aggregate of the Matching
Accounts of any Participant or former Participant shall include any
distributions (other than related rollovers or transfers from the Plan
within the meaning of regulations under Section 416(g) of the Code) made
from such individual's Matching Account during the Plan Year or any of the
four preceding Plan Years, but shall not include any unrelated rollovers or
transfers (within the meaning of regulations under Section 416(g) of the
Code) made to such individual's account after December 31, 1983. The
Matching Account of any Participant or former Participant who (i) is not a
Key Employee for the Plan Year in question but who was a Key Employee in a
prior Plan Year, or (ii) has not completed an Hour of Service during the
five-year period ending on the Determination Date, shall not be taken into
Matching Account. The determination of whether the Plan is a Top-Heavy
Plan shall be made after aggregating all other plans of an Employer and any
Affiliated Company qualifying under Section 401(a) of the Code in which a
Key Employee is a participant or which enables such a plan to meet the
requirements of Section 401(a)(4) or 410 of the Code, and after aggregating
any other plan of an Employer or Affiliated Company, which is not already
aggregated, if such aggregation group would continue to meet the
requirements of Sections 401(a)(4) and 410 of the Code and if such
permissive aggregation thereby eliminates the top-heavy status of any plan
within such permissive aggregation group. The determination of whether
this Plan is a Top-Heavy Plan shall be made in accordance with Section
416(g) of the Code.
(b) "Determination Date" means, for purposes of determining whether
the Plan is a Top-Heavy Plan for a particular Plan Year, the last day of
the preceding Plan Year.
(c) "Key Employee" means any Employee or former Employee (including a
beneficiary of such Employee or former Employee) who at any time during the
Plan Year or any of the four preceding Plan Years is:
(1) an officer of the Employer who has Compensation for any such
Plan Year greater than 50% of the amount in effect under Section
415(b)(1)(A) of the Code for such Plan Year;
(2) one of the 10 Employees owning (or considered as owning
within the meaning of Section 318 of the Code) the largest interests
in excess of 0.5% in an Employer or Affiliated Company and having
Compensation for such Plan Year of more than the limitation in effect
under Section 415(c)(1)(A) of the Code;
(3) a person owning (or considered as owning within the meaning
of Section 318 of the Code) more than 5% of the outstanding stock of
an Employer or stock possessing more than 5% of the total combined
voting power of all stock of an Employer; or
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<PAGE>
(4) a person who has Compensation for such Plan Year from an
Employer of more than $150,000 and who would be described in paragraph
(3) hereof if 1% were substituted for 5% in each place it appears in
such paragraph.
For the purposes of applying Section 318 of the Code to this subsection
(c), subparagraph (C) of Section 318(a)(2) of the Code shall be applied by
substituting 5% for 50%. The rules of subsections (b), (c) and (m) of
Section 414 of the Code shall not apply for purposes of determining
ownership in an Employer under this subsection (c).
(d) "Non-Key Employee" means any Employee or former Employee
(including a beneficiary of such Employee or former Employee) who is not a
Key Employee.
Section 9.2 Minimum Contribution Requirement. Any provision of this Plan
to the contrary notwithstanding, if the Plan is a Top-Heavy Plan for any Plan
Year, then the Employers will contribute to the Matching Account of each Non-Key
Employee who is both eligible to participate and in the employ of an Employer on
the last day of such Plan Year, an amount which, when added to the total amount
of contributions and forfeitures otherwise allocable under the Plan and any
other plan that may be aggregated with the Plan for such Non-Key Employee for
such year, shall equal the lesser of (i) 3% of such Non-Key Employee's
Compensation for such year or (ii) the amount of contributions and forfeitures
(expressed as a percentage of Compensation allocable under the Plan for the Key
Employee for whom such percentage is the highest for the Plan Year after taking
into account contributions under other defined contribution plans maintained by
the Employer in which a Key Employee is a participant (as well as any other plan
of an Employer which enables such a plan to meet the requirements of Section
401(a)(4) or 410 of the Code); provided, however, that no minimum contribution
shall be made for a Non-Key Employee under this Section for any Plan Year if the
Employer maintains another qualified plan under which a minimum benefit or
contribution is being accrued or made for such Plan Year for the Non-Key
Employee in accordance with Section 416(c) of the Code. A Non-Key Employee who
is not a Participant, but for whom a contribution is made pursuant to this
Section, shall be accorded all of the rights and privileges of a Participant
under the Plan except that no contributions (other than contributions pursuant
to this Section) shall be made for or on behalf of such Non-Key Employee until
he or she meets the eligibility and participation requirements of Article II.
ARTICLE X.
MISCELLANEOUS GENERAL PROVISIONS
Section 10.1 Spendthrift Provision. No right or interest of any
Participant or beneficiary under the Plan may be assigned, transferred or
alienated, in whole or in part, either directly or by operation of law, and no
such right or interest shall be liable for or subject to any debt, obligation or
liability of such Participant or beneficiary; provided, however, that nothing
herein shall prevent the payment of amounts from a Participant's Matching
Account under the Plan in
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<PAGE>
accordance with the terms of a court order which the Committee has determined to
be a qualified domestic relations order (as defined in Section 414(p) of the
Code).
