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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE YEAR ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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COMMISSION IRS EMPLOYER
FILE STATE OF IDENTIFICATION
NUMBER REGISTRANT INCORPORATION NUMBER
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1-7810 Energen Corporation Alabama 63-0757759
2-38960 Alabama Gas Corporation Alabama 63-0022000
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605 21st Street North
Birmingham, Alabama 35203
(205) 326-2700
ht.//www.energen.com
Securities Registered Pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
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Energen Corporation Common Stock, $0.01 par value New York Stock Exchange
Energen Corporation Preferred Stock Purchase Rights New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by a check mark whether registrants (1) have filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrants
were required to file such reports) and (2) have been subject to such filing
requirements for the past 90 days. YES X NO
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Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. (X)
Aggregate market value of the voting stock held by non-affiliates of the
registrants as of December 10, 1998:
Energen Corporation $533,117,692
Indicate number of shares outstanding of each of the registrant's classes of
common stock as of December 10, 1998:
Energen Corporation 29,505,273 shares
Alabama Gas Corporation 1,972,052 shares
Alabama Gas Corporation meets the conditions set forth in General Instruction
I(1) (a) and (b) of Form 10-K and is therefore filing this form with the reduced
disclosure format pursuant to General Instruction I(2).
DOCUMENTS INCORPORATED BY REFERENCE
- - Energen Corporation Proxy Statement to be filed on or about December 22,
1998 (Part III, Item 10-13)
- - Portions of Energen Corporation 1998 Annual Report to Shareholders are
incorporated by reference into Part II, Items 5, 6, 7, and 8 of this report
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ENERGEN CORPORATION
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PAGE
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PART I
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Item 1. Business.................................................................3
Item 2. Properties...............................................................8
Item 3. Legal Proceedings........................................................9
Item 4. Submission of Matters to a Vote of Security Holders......................9
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters....12
Item 6. Selected Financial Data.................................................12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...............................................12
Item 7a. Quantitative and Qualitative Disclosures about Market Risk..............12
Item 8. Financial Statements and Supplementary Data.............................13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure................................................13
PART III
Item 10. Directors and Executive Officers of the Registrants.....................14
Item 11. Executive Compensation..................................................14
Item 12. Security Ownership of Certain Beneficial Owners and Management..........14
Item 13. Certain Relationships and Related Transactions..........................14
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........15
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This Form 10-K is filed on behalf of Energen Corporation (Energen or the
Company) and Alabama Gas Corporation (Alagasco).
PART I
ITEM 1. BUSINESS
GENERAL
Energen is a Birmingham-based diversified energy holding company engaged
primarily in the purchase, distribution, sale and transportation of natural gas,
principally in central and north Alabama, and in the acquisition, development,
exploration and production of oil and gas in the continental United States. Its
two major subsidiaries are Alabama Gas Corporation (Alagasco) and Energen
Resources Corporation. (As discussed more fully in Note 1 to the Consolidated
Financial Statements, Energen Resources previously was known as Taurus
Exploration Inc.)
Energen was incorporated in Alabama in 1978 in connection with the
reorganization of its largest subsidiary, Alagasco. Alagasco was formed in 1948
by the merger of Alabama Gas Company into Birmingham Gas Company, the
predecessors of which had been in existence since the mid-1800s. Alagasco became
a public company in 1953. Energen Resources was formed in 1971 as a subsidiary
of Alagasco and became a subsidiary of Energen in the 1978 reorganization.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The information required by this item is incorporated by reference from Note 15,
Industry Segment Information, to the Consolidated Financial Statements of the
1998 Annual Report to Shareholders and is attached herein as Part IV, Item 14,
Exhibit 13.
NARRATIVE DESCRIPTION OF BUSINESS
- - NATURAL GAS DISTRIBUTION
GENERAL: Alagasco is the largest natural gas distribution utility in the
state of Alabama. Alagasco purchases natural gas through interstate and
intrastate marketers and suppliers and distributes the purchased gas through
its distribution facilities for sale to residential, commercial and
industrial customers and other end-users of natural gas. Alagasco also
provides transportation services to industrial and commercial customers
located on its distribution system. These transportation customers, using
Alagasco as their agent or acting on their own, purchase gas directly from
producers, marketers or suppliers and arrange for delivery of the gas into
the Alagasco distribution system; Alagasco then charges a fee to transport
this customer-owned gas through its distribution system to the customer's
facility.
Alagasco's service territory is located in central and parts of north
Alabama and includes more than 185 cities and communities in 27 counties.
The aggregate population of the counties served by Alagasco is estimated to
be 2.3 million. Among the cities served by Alagasco are Birmingham, the
center of the largest metropolitan area in Alabama, and Montgomery, the
state capital. During fiscal year 1998, Alagasco served an average of
423,602 residential customers, 34,733 small commercial and industrial sales
and transportation customers, and 49 large commercial and industrial
transportation customers.
The Alagasco distribution system includes approximately 9,060 miles of main
and more than 9,800 miles of service lines, odorization and regulation
facilities, and customer meters. Alagasco also operates two liquified
natural gas (LNG) facilities which it uses to meet peak demand.
APSC REGULATION: As an Alabama utility, Alagasco is subject to regulation by
the Alabama Public Service Commission (APSC). Alagasco's rate-setting
process, Rate Stabilization and Equalization (RSE), was
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established by the APSC in 1983, extended with modifications in 1985, 1987
and 1990, and extended without further change in 1996. RSE replaced the
traditional utility rate case with quarterly reviews and adjustments
designed to give Alagasco an opportunity to earn a return on average equity
at year-end within a designated range, which presently is 13.15 percent to
13.65 percent. Alagasco has earned at or near its allowed range since
fiscal 1990, when the APSC modified RSE to include a forward-looking test
year and approved a temperature adjustment rider to Alagasco's rate tariff.
On October 7, 1996, RSE was extended without change for a five-year period,
through January 1, 2002. Under the terms of the extension, RSE will
continue after January 1, 2002, unless, after notice to the Company and a
hearing, the APSC votes to modify or discontinue its operation.
Under RSE as extended, the APSC conducts quarterly reviews to determine,
based on Alagasco's projections and fiscal year-to-date performance,
whether Alagasco's return on equity for the fiscal year will be within the
allowed range. Reductions in rates can be made quarterly to bring the
projected return within the allowed range; increases, however, are allowed
only once each fiscal year, effective December 1, and cannot exceed 4
percent of prior-year revenues. RSE limits the utility's equity upon which
a return is permitted to 60 percent of total capitalization and provides
for certain cost control measures designed to monitor Alagasco's operations
and maintenance (O&M) expenses. If the change in O&M per customer falls
within 1.25 percentage points above or below the Consumer Price Index for
All Urban Customers (index range), no adjustment is required. If, however,
the change in O&M per customer exceeds the index range, three-quarters of
the difference is returned to customers. To the extent the change is less
than the index range, the utility benefits by one-half of the difference
through future rate adjustments.
The APSC approved an Enhanced Stabilization Reserve (ESR), beginning fiscal
year 1998, to which Alagasco may charge the full amount of: (1)
extraordinary O&M expenses resulting from force majeure events such as
storms, severe weather, and outages, when one or a combination of two such
events results in more than $200,000 of additional O&M expense during a
fiscal year; or (2) individual industrial and commercial customer revenue
losses that exceed $250,000 during the fiscal year if such losses cause
Alagasco's return on equity to fall below 13.15 percent. The APSC approved
the reserve on October 6, 1998, in the amount of $3.9 million; the maximum
approved funding level of the ESR is $4 million. The APSC provides for
accretions to the ESR in an amount of no more than $40,000 monthly
following a year in which a charge against the ESR is made until the
maximum funding level is achieved. The APSC will re-evaluate the operation
of the ESR following the conclusion of Alagasco's fiscal year 2000.
The temperature adjustment rider to Alagasco's rate tariff, approved by the
APSC in 1990, was designed to mitigate the earnings impact of variances
from normal temperatures. Alagasco performs this real-time temperature
adjustment calculation monthly, and the adjustments to customers' bills are
made in the same billing cycle in which the weather variations occurred.
Substantially all the customers to whom the temperature adjustment applies
are residential, small commercial and small industrial.
Alagasco's rate schedules for natural gas distribution charges contain a
Gas Supply Adjustment (GSA) rider, established in 1993, which permits the
pass-through to customers of changes in the cost of gas supply, including
Gas Supply Realignment (GSR) surcharges imposed by Alagasco's suppliers
resulting from changes in gas supply purchases related to the
implementation of Federal Energy Regulatory Commission (FERC) Order 636.
The APSC on October 7, 1996, issued an order providing for the refund to
customers prior to January 31, 1997, of approximately $17 million of
supplier refunds, including interest. Alagasco refunded these amounts to
customers during January 1997. The refunds were collected from a variety of
sources and most related to the settlement of rate case and FERC Order 636
proceedings of Southern Natural Gas Company (Southern).
GAS SUPPLY: Alagasco's distribution system is connected to and has firm
transportation contracts with two major interstate pipeline systems'
Southern and Transcontinental Gas Pipe Line Corporation (Transco). On
Southern's system, Alagasco has 251,679 Mcfd (thousand cubic feet per day)
of No-Notice Firm Transportation service through October 31, 2008, and
40,000 Mcfd and 92,373 Mcfd of Firm Transportation service through April
30, 2002 and October 31, 2008, respectively. Alagasco also has 12,464,074
Mcf of storage capacity on Southern's system, with a maximum withdrawal
rate of 251,679 Mcfd from storage and a maximum injection rate of 95,878
Mcfd to storage. The Transco Firm Transportation contract, which expires in
2002, provides for
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up to 100,000 Mcfd. As a result, Alagasco has a peak day firm interstate
pipeline transportation capacity of 484,052 Mcfd.
Alagasco purchases gas from various gas producers and marketers, including
affiliates of Southern and Transco, and from certain intrastate producers
and marketers. Alagasco has contracts in place to purchase up to 276,764
Mcfd of firm supply, of which 232,373 Mcfd is supported by firm
transportation on the Transco and Southern systems and approximately 23,600
Mcfd is purchased at the city gate under intrastate firm supply contracts.
These firm supply volumes along with Alagasco's maximum withdrawal from
storage of 251,679 Mcfd and LNG peak-shaving capacity of 200,000 Mcfd, give
Alagasco a peak day firm supply of 728,443 Mcfd. Alagasco also utilizes the
Southern and Transco pipeline systems to access spot market gas in order to
supplement its firm system supply and serve its industrial and large
commercial transportation customers. Deliveries of sales and transportation
gas totaled 115,347 million cubic feet (MMcf) in fiscal 1998.
RATE FLEXIBILITY AND COMPETITION: The price of natural gas is a significant
competitive factor in Alagasco's service territory, particularly among
large commercial and industrial transportation customers. Propane, coal and
fuel oil are readily available, and many industrial customers have the
capability to switch to alternate fuels and/or alternate sources of gas. In
the residential and small commercial and industrial markets, electricity is
the principal competitor.
With the support of the APSC, Alagasco has implemented a variety of
flexible rate strategies to help it compete for the large customers' gas
load in the deregulated marketplace. Rate flexibility remains critical as
the utility faces intense competition for the large customer load. To date,
the utility has been effective in utilizing its flexible rate strategies to
minimize bypass and price-based switching to alternate fuels and alternate
sources of gas.
In 1994 Alagasco implemented the P Rate in response to the competitive
challenge of interstate pipeline capacity release. Under this tariff
provision, Alagasco releases much of its excess pipeline capacity and
repurchases it as agent for its transportation customers under 12 month
contracts. The transportation customers benefit from lower pipeline costs.
Alagasco's core market customers benefit, as well, since the utility uses
the revenues received from the P Rate to decrease gas costs for its
residential and small commercial and industrial customers. In fiscal 1998,
approximately 285 of Alagasco's transportation customers utilized the P
Rate, and the resulting reduction in core market gas costs totaled
approximately $9.6 million.
The Competitive Fuel Clause (CFC) and Transportation Tariff also have been
important to Alagasco's ability to compete effectively for customer load in
its service territory. The CFC allows Alagasco to adjust large customer
rates on a case-by-case basis to compete with alternate fuels and alternate
sources of gas. The GSA rider to Alagasco's tariff increases the rates paid
by other customers to recover the reduction in rates allowed under the CFC
because the retention of any customer, particularly large commercial and
industrial transportation customers, benefits all customers by recovering a
portion of the system's fixed costs. The Transportation Tariff allows
Alagasco to transport gas for customers rather than buy and resell it to
them. The Transportation Tariff is based on Alagasco's sales profit margin,
so operating margins are unaffected. The Transportation Tariff also may be
adjusted under the CFC.
Alagasco also uses long-term special contracts as a vehicle for retaining
large customer load. At the end of fiscal 1998, 37 of the utility's largest
commercial and industrial transportation customers were under special
contracts of varying lengths.
During 1998 substantially all of Alagasco's large commercial and industrial
customer deliveries were the transportation of customer-owned gas. In
addition, Alagasco served as gas purchasing agent for approximately 99
percent of its transportation customers.
Natural gas service available to Alagasco customers generally falls into
two categories: interruptible and firm. Interruptible service is
contractually subject to interruption by Alagasco for various reasons, the
most common of which is curtailment of industrial customers during periods
of peak residential heating demand. Firm service,
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in general, is not subject to interruption and, therefore, is more
expensive. Firm service is generally provided to residential and small
commercial and industrial customers, while interruptible service is
generally provided to large commercial and industrial transportation
customers which typically have the capability to reduce gas consumption by
adjusting their production schedules or by switching to alternate fuels
during periods of interruption.
GROWTH: Customer growth presents a major challenge for Alagasco, and its
low customer growth rate in 1998 underscores the utility's mature status
and the slow-growth nature of its service territory. Customer growth in
fiscal 1998 was relatively flat. At the same time, the utility penetrated
88 percent of the new single-family homes built in its service territory
and 53 percent of the new multi-family construction. Meanwhile, Alagasco's
saturation rate of approximately 70 percent exceeds the national average of
approximately 51 percent.
A vehicle for supplementing Alagasco's normal growth continues to be
Alagasco's municipal acquisition program. Since 1985 Alagasco has acquired
22 municipally-owned systems, adding more than 42,000 customers through
initial system purchases and subsequent customer additions. Alagasco has
been successful in increasing the systems' relatively low saturation rates
subsequent to purchase through a variety of marketing efforts including
offering natural gas service to propane customers located on the municipal
system's lines, expanding into nearby neighborhoods that desire natural gas
service, and marketing natural gas appliances to existing and new
customers. Approximately 78 municipal systems remain in Alabama. Although
Alagasco did not acquire any new municipal gas systems in 1997 or 1998, it
continues to pursue the purchase of municipal gas systems, and company
management believes that such acquisitions offer future growth
opportunities.
WEATHER: Alagasco's gas distribution business is highly seasonal since a
material portion of the utility's total sales and delivery volumes is to
customers (principally residential and small commercial and industrial)
whose use varies depending upon temperature. Alagasco's rate tariff
includes a temperature adjustment rider which is designed to mitigate the
effect of departures from normal temperature on Alagasco's earnings. The
calculation is performed monthly, and adjustments are made to customers'
bills in the actual month the weather variation occurs.
ENVIRONMENTAL MATTERS: Alagasco is in the chain of title of eight former
manufactured gas plant sites and five manufactured gas distribution sites.
It still owns four of the plant sites and one of the distribution sites.
Preliminary investigations indicate no need at present for remediation
activities. Management expects that, should remediation of any such sites
be required in the future, Alagasco's share of any associated costs will
not affect materially the results of its operations or financial condition.
OTHER: For a discussion of risks inherent in the company's businesses,
including Alagasco, see management's Discussion and Analysis in the 1998
Annual Report to Shareholders (pages 25 and 26), which is attached herein
as Part IV, Item 14, Exhibit 13.
- - OIL AND GAS ACTIVITIES
GENERAL: Energen Resources is involved primarily in the acquisition and
exploitation of producing oil and natural gas properties with varying
levels of development potential and, to a lessor extent, in the exploration
and development of new reservoirs. Energen Resources also provides
fee-based coalbed methane operating services in the Black Warrior Basin for
its partners and third parties. All of Energen Resources' operations are
located in the United States.
At the end of fiscal 1998, Energen Resources' remaining recoverable
reserves totaled 764.9 billion cubic feet equivalent (Bcfe) and were
located primarily in Alabama, New Mexico, Texas, Mississippi and Louisiana.
Energen Resources' reserve base is conservative in nature, with more than
85 percent of year-end reserves classified as proved developed; in
addition, the reserve base is long-lived, with a year-end
reserves-to-production ratio of 13-to-1. Energen Resources' reserves also
are concentrated in areas with multiple pay zone opportunities, such as the
San Juan, Black Warrior and Permian Basins. Natural gas represents more
than 70
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percent of Energen Resources' reserves, with oil and natural gas liquids
comprising the balance. Energen Resources' production in fiscal 1998 totaled
57.4 Bcfe and is estimated to reach 87 Bcfe in fiscal 1999.
GROWTH STRATEGY: Fiscal 1998 marked the third year of Energen's aggressive
growth strategy which calls for significant capital investment in Energen
Resources' oil and gas activities. Over the last three fiscal years, Energen
Resources has invested approximately $365 million to acquire producing
properties, $60 million in associated exploitation and development drilling,
and $75 million in exploration and related development. This $500 million of
capital investment has added approximately 820 Bcfe of proved reserves. Over
the five-year period ending September 30, 2003, Energen Resources
anticipates spending approximately $1 billion in the acquisition and
exploitation of producing properties and in exploration and related
development.
PROPERTY ACQUISITIONS AND EXPLOITATION: Energen Resources' acquisition
efforts focus on the purchase of producing properties which have varying
degrees of potential for increased reserves and production through
exploitation and development. During fiscal years 1996, 1997 and 1998,
Energen Resources acquired an estimated 740 Bcfe of proved reserves for
approximately $365 million, resulting in an average acquisition cost of 49
cents per Mcfe. In addition, Energen Resources spent $60 million over the
three years in exploitation and development costs and plans to spend
approximately $70 million over the next several years on development of
these reserves.
In fiscal 1998, Energen Resources invested approximately $85 million to
acquire an estimated 120 Bcfe of proved reserves. Energen Resources' largest
acquisition of fiscal 1998 occurred in the first quarter with the $43.3
million purchase of Permian Basin oil and gas reserves from B.C. Oil and Gas
Ltd. and affiliates. Of the estimated 80 Bcfe of proved reserves in west
Texas, approximately 70 percent were oil and approximately 40 Bcfe were
classified as behind-pipe or proved undeveloped. Most significant was that
Energen Resources gained a substantial operating presence in the Permian
Basin by assuming operations for approximately 70 percent of the wells.
Energen Resources' presence in the Permian Basin was enhanced in September
1998 when the Company traded the majority of its shallow water Gulf of
Mexico interests for the Permian Basin interests of EEX Corporation. Energen
Resources gained an estimated 58 Bcfe of oil, natural gas and liquids
reserves from EEX in exchange for 38 Bcf of proved natural gas reserves,
with interests in 30 offshore blocks and $10.4 million in cash. Energen
Resources also assumed operations for approximately 30 percent of the
properties and received EEX's interests in 40,000 net undeveloped acres in
the Permian Basin.
Subsequent to year-end, Energen Resources acquired TOTAL Minatome
Corporation (TOTAL) and, immediately upon closing, sold an undivided 31
percent interest in TOTAL's assets to Westport Oil and Gas Company, Inc.
Energen Resources' net investment totaled approximately $134.6 million,
including the assumption of certain legal and financial obligations, for
approximately 200 Bcfe of proved oil and gas reserves. Plans call for
Energen Resources to spend an estimated $70 million over the next several
years on exploitation of the approximately 45 percent of behind-pipe and
proved undeveloped reserves.
An expanding part of Energen Resources' business strategy is the
exploitation and development of acquired properties. Energen Resources has
achieved particular success in the San Juan Basin, where production
increased approximately 8 million cubic feet per day as the result of
low-cost operational improvements for an associated cost of $1.1 million. In
fiscal 1998, Energen Resources also drilled eight successful development
wells for $6.7 million and added approximately 18.5 Bcfe of reserves for 36
cents per Mcfe.
In the Permian Basin, exploitation activities are proceeding as planned.
During 1998, Energen Resources drilled four new wells and eight well
recompletions, thus developing approximately 442,000 barrels of previously
classified proved undeveloped reserves at an associated cost of $1.9
million, or approximately $4 per barrel.
Over the next four years, Energen Resources plans to drill approximately 60
development wells in the San Juan Basin and perform 125 well recompletions
at a net cost of some $48 million. In the Permian Basin, Energen
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Resources plans to drill approximately 20 wells and perform 15 recompletions
at a net cost of about $7 million.
EXPLORATION AND DEVELOPMENT: Energen Resources' business strategy also calls
for limited exploration and related development. During 1998, the property
swap with EEX Corporation (discussed above) marked an important strategic
shift for Energen Resources by refocusing the company's future exploration
efforts away from the offshore Gulf and toward onshore areas where it has a
strong operating presence. In connection with the EEX transaction, Energen
Resources also received interests in 40,000 net undeveloped acres in the
Permian Basin. Energen Resources did not participate in any offshore
exploratory drilling in fiscal 1998. As a 9 percent interest partner,
Energen Resources participated in the drilling of one unsuccessful well in
the Cotton Valley Pinnacle Reef play in the east Texas salt basin. During
1998 Energen Resources invested approximately $11 million in exploration and
related development.
RISK MANAGEMENT: Energen Resources attempts to lower the risk associated
with its oil and gas business plan. A key component of the company's efforts
to manage risk is its acquisition orientation and the conservative character
of the company's reserve base. To help reduce short-term commodity price
risk, Energen Resources uses market-driven pricing estimates and hedging
strategies. In pursuing an acquisition, Energen Resources uses in its models
then-current oil and gas futures prices, the prevailing swap curve and, for
the longer-term, its own pricing assumptions. After a purchase, Energen
Resources may use futures, swaps and/or fixed-price contracts to hedge
targeted prices on a portion of the acquisition's flowing production.
Typically, where used, such acquisition related hedges have been for 12 to
36 months. On an on-going basis, Energen Resources may hedge up to 80
percent of its flowing production in any given fiscal year depending on its
pricing outlook. For fiscal 1999, Energen Resources entered into contracts
and swaps for 48.9 Bcf of its flowing gas production at an average contract
price (before basis differentials) of $2.31 per Mcf and 1,080 MBbl of its
oil production at an average contract price of $16.31 per barrel. For fiscal
2000 and 2001, Energen Resources entered into contracts and swaps for 5.2
Bcf of its flowing gas production at an average contract price (before basis
differentials) of $2.22 per Mcf and 180 MBbl of its oil production at an
average contract price of $17.31 per barrel. (See Item 7a, Quantitative and
Qualitative Disclosures About Market Risk, and the Forward-Looking
Statements and Risk in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, for further discussion with
respect to price and other risk.)
ENVIRONMENTAL MATTERS: Energen Resources is subject to various environmental
regulations. Management believes that Energen Resources is in compliance
with currently applicable standards of the environmental agencies to which
it is subject and that potential environmental liabilities, if any, are
minimal. Also, to the extent that Energen Resources has operating agreements
with various joint venture partners, environmental costs, if any, would be
shared proportionately.
OTHER: For a discussion of risks inherent in the Company's businesses, see
Management's Discussion and Analysis in the 1998 Annual Report to
Shareholders (pages 25 and 26) which is attached herein as Part IV, Item 14,
Exhibit 13.
EMPLOYEES
The Company has 1,421 employees; Alagasco employs 1,238; Energen Resources
employs 171; and Energen's other subsidiaries employ 12.
ITEM 2. PROPERTIES
The corporate headquarters of Energen, Alagasco and Energen Resources are
located in recently constructed office space in Birmingham, Alabama. The Company
expects to close negotiations on a sale and leaseback of the new headquarters
building facility in fiscal 1999. The proceeds from the sale are expected to
approximate the investment in the facility.
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The properties of Alagasco consist primarily of its gas distribution system,
which includes more than 9,060 miles of main, more than 9,800 miles of service
lines, odorization and regulation facilities, and customer meters. Alagasco also
has two liquified natural gas facilities, eight division offices, 10 payment
centers, six district offices, nine service centers, and other related property
and equipment, some of which are leased by Alagasco. For a further description
of Alagasco's properties, see discussion under Item I-Business.
For a description of Energen Resources' oil and gas properties, see the
discussion under Item 1-Business. Information concerning Energen Resources'
production, reserves and development is included in Note 14, Oil and Gas
Producing Activities (unaudited), to the Consolidated Financial Statements which
is incorporated by reference from the 1998 Annual Report to Shareholders and
included in Part IV, Item 14, Exhibit 13, herein. The proved reserve estimates
are consistent with comparable reserve estimates filed by Energen Resources with
any federal authority or agency.
ITEM 3. LEGAL PROCEEDINGS
Energen and its affiliates are, from time to time, parties to various pending or
threatened legal proceedings. Certain of these lawsuits include claims for
punitive damages in addition to other specific relief. Based upon information
presently available and in light of available legal and other defenses,
contingent liabilities arising from threatened and pending litigation are not
considered material in relation to the respective financial positions of Energen
and its affiliates. It should be noted, however, that Energen and its affiliates
conduct business in Alabama and other jurisdictions in which the magnitude and
frequency of punitive damage awards may bear little or no relation to
culpability or actual damages thus making it increasingly difficult to predict
litigation results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
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EXECUTIVE OFFICERS OF THE REGISTRANTS
ENERGEN CORPORATION
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Name Age Position (1)
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Wm. Michael Warren, Jr. 51 Chairman of the Board
President and Chief Executive Officer (2)
Geoffrey C. Ketcham 47 Executive Vice President, Chief Financial
Officer and Treasurer (3)
Gary C. Youngblood 55 President and Chief Operating Officer of
Alagasco (4)
James T. McManus 40 President and Chief Operating Officer of
Energen Resources (5)
Dudley C. Reynolds 45 General Counsel and Secretary (6)
J. David Woodruff, Jr. 42 Vice President-Legal and Assistant Secretary
and Vice President-Corporate Development (7)
Grace B. Carr 43 Controller (8)
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NOTES: (1) All executive officers of Energen except for Ms. Carr have been
employed by Energen or a subsidiary for the past five years.
Officers serve at the pleasure of its Board of Directors.
(2) Served as Senior Vice President and General Counsel of Alagasco from
September 1983 to October 1984, when he was elected President and
Chief Operating Officer of that corporation. Elected Executive Vice
President of Energen June 1987 and elected President and Chief
Operating Officer of Energen April 1991. Elected President and Chief
Operating Officer of all Energen subsidiaries January 1992. Elected
Chief Executive Officer of Alagasco and Energen Resources effective
October 1995. Elected Chief Executive Officer of Energen February
1997. Elected Chairman of the Board of Energen effective January 1,
1998. Serves as a Director of Energen and each of its subsidiaries.
(3) Elected Controller of Alagasco November 1981, Vice President and
Controller June 1984, Vice President-Finance and Planning of
Alagasco June 1985, and Vice President-Planning of Energen August
1986. Elected Vice President-Finance, Chief Financial Officer and
Treasurer of Energen and each of its subsidiaries June 1987. Elected
Senior Vice President-Finance, Chief Financial Officer and Treasurer
of Energen and each of its subsidiaries April 1989. Elected
Executive Vice President, Chief Financial Officer and Treasurer of
Energen and each of its subsidiaries April 1991.
(4) Served as District Manager-Birmingham District until June 1985, when
he was elected Vice President-Birmingham Operations; Elected Senior
Vice President-Administration of Alagasco April 1991, Executive Vice
President of Alagasco October 1993, Chief Operating Officer of
Alagasco effective October 1995, and President of Alagasco April
1997.
(5) Served as Director of Corporate Accounting of Energen until November
1988, when he was elected Controller of Energen; Elected Controller
of Alagasco May 1989, Assistant Vice President-Corporate Development
of Energen June 1990, Vice President-Finance and Corporate
Development of Energen and Vice President-Finance and Planning of
Alagasco effective April 1991, Executive Vice President
10
<PAGE> 11
and Chief Operating Officer of Energen Resources effective October
1995, and President of Energen Resources April 1997.
(6) Served as Staff Attorney for Energen and its subsidiaries until
November 1984, when he was named Senior Attorney. Elected Assistant
Secretary in 1985 and Secretary effective September 1986, Vice
President-Legal and Secretary of Energen and each of its
subsidiaries June 1987, and General Counsel and Secretary of Energen
and each of its subsidiaries April 1991.
(7) Served as Staff Attorney for Alagasco until June 1987, when he was
named Senior Attorney. Elected Assistant Vice President-Legal and
Assistant Secretary of Energen and each of its subsidiaries November
1988, Vice President-Legal and Assistant Secretary of Energen and
each of its subsidiaries April 1991, Vice President-Legal, and
Assistant Secretary of Energen and each of its subsidiaries and Vice
President-Corporate Development of Energen October 1995.
(8) Served as Director of Accounting and Budgets for Alagasco until June
1987, when she was elected Controller of Alagasco. Served as
Controller of Alagasco until April 1989 and was not employed from
April 1989 through December 1997. Elected Controller of Energen in
January 1998.
11
<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The information regarding Energen's common stock and the frequency and amount of
dividends paid during the past two years with respect to such stock is
incorporated by reference from the 1998 Annual Report to Shareholders, page 26,
and is included in Part IV, Item 14, Exhibit 13, herein. At December 10, 1998,
there were approximately 9,140 holders of record of Energen's common stock. For
restrictions on Energen's present and future ability to pay dividends, see Note
3 to the Consolidated Financial Statements which is incorporated by reference
from the 1998 Annual Report to Shareholders and included in Part IV, Item 14,
Exhibit 13, herein.
At the date of this filing, Energen Corporation owns all the issued and
outstanding common stock of Alabama Gas Corporation.
ITEM 6. SELECTED FINANCIAL DATA
The information regarding selected financial data is incorporated by reference
from the 1998 Annual Report to Shareholders, pages 50-51, and is included in
Part IV, Item 14, Exhibit 13, herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information is incorporated by reference from the 1998 Annual Report to
Shareholders, pages 19-26, and is included in Part IV, Item 14, Exhibit 13,
herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Energen Resources' major market risk exposure is in the pricing applicable to
its oil and gas production. Historically, prices received for oil and gas
production have been volatile because of seasonal weather patterns, national
supply and demand factors and general economic conditions. Crude oil prices are
also affected by quality differentials, by worldwide political developments and
by actions of the Organization of Petroleum Exporting Countries. Basis
differentials, like the underlying commodity prices, can be volatile because of
regional supply and demand factors, including seasonal factors and the
availability and price of transportation to consuming areas.
Energen Resources enters into derivative commodity instruments to hedge its
exposure to the impact of price fluctuations on oil and gas production. Such
instruments include regulated natural gas and crude oil futures contracts traded
on the New York Mercantile Exchange and over-the-counter swaps and basis hedges
with major energy derivative product specialists. All hedge transactions are
subject to the Company's risk management policy, approved by the Board of
Directors, which does not permit speculative positions. These transactions are
accounted for under the hedge method of accounting. Under this method, any
unrealized gains and losses are recorded as a current receivable/payable and a
deferred gain/loss. Realized gains and losses are deferred as current
liabilities or assets until the revenues from the related hedged volumes are
recognized in the income statement. Cash flows from derivative instruments are
recognized as incurred through changes in working capital. The Company had
deferred gains of $0.6 million and deferred losses of $12.9 million on the
balance sheet at September 30, 1998, and September 30, 1997, respectively.
The Company uses a sensitivity analysis to evaluate the hypothetical effect that
changes in the market value of crude oil and natural gas may have on the fair
value of its derivative instruments. This analysis measures the impact on the
commodity derivative instruments and, thereby, does not consider the underlying
exposure related to the commodity. At September 30, 1998, the Company estimates
that a 10 percent change in the underlying commodities prices would result in a
$13.4 million change in the fair value of open derivative contracts. However,
gains and losses on derivative contracts are expected to be similarly offset by
sales at the spot market price. Due
12
<PAGE> 13
to the short duration of the contracts, time value of money is ignored. The
hypothetical change in fair value is calculated by multiplying the difference
between the hypothetical price and the contractual price by the contractual
volumes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item for Energen Corporation and subsidiaries
is incorporated by reference from the 1998 Annual Report to Shareholders and is
included in Part IV, Item 14, Exhibit 13, herein. The information required by
this item for Alabama Gas Corporation is contained in Part IV, Item 14, herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
13
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
Information regarding the executive officers of Energen is included in Part I.
The other information required by Item 10 is incorporated herein by reference
from Energen's definitive proxy statement for the Annual Meeting of Shareholders
to be held January 27, 1999. The proxy statement will be filed on or about
December 22, 1998.
ITEM 11. EXECUTIVE COMPENSATION
The information regarding executive compensation is incorporated herein by
reference from Energen's definitive proxy statement for the Annual Meeting of
Shareholders to be held January 27, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The information regarding the security ownership of the beneficial owners
of more than five percent of Energen's common stock is incorporated herein
by reference from Energen's definitive proxy statement for the Annual
Meeting of Shareholders to be held January 27, 1999.
B. SECURITY OWNERSHIP OF MANAGEMENT
The information regarding the security ownership of management is
incorporated herein by reference from Energen's definitive proxy statement
for the Annual Meeting of Shareholders to be held January 27, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information regarding certain relationships and related transactions is
incorporated herein by reference from Energen's definitive proxy statement for
the Annual Meeting of Shareholders to be held January 27, 1999.
14
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
A. DOCUMENTS FILED AS PART OF THIS REPORT
(1) FINANCIAL STATEMENTS
The financial statements listed in the accompanying Index to
Financial Statements and Financial Statement Schedules are filed as
part of this report and are included in Part IV, Item 14, Exhibit 13,
herein.
(2) FINANCIAL STATEMENT SCHEDULES
The financial statement schedules listed in the accompanying Index to
Financial Statements and Financial Statement Schedules are filed as
part of this report.
(3) EXHIBITS
The exhibits listed on the accompanying Index to Exhibits are filed
as part of this report.
B. REPORTS ON FORM 8-K
(1) Form 8-K dated June 24, 1998, reporting the adoption of a new
Shareholders Rights Plan to replace the existing Rights Plan when it
expired at the close of business on July 27, 1998.
(2) Form 8-K dated October 15, 1998, reporting Energen Resources'
acquisition of TOTAL Minatome Corporation.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrants have duly caused this report to be signed
on their behalf by the undersigned thereunto duly authorized.
ENERGEN CORPORATION
(Registrant)
ALABAMA GAS CORPORATION
(Registrant)
December 16, 1998 /s/Wm. Michael Warren, Jr.
- ------------------------- --------------------------------------------------
DATE Wm. Michael Warren, Jr.
Chairman, President and Chief Executive Officer of
Energen Corporation, Chairman and Chief Executive
Officer of Alabama Gas Corporation
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrants and
in the capacities and on the dates indicated:
December 16, 1998 /s/Wm. Michael Warren, Jr.
- ------------------------- --------------------------------------------------
DATE Wm. Michael Warren, Jr.
Chairman, President and Chief Executive Officer of
Energen Corporation, Chairman and Chief Executive
Officer of Alabama Gas Corporation
December 16, 1998 /s/Geoffrey C. Ketcham
- ------------------------- --------------------------------------------------
DATE Geoffrey C. Ketcham
Executive Vice President, Chief Financial Officer
and Treasurer of Energen Corporation and Alabama
Gas Corporation
December 16, 1998 /s/Grace B. Carr
- ------------------------- --------------------------------------------------
DATE Grace B. Carr
Controller of Energen Corporation
December 16, 1998 /s/Paula H. Rushing
- ------------------------- --------------------------------------------------
DATE Paula H. Rushing
Vice President-Finance of Alabama Gas
Corporation
December 16, 1998 /s/J. Mason Davis, Jr.
- ------------------------- --------------------------------------------------
DATE J. Mason Davis, Jr.
Director
December 16, 1998 /s/Julian W. Banton
- ------------------------- --------------------------------------------------
DATE Julian W. Banton
Director
December 16, 1998 /s/R. D. Cash
- ------------------------- --------------------------------------------------
DATE R. D. Cash
Director
December 16, 1998 /s/James S. M. French
- ------------------------- --------------------------------------------------
DATE James S. M. French
Director
December 16, 1998 /s/Rex J. Lysinger
- ------------------------- --------------------------------------------------
DATE Rex J Lysinger
Director
17
<PAGE> 18
ENERGEN CORPORATION
ALABAMA GAS CORPORATION
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
ITEM 14(A)
<TABLE>
<CAPTION>
Reference Page
----------------
1998
1998 Annual
10-K Report
---- ------
<S> <C> <C> <C>
1. Financial Statements
ENERGEN CORPORATION
Report of Independent Certified Public Accountants...................... 49
Consolidated Statements of Income for the years ended
September 30, 1998, 1997 and 1996....................................... 27
Consolidated Balance Sheets as of September 30, 1998 and 1997........... 28
Consolidated Statements of Shareholders' Equity for the years
ended September 30, 1998, 1997 and 1996................................. 30
Consolidated Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996....................................... 31
Notes to Consolidated Financial Statements.............................. 32
ALABAMA GAS CORPORATION
Report of Independent Certified Public Accountants...................... 22
Statements of Income for the years ended
September 30, 1998, 1997 and 1996....................................... 23
Balance Sheets as of September 30, 1998 and 1997........................ 24
Statements of Shareholder's Equity for the years ended
September 30, 1998, 1997 and 1996....................................... 26
Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996....................................... 27
Notes to Financial Statements........................................... 28
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
Reference Page
----------------
1998
1998 Annual
10-K Report
---- ------
<S> <C> <C> <C>
2. Financial Statement Schedules
ENERGEN CORPORATION
Report of Independent Certified Public Accountants...................... 37
Schedule II Valuation and Qualifying Accounts....................... 38
ALABAMA GAS CORPORATION
Schedule II Valuation and Qualifying Accounts....................... 39
</TABLE>
Schedules other than those listed above are omitted for the reason that they are
not required or are not applicable, or the required information is shown in the
financial statements or notes thereto.
19
<PAGE> 20
ENERGEN CORPORATION
ALABAMA GAS CORPORATION
INDEX TO EXHIBITS
ITEM 14(A)(3)
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
3(a) Restated Certificate of Incorporation of Energen Corporation
(composite, as amended February 2, 1998) which was filed as
Exhibit 3(b) to Energen's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1997 (File No. 1-7810)
*3(b) Articles of Amendment to Restated Certificate of Incorporation of
Energen, designating Series 1998 Junior Participating Preferred
Stock (July 27, 1998) which was filed as Exhibit 4(b) to
Energen's Post Effective Amendment No. 1 to Registration
Statement on Form S-3 (Registration No. 333-00395)
3(c) Bylaws of Energen Corporation (as amended through June 22, 1998)
*3(d) Articles of Amendment and Restatement of the Articles of
Incorporation of Alabama Gas Corporation, dated September 27,
1995, which was filed as Exhibit 3(i) to the registrant's Annual
Report on Form 10-K for the year ended September 30, 1995, (file
No. 1-7810)
3(e) By-laws of Alabama Gas Corporation (as amended through June 22,
1998)
*4(a) Rights Agreement, dated as of July 27, 1998, between Energen
Corporation and First Chicago Trust Company of New York, Rights
Agent, which was filed as Exhibit 1 to Energen's Registration
Statement on Form 8-A, dated July 10, 1998 (File No. 1-7810)
*4(b) Indenture, dated as of January 1, 1992, between Energen
Corporation and Boatmen's Trust Company, Trustee, which was filed
as Exhibit 4 to Energen's Amendment No. 1 to Registration
Statement on Form S-3 (Registration No. 33-44936)
*4(c) First Supplemental Indenture, dated as of September 5, 1997,
between Energen Corporation and The Bank of New York, Trustee, to
Indenture dated as of January 1, 1992, which was filed as Exhibit
4(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1997 (File No. 1-7810)
*4(d) Indenture, dated as of March 1, 1993, between Energen Corporation
and Boatmen's Trust Company, Trustee, which was filed as Exhibit
4 to Energen's Registration Statement on Form S-3 (Registration
No. 33-25435)
*4(e) First Supplemental Indenture, dated as of September 5 ,1997,
between Energen Corporation and The Bank of New York, Trustee, to
Indenture dated as of March 1, 1993, which was filed as Exhibit
4(b) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1997 (File No.
1-7810)
*4(f) Form of Indenture between Energen Corporation and The Bank of New
York, as Trustee, which was dated as of September 1, 1996, and
which was filed as Exhibit 4(i) to the Registrant's Registration
Statement on Form S-3 (Registration No. 333-11239)
*4(g) Indenture dated as of November 1, 1993, between Alabama Gas
Corporation and NationsBank of Georgia, National Association,
Trustee, which was filed as Exhibit 4(k) to Alabama Gas'
Registration Statement on Form S-3 (Registration No. 33-70466)
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C>
*10(a) Form of Service Agreement Under Rate Schedule CSS (No. S10710),
between Southern Natural Gas Company and Alabama Gas Corporation
which was filed as Exhibit 10(a) to Energen's Annual Report on
Form 10-K for the year ended September 30, 1993 (File No. 1-7810)
*10(b) Form of Service Agreement Under Rate Schedule FT-NN (No. 866941),
between Southern Natural Gas Company and Alabama Gas Corporation
which was filed as Exhibit 10(c) to Energen's Annual Report on
Form 10-K for the year ended September 30, 1993 (File No. 1-7810)
10(c) Form of Executive Retirement Supplement Agreement between Energen
Corporation and certain executive officers
10(d) Form of Severance Compensation Agreement between Energen
Corporation and certain executive officers
10(e) Energen Corporation 1988 Stock Option Plan (as amended November
25, 1997)
10(f) Energen Corporation 1992 long-range Performance Share Plan, as
amended April 25, 1997, which was filed as Exhibit 10(f) to
Energen's Annual Report on Form 10-K for the year ended September
30, 1997 (File 1-7810)
*10(g) Energen Corporation 1997 Stock Incentive Plan, which was filed as
Appendix A to Energen's Proxy Statement for its January 28, 1998,
Annual Meeting (File No. 1-7810)
10(h) Energen Corporation 1997 Deferred Compensation Plan, (as amended
September 23, 1998)
10(i) Energen Corporation 1992 Directors Stock Plan, (as amended April
25, 1997)
*10(j) Energen Corporation Director Fees Deferral Plan which was filed
as Exhibit 10(l) to Energen's Annual Report on Form 10-K for the
year ended September 30, 1993 (File No. 1-7810)
*10(k) Energen Corporation Annual Incentive Compensation Plan, Revised
5/90, as amended effective October 1, 1993, which was filed as
Exhibit 10(m) to Energen's Annual Report on Form 10-K for the
year ended September 30, 1994 (File No. 1-7810)
13 Information incorporated by reference from pages 19-53 of the
Energen Corporation 1998 Annual Report to Stockholders
21 Subsidiaries of Energen Corporation
23 Consent of Independent Certified Public Accountants (Energen
Corporation)
27.1 Financial Data Schedule of Energen Corporation (for SEC purposes
only)
27.2 Financial Data Schedule of Alabama Gas Corporation (for SEC
purposes only)
27.3 Restated Financial Data Schedule of Energen Corporation for
September 30, 1997 (for SEC purposes only)
27.4 Restated Financial Data Schedule of Energen Corporation for
September 30,1996 (for SEC purposes only)
</TABLE>
*Incorporated by reference
21
<PAGE> 22
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF ALABAMA GAS CORPORATION:
In our opinion, the accompanying financial statements of Alabama Gas Corporation
listed in the index on page 18 of this form 10-K present fairly, in all material
respects, the financial position of Alabama Gas Corporation at September 30,
1998 and 1997, and the results of its operations and cash flows for each of the
three years in the period ended September 30, 1998, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule listed in the index on page 19 of this form 10-K presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and the financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Birmingham, Alabama
October 28, 1998
22
<PAGE> 23
STATEMENTS OF INCOME
ALABAMA GAS CORPORATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES $ 369,940 $ 362,984 $ 357,252
- ---------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of gas 176,124 177,837 181,400
Operations and maintenance 98,897 96,211 92,541
Depreciation 25,153 23,486 21,269
Income taxes
Current 16,801 11,223 8,699
Deferred, net (4,932) (618) 835
Deferred investment tax credits, net (469) (487) (487)
Taxes, other than income taxes 28,103 26,658 26,772
- ---------------------------------------------------------------------------------------------------------------
Total operating expenses 339,677 334,310 331,029
- ---------------------------------------------------------------------------------------------------------------
OPERATING INCOME 30,263 28,674 26,223
- ---------------------------------------------------------------------------------------------------------------
OTHER INCOME
Allowance for funds used during construction 400 490 972
Other, net 145 215 (649)
- ---------------------------------------------------------------------------------------------------------------
Total other income 545 705 323
- ---------------------------------------------------------------------------------------------------------------
INTEREST CHARGES
Interest on long-term debt 8,843 8,843 7,390
Other interest expense 1,378 1,966 2,195
- ---------------------------------------------------------------------------------------------------------------
Total interest charges 10,221 10,809 9,585
- ---------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE FOR COMMON $ 20,587 $ 18,570 $ 16,961
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
23
<PAGE> 24
BALANCE SHEETS
ALABAMA GAS CORPORATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
AS OF SEPTEMBER 30, (IN THOUSANDS) 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Utility plant $ 632,165 $ 583,630
Less accumulated depreciation 307,488 287,749
- ---------------------------------------------------------------------------------------------------------------
Utility plant, net 324,677 295,881
- ---------------------------------------------------------------------------------------------------------------
Other property, net 318 347
- ---------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash 1,222 2,580
Accounts receivable
Gas 32,191 36,098
Merchandise 2,362 2,001
Other 1,621 1,442
Allowance for doubtful accounts (3,482) (3,156)
Inventories, at average cost
Storage gas inventory 21,237 25,367
Materials and supplies 5,533 5,391
Liquified natural gas in storage 3,381 3,630
Deferred gas costs 1,774 2,512
Deferred income taxes 10,470 5,675
Prepayments and other 2,112 6,696
- ---------------------------------------------------------------------------------------------------------------
Total current assets 78,421 88,236
- ---------------------------------------------------------------------------------------------------------------
DEFERRED CHARGES AND OTHER ASSETS 4,733 5,917
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 408,149 $ 390,381
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
24
<PAGE> 25
BALANCE SHEETS
ALABAMA GAS CORPORATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
AS OF SEPTEMBER 30, (IN THOUSANDS) 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL AND LIABILITIES
CAPITALIZATION
Common shareholder's equity
Common stock, $0.01 par value; 3,000,000 shares authorized,
1,972,052 shares outstanding in 1998 and 1997 $ 20 $ 20
Premium on capital stock 31,682 31,682
Capital surplus 2,802 2,802
Retained earnings 120,205 106,894
- ---------------------------------------------------------------------------------------------------------------
Total common shareholder's equity 154,709 141,398
Long-term debt 119,650 125,000
- ---------------------------------------------------------------------------------------------------------------
Total capitalization 274,359 266,398
- ---------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Long-term debt due within one year 5,350 --
Notes payable to banks 15,000 11,000
Accounts payable
Trade 23,217 28,923
Affiliated companies 2,738 4,984
Accrued taxes 19,428 16,745
Customers' deposits 16,344 16,399
Other amounts due customers 12,070 7,347
Accrued wages and benefits 4,217 3,879
Other 11,915 10,481
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 110,279 99,758
- ---------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 17,136 16,739
Accumulated deferred investment tax credits 2,661 3,130
Regulatory liability 2,910 3,651
Customer advances for construction and other 804 705
- ---------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 23,511 24,225
- ---------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND LIABILITIES $ 408,149 $ 390,381
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
25
<PAGE> 26
STATEMENTS OF SHAREHOLDER'S EQUITY
ALABAMA GAS CORPORATION
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- -----------------------------------------------------------------------------------------------------------------
COMMON STOCK
------------
NUMBER OF PAR PREMIUM ON CAPITAL RETAINED
SHARES VALUE CAPITAL STOCK SURPLUS EARNINGS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995 1,972,052 $20 $ 31,682 $2,802 $ 87,638
Net income 16,961
Cash dividends (9,555)
- -----------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 1,972,052 20 31,682 2,802 95,044
Net income 18,570
Cash dividends (6,720)
- -----------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 1,972,052 20 31,682 2,802 106,894
Net income 20,587
Cash dividends (7,276)
- -----------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 1,972,052 $20 $ 31,682 $2,802 $120,205
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
26
<PAGE> 27
STATEMENTS OF CASH FLOWS
ALABAMA GAS CORPORATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 20,587 $ 18,570 $ 16,961
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 25,153 23,486 21,269
Deferred income taxes, net (4,932) (618) 835
Deferred investment tax credits (469) (487) (487)
Net change in:
Accounts receivable 3,693 (7,686) (5,539)
Inventories 4,237 2,071 (6,784)
Deferred gas costs 738 (537) (549)
Accounts payable - gas purchase (7,466) 5,758 (1,614)
Accounts payable - other trade 1,760 (593) (788)
Amount due customers 4,723 (9,810) 13,942
Other current assets and liabilities 9,129 (5,202) (1,894)
Other, net 530 1,124 (1,019)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 57,683 26,076 34,333
- ---------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment (53,581) (43,724) (42,037)
Net advances (to) from parent company (2,246) 14,054 (8,871)
Other, net 62 1,091 1,377
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (55,765) (28,579) (49,531)
- ---------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of dividends on common stock (7,276) (6,720) (9,555)
Proceeds from medium-term notes - - 24,829
Net change in short-term debt 4,000 11,000 -
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (3,276) 4,280 15,274
- ---------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (1,358) 1,777 76
Cash and cash equivalents at beginning of period 2,580 803 727
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,222 $ 2,580 $ 803
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Financial Statements are an integral part of these
statements.
