<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 1-8094
SEAGULL ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 74-1764876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 FANNIN, SUITE 1700, HOUSTON, TEXAS 77002-6714
(Address of principal executive offices) (Zip code)
(713) 951-4700
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT AUGUST 3, 1995
----- -----------------------------
<S> <C>
Common Stock, $.10 par value 36,143,202
</TABLE>
<PAGE> 2
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Presentation of Financial Information ................................ 3
Consolidated Statements of Earnings - Three and Six Months
Ended June 30, 1995 and 1994 (Unaudited) ........................... 4
Consolidated Balance Sheets - June 30, 1995
and December 31, 1994 (Unaudited) .................................. 5
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1995 and 1994 (Unaudited) ........................... 6
Notes to Consolidated Financial Statements (Unaudited) ............... 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited) ............................. 10
PART II. OTHER INFORMATION ............................................ 21
SIGNATURES ............................................................. 23
</TABLE>
-2-
<PAGE> 3
PART I. FINANCIAL INFORMATION
PRESENTATION OF FINANCIAL INFORMATION
In the opinion of management, the following unaudited consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of Seagull Energy Corporation and Subsidiaries (the "Company"
or "Seagull") as of June 30, 1995, and the results of its operations for the
three and six months ended June 30, 1995 and 1994, and cash flows for the six
month periods then ended. As discussed in Note 1 to the Company's Consolidated
Financial Statements included in the Company's Quarterly Report on Form 10-Q for
the three months ended March 31, 1995, Seagull adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," effective March
31, 1995. Under SFAS No. 121, the Company recorded a non-cash impairment of gas
and oil properties as a separate line item in the accompanying consolidated
statement of earnings for the six months ended June 30, 1995. As discussed in
Note 2 to the Company's Consolidated Financial Statements, during the three
months ended June 30, 1995 the Company recorded one-time pre-tax charges of $8
million to account for expenses involved in the Company's workforce reduction
and consolidation. All other adjustments made are of a normal, recurring nature.
The results of operations for the three and six months ended June 30, 1995 are
not necessarily indicative of the results to be expected for the full year.
The financial information presented herein should be read in
conjunction with the consolidated financial statements and notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.
-3-
<PAGE> 4
Item 1. FINANCIAL STATEMENTS
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1995 1994 1995 1994
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Exploration and production................... $ 54,730 $ 69,700 $ 104,139 $ 151,118
Pipeline and marketing....................... 9,197 10,776 18,348 20,155
Alaska transmission and distribution......... 17,560 19,083 53,850 55,349
----------- ------------ ----------- ------------
81,487 99,559 176,337 226,622
Costs of Operations:
Alaska transmission and distribution
cost of gas sold........................... 7,923 9,598 26,488 28,848
Operations and maintenance................... 27,814 29,744 56,742 59,525
Exploration charges.......................... 4,137 6,035 14,019 10,218
Depreciation, depletion and amortization..... 31,773 36,936 66,584 75,956
Impairment of gas and oil properties......... - - 44,376 -
----------- ------------ ----------- ------------
71,647 82,313 208,209 174,547
----------- ------------ ----------- ------------
Operating Profit (Loss)........................ 9,840 17,246 (31,872) 52,075
Other (Income) Expense:
General and administrative................... 9,847 4,054 12,501 7,045
Interest expense............................. 13,934 12,002 27,931 23,547
Interest income and other.................... (186) (166) (749) (273)
----------- ------------ ----------- ------------
23,595 15,890 39,683 30,319
----------- ------------ ----------- ------------
Earnings (Loss) Before Income Taxes............ (13,755) 1,356 (71,555) 21,756
Income Tax Expense (Benefit)................... (6,630) (1,225) (25,880) 6,260
----------- ------------ ----------- ------------
Net Earnings (Loss)............................ $ (7,125) $ 2,581 $ (45,675) $ 15,496
=========== ============ =========== ============
Earnings (Loss) Per Share...................... $ (0.20) $ 0.07 $ (1.27) $ 0.42
=========== ============ =========== ============
Weighted Average Number of Common
Shares Outstanding........................... 36,107,648 36,966,038 36,106,681 36,942,368
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
-4-
<PAGE> 5
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 12,470 $ 6,432
Accounts receivable, net................................ 74,624 101,346