Section 10.2 Claims Procedure. If any person (hereinafter called the
"Claimant") feels that he or she is being denied a benefit to which he or she is
entitled under the Plan, such Claimant may file a written claim for said benefit
with any member of the Committee. Within 60 days of the receipt of such claim
the Committee shall determine and notify the Claimant as to whether he or she is
entitled to such benefit. Such notification shall be in writing and, if denying
the claim for benefit, shall set forth the specific reason or reasons for the
denial, make specific reference to the pertinent provisions of the Plan, and
advise the Claimant that he or she may, within 60 days of the receipt of such
notice, in writing request to appear before the Committee for a hearing to
review such denial. Any such hearing shall be scheduled at the mutual
convenience of the Committee or its designated representative and the Claimant,
and at such hearing the Claimant and/or his or her duly authorized
representative may examine any relevant documents and present evidence and
arguments to support the granting of the benefit being claimed. The final
decision of the Committee with respect to the claim being reviewed shall be made
within 60 days following the hearing thereon and the Committee shall in writing
notify the Claimant of its final decision, again specifying the reasons therefor
and the pertinent provisions of the Plan upon which such decision is based. The
final decision of the Committee shall be conclusive and binding upon all parties
having or claiming to have an interest in the matter being reviewed.
Section 10.3 Maximum Contribution Limitation. Any provision of this Plan
to the contrary notwithstanding, the sum of (i) the Employer contributions, (ii)
the forfeitures, and (iii) the Participant contributions (excluding rollover
contributions and employee contributions to a simplified employee pension
allowable as a deduction, each within the meaning specified in Section 415(c)(2)
of the Code), allocated to a Participant with respect to a Plan Year shall in no
event exceed the lesser of $30,000 (as adjusted pursuant to Section 415(d) of
the Code to take into account any cost-of-living increase) or 25% of such
Participant's Compensation for that year. For the purposes of applying the
limitation imposed by this Section, each Employer and its Affiliated Companies
shall be considered a single employer, and all defined contribution plans
(meaning plans providing for individual accounts and for benefits based solely
upon the amounts contributed to such accounts and any forfeitures, income,
expenses, gains and losses allocated to such accounts) described in Section
415(k) of the Code, whether or not terminated, maintained by an Employer or its
Affiliated Companies shall be considered a single plan. If the total amount
allocable to a Participant's Matching Account for a particular Plan Year would,
but for this sentence, exceed the foregoing limitation, any amounts allocated to
such Participant's Matching Account in excess of the foregoing limitation shall
be credited to a suspense account and thereafter used to reduce Matching
Contributions for such Plan Year (and, if necessary, the next succeeding year).
No adjustment shall be made to such suspense account to reflect income, profits
or losses, expenses or other transactions affecting the Trust.
Section 10.4 Employment Noncontractual. The establishment of this Plan
shall not enlarge or otherwise affect the terms of any Employee's employment
with an Employer and an
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<PAGE>
Employer may terminate the employment of any Employee as freely and with the
same effect as if this Plan had not been adopted.
Section 10.5 Limitations on Responsibility. The Employers do not
guarantee or indemnify the Trust against any loss or depreciation of its assets
which may occur, nor guarantee the payment of any amount which may become
payable to a Participant or his or her beneficiaries pursuant to the provisions
of this Plan. All payments to Participants and their beneficiaries shall be
made by the Trustee at the direction of the Committee solely from the assets of
the Trust and the Employers shall have no legal obligation, responsibility or
liability for any such payments.
Section 10.6 Merger or Consolidation. In no event shall this Plan be
merged or consolidated into or with any other plan, nor shall any of its assets
or liabilities be transferred to any other plan, unless each Participant would
be entitled to receive a benefit if the plan in which he or she then
participates terminated immediately following such merger, consolidation or
transfer, which is equal to or greater than the benefit he or she would have
been entitled to receive if the Plan had been terminated immediately prior to
such merger, consolidation or transfer.
Section 10.7 Applicable Law. This Plan shall be governed and construed
in accordance with the internal laws (and not the principles relating to
conflicts of laws) of the State of Texas except where superseded by federal law.
IN WITNESS WHEREOF, this Plan has been established by Titan Resources I,
Inc. this 24th day of August, 1998, to be effective as of September 1, 1998.
TITAN RESOURCES I, INC.
By /s/ Jack D. Hightower
--------------------------------------
Title: President, Chief Executive
Officer and Chairman of the Board
-24-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,088
<SECURITIES> 0
<RECEIVABLES> 11,045
<ALLOWANCES> 0
<INVENTORY> 1,271
<CURRENT-ASSETS> 15,189
<PP&E> 403,712
<DEPRECIATION> (119,658)
<TOTAL-ASSETS> 356,499
<CURRENT-LIABILITIES> 14,413
<BONDS> 0
0
0
<COMMON> 405
<OTHER-SE> 202,356
<TOTAL-LIABILITY-AND-EQUITY> 356,499
<SALES> 57,139
<TOTAL-REVENUES> 57,139
<CGS> 0
<TOTAL-COSTS> 75,781
<OTHER-EXPENSES> (223)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,040
<INCOME-PRETAX> (24,459)
<INCOME-TAX> 8,803
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<EXTRAORDINARY> 0
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</TABLE>