27
<PAGE> 28
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Alabama Gas Corporation (Alagasco), a wholly-owned subsidiary of Energen
Corporation (the Company), is the largest natural gas distribution utility in
the State of Alabama, serving customers primarily in central and parts of north
Alabama. The following is a description of its significant accounting policies
and practices.
A. UTILITY PLANT AND DEPRECIATION: Property, plant and equipment is stated at
cost. The cost of utility plant includes an allowance for funds used during
construction. Maintenance is charged for the cost of normal repairs and the
renewal or replacement of an item of property which is less than a
retirement unit. When property which represents a retirement unit is
replaced or removed, the cost of such property is credited to utility plant
and, together with the cost of removal less salvage, is charged to the
accumulated reserve for depreciation. Depreciation is provided on the
straight-line method over the estimated useful lives of utility property at
rates established by the Alabama Public Service Commission (APSC). Approved
depreciation rates averaged approximately 4.4 percent in 1998 and 1997 and
4.3 percent in 1996.
B. INVENTORIES: Inventories, which consist primarily of gas stored
underground, are stated at average cost.
C. OPERATING REVENUE AND GAS COSTS: In accordance with industry practice,
Alagasco records natural gas distribution revenues on a monthly- and
cycle-billing basis. The commodity cost of purchased gas applicable to gas
delivered to customers but not yet billed under the cycle-billing method is
deferred as a current asset.
D. REGULATORY ACCOUNTING: Alagasco is subject to the provisions of Statement
of Financial Accounting Standard (SFAS) No. 71, Accounting for the Effects
of Certain Types of Regulation. In general, SFAS No. 71 allows utilities to
capitalize or defer certain costs or revenues, based upon approvals
received from regulatory authorities, to be recovered from or refunded to
customers in future periods.
E. INCOME TAXES: Alagasco files a consolidated federal income tax return with
its parent. The consolidated federal income taxes are allocated to the
appropriate subsidiaries using the separate return method. Deferred income
taxes reflect the impact of temporary differences between the tax basis of
assets and liabilities and their carrying amounts for financial reporting
purposes and are measured in compliance with enacted tax laws. Investment
tax credits have been deferred and are being amortized over the lives of
the related assets.
F. CASH EQUIVALENTS: Alagasco includes highly liquid marketable securities and
debt instruments purchased with a maturity of three months or less in cash
equivalents.
G. ESTIMATES: The preparation of 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 at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
2. REGULATORY MATTERS
As an Alabama utility, Alagasco is subject to regulation by the APSC which, in
1983, established the Rate Stabilization and Equalization (RSE) rate-setting
process. RSE was extended with modifications in 1985, 1987 and 1990. On October
7, 1996, RSE was extended, without change, for a five-year period through
January 1, 2002. Under the terms of that extension, RSE will continue after
January 1, 2002, unless, after notice to the Company and a hearing, the
Commission votes to either modify or discontinue its operation.
Under RSE as extended, the APSC conducts quarterly reviews to determine, based
on Alagasco's projections and fiscal year-to-date performance, whether
Alagasco's return on equity for the fiscal year will be within the allowed range
of 13.15 percent to 13.65 percent. Reductions in rates can be made quarterly to
bring the projected return within the allowed range; increases, however, are
allowed only once each fiscal year, effective December 1, and
28
<PAGE> 29
cannot exceed 4 percent of prior-year revenues. RSE limits the utility's equity
upon which a return is permitted to 60 percent of total capitalization and
provides for certain cost control measures designed to monitor Alagasco's
operations and maintenance (O&M) expense. If the change in O&M expense per
customer falls within 1.25 percentage points above or below the Consumer Price
Index For All Urban Customers (index range), no adjustment is required. If,
however, the change in O&M expense per customer exceeds the index range,
three-quarters of the difference is returned to customers. To the extent the
change is less than the index range, the utility benefits by one-half of the
difference through future rate adjustments. Under RSE as extended, an $11.8
million annual increase in revenue became effective December 1, 1997, and a $2.5
million annual decrease became effective July 1, 1998.
Alagasco calculates a temperature adjustment to customers' monthly bills to
remove the effect of departures from normal temperature on Alagasco's earnings.
The calculation is performed monthly, and the adjustments to customers' bills
are made in the same billing cycle the weather variation occurs. Substantially
all the customers to whom the temperature adjustment applies are residential,
small commercial and small industrial. Alagasco's rate schedules for natural gas
distribution charges contain a Gas Supply Adjustment (GSA) rider, established in
1993, which permits the pass-through to customers of changes in the cost of gas
supply, including Gas Supply Realignment (GSR) surcharges imposed by Alagasco's
suppliers resulting from changes in gas supply purchases related to the
implementation of Federal Energy Regulatory Commission (FERC) Order 636. The
APSC on October 7, 1996, issued an order providing for the refund to customers
prior to January 31, 1997 of approximately $17 million of supplier refunds,
including interest. The Company refunded these amounts to customers during
January 1997. The refunds were collected from a variety of sources and most
relate to the settlement of rate case and FERC Order 636 proceedings of Southern
Natural Gas Company.
The APSC approved an Enhanced Stability Reserve (ESR), beginning fiscal year
1998, to which Alagasco may charge the full amount of: (1) extraordinary O&M
expenses resulting from force majeure events such as storms, severe weather, and
outages, when one or a combination of two such events results in more than
$200,000 of additional O&M expense during a fiscal year; or (2) individual
industrial and commercial customer revenue losses that exceed $250,000 during
the fiscal year if such losses cause Alagasco's return on equity to fall below
13.15 percent. The APSC approved the reserve on October 6, 1998, in the amount
of $3.9 million; the maximum approved funding level of the ESR is $4 million.
The APSC provides for accretions to the ESR in an amount of no more than $40,000
monthly following a year in which a charge against the ESR is made until the
maximum funding level is achieved. The APSC will re-evaluate the operation of
the ESR following the conclusion of Alagasco's fiscal year 2000.
In accordance with APSC-directed regulatory accounting procedures, Alagasco in
1989 began returning to customers excess utility deferred taxes which resulted
from a reduction in the federal statutory tax rate from 46 percent to 34 percent
using the average rate assumption method. This method provides for the return to
ratepayers of excess deferred taxes over the lives of the related assets. In
1993 those excess taxes were reduced as a result of a federal tax rate increase
from 34 percent to 35 percent. Remaining excess utility deferred taxes of $1.9
million are being returned to ratepayers over approximately 12 years. At
September 30, 1998 and 1997, a regulatory liability related to income taxes of
$2.9 million and $3.7 million, respectively, was included in the consolidated
financial statements.
As of November 1, 1998, the Company offered a Voluntary Early Retirement Program
to certain eligible employees. The APSC has allowed the Company to amortize over
a three-year period the cost associated with this early retirement program.
The excess of total acquisition costs over book value of net assets of acquired
municipal gas distribution systems is included in utility plant and is being
amortized on a straight-line basis over approximately 23 years. At September 30,
1998 and 1997, the net acquisition adjustment was $15.4 million and $16.4
million, respectively.
29
<PAGE> 30
3. LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt consists of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
As of September 30, (in thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Medium-term Notes, interest ranging from 5.4% to 7.97%, for notes
redeemable December 1, 1998, to September 23, 2026 $ 125,000 $ 125,000
Less amounts due within one year 5,350 --
- ---------------------------------------------------------------------------------------------------------------
Total $ 119,650 $ 125,000
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate maturities of long-term debt for the next five years are as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Years ending September 30, (in thousands)
- ---------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,350 $ - $ 4,650 $ 5,000 $ 5,000
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Energen and Alagasco have short-term credit lines and other credit facilities of
$228 million available as of September 30, 1998 to either entity for working
capital needs. The following is a summary of information relating to notes
payable to banks:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
As of September 30, (in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Alagasco outstanding $ 15,000 $ 11,000 $ --
Other Energen outstanding 138,000 141,000 59,000
- ---------------------------------------------------------------------------------------
Notes payable to banks 153,000 152,000 59,000
Available for borrowings 75,000 51,000 97,000
- ---------------------------------------------------------------------------------------
Total $228,000 $203,000 $156,000
- ---------------------------------------------------------------------------------------
Maximum amount outstanding at any month-end $ 36,000 $ 41,000 $ 22,000
Average daily amount outstanding $ 13,225 $ 9,962 $ 6,672
Weighted average interest rates based on:
Average daily amount outstanding 5.94% 5.83% 5.73%
Amount outstanding at year-end 5.75% 5.99% --
- ---------------------------------------------------------------------------------------
</TABLE>
Total interest expense for Alagasco in 1998, 1997 and 1996 was $10,221,000,
$10,809,000 and $9,585,000, respectively.
4. INCOME TAXES
The components of income taxes consist of the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
For the years ended September 30, (in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes estimated to be payable currently:
Federal $ 15,306 $ 10,219 $7,924
State 1,495 1,004 775
- ------------------------------------------------------------------------------------------
Total current 16,801 11,223 8,699
- ------------------------------------------------------------------------------------------
Taxes deferred:
Federal (4,962) (1,050) 274
State (439) (55) 74
- ------------------------------------------------------------------------------------------
Total deferred (5,401) (1,105) 348
- ------------------------------------------------------------------------------------------
Total income tax expense $ 11,400 $ 10,118 $9,047
- ------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 31
Temporary differences and carryforwards which give rise to a significant portion
of deferred tax assets and liabilities for 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
As of September 30, (in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------
Current Noncurrent Current Noncurrent
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Deferred investment tax credits $ -- $ 850 $ -- $ 1,024
Regulatory liabilities -- 1,081 -- 1,356
Enhanced stability reserve 1,452 -- -- --
Unbilled revenue 1,770 -- 1,699 --
Gas supply adjustment 768 -- -- --
Insurance and accruals 3,320 -- 2,854 --
Inventories 574 -- 520 --
Allowance for uncollectible accounts 1,293 -- 1,173 --
Other, net 1,586 61 1,267 156
- -----------------------------------------------------------------------------------------------
Subtotal 10,763 1,992 7,513 2,536
Valuation allowance -- -- -- --
- -----------------------------------------------------------------------------------------------
Total deferred tax assets 10,763 1,992 7,513 2,536
- -----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and basis differences -- 18,170 -- 18,349
Gas supply adjustment -- -- 1,308 --
Other, net 293 958 530 926
- -----------------------------------------------------------------------------------------------
Total deferred tax liabilities 293 19,128 1,838 19,275
- -----------------------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $10,470 $(17,136) $5,675 $(16,739)
- -----------------------------------------------------------------------------------------------
</TABLE>
No valuation allowance with respect to deferred taxes is deemed necessary, as
Alagasco anticipates generating adequate future taxable income to realize the
benefits of all deferred tax assets on Alagasco's balance sheet.
Total income tax expense differs from the amount which would be provided by
applying the statutory federal income tax rate to earnings before taxes as
illustrated below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
For the years ended September 30, (in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense at statutory federal income tax rate $ 11,195 $ 10,042 $ 9,103
Increase (decrease) resulting from:
Investment tax credits-deferred (469) (487) (487)
State income taxes, net of federal income tax benefit 688 617 559
Other, net (14) (54) (128)
- --------------------------------------------------------------------------------------------------
Total income tax expense $ 11,400 $ 10,118 $ 9,047
- --------------------------------------------------------------------------------------------------
</TABLE>
There were no tax-related balances due to affiliates at September 30, 1998 or
1997.
5. EMPLOYEE BENEFIT PLANS
All information presented concerning retirement income and other benefit plans
includes other affiliates of Energen Corporation as well as Alagasco.
The Company has two defined benefit non-contributory pension plans which cover a
majority of the employees. Benefits are based on years of service and final
earnings. The Company's policy is to use "the projected unit credit" actuarial
method for funding and financial reporting purposes. The expense for the plan
covering the majority of employees (Plan A) for the years ended September 30,
1998, 1997 and 1996 was $1,716,000, $1,228,000, and $412,000, respectively. The
expense for the plan covering employees under certain labor union agreements
(Plan B) for 1998, 1997 and 1996 was $403,000, $437,000, and $197,000,
respectively.
31
<PAGE> 32
The funded status of the plans is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
As of June 30, (in thousands) PLAN A PLAN B
- ----------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Vested benefits $(67,476) $(57,617) $(16,467) $(14,610)
Nonvested benefits (5,268) (4,739) (2,431) (2,256)
- ----------------------------------------------------------------------------------------------------------
Accumulated benefit obligation (72,744) (62,356) (18,898) (16,866)
Effects of salary progression (15,537) (11,402) -- --
- ----------------------------------------------------------------------------------------------------------
Projected benefit obligation (88,281) (73,758) (18,898) (16,866)
Fair value of plan assets, primarily equity and
fixed income securities 90,661 84,859 23,081 20,820
Unrecognized net (gain) loss (2,773) (6,477) (2,944) (2,747)
Unrecognized prior service cost 3,025 29 791 998
Unrecognized net transition obligation (asset) (2,686) (3,494) 226 282
- ----------------------------------------------------------------------------------------------------------
Accrued pension asset (liability) $ (54) $ 1,159 $ 2,256 $ 2,487
- ----------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1998 and 1997, the discount rate used to measure the projected
benefit obligation for both plans was 7 percent and 7.75 percent, respectively,
and the expected long-term rate of return on plan assets was 8.25 percent. The
annual rate of salary increase for the salaried plan was 5.25 percent in 1998
and 5.75 percent in 1997.
The components of net pension expense for 1998, 1997 and 1996 were:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
For the years ended September 30, (in thousands) PLAN A PLAN B
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service Cost $ 2,386 $ 2,227 $ 2,147 $ 224 $ 243 $ 255
Interest cost on projected benefit obligation 5,842 5,524 4,617 1,261 1,238 1,166
Actual return on plan assets (9,516) (12,629) (15,280) (3,450) (3,803) (2,971)
Net amortization and deferral 3,004 6,106 8,928 2,368 2,759 1,747
- ----------------------------------------------------------------------------------------------------------------------------------
Net pension expense $ 1,716 $ 1,228 $ 412 $ 403 $ 437 $ 197
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has deferred compensation plan agreements with certain key
executives providing for payments on retirement, termination, death or
disability. Expense under these agreements for 1998, 1997 and 1996 was
($54,000), $399,000, and $1,002,000, respectively. At June 30, 1998 and 1997,
the accumulated post-retirement benefit obligation related to these agreements
was $2,901,000 and $5,961,000, respectively, and the projected benefit
obligation was $7,088,000 and $9,839,000, respectively. A prepaid
post-retirement benefit asset of $434,000 and $499,000 was recorded at June 30,
1998 and 1997, respectively.
In addition to providing pension benefits, the Company provides certain
post-retirement health care and life insurance benefits. Substantially all of
the Company's employees may become eligible for such benefits if they reach
normal retirement age while working for the Company. While the Company has not
adopted a formal funding policy, all of its accrued post-retirement liability
was funded at year-end. The expense for salaried employees for the years ended
September 30, 1998, 1997, and 1996 was $2,040,000, $2,221,000, and $1,984,000,
respectively. The expense for union employees was $4,367,000, $4,204,000, and
$4,076,000 during 1998, 1997 and 1996, respectively. The "projected unit credit"
actuarial method was used to determine the normal cost and actuarial liability.
32
<PAGE> 33
A reconciliation of the estimated status of the obligation is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
As of June 30, (in thousands) SALARIED EMPLOYEES UNION EMPLOYEES
- ------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
------------------------- ---------------------------
<S> <C> <C> <C> <C>
Retirees $ (13,916) $ (9,590) $ (15,162) $ (14,529)
Active, fully-eligible (3,107) (2,121) (4,957) (4,340)
Other active (12,289) (8,309) (17,632) (14,151)
- ------------------------------------------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation (29,312) (20,020) (37,751) (33,020)
Fair value of plan assets, primarily equity and
fixed income securities 30,476 23,719 23,081 13,363
Unamortized amounts (1,561) (4,686) 13,558 17,405
- ------------------------------------------------------------------------------------------------------------------
Accrued post-retirement benefit liability $ (397) $ (987) $ (1,112) $ (2,252)
==================================================================================================================
</TABLE>
Net periodic post-retirement benefit expense for the years ended September 30,
1998, 1997, and 1996 included the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
For the years ended September 30, (in thousands) SALARIED EMPLOYEES UNION EMPLOYEES
- ---------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 967 $ 979 $ 516 $ 1,314 $ 1,198 $ 876
Interest cost on accumulated post-retirement
benefit obligation 2,049 2,204 1,679 2,612 2,542 2,195
Amortization of transition obligation 723 723 723 1,285 1,285 1,285
Amortization of actuarial gains and losses (510) (568) (277) (107) - -
Deferred asset gain (loss) 4,972 3,682 658 5,891 2,006 177
(Gain) or loss on plan assets (6,161) (4,799) (1,315) (6,628) (2,827) (457)
=====================================================================================================================
Net periodic post-retirement benefit expense $ 2,040 $ 2,221 $ 1,984 $ 4,367 $ 4,204 $ 4,076
=====================================================================================================================
</TABLE>
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 7 percent in 1998 and 7.75 percent in
1997. The expected long-term rate of return on assets is 8.25 percent for both
years, and the tax rate on investment income is assumed to be 40 percent. The
weighted average health care cost trend rate used in determining the accumulated
post-retirement benefit obligation was 7.5 percent and 8.25 percent in 1998 and
1997, respectively. That assumption has a significant effect on the amounts
reported. For example, with respect to salaried employees, increasing the
weighted average health care cost trend rate by 1 percent would increase the
accumulated post-retirement benefit obligation by 2.7 percent and the net
periodic post-retirement benefit cost by 2.4 percent. For union employees,
increasing the weighted average health care cost trend rate by 1 percent would
increase the accumulated post-retirement benefit obligation by 7.3 percent and
the net periodic post-retirement benefit cost by 7.1 percent. For pay-related
life insurance benefits, the salary scale averages 5.25 percent and 5.75 percent
in 1998 and 1997, respectively.
For both defined benefit plans and other post-retirement plans, certain
financial assumptions are used in determining the Company's projected benefit
obligation. These assumptions are examined periodically by the Company, and any
required changes are reflected in the subsequent determination of projected
benefit obligations.
The Company has a long-term disability plan covering most salaried employees.
Expense for the years ended September 30, 1998, 1997, and 1996 was $173,000,
$163,000, and $370,000, respectively.
6. CAPITAL STOCK
Alagasco's authorized common stock consists of 3 million, $0.01 par value common
shares. At September 30, 1998 and 1997, 1,972,052 shares were issued and
outstanding. Alagasco is authorized to issue 120,000 shares of preferred stock
par value $0.01 per share, in one or more series. There are no preferred shares
currently outstanding.
33
<PAGE> 34
7. COMMITMENTS AND CONTINGENCIES
CONTRACTS AND AGREEMENTS: Alagasco has various firm gas supply and firm gas
transportation contracts which expire at various dates through the year 2008.
These contracts typically contain minimum demand charge obligations on the part
of Alagasco.
ENVIRONMENTAL MATTERS: Alagasco is in the chain of title of eight former
manufactured gas plant sites, of which it still owns four, and five manufactured
gas distribution sites, of which it still owns one. A preliminary investigation
of the sites does not indicate the present need for remediation activities.
Management expects that, should remediation of any such sites be required in the
future, Alagasco's share, if any, of such costs will not affect materially the
results of operations or financial condition of Alagasco.
LEGAL MATTERS: Alagasco is, from time to time, party to various pending or
threatened legal proceedings. Certain of these lawsuits include claims for
punitive damages in addition to other specified relief. Based upon information
presently available, and in light of available legal and other defenses,
contingent liabilities arising from threatened and pending litigation are not
considered material in relation to the financial position of Alagasco. It should
be noted, however, that Alagasco conducts business in Alabama and other
jurisdictions in which the magnitude and frequency of punitive damage awards
bear little or no relation to culpability or actual damages thus making it
increasingly difficult to predict litigation results. Various legal proceedings
arising in the normal course of business are currently in progress, and Alagasco
has accrued a provision for estimated costs.
LEASE OBLIGATIONS: Total payments related to leases included as operating
expense were $2,292,000, $2,280,000 and $2,146,000 in 1998, 1997 and 1996,
respectively. Minimum future rental payments (in thousands) required after 1998
under leases with initial or remaining noncancelable lease terms in excess of
one year are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 AND THEREAFTER
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2,538 $ 2,252 $ 2,193 $ 2,149 $ 2,133 $ 4,223
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
The Company expects to close negotiations on a sale and leaseback of the new
building headquarters in fiscal 1999. Accordingly, anticipated rentals payments
under that lease are included in the preceding table.
8. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental information concerning cash flow activities is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
For the years ended September 30, (in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid, net of amount capitalized $ 11,256 $ 10,192 $ 9,216
Income taxes paid $ 16,253 $ 13,228 $ 5,932
Noncash investing activities:
Capitalized depreciation $ 187 $ 168 $ 166
Allowance for funds used during construction $ 400 $ 490 $ 972
Noncash financing activities (debt issuance costs) $ - $ -- $ 171
- -------------------------------------------------------------------------------------------------------------
</TABLE>
9. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
FINANCIAL INSTRUMENTS: The fair value of cash and cash equivalents, trade
receivables (net of allowance), and short-term debt approximates fair value due
to the short maturity of the instruments. The fair value of fixed-rate long-term
debt, including the current portion, with a carrying value of $125,000,000,
would be $130,003,000 at September 30, 1998. The fair value was based on the
market value of debt with similar maturities and with interest rates currently
trading in the marketplace.
Alagasco has entered into an agreement with a financial institution whereby it
can sell on an ongoing basis, with recourse, certain installment receivables
related to its merchandising program up to a maximum of $20 million.
34
<PAGE> 35
During 1998, 1997 and 1996, Alagasco sold $8,100,000, $7,926,000 and $8,831,000,
respectively, of installment receivables. At September 30, 1998 and 1997, the
balance of these installment receivables was $17,105,000 and $17,160,000,
respectively. Receivables sold under this agreement are considered financial
instruments with off-balance sheet risk. Alagasco's exposure to credit loss in
the event of non-performance by customers is represented by the balance of
installment receivables.
CONCENTRATION OF CREDIT RISK: Natural gas distribution operating revenues and
related accounts receivable are generated from state-regulated utility natural
gas sales and transportation to more than 468,000 residential, commercial and
industrial customers located in central and north Alabama. A change in economic
conditions may affect the ability of customers to meet their obligations;
however, Alagasco believes that its provision for possible losses on
uncollectible accounts receivable is adequate for its credit loss exposure.
10. RECENT PRONOUNCEMENTS OF THE FASB
In fiscal 1998, the Company adopted SFAS No. 128, Earnings Per Share (EPS),
which specifies computation, presentation, and disclosure requirements for EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS on the face of
the income statement and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to that of the diluted computation.
The Company also adopted during fiscal 1998, SFAS No. 129, Disclosures of
Information about Capital Structure. It contains no change in disclosure
requirements for public entities that were previously subject to the
requirements of Accounting Principles Board No. 10 and No. 15 and SFAS No. 47.
As a result, SFAS 129 had no impact on the Company's consolidated financial
statements.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which specifies revised guidelines for determining an entity's
operating segments and the type and level of financial information to be
required, was issued in June 1997. SFAS No. 131 relates solely to disclosure
provisions, and therefore does not have any effect on the results of operations
or financial position of the Company. The Company has chosen to early adopt this
pronouncement as of September 30, 1998.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which requires the reporting and display of comprehensive income and its
components in an entity's financial statements. There are currently no
differences between the Company's net income and comprehensive income. In
February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which revises employers' disclosures
about pension and other postretirement benefit plans. This pronouncement relates
solely to disclosure provisions, and therefore will have no effect on the
results of operations or financial position of the Company. The Company is
required to adopt these statements in fiscal year 1999.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments. The Company is required to adopt this
statement in fiscal year 2000. The impact of this pronouncement on the Company
is currently being evaluated.
35
<PAGE> 36
11. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following data summarize quarterly operating results. Alagasco's business is
seasonal in character and strongly influenced by weather conditions.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Fiscal year 1998 quarters (in thousands) First Second Third Fourth
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 95,755 $ 161,747 $ 66,327 $ 46,111
Operating income (loss) $ 4,798 $ 26,393 $ 1,631 $ (2,559)
Net income (loss) available for common $ 2,183 $ 23,946 $ (586) $ (4,956)
- -------------------------------------------------------------------------------------------------------------
Fiscal year 1997 quarters (in thousands)
- -------------------------------------------------------------------------------------------------------------
Operating revenues $ 83,305 $ 160,152 $ 70,147 $ 49,380
Operating income (loss) $ 4,055 $ 22,963 $ 4,282 $ (2,626)
Net income (loss) available for common $ 1,807 $ 20,163 $ 1,701 $ (5,101)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
12. TRANSACTIONS WITH RELATED PARTIES
Alagasco purchased natural gas from affiliates amounting to $4,142,000,
$5,165,000 and $5,097,000, in 1998, 1997 and 1996, respectively. These amounts
are included in gas purchased for resale. Alagasco had net payables to
affiliates of $2,738,000 and $4,984,000 at September 30, 1998 and 1997,
respectively.
36
<PAGE> 37
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS OF ENERGEN CORPORATION:
Our report on the consolidated financial statements of Energen Corporation and
subsidiaries has been incorporated by reference in this Form 10-K from page 49
of the 1998 Annual Report to Stockholders of Energen Corporation and
subsidiaries. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in the index
on page 19 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects the information required to be included
therein.
PricewaterhouseCoopers LLP
Birmingham, Alabama
October 28, 1998
37
<PAGE> 38
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ENERGEN CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
========================================================================================================
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1998 1997 1996
========================================================================================================
<S> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
BALANCE AT BEGINNING OF YEAR $ 3,185 $ 3,002 $ 2,533
- --------------------------------------------------------------------------------------------------------
Additions:
Charged to income 3,472 1,837 2,361
Recoveries and adjustments (215) (186) (187)
- --------------------------------------------------------------------------------------------------------
Net additions 3,257 1,651 2,174
- --------------------------------------------------------------------------------------------------------
Less uncollectible accounts written off (2,895) (1,468) (1,705)
- --------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 3,547 $ 3,185 $ 3,002
========================================================================================================
</TABLE>
38
<PAGE> 39
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALABAMA GAS CORPORATION
<TABLE>
<CAPTION>
========================================================================================================
YEARS ENDED SEPTEMBER 30, (IN THOUSANDS) 1998 1997 1996
========================================================================================================
<S> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
BALANCE AT BEGINNING OF YEAR $ 3,156 $ 2,985 $ 2,000
- --------------------------------------------------------------------------------------------------------
Additions:
Charged to income 3,430 1,575 2,349
Recoveries and adjustments (215) (186) (187)
- --------------------------------------------------------------------------------------------------------
Net additions 3,215 1,389 2,162
- --------------------------------------------------------------------------------------------------------
Less uncollectible accounts written off (2,889) (1,218) (1,177)
- --------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 3,482 $ 3,156 $ 2,985
========================================================================================================
</TABLE>
<PAGE> 1
Exhibit 3(a)
RESTATED CERTIFICATE OF INCORPORATION
OF
ENERGEN CORPORATION
[COMPOSITE, AS AMENDED THROUGH FEBRUARY 2, 1998]
STATE OF ALABAMA )
)
COUNTY OF JEFFERSON )
TO THE HONORABLE JUDGE OF PROBATE, JEFFERSON COUNTY, ALABAMA:
Pursuant to the provisions of Article 10 of Chapter 2B of Title 10 of the
Code of Alabama of 1975 (ss.10-2A-110, et seq.), the undersigned corporation
executes the following Restated Certificate of Incorporation:
I. NAME OF CORPORATION:
1.01 The name of the corporation shall be Energen Corporation.
II. OBJECTS:
2.01 To manufacture, produce, buy, deal in, use, sell, distribute,
furnish and supply gas; to construct, equip, use, operate and maintain works for
holding, receiving, purifying and distributing gas, and all buildings, works,
meters, pipes, fittings, machinery, apparatus and appliances convenient or
necessary in connection therewith.
1
<PAGE> 2
2.02 To carry on the business of a gas company in all its branches; to
manufacture, use, deal in, render salable and sell all products, by-products and
residual products obtained in the production of gas; to manufacture, buy, sell,
rent and deal in all kinds of goods, wares, merchandise and personal property
which may seem calculated directly or indirectly to promote the consumption of
gas.
2.03 To manufacture, produce, buy, deal in, use, sell, distribute,
furnish and supply petroleum, petroleum products and by-products; to construct,
equip, use, operate and maintain works for holding, receiving, purifying and
distributing petroleum, petroleum products and by-products, and all buildings,
works, meters, pipes, fittings, machinery, apparatus and appliances convenient
or necessary in connection therewith.
2.04 To acquire, buy, hold, own, sell, lease, exchange, dispose of,
finance, deal in, construct, build, equip, improve, use, operate, maintain and
work upon any and all kinds of works, plants, stations, systems, machinery,
generators, apparatus, devices, supplies and articles of every kind pertaining
to or in anywise connected with the production, use, distribution, regulation,
control or application of light, heat, refrigeration, ice, water, water-power,
electricity, gas, and any other force.
2.05 To acquire, buy, hold, own, sell, lease, exchange, dispose of,
distribute, deal in, use, produce, furnish and supply light, heat,
refrigeration, ice, water, water-power, electricity, and any other power or
force.
2.06 To acquire, buy, hold, own, sell, lease, exchange and dispose of
lands or the gas, oil and mineral rights in lands; to develop such lands by
drilling gas and oil wells thereon; to produce therefrom gas, oil or other
volatile or mineral substances; to produce, deal in, use, distribute, furnish
and sell such gas or oil or other volatile or mineral substances; to install,
construct, build, equip, improve, use, operate and maintain any and all manner
of plants, machinery and appliances for any and all such purposes and the
marketing and selling of such products.
2
<PAGE> 3
2.07 To carry on the business of aiding in the construction and
operations of plants and works, including those of gas companies, electric
companies, and other public utility companies, and for or in connection with any
or all of the foregoing purposes to furnish services and advice of engineers,
auditors, executives and other experts.
2.08 To acquire, organize, assemble, develop, build up and operate,
constructing and operating and other organizations and systems and to hire,
sell, lease, exchange, turn over, deliver and dispose of such organizations, in
whole or in part, and to enter into and perform contracts, agreements and
undertakings of any kind in connection with any or all of the foregoing objects.
2.09 To purchase, acquire, hold, own, develop and dispose of lands and
interests in and rights with respect to lands and waters and fixed and movable
property, franchises, concessions, consents, privileges and licenses in its
opinion useful or desirable for or in connection with any or all of the
foregoing objects.
2.10 To acquire by purchase, subscription or otherwise, and to sell,
use, assign, transfer, mortgage, pledge, exchange or otherwise dispose of, and
to make and enter into all manner and kinds of contracts, agreements and
obligations for the purchasing, acquiring, dealing in or selling of, real and
personal property of every sort and description and wheresoever situated,
including shares of stock, bonds, debentures, notes, scrip, securities,
evidences of indebtedness, contracts or obligations of any corporation or
corporations, association or associations, domestic or foreign, or of any firm
or individual of the United States or any state, territory or dependency of the
United States or any foreign country, or any municipality or local authority
within or without the United States, and also to issue in exchange therefor
stocks, bonds or other securities or evidences of indebtedness of the
Corporation and while the owner or holder of any such property, to receive,
collect and dispose of the interest, dividends and income on or from such
property, and to possess and exercise in respect thereto all of the rights,
powers and privileges of ownership, including voting rights.
2.11 To act as financial, business, managing and/or purchasing agent,
general or special.
3
<PAGE> 4
2.12 To carry on the business of general brokers and dealers in
stocks, bonds, securities, mortgages and other choses in action, including the
acquisition thereof by original subscription; to make investments in such
property; and to hold, manage, mortgage, pledge, sell and dispose of the same in
like manner as individuals may do.
2.13 To acquire by purchase or otherwise and to own, hold, buy, sell,
donate, convey, lease, mortgage or incumber real or personal property both
within and without the State of Alabama; to survey, sub-divide, plat, improve
and develop lands for the purposes of sale or otherwise; to lay off such lands
in streets, lanes, squares, parks and alleys, city blocks and lots and to sell
or otherwise dispose of lots and to secure the purchase by purchase-money notes,
mortgages, or otherwise, to open and improve the streets, lanes, parks, squares
and alleys which may be laid off and to do and perform all things needful for
the development and improvement of such lands for trade or business and to make
donations of any of its lands when in the opinion of its Board of Directors the
same may be desirable to further the Corporation's interest.
2.14 To engage in and carry on a general mercantile and trade business
and to buy, manufacture, produce or otherwise acquire, hold, own, use, import,
export, trade or otherwise deal in or turn to account, sell, lease, pledge or
otherwise dispose of any and all kinds of goods, wares and merchandise and other
articles of commercial and personal property without limit as to character or
manner.
2.15 To borrow or otherwise raise moneys for any of the purposes of
the Corporation from time to time and without limit as to amount, except as may
be provided in a resolution or resolutions adopted by the shareholders of the
Corporation, to issue bonds, debentures, notes or other obligations of any
nature, or in any manner, and to secure the payment of the principal and
interest of any thereof by mortgage upon, or pledge or conveyance or assignment
in trust of, the whole or any part of the property of the Corporation, real and
personal, whether at the time owned or thereafter acquired, including contract
rights; and to sell, pledge, or otherwise dispose of such bonds, debentures,
notes or other obligations of any nature of the Corporation for its corporate
purposes.
4
<PAGE> 5
2.16 To lend and advance money and extend credit, either with or
without security, and to underwrite for investment, resale or otherwise stocks,
bonds and other securities, and to aid the organization, financing, liquidation
or reorganization of corporations, associations or firms.
2.17 To purchase or otherwise acquire and to hold, cancel, re-issue,
sell or transfer shares of its own capital stock (so far as may be permitted by
law) and its bonds, debentures, notes, scrip or other securities or evidences of
indebtedness, provided that it shall not use its funds or property for the
purchase of shares of its own capital stock when such use would cause any
impairment of its capital, and provided, further, that shares of its own capital
stock belonging to it shall not be voted directly or indirectly.
2.18 In connection with the purchase or lease or other acquisition by
the Corporation of any property of whatever nature, to pay therefor in cash or
property or to issue in exchange therefor shares of its capital stock, bonds, or
other obligations or other securities of the Corporation and to assume any
liabilities of any person, firm, association or corporation.
2.19 To sell, exchange or barter for other property, assign, transfer,
lease as lessor, mortgage, pledge or otherwise dispose of or encumber any part
or parts, or all, of the property or assets of the Corporation; to cease to
conduct the business connected with any such property or assets so disposed of;
to resume any business which it shall cease to conduct; and the Corporation may
receive any form of; to resume any business which it shall cease to conduct; and
the Corporation may receive any form of consideration for property so sold,
exchanged, bartered or otherwise disposed of, including (but not excluding other
forms of consideration) bonds, debentures and/or other obligations and/or shares
of stock of any existing corporate or other entity or of any corporate or other
entity in process of organization.
2.20 To endorse, or otherwise guarantee, or become a surety with
respect to, or obligate itself for, or without becoming liable therefor,
nevertheless, to pledge or mortgage all or any part of its properties to secure
the payment of the principal of, and interest on, or either thereof, any bonds,
including construction or performance bonds, debentures, notes, scrip,
5
<PAGE> 6
coupons, contracts or other obligations or evidences of indebtedness, or the
performance of any contract, lease, construction, performance or other bond,
mortgage, or obligation of any other corporation or association, domestic or
foreign, or of any firm, partnership, joint venture, or other person whatsoever,
in which this Corporation may have a lawful interest, or on account of, or with
respect to, any transaction in which this Corporation shall receive any lawful
consideration, advantage or benefit, on any account whatsoever. Irrespective of
the relative net worth of the corporations, associations, or persons involved,
and of the relative amounts of obligations involved, this Corporation shall be
deemed to have a lawful interest in any corporation, association or person (A)
which owns stock in this Corporation, or (B) which owns stock in another
corporation which owns stock in this Corporation, or (C) in which this
Corporation owns stock, or (D) in which another corporation owns stock which
also owns stock in this Corporation, or (E) in which any one or more persons who
own stock in this Corporation also own stock, or (F) which or who has entered
into any contractual arrangement pursuant to which any such corporation or
persons undertakes corresponding or like obligations of endorsement, guarantee,
or suretyship, with respect to all or any such obligations or evidences of
indebtedness, contracts of this Corporation, or which may engage with this
Corporation, in the conduct of any joint venture or enterprise, or in the use of
common facilities or services.
2.21 To engage in any commercial, financial, mercantile, industrial,
manufacturing, marine, exploration, mining, agricultural, research, licensing,
servicing or agency business not prohibited by law, and any, some or all of the
foregoing.
2.22 In general, to do any or all of the things hereinbefore set forth
to the same extent as natural persons could do, and as principal or agent or
otherwise, and either alone or in conjunction with any other persons, firms,
associations or corporations.
2.23 To exercise its powers in accomplishment of its objects and
purposes in any part of the world and to have one or more offices out of the
State of Alabama.
6
<PAGE> 7
2.24 To do all acts and things which it shall find necessary or
convenient to do in aid of or in connection with the transaction, promotion and
carrying on of the objects and purposes hereinabove stated or necessary or
incidental to the protection and benefit of the corporation, and in general to
carry on any lawful business necessary or incidental to the attainment of the
purposes of the Corporation, whether such business is similar in nature to the
objects and powers hereinabove set forth or otherwise.
2.25 The Corporation's power to acquire property of any kind which it
is or shall be authorized to acquire may be exercised directly or indirectly
through the acquisition of stocks and bonds representative of such property and
for the purpose of acquiring and holding either in perpetuity or for a limited
period.
The foregoing clauses shall be construed as powers and provisions for
the regulation of the business and the conduct and affairs of the Corporation,
the Directors and stockholders and each class of stockholders, and it is hereby
expressly provided that the foregoing specific enumeration shall not be held to
limit or restrict in any manner the powers of the Corporation.
III. LOCATION:
3.01 The location of the Corporation's principal office in the State
of Alabama shall be:
1918 First Avenue North
Birmingham, Alabama 35295
IV. CAPITAL STOCK:
4.01 The total number of shares of stock which the Corporation shall
have authority to issue is as follows:
(a) Five million (5,000,000) shares, par value of $0.01 per
share, which are hereby designated as preferred stock (hereinafter called
"Preferred Stock").
7
<PAGE> 8
(b) Seventy-five million (75,000,000) shares, par value of $0.01
per share, which are hereby designated as common stock (hereinafter called
"Common Stock").
4.02 (a) The Preferred Stock may be issued in such one or more series
as shall from time to time be created and authorized to be issued by the Board
of Directors as hereinafter provided.
The Board of Directors is hereby expressly authorized, by resolution
or resolutions from time to time adopted providing for the issuance of Preferred
Stock, to fix and determine, to the extent not fixed by the provisions
hereinafter set forth, the relative rights and preferences of the shares of each
series of Preferred Stock, including (but without limiting the generality of the
foregoing) any of the following with respect to which the Board of Directors may
make specific provisions:
(i) the distinctive name and any serial designations;
(ii) the annual dividend rate or rates and the dividend payment
dates;
(iii) with respect to the declaration and payment of dividends
upon each series of the Preferred Stock, whether such
dividends are to be cumulative or noncumulative, preferred,
subordinate or equal to dividends declared and paid upon
other series of the Preferred Stock or upon any other shares
of stock of the Corporation, and the participating or other
special rights, if any, of such dividends;
(iv) the redemption provisions, if any, with respect to any series,
and if any series is subject to redemption, the manner and time
of redemption and the redemption price or prices;
8
<PAGE> 9
(v) the amount or amounts of preferential or other payment to
which any series of Preferred Stock is entitled over any
other series of Preferred Stock or over the Common Stock on
voluntary or involuntary liquidation, dissolution or
winding-up, subject to the provisions set forth in paragraph
(c)(ii) of Section 4.02 hereof;
(vi) any sinking fund or other retirement provisions and the
extent to which the charges therefor are to have priority
over the payment of dividends on or the making of sinking
fund or other like retirement provisions for shares of any
other series of Preferred Stock or for shares of the Common
Stock;
(vii) any conversion, exchange, purchase or other privileges to
acquire shares of any other series of Preferred Stock or of
the Common Stock;
(viii) the number of shares of such series; and
(ix) the voting rights, if any, of such series, subject to the
provisions set forth in paragraph (c)(i) of Section 4.02
hereof.
Each share of each series of Preferred Stock shall have the same
relative rights and be identical in all respects with all the other shares of
the same series.
Before the Corporation shall issue any shares of Preferred Stock of
any series authorized as hereinbefore provided, a statement setting forth a copy
of the resolution or resolutions with respect to such series adopted by the
Board of Directors of the Corporation pursuant to the foregoing authority vested
in said Board shall be made, filed and recorded in accordance with the then
applicable requirements, if any, of the laws of the State of Alabama, or, if no
statement is then so required, a certificate
9
<PAGE> 10
shall be signed and acknowledged on behalf of the Corporation by its Chairman of
the Board, President or a Vice-President and its corporate seal shall be affixed
thereto and attested by its Secretary or an Assistant Secretary and such
certificate shall be filed and kept on file at the principal office of the
Corporation in the State of Alabama and in such other place or places as the
Board of Directors shall designate.
(b) The authority of the Board of Directors to provide for
the issuance of any shares of the Corporation's stock shall include, but shall
not be limited to, authority to issue shares of stock of the Corporation for any
purpose and in any manner (including issuance pursuant to rights, warrants, or
other options) permitted by law, for delivery as all or part of the
consideration for or in connection with the acquisition of all or part of the
stock of another corporation or of all or part of the assets of another
corporation or enterprise, irrespective of the amount by which the issuance of
such stock shall increase the number of shares outstanding (but not in excess of
the number of shares authorized).
(c) The following relative rights and preferences of the
stock of the Corporation are fixed as follows:
(i) Voting Rights.
(A) Common Stock. At all elections of directors of the
Corporation, and in respect of all other matters as to which the vote
or consent of stockholders of the Corporation shall be required to be
taken, the holders of the Common Stock shall be entitled to one (1)
vote for each share held by them.
(B) Preferred Stock. The holders of each series of the Preferred
Stock shall have such voting rights as may be fixed by resolution or
by resolutions of the Board of Directors providing for the issuance of
each such series.
10
<PAGE> 11
(ii) Liquidation, Dissolution, etc. In the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, the
assets of the Corporation available for distribution to the stockholders
(whether from capital or surplus) shall be distributed among those of the
respective series of the outstanding Preferred Stock, if any, as may be entitled
to any preferential amounts and among the respective holders thereof in
accordance with the relative rights and preferences, if any, fixed and
determined for each such series and the holders thereof by resolution or
resolutions of the Board of Directors providing for the issue of each such
series of the Preferred Stock; and after payment in full of the amounts payable
in respect of the Preferred Stock, if any, the holders of any series of the
outstanding Preferred Stock who are not entitled to preferential treatment
pursuant to resolutions of the Board of Directors providing for the issue
thereof and the holders of the outstanding Common Stock shall be entitled (to
the exclusion of the holders of any series of the outstanding Preferred Stock
entitled to preferential treatment pursuant to resolutions of the Board of
Directors providing for the issue thereof) to share ratably in all the remaining
assets of the Corporation available for distribution to its stockholders.
A merger, consolidation or reorganization of the Corporation with or
into one or more corporations, or a sale, lease or other transfer of all or
substantially all the assets of the Corporation, that does not result in the
termination of the enterprise and distribution of the assets to stockholders,
shall not be deemed to constitute a liquidation, dissolution or winding-up of
the Corporation within the meaning of this paragraph (c)(ii) of Section 4.02
hereof, notwithstanding the fact that the Corporation may cease to exist or may
surrender its Certificate of Incorporation.
(iii) Dividends. Dividends on any stock of the Corporation shall
be payable only out of earnings or assets of the Corporation legally available
for the payment of such dividends and only as and when declared by the Board of
Directors.
(d) No holder of any share or shares of any class of stock
of the Corporation shall have any preemptive rights to subscribe for any shares
of stock of any class of the Corporation now or hereafter authorized or for any
securities convertible into or carrying any optional rights to purchase or
11
<PAGE> 12
subscribe for any shares of stock of any class of the Corporation now or
hereafter authorized, provided, however, that no provision of the Certificate of
Incorporation shall be deemed to deny to the Board of Directors the right, in
its discretion, to grant to the holders of shares of any class of stock at the
time outstanding the right to purchase or subscribe for shares of stock of any
class or any other securities of the Corporation now or hereafter authorized at
such prices and upon such other terms and conditions as the Board of Directors,
in its discretion, may fix.
4.03 The amount of the capital stock with which the Corporation shall
begin business shall be 1,000 shares of Common Stock.
V. OFFICER TO RECEIVE SUBSCRIPTION:
5.01 The name and post office address of the officer designated by the
incorporators to receive subscriptions to the capital of the Corporation are:
Name: A. S. Lacy
Post Office
Address: 1918 First Avenue North
Birmingham Alabama 35295
12
<PAGE> 13
VI. INCORPORATORS AND SHARES:
The names and post office addresses of the incorporators and the
number of shares of Common Stock subscribed for by each are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK
NAME POST OFFICE ADDRESS SUBSCRIBED FOR
<S> <C> <C>
Howard Higgins 1918 First Avenue North 334
Birmingham, Alabama 35295
Rex J. Lysinger 1918 First Avenue North 333
Birmingham, Alabama 35295
A. S. Lacy 1918 First Avenue North 333
Birmingham, Alabama 35295
-----
Total 1,000
</TABLE>
VII. DIRECTORS AND OFFICERS:
7.01 The number of directors constituting the initial board of
directors of the Corporation shall be nine. Subject to Section 10.01 of Article
X hereof, the number of directors of the Corporation shall be as provided in and
fixed by the Bylaws of the Corporation. The names and post office addresses of
the directors and the officers chosen for the first year are:
13
<PAGE> 14
DIRECTORS
<TABLE>
<CAPTION>
NAME POST OFFICE ADDRESS
<S> <C>
Emory O. Cunningham Post Office Box 2581
Birmingham, Alabama 35202
James S. M. French Post Office Box 247
Birmingham, Alabama 35201
Robert F. Henry Post Office Box 2230
Montgomery, Alabama 36103
Howard Higgins 1918 First Avenue North
Birmingham, Alabama 35295
Norman R. Kerredge 1918 First Avenue North
Birmingham, Alabama 35295
Rex J. Lysinger 1918 First Avenue North
Birmingham, Alabama 35295
Harry H. Pritchett Post Office Box 2389
Tuscaloosa, Alabama 35401
Richard A. Puryear, Jr. 3700-A Country Club Drive
Birmingham, Alabama 35213
Robert S. Weatherly 2865 Stratford Road
Birmingham, Alabama 35213
</TABLE>
<TABLE>
<CAPTION>
OFFICERS
OFFICERS TITLE POST OFFICE ADDRESS
<S> <C> <C>
Howard Higgins Chairman of the 1918 First Avenue N.
Board and CEO Birmingham, AL 35295
Rex J. Lysinger President 1918 First Avenue N.
Birmingham, AL 35295
A. S. Lacy Vice President and 1918 First Avenue N.
Secretary Birmingham, AL 35295
Richard J. Patzke Vice President and 1918 First Avenue N.
Treasurer Birmingham, AL 35295
</TABLE>
14
<PAGE> 15
VIII. TIME LIMIT:
8.01 The duration of the Corporation shall be perpetual.
IX. CERTAIN PROVISIONS RESPECTING BUSINESS COMBINATIONS:
9.01 Definitions.
For the purposes of this Article IX:
(a) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
June 11, 1984.
(b) "Announcement Date" means, with respect to any Business
Combination, the date of the first public announcement of such
Business Combination.
(c) A person shall be a "beneficial owner" of any Voting Stock:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (B) the right to vote or direct the
vote pursuant to any agreement, arrangement or understanding; or
15
<PAGE> 16
(iii) which is beneficially owned, directly or indirectly,
by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement, or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of capital stock of the Corporation.
(d) For the purposes of determining whether a person is an
Interested Stockholder pursuant to paragraph (k) of this Section 9.01
hereof, the number of shares of Voting Stock deemed to be outstanding
shall include shares deemed owned by the Interested Stockholder
through application of paragraph " of Section 9.01 hereof, but shall
not include any other shares of Voting Stock which may be issuable
pursuant to any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise.
(e) "Board" means the Board of Directors of the Corporation.
(f) A "Business Combination" shall mean any one or more of the
following:
(i) any merger or consolidation-dation of the Corporation or
any Subsidiary with or into (A) any Interested Stockholder or (B)
any other corporation (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation
would be, an Affiliate of an Interested Stockholder; or
16
<PAGE> 17
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series
of transactions) to or with any Interested Stockholder or any
Affiliate of any Interested Stockholder of any assets of the
Corporation or any Subsidiary having an aggregate Fair Market
Value of $1,000,000 or more; or
(iii) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of
any securities of the Corporation or any Subsidiary to any
Interested Stockholder or any Affiliate of any Interested
Stockholder in exchange for cash, securities or other property
(or a combination thereof) having an aggregate Fair Market
Value of $1,000,000 or more; or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or
on behalf of an Interested Stockholder or an Affiliate of any
Interested Stockholder; or
(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation,
or any merger or consolidation of the Corporation with any of
its Subsidiaries or any similar transaction (whether or not
with or into or otherwise involving an Interested Stockholder)
which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any
class of equity securities, or securities convertible into
equity securities, of the Corporation or any Subsidiary,
including, without limitation, any class or series of
Protected Stock, which is directly or indirectly owned by
any Interested Stockholder or any Affiliate of any
Interested Stockholder.