Inventories............................................. 5,800 4,530
Prepaid expenses and other.............................. 5,522 7,055
------------ ------------
Total Current Assets.................................. 98,416 119,363
Property, Plant and Equipment - at cost
(successful efforts method for gas and oil properties).. 1,621,535 1,592,152
Accumulated Depreciation, Depletion and Amortization...... 576,702 467,845
------------ ------------
1,044,833 1,124,307
Other Assets.............................................. 55,606 55,880
------------ ------------
Total Assets.............................................. $ 1,198,855 $ 1,299,550
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................ $ 59,696 $ 97,315
Accrued expenses........................................ 37,048 31,598
Prepaid gas and oil sales............................... - 2,732
Current maturities of long-term debt.................... 1,569 1,549
------------ ------------
Total Current Liabilities............................. 98,313 133,194
Long-Term Debt............................................ 628,690 620,805
Other Noncurrent Liabilities.............................. 53,673 57,737
Deferred Income Taxes..................................... 19,918 46,713
Shareholders' Equity:
Common Stock, $.10 par value; authorized
100,000,000 shares; issued 36,436,414 shares (1995)
and 36,432,514 shares (1994)........................... 3,644 3,643
Additional paid-in capital.............................. 325,042 324,820
Retained earnings....................................... 78,284 123,959
Foreign currency translation adjustment................. (243) (2,684)
Less - note receivable from employee stock
ownership plan......................................... (5,502) (5,502)
Less - 308,812 shares (1995) and 326,812 shares (1994)
of Common Stock held in Treasury, at cost.............. (2,964) (3,135)
------------ ------------
Total Shareholders' Equity............................ 398,261 441,101
Commitments and Contingencies.............................
------------ ------------
Total Liabilities and Shareholders' Equity................ $ 1,198,855 $ 1,299,550
============ ============
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
-5-
<PAGE> 6
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
1995 1994
---------- -----------
<S> <C> <C>
Operating Activities:
Net earnings (loss).............................................. $ (45,675) $ 15,496
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization....................... 68,236 77,380
Impairment of gas and oil properties........................... 44,376 -
Amortization of deferred financing costs....................... 1,716 2,075
Deferred income taxes.......................................... (26,523) 3,104
Dry hole expense............................................... 5,961 4,784
Distributions in excess of (less than) earnings
from equity investments...................................... (935) 797
Other.......................................................... (337) 55
---------- -----------
46,819 103,691
Changes in operating assets and
liabilities, net of acquisitions:
Decrease in accounts receivable.............................. 26,819 15,634
Increase in inventories, prepaid expenses and other.......... (3,786) (847)
Decrease in accounts payable................................. (37,548) (18,367)
Decrease in prepaid gas and oil sales........................ (2,732) (4,259)
Increase (Decrease) in accrued expenses and other............ 6,658 (3,064)
---------- -----------
Net Cash Provided By Operating Activities................. 36,230 92,788
Investing Activities:
Capital expenditures............................................. (34,791) (57,265)
Acquisitions, net of cash acquired............................... - (195,782)
Proceeds from sales of property, plant and equipment............. 321 459
---------- -----------
Net Cash Used In Investing Activities..................... (34,470) (252,588)
Financing Activities:
Proceeds from revolving lines of credit and other borrowings..... 330,511 548,796
Principal payments on revolving lines of credit and
other borrowings................................................ (325,024) (388,885)
Fees paid to acquire financing................................... (125) (13)
Proceeds from sales of common stock.............................. 44 215
Other............................................................ (1,212) (222)
---------- -----------
Net Cash Provided by Financing Activities................. 4,194 159,891
Effect of Exchange Rate Changes on Cash............................ 84 143
---------- -----------
Increase In Cash And Cash Equivalents..................... 6,038 234
Cash And Cash Equivalents At Beginning Of Period................... 6,432 5,572
---------- -----------
Cash And Cash Equivalents At End Of Period......................... $ 12,470 $ 5,806
========== ===========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
-6-
<PAGE> 7
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
<TABLE>
<CAPTION>
Supplemental Disclosures of Cash Flow Information.
- --------------------------------------------------------------------------------
(Dollars in Thousands)
Six Months Ended June 30,
--------------------------
Cash paid during the period for: 1995 1994
--------------------------
<S> <C> <C>
Interest, net of amount capitalized .......... $26,483 $23,341
Income taxes ................................. $ 655 $ 719
- --------------------------------------------------------------------------------
</TABLE>
Earnings Per Share.
The weighted average number of common shares outstanding for the
computation of earnings per share for the three and six months ended June 30,
1994 gives effect to the assumed exercise of dilutive stock options as of the
beginning of the period. The effect of the assumed exercise of stock options as
of the beginning of the period has an anti-dilutive effect on the computation of
loss per share for the three and six months ended June 30, 1995 and has
therefore not been included in the weighted average number of common shares
outstanding.
NOTE 2. WORKFORCE REDUCTION AND CONSOLIDATION
In April 1995, the Company announced plans to reduce the Company's
workforce and consolidate operations into a smaller number of locations.
Company-wide, approximately 90 of about 770 positions will be eliminated in the
combined workforce reduction and consolidation. The positions to be eliminated
primarily represent administrative positions in two regional offices. During the
quarter ended June 30, 1995, the Company recorded one-time pre-tax charges,
included in general and administrative expense, of $8 million to account for the
expenses involved in the workforce reduction and consolidation.
-7-
<PAGE> 8
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3. LONG-TERM DEBT
Revolving Credit Facilities.
Under provisions in its U.S. revolving credit facility (the "U.S.
Credit Agreement") and its Canadian revolving credit facility (the "Canadian
Credit Agreement") the Company, at its option, may request a reduction in the
maximum commitment. In June 1995, the Company requested the maximum commitment
under the U.S. Credit Agreement be reduced from $725 million to $650 million and
under the Canadian Credit Agreement be reduced from $175 million to $100
million. The maximum commitment under the U.S. Credit Agreement reduces in equal
quarterly amounts of $45 million commencing with March 31, 1997, with a final
reduction of $20 million on September 30, 2000. The maximum commitment under the
Canadian Credit Agreement reduces in equal quarterly installments of
approximately $10.9 million commencing on March 31, 1997, with a final reduction
of $1.6 million on June 30, 1999. Under provisions included in the U.S. Credit
Agreement, the amount of senior indebtedness available to the Company is subject
to a borrowing base (the "Borrowing Base"), based upon the proved reserves of
the Company's exploration and production segment and the financial performance
of the Company's other business segments. The Borrowing Base is generally
determined annually but may be redetermined, at the option of either Seagull or
the banks, one additional time each year, and will be redetermined upon the sale
of certain assets included in the Borrowing Base. In May 1995, the Borrowing
Base was reduced from $625 million to $575 million.
Interest Rate Swap Agreements.
The Company enters into interest rate swaps to manage the impact of
changes in interest rates. During the six months ended June 30, 1995, the
following interest rate swap agreements were in effect:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Interest Rate
-----------------------------------
Notional Effective Maturity
Amount Date Date Receive Pay
- -------------- --------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
$40,000 09/11/92 09/11/95 Floating 6.76%
50,000 08/02/93 07/31/98 5.635% Floating
50,000 08/02/93 07/31/97 5.43% Floating
50,000 08/02/93 07/31/96 5.199% Floating
65,000 05/02/95 12/29/95 Floating 6.35%
35,000 05/02/95 12/29/95 Floating 6.355%
65,000 01/02/96 12/30/96 Floating 6.83%
35,000 01/02/96 12/30/96 Floating 6.837%
</TABLE>
-8-
<PAGE> 9
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Company is a party to ongoing litigation in the normal course of
business. Management regularly analyzes current information and, as necessary,
provides accruals for probable liabilities on the eventual disposition of these
matters. While the outcome of lawsuits or other proceedings against the Company
cannot be predicted with certainty, management believes that the effect on its
financial condition and results of operations, if any, will not be material.