17
<PAGE> 18
(g) "Consummation Date" means, with respect to any Business
Combination, the date on which such Business Combination is
effected.
(h) "Determination Date" means, with respect to any Interested
Stockholder, the date on which such Interested Stockholder first
became an Interested
Stockholder.
(i) "Disinterested Director" means any member of the Board who
is unaffiliated with, and not a nominee of, the Interested
Stockholder and was a member of the Board prior to the time that the
Interested Stockholder became an Interested Stockholder, and any
successor of a Disinterested Director who is a member of the Board
and who is unaffiliated with, and not a nominee of, the Interested
Stockholder and was recommended to succeed a Disinterested Director
by a majority of Disinterested Directors on the Board at the time of
such recommendation.
(j) "Fair Market Value" means (i) in the case of stock, the
highest closing sale price during the thirty-day period immediately
preceding the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange, Inc. Listed Stocks, or,
if such stock is not quoted on the Composite Tape, on the New York
Stock Exchange, Inc., or, if such stock is not listed on the New
York Stock Exchange, Inc., on the principal United States securities
exchange registered under the Securities Exchange Act of 1934 on
which such stock is listed, or, if such stock is not listed on any
such exchange, the highest closing bid quotation with respect to a
share of such stock during the thirty-day period preceding the date
in question as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then in use,
or if no such quotations are available, the fair market value on the
date in question of a share of such stock as determined by a
majority of the Disinterested Directors in good
18
<PAGE> 19
faith; and (ii) in the case of property other than cash or stock,
the fair market value of such property on the date in question as
determined by a majority of the Disinterested Directors in good
faith.
(k) "Interested Stockholder" shall mean, in respect of any
Business Combination, any person (other than the Corporation) who or
which, as of the date of the first public announcement of such
Business Combination, or on the day immediately prior to the
consummation of any such Business Combination:
(i) is the beneficial owner, directly or indirectly,
of ten percent (10%) or more of the voting power of the
outstanding Voting Stock; or
(ii) is an Affiliate of the Corporation and at any time
within two years prior thereto was the beneficial owner,
directly or indirectly, of ten percent (10%) or more of the
voting power of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to
any shares of Voting Stock of the Corporation which were at
any time within the two-year period immediately prior to the
date in question beneficially owned by any Interested
Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of
transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(l) A "person" shall mean any individual, firm, corporation
or other entity.
(m) "Protected Stock" means all Voting Stock and all other
shares of capital stock of the Corporation having, or which may have
upon the
19
<PAGE> 20
happening of some contingency, the right to vote for the election of
some or all of the directors of the Corporation, regardless of
whether at the time in question such shares then have a present
right to so vote.
(n) "Subsidiary" means any corporation of which a majority
of any class of equity security is owned, directly or indirectly, by
the Corporation.
(o) "Voting Stock" means, at any time, all shares of capital
stock of the Corporation entitled to vote generally in the election
of directors, which shares shall be considered for the purpose of
the vote required by this Article IX as one class.
(p) In the event of any Business Combination in which the
Corporation survives, the phrase "other consideration to be
received" as used in clauses (i) and (ii) of paragraph (b) of 9.03
of this Article IX shall include the shares of Common Stock and/or
the shares of any other class of outstanding Protected Stock
retained by the holders of such shares.
9.02 Higher Vote for Certain Business Combinations. In addition to
any affirmative vote required by law or this Certificate of Incorporation, and
except as otherwise expressly provided in 9.03 of this Article IX, any Business
Combination shall require the affirmative vote of the holders of at least eighty
percent (80%) of the then outstanding shares of Voting Stock. Such affirmative
vote shall be required notwithstanding the fact that no vote may be required, or
that some lesser percentage may be specified, by law or under the rules of, or
in any agreement with, any United States securities exchange registered under
the Securities Exchange Act of 1934, or any successor act thereto, on which any
of the Voting Stock is listed, or otherwise.
9.03 When Higher Vote Is Not Required. The provisions of 9.02 of
this Article IX shall not be applicable to any particular Business Combination,
and such Business Combination shall require only such affirmative vote, if any,
as is required by law and any other Article of this Certificate of
Incorporation, if all of the conditions specified in either of the following
paragraphs (a) and (b) are met:
20
<PAGE> 21
(a) Approval by the Disinterested Directors. The Business
Combination shall have been approved by a majority of the
Disinterested Directors.
(b) Price and Procedure Requirements. All of the following
conditions shall have been met:
(i) Common Stock. The aggregate amount of the cash and
the Fair Market Value as of the Consummation Date of
consideration other than cash to be received by holders of the
Common Stock of the Corporation in such Business Combination,
computed on a per share basis, shall be at least equal to the
higher of the following:
(A) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Stockholder for
any shares of Common Stock acquired by the Interested
Stockholder (i) within the two-year period immediately
prior to the Announcement Date or (ii) in the
transaction or transactions by which the Interested
Stockholder became an Interested Stockholder, whichever
is higher; or
(B) the Fair Market Value per share of the Common Stock on
the Announcement Date or the Determination Date,
whichever is higher.
(ii) Protected Stock. The aggregate amount of cash and
the Fair Market Value as of the Consummation Date of
consideration other than cash to be received per share by
holders of shares of any other class of outstanding
21
<PAGE> 22
Protected Stock regardless of whether the Interested
Stockholder has previously acquired any shares of a particular
class of such Protected Stock shall be at least equal to the
highest of the following:
(A) (if applicable) the highest per share price (including
any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by the Interested Stockholder for
any shares of such class of Protected Stock acquired by
the Interested Stockholder (i) within the two-year
period immediately prior to the Announcement Date or
(ii) in the transaction or transactions by which the
Interested Stockholder became an Interested Stockholder,
whichever is higher;
(B) the highest preferential amount per share to which the
holders of shares of such class of Protected Stock are
entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the
Corporation; or
(C) the Fair Market Value per share of such class of
Protected Stock on the Announcement Date or the
Determination Date, whichever is higher.
22
<PAGE> 23
(iii) Form of Consideration. The consideration to be
received by holders of a particular class or series of
outstanding Protected Stock (including Common Stock) shall be
in cash or in the same form as the Interested Stockholder has
paid for shares of such class of Protected Stock prior to the
Consummation Date. If the Interested Stockholder has paid for
shares of any class of Protected Stock with varying forms of
consideration, the form of consideration for such class of
Protected Stock shall be either cash or the form used to
acquire the largest number of shares of such class of
Protected Stock previously acquired by it.
(iv) Maintain Dividends. After such Interested
Stockholder has become an Interested Stockholder and prior to
the consummation of such Business Combination: (A) except as
approved by a majority of the Disinterested Directors, there
shall have been no failure to declare and pay at the regular
date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding Preferred Stock of the
Corporation; and (B) there shall have been (i) no reduction in
the annual rate of dividends paid on the Common Stock except
as necessary to reflect any subdivision of the Common Stock,
except as approved by a majority of the Disinterested
Directors, and (ii) an increase in such annual rate of
dividends as necessary to reflect any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the effect
of reducing the number of outstanding shares of the Common
Stock unless the failure so to increase such annual rate is
approved by a majority of the Disinterested Directors.
23
<PAGE> 24
(v) Acquisition of Additional Shares. After such
Interested Stockholder has become an Interested Stockholder
and prior to the consummation of such Business Combination,
such Interested Stockholder shall not have become the
beneficial owner of any additional shares of Voting Stock
except as part of the transaction which results in such
Interested Stockholder becoming an Interested Stockholder.
(vi) No Disproportionate Benefits. After such Interested
Stockholder has become an Interested Stockholder, such
Interested Stockholder shall not have received the benefit,
directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax
advantages provided by the Corporation, whether in
anticipation of or in connection with such Business
Combination or otherwise.
(vii) Furnish Information. A proxy or information
statement describing the proposed Business Combination and
complying with the requirements of the Securities Exchange Act
of 1934 and the rules and regulations thereunder (or any
subsequent provisions replacing such Act, rules or
regulations) shall be mailed to all stockholders of this
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or any
such subsequent provisions).
24
<PAGE> 25
9.04 Powers of Board of Directors. A majority of the Disinterested
Directors of the Corporation shall have the power and duty to determine for the
purposes of this Article IX on the basis of the information known to them after
reasonable inquiry, (1) the number of shares of Voting Stock beneficially owned
by any person, (2) whether a person is an Interested Stockholder or is an
Affiliate or Associate of another person, (3) whether a person has an agreement,
arrangement or understanding with another as to the matters referred to in
paragraph (C) of Section 9.01 of this Article IX, (4) whether the assets which
are the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, an aggregate Fair Market Value of
$1,000,000 or more, or (5) whether the requirements of paragraph (a) or (b) of
Section 9.03 of this Article IX have been met with respect to any Business
Combination.
9.05 No Effect on Fiduciary Obligations of Interested Stockholders.
Nothing contained in this Article IX shall be construed to relieve any
Interested Stockholder from any fiduciary obligation imposed by law.
9.06 Amendment, Repeal, Etc. Notwithstanding any other provisions of this
Certificate of Incorporation or the Bylaws of the Corporation (and
notwithstanding the fact that some lesser percentage may be specified by law,
this Certificate of Incorporation or the Bylaws of the Corporation), the
affirmative vote of the holders of at least eighty percent (80%) of the shares
of the then outstanding Voting Stock shall be required to amend or repeal, or
adopt any provisions inconsistent with, this Article IX of this Certificate of
Incorporation.
X. BOARD OF DIRECTORS:
10.01 (a) Number, election and terms. All corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, a Board of Directors which,
except as otherwise fixed by or pursuant to the provisions of Article IV hereof
relating to the rights of the holders of any class or series of Preferred Stock
to elect additional directors under specified circumstances, shall
25
<PAGE> 26
consist of not less than nine (9) nor more than fifteen (15) persons. The exact
number of directors within the minimum and maximum limitations specified in the
preceding sentence shall be fixed from time to time by the Board of Directors
pursuant to a resolution adopted by a majority of the entire Board of Directors.
At the annual meeting of stockholders of the Corporation held in 1985, the
directors, other than those who may be elected by the holders of any class or
series of Preferred Stock, shall be divided into three classes, as nearly equal
in number as possible, with the term of office of the first class of directors
to expire at the annual meeting of stockholders of the Corporation to be held in
1986, the term of office of the second class of directors to expire at the
annual meeting of stockholders of the Corporation to be held in 1987 and the
term of office of the third class of directors to expire at the annual meeting
of stockholders of the Corporation to be held in 1988. At each annual meeting of
stockholders of the Corporation following such initial classification and
election, and except as otherwise so fixed by or pursuant to the provisions of
Article IV hereof relating to the rights of the holders of any or series of
Preferred Stock to elect additional directors under specified circumstances,
directors elected to succeed those directors whose terms expire at such annual
meeting shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders of the Corporation after their election.
(b) Vacancies and Newly Created Directorships. Subject to the rights
of the holders of any series of Preferred Stock then outstanding, any vacancy
occurring in the Board of Directors may be filled by the affirmative vote of a
majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill a vacancy shall be elected to serve until
the next annual meeting of stockholders. Any directorship to be filled by reason
of an increase in the number of directors shall be filled by election at an
annual meeting or at a special meeting of stockholders called for that purpose,
unless applicable law then permits such directorship to be filled by the
affirmative vote of a majority of the remaining directors (even though less than
a quorum of the Board of Directors). No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
26
<PAGE> 27
(c) Continuance in Office. Notwithstanding the foregoing provisions
of Section 10.01 hereof, any director whose term of office has expired shall
continue to hold office until his successor shall be elected and qualify.
(d) Removal. Subject to the rights of the holders of any class or
series of Preferred Stock then outstanding, any director, or the entire Board of
Directors, may be removed from office at any time, with or without cause, but
only by the affirmative vote of the holders of at least eighty percent (80%) of
the voting power of all of the shares of the Corporation then entitled to vote
for the election of directors.
(e) Amendment, repeal, etc. Notwithstanding any other provisions of
this Certificate of Incorporation or the Bylaws of the Corporation (and
notwithstanding the fact that some lesser percentage may be specified by law,
this Certificate of Incorporation or the Bylaws of the Corporation), the
affirmative vote of the holders of at least eighty percent (80%) of the voting
power of all of the shares of the Corporation then entitled to vote for the
election of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, Section 10.01 hereof.
10.02 In furtherance, not in limitation, of the powers conferred upon
the Board of Directors by statute, the Board of Directors is expressly
authorized, without any vote or other action by stockholders other than such as
at the time shall be expressly required by statute applicable to such action, to
exercise in a manner not inconsistent with any of the provisions of the
Certificate of Incorporation all of the powers, rights and privileges of the
Corporation (whether expressed or implied in this Certificate of Incorporation
or conferred by statute) and do all acts and things which may be done by the
Corporation, and particularly, among other things:
27
<PAGE> 28
(a) Subject to Section 9.06 of Article IX and paragraph (e) of
Section 10.01 hereof, to make, alter and repeal Bylaws of the Corporation,
subject to the power of the stockholders to alter or repeal Bylaws made by the
Board of Directors, which action by the directors shall fully protect third
parties in dealing with the Corporation; provided, however, that the Board of
Directors may not alter, amend or repeal any Bylaw establishing what constitutes
a quorum at any meeting of the stockholders of the Corporation;
(b) To determine, subject to the provisions of Article IX hereof,
whether any, and if any, what part, of the net income of the Corporation or of
its net assets in excess of its capital shall be declared in dividends and paid
to the stockholders and whether or not in cash or capital stock of the
Corporation or in other property, and generally to determine and direct the use
and disposition of any such net income or any such excess of net assets over
capital; and to fix the times for the declaration and payment of dividends;
(c) From time to time, to fix the amount to be reserved over and
above the capital stock of the Corporation paid in and to determine and direct
how amount so reserved shall be used;
(d) To determine from time to time at what times and places and
under what conditions and regulations the accounts and books of the Corporation,
or any of them, shall be open to the inspection of stockholders; and no
stockholders shall have any right to inspect any account or book or document of
the Corporation except as conferred by the laws of the State of Alabama or
authorized by resolution of the Board of Directors or of the stockholders;
(e) From time to time, and without other limit as to amount, except
as may be provided in a resolution or resolutions adopted by the stockholders of
the Corporation, to borrow or otherwise raise moneys for any of the purposes of
the Corporation; to authorize the issue of bonds, debentures, notes, or other
obligations of the Corporation, of any nature, or in any manner, and to
authorize the creation of mortgages upon, or the pledge or conveyance or
assignment in trust of, the whole or any part of the property of the
Corporation, real or personal, whether at the time
28
<PAGE> 29
owned or thereafter acquired, including contract rights, to secure the payment
of any of such bonds, debentures, notes or other obligations and the interest
thereon; and to authorize the sale or pledge or other disposition of such bonds,
debentures, notes or other obligations of the Corporation for its corporate
purposes;
(f) To provide, subject to the requirements of law and the bylaws of
the Corporation, for the holding of stockholders and Directors meetings within
or without the State of Alabama at such places as may be from time to time
designated by resolution of the Board of Directors and to provide for an office
or offices and for the keeping of the books of the Corporation (subject to the
provisions of the statute) within or without the State of Alabama;
(g) By resolution adopted by majority vote of all the Directors of
the Corporation as at the time fixed by its bylaws, to designate three or more
of their number to constitute an executive committee, which, to the extent
provided in such resolution or in the bylaws of the Corporation, shall have and
may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation, and may have power to authorize the
seal of the Corporation to be affixed to all papers which may require it, and by
like resolution, from time to time, to constitute other committees out of their
number, with such powers as shall be provided in such resolutions or in the
bylaws of the Corporation;
(h) Any action required or permitted to be taken at any meeting of
the Board of Directors or any committee thereof may be taken without a meeting,
if prior to such action a written consent thereto is signed by all members of
the Board or such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee;
(i) To exercise such further powers as may be conferred by the
bylaws of the Corporation in addition to the powers and authority expressly
conferred in the foregoing or by law.
29
<PAGE> 30
XI. LIMITATION OF LIABILITY:
11.01 A director of the Corporation shall not be liable to the
Corporation or its shareholders for money damages for any action taken, or
failure to take action, as a director, except for (i) the amount of a financial
benefit received by such director to which such director is not entitled; (ii)
an intentional infliction of harm by such director on the Corporation or its
shareholders; (iii) a violation of Section 10-2B-8.33 of the Code of Alabama of
1975 or any successor provision to such section; (iv) an intentional violation
by such director of criminal law; or (v) a breach of such director's duty of
loyalty to the Corporation or its shareholders. If the Alabama Business
Corporation Act, or any successor statute thereto, is hereafter amended to
authorize the further elimination or limitation of the liability of a director
of a corporation, then the liability of a director of the Corporation, in
addition to the limitations on liability provided herein, shall be limited to
the fullest extent permitted by the Alabama Business Corporation Act, as
amended, or any successor statute thereto. The limitation on liability of
directors of the Corporation contained herein shall apply to liabilities arising
out of acts or omissions occurring subsequent to the adoption of this Article XI
and, except to the extent prohibited by law, to liabilities arising out of acts
or omissions occurring prior to the adoption of this Article XI. Any repeal or
modification of this Article XI by the shareholders of the Corporation shall be
prospective only and shall not adversely affect any limitation on the liability
of a director of the Corporation existing at the time of such repeal or
modification.
XII. GENERAL PROVISIONS
12.01 Capital surplus, paid-in surplus and premiums on stock of the
Corporation now existing or hereafter created shall not be available for the
payment of dividends other than liquidating dividends.
12.02 All persons who shall acquire stock in the Corporation shall
acquire it subject to the provisions of this Certificate of Incorporation.
30
<PAGE> 31
12.03 So far as not otherwise expressly provided by the laws of the
State of Alabama, the Corporation shall be entitled to treat the person in whose
name any share is registered as the owner thereof for all purposes and shall not
be bound to recognize any equitable or other claim to or interest in said share
on the part of any other person, whether or not the Corporation shall have
notice thereof.
12.04 Attached hereto, marked Exhibit "A" and made a part hereof, is
a statement, under oath, made by A. S. Lacy, the officer or agent authorized by
the incorporators to receive subscriptions to the capital stock of the
Corporation subscribed for and the amount thereof which has been paid in. There
is also attached hereto, marked Exhibit "B" and made a part hereof, a true and
correct copy of the subscription list of the Corporation showing the amount of
capital stock subscribed for by the incorporators and the manner in which such
subscriptions are provided to be discharged.
The board of directors of the Corporation adopted a resolution with
respect to the restatement of the certificate of incorporation of the
corporation on July 19, 1984.
The foregoing restated certificate of incorporation of the
Corporation sets forth all of the operative provisions of the Certificate of
Incorporation of the Corporation, correctly sets forth without change the
corresponding provisions of the Certificate of Incorporation of the Corporation
as heretofore amended and supersedes the original Certificate of Incorporation
of the Corporation and all amendments thereto.
Dated this 20th day of July, 1984.
ENERGEN CORPORATION
By /s/ Rex J. Lysinger
-------------------------------------
Its Chairman of the Board of
Directors and President
and /s/ A. S. Lacy
-------------------------------------
Its Secretary
31
<PAGE> 32
STATE OF ALABAMA )
)
COUNTY OF JEFFERSON )
Before me, the undersigned authority in and for said County in said State,
personally appeared Rex J. Lysinger known to me, who being first duly sworn doth
depose and say that he is the Chairman of the Board of Directors and President
of Energen Corporation, that he signed the foregoing Restated Certification of
Incorporation of said corporation as Chairman of the Board of Directors and
President of said corporation and with full authority and that the statements
made in the foregoing Restated Certification of Incorporation of said
corporation are true and correct.
/s/ Rex J. Lysinger
-------------------------------
Rex J. Lysinger
Subscribed and sworn before me on this 20th day of July, 1984, in witness
whereof I hereunto subscribe my name and attach the seal in my office.
Margaret G. Priola
-------------------------------
Notary Public
[NOTARIAL SEAL] My Commission Expires: 4/20/85
32
<PAGE> 33
EXHIBIT "A"
STATE OF ALABAMA )
)
COUNTY OF JEFFERSON )
Before me, Evelyn E. Pulley, a Notary Public in and for said county
in said state, personally appeared A. S. Lacy, who is known to me, and who,
being by me first duly sworn according to law, deposed and said that he is the
officer or agent designated and authorized by the incorporators of Energen
Corporation, an corporation proposed to be incorporated under the laws of the
State of Alabama, to receive the subscription to the capital stock of said
corporation; that the amount of capital stock of said corporation that has been
paid in cash is One Thousand Dollars ($1,000.00) which amount is at least twenty
percent (20%) of the stock subscribed; that a true copy of the subscription list
of capital stock of said corporation and the price paid in cash therefor by each
subscriber is attached hereto, marked Exhibit "B" and made a part hereof; and
that affiant now holds said cash for delivery to said corporation, upon
completion of the organization thereof.
/s/ A. S. LACY
------------------------------------------
A. S. Lacy
Subscribed and sworn to before me this
26th day of October, 1978.
/s/ Evelyn E. Pulley
- ---------------------------------------
Notary Public in and for the County of
Jefferson, Alabama
My Commission expires: March 16, 1980
33
<PAGE> 34
EXHIBIT "B"
SUBSCRIPTION LIST OF THE CAPITAL STOCK
OF
ENERGEN CORPORATION
We, the undersigned, do hereby respectively subscribe for and agree to take
and pay in cash for the number of shares of common stock of the par value of One
Dollar ($1.00) per share of Energen Corporation, a corporation proposed to be
organized under the laws of the State of Alabama, that is set opposite our
respective signatures.
IN WITNESS WHEREOF, each of the undersigned subscribers has signed his name
hereto, all opposite the number of shares subscribed for by each of the
undersigned, this 19th day of October, 1978.
<TABLE>
<CAPTION>
NUMBER AMOUNT
OF PAID
SHARES IN CASH
<S> <C> <C>
/s/ Howard Higgins 334 $334.00
- ------------------------------
Howard Higgins
/s/ Rex J. Lysinger 333 $333.00
- ------------------------------
Rex J. Lysinger
/s/ A. S. Lacy 333 $333.00
- ------------------------------
A. S. Lacy
</TABLE>
34
<PAGE> 1
Exhibit 3(c)
ENERGEN CORPORATION
-----------------------
BY LAWS
------------------------
As Amended Through July 22, 1998
I. ANNUAL MEETING OF STOCKHOLDERS.
1.01 TIME OF HOLDING - The annual meeting, for the purpose of electing
directors and transacting any other proper business, shall be held at 10:00 a.m.
on the fourth Wednesday in January of each year, if not a legal holiday, and if
a legal holiday then on the first succeeding business day not a legal holiday or
at such other date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting. Special meetings may
be held, and shall be called by the Secretary, whenever directed by the Chairman
of the Board or the President or whenever requested by a majority of the
directors, either by vote at a meeting or in writing.
1.02 NOTICE - At least ten days before each annual and each special
meeting and in any event such number of days as will conform with any statutory
requirement, the Secretary shall mail or cause to be mailed to each stockholder
entitled to vote at the meeting, at his address appearing on the books of the
Corporation, a notice which shall state the time and place of the meeting, and,
in the case of a special meeting, shall state also the objects or purposes of
the meeting.
1.03 PLACE OF MEETING - Annual and special meetings shall be held at
the principal office of the Corporation in the State of Alabama, or at such
other place, within or without the State of Alabama, as may be designated by the
Board of Directors or the person or persons calling the meeting and stated in
the notice of the meeting.
1.04 CLOSING STOCK TRANSFER BOOK - RECORD DATE - Prior to each meeting
of stockholders, the Board of Directors shall either fix a period of not less
than ten days preceding the day of the meeting during which the stock transfer
books shall be closed, or fix a date not less than ten days preceding the day of
the meeting as a record date for the determination of the stockholders entitled
to notice of and to vote at such meeting, and when a record date shall have been
so fixed, only stockholders of record on such date shall be entitled to notice
of and to vote at such meeting.
1.05 VOTE IN PERSON OR BY PROXY - Stockholders may vote in person or by
proxy. The vote of stockholders for the election of directors, or upon any
question before a meeting, need not be by ballot except when required by statute
or demanded by a stockholder of record entitled to vote at the meeting; when so
required or demanded, the vote shall be by ballot. All questions shall be
decided by the vote of the holders of a majority of the shares voting on the
question, except where otherwise required by statute or by the Certificate of
Incorporation, as now in effect or as hereafter amended.
1
<PAGE> 2
At any meeting of the stockholders, each stockholder having the right
to vote shall be entitled to vote in person or by proxy executed in writing by
such stockholder or by his duly authorized attorney-in-fact. No proxy shall be
valid after eleven months from the date of its execution, unless otherwise
provided in the proxy. Each proxy shall be delivered to the Judge appointed
pursuant to ss.1.08 of these By Laws prior to the vote at the meeting. The
attendance at any meeting of a stockholder who may theretofore have given a
proxy shall not have the effect of revoking the proxy unless the stockholder so
attending shall, in writing prior to the meeting or orally at the meeting,
notify the secretary of the meeting at any time prior to the voting of the
proxy.
1.06 PRESIDING OFFICER - The Chairman of the Board, and in his absence,
the President shall call meetings of stockholders to order and act as chairman
of such meeting. In the absence of both of these officers, the Board of
Directors shall appoint a chairman of the meeting, but if the Board shall not
make such appointment, then any stockholder or the proxy of any stockholder may
call the meeting to order, and a chairman shall be elected.
1.07 SECRETARY OF THE MEETING - The Secretary or any Assistant
Secretary may act as secretary of any meeting of stockholders; but the Board of
Directors before the meeting may designate any person to act as secretary
thereof, and if no such designation shall have been made or if the person so
designated shall fail to attend or shall refuse or be unable to serve, then the
chairman of the meeting may appoint any person to act as secretary thereof.
1.08 JUDGE - At each meeting of the stockholders at which the voting
shall be by ballot, the voting shall be conducted and all questions touching the
qualifications of the voters, the validity of proxies, and the acceptance or
rejection of votes shall be decided by one Judge. The Judge may be an officer of
the Corporation and may be appointed before the meeting by the Board of
Directors, but if no such appointment shall have been made, then by the chairman
of the meeting; and if for any reason any judge previously appointed shall fail
to attend, or refuse or be unable to serve, then a judge to act in his place
shall be appointed by the Chairman of the meeting. No such judge need be a
stockholder.
1.09 VOTING, ADJOURNMENT - At each meeting of stockholders, except as
otherwise provided by statute or by the Certificate of Incorporation or an
amendment thereof, the holders of a majority of all of the stock which at the
time shall be entitled to vote, present in person or represented by proxy, shall
be requisite for the transaction of business and shall constitute a quorum. A
meeting of the stockholders may be adjourned to any day, and from time to time,
as such meeting shall determine, whether or not a quorum is present. The time
and place to which an adjournment is taken shall be publicly announced at the
meeting, and no further notice thereof shall be necessary.
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II. BOARD OF DIRECTORS.
2.01 MANAGEMENT OF CORPORATION; NUMBER OF DIRECTORS; ELECTION OF
DIRECTORS; TERMS OF OFFICE - All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, its Board of Directors. The number of Directors
of the Corporation, the manner of their election and their terms of office shall
be determined as provided in the Certificate of Incorporation, as at any time
amended. No person who shall have been first elected a Director of Alabama Gas
Corporation subsequent to June 19, 1969 shall be eligible to serve as a Director
of the Corporation after the annual meeting of the stockholders of the
Corporation next following his seventieth birthday.
2.02 MEETINGS OF THE BOARD - The Board of Directors may provide for
stated meetings at regular intervals to be held pursuant to a standing
resolution of the Board. No notice of such meetings need be given. Special
meetings of the Board may be called upon written instructions signed by the
Chairman of the Board, the President, or a Vice President, or at least two of
the directors, and delivered to the Secretary of the Corporation, stating the
time and place thereof. The Secretary shall give, or cause to be given, notice
of the time and place of holding each special meeting by mailing the same at
least thirty-six (36) hours before the meeting or by causing the same to be
transmitted by telephone, cable, or wire message at least twenty-four (24) hours
before the meeting to each director to his address on file with the Secretary of
the Corporation.
The directors may hold their meetings at such place or places, either
within or without the State of Alabama, as the Board shall designate from time
to time.
2.03 QUORUM, VACANCIES, ADJOURNMENT - Subject to the provisions of the
Certificate of Incorporation, as amended, a majority of the Directors shall
constitute a quorum for the transaction of business at meetings of the Board.
Subject to the provisions of the Certificate of Incorporation, as amended,
vacancies in the Board shall be filled by a majority of the Directors then in
office. A majority of the Directors present at any meeting may adjourn the
meeting until a later day or hour, or sine die, whether or not a quorum is
present. A minute of such adjournment shall be entered on the records by the
Secretary, and no further notice thereof shall be necessary.
2.04 RULES - The Board of Directors may adopt such rules and
regulations for the conduct of its meetings and the management of the affairs of
the Corporation as it may deem proper not inconsistent with these By Laws or the
Certificate of Incorporation and the amendments thereof.
2.05 COMPENSATION OF OFFICERS AND DIRECTORS - The Board of Directors
shall fix and authorize the payment of compensation for all officers of the
Corporation, including such officers as may be directors of the Corporation, for
services to the Corporation; and shall fix and authorize the payment of
compensation and expenses to the directors for services to the Corporation,
including fees and expenses for attendance at meetings of the Board and of all
committees of the Board.
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2.06 INDEMNIFICATION OF DIRECTORS AND OFFICERS - LIABILITY
INSURANCE -
(a) The Corporation does hereby indemnify any officer or
director of the Corporation who was, or is, a party, or is threatened to be made
a party, to any threatened, pending or completed claim, action, or proceeding,
whether civil, criminal, administrative, or investigative, including appeals,
other than an action by or in the right of the Corporation, by reason of the
fact that he is or was a director, an officer, an employee, or an agent of the
Corporation or is, or was, serving at the request of the Corporation as a
director, officer, partner, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against expenses,
including attorneys' fees, judgments, fines, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere, or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
(b) The Corporation does hereby indemnify any officer or
director of the Corporation who was, or is, a party, or is threatened to be made
a party, to any threatened, pending, or completed claim or action by, or in the
right of, the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, an officer, an employee, or an agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against expenses,
including attorneys' fees, actually and reasonably incurred by him in connection
with the defense or settlement of such action if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless, and only to the extent that the court in which such action
was brought shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
(c) To the extent that a director or an officer of the
Corporation has been successful on the merits or otherwise in defense of any
action or proceeding referred to in subsections (a) and (b) of this section or
in defense of any claim, issue, or matter therein, he shall be indemnified
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection therewith, notwithstanding that he has not been successful on
any other claim, issue, or matter in any such action or proceeding.
(d) Any indemnification under subsections (a) and (b) of this
section, unless ordered by a court, shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director or officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made:
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(i) By the Board of Directors by a majority vote of a
quorum consisting of directors who were not parties to, or who have been wholly
successful on the merits or otherwise with respect to such claim, action, or
proceeding;
(ii) If such a quorum is not obtainable, or even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion; or
(iii) By the stockholders.
(e) Expenses, including attorneys' fees, incurred in
defending a civil or criminal claim, action, or proceeding may be paid by the
Corporation in advance of the final disposition of such claim, action, or
proceeding as authorized in the manner provided in subsection (d) of this
section upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if, and to the extent that, it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation as
authorized in this section.
(f) The indemnification authorized by this section
shall not be deemed exclusive of, and shall be in addition to, any other
rights, whether created prior or subsequent to the enactment of this section,
to which those indemnified may be entitled under any statute, rule of law,
provision of articles of incorporation, by-law, agreement, or vote of
stockholders or disinterested directors, or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office and shall continue as to a person who has ceased to be a director or an
officer, and shall inure to the benefit of the heirs, executors, and
administrators of such a person.
(g) The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director or an
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, partner, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against
any liability asserted against him and incurred by him in any such capacity or
arising out of his status as such, whether or not the Corporation would have
the power to indemnify him against such liability under the provisions of this
section.
III. OFFICERS AND AGENTS
3.01 EXECUTIVE OFFICERS - The executive officers of this
Corporation shall consist of a Chairman of the Board, a President, one or more
Vice Presidents, a Secretary, and a Treasurer. In addition, the Board of
Directors of this Corporation may, but shall not be required to elect one or
more of the following: Executive Vice President, Senior Vice President,
Assistant Treasurer, and Assistant Secretary. In addition, the Board of
Directors of this Corporation may, but shall not be required to elect a
Controller. The Chairman of the Board and the President shall be members of
the Board of Directors; the other officers may, but need not be directors. The
Chairman of the Board and the President may be the same person, and the
Secretary and Treasurer may be the same person, and an Executive Vice
President, a Senior Vice President, or a Vice President may also hold the
office of Secretary or Assistant Secretary, Treasurer, Controller, or
Assistant Treasurer, provided, however, that the Chairman of the Board may not
also hold the offices of Executive Vice President, Senior Vice President, or
Vice President; that the President may not also hold the office of Executive
Vice President, Senior Vice President, or Vice President and that an Executive
Vice President, a Senior Vice President, or a Vice President may hold either but
not both the offices of Secretary and Treasurer.
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Except where otherwise expressly provided in a written contract duly
authorized by the Board of Directors, all officers, agents, and employees shall
be subject to removal at any time by the affirmative vote of a majority of the
directors for the time being in office, and all officers, agents, and employees
other than officers elected or appointed by the Board of Directors shall also be
subject to removal at any time by the officer appointing them.
In addition to the powers and duties of the officers of the Corporation
as set forth in these By Laws and except as otherwise provided in the
Certificate of Incorporation, they shall have such authority and shall perform
such duties as from time to time may be determined by the Board of Directors.
3.02 CHIEF EXECUTIVE OFFICER - The Board of Directors shall by
resolution duly adopted, designate one of the executive officers of the
Corporation as the chief executive officer of the Corporation, and the officer
so designated by the Board of Directors shall, subject to the control of the
Board of Directors, have general charge and control of the business and affairs
of the Corporation and shall perform such other duties as may from time to time
be assigned to him by the Board of Directors. The designation by the Board of
Directors of one of such executive officers other than the Chairman of the Board
as the chief executive officer of the Corporation shall not affect the duties
required to be performed by the Chairman of the Board of the Corporation under
the provisions of Sections 1.06 and 1.08 of these By Laws.
3.03 THE CHAIRMAN OF THE BOARD - The Chairman of the Board shall
preside at all meetings of the stockholders and of the directors at which he is
present, and shall perform such other duties as may, from time to time, be
assigned to him by the Board of Directors. The Chairman of the Board shall, in
the absence of the President or in case of his inability to act, perform the
duties and exercise the authority of the President.
3.04 THE PRESIDENT - The President shall be the chief operating officer
of the Corporation. He shall, from time to time, obtain information concerning
the affairs and business of the Corporation and shall promptly lay such
information before the Board of Directors. He shall communicate to the Board of
Directors all matters presented by any officer of the Corporation for its
consideration and shall, from time to time, communicate to the officers such
action of the Board of Directors as may, in his judgment, affect the performance
of their official duties. He shall have power to appoint and remove all agents,
and employees of the Corporation (other than its officers), and shall perform
all such other duties as are incident to the office of President and such
specific duties as may, from time to time, be assigned to him by the Board of
Directors.
In the absence of the Chairman of the Board, he shall preside at all
meetings of stockholders and at all meetings of the Board of Directors at which
he is present.
3.05 VICE PRESIDENTS - Each Vice President may have such title
designation, and each Vice President and each Executive Vice President, if there
be one or more of them, and each Senior Vice President, if there be one or more
of them, shall perform such duties and exercise such authority as from time to
time may be prescribed and conferred by the Board of Directors.
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3.06 THE SECRETARY - The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and shall keep a record of all their
proceedings. He shall give due notices of all meetings of the stockholders and
of the Board of Directors. He shall notify the several officers of the
Corporation of all action taken at any such meeting concerning matters in their
respective departments, and shall transmit to the Treasurer for proper record
copies of all contracts and resolutions providing for the payment of money to or
by the Corporation. He shall procure and keep in his files certified copies of
the minutes of all meetings of the stockholders and of the Board of Directors of
all companies a majority of whose capital stock is owned by this Corporation. He
shall be the custodian of the seal of the Corporation, of mortgages, leases, and
of such other papers and documents as shall be committed to his care by the
Board of Directors. He shall have charge of the stock transfer department and
supervision of the transfer of the stocks and of the registration and transfer
of the bonds issued by the Corporation. He shall have power to affix the seal of
the Corporation to instruments authorized by the Board of Directors and to
attest the same; and shall perform such other duties as shall be assigned to him
by the Board of Directors. He shall be sworn to the faithful discharge of his
duty.
3.07 ASSISTANT SECRETARIES - The Assistant Secretaries, if there be one
or more of them, shall exercise such of the powers and perform such of the
duties of the Secretary as shall be assigned to them by the Secretary or the
Board of Directors. Each Assistant Secretary of this Corporation be and he
hereby is authorized, in the absence or disability of the Secretary, to perform
all the duties and exercise all the powers of the Secretary. Any action which in
Article I or Article II of these By Laws it is stated shall be taken by or in
connection with the Secretary may be taken by or in connection with any
Assistant Secretary with the same effect as if he were the Secretary.
3.08 THE TREASURER - The Treasurer is authorized to receive and collect
all moneys due to the Corporation and to receipt therefor, and to endorse for
deposit to the credit of the Corporation in depositories designated by the Board
of Directors, checks, drafts, or vouchers drawn to the order of the Corporation
or payable to it. He is authorized to pay interest on obligations and dividends
on stock when due and payable. He shall cause to be kept in his office true and
full accounts of all receipts and disbursements. He shall disburse the funds of
the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements. He shall also perform such other duties as
shall be assigned to him by the Board of Directors.
3.09 CONTROLLER - The Controller, if there be one, shall, subject to
the Board of Directors, provide and maintain financial and accounting controls
over the business and affairs of the Corporation. He shall maintain, among
others, adequate records of the assets, liabilities, and financial transactions
of the Corporation, and shall direct the preparation of financial statements,
reports, and analyses. He shall perform all acts incident to the position of
controller, subject to the control of the Board of Directors, the Chairman, and
any Vice President or other executive officer charged by the Board of Directors
with general supervision of the financial affairs of the Corporation. If there
shall be no Controller, the duties set out above in this ss.3.09 shall be
performed by the Treasurer.
3.10 ASSISTANT TREASURERS - The Assistant Treasurers, if there be one
or more of them, shall exercise such of the powers and perform such of the
duties of the Treasurer as shall be assigned to them by the Treasurer or by the
Board of Directors. Each Assistant Treasurer of this Corporation be and he
hereby is authorized, in the absence or disability of the Treasurer, to perform
all the duties and exercise all the powers of the Treasurer.
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3.11 DELEGATION OF DUTIES - In case of the absence or incapacity of any
officer of this Corporation, the Board of Directors may delegate his powers and
duties for the time being to any other officer or to any director.
IV. ISSUE AND TRANSFER OF STOCK CERTIFICATES
4.01 ISSUANCE AND TRANSFER OF STOCK - The Board of Directors shall
provide for issue, transfer, and registration of the certificates representing
the capital stock of the Corporation, and shall appoint the necessary officers,
transfer agents, and registrars of transfers for that purpose.
4.02 EXECUTION OF CERTIFICATES - Until otherwise ordered by the Board
of Directors, stock certificates shall be signed by the President or by a Vice
President, and by the Secretary or an Assistant Secretary thereunto authorized
by the Board of Directors.
4.03 FACSIMILE SIGNATURES, SEAL - Unless otherwise ordered by the Board
of Directors, the signatures on stock certificates of the Chairman of the Board,
the President, an Executive Vice President, a Senior Vice President, or a Vice
President and the Secretary or an Assistant Secretary of the Corporation may be
facsimiles engraved or printed and the corporate seal to be affixed thereto may
be facsimile, engraved, or imprinted thereon. In case any officer or officers
whose facsimile signatures may be used on any stock certificate cease to be such
officer or officers, whether because of death, resignation, or otherwise, before
such certificates have been issued, such certificates shall nevertheless be
deemed to have been adopted by the Corporation and may be countersigned and
issued by any transfer agent or registrar as though such person or persons whose
facsimile signatures have been used thereon had not ceased to be such officer or
officers of the Corporation.
4.04 TRANSFER OF STOCK - Transfers of stock shall be made on the books
of the Corporation only by order of the person in whose name such stock is
registered or by his attorney lawfully constituted in writing, and unless
otherwise authorized by the Board of Directors, only upon surrender and
cancellation of the old certificate. No new stock certificate shall be issued to
a transferee until the transfer has been made on the books of the Corporation.
4.05 REPLACEMENT CERTIFICATES - In case any stock certificate shall be
lost, by theft or otherwise, or destroyed, the Board of Directors in its
absolute discretion may order the issuance of a new certificate in lieu thereof,
upon delivery to the Corporation of a bond of indemnity satisfactory to the
Board.
4.06 CLOSING TRANSFER BOOKS, RECORD DATE - The Board of Directors may
fix in advance any period of not more than thirty days preceding any dividend
payment date or any date for the allotment of rights, during which the stock
transfer books shall be closed; or in the event that the Board of Directors
shall not have fixed such period, it may fix a date not more than thirty days
preceding any dividend payment date or any date for the allotment of rights, as
a record date for the determination of the stockholders entitled to receive such
dividends or rights, as the case may be; and only stockholders of record on such
date shall be entitled to receive such dividends or rights, as the case may be.
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V. CHECKS - NOTES - DRAFTS - ETC.
5.01 Unless otherwise directed by the Board of Directors, all notes,
acceptances, checks, drafts, and orders for the payment of money shall be signed
by the Treasurer, the Controller, or an Assistant Treasurer and any one of the
following officers of the Corporation: Chairman of the Board, President,
Executive Vice President, Senior Vice President, any Vice President, Secretary,
Treasurer, Assistant Secretary, and Assistant Treasurer.
VI. GENERAL PROVISIONS
6.01 DUTIES - All officers, agents, and employees, in exercise of the
powers conferred and the performance of the duties imposed upon them, by these
By Laws or otherwise, shall at all times be subject to the direction,
supervision, and control of the Board of Directors.
6.02 EXECUTION OF INSTRUMENTS - Except as otherwise ordered by the
Board of Directors, the chairman of the Board, the President, the Executive Vice
President, a Senior Vice President, and each Vice President shall severally have
power to execute on behalf of the Corporation any deed, bond, indenture,
certificate, contract, or other instrument, and to cause the corporate seal
thereto to be affixed and attested by the Secretary or an Assistant Secretary.
6.03 STOCK OF THE CORPORATION - Shares of stock belonging to the
Corporation need not stand in the name of the Corporation but may be held for
the benefit of the Corporation in the individual name of the Chairman of the
Board, the President or of the Secretary or the Treasurer or of any other
officer designated for the purpose by the Board of Directors. The certificates
for stock so held for the benefit of the Corporation shall be in proper transfer
form and shall be kept in the safe deposit vaults of the Corporation, subject to
access thereto as shall be ordered from time to time by the Board of Directors.
Unless otherwise ordered by the Board of Directors, the Chairman of the Board,
the President or any Vice-President, or such other officer as may be designated
by the Board of Directors to act in the absence of the Chairman of the Board,
the President or any Vice President, shall have full power and authority on
behalf of the Corporation to attend and to act and to vote, and to execute a
proxy or proxies empowering others to attend and to act and to vote, at any
meetings of security holders of any corporation in which the Corporation may
hold securities, and at such meetings the Chairman of the Board, or such other
officer of the Corporation, or such proxy shall possess and may exercise any and
all rights and powers incident to the ownership of such securities, and which as
the owner thereof the Corporation might have possessed and exercised, if
present. The Chairman of the Board, or such other officer of the Corporation, or
such proxy may also exercise any part or all of such voting and other authority,
rights and power through execution of an action by written consent in lieu of a
meeting of shareholders. The Secretary or any Assistant Secretary may affix the
corporate seal to any such proxy or proxies so executed by the Chairman of the
Board, or such other officer, and attest the same. The Board of Directors by
resolution from time to time may confer like powers upon any other person or
persons.
6.04 WAIVER OF NOTICE - Any stockholder, director, or officer may waive
any notice required to be given to him under these By Laws.
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6.05 OFFICES - In addition to its principal office in the State of
Alabama, the Corporation may have an office or offices, either within or without
the State.
6.06 CORPORATE SEAL - The Corporate seal shall be circular in form,
with the words "Alagasco, Inc." on the outer margin thereof and bearing on the
inner portion the words "Corporate Seal, 1978". The corporate seal may be
affixed by impression, printing, engraving, or by use of a rubber stamp.
6.07 AMENDMENT OF BY LAWS - These By Laws may be altered, amended, or
repealed at any meeting of stockholders, by vote of the holders, present in
person or by proxy, of a majority of all of the stock which at the time shall be
entitled to vote at elections of directors, or by the Board of Directors at any
meeting thereof, by vote of a majority of all the members of the Board.
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Exhibit 3(e)
ALABAMA GAS CORPORATION
BY-LAWS
As Amended Through July 22, 1998
ARTICLE I
SECTION 1. The annual meeting, for the purpose of electing Directors
and transacting any other proper business, shall be held at 10:00 A.M. on the
fourth Wednesday in January of each year, if not a legal holiday, and if a legal
holiday then on the first succeeding business day not a legal holiday, or at
such other date and time as shall be designated from time to time by the Board
of Directors and stated in the notice of the meeting. Special meetings may be
held, and shall be called by the Secretary, whenever directed by the Chairman of
the Board or the President or whenever requested by a majority of the directors,
either by vote at a meeting or in writing.
SECTION 2. At least ten days before each annual and each special
meeting and in any event such number of days as will conform with any statutory
requirement, the Secretary shall mail or cause to be mailed to each stockholder
entitled to vote at the meeting, at his address appearing on the books of the
corporation, a notice which shall state the time and the place of the meeting,
and, in the case of a special meeting, shall state also the objects or purposes
of the meeting.
SECTION 3. All meetings of the stockholders, including meetings for the
election of directors, shall be held at the principal office of the corporation
in the City of Birmingham, Alabama.
SECTION 4. Prior to each meeting of stockholders, the Board of
Directors shall either fix a period of not less than ten days preceding the day
of the meeting during which the stock transfer books shall be closed, or fix a
date not less than ten days preceding the day of the meeting as a record date
for the determination of the stockholders entitled to notice of and to vote at
such meeting, and when a record date shall have been so fixed, only stockholders
of record on such date shall be entitled to notice of and to vote at such
meeting.
SECTION 5. Stockholders may vote in person or by proxy. The vote of
stockholders for the election of directors, or upon any question before a
meeting, need not be by ballot except when required by statute or demanded by a
stockholder of record entitled to vote at the meeting; when so required or
demanded, the vote shall be by ballot. All questions shall be decided by the
vote of a majority of the shares voting on the question, except where otherwise
required by statute or by the Certificate of Incorporation, as now or hereafter
amended.
SECTION 6. The Chairman of the Board, and in his absence, the
President, or in the absence of both, the Executive Vice President, shall call
meetings of stockholders to order and act as Chairman of such meeting. In the
absence of all these officers the Board of Directors shall appoint a chairman of
the meeting, but if the Board shall not make such appointment, then, any
stockholder or the proxy of any stockholder may call the meeting to order, and a
chairman shall be elected.
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SECTION 7. The Secretary or any Assistant Secretary may act as
Secretary of any meeting of stockholders; but the Board of Directors before the
meeting may designate any person to act as secretary thereof, and if no such
designation shall have been made, then the Chairman of the meeting may appoint
any person to act as secretary thereof.
SECTION 8. At each meeting of the stockholders at which the voting
shall be by ballot, the voting shall be conducted and all questions touching the
qualifications of the voters, the validity of proxies and the acceptance or
rejection of votes shall be decided by one judge. Such judge may be an officer
of the corporation and may be appointed before the meeting by the board of
directors, but if no such appointment shall have been made, then by the Chairman
of the meeting; and if for any reason any judge previously appointed shall fail
to attend, or refuse or be unable to serve, then a judge to act in his place
shall be appointed by the Chairman of the meeting. No such judge need be a
stockholder.
SECTION 9. At each meeting of stockholders, except as otherwise
provided by statute or by the Certificate of Incorporation or an amendment
thereof, the holders of a majority of all of the stock which at the time shall
be entitled to vote, present in person or represented by proxy, shall be
requisite for the transaction of business and shall constitute a quorum. A
meeting of the stockholders may be adjourned to any day, and from time to time,
as such meeting shall determine, whether or not a quorum be present The time and
place to which an adjournment is taken shall be publicly announced at the
meeting, and no further notice thereof shall be necessary.
ARTICLE II
Board of Directors
SECTION 1. The general management of the property, business and affairs
of the Corporation shall be vested in a Board of Directors, eleven in number,
who shall hold office until the next annual meeting of the stockholders and
until others are duly chosen in their place and shall have qualified.