NOTE 5. SUBSEQUENT EVENTS
Subsequent to June 30, 1995, the Company announced that it and three
other sellers have entered into a definitive agreement to sell their disparate
interests in 19 natural gas gathering systems and a gas processing plant. The
purchaser, a subsidiary of Tejas Power Corporation, will pay Seagull and the
other sellers $153.5 million in cash for the assets, effective September 30,
1995. From its share of the proceeds, Seagull will realize a one-time, pre-tax
gain of approximately $83 million to be recorded in the third quarter. The
Company's share of gross proceeds should approximate $100 million. Net proceeds
after payment of approximately $2 million in transaction costs will be used to
lower the Company's borrowings under the U.S. Credit Agreement and/or the
Canadian Credit Agreement. For the three and six months ended June 30, 1995, the
pipeline assets to be disposed of contributed $2.5 million and $4.1 million to
the operating profit of the pipeline and marketing segment. At June 30, 1995,
the pipeline assets to be disposed of had a net carrying value of approximately
$14.6 million. The pending sale is subject to Hart-Scott-Rodino clearance and
other customary closing conditions.
In April 1995, the Company announced plans to sell the Company's
Section 29 tax credit-bearing gas properties to a partnership or similar entity
to be formed with one or more financial investors. For accounting purposes, the
Company anticipates that the sale will be treated as a non-recourse monetary
production payment and recorded as debt. The proceeds from the sale, expected to
close during the third quarter, will be used to pay down the Company's
borrowings under the U.S. Credit Agreement and/or the Canadian Credit Agreement.
The transactions discussed above will reduce the available Borrowing
Base under the Company's U.S. Credit Agreement by approximately $70 to $75
million.
-9-
<PAGE> 10
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
GENERAL
The following discussion is intended to assist in an understanding of
the Company's financial position and results of operations for each of the
periods indicated. The Company's accompanying unaudited financial statements and
the notes thereto and the consolidated financial statements and notes included
in the Company's Annual Report on Form 10-K for the year ended December 31, 1994
contain detailed information that should be referred to in conjunction with the
following discussion.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
CONSOLIDATED HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- Percent ------------------- Percent
1995 1994 Change 1995 1994 Change
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Exploration and production.............. $ 54,730 $ 69,700 - 21 $ 104,139 $ 151,118 - 31
Pipeline and marketing.................. 9,197 10,776 - 15 18,348 20,155 - 9
Alaska transmission and distribution.... 17,560 19,083 - 8 53,850 55,349 - 3
- --------------------------------------------------------------------------------------------------------
$ 81,487 $ 99,559 - 18 $ 176,337 $ 226,622 - 22
========================================================================================================
Operating Profit (Loss):
Exploration and production.............. $ 4,008 $ 11,456 - 65 $ (50,710) $ 33,631 -251
Pipeline and marketing.................. 3,355 3,656 - 8 5,910 6,863 - 14
Alaska transmission and distribution.... 2,477 2,134 + 16 12,928 11,581 + 12
- --------------------------------------------------------------------------------------------------------
$ 9,840 $ 17,246 - 43 $ (31,872) $ 52,075 -161
========================================================================================================
Net Earnings (Loss)....................... $ (7,125) $ 2,581 -376 $ (45,675) $ 15,496 -395
Earnings (Loss) Per Share................. (0.20) 0.07 -386 (1.27) 0.42 -402
Net Cash Provided by Operating Activities
Before Changes in Operating Assets and
Liabilities............................. 19,253 42,506 - 55 46,819 103,691 - 55
Net Cash Provided by Operating Activities. 3,449 50,571 - 93 36,230 92,788 - 61
Weighted Average Number of Common Shares
Outstanding (in thousands).............. 36,108 36,966 - 2 36,107 36,942 - 2
========================================================================================================
</TABLE>
The decrease in net earnings for the three and six months ended June
30, 1995 versus the prior year periods was due to the decrease in operating
profit and increases in general and administrative expense and interest expense,
which was partially offset by a decrease in income taxes (see "Other (Income)
Expense" section below). The decrease in operating profit was primarily due to
the Exploration and Production ("E&P") segment's 27% decrease in natural gas
prices and the non-cash impairment of gas and oil properties of $44.4 million.