SECTION 2. The Board of Directors may provide for stated meetings at
regular intervals to be held pursuant to a standing resolution of the Board. No
notice of such meetings need be given. Special meetings of the Board may be
called upon written instructions signed by the Chairman of the Board, the
President or a Vice President, or at least two of the directors, and delivered
to the Secretary of the Corporation, stating the time and place thereof. The
Secretary shall give, or cause to be given, notice of the time and place of
holding each special meeting by mailing the same at least thirty-six (36) hours
before the meeting or by causing the same to be transmitted by telephone, cable
or wire message at least twenty-four (24) hours before the meeting to each
director to his address on file with the Secretary of the Company.
The directors may hold their meetings at such place or places, either
within or without the State of Alabama, as the board shall designate from time
to time.
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SECTION 3. A majority of the directors shall constitute a quorum for
the transaction of business at meetings of the board. Subject to the provisions
of the Certificate of Incorporation, as amended, vacancies in the board shall be
filled by a majority of the directors then in office. A majority of the
directors present at any meeting may adjourn the meeting until a later day or
hour, or sine die, whether or not a quorum be present. A minute of such
adjournment shall be entered on the records by the Secretary, and no further
notice thereof shall be necessary.
SECTION 4. The Board of Directors may adopt such rules and regulations
for the conduct of its meetings and the management of the affairs of the
corporation as it may deem proper not inconsistent with these by-laws or the
certificate of incorporation and the amendments thereof.
SECTION 5. The Board of Directors shall fix and authorize the payment
of compensation for all officers of the corporation, including such officers as
may be directors of the corporation, for services to the corporation; and shall
fix and authorize the payment of compensation and expenses to the directors for
services to the corporation, including fees and expenses for attendance at
meetings of the board, of the executive committee and of all other committees.
SECTION 6. Each Director and officer, whether or not then in office,
shall be indemnified by the Corporation against all costs and expenses
reasonably incurred by or imposed upon him after February 28, 1949, in
connection with or resulting from any action, suit or proceeding to which he may
be made a party by reason of his being or having been a Director or officer of
the Corporation, except in relation to matters as to which a recovery shall be
had against him by reason of his having been finally adjudged in such action,
suit or proceeding to have been derelict in the performance of his duties as
such Director or officer.
SECTION 7. The foregoing right to indemnity shall include reimbursement
of the amounts and expenses paid in settling any such action, suit or
proceeding, when settling appears to be in the interest of the Corporation, and
shall not be exclusive of other rights to which such Director or officer may be
entitled as a matter of law.
ARTICLE III
Officers and Agents
SECTION 1. The officers of this corporation shall consist of a Chairman
of the Board, a President, one or more Vice Presidents, a Secretary, and a
Treasurer. In addition, the Board of Directors of this corporation may, but
shall not be required to, elect one or more of the following: Executive Vice
President, Senior Vice President, Assistant Vice President, Assistant Secretary,
and Assistant Treasurer. In addition, the Board of Directors of this Corporation
may, but shall not be required to, elect a Controller. The Chairman of the Board
and the President shall be members of the Board of Directors; the other officers
may, but need not be Directors. The Chairman of the Board and the President may
be the same person, and the Secretary and Treasurer may be the same person; and
the Executive Vice President, a Senior Vice President, or a Vice President may
also hold the office of Secretary or Assistant Secretary or Treasurer or
Assistant Treasurer or Controller, provided, however, that the Chairman of the
Board may not also hold the offices of either Executive Vice President, Senior
Vice President, or Vice President; that the President may not also hold the
office of Executive Vice President, Senior Vice
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President, or Vice President; and that an Executive Vice President, a Senior
Vice President, or a Vice President may not hold both the offices of Secretary
and Treasurer.
Except where otherwise expressly provided in a written contract duly
authorized by the Board of Directors, all officers, agents and employees shall
be subject to removal at any time by the affirmative vote of a majority of the
Directors for the time being in office, and all officers, agents and employees
other than officers elected or appointed by the Board of Directors shall also be
subject to removal at any time by the officer appointing them.
In addition to the powers and duties of the officers of the corporation
as set forth in these By-laws and except as otherwise provided in the
Certificate of Incorporation, they shall have such authority and shall perform
such duties as from time to time may be determined by the Board of Directors.
SECTION 2. The Board of Directors shall by resolution duly adopted,
designate one of the executive officers of the corporation as the chief
executive officer of the corporation and the officer so designated by the Board
of Directors shall, subject to the control of the Board of Directors, have
general charge and control of the business and affairs of the corporation and
shall perform such other duties as may from time to time be assigned to him by
the Board of Directors. The designation by the Board of Directors of one of such
executive officers other than the Chairman of the Board as the chief executive
officer of the corporation shall not affect the duties required to be performed
by the Chairman of the Board of the corporation under the provisions of Sections
6 and 8 of Article I of these By-laws. The Chairman of the Board shall preside
at all meetings of the stockholders and of the Directors at which he is present,
and shall perform such other duties as may, from time to time, be assigned to
him by the Board of Directors.
SECTION 3. The President shall be the chief operating officer of the
corporation. He shall, from time to time, obtain information concerning the
affairs and business of the corporation and shall promptly lay such information
before the Board of Directors. He shall communicate to the Board of Directors
all matters presented by any officer of the corporation for its consideration
and shall, from time to time, communicate to the officers such action of the
Board of Directors as may, in his judgment, affect the performance of their
official duties. He shall have power to appoint and remove all servants, agents
and employees of the corporation (other than its officers), and shall perform
all such other duties as are incident to the office of President and such
specific duties as may, from time to time, be assigned to him by the Board of
Directors.
In the absence of the Chairman of the Board he shall preside at all
meetings of stockholders and at all meetings of the Board of Directors at which
he is present.
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SECTION 4. The Chairman of the Board shall in the absence of the
President or in case of his inability to act, perform the duties and exercise
the authority of the President. Each Vice President may have such title
designation, and each Vice President, and the Executive Vice President, if there
be one, each Senior Vice President, if there be one or more of them, and each
Assistant Vice President, if there be one or more of them, shall perform such
duties and exercise such authority as from time to time may be prescribed and
conferred by the Board of Directors.
SECTION 5. The Secretary shall attend all meetings of the stockholders
and of the Board of Directors and shall keep a record of all their proceedings.
He shall give due notices of all meetings of the Stockholders and of the Board
of Directors. He shall notify the several officers of the corporation of all
action taken at any such meeting concerning matters in their respective
departments, and shall transmit to the Treasurer for proper record copies of all
contracts and resolutions providing for the payment of money to or by the
corporation. He shall procure and keep in his files certified copies of the
minutes of all meetings of the stockholders and of the Board of Directors of all
companies a majority of whose capital stock is owned by this corporation. He
shall be the custodian of the seal of the corporation, of mortgages, leases, and
of such other papers and documents as shall be committed to his care by the
Board of Directors. He shall have charge of the transfer department and
supervision of the transfer of the stocks and of the registration and transfer
of the bonds issued by the corporation. He shall have power to affix the seal of
the corporation to instruments authorized by the Board of Directors and to
attest the same; and shall perform such other duties as shall be assigned to him
by the Board of Directors. He shall be sworn to the faithful discharge of his
duty.
SECTION 6. The Assistant Secretaries shall exercise such of the powers
and perform such of the duties of the Secretary as shall be assigned to them by
the Secretary or the Board of Directors. Each Assistant Secretary of this
corporation be and he hereby is authorized, in the absence or disability of the
Secretary, to perform all the duties and exercise all the powers of the
Secretary. Any action which in Article I or Article II of these by-laws it is
stated shall be taken by or in connection with the Secretary may be taken by or
in connection with any Assistant Secretary with the same effect as if he were
the Secretary.
SECTION 7. The Treasurer is authorized to receive and collect all
moneys due to the corporation and to receipt therefor, and to endorse for
deposit to the credit of the corporation in depositories designated by the Board
of Directors, checks, drafts or vouchers drawn to the order of the corporation
or payable to it. He is authorized to pay interest on obligations and dividends
on stock when due and payable. He shall cause to be kept in his office true and
full accounts of all receipts and disbursements. He shall disburse the funds of
the corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements. He shall also perform such other duties as
shall be assigned to him by the Board of Directors.
SECTION 8. The Controller, if there be one, shall, subject to the Board
of Directors, provide and maintain financial and accounting controls over the
business and affairs of the Corporation. He shall maintain, among others,
adequate records of the assets, liabilities, and financial transactions of the
Corporation, and shall direct the preparation of financial statements, reports,
and analyses. He shall perform all acts incident to the position of Controller,
subject to the control of the Board of Directors, the Chairman, and any Vice
President or other executive officer charged by Board of Directors with general
supervision of the financial affairs of the
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Corporation. If there shall be no Controller, the duties set out above in this
Section 8 shall be performed by the Treasurer.
SECTION 9. The Assistant Treasurers shall exercise such of the powers
and perform such of the duties of the Treasurer as shall be assigned to them by
the Treasurer or by the Board of Directors. Each Assistant Treasurer of this
corporation be and he hereby is authorized, in the absence or disability of the
Treasurer, to perform all the duties and exercise all the powers of the
Treasurer.
SECTION 10. In case of the absence or incapacity of any officer of this
corporation, the Board of Directors may delegate his powers and duties for the
time being to any other officer or to any Director.
ARTICLE IV
Issue and Transfer of Stock Certificates
SECTION 1. The Board of Directors shall provide for issue, transfer and
registration of the certificates representing the capital stock of the
corporation, and shall appoint the necessary officers, transfer agents and
registrars of transfers for that purpose.
SECTION 2. Until otherwise ordered by the Board of Directors, stock
certificates shall be signed by the President or by a Vice President, and by the
Secretary or an Assistant Secretary thereunto authorized by the Board of
Directors.
SECTION 3. Unless otherwise ordered by the Board of Directors, the
signatures on stock certificates of the President, the Executive Vice President
or a Vice President and Secretary or Assistant Secretary of the Company may be
facsimiles engraved or printed and the corporate seal to be affixed thereto may
be a facsimile, engraved or imprinted thereon. In case any officer or officers
whose facsimile signatures may be used on any stock certificate cease to be such
officer or officers, whether because of death, resignation, or otherwise, before
such certificates have been issued, such certificates shall nevertheless be
deemed to have been adopted by the corporation and may be countersigned and
issued by any transfer agent or registrar as though such person or persons whose
facsimile signatures have been used thereon had not ceased to be such officer or
officers of the corporation.
SECTION 4. Transfers of stock shall be made on the books of the
corporation only by order of the person in whose name such stock is registered
or by his attorney lawfully constituted in writing, and unless otherwise
authorized by the Board of Directors, only upon surrender and cancellation of
the old certificate. No new stock certificate shall be issued to a transferee
until the transfer has been made on the books of the corporation.
SECTION 5. In case any stock certificate shall be lost, by theft or
otherwise, or destroyed, the Board of Directors in its absolute discretion may
order the issuance of a new certificate in lieu thereof, upon delivery to the
corporation of a bond of indemnity satisfactory to the board.
SECTION 6. The Board of Directors may fix in advance any period of not
more than thirty days preceding any dividend payment date or any date for the
allotment of rights, during
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which the stock transfer books shall be closed; or in the event that the Board
of Directors shall not have fixed such period, it may fix a date not more than
thirty days preceding any dividend payment date or any date for the allotment of
rights, as a record date for the determination of the stockholders entitled to
receive such dividends or rights, as the case may be; and only stockholders of
record on such date shall be entitled to receive such dividends or rights, as
the case may be.
ARTICLE V
Checks - Notes - Drafts - Etc.
SECTION 1. Unless otherwise directed by the Board of Directors, all
notes, acceptances, checks, drafts and orders for the payment of money shall be
signed by the Treasurer, Controller, or an Assistant Treasurer and any one of
the following officers of the corporation: Chairman of the Board, President,
Executive Vice President, Senior Vice President, any Vice President, Secretary,
Treasurer, Controller, Assistant Secretary and Assistant Treasurer.
ARTICLE VI
General Provisions
SECTION 1. All officers, agents and employees, in exercise of the
powers conferred and the performance of the duties imposed upon them, by these
by-laws or otherwise, shall at all times be subject to the direction,
supervision and control of the Board of Directors.
SECTION 2. Except as otherwise ordered by the Board of Directors, the
Chairman of the Board, the President, the Executive Vice President and each Vice
President shall severally have power to execute on behalf of the corporation any
deed, bond, indenture, certificate, contract or other instrument, and to cause
the corporate seal to be thereto affixed and attested by the Secretary or an
Assistant Secretary.
SECTION 3. Unless otherwise ordered by the Board of Directors, the
Chairman of the Board, the President or any Vice-President, or such other
officer as may be designated by the Board of Directors to act in the absence of
the Chairman of the Board, the President or any Vice President, shall have full
power and authority on behalf of the corporation to attend and to act and to
vote, and to execute a proxy or proxies empowering others to attend and to act
and to vote, at any meetings of security holders of any corporation in which the
corporation may hold securities, and at such meetings the Chairman of the Board,
or such other officer of the corporation, or such proxy shall possess and may
exercise any and all rights and powers incident to the ownership of such
securities, and which as the owner thereof the corporation might have possessed
and exercised, if present. The Chairman of the Board, or such other officer of
the corporation, or such proxy may also exercise any part or all of such voting
and other authority, rights and power through execution of an action by written
consent in lieu of a meeting of shareholders. The Secretary or any Assistant
Secretary may affix the corporate seal to any such proxy or proxies so executed
by the Chairman of the Board, or such other officer, and attest the same. The
Board of Directors by resolution from time to time may confer like powers upon
any other person or persons.
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SECTION 4. Any stockholder, director or officer may waive any notice
required to be given to him under these by-laws.
SECTION 5. In addition to its principal office in the State of Alabama,
the corporation may have an office or offices, either within or without the
State.
SECTION 6. The corporate seal shall be an impression on wax or paper,
circular in form, with the words "Alabama Gas Corporation, Alabama" on the outer
margin thereof and bearing on the inner portion the words "Corporate Seal,
1929."
SECTION 7. These by-laws may be altered, amended or repealed at any
meeting of stockholders, by vote of the holders, present in person or by proxy,
of a majority of all of the stock which at the time shall be entitled to vote at
elections of directors, or at any meeting of the Board of Directors, by vote of
a majority of all the members of the board.
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EXHIBIT 10(c)
Form Rev. 9/24/97
EXECUTIVE RETIREMENT SUPPLEMENT AGREEMENT
THIS EXECUTIVE RETIREMENT SUPPLEMENT AGREEMENT made effective as of
between Energen Corporation, a corporation (the "Company"),
and (the "Executive").
RECITALS
The Executive has been employed by the Company and/or one or more of
its subsidiaries for a number of years, and as an employee has provided capable
executive leadership and management so as to enable the Company to operate
efficiently and effectively. The Company and the Executive desire to enter into
this Agreement to provide for payment to the Executive and the Executive's
eligible spouse certain deferred compensation in the form of a retirement
supplement under certain circumstances.
NOW, THEREFORE, in consideration of the mutual promises of the parties
and the parties agree as follows:
ARTICLE 1--DEFINITIONS
1.1 Agreement: This document, including any attached schedules, and any
amendments to the same.
1.2 Birthday: An anniversary of the Executive's birth regardless of
whether the Executive survives to such anniversary.
1.3 Cause: Termination of employment by the Employer for "Cause" shall
mean TERMINATION based on any of the following:
(a) The willful and continued failure by the Executive to
substantially perform such Executive's duties with the Employer (other than any
such failure resulting from such Executive's incapacity due to physical or
mental illness) after a written demand for substantial performance is delivered
to the Executive specifically identifying the manner in which such Executive has
not substantially performed such Executive's duties;
(b) The engaging by the Executive in willful misconduct which is
demonstrably injurious to the Employer monetarily or otherwise; or
(c) The conviction of the Executive of a felony.
1.4 Code: The Internal Revenue Code of 1986, as the same may from time
to time be amended.
1.5 Committee: The Officers Review Committee of the Board of Directors
of the Company or any person or persons appointed by the Board of Directors to
administer the Agreement.
<PAGE> 2
1.6 Compensation: The sum of A plus B. For purposes of this definition,
A shall equal the average aggregate monthly basic pay from all Employers for the
36 consecutive calendar months during which the Executive had the highest
average monthly basic pay out of the 60 calendar months immediately preceding
the Severance Date. For purposes of this definition, B shall equal C divided by
12, where C equals the average of the Executive's three highest annual cash
incentive awards under the Energen Annual Incentive Compensation Plan (or
successor annual cash incentive plan) for the five Company fiscal years
immediately preceding the earlier of (i) the fiscal year during which the
Severance Date occurs or (ii) the fiscal year during which the Executive's 61st
birthday occurs. Compensation shall be calculated without reduction for any
amounts deferred by the Executive pursuant to the Energen Corporation 1997
Deferred Compensation Plan and without increase for any amounts distributed to
the Executive under said Deferred Compensation Plan.
1.7 Disability: Total and permanent disability which entitles the
Executive to a disability benefit under the disability program sponsored and/or
maintained by the Company or the Executive's Employer.
1.8 Eligibility Date: The earliest date on which the Executive could be
entitled to receive the Executive's "primary insurance amount" or any portion
thereof under the federal Social Security Act as amended and in effect on the
Severance Date assuming that the Executive survives to such date.
1.9 Employer: The Company and any and all subsidiaries of the Company
and their respective successors and assigns.
1.10 Lump Sum Election: An election made by the Executive pursuant to
Section 2.5 to receive a lump sum payment in lieu of the Supplemental Retirement
Benefit.
1.11 Normal Retirement Date: The first day of the month on or next
following the Executive's 60th Birthday; provided, however, if the Executive's
employment with an Employer continues beyond such date, the first day of the
month on or next following the date on which the Executive actually Retires
shall be Normal Retirement Date.
1.12 Present Value: The present value of a benefit or benefits
determined using (i) the mortality assumptions which would be utilized to
determine actuarial equivalent benefits under the Retirement Plan for a
participant retiring on the Severance Date and (ii) either the RIP Discount Rate
or the Section 280G Discount Rate, as specified below. The "RIP Discount Rate"
is the discount rate which would be utilized to determine actuarial equivalent
benefits under the Retirement Plan for a participant retiring on the Severance
Date. The "RIP Discount Rate" shall be used to determine Present Value under
this Plan if the Severance Date results from a termination of the Executive's
employment due to death, Disability or Retirement; provided, that the RIP
Discount Rate shall not be used in connection with a Retirement if its use will
result in a parachute payment for purposes of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"). The "Section 280G Discount Rate"
is the discount rate used to determine the present value of payments under
Section 280G of the Code (or a successor provision of the Code), which rate is
in effect at the date payment is to be made. The 280G Rate shall be used to
determine Present Value under this Plan in all instances in which the RIP
Discount Rate is not applicable. If there is no Section 280G Discount Rate, then
the RIP Discount Rate shall be used. In determining whether use of the RIP
Discount
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Rate will result in a parachute payment, the Committee may rely on the advice of
its tax and/or legal advisors and, upon the request of the Executive, will at
the Company's expense obtain an opinion as to such issue from a nationally
recognized firm of certified public accountants to be selected by the Committee
in its reasonable discretion (if it otherwise qualifies, the Committee may
select a firm that is then or has previously been engaged as the Company's
independent auditor).
1.13 Retire or Retirement: Termination of employment (for whatever
reason including death) from all Employers after attaining age 60.
1.14 Retirement Plan: The "Energen Corporation Retirement Income Plan,"
as the same may be amended and in effect from time to time hereafter.
1.15 Retirement Plan Benefit: The monthly amount of retirement benefit
payable to the Executive from the Retirement Plan in the normal form, with no
election of an optional form of payment, calculated under the terms of the
Retirement Plan as in effect on the Severance Date and with the following
assumptions: (I) the Executive will accrue no Years of Service or partial Years
of Service under the Retirement Plan after the Severance Date; (ii) the first
payment to the Executive under the Retirement Plan will be made on the first day
of the month on or next following the later of the Executive's 60th Birthday or
the Severance Date; and (iii) the Executive will live to the payment date
described in the preceding clause (ii).
1.16 Service: The number of the Executive's completed months of
continuous employment with the Employer ending on the Executive's Severance
Date.
1.17 Service Factor: If the Executive has 240 or more months of Service
then the Service Factor shall equal one (l). At any time prior to the time when
the Executive has both earned a vested benefit under the Retirement Plan and
been continuously employed by an Employer for five years, the Service Factor
shall be 0. Except as otherwise provided in the foregoing sentences, the Service
Factor shall be a fraction, the numerator of which shall be the number of the
Executive's months of Service and the denominator of which shall be 240.
1.18 Severance Date: The earlier of (I) the first date on which (for
whatever reason) the Executive is no longer employed by an Employer, or (ii) the
date of termination of this Agreement pursuant to Article 3.
1.19 Social Security Benefit: The amount of the monthly benefit, as
estimated by the Committee in a consistent and uniform manner, which, under the
provisions of the federal Social Security Act as amended and in effect on the
Severance Date, such Executive is, or will be, entitled to receive as the
Executive's "primary insurance amount" or any portion thereof at the later of
the Eligibility Date or the Normal Retirement Date assuming (i) that the
Executive has or will make appropriate and timely application for such benefit,
(ii) that no event has occurred or will occur by reason of which the amount of
such benefit has been or will be delayed, suspended or forfeited in whole or in
part, (iii) that if the Severance Date occurs prior to the Executive's 60th
Birthday, the Executive will continue to receive, until the Executive's 60th
Birthday, earnings at the Compensation rate taxable as wages by the Social
Security Act, and (iv) that, after the later to occur of the Executive's 60th
birthday or Normal Retirement Date, the Executive will have no further earnings
taxable as wages by the Social Security Act.
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1.20 Spouse: The spouse to whom the Executive was married at the date
of the Executive's death and throughout the twelve-month period preceding the
Executive's Severance Date.
1.21 Supplemental Retirement Benefit: The benefit described in Section
2.2.
1.22 Supplemental Spouse's Retirement Benefit: The benefit described in
Section 2.3.
1.23 The masculine gender shall be deemed to include the feminine; the
feminine to include the masculine; the singular to include the plural; and the
plural to include the singular in each case where appropriate.
ARTICLE 2 -- BENEFITS
2.1 Eligibility. The Executive and Spouse, as applicable, shall be
entitled to the benefits described in Sections 2.2 and 2.3; provided, that no
benefits shall be paid under this Agreement if (I) the Executive's employment by
an Employer is terminated for Cause, or (ii) the Severance Date occurs for any
reason before the Executive has both earned a vested benefit under the
Retirement Plan and been continuously employed by an Employer for five years.
2.2 Supplemental Retirement Benefit. Subject to the other provisions of
this Agreement, commencing on the Executive's Normal Retirement Date the
Executive shall be entitled to receive a Supplemental Retirement Benefit, which
shall be payable monthly during the Executive's life with the last payment being
the payment made or due for the month in which the Executive dies. No benefit
shall be payable under this Section 2.2 if the Executive dies on or before the
Normal Retirement Date.
The Supplemental Retirement Benefit shall be an amount equal
to the product of "A" multiplied by the Service Factor. With respect to
Supplemental Retirement Benefit payments made for periods commencing prior to
the Eligibility Date, "A" shall equal the amount by which 60% of Compensation
exceeds the Retirement Plan Benefit. With respect to Supplemental Retirement
Benefit payments made for periods commencing on or after the Eligibility Date,
"A" shall equal the amount by which 60% of Compensation exceeds the sum of the
Retirement Plan Benefit plus the Social Security Benefit.
If the Executive terminates employment due to Disability, (I)
the period that the Executive receives disability benefits from a disability
program sponsored or maintained by an Employer shall be treated as Service, and
(ii) the Supplemental Retirement Benefit shall not commence, and the Executive
shall not be deemed to have had a Severance Date, while the Executive is
receiving disability benefits payable from a disability program sponsored or
maintained by an Employer. For purposes of this Section 2.2, reclassification
under the Retirement Plan from Disability Retirement to Retirement shall
constitute cessation of disability benefits.
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2.3 Supplemental Spouse's Retirement Benefit.
(a) Subject to the other provisions of this Agreement, following
the Executive's death the surviving Spouse shall be entitled to a Supplemental
Spouse's Retirement Benefit, which shall be payable monthly commencing on the
later of (i) the first day of the month following the month of the Executive's
death or (ii) the first day of the month of the Executive's 55th Birthday, and
continuing until the Spouse's death. The Supplemental Spouse's Retirement
Benefit shall be an amount equal to 50% of the monthly Supplemental Retirement
Benefit which the Executive would have been entitled to receive had death not
occurred (based on Service through the Severance Date and adjusting on the
Eligibility Date); provided that if the Executive's death occurs after the
Severance Date, for each of the first three months following the Executive's
death the Supplemental Spouse's Retirement Benefit shall be 100% of such amount.
(b) If the Executive shall die while a Lump Sum Election is in
effect and while the Executive is still employed by the Employer, the surviving
Spouse shall receive in lieu of the benefit described in Section 2.3(a) above, a
lump sum payment equal to one-half of the Present Value of the Supplemental
Retirement Benefit which the Executive would have been entitled to receive based
on Service through the Severance Date if the Executive had survived to the
Normal Retirement Date. Such benefit shall be paid as promptly as practicable
after the Executive's death and, in all events, within forty-five (45) days
after the Executive's death. For purposes of this Section 2.3(b), the
determination of whether a Spouse has survived the Executive shall be made in
accordance with the provisions of Section 43-8-43 of the Code of Alabama of
1975, as the same may from time to time be amended (as of the date of this
Agreement, Section 43-8-43 generally treats a person as having predeceased a
decedent unless the person survives the decedent by five days).
(c) If the Executive shall die after the Severance Date, while a
Lump Sum Election is in effect, and prior to receipt of the lump sum payment,
the lump sum benefit shall be payable to the Executive's estate and no
Supplemental Spouse's Retirement Benefit shall be payable to the surviving
Spouse, if any.
(d) If the Executive dies after payment of a lump sum pursuant to
Section 2.5, no Supplemental Spouse's Retirement Benefit shall be payable to the
Executive's surviving Spouse, if any.
(e) No benefit shall be payable following the Executive's death
except as provided in this Section 2.3.
2.4 Spouse's Age. If a Spouse who is entitled to a benefit under this
Article 2 is more than ten (10) years younger than the Executive, any benefit
payable to the Spouse under Section 2.3(a) (but not 2.3(b)) shall be reduced by
1/20 for each full year of age difference more than ten (10).
2.5 Payment Elections.
(a) By checking the appropriate box on the signature page of
this Agreement, the Executive may elect to receive, in lieu of the Supplemental
Retirement Benefit to which the Executive will otherwise become entitled under
Section 2.2 hereof, a lump sum payment
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that is the Present Value, as of the date payment is made, of such Supplemental
Retirement Benefit. Such payment shall be made as promptly as practicable after
the Executive's Severance Date and, in all events, within forty-five (45) days
after such Severance Date.
(b) By executing and filing with the Company a form
substantially identical to Exhibit I hereof, or such other form as the Company
may prescribe or approve, the Executive may revoke an election made pursuant to
paragraph (a) above or may make any election which could be made pursuant to
such paragraph, but any such election or revocation of an election shall not
become effective if the Executive's Severance Date occurs within one year from
the date such revocation or election is made.
2.6 Leave of Absence. In the event the Executive is granted a leave of
absence, the Executive's employment shall be deemed to continue and shall be
treated as Service, during the period of such leave of absence unless
specifically determined to the contrary by the Committee.
ARTICLE 3 - - AMENDMENT OR TERMINATION OF AGREEMENT
3.1 Subject to Section 3.2 below, the Company reserves the right to
terminate this Agreement at any time by action of its Board of Directors or the
Committee, and the continuance of this Agreement is not guaranteed to the
Executive.
3.2 No termination of this Agreement shall operate to reduce, cancel or
void the Company's obligation to pay benefits provided for under this Agreement
and accrued prior to the Severance Date.
3.3 This Agreement may be amended by written instrument executed by the
Executive and by an officer of the Company thereunto duly authorized by the
Board of Directors of the Company.
ARTICLE 4 - - MISCELLANEOUS
4.1 This Agreement shall under no circumstances be deemed to have any
effect upon the terms or conditions of employment of the Executive. The
establishment and maintenance of this Agreement shall not be construed as
creating or modifying any contract between an Employer and the Executive nor is
it in lieu of any other benefits. This Agreement shall under no circumstances be
deemed to constitute a contract of insurance.
4.2 This Agreement shall not give the Executive the right to be
retained in the employ of an Employer or any right or interest hereunder other
than as specifically provided herein.
4.3 Benefits under this Agreement shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge or encumbrance by
the Executive or the Spouse and any attempt to so transfer or encumber the
benefits shall be null and void. Benefits under this Agreement shall not be
subject to or liable for the debts, contracts, liabilities, engagements or torts
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of the Executive or of the Spouse nor may the same be subject to attachment or
seizure by any creditor of the Executive or the Executive's spouse under any
circumstances.
4.4 In the event of the Executive's Retirement, Disability or death,
the Executive or the Executive's Spouse, as the case may be, should notify the
Committee promptly, and the Committee will then provide a Claimant's statement
form for completion which should be returned to the Committee together with
evidence of Disability or with an official death certificate, if applicable. In
the event that any claim hereunder is denied, the Committee will provide
adequate notice in writing to the Executive or Spouse, setting forth the
specific reasons for such denial and, in addition, the Committee will afford a
reasonable opportunity for a full and fair review of those reasons.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer and the Executive has hereunto set
his/her hand and seal all as of the day and year first above written.
ENERGEN CORPORATION
By:
--------------------------------------
Its:
-------------------------------------
EXECUTIVE
-----------------------------------------
ELECTION
/ / I hereby elect to have my benefit paid as provided in
Section 2.2 of this Agreement.
/ / Pursuant to Section 2.5 of this Agreement, I hereby elect
to have my benefit paid in a lump sum.
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<PAGE> 8
EXHIBIT I
ELECTION
PURSUANT TO
EXECUTIVE RETIREMENT SUPPLEMENT AGREEMENT
I hereby revoke any and all elections heretofore made by me
pursuant to the terms of that certain Executive Retirement Supplement Agreement
entered into by and between Energen Corporation and myself dated as of ,
and elect to have my benefit
/ / paid as provided in Section 2.2 of such Agreement.
/ / paid in a lump sum pursuant to Section 2.5 of such Agreement.
I understand that the foregoing election (and revocation, if
applicable), will not become effective if my Severance Date occurs within
one-year from the date of acceptance indicated below.
-----------------------------------------
EXECUTIVE
-----------------------------------------
Accepted by:
ENERGEN CORPORATION
-----------------------------------------
By:
--------------------------------------
Its:
-------------------------------------
Date:
------------------------------------
8
<PAGE> 1
Exhibit 10(d)
SEVERANCE COMPENSATION AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of the
day of , by and between ENERGEN CORPORATION, an
Alabama corporation ("Energen"), and , ("Executive").
W I T N E S S E T H:
WHEREAS, Executive is an effective and valuable employee of Energen
and/or one or more of its subsidiaries;
WHEREAS, Executive desires certain assurances with respect to any change
in control of Energen;
WHEREAS, Energen recognizes that the uncertainties involved in a
potential or actual change in control of Energen could result in the distraction
or departure of management personnel such as Executive to the detriment of
Energen and its shareholders; and
WHEREAS, Energen desires to lessen the personal and economic pressure
which a potential or actual change in control may impose on Executive and
thereby facilitate Executive's ability to bargain successfully for the best
interests of Energen's shareholders in the event of such a change in control;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, Energen and Executive hereby agree as follows:
Section 1. Definitions. As used in this Agreement the following words
and terms shall have the following meanings:
(a) "Applicable Period" means the period commencing with the earliest
date that a Change in Control occurs and ending on the last day of the
thirty-sixth calendar month following the calendar month during which such
Change in Control occurred. Anything in this Agreement to the contrary
notwithstanding, if a Change in Control occurs, and if the Date of Termination
with respect to Executive's employment with Energen occurs prior to the date on
which the Change in Control occurs, and if it is reasonably demonstrated by
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect the Change in Control
or (ii) otherwise arose in connection with or in anticipation of the Change in
Control, then for all purposes of this Agreement the "Applicable Period" shall
be deemed to have commenced on the date immediately preceding the Date of
Termination.
<PAGE> 2
(b) "Cause". Termination of employment by Employer for "Cause" shall
mean termination based on any of the following:
(1) The willful and continued failure by the Executive to
substantially perform Executive's duties with Employer (other than any such
failure resulting from Executive's incapacity due to physical or mental illness)
after a written demand for substantial performance is delivered to Executive
specifically identifying the manner in which Executive has not substantially
performed Executive's duties;
(2) The engaging by Executive in willful misconduct which is
demonstrably injurious to Employer monetarily or otherwise; or
(3) The conviction of Executive of a felony.
(c) "Change in Control" means the occurrence of any one or more of the
following:
(1) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13(d)-3 promulgated under the
Exchange Act) of 25% or more of either (i) the then outstanding shares of common
stock of Energen (the "Outstanding Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of Energen entitled to vote
generally in the election of directors (the "Outstanding Voting Securities");
provided, however, that for purposes of this subsection (1) any acquisition by
an employee benefit plan (or related trust) sponsored or maintained by Energen
or any corporation controlled by Energen shall not constitute a Change in
Control;
(2) Individuals who, as of September 1, 1998, constitute the
Board of Directors of Energen (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors of Energen (the "Board
of Directors"); provided, however that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
Energen's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board of Directors;
(3) Consummation of a reorganization, merger or consolidation,
or sale or other disposition of all or substantially all of the assets, of
Energen (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding Common
Stock and Outstanding Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 75% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting
2
<PAGE> 3
securities entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such transaction owns
Energen or all or substantially all of Energen's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the Outstanding
Common Stock and Outstanding Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of Energen or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 25% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board of Directors, providing for such
Business Combination;
(4) Any transaction or series of transactions which is expressly
designated by resolution of the Board of Directors to constitute a Change in
Control for purposes of this Agreement.
(d) "Code" means the Internal Revenue Code of 1986, as the same may be
from time to time amended.
(e) "Compensation" means an amount equal to the sum of (A) plus (B),
where (A) is the Executive's annualized base salary in effect immediately prior
to the Change in Control, and (B) is the highest annual bonus awarded Executive
by Employer pursuant to the Energen Annual Incentive Compensation Plan (or any
successor annual cash incentive plan) with respect to the three (3) fiscal years
immediately preceding the fiscal year in which the Change in Control occurs.
Compensation shall be calculated without reduction for any amounts deferred by
the Executive pursuant to the Energen Corporation 1997 Deferred Compensation
Plan.
(f) "Date of Termination" means the date that a termination of
Executive's employment with Employer is first effective.
(g) "Disability" means the total and permanent disability which entitles
Executive to a disability benefit under a disability program sponsored and/or
maintained by Energen.
(h) "Employer" means Energen and its Subsidiaries.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(j) "Good Reason" means the occurrence during an Applicable Period of
any of the following events without Executive's prior written consent:
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<PAGE> 4
(1) The assignment to Executive by Employer of duties
inconsistent with Executive's position, authority, duties, responsibilities and
status with Employer immediately prior to a Change in Control, or a change in
Executive's titles or offices as in effect immediately prior to a Change in
Control, or any removal of Executive from or any failure to reelect Executive to
any of such positions, if such assignment, change, or removal results in a
diminution in Executive's position, authority, duties, responsibilities or
status with Employer immediately prior to a Change in Control or any other
action by Employer that results in such a diminution in Executive's position,
authority, duties, responsibilities or status;
(2) A reduction in Executive's aggregate rate of monthly base
pay from the Employer;
(3) The termination or material adverse modification of the
Energen Annual Incentive Compensation Plan or the Energen Corporation 1996
Long-Range Performance Share Plan (or any other short or long-term incentive
compensation plan in effect immediately prior to a Change in Control) without
substitution of new short or long-term incentives providing comparable
compensation opportunities for Executive.
(4) A failure by Employer to use its best efforts to provide
Executive with either the same fringe benefits (including retirement benefits
and paid vacations) as were provided to Executive immediately prior to a Change
in Control or a package of fringe benefits that, though one or more of such
benefits may vary from those in effect immediately prior to the Change in
Control, is substantially comparable in all material respects to the fringe
benefits (taken as a whole) in effect prior to a Change in Control;
(5) Executive's relocation by Employer to any place more than 25
miles from the location at which Executive performed the substantial portion of
Executive's duties prior to a Change in Control, except for required travel by
Executive on Employer's business to an extent substantially consistent with
Executive's business travel obligations immediately prior to such Change in
Control;
(6) Any material breach by Energen of any provision of this
Agreement or any other agreement between Energen and Executive which breach
continues for a period of thirty days following delivery by Executive to Energen
of written notice of such breach.
(k) "Independent Auditor" means the firm of certified public accountants
which at the time of the Change in Control had been most recently engaged by
Energen to prepare Energen's audited financial statements, or any other firm of
certified public accountants mutually agreeable to Energen and Executive.
(l) "Notice of Termination" has the meaning set forth in Section 2(a) of
this Agreement.
(m) "Qualified Termination" shall mean
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<PAGE> 5
(1) during a Window Period, any termination (including
retirement) of Executive's employment, other than for Cause, death or
Disability, and
(2) during the Applicable Period but not during a Window Period,
(i) any termination by Employer of Executive's
employment other than for Cause,
(ii) a termination of Executive's employment which
Executive and Energen agree in writing will constitute a Qualified Termination
for purposes of this Agreement, and
(iii) a voluntary termination of Executive's employment
by Executive for Good Reason.
(n) "Subsidiary" means any corporation, the majority of the outstanding
voting stock of which is owned directly or indirectly, by Energen.
(o) "Window Period" shall mean the 30-day period immediately following
the first anniversary of a Change in Control.
Section 2. Notice of Termination. During any Applicable Period:
(a) Any termination for Cause or Good Reason shall be communicated to
the other party by written notice ("Notice of Termination") referencing this
Agreement and, indicating in reasonable detail the facts and circumstances
providing a basis for such termination. The failure of Executive or Employer to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Cause or Good Reason shall not waive any right of
Executive or Energen hereunder or preclude Executive or Energen from asserting
or relying upon the omitted fact or circumstance in enforcing Executive's or
Energen's rights hereunder.
(b) Termination for Cause or Good Reason shall be effective upon
delivery of a Notice of Termination or at such later date as may be specified in
the Notice of Termination. In the event that each party delivers a Notice of
Termination, the Notice of Termination first delivered shall establish the
effective date of such Notice of Termination.
Section 3. Severance Payment. In the event of a Qualified Termination, then
Executive shall, subject to the provisions of Sections 5 and 8 hereof, receive
as severance pay an amount equal to his Compensation multiplied by a factor of
[1.5 or 2 or 3]. Subject to Section 5 hereof, any severance payment to be made
under this Section 3 shall be paid in one payment and in full on or prior to the
thirtieth day following the Date of Termination.
Section 4. Other Benefits. Subject to Sections 5 and 8 hereof, in the event
of a Qualified Termination, for a period of twenty-four months commencing with
the Date of
5
<PAGE> 6
Termination, Executive and the Executive's family shall continue to be covered
at the expense of Energen by the same or substantially equivalent hospital,
medical, dental, vision, accident, disability and life insurance coverages as
were provided to Executive and the Executive's family by Employer immediately
prior to the Change in Control; provided, however, that if Executive becomes
employed with another employer and is eligible to receive benefits of the type
described above from such other employer, Energen's obligations under this
Section 4 and the benefits described herein shall be secondary to those provided
by such other employer.
Section 5. Certain Further Payments by the Company.
(a) In the event that any amount or benefit paid or distributed to the
Executive pursuant to any provision of this Agreement, and/or any amounts or
benefits otherwise paid or distributed to the Executive by the Employer or any
affiliated company including, without limitation, any distribution or payment
made pursuant to the terms of the Employer's compensation plans or arrangements
(collectively, the "Covered Payments"), are or become subject to the tax (the
"Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), or any similar tax that may hereafter be imposed,
Energen shall pay to the Executive at the time specified in Section 5(d) below
an additional amount (the "Tax Reimbursement Payment") such that the net amount
retained by the Executive with respect to Covered Payments, after deduction of
any Excise Tax on Covered Payments and any Federal, state and local income or
employment tax and Excise Tax on the Tax Reimbursement Payment provided for by
this Section 5(a), but before deduction for any Federal, state or local income
or employment tax withholding on Covered Payments, shall be equal to the amount
of the Covered Payments.
(b) For purposes of determining whether any of the Covered Payments will
be subject to the Excise Tax and the amount of such Excise Tax,
(i) such Covered Payments will be treated as "parachute
payments" within the meaning of Section 280G of the Code, and all "parachute
payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of
the Code) shall be treated as subject to the Excise Tax, unless, and except to
the extent that, in the good faith judgment of the Company's Independent Auditor
or tax counsel selected by the Independent Auditor, Energen has a reasonable
basis to conclude that such Covered Payments (in whole or in part) either do not
constitute "parachute payments" or represent reasonable compensation for
personal services actually rendered (within the meaning of Section 280G(b)(4)(B)
of the Code) in excess of the "base amount", or such "parachute payments" are
otherwise not subject to such Excise Tax, and
(ii) the value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Independent Auditor in accordance with the
principles of Section 280G of the Code.
(c) For purposes of determining the amount of the Tax Reimbursement
Payment, the Executive shall be deemed to pay:
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<PAGE> 7
(i) Federal income taxes at the highest applicable marginal rate
of Federal income taxation for the calendar year in which the Tax Reimbursement
Payment is to be made, and
(ii) any applicable state and local income taxes at the highest
applicable marginal rate of taxation for the calendar year in which the Tax
Reimbursement Payment is to be made, net of the maximum reduction in Federal
income taxes which could be obtained from the deduction of such state or local
taxes if paid in such year.
(d) The Tax Reimbursement Payment (or portion thereof) provided for in
Section 5(a) above shall be paid to the Executive not later than ten business
days following the payment of the Covered Payments; provided, however, that if
the amount of such Tax Reimbursement Payment (or portion thereof) cannot be
finally determined on or before the date on which payment is due, Energen shall
pay to the Executive by such date an amount estimated in good faith by the
Independent Auditors to be the minimum amount of such Tax Reimbursement Payment
and shall pay the remainder of such Tax Reimbursement Payment (together with
interest at the rate provided in Section 7872(f)(2)(A) of the Code) as soon as
the amount thereof can be determined, but in no event later than 45 calendar
days after payment of the related Covered Payment. In the event that the amount
of the estimated Tax Reimbursement Payment exceeds the amount subsequently
determined to have been due, such excess shall be repaid by Executive in
accordance with Section 5(f) below.
(e) In the event that the Excise Tax is subsequently determined by the
Independent Auditors or pursuant to any proceeding or negotiations with the
Internal Revenue Service to be less than the amount taken into account hereunder
in calculating the Tax Reimbursement Payment made, the Executive shall repay to
Energen, at the time that the amount of such reduction in the Excise Tax is
finally determined, the portion of such prior Tax Reimbursement Payment that
would not have been paid if such Excise Tax had been applied in initially
calculating such Tax Reimbursement Payment, plus interest on the amount of such
repayment at the rate provided in Section 7872(f)(2)(A) of the Code.
Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement
Payment to be refunded to Energen has been paid or is payable to any Federal,
state or local tax authority, repayment thereof shall not be required unless and
until actual refund or credit of such portion has been made to the Executive,
and interest payable to Energen shall not exceed interest received or credited
to the Executive by such tax authority for the period it held such portion. The
Executive and Energen shall mutually agree upon the course of action to be
pursued in connection with a claim for refund or credit by Executive.
(f) In the event that the Excise Tax is later determined by the
Accountants or pursuant to any proceeding or negotiations with the Internal
Revenue Service to exceed the amount taken into account hereunder at the time
the Tax Reimbursement Payment is made (including, but not limited to, by reason
of any payment the existence or amount of which cannot be determined at the time
of the Tax Reimbursement Payment), Energen shall make an additional Tax
Reimbursement Payment in respect of such excess (plus any interest or penalty
payable with respect to such excess) at the time that the amount of such excess
is finally determined.
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<PAGE> 8
Section 6. No Obligation To Seek Further Employment; No Effect on Other
Benefits.
(a) Executive shall not be required to seek other employment, nor
(except as otherwise provided under Section 4 with respect to insurance
coverages) shall the amount of any severance payment or other benefit to be made
or provided under this Agreement be reduced by any compensation or benefit
earned by Executive as the result of employment by another employer after the
Date of Termination, or otherwise.
(b) Subject to Section 5 hereof, any severance payment or benefit to be
made or provided under this Agreement is in addition to all other benefits, if
any, to which Executive may be entitled under other agreements, plans or
programs of Energen.
Section 7. Continuing Obligations of Executive. As a result of and in
connection with Executive's employment by Employer, Executive is involved in a
number of matters of strategic importance and value to Employer including
various projects, proceedings, planning processes, and negotiations. Any number
of these matters may be ongoing and continuing after the Date of Termination. In
addition Employee is privy to proprietary and confidential information of
Employer including without limitation, financial information and projections,
business plans and strategies, customer and vendor lists and information, and
oil and gas properties and prospects. The Executive agrees as follows:
(a) Consulting Services. For a period of three years following the Date
of Termination, Executive agrees to fully assist and cooperate with Employer and
its representatives (including outside auditors, counsel and consultants) with
respect to any matters with which the Executive was involved during the course
of employment with Employer, including being available upon reasonable notice
for interviews, consultation, and litigation preparation. Except as otherwise
agreed by Executive, Executive's obligation under this Section 7 (a) shall not
exceed 80 hours during the first year and 20 hours during each of the following
two years. Such services shall be provided upon request of Employer but
scheduled to accommodate Executive's reasonable scheduling requirements.
Executive shall receive no additional fee for such services but shall be
reimbursed all reasonable out-of-pocket expenses.
(b) Non-Compete. For a period of twelve months following the Date of
Termination, the Executive shall not Compete, (as defined below ) or assist
others in Competing with the Employer. For purposes of this Agreement, "Compete"
means (i) solicit in competition with Alabama Gas Corporation ("Alagasco") any
person or entity which was a customer of Alagasco at the Date of Termination,
(ii) offer to acquire any local gas distribution system in the State of Alabama;
or (iii) offer to acquire any coalbed methane interest in the State of Alabama.
Employment by, or an investment of less than one percent of equity capital in, a
person or entity which Competes with Employer does not constitute Competition by
Executive so long as Executive does not directly participate in, assist or
advise with respect to such Competition.
(c) Confidentiality. Executive agrees that at all times following the
Date of Termination, Executive will not, without the prior written consent of
Energen, disclose to any person, firm or corporation any confidential
information of Employer which is now known to Executive or which hereafter may
become known to Executive as a result of Executive's
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<PAGE> 9
employment or association with Employer, unless such disclosure is required
under the terms of a valid and effective subpoena or order issued by a court or
governmental body; provided, however, that the foregoing shall not apply to
confidential information which becomes publicly disseminated by means other than
a breach of this Agreement.
Section 8. Board Resignation. Energen shall have no obligation under
Sections 3 and 4 hereof if Executive shall not, promptly after the Date of
Termination and upon receiving a written request to do so, resign from each
officer and/or director position which Executive then holds with Energen and any
Subsidiary.
Section 9. Payment of Professional Fees and Expenses. Energen agrees to pay
promptly as incurred, to the full extent permitted by law, all legal, accounting
and other professional fees and expenses (Professional Fees) which Executive may
reasonably incur (i) as a result of any contest (regardless of the outcome
thereof) by Energen, Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by Executive about the
amount of any payment pursuant to this Agreement); (ii) as a result of any
contest by a taxing authority of Executive's tax treatment of any amounts
received under this or any other Employer agreement or plan to the extent such
tax treatment is consistent with the determinations made by the Independent
Auditor under Section 5; or (iii) the filing and pursuit of a claim for refund
or credit in connection with Section 5 (e) above; plus in each case interest on
any delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Code. In addition Energen shall promptly pay to Executive
an additional amount (the "Tax Coverage Payment") such that the net amount
retained by the Participant with respect to all payments made under this Section
9 after deduction of Taxes, shall be equal to the amount of the Professional
Fees reimbursement plus applicable interest. For purposes of this Section 9,
"Taxes" means all federal, state and local, employment and income taxes payable
or withheld with respect to Professional Fees reimbursement payments (excluding
interest) and Tax Coverage Payments. The Independent Auditor, at Energen's
expense, shall make all calculations with respect to the Tax Reimbursement
Payment and in making such calculations shall follow the assumptions set forth
in Section 5(c) above.
Section 10. Term. This Agreement shall terminate (except to the extent of
any unpaid or unfulfilled obligation with respect to a prior termination of
Executive's employment) on the first to occur of (i) any termination of
Executive's employment with Employer which does not constitute a Qualified
Termination or (ii) expiration of the Term. The initial "Term" of this Agreement
shall be for a period of three years from the date hereof. On each anniversary
of the date hereof, the Term shall automatically extend by one year unless at
least thirty days prior to such an anniversary Energen notifies Executive that
there will be no such extension, in which event the term shall continue until
the later to occur of (i) two years from such anniversary or (ii) three years
from the date of the most recent Change in Control, if any.
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Section 11. Binding Effect; Successors.
(a) This Agreement shall be binding upon and inure to the benefit of
Executive and Executive's personal representative and heirs, and Energen and its
successors and assigns including any successor organization or organizations
which shall succeed to substantially all of the business and property of
Energen, whether by means of merger, consolidation, acquisition of assets or
otherwise, including operation of law. Energen will require any such successor
to expressly assume and agree to perform Energen's obligations under this
Agreement.
(b) Without the prior consent of Energen, Executive may not assign the
Agreement, except by will or the laws of descent and distribution.
Section 12. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to Energen or Employer:
Energen Corporation
605 21st Street North
Birmingham, Alabama 35203
Attention: Chairman
If to Executive:
-------------------------
-------------------------
-------------------------
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
Section 13. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and Energen. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. This Agreement shall be governed by and construed in accordance with
the laws of the State of Alabama.
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Section 14. Validity. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
Section 15. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
Section 16. Amendment and Restatement of Prior Agreement. This agreement
constitutes a complete amendment and restatement and fully supersedes that
certain Severance Compensation Agreement between the parties dated , 19 .
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ENERGEN CORPORATION
By
--------------------------------
Its
--------------------------------
EXECUTIVE
--------------------------------
11
<PAGE> 1
Exhibit 10(e)
ENERGEN CORPORATION
1988 STOCK OPTION PLAN
(AS AMENDED NOVEMBER 25, 1997)
The purpose of this Plan is to provide a means whereby Energen
Corporation may, through the grant of stock options, stock appreciation rights,
and dividend equivalents to key employees, attract and retain persons of ability
as employees and motivate such employees to exert their best efforts on behalf
of Energen Corporation and its subsidiaries.
1. DEFINITIONS. Unless otherwise indicated, as used herein the
following terms shall have the respective meanings set forth below:
"Board" means the Board of Directors of Energen Corporation.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Officer Review Committee of the Board consisting
of not less than three members appointed by the Board and serving at the Board's
pleasure.
"Company" means Energen Corporation and any successor corporation by
merger or other reorganization.
"Expiration Date" means the last day on which an option issued under
the Plan may be exercised, as such date may be extended pursuant to Section
5(a).
"Fair Market Value" means, (i) with respect to a share of Stock, the
closing price of the Stock on the New York Stock Exchange (or such other
exchange or system on which the Stock then trades or is quoted) on the most
recent trading date preceding the date of payment, cancellation or withholding
for which such valuation is made, and (ii) with respect to other consideration
means fair market value as may be reasonably determined by the Committee.
"Incentive Stock Options" means options granted under the Plan to
purchase Stock which at the time of grant qualify as "incentive stock options"
within the meaning of Section 422A of the Code.
"Key Employees" means those employees (including officers and inside
directors) of the Company or any Subsidiary who, in the judgment of the
Committee are of special importance to the success or prospects of the Company.
"Nonqualified Stock Options" means options granted under the Plan to
purchase Stock which are not Incentive Stock Options.
"Plan" means this Energen Corporation 1988 Stock Option Plan.
"Stock" means the common stock, par value $.01 per share of the
Company.
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"Subsidiary" means any corporation which at the time an option is
granted under the Plan qualifies as a subsidiary of the Company under the
definition of "subsidiary corporation" contained in Section 425(f) of the Code,
or any similar provision hereinafter enacted, except that such term shall not
include any corporation which is classified as a foreign corporation pursuant to
Section 7701 of the Code.
"Ten Percent Stockholder" means an individual who, at the time of
grant, owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company.
2. SHARES SUBJECT TO THE PLAN. Options may be granted by the Company
from time to time to Key Employees to purchase an aggregate of 180,000 shares of
Stock, and such amounts of shares shall be reserved for options granted under
the Plan (subject to adjustment as provided in Section 5(h)). The shares issued
upon exercise of options granted under the Plan may be authorized and unissued
shares or shares held by the Company in its treasury. If any option granted
under the Plan shall terminate or expire, other than pursuant to Section 5(j),
as to any shares, new options may thereafter be granted covering such shares. If
any option granted under the Plan shall be cancelled as to any shares pursuant
to Section 5(j) (stock appreciation rights), then new options may not thereafter
be granted covering such shares.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee. Each member of the Committee shall be both a member of the Board who
is not eligible to receive any option under the Plan and a "disinterested
person" within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934 or any successor rule or regulation. Any vacancy occurring in the
membership of the Committee shall be filled by appointment by the Board.
The Committee may interpret the Plan, prescribe, amend, and rescind any
rules and regulations necessary or appropriate for the administration of the
Plan, or for the continued qualification of any Incentive Stock Options granted
thereunder and make such other determinations and take such other actions as it
deems necessary or advisable, except as otherwise expressly reserved to the
Board in the Plan. Without limiting the generality of the foregoing sentence,
the Committee may, in its discretion, treat all or any portion of any period
during which an optionee is on military or on an approved leave of absence from
the Company or a Subsidiary as a period of employment of such optionee by the
Company or such Subsidiary as the case may be, for purposes of accrual of his
rights under the Plan. Any interpretation, determination or other action made or
taken by the Committee shall be final, binding and conclusive.
4. GRANT OF OPTIONS. Subject to the provisions of the Plan, the
Committee shall (a) determine and designate from time to time those Key
Employees to whom options are to be granted and the number of shares of Stock to
be optioned to each employee; (b) authorize the granting of Incentive Stock
Options, Nonqualified Stock Options, or combination of Incentive Stock Options
and Nonqualified Stock Option; (c) determine the number of shares subject to
each option; (d) determine the time or times when and the manner in which each
option shall contain a stock appreciation right and/or dividend equivalents;
provided, however, that (i) no Incentive Stock Option shall be granted after the
expiration of ten years from the effective date of the Plan specified in Section
8, below and (ii) the aggregate fair market value (determined as of the date the
option is granted) of the Stock with respect to which Incentive Stock Options
are exercisable for the first time
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by any employee during any calendar year (under all plans of the Company and its
Subsidiaries) shall not exceed $100,000.
5. TERMS AND CONDITIONS OF OPTIONS. Each option granted under the Plan
shall be evidenced by an agreement, in a form approved by the Committee. Such
agreement shall be subject to the following express terms and conditions and to
such other terms and conditions as the Committee may deem appropriate:
(a) Option Period. Each option agreement shall specify the
period for which the option thereunder is granted and shall provide
that the option shall expire at the end of such period. The Committee
may extend such period provided that, in the case of an Incentive Stock
Option, such extensions shall not in any way disqualify the option as
an Incentive Stock Option. In no case shall such period for an
Incentive Stock Option, including any such extensions, exceed ten years
from the date of grant, provided, however that, in the case of an
Incentive Stock Option granted to a Ten Percent Stockholder, such
period, including extensions, shall not exceed five years from the date
of grant.
(b) Option Price. The option price per share shall be
determined by the Committee at the time any option is granted, and
shall be not less than (i) the fair market value, or (ii) in the case
of an Incentive Stock Option granted to a Ten Percent Stockholder, 110
percent of the fair market value (but in no event less than the par
value) of one share of Stock on the date the option is granted, as
determined by the Committee.
(c) Exercise of Option. No part of any option may be exercised
until the optionee shall have remained in the employ of the Company or
of a Subsidiary for such period, if any, as the Committee may specify
in the option agreement, and the option agreement may provide for
exercisability in installments. The Committee shall have full authority
to accelerate for any reason it deems appropriate the vesting schedule
of all or any part of any option issued under the Plan.
(d) Payment of Purchase Price upon Exercise. Each option shall
provide that the purchase price of the shares as to which an option
shall be exercised shall be paid to the Company at the time of exercise
either in cash, in Stock already owned by the optionee having a total
Fair Market Value, equal to the purchase price, or a combination of
cash and Stock having a total Fair Market Value, equal to the purchase
price. In addition the Committee in its discretion may accept such
other consideration or combination of other consideration, cash and/or
Stock as the Committee shall deem to be appropriate and to have a total
Fair Market Value equal to the purchase price.
(e) Exercise in the Event of Death or Termination of
Employment. If an optionee's employment by the Company or a Subsidiary
shall terminate because of the optionee's (i) death, (ii) disability,
or (iii) retirement in accordance with the terms of the Company's
tax-qualified retirement plans, the optionee's options may be exercised
on or prior to the applicable Expiration Dates, but only to the extent
that such options were exercisable on the date of such termination.
Except as may be otherwise determined by the Committee, if an
optionee's employment by the Company or a subsidiary shall terminate
for any reason other than those set forth in the preceding sentence,
then all unexercised options under the
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Plan held by the optionee (vested or unvested) shall terminate as of
the date of termination of employment. Without limiting the generality
of Section 5(c), the Committee shall have full authority to accelerate
(including retroactively) the vesting schedule of all or any part of
any option issued under the Plan and held by an employee who has
terminated or plans to terminate his or her employment, such that a
terminated employee, his heirs or personal representatives may exercise
(at such time or times on or prior to the applicable Expiration Dates
as may be specified by the Committee) any part or all of any unvested
option under the Plan held by such employee at the date of his or her
termination of employment.
(f) Nontransferability. Except as may otherwise be provided in
this Section 5(f), no option granted under the Plan shall be
transferable other than by will or by the laws of descent and
distribution and, during the lifetime of the optionee, an option shall
be exercisable only by the optionee. The foregoing notwithstanding, the
optionee may transfer Nonqualified Stock Options to (i) the optionee's
spouse or natural, adopted or step-children or grandchildren (including
the optionee, "Immediate Family Members"), (ii) a trust for the benefit
of one or more of the Immediate Family Members, (iii) a family
charitable trust established by one or more of the Immediate Family
Members, or (iv) a partnership in which the only partners are one or
more of the Immediate Family Members. Any options so transferred shall
not be further transferable except in accordance with the terms of this
Plan, shall remain subject to all terms and conditions of the Plan and
the applicable option agreement, and may be exercised by the transferee
only to the extent that the optionee would have been entitled to
exercise the option had the option not been transferred.
(g) Investment Representation. Each option agreement may
provide that, to the extent reasonably necessary to assure compliance
with all applicable securities laws, upon demand by the Committee for
such a representation, the optionee (or any person acting under
paragraph 5(e)) shall deliver to the Committee at the time of any
exercise of an option or portion thereof or settlement of stock
appreciation rights or dividend equivalents a written representation
that the shares to be acquired upon such exercise are to be acquired
for investment and not for resale or with a view to the distribution
thereof. Upon such demand, delivery of such representation prior to the
delivery of any shares issued upon exercise of an option and prior to
the expiration of the option period shall be a condition precedent to
the right of the optionee or such other person to purchase any shares.
(h) Adjustments in Event of Change in Common Stock. In the
event of any change in the Stock of the Company by reason of any stock
dividend, recapitalization, reorganization, merger, consolidation,
split-up, combination, or exchange of shares, or rights offering to
purchase Stock at a price substantially below fair market value, or of
any similar change affecting the Stock, the number and kind of shares
which thereafter may be optioned and sold under the Plan and the number
and kind of shares subject to option in outstanding option agreements
and the purchase price per share thereof shall be appropriately
adjusted consistent with such change in such manner as the Committee
may deem equitable to prevent substantial dilution or enlargement of
the rights granted to, or available for, participants in the Plan.
(i) Incentive Stock Options. Each option agreement which
provides for the grant of an Incentive Stock Option to a participant
shall contain such terms and provisions as the
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Committee may determine to be necessary or desirable in order to
qualify such option as an "incentive stock option" within the meaning
of Section 422A of the Internal Revenue Code of 1954, or any amendment
thereof or substitute therefor.
(j) Stock Appreciation Right. Each option agreement may
provide that the optionee may from time to time elect to cancel all or
any portion of the option then subject to exercise, in which event the
Company's obligation in respect of such option may be discharged by
payment to the optionee of an amount in cash equal to the excess, if
any, of the Fair Market Value at the time of cancellation of the shares
subject to the option or the portion thereof so cancelled over the
aggregate purchase price for such shares as set forth in the option
agreement, or, if mutually agreed by the Committee and the optionee (i)
the issuance or transfer to the optionee of shares of Stock with a Fair
Market Value equal to any such excess, or (ii) a combination of cash
and shares of Stock with a combined value equal to any such excess. Any
such right to elect such cancellation shall be transferrable only by
will or by the laws of descent and distribution. During the lifetime of
the optionee, such right shall be exercisable only by the optionee.
(k) Dividend Equivalents. Each option agreement may provide
that upon (i) exercise of all or part of a Nonqualified Stock Option,
(ii) cancellation of all or part of such option pursuant to paragraph
5(j), or (iii) the occurrence of an Expiration Date, for no additional
consideration, the optionee shall be paid an additional amount equal to
the aggregate amount of cash dividends which would have been paid on
the shares of Stock purchased upon such exercise or with respect to
which such cancellation or expiration occurs, if such shares had been
issued and outstanding during the period commencing with the option
grant date and ending on the date of option exercise, cancellation or
expiration, plus an amount equal to the interest that such dividends
would have earned from the respective dividend payment dates if
deposited in an account bearing interest, compounded quarterly on each
April 1, July 1, October 1 and January 1, at a rate calculated as
follows. For purposes of the preceding sentence, the assumed interest
rate in effect for a calendar quarter shall be the announced prime rate
of AmSouth Bank, N.A. (or such comparable rate of a comparable
institution as the Committee may from time to time determine) in effect
on the first day of such calendar quarter. Such additional amount shall
be paid by cash, or if mutually agreed by the Committee and the
optionee, (i) by the issuance of Stock having a Fair Market Value equal
to any such excess or (ii) a combination of cash and shares of Stock
having a combined Fair Market Value equal to any such excess.
(l) Withholding. The Company shall not be required to issue or
deliver any certificates for shares of Stock or make any other payment
or settlement with respect to the exercise of an option or settlement
of stock appreciation rights or dividend equivalents unless
arrangements reasonably satisfactory to the Company have been made for
all resulting withholding and other tax obligations which are or may
become applicable to the Company. Subject to compliance with all
applicable securities and tax laws and regulations and provided that
such transaction does not fall within the scope of Section 16(b) of the
Securities and Exchange Act of 1934, an optionee may satisfy all or any
part of the tax withholding obligation arising from the exercise of
stock options or the settlement of stock appreciation rights or
dividend equivalents under the Plan, by electing to have the Company
withhold (from the Stock to be delivered to the optionee upon such
exercise or settlement)
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shares of Stock having a Fair Market Value equal to the amount required
to be withheld under applicable tax laws. Any election under this
Section 5(l) must be made in writing delivered to the Company prior to
the date that the amount of tax to be withheld is to be determined and
will be irrevocable.
(m) No Rights as Shareholder. No optionee shall have any
rights as a shareholder with respect to any shares subject to the
optionee's option prior to the date of issuance to the optionee of a
certificate or certificates for such shares.
(n) No Rights to Continued Employment. The Plan and any option
granted under the Plan shall not confer upon any optionee any right
with respect to continuance of employment by the Company or any
Subsidiary or any right to further grants under the Plan, nor shall
they interfere in any way with the right of the Company or any
Subsidiary by which an optionee is employed to terminate the optionee's
employment at any time.
6. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and
exercise of options thereunder, and the obligations of the Company to sell and
deliver shares under such options, shall be subject to all applicable federal
and state laws, rules, and regulations and to such approvals by any government
or regulatory agency as may be required. The Company shall not be required to
issue or deliver any certificates for shares of Stock prior to (a) the listing
of such shares on any stock exchange on which the Stock may then be listed and
(b) the completion of any registration or qualification of such shares under any
federal or state law, or any ruling or regulation of any government body which
the Company shall, in its sole discretion, determine to be necessary or
advisable.
7. AMENDMENT AND DISCONTINUANCE. The Board of Directors of the Company
may from time to time amend, suspend or discontinue the Plan; provided, however,
that, subject to the provisions of paragraph 5(h) no action of the Board of
Directors or of the Committee may (i) increase the number of shares reserved for
options pursuant to Section 2, (ii) permit the granting of any option at the
option price less than that determined in accordance with paragraph 5(b), or
(iii) permit the granting of options which expire beyond the period provided for
in paragraph 5(a). Without the written consent of an optionee, no amendment or
suspension of the Plan shall alter or impair any option previously granted to
the optionee under the Plan.
8. EFFECTIVE DATE OF THE PLAN. The effective date of the Plan shall be
November 23, 1988, the date of its adoption by the Board, subject to approval by
shareholders of the Company holding not less than a majority of the shares
present and voting at its January 1989 Annual Meeting. Options may be granted
under the Plan by the Committee as provided herein prior but subject to such
subsequent shareholder approval of the Plan.
9. NAME. The Plan shall be known as the "Energen Corporation 1988 Stock
Option Plan."
10. DEFERRAL UNDER 1997 DEFERRED COMPENSATION PLAN. If and to the
extent permitted under the Energen Corporation 1997 Deferred Compensation Plan
(the "Deferred Compensation Plan), an optionee may elect pursuant to the
Deferred Compensation Plan to defer receipt of part or all of shares of Stock
and other consideration deliverable to the optionee under this Plan and upon
such deferral shall have no further right with respect to such deferred shares
or other consideration other than as provided under the Deferred Compensation
Plan. In the event of such a deferral election, certificates for such shares of
Stock as would have otherwise been issued under the Plan but for the deferral
election may at the discretion of the Company be delivered to the Trustee under
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the Deferred Compensation Plan and registered in the name of the Trustee or such
other person as the Trustee may direct. Regardless of whether such deferred
shares are issued to the Trustee, they shall constitute "issued" shares for
purposes of the Plan's maximum number of shares limitation set forth in Section
2.
- --------------------------------------------------------------------------------
As adopted November 23, 1988 by the Board of Directors, approved
January 25, 1989 by the Shareholders, and subsequently amended September 24,
1997 and November 25, 1997 by the Board of Directors.
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EXHIBIT 10(f)
ENERGEN CORPORATION
1992 LONG-RANGE PERFORMANCE SHARE PLAN
(AS AMENDED EFFECTIVE APRIL 25, 1997)
1. PURPOSE
The purpose of the Energen Corporation 1992 Long-Range Performance Share Plan
(the "Plan") is to further the long-term growth in profitability of the
Corporation by offering long-term incentives in addition to current compensation
to those key executives who will be largely responsible for such growth.
2. DEFINITIONS
(a) "Award" means Performance Shares awarded to a Participant
pursuant to the terms of the Plan.
(b) "Award Period" means the 4-year period (Energen fiscal years)
commencing with the first day of the fiscal year in which the applicable Award
is granted, except as otherwise determined by the Committee at the time of grant
and subject to the other provisions of this Plan.
(c) "Board of Directors" means the Board of Directors of Energen.
(d) "Cause" Termination of employment by the Corporation for
"Cause" shall mean termination based on any of the following:
(1) The willful and continued failure by a Participant to
substantially perform such participant's duties with the Corporation (other than
any such failure resulting from such participant's incapacity due to physical or
mental illness) after a written demand for substantial performance is delivered
to the Participant specifically identifying the manner in which such Participant
has not substantially performed such Participant's duties;
(2) The engaging by a Participant in willful, reckless or
grossly negligent misconduct which is demonstrably injurious to the Corporation
monetarily or otherwise; or
(3) The conviction of a Participant of a felony.
(e) "Change in Control" means:
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(1) The acquisition by any person, entity or "group", within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (excluding for
this purpose, any employee benefit plan of Energen or any of its Subsidiaries
which acquires beneficial ownership of voting securities of Energen), of
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of 25% or more of either the then outstanding shares of Common Stock or the
combined voting power of Energen's then outstanding voting securities, in one
transaction or a series of transactions;
(2) Individuals who, as of November 27, 1991, constitute the
Board of Directors (the "Continuing Directors") cease for any reason to
constitute at least a majority of the Board of Directors, provided that any
person becoming a director of Energen subsequent to November 27, 1991, whose
election, or nomination for election by Energen's stockholders, was approved by
a vote of at least a majority of the Continuing Directors (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened solicitation with respect to the
election or removal of directors of Energen, as such terms are used in Rule
14a-11 of Regulation 14A under the Exchange Act) shall be, for purposes of the
Plan, considered as though such person were a Continuing Director;
(3) (i) The occurrence of a merger, consolidation or
reorganization of Energen in which, as a consequence of the transaction, either
the Continuing Directors do not constitute a majority of the directors of the
continuing or surviving corporation or any person, entity or "group", within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, controls 25% or
more of the combined voting power of the continuing or surviving corporation;
(ii) the occurrence of any sale, lease or other transfer, in one transaction or
a series of transactions, of all or substantially all of the assets of Energen;
or (iii) the adoption by Energen of a plan for its liquidation or dissolution.
(f) "Chief Executive Officer" means the chief executive officer of
Energen.
(g) "Committee" means the Officers Review Committee of the Board
of Directors or such other committee of two or more directors as may be
determined by the Board of Directors, provided that in all events each member of
the Committee shall be a "disinterested person" within the meaning of Rule
16b-3(c)(2) under the Exchange Act.
(h) "Common Stock" means the Common Stock, par value $0.01 per
share, of Energen as such stock may be reclassified, converted or exchanged by
reorganization, merger or otherwise.
(i) "Corporation" means Energen and its Subsidiaries.
(j) "Employee" means any person (including any officer or
director) employed by the Corporation on a full-time salaried basis.
(k) "Energen" means Energen Corporation, an Alabama Corporation.
(l) "Exchange Act" means the Securities Exchange Act of 1934.
(m) "Fair Market Value" means the average of the daily closing
prices for a share of stock for the 20 trading days ending on the fifth business
day prior to the date of payment of Performance
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Shares for an Award Period or an Interim Period, as the case may be, on the
Composite Tape for the New York Stock Exchange -- Listed Stocks, or, if the
stock is not listed on such Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), on which the stock is listed, or, if the stock is not listed on
any such Exchange, the average of the daily closing bid quotations with respect
to a share of the stock for such 20 trading days on the National Association of
Securities Dealers, Inc., Automated Quotations System or any system then in use,
or, if no such quotations are available, the fair market value of a share of
stock as determined by a majority of the Board of Directors; provided, however
that if a Change in Control shall have occurred, then such determination shall
be made by a majority of the Continuing Directors.
(n) "Interim Period" means a 1, 2 or 3 year period within an Award
Period for which the Committee determines that there shall be Interim Periods.
(o) "Officer" means any Employee of the Corporation who is an
"officer" of the Corporation within the meaning of Rule 16a-l(f) under the
Exchange Act as well as any Employee who has an officer title with the
Corporation.
(p) "Participant" means an Employee who is selected by the
Committee to receive an Award under the Plan.
(q) "Performance Share" means the equivalent of one share of
Common Stock.
(r) "Qualified Termination" means termination of a Participant's
employment with the Corporation which is:
(i) An involuntary termination by the Corporation other
than for Cause;
(ii) Expressly agreed in writing by the Participant and
the Corporation to constitute a Qualified Termination
for purposes of this Plan;
(iii) A result of the death, Disability or Retirement of
the Participant;
(iv) A voluntary termination by the Participant for Good
Reason. The term "Good Reason" means with respect to
an Award and a Participant, the occurrence subsequent
to the grant of such Award of (A) a reduction in the
Participant's aggregate rate of monthly base pay from
the Corporation or (B) the termination or materially
adverse modification of the Energen Annual Incentive
Compensation Plan without substitution of new
short-term incentives providing comparable
compensation opportunities for the Participant.
(s) "Subsidiary" means any corporation, the majority of the
outstanding voting stock of which is owned, directly or indirectly, by Energen.
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3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee. No member of the Committee
shall be eligible to participate in the Plan while serving as a member of the
Committee. Subject to the provisions of the Plan, the Committee shall have the
exclusive authority to select the Employees who are to participate in the Plan,
to determine the Award to be made to each Employee selected to participate in
the Plan, and to determine the conditions subject to which Awards will become
payable under the Plan; provided, however, that, subject to the provisions of
Section 5(a) hereof, the Committee may delegate to the Chief Executive Officer
the authority to select and make Awards to certain Employees.
The Committee shall have full power to administer and interpret the Plan and to
adopt such rules and regulations consistent with the terms of the Plan as the
Committee deems necessary or advisable in order to carry out the provisions of
the Plan. Except as otherwise provided in the Plan, the Committee's
interpretation and construction of the Plan and of any conditions applicable to
Performance Share Awards shall be conclusive and binding on all persons,
including the Corporation and all Participants.
The Plan shall be unfunded. Benefits under the Plan shall be paid from the
general assets of the Corporation.
4. PARTICIPATION
Subject to the provisions of Section 5(a) hereof, Participants in the Plan shall
be selected by the Committee or the Chief Executive Officer from those Employees
of the Corporation, who, in the estimation of the Committee or the Chief
Executive Officer, have an opportunity to influence the long-term profitability
of the Corporation.
5. PERFORMANCE SHARE AWARDS
(a) The Committee, or the Chief Executive Officer upon
delegation of authority by the Committee, may from time to time select employees
to receive Awards under the Plan. An Employee may be granted more than one Award
under the Plan. In its discretion at the time of grant, the Committee may
determine that an Interim Period or Interim Periods should be established for
payment with respect to Awards. Whenever Interim Periods are established, the
terms and conditions with respect to payment after the end of such Interim
Period shall be those set by the Committee. The Committee shall make all Awards
to Officers. The Committee may, in its discretion, authorize a total number of
Performance Shares to be awarded to non-Officer Employees and delegate to the
Chief Executive Officer the authority to select such Employees, to determine the
number of Performance Shares to be awarded to such Employees and to establish
Interim Periods with respect to Awards to such Employees. The Chief Executive
Officer shall promptly make a written report to the Committee setting forth the
name and positions of the Employees receiving such Awards and the number of
Performance Shares awarded to each such employee.
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(b) An Award shall not entitle a Participant to receive any
dividends or dividend equivalents on Performance Shares; no Participant shall be
entitled to exercise any voting or other rights of a stockholder with respect to
any Award under the Plan; and no Participant shall have any interest in or
rights to receive any shares of Common Stock prior to the time when the
Committee determines the form of payment of Performance Shares pursuant to
Section 6.
(c) Payment of an Award to any Participant shall be made in
accordance with Section 6 and shall be subject to such conditions for payment as
the Committee may prescribe at the time the Award is made.
(d) Each Award shall be made in writing and shall set forth
the terms and conditions set by the Committee for payment of such Award.
6. PAYMENT OF PERFORMANCE SHARE AWARDS
Each Participant granted an Award shall be entitled to payment on account
thereof as of the close of the Award Period applicable to such Award, but only
if the Committee has determined that the conditions for payment of the Award set
by the Committee have been satisfied. Participants granted Awards with Interim
Periods shall be entitled to partial payment on account thereof as of the close
of the Interim Period, but only if the Committee has determined that the
conditions for partial payment of the Award set by the Committee have been
satisfied. Performance Shares paid to a Participant for an Interim Period need
not be repaid to the Corporation, notwithstanding that, based on the conditions
set for payment at the end of the Award Period, such Participant would not have
been entitled to payment of any portion of such Award. Any Performance Shares
paid to a Participant for the Interim Period during an Award Period shall be
deducted from the Performance Shares to which such Participant is entitled at
the end of the Award Period.
At the time it determines whether the conditions for payment have been
satisfied, the Committee, in its discretion, shall determine whether the Awards
will be paid all in cash, or in some combination of cash and shares of Common
Stock, except and provided that the Committee must pay in cash an amount equal
to the federal, state and other taxes which the Corporation is required to
withhold, and further provided that payment in shares of Common Stock shall be
subject to the aggregate share limitation set forth in Section 11. The
Corporation shall deduct from the cash portion of all Awards any federal, state
and other taxes required by law to be withheld with respect to such Awards.
Payment of Awards shall be made by the Corporation as promptly as possible after
the determination by the Committee that payment has been earned and upon a date
fixed by the Committee to permit calculation of Fair Market Value of the Common
Stock. The portion of the Award paid in Common Stock shall be equal to the
number of Performance Shares being paid in Common Stock, and the balance shall
be an amount of cash equal to the Fair Market Value of the remaining Performance
Shares to be paid.
Notwithstanding the other provisions of this Plan, a Participant may elect
pursuant to the Energen Corporation 1997 Deferred Compensation Plan to defer
payment of an Award and upon such deferral shall have no further right with
respect to such deferred Award other than as provided under said Deferred
Compensation Plan. In the event of such an election, any Awards or portions of
Awards
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which become payable to the Participant and which are subject to such deferral
election, may at the discretion of the Company be paid to the Trustee under such
Deferred Compensation Plan in the form of Common Stock and/or cash as determined
from time to time by the Company, which Common Stock shall be registered in the
name of the Trustee or such other person as the Trustee may direct. Regardless
of whether such deferred Common Stock or cash is delivered to the Trustee, such
deferred Awards shall count against the maximum number of Performance Shares
awardable under the Plan pursuant to Section 11. Furthermore any such shares of
Common Stock delivered to the Trustee shall count against the maximum number of
shares of Common Stock which may be issued under the Plan pursuant to Section
11.
7. TERMINATION OF EMPLOYMENT
Except in the case of a Qualified Termination if, prior to the close of the
Award Period with respect to an Award, a Participant's employment terminates,
then any unpaid portion of such Participant's Award shall be forfeited. In the
case of a Qualified Termination, the Participant shall remain entitled to payout
of any outstanding Awards at the end of the applicable Award Period in
accordance with the terms of this Plan including without limitation applicable
performance conditions.
8. CONSULTING, NON-COMPETE AND CONFIDENTIALITY
A Participant's entitlement, if any, to payout of Awards subsequent to
termination of employment shall continue so long as the Participant is in
compliance with the following requirements. Failure to comply shall result in
forfeiture of all then outstanding Awards.
(a) Consulting Services. For a period of three years
following the termination of the Participant's
employment with the Corporation ("Date of
Termination"), Participant will fully assist and
cooperate with Corporation and its representatives
(including outside auditors, counsel and consultants)
with respect to any matters with which the
Participant was involved during the course of
employment with Corporation, including being
available upon reasonable notice for interviews,
consultation, and litigation preparation. Except as
otherwise agreed by Participant, Participant's
obligation under this Section 8(a) shall not exceed
80 hours during the first year and 20 hours during
each of the following two years. Such services shall
be provided upon request of the Corporation but
scheduled to accommodate Participant's reasonable
scheduling requirements. Participant shall receive no
additional fee for such services but shall be
reimbursed all reasonable out-of-pocket expenses.
(b) Non-Compete. For a period of twelve months following
the Date of Termination, the Participant shall not
Compete, (as defined below) or assist others in
Competing with the Corporation. For purposes of this
Agreement, "Compete" means (i) solicit in competition
with Alabama
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Gas Corporation ("Alagasco") any person or entity
which was a customer of Alagasco at the Date of
Termination; (ii) offer to acquire any local gas
distribution system in the State of Alabama; or (iii)
offer to acquire any coalbed methane interest in the
State of Alabama. Employment by, or an investment of
less than one percent of equity capital in, a person
or entity which Competes with the Corporation does
not constitute Competition by Participant so long as
Participant does not directly participate in, assist
or advise with respect to such Competition.
(c) Confidentiality. Participant agrees that at all times
following the Date of Termination, Participant will
not, without the prior written consent of Energen,
disclose to any person, firm or corporation any
confidential information of Corporation which is now
known to Participant or which hereafter may become
known to Participant as a result of Participant's
employment or association with Corporation, unless
such disclosure is required under the terms of a
valid and effective subpoena or order issued by a
court or governmental body; provided, however, that
the foregoing shall not apply to confidential
information which becomes publicly disseminated by
means other than a breach of this Agreement.
9. Deleted
10. Deleted
11. LIMITATION ON AWARDS
The maximum number of Performance Shares which may be awarded under the Plan
shall not exceed an aggregate of 500,000 (except as adjusted in accordance with
Section 17) and no more than an aggregate of 350,000 shares of Common Stock
(similarly adjusted in accordance with Section 17 shall be issued in payment of
Performance Share Awards, the remainder being payable in cash. Any Performance
Shares awarded under the Plan which are not payable upon expiration or
termination of the applicable Award Period, for whatever reason, shall thereupon
become available again for award under the Plan.
12. TERM OF THE PLAN
The Plan shall be effective October 1, 1991, subject to the approval of the Plan
by the stockholders of Energen at the Annual Meeting of Stockholders to be held
January 22, 1992. Awards may be granted under the Plan by the Committee prior
but subject to such stockholder approval. The Board of Directors may terminate
the Plan at any time. If not sooner terminated, the Plan terminates on the date
on which all of the Performance Shares subject to award under the Plan have been
paid, but no
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grant of Awards may be made after September 30, 2001. No such termination shall
adversely affect any right or obligation with respect to an Award theretofore
made.
13. CANCELLATION OF PERFORMANCE SHARES
With the written consent of a Participant holding Performance Shares granted to
such Participant under the Plan, the Committee may cancel such Performance
Shares. In the event of any such cancellation, all rights of the former holder
of such cancelled Performance Shares in respect of such cancelled Performance
Shares under the Plan or otherwise shall terminate.
14. NO ASSIGNMENT OF INTEREST
The interest of any person in the Plan shall not be assignable, either by
voluntary assignment or by operation of law, and any assignment of such
interest, whether voluntary or by operation of law, shall render the Award void.
Amounts payable under the Plan shall be transferable only by will or by the laws
of descent and distribution.
15. EMPLOYMENT RIGHTS
An Award made under the Plan shall not confer any right on the Participant to
continue in the employ of the Corporation or limit in any way the right of the
Corporation to terminate such Participant's employment at any time.
16. EXPENSES
The expenses of administering the Plan shall be borne by the Corporation.
17. DILUTION AND OTHER ADJUSTMENTS
If Energen shall at any time issue any shares of Common Stock (i) in subdivision
of outstanding shares of Common Stock, by reclassification or otherwise, or (ii)
for a stock dividend, the number of Performance Shares which previously have
been awarded to Participants and which may be awarded under the Plan shall be
increased proportionately; and in like manner, in case of any combination of
shares of Common Stock, by reclassification or otherwise, the number of
Performance Shares which previously have been awarded to Participants and which
may be awarded under the Plan shall be reduced proportionately. If Energen shall
at any time declare and pay an extraordinary dividend in cash or property (other
than a stock dividend with respect to the Common Stock referred to in clause
(ii), above), the number of Performance Shares which previously have been
awarded to Participants shall be increased in such manner as the Committee shall
determine
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to be fair under the circumstances of such extraordinary dividend; provided,
however, that if a Change in Control shall have occurred, such determination
shall be made by a majority of the Continuing Directors.
18. CHANGE IN CONTROL
The other provisions of the Plan notwithstanding, (i) the Committee is
authorized to specify such procedures as it may deem appropriate in connection
with a Change in Control of Energen, including without limitation acceleration
of payment of part or all of outstanding Awards, the establishment and funding
of a trust to be held for the payment of Awards following such Change in
Control, and the modification of performance conditions applicable to
outstanding Awards and (ii) all Award payments made subsequent to a Change in
Control shall be paid in cash.
19. AMENDMENT OF THE PLAN
The Board of Directors may amend or suspend the Plan at any time. No such
amendment or suspension shall adversely affect any right or obligation with
respect to an Award theretofore made, including, without limitation, the right
to receive payment of Awards in accordance with Section 18 and procedures
adopted thereunder (subject, however, to the right of the Committee to amend or
suspend such Section 18 procedures prior to the occurrence of a Change in
Control).
- --------------------------------------------------------------------------------
As adopted November 27, 1991 by the Energen Corporation Board
of Directors with approval January 22, 1992 by the shareholders and subsequently
(i) amended September 25, 1996 by the Board, with approval January 26, 1997 by
the shareholders, and (ii) amended April 25, 1997 by the Board.
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<PAGE> 1
EXHIBIT 10(h)
ENERGEN CORPORATION
1997 DEFERRED COMPENSATION PLAN
(As amended September 23, 1998)
Energen Corporation, an Alabama corporation, hereby establishes the
Energen Corporation 1997 Deferred Compensation Plan, effective as of April 25,
1997, in order to provide deferred compensation to directors and certain key
employees of Energen Corporation and its affiliated companies. The purpose of
the Energen Corporation Deferred Compensation Plan is to assist Energen
Corporation and its affiliated companies in retaining directors and key
employees, encouraging their long term commitment to the company's success, and
attracting new directors and key employees by offering them an opportunity to
defer compensation and participate in the success of Energen Corporation and its
affiliated companies, and allowing them to share in increases in the value of
Energen Corporation.
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. When used in this document with initial
capital letters, the following terms have the meanings indicated unless a
different meaning is plainly required by the context:
(a) "Account" or "Accounts" means the account or accounts
established and maintained for a Participant pursuant to Article IV of the Plan.
A Participant's Account shall consist of the Participant's Investment Account
and the Participant's Company Stock Account.
(b) "Alagasco" means Alabama Gas Corporation, a subsidiary of
Energen Corporation.
(c) "Allocation Request Form" means such form or forms as may
be approved by Energen from time to time for use by a Participant to request (i)
an allocation of certain deferred compensation and/or an allocation or
reallocation of the Participant's Investment Account among available investment
options pursuant to Section 7.2(c), (ii) that certain deferred compensation be
allocated to the Participant's Company Stock Account pursuant to Section 7.1(g);
and/or (iii) diversification of part or all of the Company Stock Account
pursuant to Section 7.1(h).
(d) "Basin" means Basin Pipeline Corporation, a subsidiary of
Energen Corporation.
(e) "Board of Directors" means the Board of Directors of
Energen Corporation.
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(f) "Cash Compensation" means any one or more of the
following items of compensation:
(i) Base salary;
(ii) Awards under the Energen Corporation Annual
Incentive Compensation Plan (or any successor plan),
as amended from time to time;
(iii)Awards under the Energen Corporation Salaried
Employee Incentive Compensation Plan (or any
successor plan), as amended from time to time; and
(iv) Director fees including retainer, meeting,
committee, and other fees payable to a Director for
service in such capacity.
(g) "Change in Control" means:
(1) The acquisition by any person, entity or "group",
within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934 (excluding for this purpose, any employee benefit plan of Energen or
any of its 'subsidiaries" which acquires beneficial ownership of voting
securities of Energen), of beneficial ownership (within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934) of 50% or more of either the
then outstanding shares of Common Stock or the combined voting power of
Energen's then outstanding voting securities, in one transaction or a series of
transactions; or
(2) Individuals who, as of April 25, 1997,
constituted the Board of Directors (the "Continuing Directors") cease for any
reason to constitute at least a majority of the Board of Directors, provided
that any person becoming a director of Energen subsequent to April 25, 1997,
whose election, or nomination for election by Energen's stockholders, was
approved by a vote of at least a majority of the Continuing Directors (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened solicitation with respect
to the election or removal of directors of Energen, as such terms are used in
Rule 14a-11 of Regulation 14A under the Securities Exchange Act of 1934) shall
be, for purposes of the Plan, considered as though such person were a Continuing
Director; or
(3) (i) The occurrence of a merger, consolidation or
reorganization of Energen in which, as a consequence of the transaction, either
the Continuing Directors do not constitute a majority of the directors of the
continuing or surviving corporation or any person, entity or "group", within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
controls 50% or more of the combined voting power of the continuing or surviving
corporation; (ii) the occurrence of any sale, lease or other transfer, in one
transaction or a series of transactions, of all or substantially all of the
assets of Energen; or (iii) the adoption by Energen of a plan for its
liquidation or dissolution.
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For purposes of this definition of "Change in Control," the term
"subsidiary" means any corporation, the majority of the outstanding voting stock
of which is owned, directly or indirectly, by Energen.
(h) "Code" means the Internal Revenue Code of 1986, as
amended.
(i) "Common Stock" means the Common Stock, par value $0.01 per
share, of Energen Corporation as such stock may be reclassified, converted or
exchanged by reorganization, merger or otherwise.
(j) "Company Stock Account" means an account established and
maintained for a Participant as a record of the Participant's hypothetical
investments in shares of Common Stock.
(k) "Deferral Election Form" means such the form or forms as
may be approved by Energen from time to time for use by a Participant to elect
to defer compensation under the Plan.
(l) "Director" means a member of the board of directors of a
Participating Employer.
(m) "Disability" means the total and permanent disability of a
Participant which entitles the Participant to a disability benefit under a
disability program sponsored or maintained by the Participant's Participating
Employer; provided, that if no such program is applicable to the Participant,
then "Disability" with respect to such Participant means that, based on medical
evidence reasonably satisfactory to Energen, the Participant is totally and
permanently unable to engage in any occupation or gainful employment for which
the Participant is reasonably suited by background, training, education or
experience.
(n) "Discretionary Amount" means amounts credited to a
Participant's Account pursuant to Section 4.4.
(o) "Distributable Event" means an event identified as such in
Section 6.1.
(p) "EGN" means EGN Services, Inc., a subsidiary of Energen
Corporation.
(q) "Energen" means Energen Corporation, an Alabama
corporation.
(r) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
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(s) (i) "Fair Market Value Average", (ii) "Fair Market
Value Close", and (iii) "Fair Market Value Twenty" mean respectively:
(i) the average of the high and low sales prices on
the Composite Tape for the New York Stock Exchange -
Listed Stocks ("NYSE composite") for the Common Stock
on a specified date,
(ii) the closing sales price of the Common Stock on
the NYSE composite for a specified date, and
(iii) the twenty day average high and low sales
prices for the Common Stock on the NYSE composite for
the twenty business days ending on a specified date.
In the event that the Common Stock is not traded on the NYSE, the Officers
Review Committee, in its reasonable discretion, shall specify appropriate
alternative measures of Common Stock value.
(t) "Heat Tech, Inc." means American Heat Tech, Inc., a
subsidiary of Energen Corporation.
(u) "Investment Account" means an account established and
maintained for a Participant as a record of the Participant's hypothetical
investments in available investment options.
(v) "Midtown NGV" means Midtown NGV, Inc., a subsidiary
of Energen Corporation.
(w) "Officer" means an officer of a Participating
Employer elected to such position by the board of directors of such
Participating Employer.
(x) "Officers Review Committee" means the Officers Review
Committee of the Board of Directors or such other person or persons as may be
designated by the Board of Directors to act on behalf of the Board of Directors
in the administration of the Plan.
(y) "Participant" means an individual identified as such
under Article III of the Plan.
(z) "Participating Employer" means any employer
participating in the Plan pursuant to Article II of the Plan.
(aa) "Plan" means the Energen Corporation 1997 Deferred
Compensation Plan, as of its original effective date, including any amendments
thereto, which is maintained by Energen and its affiliated companies primarily
for the purpose of providing financial incentives for directors and certain key
employees of Energen and its affiliated companies.
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(bb) "Qualifying Compensation" means items of compensation
which either:
(i) first become payable in a calendar year
subsequent to the calendar year of the applicable
election for services rendered during periods of
service subsequent to the date of such election; or
(ii) first become payable and determinable in amount
during a calendar year subsequent to the calendar
year of the applicable election and at least 180 days
subsequent to the date of such election.
The foregoing notwithstanding, with respect to an election made within thirty
days of the effective date of the Plan, "Qualifying Compensation" means items of
Compensation which either
(i) first become payable subsequent to the date of
the applicable election for services rendered during
periods of service subsequent to the date of such
election; or
(ii) first become payable and determinable in amount
subsequent to the date of the applicable election.
(cc) "stock Compensation" means any one or more of
the following items of compensation:
(i) Awards under the Restricted Stock Incentive Plan
of Energen Corporation, as amended;
(ii) Awards under the Energen Corporation 1992
Long-Range Performance Share Plan, as amended from
time to time;
(iii)Annual or elective grants under the Energen
Corporation 1992 Directors Stock Plan, as amended
from time to time;
(iv) Grants under the Energen Corporation 1988 Stock
Option Plan, as amended from time to time; and
(v) Awards under the Energen Corporation 1997 Stock
Incentive Plan, as amended from time to time.
(dd) "Taurus" means Taurus Exploration, Inc., a
subsidiary of Energen Corporation.
(ee) "Taurus USA" means Taurus Exploration USA, Inc.,
a subsidiary of Taurus.
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(ff) "Trust" means the trust described in Section 12.4. The
Trust shall constitute an unfunded arrangement and shall not affect the status
of the Plan as an unfunded plan. Participants and their beneficiaries shall have
no beneficial ownership interest in any assets of any such Trust.
(gg) "Trustee" means the corporation or person or persons
selected by Energen to serve as Trustee for the Trust.
(hh) "Vested" means an interest in the benefit described under
the Plan which may be payable to or on behalf of the Participant in accordance
with the terms of the Plan.
ARTICLE II.
PARTICIPATING EMPLOYERS
Section 2.1 Eligibility. To be eligible to adopt and participate in the
Plan, an employer must be a member of the "controlled group" of corporations,
within the meaning of Section 414 of the Code, that includes Energen and must be
determined to be eligible to participate in the Plan by Energen. The
corporations which are eligible to participate in this Plan as of April 25,
1997, are Energen, Alagasco, Taurus, Taurus USA, Basin, EGN, Heat Tech, and
Midtown NGV.
Section 2.2 Participation Reimbursements. Energen, the sponsor of the
Plan, Alagasco, Taurus, Taurus USA, Basin, EGN, Heat Tech and Midtown NGV are
Participating Employers in the Plan effective as of April 25, 1997. Any other
affiliated company that is or becomes eligible to adopt the Plan and become a
Participating Employer pursuant to Section 2.1 of the Plan may, with the
approval of the Board of Directors by resolution of the Board of Directors,
adopt this Plan and become a Participating Employer in the Plan. The date on
which such eligible company may become a Participating Employer in the Plan
shall be stated in the resolutions of the Board of Directors. Each of the
Participating Employers agree to make payments of their allocable portion of the
benefits provided under the Plan to their respective employee and Director
Participants. Energen hereby guarantees the performance by each of the other
Participating Employers of their respective obligations under the Plan. Neither
the respective benefit payment obligations of the Participating Employers nor
Energen's guarantee of performance is secured in any way. Such obligations and
guarantee constitute no more than unfunded and unsecured promises of payment and
performance. Each Participating Employer, other than Energen, shall reimburse
Energen for its allocable share of costs and expenses paid by Energen in
connection with the operation and administration of the Plan, and shall
reimburse Energen for any benefits paid by Energen under the Plan to
Participants to the extent allocable to such Participating Employer and its
Participants. Payments made to Participants by the Trust shall constitute
payments by Energen and Energen shall be reimbursed for such payments by the
appropriate Participating Employers.
Section 2.3 Recordkeeping and Reporting. Each Participating Employer,
other than Energen, shall furnish to Energen the information with respect to
each of its Participants necessary to enable Energen to maintain records
sufficient to determine the benefits (and the compensation
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sources of such benefits) which may become payable to or with respect to such
Participants and to give those Participants any reports which may be required
under the terms of the Plan or by law.
Section 2.4 Termination of Participation. A Participating Employer,
other than Energen, may withdraw from participation in the Plan at any time by
providing Energen with 30 days advance written notice of such withdrawal from
participation and the effective date of such Participating Employer's
withdrawal, which 30-day notice period may be waived by Energen. In addition,
Energen may terminate a Participating Employer's participation in the Plan by
providing such Participating Employer with 30 days advance written notice, which
30-day notice period may be waived by the Participating Employer. A
Participating Employer which terminates its participation in the Plan shall
remain obligated under the Plan with respect to deferrals made prior to such
termination by its Participants (including subsequent investment performance
adjustments), unless otherwise expressly agreed by Energen with Energen fully
assuming such obligations.
Section 2.5 Separate Accounting. Energen shall establish and maintain
separate Accounts for each of the Participating Employers and their respective
Participants. Such separate accounting is intended to comply with Section
404(a)(5) of the Code and Section 1.404(a) - 12 of the Treasury Regulations
(which provide that an employer can deduct the amounts contributed to a
nonqualified plan in the taxable year in which an amount attributable to the
contribution is includable in the gross income of employees participating in the
plan, but, in the case of a plan in which more than one employee participates
only if separate accounts are maintained for each employee).
ARTICLE III.
ELIGIBILITY AND PARTICIPATION
Section 3.1 Eligibility. Each Director and each Officer of a
Participating Employer shall be eligible to participate in the Plan effective as
of the later of the effective date of the Plan or the date on which such
individual first becomes a Director or Officer. In addition, the Officers Review
Committee may by express action designate other management level or highly
compensated employees of the Participating Employers as eligible to participate
in the Plan. If the Officers Review Committee designates a management level or
highly compensated employee as eligible to become a Participant in the Plan,
Energen shall inform the employee in writing of such designation and the date on
which the employee shall become a Participant in the Plan.
Section 3.2 Participation. An individual eligible to participate in the
Plan shall become a Participant upon the filing with Energen of a completed
Deferral Election Form and acceptance of such form by Energen. The name of each
individual eligible to participate in the Plan and the date on which such
individual becomes a Participant in the Plan, shall be recorded on Exhibit A,
which exhibit is attached hereto and incorporated herein by reference and which
shall be revised by Energen from time to time to reflect the operation of the
Plan. Once an individual becomes a Participant in the Plan, the individual shall
remain a Participant until the benefits which may be payable to the individual
under the Plan have been distributed to or on behalf of the individual.
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Section 3.3 Suspension of Eligibility. The Officers Review Committee
(or the Board of Directors if the affected Participant is a Director) may in its
discretion determine that a Participant will no longer be eligible to
participate in the Plan and in such event, the Participant's Section 4.1
compensation deferral election will immediately terminate and no additional
amounts shall be credited to his or her Accounts under Sections 7.1(a), (b), (c)
and 7.2(a) until such time as the individual is again determined to be eligible
to participate in the Plan by the Officers Review Committee (or Board of
Directors as appropriate) and makes a new Section 4.1 election. However, the
Account of such Participant shall continue to be adjusted by the other
provisions of Sections 7.1 and 7.2 until fully distributed.