Revenues and operating profit are discussed in the respective segment sections.
-10-
<PAGE> 11
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
CONSOLIDATED HIGHLIGHTS, CONTINUED
Net cash provided by operating activities before and after changes in
operating assets and liabilities decreased in the three and six month periods of
1995 versus the 1994 periods primarily due to decreases in natural gas prices
and the one-time pre-tax charges, included in general and administrative
expense, of $8 million to account for the expenses involved in the workforce
reduction and consolidation recorded during the second quarter.
-11-
<PAGE> 12
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
EXPLORATION AND PRODUCTION
- -----------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Unit Amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ Percent ------------------ Percent
1995 1994 Change 1995 1994 Change
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Natural Gas............................ $ 49,096 $62,952 - 22 $92,758 $138,023 - 33
Oil and Condensate..................... 5,283 6,333 - 17 10,466 11,837 - 12
Natural Gas Liquids.................... 641 695 - 8 1,421 1,307 + 9
Other.................................. (290) (280) - 4 (506) (49) -933
- -----------------------------------------------------------------------------------------------------
54,730 69,700 - 21 104,139 151,118 - 31
Lifting Costs............................ 14,520 15,400 - 6 29,523 31,621 - 7
General Operating Expense................ 2,604 3,050 - 15 5,650 6,040 - 6
Exploration Charges...................... 4,137 6,035 - 31 14,019 10,218 + 37
Depreciation, Depletion
and Amortization....................... 29,461 33,759 - 13 61,281 69,608 - 12
Impairment of Gas and Oil Properties..... - - - 44,376 - N/A
- -----------------------------------------------------------------------------------------------------
Operating Profit (Loss).................. $ 4,008 $ 11,456 - 65 $(50,710) $ 33,631 -251
=====================================================================================================
OPERATING DATA:
Net Daily Production(1):
Natural Gas (MMcf)..................... 349.3 363.6 - 4 346.4 375.3 - 8
Oil and Condensate (Bbl)............... 3,317 4,470 - 26 3,413 4,466 - 24
Natural Gas Liquids (Bbl).............. 726 813 - 11 788 853 - 8
Combined (MMcfe)(2).................... 373.6 395.3 - 5 371.6 407.2 - 9
Average Sales Prices:
Natural Gas ($ per Mcf)................ 1.54 1.90 - 19 1.48 2.03 - 27
Oil and Condensate ($ per Bbl)......... 17.49 15.57 + 12 16.94 14.64 + 16
Natural Gas Liquids ($ per Bbl)........ 9.71 9.40 + 3 9.97 8.47 + 18
Combined ($ per Mcfe)(2)............... 1.61 1.94 - 17 1.55 2.05 - 24
Lifting Costs ($ per Mcfe):
Lease Operating........................ 0.26 0.24 + 8 0.26 0.24 + 8
Workovers.............................. 0.01 0.01 - 0.02 0.02 -
Production Taxes....................... 0.06 0.07 - 14 0.06 0.07 - 14
Transportation......................... 0.07 0.08 - 13 0.07 0.08 - 13
Ad Valorem Taxes....................... 0.02 0.03 - 33 0.03 0.02 + 50
Total.................................. 0.43 0.43 - 0.44 0.43 + 2
DD&A Rate ($ per Mcfe)................... 0.87 0.94 - 7 0.91 0.94 - 3
=====================================================================================================
</TABLE>
(1) Natural gas stated in million cubic feet ("MMcf") or thousand cubic
feet ("Mcf"); oil and condensate and natural gas liquids stated in
barrels ("Bbl").