ARTICLE IV.
BENEFITS
Section 4.1 Deferred Compensation. A Participant may elect to defer
receipt of part or all of any one or more items of Cash Compensation and/or
Stock Compensation. A Participant may defer an item of compensation only to the
extent that the Participant is entitled to receive such item of compensation.
Upon such deferral, the Participant will have no further right to such deferred
compensation other than as provided under the Plan. Such deferred compensation
shall be the record of the value of such deferred compensation credited to a
Participant's Account and shall be used solely for accounting purposes.
Section 4.2 Form and Effectiveness of Deferral Election. Elections to
defer compensation under the Plan shall be made in writing on the Deferral
Election Form. Such elections may be revised or terminated by the making of a
new deferral election on the Deferral Election Form. Deferral elections
(including revisions or terminations of prior elections) shall be effective for
Qualifying Compensation (subject to the last sentence of this section).
Notwithstanding the other provisions of this Plan, a Participant's Deferral
Election Form and the various elections and selections made thereon (excepting
elections to terminate deferral of one or more items of compensation), shall not
become effective unless acceptance thereof by Energen in its sole discretion is
acknowledged in writing. A Participant's election to terminate a prior
compensation deferral election shall be effective upon delivery to Energen and
shall be accepted and honored by the Participating Employers with respect to
Qualifying Compensation (subject to the following sentence). An election to
reduce or terminate a prior election to defer an item of compensation shall in
no event be effective with respect to compensation for services rendered during
a period of service commencing prior to the date of such election.
Section 4.3 Participant Accounts. A Company Stock Account and an
Investment Account shall be established and maintained for each Participant. The
Company Stock Account shall be measured in shares of Common Stock and the
Investment Account shall be measured in dollars. The Company Stock Account shall
be credited as described in Section 7.1 for deferred amounts attributable to (i)
Stock Compensation and (ii) such amounts of Cash Compensation as may be
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allocated to the Company Stock Account pursuant to Section 7.1(g). The
Investment Account shall be credited as described in Section 7.2 for any
deferred amounts of Cash Compensation which are not allocated to the Company
Stock Account pursuant to Section 7.1(g).
Section 4.4 Discretionary Amounts. In addition to amounts deferred by a
Participant, the Board of Directors may from time to time, in its sole
discretion, authorize a Participant's Participating Employer to credit the
Participant's Company Stock Account with additional amounts (denominated in
dollars). Such additional amounts may be authorized for such purpose or purposes
as the Board of Directors may deem appropriate, including, without limitation,
as mirror employer matching contributions or ESOP contributions made by such
Participating Employer with respect to The Energen Corporation Employee Savings
Plan.
ARTICLE V.
VESTING
Section 5.1 Vested Benefit. A Participant shall be considered to be
100% Vested in his or her Account.
Section 5.2 Limitation on Benefits. The benefits that may be payable to
or on behalf of a Participant under the Plan shall be equal to a cash payment
equal to the value of the amounts credited to the Participant's Investment
Account and a distribution of that number of Common Shares equal to the number
of shares credited to the Participant's Company Stock Account (with any
fractional share being rounded to a whole share).
ARTICLE VI.
DISTRIBUTIONS.
Section 6.1 Distributable Events. A Participant's Distributable Event
shall be the first to occur of the following events; provided, that events (b) -
(e) shall be Distributable Events only if so elected by the Participant in the
Deferral Election Form and further provided that events (d) - (f) are subject to
Section 6.6:
(a) the Participant's 70th birthday (i.e., the 70th
anniversary of the Participant's birth) or such earlier birthday as the
Participant may specify in the Deferral Election Form;
(b) Disability (as defined in Section 1.1);
(c) the Participant's death;
(d) the first date on which the Participant is NEITHER an
employee nor a Director of any Participating Employer;
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(e) such other event as the Participant may specify in the
Deferral Election Form (subject to approval of Energen);
(f) the taking of action by the Board of Directors to
terminate the Plan pursuant to Section 14.1, or
(g) termination for Cause subject to and in accordance with
Section 6.7.
A Participant's Distributable Event elections must be made on the
Participant's initial Deferral Election Form and are irrevocable; provided, that
Energen may in its sole discretion allow a Participant to make different
Distributable Event elections applicable only with respect to Qualifying
Compensation for services rendered during periods of service commencing after
the date of such election.
Section 6.2 Distribution of Benefits.
(a) Distribution Commencement Date. Excepting withdrawals
under Sections 6.3 and 6.4 which shall be distributed in accordance with those
Sections, distribution of a Participant's Plan benefit shall commence as of the
first day of the second calendar month immediately following the calendar month
in which the Participant's applicable Distributable Event occurs.
(b) Form of Distribution. Benefits attributable to the value
of the Investment Account shall be delivered to the Participant in dollars.
Benefits attributable to the Company Stock Account shall be delivered to the
Participant in the form of shares of Common Stock. To the extent that the
distribution is in the form of shares of Common Stock, such delivery shall be
subject to all applicable securities laws and regulations and Energen shall have
taken all steps, if any, including registration and listing, as may be necessary
to make the shares immediately saleable by the Participant without further
regulatory action or compliance on the part of the Participant (other than
compliance with paragraphs (f) and (h) of Rule 144 under the Securities Act of
1933). The Participant shall reasonably cooperate with Energen, at Energen's
expense, to facilitate such compliance and related actions by Energen.
(c) Payment Options. In the event a Participant becomes
eligible to receive a payment of benefits under the Plan, the benefits payable
to the Participant or, in the event of the Participant's death, to the
Participant's designated beneficiary under the Plan shall be paid in accordance
with one of the payment options available under the Plan as elected by the
Participant on the Participant's Deferral Election Form. The Participant may
elect separate payment options with respect to the Investment Account and the
Company Stock Account. A Participant may change payment options by electing
another payment option available under the Plan on a subsequent Deferral
Election Form, but such change in payment option will not be effective until the
calendar year following the calendar year in which the change was elected.
Further, in no event will any such change in payment option be effective if such
change is elected during the calendar year in which the Distributable Event
occurs and no further elections may be made once a Distributable Event occurs.
The payment options include installment payments over a period certain, a lump
sum
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payment, and such other payment method as may be specified by the Participant
and accepted by Energen. The Board of Directors may, in its sole discretion,
reduce the payment period over which payments would have been made pursuant to
the payment option elected by a Participant (including consolidation into a lump
sum); provided, that in the event of a Change in Control, no reduction of a
payment period may be made prior to the fifth anniversary of such Change in
Control. Absent a payment option election, the Board of Directors shall direct
the payment of any benefits payable under the Plan to or on behalf of the
Participant in a lump sum payment to the Participant, or in the event of the
Participant's death, to the Participant's designated beneficiary under the Plan.
Section 6.3 Early Withdrawals. Notwithstanding any provision in this
Plan to the contrary, a Participant may request, by providing a written request
to the Officers Review Committee, a withdrawal prior to the distribution date
under the Plan of all or any portion of his or her benefits from any of his or
her Accounts under the Plan in increments of 25% (of aggregate Account value).
If such a request is approved by the Officers Review Committee, which decision
by the Officers Review Committee shall be made in its sole discretion on a case
by case basis, a distribution of such benefits may be made to the Participant
subject to a penalty for such an early withdrawal at any point equal to a
six-month period of nonparticipation (during which no additional amounts will be
credited to the Participant's Accounts under Sections 7.1(a), (b), (c) and
7.2(a) of the Plan) for each 25% increment withdrawn. The nonparticipation
period would begin as of the date on which the request made by the Participant
is approved by the Officers Review Committee. As a result, a Participant
withdrawing his or her entire benefit from all of his or her Accounts would be
excluded from eligibility to participate in the Plan for a 24-month period
beginning as of the date of such approval by the Officers Review Committee. In
addition, a penalty of 10% of the amount withdrawn will be imposed on any
withdrawal made pursuant to this Section 6.3.
Section 6.4 Hardship Withdrawals. In addition to the other distribution
and withdrawal provisions of this Article VI and notwithstanding any provision
herein to the contrary, in the event a Participant incurs an unforeseeable
emergency, the Participant may request, by providing a written request to the
Officers Review Committee, a hardship withdrawal of all or any portion of his or
her benefits from his or her Accounts under the Plan. An unforeseeable emergency
is a severe financial hardship to the Participant resulting from a sudden and
unexpected illness or accident of the Participant or of a dependent (as defined
in Section 152(a) of the Code) of the Participant, loss of the Participant's
property due to casualty, or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control of the
Participant. If such a request is approved by the Officers Review Committee,
which decision by the Officers Review Committee shall be made in its sole
discretion on a case by case basis, a hardship withdrawal may be permitted under
this Section 6.4. Withdrawals of amounts because of an unforeseeable emergency
are only permitted to the extent reasonably needed to satisfy the emergency
need. This provision shall be interpreted in a manner not inconsistent with
Sections 1.457-2(h)(4) and 1.457-2(h)(5) of the Treasury Regulations.
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Section 6.5 Distributions as Result of Tax Determination.
Notwithstanding any provision in this Plan to the contrary, if, at any time, a
court or the Internal Revenue Service determines that any amounts or shares
credited to a Participant's Accounts under the Plan or Trust are includable in
the gross income of the Participant and subject to tax, the Officers Review
Committee may, in its sole discretion, permit a lump sum distribution of an
amount equal to the amounts or shares determined to be includable in the
Participant's gross income.
Section 6.6 No Parachute Payment. An event described in Sections
6.1(d), (e) and (f) shall not constitute a Distributable Event if the Officers
Review Committee in its reasonable discretion following consultation with
appropriate tax and/or legal advisors reasonably determines that such
distribution will likely constitute a parachute payment for purposes of Section
280G of the Code. Furthermore, if such event occurs subsequent to a Change in
Control, the Officers Review Committee shall, at Energen's expense, promptly
request a written opinion of the Independent Auditor with respect to the
applicability of such Section 280G and such event shall not constitute a
Distributable Event unless and until the Independent Auditor delivers its
written unqualified opinion, a copy of which shall be provided to the
Participant, to the effect that a distribution of benefits as a result of such
event will not constitute a parachute payment under Section 280G of the Code. As
used in this Section 6.6, the term independent auditor means the firm of
certified public accountants which at the time of the Change in Control had been
most recently engaged by Energen or such other comparable and nationally
recognized firm of certified public accountants as may be selected by the
Officers Review Committee in its reasonable discretion.
Section 6.7 Distribution Upon Termination for Cause. In the event that
a Participant is terminated for Cause (as defined below), the Company may, at
its discretion, treat such termination or any date subsequent thereto as a
Distributable Event. For purposes of this Plan, termination for Cause means
termination based on any of the following:
(i) The willful and continued failure by the
Participant to substantially perform Participant's
duties with a Participating Employer (other than any
such failure resulting from Participant's incapacity
due to physical or mental illness) after a written
demand for substantial performance is delivered to
Participant specifically identifying the manner in
which Participant has not substantially performed
Participant's duties;
(ii) the engaging by Participant in willful misconduct
which is demonstrably injurious to any one or more of
the Participating Employers monetarily or otherwise; or
(iii) the conviction of Participant of a felony.
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ARTICLE VII.
VALUATION OF BENEFITS.
Section 7.1 Company Stock Account.
(a) Stock Award Deferral. When a Participant's Company Stock
Account is to be credited for deferred amounts attributable to awards which
would otherwise have been distributed to the Participant in the form of Common
Stock, then the number of shares of Common Stock which would have otherwise been
distributed to the Participant shall be credited to the Participant's Company
Stock Account as of the date that such distribution to the Participant would
have otherwise occurred.
(b) Cash Deferral. When a Participant's Company Stock Account
is to be credited for deferred amounts which would have otherwise been
distributed to the Participant in the form of cash, then the Participant's
Company Stock Account shall be credited with that number of shares of Common
Stock equal to the number of such shares that could have been purchased with
such cash amounts at the Fair Market Value Average for the last business day of
the month during which such cash amounts would have otherwise been distributed
to the Participant.
(c) Discretionary Amount. When a participant's Company Stock
Account is to be credited for a Discretionary Amount, it shall be credited with
that number of shares of Common Stock equal to the number of such shares
(including fractional shares) that could have been purchased with the dollar
amount of the Discretionary Amount at the Fair Market Value Average for the last
business day of the month during which such Discretionary Amount is authorized
or such other date as may be specified in the Discretionary Amount
authorization.
(d) Dividends. A Participant's Company Stock Account shall be
credited on each Common Stock dividend payment date with that number of shares
which could have been acquired through the Energen Corporation Dividend
Reinvestment and Direct Stock Purchase Plan or similar successor plan (the
"DRIP") by the reinvestment of the dividends payable on the number of shares of
Common Stock credited to such Company Stock Account as of the record date for
such dividend. In the event that the DRIP is no longer operative, or at such
time as the Officers Review Committee in its discretion shall specify, the
number of dividend reinvestment shares shall be calculated based on the Fair
Market Value Average for the dividend payment date.
(e) Stock Dividend, etc. The number of shares of Common Stock
shall be adjusted to reflect any change in the outstanding Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change.
(f) Transfer upon Change in Control. In the event of a Change
in Control, effective as of the close of business on the date of the Change in
Control, each Participant's Investment Account shall be credited with an amount
measured in dollars equal to the value of such Participant's Company Stock
Account based on the Fair Market Value Close on such date (or such
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other valuation method selected by the Section 1.1(g) Continuing Directors in
their reasonable discretion), and the Participant's Company Stock Account shall
be closed and the Participant shall have no further interest in the Company
Stock Account.
(g) Allocation of Cash Compensation. A Participant may request
that part or all of deferred compensation attributable to Cash Compensation be
allocated to the Participant's Company Stock Account. A Participant's request to
make such an allocation or change a previous allocation must be in writing on an
Allocation Request Form. All such requests are subject to acceptance by Energen
in its discretion. If accepted by Energen, the allocation request will be
effective as of the date specified by the request.
Section 7.2 Investment Account.
(a) Deferred Amounts. When a Participant's Investment Account
is to be credited with a deferred amount, that amount measured in dollars equal
to such deferred amount shall be credited to the Investment Account as of the
close of business on the date that such amount would have otherwise been paid to
the Participant.
(b) Interest. Subject to 7.2(c), as of the close of the last
day of each calendar quarter, an additional amount shall be credited to each
Participant's Investment Account equal to the product of (i) the average daily
balance in such Investment Account for the quarter, times (ii) one-fourth of the
annual prime rate for corporate borrowers quoted at the beginning of the quarter
by AmSouth Bank of Alabama, Birmingham, Alabama (or such other comparable
interest rate as the Officers Review Committee may designate from time to time).
(c) Investment Options. Energen may permit a Participant to
allocate the Participant's Investment Account among one or more investment
options for purposes of measuring the value of the benefit. To the extent that
the Investment Account is allocated to an investment option, it shall not be
credited with interest under Section 7.2(b). That portion of the Investment
Account allocated to an investment option shall be deemed to be invested in such
investment option and shall be valued as if so invested, reflecting all
earnings, losses and other distributions or charges and changes in value which
would have been incurred through such an investment. The determination of which
investment options, if any to make available, and the continued availability of
selected investment options rests in Energen's sole discretion; provided, that
subsequent to a Change in Control, Energen shall maintain the availability of
those investment options in place at the time of the Change in Control (or
substantially equivalent investment options).
(d) Participant Allocation Request. A Participant's request to
allocate or reallocate among investment options must be in writing on an
Allocation Request Form in such increments as Energen may require. All such
requests are subject to acceptance by Energen at its discretion. If accepted by
Energen, an allocation request will be effective as of the close of business on
the allocation date (as defined in Section 7.4).
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Section 7.3 Hypothetical Accounts. The Accounts established under this
Plan shall be hypothetical in nature and shall be maintained for bookkeeping
purposes only. Neither the Plan nor any of the Accounts (or subaccounts) shall
hold or be required to hold any actual funds or assets.
Section 7.4 Allocation Date. Upon acceptance of an allocation request
pursuant to Section 7.1(g) or 7.2(d), Energen will process the request as soon
as reasonably administratively practicable and the request shall be implemented
and reflected in the Participant's account as of the close of business on such
date as may be determined by Energen in its reasonable discretion (the
"allocation date").
ARTICLE VIII.
NONTRANSFERABILITY
Section 8.1 Anti-Alienation of Benefits. Any benefits which may be
credited to a Participant's Accounts under the Plan, and any rights or
privileges pertaining thereto, may not be anticipated, alienated, sold,
transferred, assigned, pledged, encumbered, or subjected to any charge or legal
process; and no interest or right to receive a benefit may be taken, either
voluntarily or involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such person or entity, including claims for
alimony, support, separate maintenance and claims in bankruptcy proceedings.
Section 8.2 Incompetent Participants. If any person who may be eligible
to receive a payment under the Plan has been legally declared incompetent and a
conservator or other person legally charged with the care of such person or of
his or her estate has been appointed, any payment under the Plan to which the
person is eligible to receive shall be paid to such conservator or other person
legally charged with the care of the person or his or her estate. Any such
payment shall be a payment for the account of such person and a complete
discharge of any liability of the Participating Employers and the Plan therefor.
Section 8.3 Designated Beneficiary. In the event of a Participant's
death prior to the payment of all or a portion of any benefits which may be
payable with respect to the Participant under the Plan, the payment of any
benefits payable on behalf of the Participant under the Plan shall be made to
the Participant's beneficiary designated on a Deferral Election Form. If no such
beneficiary has been designated, payment shall be made as required under the
Participant's will; or, in the event that there shall be no functioning will
under applicable state law, then to such persons as, at the date of the
Participant's death, would be entitled to share in the distribution of such
deceased Participant's personal estate under the provisions of the applicable
statute then in force governing the decedent's intestate property, in the
proportions specified in such statute.
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ARTICLE IX.
WITHHOLDING
Section 9.1 Withholding. The amounts payable pursuant to the Plan may
be reduced by the amount of any federal, state or local taxes required by law to
be withheld with respect to such payments.
ARTICLE X.
VOTING OF STOCK
Section 10.1 Voting of Company Stock. No Participant shall be entitled
to any voting rights with respect to any shares credited to his or her Company
Stock Account.
ARTICLE XI.
ADMINISTRATION OF A PLAN
Section 11.1 Administrator. The administrator of the Plan shall be
Energen. However, the Board of Directors shall act on behalf of Energen with
respect to the administration of the Plan and may delegate authority with
respect to the administration of the Plan to the Officers Review Committee or
such other committee, person or persons as it deems necessary or appropriate for
the administration and operation of the Plan.
Section 11.2 Authority of Administrator. Energen shall have the
authority, duty and power to interpret and construe the provisions of the Plan
as it deems appropriate, to adopt, establish and revise rules, procedures and
regulations relating to the Plan, to determine the conditions subject to which
any benefits may be payable, to resolve all questions concerning the status and
rights of Participants and others under the Plan, including, but not limited to,
eligibility for benefits and to make any other determinations which it believes
necessary or advisable for the administration of the Plan. Energen shall have
the duty and responsibility of maintaining records, making the requisite
calculations and disbursing payments hereunder. The determinations,
interpretations, regulations and calculations of Energen shall be final and
binding on all persons and parties concerned. The Secretary of Energen shall be
the agent of the Plan for the service of legal process in accordance with
Section 502 of the Employee Retirement Income Security Act of 1974, as amended.
Section 11.3 Operation of Plan and Claims Procedures. Energen shall be
responsible for the general operation and administration of the Plan and for
carrying out the provisions thereof. Energen shall be responsible for the
expenses incurred in the administration of the Plan. Energen shall also be
responsible for determining eligibility for payments and the amounts payable
pursuant to the Plan. Energen shall be entitled to rely conclusively upon all
tables, valuations, certificates, opinions and reports furnished by any actuary,
accountant, controller, counsel or other person employed or engaged by Energen
with respect to the Plan. The procedures for filing claims for
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<PAGE> 17
payments under the Plan are described below. For claims procedures purposes, the
"Claims Manager" shall be Energen.
(a) Claim Forms. It is the intent of Energen to make payments
under the Plan without the Participant having to complete or submit any claims
forms. However, a Participant who believes he or she is entitled to a payment
under the Plan may submit a claim for payments in writing to Energen. Any claim
for payments under the Plan must be made by the Participant or his or her
beneficiary in writing and state the claimant's name and the nature of benefits
payable under the Plan on a form acceptable to Energen. If for any reason a
claim for payments under the Plan is denied by Energen, the Claims Manager shall
deliver to the claimant a written explanation setting forth the specific reasons
for the denial, specific references to the pertinent provisions of the Plan on
which the denial is based, a description of any additional material or
information necessary for the claimant to perfect the claim and an explanation
of why such material or information is necessary, and information on the
procedures to be followed by the claimant in obtaining a review of his or her
claim, all written in a manner calculated to be understood by the claimant. For
this purpose:
(i) The claimant's claim shall be deemed to be filed
when presented orally or in writing to the Claims
Manager.
(ii) The Claims Manager's explanation shall be in
writing delivered to the claimant within 90 days of the
date the claim is filed.
(b) Review. The claimant shall have 60 days following his or
her receipt of the denial of the claim to file with the Claims Manager a written
request for review of the denial. For such review, the claimant or the
claimant's representative may review pertinent documents and submit written
issues and comments.
(c) Decision on Review. The Claims Manager shall decide the
issue on review and furnish the claimant with a copy within 60 days of receipt
of the claimant's request for review of the claimant's claim. The decision on
review shall be in writing and shall include specific reasons for the decision,
written in a manner calculated to be understood by the claimant, as well as
specific references to the pertinent provisions in the Plan on which the
decision is based. If a copy of the decision is not so furnished to the claimant
within such 60 days, the claim shall be deemed denied on review. In no event may
a claimant commence legal action for benefits the claimant believes are due the
claimant until the claimant has exhausted all of the remedies and procedures
afforded the claimant by this Section 11.3.
Section 11.4 Participant's Address. Each Participant shall keep Energen
informed of his or her current address and the current address of his or her
beneficiary. Energen shall not be obligated to search for any person. If the
location of a Participant is not made known to Energen within three (3) years
after the date on which payment of the Participant's benefits payable under the
Plan may be made, payment may be made as though the Participant had died at the
end of the three-year period. If, within one (1) additional year after such
three-year period has elapsed, or, within three (3) years after the actual death
of a Participant, Energen is unable to locate any designated
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beneficiary of the Participant, then Energen shall have no further obligation to
pay any benefit hereunder to or on behalf of such Participant or designated
beneficiary and such benefits shall be irrevocably forfeited.
ARTICLE XII.
MISCELLANEOUS PROVISIONS
Section 12.1 No Employment Rights. Neither the Plan nor any action
taken hereunder shall be construed as giving any Participant any right to be
retained in the service or employ of any Participating Employer.
Section 12.2 Participants Should Consult Advisors. Neither any
Participating Employer, nor their respective directors, officers, employees or
agents makes any representation or warranty with respect to the state, federal
or other tax, financial, estate planning, or the securities or other legal
implications of participation in the Plan. Participants should consult with
their own tax, financial and legal advisors with respect to their participation
in the Plan.
Section 12.3 Unfunded and Unsecured. The Plan shall at all times be
considered entirely unfunded both for tax purposes and for purposes of Title I
of the Employee Retirement Income Security Act of 1974, as amended, and no
provision shall at any time be made with respect to segregating assets of any
Participating Employer for payment of any amounts hereunder. Any funds invested
hereunder allocable to a Participating Employer shall continue for all purposes
to be part of the respective general assets of such Participating Employer and
available to the general creditors of such Participating Employer in the event
of a bankruptcy (involvement in a pending proceeding under the Federal
Bankruptcy Code) or insolvency (inability to pay debts as they mature) of such
Participating Employer. Energen shall promptly notify the Trustee and the
applicable Participants of such bankruptcy or insolvency of a Participating
Employer. No Participant or any other person shall have any interests in any
particular assets of any Participating Employer by reason of the right to
receive a benefit under the Plan and to the extent the Participant or any other
person acquires a right to receive benefits under the Plan, such right shall be
no greater than the right of any general unsecured creditor of any Participating
Employer. The Plan constitutes a mere promise by the Participating Employers to
make payments to the Participants in the future. With respect to the guarantee
of Energen under Section 2.2, Participants have rights only as general unsecured
creditors of Energen. Nothing contained in the Plan shall constitute a guaranty
by any Participating Employer or any other person or entity that any funds in
any trust or the assets of any Participating Employer will be sufficient to pay
any benefit hereunder. Furthermore, no Participant shall have any right to a
benefit under the Plan except in accordance with the terms of the Plan.
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Section 12.4 The Trust.
(a) Establishment of Trust. In order to provide assets from
which to fulfill its obligations to the Participants and their beneficiaries
under the Plan, Energen shall establish a Trust by a trust agreement with a
third party, the Trustee, to which Energen may, in its discretion, contribute
cash or other property, including securities issued by Energen, to provide for
the benefit payments under the Plan. The Trustee will have the duty to invest
the Trust assets and funds in accordance with the terms of the Trust. Energen
shall be entitled at any time, and from time to time, in its sole discretion, to
substitute assets of at least equal fair market value for any assets held in the
Trust. All rights associated with the assets of the Trust will be exercised by
the Trustee or the person designated by the Trustee, and will in no event be
exercisable by or rest with Participants or their beneficiaries. The Trust shall
provide that in the event of the insolvency of Energen, the Trustee shall hold
the assets for the benefit of the general creditors of Energen and its
affiliated companies. The Trust shall be based on the model trust contained in
Internal Revenue Service Revenue Procedure 92-64 with such changes and
modifications as may be approved by Energen.
(b) Contribution Upon Change in Control. If as of the close of
business on the date of a Change in Control, the aggregate value of the
Participant Accounts exceeds the value of the Trust assets, then within thirty
days of such Change in Control, Energen shall contribute to the Trust assets
having a value at least equal to the amount of such excess.
Section 12.5 Plan Provisions. Except when otherwise required by the
context, any singular terminology shall include the plural.
Section 12.6 Severability. If a provision of the Plan shall be held to
be illegal or invalid, the illegality or invalidity shall not affect the
remaining parts of the Plan and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
Section 12.7 Applicable Law. To the extent not preempted by the laws of
the United States, the laws of the State of Alabama shall apply with respect to
the Plan.
ARTICLE XIII.
AMENDMENTS
Section 13.1 Amendment of the Plan. Energen reserves the power to
alter, amend or wholly revise the Plan at any time and from time to time by the
action of the Board of Directors and the interest of each Participant is subject
to the powers so reserved; provided, however, that no amendment made subsequent
to a Change in Control shall be effective to the extent that it would have a
materially adverse impact on a Participant's reasonably expected economic
benefit attributable to compensation deferred by the Participant prior to the
Change in Control. An amendment shall be authorized by the Board of Directors
and shall be stated in an instrument in writing signed in the name of Energen by
a person or persons authorized by the Board of Directors. After the instrument
has been so executed, the Plan shall be deemed to have been amended in the
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manner therein set forth, and all parties interested herein shall be bound
thereby. No amendment to the Plan may alter, impair, or reduce the benefits
credited to any Accounts prior to the effective date of such amendment without
the written consent of any affected Participant.
ARTICLE XIV.
TERM OF PLAN
Section 14.1 Term of the Plan. Energen may at any time terminate the
Plan by action of the Board of Directors with such termination being effective
as of the date that all Participant Accounts have been distributed to
Participants in accordance with and subject to the provisions of Article VI of
the Plan including, without limitation, Section 6.6 of the Plan. Effective as of
the date of such Board of Directors action (or such later date as may be
specified therein) all Section 4.1 compensation deferral elections will
terminate and no further amounts shall be credited to any Accounts of any
Participant under Sections 7.1(a), (b), (c) and 7.2(a) after such date. However,
the Participants" Accounts shall continue to be adjusted by the other provisions
of Sections 7.1 and 7.2 until all benefits are distributed to the Participants
or to the Participants' beneficiaries.
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EXHIBIT 10(i)
ENERGEN CORPORATION
1992 DIRECTORS STOCK PLAN
(AS AMENDED APRIL 25, 1997)
1. PURPOSE
This Energen Corporation 1992 Directors Stock Plan (the "Plan") is hereby
established by Energen Corporation (the "Company"). The purpose of the Plan is
to enable the Company to pay part of the compensation of its non-employee
directors in shares of the Company's common stock ("Stock"). The Plan provides
annual grants of Stock to non-employee directors and in addition permits such
directors to elect to take all or part of their cash compensation in the form of
Stock.
2. ELIGIBILITY
Each member of the Board of Directors of the Company (the "Board") who is not an
officer or Employee of the Company or any of its subsidiaries (a "Non-Employee
Director") shall be eligible for participation in the Plan.
3. ANNUAL GRANTS
As soon as reasonably practicable following the fiscal year ended September 30,
1992 and each fiscal year thereafter so long as this Plan remains in effect, an
annual award of Stock (adjusted as described below) shall be granted and issued
to each Non-Employee Director who is serving as such on the last day of such
year and has held such position for at least six months. The annual award
payable at the conclusion of fiscal years ended September 30, 1992-1995 shall be
200 shares. The annual award payable with respect to fiscal years ended
September 30, 1996 and thereafter, shall be 300 shares. If the Company shall at
any time issue any shares of Stock (i) in subdivision of outstanding shares of
Stock, by reclassification or otherwise, or (ii) for a stock dividend, the size
of future annual awards shall be increased proportionately; and in like manner,
reduced proportionately in case of any combination of shares of Stock. In
addition to the foregoing annual awards, a supplemental award of 100 shares
shall be made during February, 1996 to each individual who was serving as a
Non-Employee Director on December 31, 1995, regardless of length of service.
4. ELECTIVE GRANTS
Each Non-Employee Director may elect to have any part or all of the fees payable
to such Non-Employee Director for services as a director of the Company and its
subsidiaries paid in the form of Stock. Such election shall be delivered to the
Company in writing specifying the portion of fees to be paid in Stock. Any such
election shall remain in effect and irrevocable until the effective date of a
subsequent written election changing or terminating the prior election. The
effective date of any election, including without limitation an election to
change or terminate a prior election, shall be six months from the date of
delivery to the Company. Stock issued in lieu of director fees shall be issued
as soon as reasonably practicable following the end of each calendar quarter and
the number of shares will be based on a valuation equal to the average of the
closing sales prices for the Stock as published in The Wall Street Journal
report of the New York Stock Exchange, Inc. - Composite Transactions for the
last trading day of each month in such calendar quarter, provided that any
fractional share shall be rounded up to a whole share.
<PAGE> 2
5. STOCK ISSUANCE
Non-Employee Directors shall not be deemed for any purpose to be, or have any
rights as, stockholders of the Company with respect to any Stock issued under
this Plan except if, as and when shares are issued and then only from the date
of the certificates therefor.
6. AMENDMENT AND DISCONTINUANCES
The Board of Directors may from time to time amend the Plan; provided, however,
that no amendment may without stockholder approval materially increase the
benefits accruing to participants under the Plan, materially increase the number
of shares of Common Stock which may be issued under the Plan, or materially
modify the requirements as to eligibility for participation in the Plan, and
further provided, that the Plan shall not be amended more than once every six
months, other than to comport with changes in the Internal Revenue Code, the
Employee Retirement income Act, or the rules thereunder.
7. COMPLIANCE WITH APPLICABLE LEGAL REQUIREMENTS
No certificate for shares distributable pursuant to the Plan shall be issued and
delivered unless the issuance of such certificate complies with all applicable
legal requirements, including, without limitation, compliance with the
provisions of the Securities Act of 1933, as amended, the Securities Exchange
Act of 1934, as amended, and the requirements of the exchanges on which Stock
may, at the time, be listed.
8. TERM OF THE PLAN
The Plan is subject to and shall only become effective upon approval of the Plan
by the stockholders of the Company at the Annual Meeting of Stockholders to be
held January 22, 1992. Once effective this Plan shall remain in effect until
terminated by action of the Board or the stockholders of the Company.
9. DEFERRAL UNDER 1997 DEFERRED COMPENSATION PLAN
Notwithstanding the other provisions of this Plan, a Non-Employee Director may
elect pursuant to the Energen Corporation 1997 Deferred Compensation Plan to
defer receipt of annual and/or elective grants of Stock otherwise payable under
Section 3 or 4 of this Directors Stock Plan and upon such deferral shall have no
further right with respect to such deferred grant other than as provided under
said Deferred Compensation Plan. In the event of such a deferral election,
shares of Stock which would otherwise have been deliverable to such Non-Employee
Director may at the discretion of the Company be delivered to the Trustee under
such Deferred Compensation Plan and registered in the name of the Trustee or
such other person as the Trustee may direct.
Adoption:
Board of Directors Meeting held November 27, 1991
Shareholder Meeting held January 22, 1992
Amended:
Board of Directors Meeting held November 22, 1995
Shareholder Meeting held January 24, 1996
Board of Directors Meeting held April 25, 1997
2
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
CONSOLIDATED NET INCOME
Energen Corporation's net income for the 1998 fiscal year totaled $36.2 million,
or $1.25 per share, and represented an 8.7 percent increase in basic earnings
per share (EPS) over prior-year net income of $29 million, or $1.15 per share.
The continued financial and operating strength of Energen's utility subsidiary,
Alabama Gas Corporation (Alagasco), was enhanced by significant growth at
Energen Resources Corporation, Energen's oil and gas subsidiary. In fiscal year
1996, Energen reported earnings of $21.5 million, or $0.98 per share. (As
discussed more fully in Note 1 to the Consolidated Financial Statements, Energen
Resources previously was known as Taurus Exploration Inc.)
1998 VS 1997: Alagasco achieved record earnings for the eighth consecutive year,
with net income increasing $2 million from 1997 to $20.6 million. This growth in
income reflected the utility's ability to earn within its allowed range of
return on an increased level of equity representing investment in utility plant.
Alagasco achieved a return on equity (ROE) of 13.5 percent.
Energen Resources' net income in fiscal 1998 increased 52 percent to $15.3. This
increase was due in large part to a $6.4 million increase in nonconventional
fuels tax credits generated by the prior-year acquisition of coalbed methane
reserves in Alabama's Black Warrior Basin. In addition, Energen Resources' oil
and gas production increased 55 percent to 57.4 billion cubic feet equivalent
(Bcfe) as a result of successful acquisition and exploitation efforts. Partially
offsetting these gains were increased depreciation, depletion and amortization
(DD&A) expense, which included a $3 million after-tax writedown of certain
offshore oil and gas properties under Statement of Financial Accounting
Standards (SFAS) No. 121, increased interest expense associated with property
acquisitions, and a $1.6 million after-tax writedown of a portion of an unproved
leasehold in east Texas.
1997 VS 1996: Alagasco's 1997 net income of $18.6 million increased 9.5 percent
over 1996 earnings of $17 million primarily due to the utility earning within
its allowed range of return on an increased level of equity. Energen Resources
earned $10.1 million in 1997, more than doubling 1996 year-end earnings of $4.5
million. A 130 percent increase in oil and gas production volumes to 37 Bcfe and
a $3.8 million increase in nonconventional fuels tax credits primarily resulting
from coalbed methane property acquisitions in 1996 and 1997 were the major
reasons for the significant increase. Partially offsetting these gains were
increased DD&A and interest expense and a $1.3 million after-tax writedown of
certain offshore oil and gas properties in anticipation of their sale.
OPERATING INCOME
Consolidated operating income in 1998, 1997 and 1996 totaled $61.5 million, $52
million and $38.8 million, respectively. The growth in operating income in 1998
and 1997 was influenced significantly by improved financial performances from
Energen Resources under Energen's diversified growth strategy, implemented in
fiscal 1996. Growth in Alagasco's operating income was consistent with the
increased level of equity upon which it was able to earn a return between 13.15
percent and 13.65 percent.
ALAGASCO: As discussed more fully in Note 2 to the Consolidated Financial
Statements, Alagasco is subject to regulation by the Alabama Public Service
Commission (APSC). On October 7, 1996, the APSC issued an order to extend the
Company's rate-setting mechanism, Rate Stabilization and Equalization (RSE), for
a five-year period through January 1, 2002. Under the terms of the extension,
RSE will continue after January 1, 2002, unless, after notice to the Company and
a hearing, the Commission votes to either modify or discontinue its operation.
Alagasco generates revenues through the sale and transportation of natural gas.
The transportation rate does not contain an amount representing the cost of gas,
and Alagasco's rate structure allows similar margins on transportation and sales
gas. Weather can cause variations in space heating revenues, but operating
margins remain unaffected due to a real-time temperature adjustment which allows
Alagasco to adjust customer bills monthly to reflect changes in usage due to
departures from
Page 19
<PAGE> 2
normal weather. Substantially all the customers to whom the temperature
adjustment applies are residential, small commercial and small industrial.
Alagasco's natural gas and transportation sales revenues totaled $369.9 million,
$363 million and $357.3 million in 1998, 1997 and 1996, respectively. In the
current fiscal year, weather that was 15.4 percent colder than in the prior year
and increased usage from large transportation customers led to increased sales
revenue which was partially offset by a $3.9 million deferral of revenue under
the Enhanced Stability Reserve (see Note 2) and lower gas prices. Sales revenue
in 1997 reflected a higher commodity cost of gas which was largely offset by the
impact of warmer weather on throughput.
Colder weather in Alagasco's service territory caused a 10 percent increase in
residential sales volumes in the current year. Sales and transportation volumes
to commercial and industrial customers rose 7.8 percent to 84.3 Bcf, primarily
due to increased throughput to several large transportation customers.
Residential sales volumes decreased 19 percent in 1997, primarily due to weather
that was 12 percent warmer than normal and 22 percent warmer than in the prior
year. Sales and transportation volumes to commercial and industrial customers
totaled 78.2 Bcf in 1997 and 76.5 Bcf in 1996.
Cost of gas remained relatively stable in 1998, as increased purchased volumes
related to colder weather were offset by a decrease in the commodity cost of
gas. Warmer weather in 1997 decreased purchased volumes, but a higher commodity
gas cost offset the effect.
Operations and maintenance (O&M) expense at the utility in 1998 increased 2.8
percent primarily due to higher labor and related costs and increases in bad
debt and insurance expense. O&M expense increased 4 percent in 1997 primarily
due to higher labor and related costs and increased marketing expense, partially
offset by a decrease in bad debt expense created when the utility increased its
provision for doubtful accounts in 1996 to reflect increased exposure from
higher commodity gas costs. In 1998 and 1997, the increase in O&M expense on a
per-customer basis fell within the inflation-based cap established by the APSC
as part of the utility's rate-setting mechanism. Under the terms of RSE, Year
2000 costs are excluded from the O&M inflation-based cap calculation.
Consistent with growth in the utility's depreciable base, depreciation expense
rose 7.1 percent in 1998 and 10.4 percent in 1997. Alagasco's expense for taxes
other than income primarily reflects various state and local business taxes as
well as payroll-related taxes. State and local business taxes generally are
based on gross receipts and fluctuate accordingly.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Years ended September 30, (dollars in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Natural gas and transportation sales revenues ... $ 369,940 $ 362,984 $ 357,252
Cost of natural gas ............................. (176,124) (177,837) (181,400)
Revenue taxes ................................... (20,278) (19,676) (20,055)
- --------------------------------------------------------------------------------------------
Natural gas and transportation sales margin ..... $ 173,538 $ 165,471 $ 155,797
- --------------------------------------------------------------------------------------------
Natural gas sales volumes (MMcf)
Residential ................................... 31,079 28,357 34,963
Commercial and industrial-small ............... 13,705 12,554 15,002
- --------------------------------------------------------------------------------------------
Total natural gas sales volumes ................. 44,784 40,911 49,965
Natural gas transportation volumes (MMcf) ....... 70,563 65,622 61,458
- --------------------------------------------------------------------------------------------
Total deliveries (MMcf) ......................... 115,347 106,533 111,423
- --------------------------------------------------------------------------------------------
</TABLE>
ENERGEN RESOURCES: During the first quarter of 1998, Energen Resources acquired
approximately 80 Bcfe of proved oil and natural gas reserves in the Permian
Basin of west Texas from B.C. Oil and Gas Ltd. and certain affiliated companies
for $43.3 million and purchased an estimated 4.5 Bcfe of predominantly natural
gas reserves in southwest Mississippi from Oxy USA Inc. for $7.1 million. In the
second quarter, Energen Resources purchased Gulf of Mexico properties from
Chateau Oil and Gas Inc. (Chateau) for $17 million and, in April 1998, sold
approximately 20 percent of its share to a third party. In September 1998,
Energen Resources traded substantially all of its Gulf of Mexico interests
(including the remaining reserves purchased from Chateau) for certain Permian
Basin interests of EEX Corporation. The Company received approximately_58 Bcfe
of oil, natural gas and liquids reserves from EEX in exchange for an estimated
38 Bcf of proved natural gas reserves, with interests in 30 offshore blocks, and
$10.4 million in cash.
Page 20
<PAGE> 3
Revenues from oil and gas production activities continued to grow largely as a
result of these acquisitions and prior-year property acquisitions. Total
production volumes rose 55 percent to 57.4 Bcfe. Natural gas production,
including coalbed methane, increased 49.6 percent to 43.9 Bcf. Oil volumes
increased 85 percent to 1,434 MBbl and high BTU-content natural gas reserves in
the San Juan Basin yielded 817 MBbl in natural gas liquids for the year. Energen
Resources also benefited from higher realized natural gas prices in 1998, while
realized oil prices declined sharply. Realized gas prices rose 7.8 percent to
$2.21 per Mcf, and realized oil prices decreased 17.3 percent to $14.96 per
barrel. Natural gas liquids sold for an average price of $8.65 per barrel.
During 1997, revenues from oil and gas production activities also grew notably.
Total production volumes were 37 Bcfe, increasing 130 percent from the prior
year. Average realized gas prices were $2.05 per Mcf, higher than 1996 prices by
4 percent, and oil prices were $18.08 per barrel, up 11 percent. Natural gas
liquids sold for $11.45 per barrel in 1997.
Coalbed methane operating fees are calculated as a percentage of net proceeds on
certain properties, as defined by the related operating agreements, and vary
with changes in natural gas prices, production volumes and operating expenses.
Revenues from operating fees were $4.3 million, $4.4 million and $3.8 million in
1998, 1997 and 1996, respectively. Yearly variances primarily result from
fluctuations in natural gas prices.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Years ended September 30, (dollars in thousands, except sales price data) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Natural gas production ............................................. $ 97,123 $60,228 $24,262
Oil production ..................................................... 21,452 13,981 10,313
Natural gas liquids production ..................................... 7,061 5,772 --
Operating fees ..................................................... 4,342 4,385 3,846
Other .............................................................. 2,709 880 3,769
- ---------------------------------------------------------------------------------------------------------
Total Revenues ....................................................... $132,687 $85,246 $42,190
- ---------------------------------------------------------------------------------------------------------
Production volumes
Natural gas (MMcf) ................................................. 43,853 29,318 12,308
Oil (MBbl) ......................................................... 1,433 775 635
Natural gas liquids (MBbl) ......................................... 817 502 --
- ---------------------------------------------------------------------------------------------------------
Average unit sales price
Natural gas (per Mcf) .............................................. $ 2.21 $ 2.05 $ 1.97
Oil (barrel) ....................................................... $ 14.96 $ 18.08 $ 16.25
Natural gas liquids (barrel) ....................................... $ 8.65 $ 11.45 --
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Energen Resources may, in the ordinary course of business, be involved in the
sale of both developed and undeveloped properties. With respect to developed
properties, sales may occur as a result of, but not limited to, disposing of
non-strategic or marginal assets and accepting offers where the buyer gives
greater value to a property than Energen Resources' technical staff. In 1998,
1997 and 1996, Energen Resources recorded pre-tax gains of $2.6 million, $1
million and $3.9 million, respectively, on the sale of various properties. The
largest of several property sales occurred in September 1996 when Energen
Resources recorded a $3.2 million gain after selling its working interest in
reserves associated with PMC Reserve Acquisition Company.
Operations expense increased $18 million and $12.2 million in 1998 and 1997,
respectively, primarily due to significant production growth and acquisition
activity at Energen Resources. Lease operating expense rose by $19.8 million in
1998 and $10.5 million in 1997, mainly due to the acquisition of oil and gas
properties. A decrease in exploration expense of $0.9 million primarily was due
to decreased drilling activity but was offset partially by a $2.5 million
pre-tax writedown of a portion of an unproved leasehold in east Texas.
Exploration expense increased $1.2 million in the prior year as a result of
Energen Resources' increased exploratory efforts.
DD&A expense increased $19.6 million in 1998 largely due to significantly higher
production and additional DD&A expense of $4.7 million recorded in 1998 under
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and For
Long-Lived
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<PAGE> 4
Assets to Be Disposed Of (see Note 11). DD&A expense rose $16.4 million in 1997
largely due to significantly higher production. The increase for 1997 was offset
partially by a decrease in the average depletion rate to $0.90 per Mcf from
$1.15 per Mcf in 1996 due to the significant acquisition of long-lived assets in
the San Juan Basin. Also during 1997, Energen Resources recorded additional DD&A
expense of $2.1 million to writedown the value of certain oil and gas
properties.
Energen Resources' expense for taxes other than income primarily reflects
production-related taxes. For 1998, 1997 and 1996, Energen Resources recorded
$9.4 million, $6.3 million and $1.9 million, respectively, in severance taxes.
The annual increases resulted from increased production.
NON-OPERATING ITEMS
CONSOLIDATED: Interest expense increased $7 million in 1998 primarily due to the
use of long-term debt to help finance Energen Resources' property acquisitions.
Influencing the increase in interest expense for the current year is the $85
million of medium-term notes (MTNs) issued in July 1997 and, in part, the $100
million of MTNs issued in February 1998. The average daily outstanding balance
under short-term credit facilities was $81 million for the current year. Fiscal
1997 interest expense increased $9 million primarily due to Energen Resources'
growth. The average daily outstanding balance under short-term credit facilities
was $88 million in 1997 compared with $38 million in 1996. Also influencing
interest expense in 1997 was interest for a full year on $40 million of Energen
MTNs issued in the fourth quarter of 1996 and, to a lesser extent, the $85
million of MTNs issued in July 1997. In addition, Alagasco issued $25 million in
MTNs in the fourth quarter of 1996.
The fluctuation in other income over the three-year period primarily is due to
the inclusion in 1996 of an early call premium associated with the redemption of
debt at Alagasco in 1995.
The Company's effective tax rates in 1998, 1997 and 1996 were lower than
statutory federal tax rates primarily due to the recognition of nonconventional
fuels tax credits and the amortization of investment tax credits.
Nonconventional fuels tax credits are generated annually and expire effective
December 31, 2002. They are expected to be recognized fully in the financial
statements and effective tax rates are expected to continue to remain lower than
statutory federal rates. Income tax expense decreased in 1998 due to the
recognition of an additional $6.4 million of nonconventional fuels tax credits
which partially was offset by higher consolidated pre-tax earnings. Income tax
expense in 1997 also decreased primarily due to the recognition of an additional
$3.8 million of nonconventional fuels tax credits.
FINANCIAL POSITION AND LIQUIDITY
- --------------------------------------------------------------------------------
The Company's net cash from operating activities totaled $123.6 million, $63.1
million and $43.5 million in 1998, 1997 and 1996, respectively. In the current
year, operating cash flow benefited from significantly higher oil and gas
production volumes related to Energen Resources' current and prior year property
acquisitions. Operating cash flow in 1997 also benefited from higher oil and gas
production volumes as well as higher realized oil and gas prices. Offsetting
these amounts was a $17 million payout in January 1997 of supplier refunds to
customers. Other working capital items, which generally are the result of timing
of payments, combined to create the remaining increases for both years. Colder
weather in 1996 had an impact as reflected in increased accounts receivable and
payable and in Alagasco's need to utilize and replenish its storage gas
inventory. The receipt of amounts from suppliers to be refunded to customers
positively affected cash flows in 1996.
During fiscal 1998, the Company invested $166.3 million as Energen Resources
continued its aggressive growth strategy. Energen Resources invested $121
million in total capital expenditures -- $84.7 million for property
acquisitions, $35.3 million for development and $3.9 million for exploration.
The Company had current-year reserve additions of 168 Bcfe. Energen Resources
sold or traded certain offshore properties along with various other properties
during 1998, resulting in cash proceeds of $7.6 million. Utility expenditures
for the year totaled $54.2 million and primarily represented support facilities
and normal system distribution expansion. Cash used in investing activities was
$279.8 million in 1997 and $152.1 million in 1996. The increase in 1997 also is
largely due to the acquisition of oil and gas properties. Energen Resources
invested $193.7 million for property acquisitions including $16 million to
obtain a small working interest in an exploratory joint venture, adding 464 Bcfe
of proved developed and undeveloped oil and gas reserves. The 1996 investment in
proved property acquisitions with developmental potential totaled $108 million
and added 178 Bcfe of proved reserves. Energen Resources sold its entire working
interest in reserves associated with the PMC acquisition venture in 1996
resulting in cash proceeds of $13.1 million.