(2) MMcfe and Mcfe represent the equivalent of one million and one thousand
cubic feet of natural gas, respectively. Oil and condensate and natural
gas liquids are converted to gas at a ratio of one barrel of liquids
per six Mcf of gas, based on relative energy content.
-12-
<PAGE> 13
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
EXPLORATION AND PRODUCTION, CONTINUED
The decrease in operating profit of the E&P segment for the six months
ended June 30, 1995 as compared to the 1994 period was primarily due to a 31%
decrease in revenues, an increase in exploration charges and a non-cash charge
for impairment of gas and oil properties, which was partially offset by
decreased depreciation, depletion and amortization ("DD&A") expense and lifting
costs. The decrease in operating profit for the 1995 second quarter as compared
to the 1994 period was primarily due to a 21% decrease in revenues, partially
offset by decreased exploration charges, DD&A and lifting costs.
The decrease in revenues for the three and six months ended June 30,
1995 as compared to 1994 was primarily the result of decreases in the Company's
average realized price of natural gas of 19% and 27%, respectively, due to
several factors beyond the control of the Company (warm weather, new gas supply,
utilization of competitive fuels, etc.). Additionally, because of the lower
natural gas prices, the Company voluntarily curtailed production throughout the
first six months of 1995, versus only the first half of June in the prior year.
Therefore, production volumes, as well as revenues, were lower in the first half
of 1995 than the first six months of 1994.
Lifting costs decreased for the three and six months ended June 30,
1995 as a result of the lower production.
Exploration charges decreased for the 1995 quarter as compared to the
1994 period due to the completion in the second quarter of 1994 of seismic
evaluations on many of Seagull's offshore properties. In addition, the Company
incurred dry hole costs in 1994 of approximately $1.8 million relating to an
unsuccessful exploratory well in the South China Sea. Exploration charges
increased for the six months ended June 30, 1995 due to a significant increase
in seismic and dry hole costs during the first quarter of 1995. The increase in
seismic costs is primarily due to an increase in 3-D seismic surveys on offshore
blocks. Five of twelve exploratory wells drilled were successful and four wells
were being evaluated as of early August 1995 in comparison to two successes out
of six exploratory wells drilled for the 1994 period.
Effective March 31, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". As a result of
the adoption of SFAS No. 121, the Company recognized a non-cash pre-tax charge
against earnings during the first quarter of $44.4 million. As a result of the
impairment and a change in the mix of properties being produced, the Company's
average DD&A rate per equivalent unit of production decreased from $0.96 per
Mcfe for the first quarter of 1995 to $0.87 per Mcfe for the second quarter of
1995. DD&A expense for the three and six months ended June 30, 1995 decreased as
compared to the 1994 periods due to the lower average DD&A rate per equivalent
unit of production and the decrease in total production.
-13-
<PAGE> 14
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
EXPLORATION AND PRODUCTION, CONTINUED
If natural gas prices remain at their current level, E&P operating
results will be substantially lower in 1995 versus the prior year. As in the
past, the Company will curtail production whenever prices are deemed to be below
acceptable levels. As E&P operating profit represented nearly one-half of the
Company's total operating profit for the year ended December 31, 1994, a
substantial decrease in E&P operating results will have a significant impact on
the Company's total operating results. The Company's operating profit from
pipeline and marketing is expected to decrease in 1995 from the year ended
December 31, 1994 based on the pending sale of certain of the pipeline assets
(see "Pipeline and Marketing" section below), however, the Company expects to
record a financial gain on the sale of the pipeline assets in the third quarter.
Operating profit for the Alaska transmission and distribution segment is not
expected to change significantly in 1995. The Company expects its interest costs
to increase slightly in 1995 due to the effect of higher interest rates for the
entire year, partially offset by a decrease in the overall level of debt due to
the pending sale of certain pipeline assets and the planned sale of the Section
29 tax credit-bearing gas properties.