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<PAGE> 5
Cash provided by financing activities totaled $40.5 million in 1998. In February
1998, the Company issued $100 million of long-term debt redeemable February 15,
2028. The 7.125 percent MTNs were priced at 99.416 percent to yield 7.173
percent. The $98.5 million in proceeds were used to repay borrowings under
Energen's short-term credit facilities which were incurred to finance Energen
Resources' growth activity. Financing activities provided a source of $310.8
million in 1997. The Company issued $85 million of MTNs in July 1997. Energen
also issued 3,450,000 shares of common stock in January 1997 which generated net
proceeds of $49.1 million, and 2,400,000 shares in September 1997 which
generated net proceeds of $41.1 million. The proceeds from the debt and equity
offerings were used to repay short-term debt incurred mainly to finance Energen
Resources' property acquisitions. The Company utilized an additional $45 million
in short-term credit facilities primarily for Energen Resources' capital
expenditures. For tax planning purposes, the Company borrowed $100.6 and $98.6
million at September 30, 1998 and 1997, respectively, to invest in short-term
federal obligations. The treasury bills were sold in early October and the
proceeds used to repay the debt. Cash provided by financing activities totaled
$83.2 million in 1996. The Company issued $40 million of MTNs and utilized an
additional $26.7 million in short-term credit facilities to finance Energen
Resources' acquisition strategy. Also included were the proceeds from the
issuance of $25 million in Alagasco MTNs.
CAPITAL EXPENDITURES
NATURAL GAS DISTRIBUTION: During the last three fiscal years, Alagasco invested
$140.6 million for capital projects: $77.9 million was spent on normal expansion
replacements and support of its distribution system; $49 million was spent on
support facilities; $6.8 million was used to develop and implement information
systems; $3.6 million was used to improve gas availability; and $3.3 million was
used to purchase four municipal gas systems.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Years ended September 30, (in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital expenditures for:
Renewals, replacements, system expansion and other .... $25,804 $25,392 $26,737
Support facilities .................................... 26,289 14,387 8,327
Additions to improve gas availability ................. 1,002 758 1,799
Municipal gas system acquisitions ..................... -- 3 3,305
Information systems ................................... 1,073 2,737 3,007
- -------------------------------------------------------------------------------------------
Total ............................................... $54,168 $43,277 $43,175
- -------------------------------------------------------------------------------------------
</TABLE>
OIL AND GAS ACTIVITIES: Energen Resources spent $500.3 million for capital
projects over the last three fiscal years, $13.3 million of which was charged to
income as exploration expense. Expenditures for property acquisitions were
$388.5 million, exploratory expenditures totaled $27 million, and $81.7 million
was spent in development activities.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Years ended September 30, (in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital and exploration expenditures for:
Property acquisitions ....................... $ 84,747 $193,729 $110,008
Exploration ................................. 3,885 13,277 9,855
Development ................................. 35,307 36,375 10,040
Other ....................................... 1,117 1,406 583
- -----------------------------------------------------------------------------------------
Total ..................................... 125,056 244,787 130,486
Less exploration expenditures charged to income 4,065 5,069 4,169
- -----------------------------------------------------------------------------------------
Net capital expenditures ...................... $120,991 $239,718 $126,317
- -----------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 6
FUTURE CAPITAL RESOURCES AND LIQUIDITY
- --------------------------------------------------------------------------------
The Company plans to continue to implement its diversified growth strategy which
calls for Energen Resources to invest approximately $1 billion in the
acquisition and development of producing properties and in exploration and
related development over the five-year period ending September 30, 2003. In
fiscal year 1999, Energen Resources plans to spend approximately $209 million,
including $162 million for the TOTAL Minatome Corporation (TOTAL) property
acquisition and its related development. In October 1998, Energen Resources
acquired the stock of TOTAL and, immediately upon closing, sold a 31 percent
interest in TOTAL's assets to Westport Oil and Gas Company Inc. Energen
Resources' net investment totaled $132.6 million, including the assumption of
certain legal and financial obligations. Energen Resources gained an estimated
200 Bcfe of proved domestic oil and natural gas reserves. It should be noted
that Energen Resources' continued ability to invest in property acquisitions
will be influenced significantly by industry trends as the producing property
acquisition market has historically been cyclical. From time to time, Energen
Resources also may be engaged in negotiations to sell, trade or otherwise
dispose of previously acquired property.
To finance Energen Resources' investment program, the Company will continue to
utilize its total available short-term credit facilities to supplement
internally generated cash flow, with long-term debt and equity providing
permanent financing. In December 1997, Energen filed a $400 million shelf
registration for debt and common stock. Under that registration, Energen issued
$100 million of Series B MTNs in February 1998. Energen may issue additional
equity and debt during fiscal 1999 to finance its acquisition activity. During
1998, Energen increased its available short-term credit facilities to $228
million to help accommodate its growth plans.
Utility capital expenditures for normal distribution system renewals and
expansion plus support facilities could approximate $50 million in fiscal 1999.
Alagasco also will maintain an investment in storage working gas which is
expected to average approximately $22 million in 1999. The utility anticipates
funding these capital requirements through internally generated capital and the
utilization of short-term credit facilities. The Company expects to close
negotiations on a sale and leaseback of the new headquarters building facility
in the first fiscal quarter of 1999. The proceeds from the sale are expected to
approximate the investment in the facility.
OUTLOOK
- --------------------------------------------------------------------------------
NATURAL GAS DISTRIBUTION: The five-year extension of the RSE in October 1996
gives Alagasco the opportunity to continue earning an allowed return on equity
within a range of 13.15 percent to 13.65 percent through fiscal year 2002. Over
this period, Alagasco has the potential for net income growth as the investment
in additional utility plant and the maintenance of a desired capital structure
effect the level of equity required in the business. The utility continues to
rely on rate flexibility to effectively prevent bypass of its distribution
system. Even though the utility enjoys a market saturation rate much higher than
the national average, customer growth in the service territory is limited.
Alagasco will continue to focus on the acquisition of municipal systems to
supplement normal growth.
OIL AND GAS ACTIVITIES: During fiscal year 1999, Energen Resources plans to
spend approximately $209 million, including $162 million on the TOTAL
acquisition. Production is expected to increase 52 percent to 87 Bcfe, and
proved reserves could reach 875 Bcfe by year end. Production from existing
properties should generate 55 Bcfe of oil and gas during the year, with an
additional 32 Bcfe targeted from the TOTAL acquisition. A significant part of
Energen Resources' earnings in fiscal 1999 will be approximately $14 million of
tax credits expected to be generated by the Company's coalbed methane
production.
Over the five-year period ending September 30, 2003, Energen Resources plans to
spend approximately $1 billion in the acquisition and development of producing
properties and in exploration and related development. With this level of
spending, Energen Resources' annual production could reach 125 Bcfe by the end
of fiscal year 2003, with proved reserves approximating 1.2 trillion cubic feet
equivalent.
Energen Resources' major market risk exposure is in the pricing applicable to
its oil and gas production. Historically, prices received for oil and gas
production have been volatile because of seasonal weather patterns, national
supply and demand factors and general economic conditions. Crude oil prices are
also affected by quality differentials, by worldwide political developments and
by actions of the Organization of Petroleum Exporting Countries. Basis
differentials, like the underlying commodity prices, can be volatile because of
regional supply and demand factors, including seasonal factors and the
availability and price of transportation to consuming areas.
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<PAGE> 7
Energen Resources enters into derivative commodity instruments to hedge its
exposure to the impact of price fluctuations on oil and gas production. Such
instruments include regulated natural gas and crude oil futures contracts traded
on the New York Mercantile Exchange and over-the-counter swaps and basis hedges
with major energy derivative product specialists. All hedge transactions are
subject to the Company's risk management policy, approved by the Board of
Directors, which does not permit speculative positions. As Energen Resources
begins fiscal 1999, 76 percent of its estimated 1999 gas production and 33
percent of its estimated 1999 oil production is hedged or under contract at
average prices of $2.31 per Mcf and $16.31 per barrel, respectively. In
addition, the Company has hedged the basis difference on 3.6 Bcf of its
remaining 1999 San Juan production. As acquisitions are made, Energen Resources
may use futures, swaps and/or fixed-price contracts to lock in commodity prices
up to 36 months in order to protect targeted returns. The Company has deferred
gains of $0.6 million and deferred losses of $12.9 million on the balance sheet
at September 30, 1998 and 1997, respectively.
The Company has prepared a sensitivity analysis to evaluate the hypothetical
effect that changes in the market value of crude oil and natural gas may have on
the fair value of its derivative instruments. This analysis measures the impact
on the commodity derivative instruments and, thereby, does not consider the
underlying exposure related to the commodity. At September 30, 1998, the Company
estimates that a 10 percent change in the underlying commodities prices would
result in a $13.4 million change in the fair value of open derivative contracts.
However, gains and losses on derivative contracts are expected to be similarly
offset by sales at the spot market price. Due to the short duration of the
contracts, time value of money is ignored. The hypothetical change in fair value
is calculated by multiplying the difference between the hypothetical price and
the contractual price by the contractual volumes.
YEAR 2000 READINESS DISCLOSURE: Year 2000 issues result from computer
applications that use only two-digit representations to refer to a year. Many
computer applications could fail or create erroneous results if Year 2000 issues
are not properly addressed. Energen has evaluated and continues to evaluate its
computer software and hardware to assess the need for modifications for the Year
2000. Over the past three years, the Company has made a substantial investment
in software and computer infrastructure and non-information technology systems
that either comply with Year 2000 requirements or can be upgraded. A full-time
senior management level position was established and a primary contractor was
selected in 1996 to address the Year 2000 issue. The plan of work established
involves the following phases: inventory, assessment, testing, certification and
change control. A number of inventory reviews have been completed and will
continue to be updated in the future. Tools to test, age and evaluate data
software and hardware have been purchased and installed and are being utilized
for Year 2000 compliance. Test plans for items identified as critical systems
either are being deployed or currently developed. A third-party assessment of
Year 2000 readiness is scheduled to be conducted by an outside entity for both
information technology and non-information technology systems during the first
quarter of fiscal 1999.
With respect to material third-party relationships, the Company, in addition to
responding to questions concerning Year 2000 issues from customers and
regulators, is asking of certain vendors and partners for information designed
to determine their ability to continue uninterrupted supply of materials or
services to the Company. This process is scheduled for completion by the end of
calendar year 1998.
As of September 30, 1998, the Company has incurred approximately $510,000 of
Year 2000 related costs to date which are being expensed as incurred. The
Company's Year 2000 remediation is expected to be completed by the end of
calendar year 1999 with an estimated total cost of $1.8 million.
Specific Year 2000 contingency plans are scheduled to be incorporated into the
previously established Energen Business Resumption Plan during fiscal year 1999.
The Company's contingency plan identifies alternate recovery locations, contact
lists, and other equipment, as well as special resource requirements.
Management expects that Year 2000 issues will be addressed on a schedule and in
a manner that will prevent such issues from having a material effect on the
Company's results of operations, liquidity or financial condition. While the
Company has and will be pursuing Year 2000 compliance, there can be no assurance
that the Company and its vendors will be successful in identifying and
addressing all material Year 2000 issues.
FORWARD-LOOKING STATEMENTS AND RISK: Certain statements in this report,
including statements of the future plans, objectives and expected performance of
the Company and its subsidiaries, are forward-looking statements that are
dependent on certain events, risks and uncertainties that may be outside the
Company's control and which could cause actual results to differ materially from
those anticipated. Some of these include, but are not limited to, economic and
competitive conditions,
Page 25
<PAGE> 8
inflation rates, regulatory changes, financial market conditions, future
business decisions, Year 2000 issues and other uncertainties, all of which are
difficult to predict. There are numerous uncertainties inherent in estimating
quantities of proved oil and gas reserves and in projecting future rates of
production and timing of development expenditures. The total amount or timing of
actual future production may vary significantly from reserves and production
estimates. In the event Energen Resources is unable to fully invest its planned
acquisition, development and exploratory expenditures, future operating
revenues, production, and proved reserves could be negatively affected. The
drilling of development and exploratory wells can involve significant risk
including that related to timing, success rates and cost overruns. These risks
can be impacted by lease and rig availability, complex geology and other
factors. Results of operations and cash flows also could be affected by future
oil and gas prices. Although Energen Resources makes use of futures, swaps and
fixed-price contracts to mitigate risk, fluctuations in oil and gas prices may
affect the Company's financial position and results of operation.
RECENT PRONOUNCEMENTS OF THE FASB
- --------------------------------------------------------------------------------
In fiscal 1998, the Company adopted SFAS No. 128, Earnings Per Share, which
specifies computation, presentation and disclosure requirements for EPS. SFAS
No. 128 requires dual presentation of basic and diluted EPS on the face of the
income statement and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to that of the diluted computation.
The Company also adopted during fiscal 1998, SFAS No. 129, Disclosures of
Information about Capital Structure, which establishes standards for disclosing
information about an entity's capital structure. It contains no change in
disclosure requirements for public entities that were previously subject to the
requirements of Accounting Principles Board No. 10 and No. 15 and SFAS No. 47.
As a result, SFAS 129 had no impact on the Company's consolidated financial
statements.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which specifies revised guidelines for determining an entity's
operating segments and the type and level of financial information to be
required, was issued in June 1997. SFAS No. 131 relates solely to disclosure
provisions, and therefore does not have any effect on the results of operations
or financial position of the Company. The Company has chosen to early adopt this
pronouncement as of September 30, 1998.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which requires the reporting and display of comprehensive income and its
components in an entity's financial statements. There are currently no
differences between the Company's net income and comprehensive income. In
February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which revises employers' disclosures
about pension and other postretirement benefit plans. This pronouncement relates
solely to disclosure provisions, and therefore will have no effect on the
results of operations or financial position of the Company. The Company is
required to adopt these statements in fiscal year 1999.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments. The Company is required to adopt this
statement in fiscal year 2000. The impact on the Company is currently being
evaluated.
QUARTERLY MARKET PRICES AND DIVIDENDS PAID PER SHARE *
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Quarter ended (in dollars) HIGH LOW CLOSE DIVIDENDS PAID
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996...................................... 15 5/8 11 7/8 15 1/8 .150
March 31, 1997......................................... 15 11/16 14 1/2 14 15/16 .150
June 30, 1997.......................................... 17 9/16 14 9/16 16 27/32 .150
September 30, 1997..................................... 18 7/8 16 5/8 17 25/32 .155
- ----------------------------------------------------------------------------------------------------------------
December 31, 1997...................................... 20 5/8 17 5/16 19 7/8 .155
March 31, 1998......................................... 22 18 3/8 22 .155
June 30, 1998.......................................... 22 1/2 19 20 1/8 .155
September 30, 1998..................................... 20 3/4 15 1/8 19 .160
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
*Share prices reflect a 2-for-1 stock split effective March 2, 1998.
Page 26
<PAGE> 9
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Energen Corporation
- ----------------------------------------------------------------------------------------------------------------
Years ended September 30, (in thousands, except share data) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES
Natural gas distribution ........................................ $ 369,940 $ 362,984 $ 357,252
Oil and gas production activities ............................... 132,687 85,246 42,190
- ----------------------------------------------------------------------------------------------------------------
Total operating revenues ..................................... 502,627 448,230 399,442
- ----------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of gas ..................................................... 174,051 175,514 178,810
Operations and maintenance ...................................... 148,376 127,998 111,900
Depreciation, depletion and amortization ........................ 80,999 59,688 41,118
Taxes, other than income taxes .................................. 37,716 33,044 28,817
- ----------------------------------------------------------------------------------------------------------------
Total operating expenses ..................................... 441,142 396,244 360,645
- ----------------------------------------------------------------------------------------------------------------
OPERATING INCOME ................................................ 61,485 51,986 38,797
- ----------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense, net of amounts capitalized .................... (30,001) (22,906) (13,920)
Other, net ...................................................... 2,544 3,014 1,712
- ----------------------------------------------------------------------------------------------------------------
Total other income (expense) ................................. (27,457) (19,892) (12,208)
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES ...................................... 34,028 32,094 26,589
Income taxes .................................................... (2,221) 3,097 5,048
- ----------------------------------------------------------------------------------------------------------------
NET INCOME ...................................................... $ 36,249 $ 28,997 $ 21,541
- ----------------------------------------------------------------------------------------------------------------
BASIC EARNINGS PER AVERAGE COMMON SHARE* ........................ $ 1.25 $ 1.15 $ 0.98
- ----------------------------------------------------------------------------------------------------------------
DILUTED EARNINGS PER AVERAGE COMMON SHARE* ...................... $ 1.23 $ 1.14 $ 0.97
- ----------------------------------------------------------------------------------------------------------------
BASIC AVERAGE COMMON SHARES OUTSTANDING* ........................ 29,083,855 25,126,192 22,046,868
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
*Share amounts reflect a 2-for-1 stock split effective March 2, 1998
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Page 27
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Energen Corporation
- ---------------------------------------------------------------------------------------------------------------------------
As of September 30, (in thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................................................... $ 103,231 $ 105,402
Accounts receivable, net of allowance for doubtful accounts of
$3,547 in 1998 and $3,185 in 1997......................................................... 64,173 70,676
Inventories, at average cost
Storage gas inventory..................................................................... 21,237 25,367
Materials and supplies.................................................................... 8,670 7,281
Liquified natural gas in storage.......................................................... 3,381 3,630
Deferred income taxes........................................................................ 12,569 7,438
Prepayments and other........................................................................ 5,192 22,371
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets...................................................................... 218,453 242,165
- ---------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Oil and gas properties, successful efforts method............................................ 516,040 454,210
Less accumulated depreciation, depletion and amortization.................................... 88,306 87,554
- ---------------------------------------------------------------------------------------------------------------------------
Oil and gas properties, net.................................................................. 427,734 366,656
- ---------------------------------------------------------------------------------------------------------------------------
Utility plant................................................................................ 632,165 583,630
Less accumulated depreciation................................................................ 307,488 287,749
- ---------------------------------------------------------------------------------------------------------------------------
Utility plant, net........................................................................ 324,677 295,881
- ---------------------------------------------------------------------------------------------------------------------------
Other property, net.......................................................................... 3,933 4,466
- ---------------------------------------------------------------------------------------------------------------------------
Total property, plant and equipment, net..................................................... 756,344 667,003
- ---------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Deferred income taxes........................................................................ 10,942 1,144
Deferred charges and other................................................................... 7,716 9,485
- ---------------------------------------------------------------------------------------------------------------------------
Total other assets........................................................................ 18,658 10,629
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS................................................................................. $ 993,455 $ 919,797
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Page 28
<PAGE> 11
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
As of September 30, (in thousands, except share data) 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITAL AND LIABILITIES
CURRENT LIABILITIES
Long-term debt due within one year ...................................... $ 7,209 $ 1,855
Notes payable to banks .................................................. 153,000 202,000
Accounts payable ........................................................ 33,533 49,196
Accrued taxes ........................................................... 21,255 18,300
Customers' deposits ..................................................... 16,344 16,399
Amounts due customers ................................................... 12,070 7,347
Accrued wages and benefits .............................................. 15,299 13,719
Other ................................................................... 25,531 21,935
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities ............................................ 284,241 330,751
- ---------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS AND OTHER LIABILITIES
Other ................................................................... 7,183 8,301
- ---------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities ......................... 7,183 8,301
- ---------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES ........................................... -- --
- ---------------------------------------------------------------------------------------------------------------
CAPITALIZATION
Preferred stock, cumulative, $0.01 par value, 5,000,000 shares
authorized -- --
Common shareholders' equity*
Common stock, $0.01 par value; 75,000,000 shares authorized,
29,326,597 shares outstanding in 1998 and 28,796,218
shares outstanding in 1997 ........................................ 293 288
Premium on capital stock ........................................... 195,874 185,841
Capital surplus .................................................... 2,802 2,802
Retained earnings .................................................. 130,280 112,212
Deferred compensation plan .............................................. 873 --
Treasury stock, at cost (49,096 shares in 1998) ......................... (873) --
- ---------------------------------------------------------------------------------------------------------------
Total common shareholders' equity .................................... 329,249 301,143
Long-term debt .......................................................... 372,782 279,602
- ---------------------------------------------------------------------------------------------------------------
Total capitalization ................................................. 702,031 580,745
- ---------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND LIABILITIES ........................................... $ 993,455 $919,797
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
*Share amounts reflect a 2-for-1 stock split effective March 2, 1998
Page 29
<PAGE> 12
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Energen Corporation
- --------------------------------------------------------------------------------
(In thousands, except share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------------- Deferred
Number of Par Premium on Capital Retained Compensation Treasury
Shares Value Capital Stock Surplus Earnings Plan Stock
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995 21,843,466 $ 218 $ 81,278 $ 2,802 $ 89,876 $ -- $ (250)
Net income 21,541
Purchase of treasury shares (1,985)
Shares issued for:
Dividend reinvestment plan 161,058 2 1,826 1,511
Employee benefit plans 320,744 3 3,762 724
Cash dividends - $0.585 per share (12,903)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1996 22,325,268 223 86,866 2,802 98,514 -- --
Net income 28,997
Shares issued for:
Stock Offerings 5,850,000 59 89,837
Dividend reinvestment plan 241,604 2 3,610
Employee benefit plans 379,346 4 5,528
Cash dividends - $0.605 per share (15,299)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 28,796,218 288 185,841 2,802 112,212 -- --
Net income 36,249
Purchase of treasury shares (406)
Shares issued for:
Dividend reinvestment plan 172,612 2 3,369
Employee benefit plans 357,767 3 6,664 406
Deferred compensation obligation 873 (873)
Cash dividends - $0.625 per share (18,181)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1998 29,326,597 $ 293 $ 195,874 $ 2,802 $ 130,280 $ 873 $ (873)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Share amounts reflect a 2-for-1 stock split effective March 2, 1998
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Page 30
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Energen Corporation
- -----------------------------------------------------------------------------------------------
Years ended September 30, (in thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ......................................... $ 36,249 $ 28,997 $ 21,541
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization ........ 80,999 59,688 41,118
Deferred income taxes, net ...................... (15,407) (2,646) (672)
Deferred investment tax credits, net ............ (469) (487) (487)
Gain on sale of assets .......................... (2,789) (1,081) (3,954)
Net change in:
Accounts receivable ........................... 7,131 (22,550) (17,313)
Inventories ................................... 2,990 2,057 (6,809)
Accounts payable-gas purchases ................ (7,466) 5,758 (1,614)
Accounts payable-trade ........................ 4,719 (131) 2,031
Amounts due customers ......................... 4,723 (9,810) 13,942
Other current assets and liabilities .......... 11,711 3,377 (2,821)
Other, net ...................................... 1,232 (73) (1,461)
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities ....... 123,623 63,099 43,501
- -----------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to property, plant and equipment ......... (174,578) (283,274) (168,414)
Proceeds from sale of assets ....................... 7,636 1,871 13,134
Payments on notes receivable ....................... 730 527 1,557
Other, net ......................................... (96) 1,030 1,627
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities ........... (166,308) (279,846) (152,096)
- -----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of dividends on common stock ............... (18,181) (15,299) (12,903)
Issuance of common stock ........................... 10,444 99,040 7,828
Purchase of treasury stock ......................... (406) -- (1,985)
Reduction of long-term debt ........................ (885) (943) (1,025)
Proceeds from issuance of long-term debt ........... 98,541 84,416 64,586
Net change in short-term debt issued to purchase
U.S. Treasury securities ................... 1,935 98,636 --
Net change in short-term debt ...................... (50,934) 44,998 26,700
- -----------------------------------------------------------------------------------------------
Net cash provided by financing activities ....... 40,514 310,848 83,201
- -----------------------------------------------------------------------------------------------
Net change in cash and cash equivalents ............ (2,171) 94,101 (25,394)
Cash and cash equivalents at beginning of period ... 105,402 11,301 36,695
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period ......... $ 103,231 $ 105,402 $ 11,301
- -----------------------------------------------------------------------------------------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Page 31
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Energen Corporation
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
Energen Corporation (the Company) is a diversified energy holding company
engaged primarily in the purchase, distribution, and sale of natural gas
principally in central and north Alabama (natural gas distribution), and in the
acquisition, development, exploration and production of oil and gas in the
continental United States (oil and gas activities).
Following the close of business on September 30, 1998, Taurus Exploration, Inc.
(Taurus), Energen's wholly owned oil and gas subsidiary, merged with its wholly
owned subsidiary Taurus Exploration U.S.A., Inc. (Taurus U.S.A.). Taurus
U.S.A.was the surviving corporation of the merger and at the time of the merger,
Taurus U.S.A. changed its name to Energen Resources Corporation. References in
this document to Energen Resources refer to Taurus and Taurus U.S.A.,
collectively. The following is a description of the Company's significant
accounting policies and practices.
A. PRINCIPLES OF CONSOLIDATION
The accompanying financial statements include the accounts of the
Company and its subsidiaries, principally Alabama Gas Corporation
(Alagasco) and Energen Resources, after elimination of all significant
intercompany transactions in consolidation. Certain reclassifications
have been made to conform the prior years' financial statements to the
current-year presentation.
B. NATURAL GAS DISTRIBUTION
UTILITY PLANT AND DEPRECIATION: Property, plant and equipment is stated
at cost. The cost of utility plant includes an allowance for funds used
during construction. Maintenance is charged for the cost of normal
repairs and the renewal or replacement of an item of property which is
less than a retirement unit. When property which represents a
retirement unit is replaced or removed, the cost of such property is
credited to utility plant and, together with the cost of removal less
salvage, is charged to the accumulated reserve for depreciation.
Depreciation is provided on the straight-line method over the estimated
useful lives of utility property at rates established by the Alabama
Public Service Commission (APSC). Approved depreciation rates averaged
approximately 4.4 percent in 1998 and 1997 and 4.3 percent in 1996.
INVENTORIES: Inventories, which consist primarily of gas stored
underground, are stated at average cost.
OPERATING REVENUE AND GAS COSTS: In accordance with industry practice,
Alagasco records natural gas distribution revenues on a monthly- and
cycle-billing basis. The commodity cost of purchased gas applicable to
gas delivered to customers but not yet billed under the cycle-billing
method is deferred as a current asset.
REGULATORY ACCOUNTING: Alagasco is subject to the provisions of
Statement of Financial Accounting Standard (SFAS) No. 71, Accounting
for the Effects of Certain Types of Regulation. In general, SFAS No. 71
allows utilities to capitalize or defer certain costs or revenues,
based upon approvals received from regulatory authorities, to be
recovered from or refunded to customers in future periods.
C. OIL AND GAS ACTIVITIES
PROPERTY AND RELATED DEPLETION: Energen Resources follows the
successful efforts method of accounting for costs incurred in the
exploration and development of oil and gas reserves. Lease acquisition
costs are capitalized initially, and unproved properties are reviewed
periodically to determine if there has been impairment of the carrying
value, with any such impairment charged to exploration expense
currently. Exploratory drilling costs are capitalized pending
determination of proved reserves. If proved reserves are not
discovered, the exploratory drilling costs are expensed. Other
exploration costs, including geological and geophysical costs, are
expensed as incurred. All development costs are capitalized.
Depreciation, depletion and amortization is determined on a
field-by-field basis using the unit-of-production method based on
proved reserves. A provision for anticipated abandonment and
restoration costs at the end of a property's useful life is made
through depreciation expense.
OPERATING REVENUE: Energen Resources utilizes the sales method of
accounting to recognize oil and gas production revenue. Under the sales
method, revenue is recognized for the Company's total takes of oil and
gas production, and over-production liabilities are established only
when it is estimated that a property's over-produced volumes exceed the
net share of remaining
Page 32
<PAGE> 15
reserves for such property. Energen Resources has no material
production imbalances at September 30, 1998. Gains and losses on the
sale of property in the ordinary course of business are classified as
operating revenue.
Derivative Commodity Instruments: Energen Resources periodically enters
into derivative commodity instruments to hedge its exposure to the
impact of price fluctuations on oil and gas production. Such
instruments include regulated natural gas and crude oil futures
contracts traded on the New York Mercantile Exchange and
over-the-counter swaps and basis hedges with major energy derivative
product specialists. These transactions are accounted for under the
hedge method of accounting. Under this method, any unrealized gains and
losses are recorded as a current receivable/payable and a deferred
gain/loss. Realized gains and losses are deferred as current
liabilities or assets until the revenues from the related hedged
volumes are recognized in the income statement. Cash flows from
derivative instruments are recognized as incurred through changes in
working capital. All hedge transactions are subject to the Company's
risk management policy, approved by the Board of Directors, which does
not permit speculative positions. To apply the hedge method of
accounting, management must demonstrate that a high correlation exists
between the value of the derivative commodity instrument and the value
of the item hedged. Management uses the historic and current
relationships between the derivative instruments and the sales prices
of the hedged volumes to ensure that a high level of correlation
exists.
D. Income Taxes
The Company's deferred income taxes reflect the impact of temporary
differences between the tax basis of assets and liabilities and their
carrying amounts for financial reporting purposes.
E. Cash Equivalents
The Company includes highly liquid marketable securities and debt
instruments purchased with a maturity of three months or less in cash
equivalents.
F. Earnings Per Share
In accordance with SFAS No. 128, Earnings Per Share, the Company's
basic earnings per share amounts have been computed based on the
weighted-average number of common shares outstanding. Diluted earnings
per share amounts reflect the assumed issuance of common shares for all
potentially dilutive securities (see Note 16).
G. Estimates
The preparation of 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 at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Significant estimates with
regard to these financial statements include the estimate of proved oil
and gas reserves and the related present value of estimated future net
revenues therefrom (see Note 14).
2. REGULATORY MATTERS
- --------------------------------------------------------------------------------
As an Alabama utility, Alagasco is subject to regulation by the Alabama Public
Service Commission (APSC) which, in 1983, established the Rate Stabilization and
Equalization (RSE) rate-setting process. RSE was extended with modifications in
1985, 1987 and 1990. On October 7, 1996, RSE was extended, without change, for a
five-year period through January 1, 2002. Under the terms of that extension, RSE
will continue after January 1, 2002, unless, after notice to the Company and a
hearing, the Commission votes to either modify or discontinue its operation.
Under RSE as extended, the APSC conducts quarterly reviews to determine, based
on Alagasco's projections and fiscal year-to-date performance, whether
Alagasco's return on equity for the fiscal year will be within the allowed range
of 13.15 percent to 13.65 percent. Reductions in rates can be made quarterly to
bring the projected return within the allowed range; increases, however, are
allowed only once each fiscal year, effective December 1, and cannot exceed 4
percent of prior-year revenues. RSE limits the utility's equity upon which a
return is permitted to 60 percent of total capitalization and provides for
certain cost control measures designed to monitor Alagasco's operations and
maintenance (O&M) expense. If the change in O&M expense per customer falls
within 1.25 percentage points above or below the Consumer Price Index For All
Urban Customers (index range), no adjustment is required. If, however, the
change in O&M expense per customer exceeds the index range, three-quarters of
the difference is returned to customers. To the extent the change is less than
the index range, the utility benefits by one-half of the difference through
future rate adjustments. Under RSE as extended, an $11.8 million annual increase
in revenue became effective December 1, 1997, and a $2.5 million annual decrease
became effective July 1, 1998.
Page 33
<PAGE> 16
Alagasco calculates a temperature adjustment to customers' monthly bills to
remove the effect of departures from normal temperatures on Alagasco's earnings.
The calculation is performed monthly, and the adjustments to customers' bills
are made in the same billing cycle in which the weather variation occurs.
Substantially all the customers to whom the temperature adjustment applies are
residential, small commercial and small industrial. Alagasco's rate schedules
for natural gas distribution charges contain a Gas Supply Adjustment (GSA)
rider, established in 1993, which permits the pass-through to customers of
changes in the cost of gas supply, including Gas Supply Realignment (GSR)
surcharges imposed by Alagasco's suppliers resulting from changes in gas supply
purchases related to the implementation of Federal Energy Regulatory Commission
(FERC) Order 636. The APSC on October 7, 1996, issued an order providing for the
refund to customers prior to January 31, 1997, of approximately $17 million of
supplier refunds, including interest. The Company refunded these amounts to
customers during January 1997. The refunds were collected from a variety of
sources and most relate to the settlement of rate case and FERC Order 636
proceedings of Southern Natural Gas Company.
The APSC approved an Enhanced Stability Reserve (ESR), beginning fiscal year
1998, to which Alagasco may charge the full amount of: (1) extraordinary O&M
expenses resulting from force majeure events such as storms, severe weather, and
outages, when one or a combination of two such events results in more than
$200,000 of additional O&M expense during a fiscal year; or (2) individual
industrial and commercial customer revenue losses that exceed $250,000 during
the fiscal year if such losses cause Alagasco's return on equity to fall below
13.15 percent. The APSC approved the reserve on October 6, 1998, in the amount
of $3.9 million; the maximum approved funding level of the ESR is $4 million.
The APSC provides for accretions to the ESR in an amount of no more than $40,000
monthly following a year in which a charge against the ESR is made until the
maximum funding level is achieved. The APSC will re-evaluate the operation of
the ESR following the conclusion of Alagasco's fiscal year 2000.
In accordance with APSC-directed regulatory accounting procedures, Alagasco in
1989 began returning to customers excess utility deferred taxes which resulted
from a reduction in the federal statutory tax rate from 46 percent to 34 percent
using the average rate assumption method. This method provides for the return to
ratepayers of excess deferred taxes over the lives of the related assets. In
1993 those excess taxes were reduced as a result of a federal tax rate increase
from 34 percent to 35 percent. Remaining excess utility deferred taxes of $1.9
million are being returned to ratepayers over approximately 12 years. At
September 30, 1998 and 1997, a regulatory liability related to income taxes of
$2.9 million and $3.7 million, respectively, was included in the consolidated
financial statements.
As of November 1, 1998, the Company offered a Voluntary Early Retirement Program
to certain eligible employees. The APSC has allowed the Company to amortize over
a three-year period the cost associated with this early retirement program.
The excess of total acquisition costs over book value of net assets of acquired
municipal gas distribution systems is included in utility plant and is being
amortized on a straight-line basis over approximately 23 years. At September 30,
1998 and 1997, the net acquisition adjustment was $15.4 million and $16.4
million, respectively.
3. LONG-TERM DEBT AND NOTES PAYABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Long-term debt consists of the following:
- -------------------------------------------------------------------------------------------------------------------------
As of September 30, (in thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Energen Corporation:
Medium-term Notes, interest ranging from 6.6% to 8.09%, for notes
redeemable September 20, 2001, to February 15, 2028.................................... $ 225,000 $ 125,000
8% Debentures, due up to $1,000,000 annually to February 1, 2007........................ 18,689 18,704
Series 1993 Notes, interest ranging from 5.75% to 7.25%, due annually in
payments ranging from $859,000 to $1,584,000 from March 1, 1999,
to March 1, 2008....................................................................... 11,883 12,753
Alabama Gas Corporation:
Medium-term Notes, interest ranging from 5.4% to 7.97%, for notes
redeemable December 1, 1998, to September 23, 2026..................................... 125,000 125,000
- -------------------------------------------------------------------------------------------------------------------------
Total..................................................................................... 380,572 281,457
Less amounts due within one year.......................................................... 7,209 1,855
Less unamortized debt discount............................................................ 581 --
- -------------------------------------------------------------------------------------------------------------------------
Total..................................................................................... $ 372,782 $ 279,602
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 34
<PAGE> 17
The aggregate maturities of long-term debt for the next five years are as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Years ending September 30, (in thousands)
- -----------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 7,209 $ 1,955 $ 18,648 $ 17,077 $ 12,139
- -----------------------------------------------------------------------------------------------------
</TABLE>
The Company is subject to various restrictions on the payment of dividends.
Under its 8 percent debentures, the most restrictive provision states that
dividends or other distributions with respect to common stock may not be made
unless the Company maintains a minimum consolidated tangible net worth of $80
million; at September 30, 1998, Energen had a tangible net worth of $329
million.
Energen and Alagasco had short-term credit lines and other credit facilities of
$228 million available as of September 30, 1998 to either entity for working
capital needs. At September 30, 1998 and 1997, the Company had $100.6 million
and $98.6 million, respectively, of borrowings to purchase Treasury securities
for tax planning purposes. The securities matured in early October and the
proceeds were used to repay such borrowings. The securities were pledged as
collateral on the debt. The following is a summary of information relating to
notes payable to banks:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
As of September 30, (in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount outstanding ........................ $153,000 $152,000 $ 59,000
Amount outstanding under separate agreement -- 50,000 --
- ---------------------------------------------------------------------------------------
Notes payable to banks .................... $153,000 $202,000 $ 59,000
Available for borrowings .................. 75,000 51,000 97,000
- ---------------------------------------------------------------------------------------
Total ................................... $228,000 $253,000 $156,000
- ---------------------------------------------------------------------------------------
Maximum amount outstanding at any month-end $180,000 $202,000 $ 95,000
Average daily amount outstanding .......... $ 81,008 $ 87,648 $ 37,960
Weighted average interest rates based on:
Average daily amount outstanding ......... 5.92% 5.87% 5.68%
Amount outstanding at year-end ........... 5.77% 5.96% 5.62%
- ---------------------------------------------------------------------------------------
</TABLE>
Total interest expense for Energen in 1998, 1997 and 1996 was $30,001,000,
$22,906,000, and $13,920,000, respectively.
4. SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
On January 28, 1998, Energen announced a 2-for-1 split of the Company's common
stock. The split was in the form of a 100 percent stock dividend and was payable
on March 2, 1998, to shareholders of record on February 13, 1998. All per-share
amounts and the number of shares of capital stock outstanding have been
retroactively adjusted to reflect the stock split. Effective January 30, 1998,
the Restated Certificate of Incorporation of Energen Corporation was amended to
increase Energen's authorized common stock, par value $0.01 per share, from
30,000,000 shares to 75,000,000 shares.
During fiscal year 1998, the Company adopted Emerging Issues Task Force (EITF)
Issue 97-14, Accounting for Deferred Compensation Arrangements Where Amounts
Earned Are Held in a Rabbi Trust and Invested. In accordance with EITF Issue
97-14, amounts earned under the Deferred Compensation Plan and invested in
common stock of the Company have been recorded as treasury stock, along with the
related deferred compensation obligation in the Consolidated Statements of
Shareholders' Equity.
Page 35
<PAGE> 18
5. INCOME TAXES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
The components of income taxes consist of the following:
- ---------------------------------------------------------------------------------------------------------------------------
For the years ended September 30, (in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes estimated to be payable currently:
Federal................................................................. $ 11,828 $ 4,976 $ 5,218
State................................................................... 1,827 1,254 989
- ---------------------------------------------------------------------------------------------------------------------------
Total current.......................................................... 13,655 6,230 6,207
- ---------------------------------------------------------------------------------------------------------------------------
Taxes deferred:
Federal................................................................. (15,342) (3,123) (1,221)
State................................................................... (534) (10) 62
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred......................................................... (15,876) (3,133) (1,159)
- ---------------------------------------------------------------------------------------------------------------------------
Total income tax expense (benefit)........................................ $ (2,221) $ 3,097 $ 5,048
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Temporary differences and carryforwards which give rise to a significant portion
of deferred tax assets and liabilities for 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
As of September 30, (in thousands) 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
Current Noncurrent Current Noncurrent
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Minimum tax credit........................................ $ -- $ 30,288 $ -- $ 20,541
Insurance and accruals.................................... 2,566 -- 2,410 --
Unbilled revenue.......................................... 1,770 -- 1,699 --
Gas supply adjustment..................................... 768 -- -- --
Other, net................................................ 8,308 2,305 5,559 2,926
- -------------------------------------------------------------------------------------------------------------------------
Subtotal................................................. 13,412 32,593 9,668 23,467
Valuation allowance...................................... -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets............................... 13,412 32,593 9,668 23,467
- -------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and basis differences........................ -- 20,393 -- 20,893
Gas supply adjustment..................................... -- -- 1,308 --
Other, net................................................ 843 1,258 922 1,430
- -------------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities.......................... 843 21,651 2,230 22,323
- -------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets..................................... $ 12,569 $ 10,942 $ 7,438 $ 1,144
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
No valuation allowance with respect to deferred taxes is deemed necessary, as
the Company anticipates generating adequate future taxable income to realize the
benefits of all deferred tax assets on the consolidated balance sheets. As of
September 30, 1998, the amount of minimum tax credit which can be carried
forward indefinitely to reduce future regular tax liability is $30.3 million.
Total income tax expense (benefit) differs from the amount which would be
provided by applying the statutory federal income tax rate to earnings before
taxes as illustrated below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
For the years ended September 30, (in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense at statutory federal income tax rate................... $ 11,910 $ 11,233 $ 9,306
Increase (decrease) resulting from:
Nonconventional fuels credits.......................................... (14,453) (8,058) (4,221)
Deferred investment tax credits........................................ (469) (487) (487)
State income taxes, net of federal income tax benefit.................. 894 813 681
Other, net............................................................. (103) (404) (231)
- ----------------------------------------------------------------------------------------------------------------------------
Total income tax expense (benefit)........................................ $ (2,221) $ 3,097 $ 5,048
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 36
<PAGE> 19
6. EMPLOYEE BENEFIT PLANS
- --------------------------------------------------------------------------------
The Company has two defined benefit non-contributory pension plans which cover a
majority of the employees. Benefits are based on years of service and final
earnings. The Company's policy is to use "the projected unit credit" actuarial
method for funding and financial reporting purposes. The expense for the plan
covering the majority of employees (Plan A) for the years ended September 30,
1998, 1997 and 1996, was $1,716,000, $1,228,000, and $412,000, respectively. The
expense for the plan covering employees under certain labor union agreements
(Plan B) for 1998, 1997 and 1996 was $403,000, $437,000 and $197,000,
respectively.
<TABLE>
<CAPTION>
The funded status of the plans is as follows:
- --------------------------------------------------------------------------------------------------------------------------
As of June 30, (in thousands) PLAN A PLAN B
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vested benefits............................................. $ (67,476) $ (57,617) $ (16,467) $ (14,610)
Nonvested benefits.......................................... (5,268) (4,739) (2,431) (2,256)
- --------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation.............................. (72,744) (62,356) (18,898) (16,866)
Effects of salary progression............................... (15,537) (11,402) -- --
- --------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation................................ (88,281) (73,758) (18,898) (16,866)
Fair value of plan assets, primarily equity and
fixed income securities................................... 90,661 84,859 23,081 20,820
Unrecognized net (gain) loss................................ (2,773) (6,477) (2,944) (2,747)
Unrecognized prior service cost............................. 3,025 29 791 998
Unrecognized net transition obligation (asset).............. (2,686) (3,494) 226 282
- --------------------------------------------------------------------------------------------------------------------------
Accrued pension asset (liability)........................... $ (54) $ 1,159 $ 2,256 $ 2,487
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
At September 30, 1998 and 1997, the discount rate used to measure the projected
benefit obligation for both plans was 7 percent and 7.75 percent, respectively,
and the expected long-term rate of return on plan assets was 8.25 percent. The
annual rate of salary increase for the salaried plan was 5.25 percent in 1998
and 5.75 percent in 1997.
<TABLE>
<CAPTION>
The components of net pension expense for 1998, 1997 and 1996 were:
- ---------------------------------------------------------------------------------------------------------------------------------
For the years ended September 30, (in thousands) PLAN A PLAN B
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost .................................. $ 2,386 $ 2,227 $ 2,147 $ 224 $ 243 $ 255
Interest cost on projected benefit obligation . 5,842 5,524 4,617 1,261 1,238 1,166
Actual return on plan assets .................. (9,516) (12,629) (15,280) (3,450) (3,803) (2,971)
Net amortization and deferral ................. 3,004 6,106 8,928 2,368 2,759 1,747
- ---------------------------------------------------------------------------------------------------------------------------------
Net pension expense ........................... $ 1,716 $ 1,228 $ 412 $ 403 $ 437 $ 197
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has deferred compensation plan agreements with certain key
executives providing for payments on retirement, termination, death or
disability. Expense under these agreements for 1998, 1997 and 1996 was
($54,000), $399,000 and $1,002,000, respectively. At June 30, 1998 and 1997, the
accumulated post-retirement benefit obligation related to these agreements was
$2,901,000 and $5,961,000, respectively, and the projected benefit obligation
was $7,088,000 and $9,839,000, respectively. A prepaid post-retirement benefit
asset of $434,000 and $499,000 was recorded at June 30, 1998 and 1997,
respectively.
In addition to providing pension benefits, the Company provides certain
post-retirement health care and life insurance benefits. Substantially all of
the Company's employees may become eligible for such benefits if they reach
normal retirement age while working for the Company. While the Company has not
adopted a formal funding policy, all of its accrued post-retirement liability
was funded at year-end. The expense for salaried employees for the years ended
September 30, 1998, 1997 and 1996 was $2,040,000, $2,221,000 and $1,984,000,
respectively. The expense for union employees was $4,367,000, $4,204,000 and
$4,076,000 during 1998, 1997 and 1996, respectively. The "projected unit credit"
actuarial method was used to determine the normal cost and actuarial liability.
Page 37
<PAGE> 20
<TABLE>
<CAPTION>
A reconciliation of the estimated status of the obligation is as follows:
- --------------------------------------------------------------------------------------------------------------------------
As of June 30, (in thousands) SALARIED EMPLOYEES UNION EMPLOYEES
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
Retirees.................................................... $ (13,916) $ (9,590) $ (15,162) $ (14,529)
Active, fully-eligible...................................... (3,107) (2,121) (4,957) (4,340)
Other active................................................ (12,289) (8,309) (17,632) (14,151)
- --------------------------------------------------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation.............. (29,312) (20,020) (37,751) (33,020)
Fair value of plan assets, primarily equity and
fixed income securities................................... 30,476 23,719 23,081 13,363
Unamortized amounts......................................... (1,561) (4,686) 13,558 17,405
- --------------------------------------------------------------------------------------------------------------------------
Accrued post-retirement benefit liability................... $ (397) $ (987) $ (1,112) $ (2,252)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Net periodic post-retirement benefit expense for the years ended September 30, 1998, 1997 and 1996, included the following:
- ---------------------------------------------------------------------------------------------------------------------------
For the years ended September 30,(in thousands) SALARIED EMPLOYEES UNION EMPLOYEES
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost................................... $ 967 $ 979 $ 516 $ 1,314 $ 1,198 $ 876
Interest cost on accumulated post-retirement
benefit obligation........................... 2,049 2,204 1,679 2,612 2,542 2,195
Amortization of transition obligation.......... 723 723 723 1,285 1,285 1,285
Amortization of actuarial gains and losses..... (510) (568) (277) (107) -- --
Deferred asset gain (loss)..................... 4,972 3,682 658 5,891 2,006 177
Gain or (loss) on plan assets.................. (6,161) (4,799) (1,315) (6,628) (2,827) (457)
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic post-retirement benefit expense... $ 2,040 $ 2,221 $ 1,984 $ 4,367 $ 4,204 $ 4,076
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 7 percent in 1998 and 7.75 percent in
1997. The expected long-term rate of return on assets is 8.25 percent for both
years, and the tax rate on investment income is assumed to be 40 percent. The
weighted average health care cost trend rate used in determining the
accumulated post-retirement benefit obligation was 7.5 percent and 8.25 percent
in 1998 and 1997, respectively. That assumption has a significant effect on the
amounts reported. For example, with respect to salaried employees, increasing
the weighted average health care cost trend rate by 1 percent would increase
the accumulated post-retirement benefit obligation by 2.7 percent and the net
periodic post-retirement benefit cost by 2.4 percent. For union employees,
increasing the weighted average health care cost trend rate by 1 percent would
increase the accumulated post-retirement benefit obligation by 7.3 percent and
the net periodic post-retirement benefit cost by 7.1 percent. For pay-related
life insurance benefits, the salary scale averages 5.25 percent and 5.75
percent in 1998 and 1997, respectively.
For both defined benefit plans and other post-retirement plans, certain
financial assumptions are used in determining the Company's projected benefit
obligation. These assumptions are examined periodically by the Company, and any
required changes are reflected in the subsequent determination of projected
benefit obligations.
The Company has a long-term disability plan covering most salaried employees.
Expense for the years ended September 30, 1998, 1997 and 1996, was $173,000,
$163,000 and $370,000, respectively.
Page 38
<PAGE> 21
7. COMMON STOCK PLANS
- -------------------------------------------------------------------------------
A majority of Company employees are eligible to participate in the Energen
Employee Savings Plan (ESP) by investing a portion of their compensation in the
Plan, with the Company matching a part of the employee investment by
contributing Company common stock (new issue or treasury shares) or funds for
the purchase of Company common stock. The ESP also contains employee stock
ownership plan provisions. At September 30, 1998, 1,116,927 common shares were
reserved for issuance under the ESP. Expense associated with Company
contributions to the ESP was $3,168,000, $3,083,000 and $2,902,000 for 1998,
1997 and 1996, respectively.
In 1992 the Company adopted the Energen Corporation 1992 Long-Range Performance
Plan which provides for the award of up to 1,000,000 performance units, with
each unit equal to the market value of one share of common stock, to eligible
employees based on predetermined performance criteria at the end of a four-year
award period. Under the Plan, a portion of the performance units is payable
with Company common stock; accordingly, 700,000 shares have been reserved for
issuance. Under the Plan, 97,545, 120,660, and 125,260 performance units were
awarded in 1998, 1997 and 1996, respectively, leaving 279,245 performance units
available for award as of September 30, 1998. The Company recorded expense of
$2,815,000, $2,632,000 and $1,223,000 for 1998, 1997 and 1996, respectively,
under the Plan.
In 1996 the Company amended its Dividend Reinvestment and Common Stock Purchase
Plan to include a direct stock purchase feature which allows purchases by
non-shareholders. Accordingly, 1,500,000 shares were added to the Plan. As of
September 30, 1998, 1,247,600 common shares were reserved under this Plan.
On November 27, 1997, the Company adopted the Energen Corporation 1997 Stock
Option Plan. The 1997 Stock Option Plan along with the Energen Corporation 1988
Stock Option Plan provides for the grant of incentive stock options,
non-qualified stock options, or a combination thereof to officers and key
employees. Options granted under the Plans provide for purchase of the
Company's common stock at not less than the fair market value on the date the
option is granted. Under the 1988 Stock Option Plan, 540,000 shares of the
Company's common stock which were reserved for issuance have been granted.
Under the 1997 Stock Option Plan, 1,300,000 shares of the Company's common
stock have been reserved for issuance. Options were granted in 1996 with
dividend equivalents. All outstanding options are non-qualified and expire 10
years from the date of grant. Transactions under the Plans are summarized as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1997 STOCK
For the years ended September 30, (in thousands) OPTION PLAN 1988 STOCK OPTION PLAN
- -------------------------------------------------------------------------------------------------------------------------
1998 1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year ($8.375 - $15.00).......... -- 423,112 324,112 304,112
Granted (at $8.375 - $18.25)................................ 256,320 80,680 106,000 20,000
Exercised (at $8.375 - $9.188).............................. -- (6,000) (7,000) --
- -------------------------------------------------------------------------------------------------------------------------
Outstanding at year-end..................................... 256,320 497,792 423,112 324,112
- -------------------------------------------------------------------------------------------------------------------------
Exercisable at year-end..................................... -- 333,112 317,112 324,112
- -------------------------------------------------------------------------------------------------------------------------
Remaining reserved for issuance at year-end................. 1,043,680 -- 80,696 186,696
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no compensation expense
has been recognized for its non-qualified stock options. Had compensation cost
for those options been determined in accordance with SFAS No. 123, the
Company's net income and basic earnings per share would have been $35.8
million, or $1.23 per share, in 1998 and $28.9 million, or $1.15 per share, in
1997.
In 1992 the Company adopted the Energen Corporation 1992 Directors Stock Plan
to pay part of the compensation of its non-employee directors in shares of the
Company's common stock. Under the Plan, 6,813, 6,124 and 8,644 shares were
issued in 1998, 1997 and 1996, respectively, leaving 157,607 shares reserved
for issuance as of September 30, 1998.
In 1988 the Company adopted a Shareholders Rights Plan (the 1988 Plan) designed
to protect shareholders from coercive or unfair takeover tactics. The 1988 Plan
expired on July 27, 1998. On June 24, 1998, the Company adopted a new
Shareholders Rights Plan (the 1998 Plan) to replace the 1988 Plan upon its
expiration. Under certain circumstances, the 1998 plan provides shareholders
with the right to acquire the Company's Series 1998 Junior Participating
Preferred Stock (or, in certain cases, securities of an acquiring person) at a
significant discount. Terms and conditions are set forth in a Rights Agreement
between
Page 39
<PAGE> 22
the Company and its Rights Agent. Under the 1998 plan, one right is associated
with each outstanding share of Common Stock. Rights outstanding under the
Shareholder Rights Plan at September 30, 1998, were convertible into 293,266
shares of Series 1998 Junior Participating Preferred Stock (1/100 share of
preferred stock for each full right) subject to adjustment upon occurrence of
certain take-over related events. No rights were exercised or exercisable
during the period. The price at which the rights would be exercised is $70 per
right, subject to adjustment upon occurrence of certain take-over related
events. In general, absent certain take-over related events as described in the
Plan, the rights may be redeemed prior to the July 27, 2008, expiration for
$0.01 per right.
8. COMMITMENTS AND CONTINGENCIES
- -------------------------------------------------------------------------------
CONTRACTS AND AGREEMENTS: The Company has various firm gas supply and firm gas
transportation contracts which expire at various dates through the year 2008.
These contracts typically contain minimum demand charge obligations on the part
of the Company.
Energen Resources has an agreement with Sonat Exploration Company under which
it has the option to acquire an interest in any properties purchased by that
company under its reserve acquisition program. No significant Sonat joint
venture acquisitions were made in fiscal 1998. The agreement will expire at the
end of calendar year 1998.
ENVIRONMENTAL MATTERS: Alagasco is in the chain of title of eight former
manufactured gas plant sites, of which it still owns four, and five
manufactured gas distribution sites, of which it still owns one. A preliminary
investigation of the sites does not indicate the present need for remediation
activities. Management expects that, should remediation of any such sites be
required in the future, Alagasco's share, if any, of such costs will not
materially affect the results of operations or financial condition of Alagasco.
Energen Resources is subject to various environmental regulations. Management
believes that Energen Resources is in compliance with the currently applicable
standards of the environmental agencies to which it is subject and that
potential environmental liabilities, if any, are minimal. Also, to the extent
Energen Resources has operating agreements with various joint venture partners,
environmental costs, if any, would be shared proportionately.
LEGAL MATTERS: Energen and its affiliates are, from time to time, parties to
various pending or threatened legal proceedings. Certain of these lawsuits
include claims for punitive damages in addition to other specified relief.
Based upon information presently available, and in light of available legal and
other defenses, contingent liabilities arising from threatened and pending
litigation are not considered material in relation to the respective financial
positions of Energen and its affiliates. It should be noted, however, that
Energen and its affiliates conduct business in Alabama and other jurisdictions
in which the magnitude and frequency of punitive damage awards may bear little
or no relation to culpability or actual damages thus making it increasingly
difficult to predict litigation results. Various legal proceedings arising in
the normal course of business are currently in progress, and the Company has
accrued a provision for estimated costs.
LEASE OBLIGATIONS: Total payments related to leases included as operating
expense were $5,271,000, $3,987,000 and $3,050,000 in 1998, 1997 and 1996,
respectively. Minimum future rental payments (in thousands) required after 1998
under leases with initial or remaining noncancelable lease terms in excess of
one year are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 and thereafter
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3,854 $ 3,123 $ 2,717 $ 2,175 $ 2,133 $ 4,223
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company expects to close negotiations on a sale and leaseback of the new
building headquarters in the first quarter of 1999.
Page 40
<PAGE> 23
9. SUPPLEMENTAL CASH FLOW INFORMATION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Supplemental information concerning cash flow activities is as follows:
- -------------------------------------------------------------------------------------------------------------------------
For the years ended September 30, (in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid........................................................... $ 28,442 $ 18,385 $ 13,261
Income taxes paid....................................................... $ 12,764 $ 6,308 $ 5,486
Noncash investing activities
Capitalized depreciation.............................................. $ 187 $ 168 $ 166
Allowance for funds used during construction.......................... $ 400 $ 490 $ 972
Noncash financing activities (debt issuance costs)...................... $ 875 $ 585 $ 414
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
- -------------------------------------------------------------------------------
FINANCIAL INSTRUMENTS: The fair value of cash and cash equivalents, trade
receivables (net of allowance), and short-term debt approximates fair value due
to the short maturity of the instruments. The fair value of fixed-rate
long-term debt, including the current portion, with a carrying value of
$380,572,000, would be $389,027,000 at September 30, 1998. The fair value was
based on the market value of debt with similar maturities and with interest
rates currently trading in the marketplace.
The Company has entered into an agreement with a financial institution whereby
it can sell on an ongoing basis, with recourse, certain installment receivables
related to its merchandising program up to a maximum of $20 million. During
1998, 1997 and 1996, the Company sold $8,100,000, $7,926,000 and $8,831,000,
respectively, of installment receivables. At September 30, 1998 and 1997, the
balance of these installment receivables was $17,105,000 and $17,160,000,
respectively. Receivables sold under this agreement are considered financial
instruments with off-balance sheet risk. The Company's exposure to credit loss
in the event of non-performance by customers is represented by the balance of
installment receivables.
PRICE RISK: Energen Resources periodically enters into derivative commodity
instruments to hedge its exposure to price fluctuations on oil and gas
production. Such instruments include regulated natural gas and crude oil
futures contracts traded on the New York Mercantile Exchange and
over-the-counter swaps and basis hedges with major energy derivative product
specialists. These transactions are accounted for under the hedge method of
accounting. Under this method, any unrealized gains and losses are recorded as
a current receivable/payable and a deferred gain/loss. Realized gains and
losses are deferred as current liabilities or assets until the revenues from
the related hedged volumes are recognized in the income statement. Cash flows
from derivative instruments are recognized as incurred through changes in
working capital. The Company had deferred gains of $0.6 million and deferred
losses of $12.9 million on the balance sheet at September 30, 1998 and 1997,
respectively.
At September 30, 1998, Energen Resources has entered into contracts and swaps
for 48.9 Bcf of its 1999 flowing gas production at an average contract price of
$2.31 per Mcf and 1,080 MBbl of its oil production at an average contract price
of $16.31 per barrel. The program has been extended into fiscal years 2000 and
2001 with contracts and swaps in place for 5.2 Bcf of flowing gas production at
an average contract price of $2.22 per Mcf and 180 MBbl of oil production at an
average contract price of $17.31. Realized prices are anticipated to be lower
than hedged prices due to basis difference and other factors. To help mitigate
this variance, the Company has hedged the basis difference on 3.6 Bcf of its
1999 San Juan production.
All hedge transactions are subject to the Company's risk management policy,
approved by the Board of Directors, which does not permit speculative
positions. To apply the hedge method of accounting, management must demonstrate
that a high correlation exists between the value of the derivative commodity
instrument and the value of the item hedged. Management uses the historic and
current relationships between the derivative instruments and the sales prices
of the hedged volumes to ensure that a high level of correlation exists.
Page 41
<PAGE> 24
CONCENTRATION OF CREDIT RISK: Natural gas distribution operating revenues and
related accounts receivable are generated from state-regulated utility natural
gas sales and transportation to more than 468,000 residential, commercial and
industrial customers located in central and north Alabama. A change in economic
conditions may affect the ability of customers to meet their obligations;
however, the Company believes that its provision for possible losses on
uncollectible accounts receivable is adequate for its credit loss exposure.
Revenues and related accounts receivable from exploration and production
operations are generated primarily from the sale of produced natural gas and
oil. This industry concentration has the potential to impact the Company's
overall exposure to credit risk, either positively or negatively, in that the
customers may be similarly affected by changes in economic, industry, or other
conditions. The Company is not aware of any significant credit risks which have
not been recognized in the provision for doubtful accounts.
11. ACCOUNTING FOR LONG-LIVED ASSETS
- -------------------------------------------------------------------------------
During fiscal year 1997, the Company adopted SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
The Statement requires that an impairment loss be recognized when the carrying
amount of an asset exceeds the sum of the undiscounted estimated future cash
flow of the asset. The Statement also provides that all long-lived assets to be
disposed of be reported at the lower of the carrying amount or fair value.
Accordingly, during the fourth quarter of 1997, the Company recorded a pre-tax
writedown of $2.1 million on certain oil and gas properties that were being
held for sale. The properties had 9.7 Bcf of proved undeveloped reserves. The
expense was recorded as additional depreciation, depletion and amortization.
During fiscal year 1998 these properties were sold for a gain of $365,000.
During the second fiscal quarter of 1998, Energen Resources recorded a pre-tax
writedown of $4.7 million on certain oil and gas properties, adjusting the
carrying amount of the properties to their fair value based upon expected
future discounted cash flows. This writedown primarily reflected the impact of
a decline in crude oil prices. The expense was recorded as additional
depreciation, depletion and amortization.
12. RECENT PRONOUNCEMENTS OF THE FASB
- -------------------------------------------------------------------------------
In fiscal 1998, the Company adopted SFAS No. 128, Earnings Per Share (EPS),
which specifies computation, presentation, and disclosure requirements for EPS.
SFAS No. 128 requires dual presentation of basic and diluted EPS on the face of
the income statement and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to that of the diluted computation.
The Company also adopted during fiscal 1998, SFAS No. 129, Disclosures of
Information about Capital Structure. It contains no change in disclosure
requirements for public entities that were previously subject to the
requirements of Accounting Principles Board No. 10 and No. 15 and SFAS No. 47.
As a result, SFAS No. 129 had no impact on the Company's consolidated financial
statements.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which specifies revised guidelines for determining an entity's
operating segments and the type and level of financial information to be
required, was issued in June 1997. SFAS No. 131 relates solely to disclosure
provisions, and therefore does not have any effect on the results of operations
or financial position of the Company. The Company has chosen to early adopt
this pronouncement as of September 30, 1998.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which requires the reporting and display of comprehensive income and its
components in an entity's financial statements. There currently are no
differences between the Company's net income and comprehensive income. In
February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which revises employers'
disclosures about pension and other postretirement benefit plans. This
pronouncement relates solely to disclosure pensions, and therefore will have no
effect on the results of operations or financial position of the Company. The
Company is required to adopt these statements in fiscal year 1999.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments. The Company is required to adopt this
statement in fiscal year 2000. The impact of this pronouncement on the Company
is currently being evaluated.
Page 42
<PAGE> 25
13. SUMMARIZED QUARTERLY FINANCIAL DATA (Unaudited)
- -------------------------------------------------------------------------------
The following data summarize quarterly operating results. The Company's
business is seasonal in character and strongly influenced by weather
conditions.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 Fiscal Quarters
--------------------
(In thousands, except per share amounts) First Second Third Fourth
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues............................................ $ 125,888 $ 197,973 $ 100,712 $ 78,054
Operating income (loss)....................................... $ 13,142 $ 44,426 $ 6,806 $ (2,889)
Net income (loss)............................................. $ 6,127 $ 40,292 $ (85) $ (10,085)
Basic earnings (loss) per average common share................ $ 0.21 $ 1.39 $ 0.00 $ (0.34)
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1997 Fiscal Quarters
--------------------
(In thousands, except per share amounts) First Second Third Fourth
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues............................................ $ 97,002 $ 182,942 $ 90,879 $ 77,407
Operating income (loss)....................................... $ 7,955 $ 41,598 $ 8,244 $ (5,811)
Net income (loss)............................................. $ 3,177 $ 30,531 $ 3,007 $ (7,718)
Basic earnings (loss) per average common share................ $ 0.14 $ 1.21 $ 0.11 $ (0.29)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
14. OIL AND GAS PRODUCING ACTIVITIES (Unaudited)
- -------------------------------------------------------------------------------
The following schedules detail historical financial data of the Company's oil
and gas producing activities. Certain terms appearing in the schedules are
prescribed by the Securities and Exchange Commission (SEC) and are briefly
described as follows:
LEASE ACQUISITION COSTS are costs incurred to lease or otherwise acquire a
property.
EXPLORATION EXPENSES are primarily costs associated with drilling
unsuccessful exploratory wells in undeveloped properties, exploratory
geological and geophysical activities, and costs of impaired leaseholds.
DEVELOPMENT COSTS include costs necessary to gain access to, prepare and equip
development wells in areas of proved reserves.
PRODUCTION (LIFTING) COSTS include costs incurred to operate and maintain
wells.
GRPSS REVENUES are reported after deduction of royalty interest payments.
GROSS WELL OR ACRE is a well or acre in which a working interest is owned.
NET WELL OR ACRE is deemed to exist when the sum of fractional ownership
working interests in gross wells or acres equals one.
DRY WELL is an exploratory or a development well found to be incapable of
producing either oil or gas in sufficient quantities to justify
completion as an oil or gas well.
PRODUCTIVE WELL is an exploratory or a development well that is not a dry well.
<TABLE>
<CAPTION>
CAPITALIZED COSTS
- -------------------------------------------------------------------------------------------------------------------------
As of September 30, (in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proved.................................................................. $ 502,025 $ 432,095 $ 222,428
Unproved................................................................ 14,015 22,115 2,041
- -------------------------------------------------------------------------------------------------------------------------
Total capitalized costs............................................... 516,040 454,210 224,469
Accumulated depreciation, depletion and amortization.................... 88,306 87,554 60,152
- -------------------------------------------------------------------------------------------------------------------------
Capitalized costs, net.................................................. $ 427,734 $ 366,656 $ 164,317
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 43
<PAGE> 26
COSTS INCURRED The following table sets forth costs incurred in property
acquisition and exploration and development activities and includes both
capitalized costs and costs charged to expense during the year:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
As of September 30, (in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Property acquisition:
Proved................................................................ $ 82,814 $ 171,701 $ 108,315
Unproved.............................................................. 1,933 22,028 1,693
Exploration............................................................. 5,593 14,847 11,124
Development............................................................. 35,307 36,375 10,040
- -------------------------------------------------------------------------------------------------------------------------
Total costs incurred.................................................... $ 125,647 $ 244,951 $ 131,172
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS The following table sets forth results of the Company's
oil and gas producing activities:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Years ended September 30, (in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross revenues.......................................................... $ 129,978 $ 84,366 $ 38,421
Production (lifting) costs.............................................. 48,388 25,486 10,573
Exploration expense*.................................................... 5,773 6,636 5,439
Depreciation, depletion and amortization**.............................. 54,411 35,393 18,583
Income tax benefit...................................................... (5,870) (2,299) (3,004)
- -------------------------------------------------------------------------------------------------------------------------
Results of operations from producing activities......................... $ 27,276 $ 19,150 $ 6,830
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes a $2.5 million writedown of a portion of an unproved leasehold
in 1998
** Includes a writedown of $4.7 million and $2.1 million in 1998 and 1997,
respectively, under SFAS 121 (see Note 11)
<TABLE>
<CAPTION>
AVERAGE SALES PRICE, PRODUCTION COST AND DEPRECIATION RATE
- -------------------------------------------------------------------------------------------------------------------------
Years ended September 30, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Average sales price:
Gas (per Mcf)......................................................... $ 2.21 $ 2.05 $ 1.97
Oil (per barrel)...................................................... $ 14.96 $ 18.08 $ 16.25
Natural gas liquids (per barrel)...................................... $ 8.65 $ 11.45 $ --
Average production (lifting) cost (per Mcf equivalent).................. $ 0.84 $ 0.69 $ 0.66
Average depreciation rate (per Mcf equivalent).......................... $ 0.87 $ 0.90 $ 1.15
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
DRILLING ACTIVITY The following table sets forth the total number of net
productive and dry exploratory and development wells drilled:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Years ended September 30, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Exploratory:
Productive............................................................ 0.7 1.6 1.1
Dry................................................................... 1.0 1.2 1.5
- -------------------------------------------------------------------------------------------------------------------------
Total................................................................ 1.7 2.8 2.6
- -------------------------------------------------------------------------------------------------------------------------
Development:
Productive............................................................ 19.5 17.7 2.4
Dry................................................................... 2.9 0.7 --
- -------------------------------------------------------------------------------------------------------------------------
Total................................................................ 22.4 18.4 2.4
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
As of September 30, 1998, the Company was participating in the drilling of 2
gross wells, with the Company's interest equivalent to .35 wells.
Page 44
<PAGE> 27
PRODUCTIVE WELLS AND ACREAGE The following table sets forth the total gross and
net productive gas and oil wells as of September 30, 1998, and developed and
undeveloped acreage as of the latest practicable date prior to year end:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Gross Net
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gas Wells................................................................................. 3,180 1,501
Oil Wells................................................................................. 2,668 470
- -------------------------------------------------------------------------------------------------------------------------
Developed Acreage......................................................................... 849,860 551,560
Undeveloped Acreage....................................................................... 134,230 47,621
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
All wells and acreage are located onshore in the United States, with the
majority of the net undeveloped acreage located in the Gulf Coast region.
OIL AND GAS PRODUCING ACTIVITIES The calculation of proved reserves is made
pursuant to rules prescribed by the SEC. Such rules, in part, require that only
proved categories of reserves be disclosed and that reserves and associated
values be calculated using current prices and costs. Changes to current prices
and costs might have a significant effect on the disclosed amount of reserves
and their associated values. In addition, the estimation of reserves inherently
requires the use of geologic and engineering estimates which are subject to
revision as reservoirs are produced and developed and as additional information
is available. Accordingly, the amount of actual future production may vary
significantly from the amount of reserves disclosed. See Note 10 for pricing
information regarding the hedging activities of the Company. Prior to 1997,
natural gas liquid quantities were insignificant and were included in oil
quantities. The proved reserves are located in the United States, both onshore
and offshore, and are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Years ended September 30, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
Gas Oil NGL Gas Oil NGL Gas Oil
MMcf MBbl MBbl MMcf MBbl MBbl MMcf MBbl
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proved reserves at beginning of year .... 544,283 9,128 12,378 212,977 6,315 -- 71,267 3,986
Revisions of previous estimates ......... (13,006) (1,402) 2,211 (2,910) (110) -- 502 369
Purchase of minerals in place ........... 21,590 13,284 441 352,373 3,650 12,880 155,647 3,805
Discoveries and other additions ......... 44,347 278 3,079 11,946 83 -- 5,113 49
Production .............................. (43,853) (1,433) (817) (29,318) (775) (502) (12,308) (635)
Sales of minerals in place .............. (11,322) (10) -- (785) (35) -- (7,244) (1,259)
- --------------------------------------------------------------------------------------------------------------------------
Proved reserves at end of year .......... 542,039 19,845 17,292 544,283 9,128 12,378 212,977 6,315
- --------------------------------------------------------------------------------------------------------------------------
Proved developed reserves at end of year. 493,770 14,053 14,214 511,864 8,140 12,378 175,124 5,012
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the year, Energen Resources invested $83 million in proved property
acquisitions. Energen Resources also sold approximately 11 Bcfe and recorded a
pre-tax gain of $1.6 million.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES The standardized measure of discounted future net cash flows
is not intended, nor should it be interpreted, to present the fair market value
of the Company's crude oil and natural gas reserves. An estimate of fair market
value would take into consideration factors such as, but not limited to, the
recovery of reserves not presently classified as proved reserves, anticipated
future changes in prices and costs, and a discount factor more representative
of the time value of money and the risks inherent in reserve estimates.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Years ended September 30, (in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Future gross revenues................................................... $ 1,109,829 $ 1,553,333 $ 502,607
Future production costs................................................. 476,589 571,732 216,755
Future development costs................................................ 67,459 74,396 40,665
- -------------------------------------------------------------------------------------------------------------------------
Future net cash flows before income taxes............................... 565,781 907,205 245,187
Future income tax expense (benefit) including tax credits............... 12,917 162,172 3,707
- -------------------------------------------------------------------------------------------------------------------------
Future net cash flows after income taxes................................ 552,864 745,033 241,480
Discount at 10% per annum............................................... 195,606 305,679 70,641
- -------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future net cash flows
relating to proved oil and gas reserves................................. $ 357,258 $ 439,354 $ 170,839
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 45
<PAGE> 28
The following are the principal sources of changes in the standardized measure
of discounted future net cash flows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Years ended September 30, (in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year............................................ $ 439,354 $ 170,839 $ 63,559
- -------------------------------------------------------------------------------------------------------------------------
Revisions to reserves proved in prior years:
Net changes in prices, production costs and future
development costs................................................... (175,156) 44,913 15,051
Net changes due to revisions in quantity estimates.................... (4,993) (7,378) 552
Development costs incurred, previously estimated...................... 13,722 16,743 6,713
Accretion of discount................................................. 43,935 17,084 6,356
Other................................................................. (22,329) (1,599) 1,215
- -------------------------------------------------------------------------------------------------------------------------
Total Revisions......................................................... (144,821) 69,763 29,887
New field discoveries and extensions, net of future
production and development costs...................................... 9,989 8,947 4,705
Sales of oil and gas produced, net of production costs.................. (69,732) (53,848) (24,002)
Purchases of minerals in place.......................................... 50,010 259,918 94,728
Sales of minerals in place.............................................. (12,713) (625) (10,597)
Net change in income taxes.............................................. 85,171 (15,640) 12,559
- -------------------------------------------------------------------------------------------------------------------------
Net change in standardized measure of discounted future
net cash flows........................................................ (82,096) 268,515 107,280
- -------------------------------------------------------------------------------------------------------------------------
Balance at end of year.................................................. $ 357,258 $ 439,354 $ 170,839
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
COALBED METHANE ACTIVITIES Energen Resources is actively engaged in the
production of pipeline-quality natural gas from coal (coalbed methane). The
results of coalbed methane activities have been included in the oil and gas
disclosures shown previously. Because of the significance of coalbed methane to
Energen Resources, certain data are separately disclosed below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Years ended September 30, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proved reserves at beginning of year (MMcf)............................. 230,323 130,387 25,004
Revisions of previous estimates......................................... 6,960 1,959 4,231
Purchases of minerals in place.......................................... -- 107,228 105,762
Production.............................................................. (14,802) (9,251) (4,610)
- -------------------------------------------------------------------------------------------------------------------------
Proved reserves at end of year (MMcf)................................... 222,481 230,323 130,387
- -------------------------------------------------------------------------------------------------------------------------
Estimated proved reserves qualifying for tax credits (MMcf)............. 45,309 55,776 30,142
- -------------------------------------------------------------------------------------------------------------------------
Net capitalized costs (in thousands).................................... $ 139,001 $ 145,686 $ 77,708
- -------------------------------------------------------------------------------------------------------------------------
Gross wells in which the company has working
and/or revenue interests................................................ 886 863 825
- -------------------------------------------------------------------------------------------------------------------------
Net productive wells.................................................... 549.6 548.4 279.1
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Production of coalbed methane from wells drilled prior to January 1, 1993,
qualifies through December 31, 2002, for nonconventional fuels income tax
credits under Section 29 of the Internal Revenue Code of 1986, as amended. The
tax credit currently approximates $1.07 per Mcf of qualifying production.
Accordingly, a significant portion of the value of proved coalbed methane
reserves is associated with this tax credit.
Page 46
<PAGE> 29
15. INDUSTRY SEGMENT INFORMATION
- -------------------------------------------------------------------------------
Effective September 30, 1998, the Company adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. The Company is
principally engaged in two business segments: the purchase, distribution and
sale of natural gas in central and north Alabama (natural gas distribution) and
the acquisition, development, exploration and production of oil and gas in the
continental United States (oil and gas activities). The accounting policies of
the segments are the same as those described in Note 1. Certain
reclassifications have been made to conform the prior year to the current year
presentation.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
As of September 30, (in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues
Natural gas distribution.............................................. $ 369,940 $ 362,984 $ 357,252
Oil and gas activities................................................ 132,687 85,246 42,190
- -------------------------------------------------------------------------------------------------------------------------
Total................................................................ $ 502,627 $ 448,230 $ 399,442
- -------------------------------------------------------------------------------------------------------------------------
Operating income (loss)
Natural gas distribution.............................................. $ 41,663 $ 38,792 $ 35,270
Oil and gas activities................................................ 20,992 14,723 4,779
Eliminations and corporate expenses................................... (1,170) (1,529) (1,252)
- -------------------------------------------------------------------------------------------------------------------------
Total................................................................ $ 61,485 $ 51,986 $ 38,797
- -------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortization expense
Natural gas distribution.............................................. $ 25,153 $ 23,486 $ 21,269
Oil and gas activities................................................ 55,846 36,202 19,849
- -------------------------------------------------------------------------------------------------------------------------
Total................................................................ $ 80,999 $ 59,688 $ 41,118
- -------------------------------------------------------------------------------------------------------------------------
Interest expense
Natural gas distribution.............................................. $ 10,221 $ 10,809 $ 9,585
Oil and gas activities................................................ 20,130 12,705 4,896
Eliminations and other................................................ (350) (608) (561)
- -------------------------------------------------------------------------------------------------------------------------
Total................................................................ $ 30,001 $ 22,906 $ 13,920
- -------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit)
Natural gas distribution.............................................. $ 11,400 $ 10,117 $ 9,047
Oil and gas activities................................................ (13,896) (7,341) (4,040)
Other................................................................. 275 321 41
- -------------------------------------------------------------------------------------------------------------------------
Total................................................................ $ (2,221) $ 3,097 $ 5,048
- -------------------------------------------------------------------------------------------------------------------------
Capital expenditures
Natural gas distribution.............................................. $ 54,168 $ 43,277 $ 43,175
Oil and gas activities................................................ 120,991 239,718 126,317
Other................................................................. 6 15 60
- -------------------------------------------------------------------------------------------------------------------------
Total................................................................ $ 175,165 $ 283,010 $ 169,552
- -------------------------------------------------------------------------------------------------------------------------
Identifiable assets
Natural gas distribution.............................................. $ 408,149 $ 390,381 $ 373,817
Oil and gas activities................................................ 497,264 440,158 217,700
Eliminations and other................................................ 88,042 89,258 (22,107)
- -------------------------------------------------------------------------------------------------------------------------
Total................................................................ $ 993,455 $ 919,797 $ 569,410
- -------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net
Natural gas distribution.............................................. $ 324,995 $ 296,228 $ 276,927
Oil and gas activities................................................ 431,275 370,677 167,859
Other................................................................. 74 98 130
- -------------------------------------------------------------------------------------------------------------------------
Total............................................................... $ 756,344 $ 667,003 $ 444,916
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 47
<PAGE> 30
16. RECONCILIATION OF EARNINGS PER SHARE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Years ended September 30,
(in thousands, except per share amounts) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE Per Share Per Share
INCOME SHARES AMOUNT Income Shares Amount Income Shares Amount
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS...................... $ 36,249 29,084 $ 1.25 $ 28,997 25,126 $ 1.15 $ 21,541 22,047 $ 0.98
Effect of Dilutive Securities
Long-range performance shares 167 137 142
Non-qualified stock options 187 121 63
- --------------------------------------------------------------------------------------------------------------------------------
DILUTED EPS.................... $ 36,249 29,438 $ 1.23 $ 28,997 25,384 $ 1.14 $ 21,541 22,252 $ 0.97
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17. SUBSEQUENT EVENT
- -------------------------------------------------------------------------------
On October 15, 1998, Energen Resources purchased the stock of TOTAL Minatome
Corporation (TOTAL), a Houston-based unit of TOTAL American Holding Inc.
Immediately upon closing the transaction, Energen Resources sold a 31 percent
undivided interest in TOTAL's assets to Westport Oil and Gas Company Inc., a
private Denver-based exploration, acquisition and development company. Energen
Resources' net investment totaled $132.6 million, including the assumption of
certain legal and financial obligations. Energen Resources gained an estimated
200 billion cubic feet equivalent of proved domestic oil and natural gas
reserves.
Page 48
<PAGE> 31
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements and related notes of Energen
Corporation were prepared by management, which has the primary responsibility
for the integrity of the financial information therein. The statements were
prepared in conformity with generally accepted accounting principles appropriate
in the circumstances and include amounts which are based necessarily on
management's best estimates and judgments. Financial information presented
elsewhere in the report is consistent with the information in the financial
statements.
Management maintains a comprehensive system of internal accounting controls and
relies on the system to discharge its responsibility for the integrity of the
financial statements. This system provides reasonable assurance that corporate
assets are safeguarded and that transactions are recorded in such a manner as
to permit the preparation of materially reliable financial information.
Reasonable assurance recognizes that the cost of a system of internal accounting
controls should not exceed the related benefits. This system of internal
accounting controls is augmented by written policies and procedures, internal
auditing, and the careful selection and training of qualified personnel. As of
September 30, 1998, management was aware of no material weaknesses in Energen's
system of internal accounting controls.
The consolidated financial statements have been audited by the Company's
independent certified public accountants, whose opinion is expressed elsewhere
on this page. Their audit was conducted in accordance with generally accepted
auditing standards; and, in connection therewith, they obtained an
understanding of the Company's system of internal accounting controls and
conducted such tests and related procedures as they deemed necessary to arrive
at an opinion on the fairness of presentation of the consolidated financial
statements.
The functioning of the accounting system and related internal accounting
controls is under the general oversight of the Audit Committee of the Board of
Directors, which is comprised of four outside Directors. The Audit Committee
meets regularly with the independent public accountants and representatives of
management to discuss matters regarding internal accounting controls, auditing
and financial reporting.
Geoffrey C. Ketcham
Executive Vice President
Chief Financial Officer and Treasurer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders of Energen:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Energen
Corporation and Subsidiaries at September 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 1998 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Birmingham, Alabama
October 28, 1998
Page 49
<PAGE> 32
SELECTED FINANCIAL AND COMMON STOCK DATA
<TABLE>
<CAPTION>
Energen Corporation
- ---------------------------------------------------------------------------------------------------------------------------------
Years ended September 30,
(dollars in thousands, except per share amounts) 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT
Operating revenues........................................ $ 502,627 $ 448,230 $ 399,442 $ 318,580
Income before cumulative effect of change
in accounting principle................................. $ 36,249 $ 28,997 $ 21,541 $ 19,308
Net income................................................ $ 36,249 28,997 $ 21,541 $ 19,308
Basic earnings per share before cumulative effect......... $ 1.25 $ 1.15 $ 0.98 $ 0.89
Basic earnings per average common share................... $ 1.25 $ 1.15 $ 0.98 $ 0.89
Diluted earnings per average common share................. $ 1.23 $ 1.14 $ 0.97 $ 0.88
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET
Capitalization at year-end:
Common shareholders equity.............................. $ 329,249 $ 301,143 $ 188,405 $ 173,924
Preferred stock......................................... -- -- -- --
Long-term debt.......................................... 372,782 279,602 195,545 131,600
- ---------------------------------------------------------------------------------------------------------------------------------
Total capitalization.................................... $ 702,031 $ 580,745 $ 383,950 $ 305,524
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets.............................................. $ 993,455 $ 919,797 $ 569,410 $ 459,084
- ---------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net........................ $ 756,344 $ 667,003 $ 444,916 $ 327,264
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
Annual dividend rate at year-end.......................... $ 0.64 $ 0.62 $ 0.60 $ 0.58
Cash dividends paid per common share...................... $ 0.625 $ 0.605 $ 0.585 $ 0.565
Book value per common share............................... $ 11.23 $ 10.46 $ 8.44 $ 7.97
Market-to-book ratio at year-end (%)...................... 169 170 142 136
Yield at year-end (%)..................................... 3.4 3.5 5.0 5.3
Return on average common equity (%)....................... 11.1 11.9 11.6 11.0
Price-to-earnings ratio at year-end....................... 15.2 15.5 12.2 12.2
Basic shares outstanding at year-end (000)................ 29,327 28,796 22,325 21,820
Price Range:
High.................................................... $ 22 1/2 $ 18 7/8 $ 12 11/16 $ 11 3/4
Low..................................................... $ 15 1/8 $ 11 7/8 $ 10 11/16 $ 9 7/8
Close................................................... $ 19 $ 17 25/32 $ 12 $ 10 7/8
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: All information prior to 1989 has been adjusted for the effects of a
three-for-two common stock split
All information prior to 1990 includes the effects of discontinued
operations.
All information has been adjusted to reflect the 2-for-1 stock split
effective March 2, 1998.
Page 50
<PAGE> 33
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$374,503 $355,878 $331,065 $324,902 $324,022 $308,604 $353,135
$ 23,751 $ 18,081 $ 15,687 $ 14,112 $ 11,267 $ 6,422 $ 11,667
$ 23,751 $ 18,081 $ 16,628 $ 14,112 $ 11,267 $ 6,422 $ 11,667
$ 1.10 $ 0.88 $ 0.77 $ 0.71 $ 0.58 $ 0.34 $ 0.76
$ 1.10 $ 0.88 $ 0.82 $ 0.71 $ 0.58 $ 0.34 $ 0.76
$ 1.09 $ 0.88 $ 0.82 $ 0.71 $ 0.58 $ 0.34 $ 0.76
- -----------------------------------------------------------------------------------------------------------------
$167,026 $140,313 $129,858 $121,995 $113,316 $107,950 $ 86,256
-- -- 1,800 1,800 1,800 2,450 2,450
118,302 85,852 90,609 77,677 82,835 86,188 53,203
- -----------------------------------------------------------------------------------------------------------------
$285,328 $226,165 $222,267 $201,472 $197,951 $196,588 $141,909
- -----------------------------------------------------------------------------------------------------------------
$411,314 $370,685 $342,119 $337,516 $326,350 $294,614 $260,560
- -----------------------------------------------------------------------------------------------------------------
$287,182 $273,097 $254,630 $273,539 $250,983 $238,329 $206,230
- -----------------------------------------------------------------------------------------------------------------
$ .56 $ .54 $ .52 $ .50 $ .47 $ .44 $ .414
$ .545 $ .525 $ .505 $ .478 $ .448 $ .422 $ .389
$ 7.65 $ 6.80 $ 6.38 $ 6.04 $ 5.74 $ 5.57 $ 5.40
147 182 142 150 157 190 147
5.0 4.4 5.7 5.5 5.2 4.2 5.2
14.6 13.0 13.0 11.6 10.0 6.0 15.6
10.2 14.1 11.1 12.8 15.5 31.1 10.4
21,836 20,641 20,365 20,209 19,745 19,389 15,979
$ 13 5/16 $ 13 3/8 $ 9 7/16 $ 10 $ 10 3/4 $ 12 3/16 $ 8 1/8
$ 9 5/8 $ 8 13/16 $ 7 1/2 $ 8 $ 8 $ 7 11/16 $ 5 11/16
$ 11 1/4 $ 12 3/8 $ 9 1/16 $ 9 1/16 $ 9 $ 10 9/16 $ 7 15/16
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Page 51
<PAGE> 34
SELECTED BUSINESS SEGMENT DATA
<TABLE>
<CAPTION>
Energen Corporation
- ---------------------------------------------------------------------------------------------------------------------------
Years ended September 30,
(dollars in thousands) 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NATURAL GAS DISTRIBUTION
Operating revenues
Residential............................................. $ 241,964 $ 237,022 $ 236,583 $ 194,089
Commercial and industrial-small......................... 89,361 87,477 87,912 68,409
Commercial and industrial-large......................... -- -- -- 290
Transportation.......................................... 35,246 33,080 30,408 30,490
Other................................................... 3,369 5,405 2,349 2,687
- ---------------------------------------------------------------------------------------------------------------------------
Total.................................................. $ 369,940 $ 362,984 $ 357,252 $ 295,965
- ---------------------------------------------------------------------------------------------------------------------------
Gas delivery volumes (MMcf)
Residential............................................. 31,079 28,357 34,963 27,489
Commercial and industrial-small......................... 13,705 12,554 15,002 12,289
Commercial and industrial-large......................... -- -- -- 29
Transportation.......................................... 70,563 65,622 61,458 61,640
- ---------------------------------------------------------------------------------------------------------------------------
Total.................................................. 115,347 106,533 111,423 101,447
- ---------------------------------------------------------------------------------------------------------------------------
Average number of customers
Residential............................................. 423,602 422,878 418,486 410,515
Commercial and industrial-small......................... 34,733 34,430 34,028 33,115
Commercial and industrial-large......................... 49 55 54 48
- ---------------------------------------------------------------------------------------------------------------------------
Total.................................................. 458,384 457,363 452,568 443,678
- ---------------------------------------------------------------------------------------------------------------------------
Other data
Depreciation & amortization............................. $ 25,153 $ 23,486 $ 21,269 $ 19,368
Capital expenditures.................................... $ 54,168 $ 43,277 $ 43,175 $ 42,780
Operating income........................................ $ 41,663 $ 38,792 $ 35,270 $ 32,513
- ---------------------------------------------------------------------------------------------------------------------------
OIL AND GAS ACTIVITIES
Operating revenues
Natural gas............................................. $ 97,123 $ 60,228 $ 24,262 $ 14,748
Oil..................................................... 21,452 13,981 10,313 3,765
Natural gas liquids..................................... 7,061 5,772 -- --
Other................................................... 7,051 5,265 7,615 4,100
- ---------------------------------------------------------------------------------------------------------------------------
Total.................................................. $ 132,687 $ 85,246 $ 42,190 $ 22,613
- ---------------------------------------------------------------------------------------------------------------------------
Production volumes
Natural gas (Mcf)....................................... 43,853 29,318 12,308 8,597
Oil (MBbl).............................................. 1,433 775 635 250
Natural gas liquids (MBbl).............................. 817 502 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Proved reserves
Natural gas (MMcf)...................................... 542,039 544,283 212,977 71,267
Oil (MBbl).............................................. 19,845 9,128 6,315 3,986
Natural gas liquids (MBbl).............................. 17,292 12,378 -- --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 52
<PAGE> 35
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 229,019 $ 216,587 $ 198,676 $ 195,250 $ 188,168 $ 170,302 $ 190,836
84,443 83,069 78,799 84,260 85,588 85,477 104,420
790 1,223 6,501 8,916 13,596 25,000 37,923
29,321 27,382 25,089 22,890 22,734 19,574 15,158
1,064 2,299 1,661 (2,188) 873 731 689
- ---------------------------------------------------------------------------------------------------------------------------
$ 344,637 $ 330,560 $ 310,726 $ 309,128 $ 310,959 $ 301,084 $ 349,026
- ---------------------------------------------------------------------------------------------------------------------------
31,254 30,957 29,119 26,262 28,653 27,210 28,636
13,536 13,853 13,860 14,837 16,581 17,946 21,806
106 282 2,654 3,411 4,786 9,494 13,026
52,635 49,346 46,235 41,447 39,117 34,447 28,730
- ---------------------------------------------------------------------------------------------------------------------------
97,531 94,438 91,868 85,957 89,137 89,097 92,198
- ---------------------------------------------------------------------------------------------------------------------------
402,531 395,057 387,871 382,747 379,362 365,572 358,872
32,563 32,269 31,732 31,432 31,565 30,492 29,717
43 46 41 39 42 42 37
- ---------------------------------------------------------------------------------------------------------------------------
435,137 427,372 419,644 414,218 410,969 396,106 388,626
- ---------------------------------------------------------------------------------------------------------------------------
$ 17,941 $ 17,206 $ 17,154 $ 17,126 $ 16,131 $ 14,657 $ 13,642
$ 38,473 $ 22,107 $ 20,228 $ 19,565 $ 19,565 $ 39,156 $ 25,614
$ 30,017 $ 26,381 $ 25,915 $ 25,209 $ 21,080 $ 18,548 $ 19,666
- ---------------------------------------------------------------------------------------------------------------------------
$ 17,292 $ 11,449 $ 10,364 $ 9,889 $ 11,121 $ 11,735 $ 11,344
2,725 3,484 2,559 1,839 1,411 1,468 1,458
-- -- -- -- -- -- --
3,546 2,753 (44) (3,203) (5,927) (8,286) (8,693)
- ---------------------------------------------------------------------------------------------------------------------------
$ 23,563 $ 17,686 $ 12,879 $ 8,525 $ 6,605 $ 4,917 $ 4,109
- ---------------------------------------------------------------------------------------------------------------------------
9,169 6,245 6,415 5,927 4,954 4,964 4,976
191 204 145 88 80 95 94
-- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
60,057 67,298 51,329 73,279 57,532 29,860 14,803
1,485 1,289 338 402 330 264 292
-- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 53
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF ENERGEN CORPORATION
Alabama Gas Corporation
Energen Resources Corporation
Energen Resources TEAM, Inc.
Energen Resources MAQ, Inc.
American Heat Tech, Inc.
Basin Pipeline Corp.
EGN Services, Inc.
Horse Creek Trading & Compression Company
Midtown NGV, Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Energen Corporation on Form S-3 (File No. 333-00395), Form S-3 (File No.
333-43245) and Forms S-8 (File No. 33-27869, File No. 33-46641, File No.
33-48504, File No. 33-48505, File No. 33-26111, and File No. 33-45107) of our
report, dated October 28, 1998, on our audits of the consolidated financial
statements and financial statement schedule of Energen Corporation as of
September 30, 1998 and 1997, and for the years ended September 30, 1998, 1997,
and 1996, which report is incorporated by reference in this Annual Report on
Form 10-K.
PricewaterhouseCoopers LLP
Birmingham, Alabama
December 21, 1998
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000277595
<NAME> ENERGEN CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 324,677
<OTHER-PROPERTY-AND-INVEST> 431,667
<TOTAL-CURRENT-ASSETS> 218,453
<TOTAL-DEFERRED-CHARGES> 7,716
<OTHER-ASSETS> 10,942
<TOTAL-ASSETS> 993,455
<COMMON> 293
<CAPITAL-SURPLUS-PAID-IN> 198,676
<RETAINED-EARNINGS> 130,280
<TOTAL-COMMON-STOCKHOLDERS-EQ> 329,249
0
0
<LONG-TERM-DEBT-NET> 372,782
<SHORT-TERM-NOTES> 153,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 7,209
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 131,215
<TOT-CAPITALIZATION-AND-LIAB> 993,455
<GROSS-OPERATING-REVENUE> 502,627
<INCOME-TAX-EXPENSE> (2,221)
<OTHER-OPERATING-EXPENSES> 441,142
<TOTAL-OPERATING-EXPENSES> 438,921
<OPERATING-INCOME-LOSS> 63,706
<OTHER-INCOME-NET> 2,544
<INCOME-BEFORE-INTEREST-EXPEN> 66,250
<TOTAL-INTEREST-EXPENSE> 30,001
<NET-INCOME> 36,249
0
<EARNINGS-AVAILABLE-FOR-COMM> 36,249
<COMMON-STOCK-DIVIDENDS> 18,181
<TOTAL-INTEREST-ON-BONDS> 15,811
<CASH-FLOW-OPERATIONS> 123,623
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.23
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000003146
<NAME> ALABAMA GAS CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 324,677
<OTHER-PROPERTY-AND-INVEST> 318
<TOTAL-CURRENT-ASSETS> 78,421
<TOTAL-DEFERRED-CHARGES> 4,733
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 408,149
<COMMON> 20
<CAPITAL-SURPLUS-PAID-IN> 34,484
<RETAINED-EARNINGS> 120,205
<TOTAL-COMMON-STOCKHOLDERS-EQ> 154,709
0
0
<LONG-TERM-DEBT-NET> 119,650
<SHORT-TERM-NOTES> 15,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 5,350
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 113,440
<TOT-CAPITALIZATION-AND-LIAB> 408,149
<GROSS-OPERATING-REVENUE> 369,940
<INCOME-TAX-EXPENSE> 11,400
<OTHER-OPERATING-EXPENSES> 328,277
<TOTAL-OPERATING-EXPENSES> 339,677
<OPERATING-INCOME-LOSS> 30,263
<OTHER-INCOME-NET> 545
<INCOME-BEFORE-INTEREST-EXPEN> 30,808
<TOTAL-INTEREST-EXPENSE> 10,221
<NET-INCOME> 20,587
0
<EARNINGS-AVAILABLE-FOR-COMM> 20,587
<COMMON-STOCK-DIVIDENDS> 7,276
<TOTAL-INTEREST-ON-BONDS> 8,843
<CASH-FLOW-OPERATIONS> 57,683
<EPS-PRIMARY> 0
<EPS-DILUTED> 0<F1>
<FN>
<F1>EARNINGS PER SHARE IS CALCULATED FOR ENERGEN CORPORATION (PARENT COMPANY OF
ALABAMA GAS CORPORATION) AND IS NOT CALCULATED FOR ALABAMA GAS CORPORATION
SEPARATELY AS AMOUNT WOULD NOT BE MEANINGFUL.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-K FOR SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000277595
<NAME> ENERGEN CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 295,881
<OTHER-PROPERTY-AND-INVEST> 371,122
<TOTAL-CURRENT-ASSETS> 242,165
<TOTAL-DEFERRED-CHARGES> 0
<OTHER-ASSETS> 10,629
<TOTAL-ASSETS> 919,797
<COMMON> 288
<CAPITAL-SURPLUS-PAID-IN> 188,643
<RETAINED-EARNINGS> 112,212
<TOTAL-COMMON-STOCKHOLDERS-EQ> 301,143
0
0
<LONG-TERM-DEBT-NET> 279,602
<SHORT-TERM-NOTES> 202,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,855
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 135,197
<TOT-CAPITALIZATION-AND-LIAB> 919,797
<GROSS-OPERATING-REVENUE> 448,230
<INCOME-TAX-EXPENSE> 3,097
<OTHER-OPERATING-EXPENSES> 396,244
<TOTAL-OPERATING-EXPENSES> 399,341
<OPERATING-INCOME-LOSS> 48,889
<OTHER-INCOME-NET> 3,014
<INCOME-BEFORE-INTEREST-EXPEN> 51,903
<TOTAL-INTEREST-EXPENSE> 22,906
<NET-INCOME> 28,997
0
<EARNINGS-AVAILABLE-FOR-COMM> 28,997
<COMMON-STOCK-DIVIDENDS> 15,299
<TOTAL-INTEREST-ON-BONDS> 14,250
<CASH-FLOW-OPERATIONS> 63,099
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.14
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-K FOR SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<CIK> 0000277595
<NAME> ENERGEN CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 276,533
<OTHER-PROPERTY-AND-INVEST> 168,383
<TOTAL-CURRENT-ASSETS> 114,706
<TOTAL-DEFERRED-CHARGES> 9,788
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 569,410
<COMMON> 224
<CAPITAL-SURPLUS-PAID-IN> 89,635
<RETAINED-EARNINGS> 98,546
<TOTAL-COMMON-STOCKHOLDERS-EQ> 188,405
0
0
<LONG-TERM-DEBT-NET> 195,545
<SHORT-TERM-NOTES> 59,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,805
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 124,655
<TOT-CAPITALIZATION-AND-LIAB> 569,410
<GROSS-OPERATING-REVENUE> 399,442
<INCOME-TAX-EXPENSE> 5,048
<OTHER-OPERATING-EXPENSES> 360,645
<TOTAL-OPERATING-EXPENSES> 365,693
<OPERATING-INCOME-LOSS> 33,749
<OTHER-INCOME-NET> 1,712
<INCOME-BEFORE-INTEREST-EXPEN> 35,461
<TOTAL-INTEREST-EXPENSE> 13,920
<NET-INCOME> 21,541
0
<EARNINGS-AVAILABLE-FOR-COMM> 21,541
<COMMON-STOCK-DIVIDENDS> 12,903
<TOTAL-INTEREST-ON-BONDS> 9,890
<CASH-FLOW-OPERATIONS> 43,501
<EPS-PRIMARY> .98
<EPS-DILUTED> .97
</TABLE>