<TABLE>
<CAPTION>
PIPELINE AND MARKETING
- --------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ Percent ---------------- Percent
1995 1994 Change 1995 1994 Change
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING PROFIT (LOSS):
Pipelines................................ $2,012 $1,788 + 13 $3,535 $3,371 + 5
Marketing and Supply..................... 612 1,597 - 62 956 2,949 - 68
Gas Processing........................... 588 134 +339 846 (222) +481
Operating and Construction Services...... 143 137 + 4 573 765 - 25
- --------------------------------------------------------------------------------------------------------
$3,355 $3,656 - 8 $5,910 $6,863 - 14
========================================================================================================
OPERATING DATA:
Average Daily Volumes (MMcf):
Gas Gathering............................ 214 289 - 26 222 284 - 22
Partnership Systems (net)................ 106 111 - 5 106 111 - 5
Marketing and Supply..................... 554 554 - 535 580 - 8
Gas Processing:
Average Daily Inlet Volumes (MMcf)....... 277 278 - 276 282 - 2
Average Daily Net Production (Bbl)....... 4,484 4,538 - 1 4,466 3,478 + 28
========================================================================================================
</TABLE>
-14-
<PAGE> 15
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
PIPELINE AND MARKETING, CONTINUED
Subsequent to June 30, 1995, the Company announced that it and three
other sellers have entered into a definitive agreement to sell their disparate
interests in 19 natural gas gathering systems and a gas processing plant. The
purchaser, a subsidiary of Tejas Power Corporation, will pay Seagull and the
other sellers $153.5 million in cash for the assets, effective September 30,
1995. From its share of the proceeds, Seagull will realize a one-time, pre-tax
gain of approximately $83 million to be recorded in the third quarter. The
Company's share of gross proceeds should approximate $100 million. Net proceeds
after payment of approximately $2 million in transaction costs will be used to
lower the Company's borrowings under its U.S. revolving credit facility (the
"U.S. Credit Agreement") and/or its Canadian revolving credit facility (the
"Canadian Credit Agreement"). The pipeline assets to be sold represent
substantially all of the assets of the Company's pipeline and marketing
segment. For the three and six months ended June 30, 1995, the pipeline assets
to be disposed of contributed $2.5 million and $4.1 million to the operating
profit of the pipeline and marketing segment. At June 30, 1995, the pipeline
assets to be disposed of had a net carrying value of approximately $14.6
million. The pending sale is subject to Hart-Scott-Rodino clearance and other
customary closing conditions.
In the pipeline and marketing segment, operating profit for the three
and six months ended June 30, 1995 declined in comparison to the 1994 periods
due primarily to declines in the marketing and supply area which more than
offset improvements in the pipelines and gas processing areas.
The improvements in operating profit for the pipelines area for both
the three and six months ended June 30, 1995 in comparison to the prior year
were primarily due to decreases in DD&A. In accordance with SFAS No. 121, the
Company has not recorded any depreciation expense on the pipeline assets to be
sold since the announcement of the Company's intention to sell these assets.
Operating profit in the marketing and supply area declined for the
three and six months ended June 30, 1995 in comparison to the prior year
primarily due to significant decreases in the margins received on third party
marketing sales and on the marketing fees received from the sale of gas produced
by the E&P segment due to lower gas prices and voluntary curtailments.
In the gas processing area, operating profit improved for the three and
six months ended June 30, 1995 in comparison to the prior year due to an
increase in the Company's average natural gas liquids sales price, decreases in
the cost of gas processed and decreases in DD&A. In accordance with SFAS No.
121, the Company has not recorded any depreciation expense on the gas processing
plant to be sold since the announcement of the Company's intention to sell this
asset.
-15-
<PAGE> 16
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
PIPELINE AND MARKETING, CONTINUED
In the first quarter of 1994, Seagull completed a gas pipeline
construction project the Company began in mid-1993. The Company also recognized
additional operating profit of $250,000 during the six months ended June 30,
1995 when the warranty period for this project expired. In June 1995, the
Company was engaged to build an approximately 114 mile onshore pipeline. The
project is expected to be completed in late 1996.
<TABLE>
<CAPTION>
ALASKA TRANSMISSION AND DISTRIBUTION
- -------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- Percent -------------------- Percent
1995 1994 Change 1995 1994 Change
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................... $17,560 $19,083 - 8 $53,850 $55,349 - 3
Cost of Gas Sold........................... 7,923 9,598 - 17 26,488 28,848 - 8
Operations and Maintenance Expense......... 5,175 5,401 - 4 10,492 11,021 - 5
Depreciation, Depletion and Amortization... 1,985 1,950 + 2 3,942 3,899 + 1
- -------------------------------------------------------------------------------------------------------------------
Operating Profit........................... $ 2,477 $ 2,134 + 16 $12,928 $11,581 + 12
===================================================================================================================
OPERATING DATA:
Degree Days (1)............................ 1,508 1,575 - 4 5,685 5,462 + 4
Volumes (Bcf)(2):
Gas Sold................................. 4.5 5.5 - 18 15.0 16.6 - 10
Gas Transported.......................... 4.2 3.0 + 40 7.8 5.4 + 44
Combined................................. 8.7 8.5 + 2 22.8 22.0 + 4
Margins ($ per Mcf):
Gas Sold................................. 1.76 1.53 + 15 1.61 1.48 + 9
Gas Transported.......................... 0.41 0.35 + 17 0.42 0.37 + 14
Combined................................. 1.11 1.12 - 1 1.20 1.21 - 1
Customers (end of period).................. 90,566 88,754 + 2 90,566 88,754 + 2
===================================================================================================================
</TABLE>
(1) A measure of weather severity calculated by subtracting the mean
temperature for each day from 65 degrees Fahrenheit. More degree days
equate to colder weather.
(2) Bcf represents one billion cubic feet.
Operating profit of the Alaska transmission and distribution segment
(ENSTAR Natural Gas Company, a division of the Company, and Alaska Pipeline
Company, a wholly owned subsidiary, (collectively referred to herein as "ENSTAR
Alaska")) for the three and six month periods ended June 30, 1995 improved from
the 1994 periods primarily as a result of slightly higher volumes and margins
coupled with lower operations and maintenance expense.
-16-
<PAGE> 17
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
ALASKA TRANSMISSION AND DISTRIBUTION, CONTINUED
In the first quarter of 1995, two large utility customers that
previously purchased gas from ENSTAR Alaska began purchasing gas directly from
gas producers. However, ENSTAR Alaska has been approved by the Alaska Public
Utilities Commission to transport the customers' gas supplies for a fee that is
comparable to the margin (revenues net of the associated cost of gas sold) it
previously earned. Accordingly, operating profit for the Alaska transmission and
distribution segment was basically unaffected by this change.
This segment's business is seasonal with approximately 65% of its sales
made in the first and fourth quarters of each year.
<TABLE>
<CAPTION>
OTHER (INCOME) EXPENSE
- ---------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- Percent ------------------- Percent
1995 1994 Change 1995 1994 Change
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
General and Administrative.............. $ 9,847 $ 4,054 +143 $12,501 $ 7,045 + 77
Interest Expense........................ 13,934 12,002 + 16 27,931 23,547 + 19
Interest Income and Other............... (186) (166) - 12 (749) (273) -174
- ---------------------------------------------------------------------------------------------------------------
........................................ $23,595 $15,890 + 48 $39,683 $30,319 + 31
===============================================================================================================
</TABLE>
General and administrative expenses increased for the three and six
months ended June 30, 1995 in comparison to 1994 primarily due to one-time
pre-tax charges of $8 million to account for expenses involved in the Company's
workforce reduction and consolidation, partially offset by declines in the costs
relating to potential acquisitions which were not consummated, accrued incentive
compensation expense and costs associated with three compensation plans, one for
outside directors, one for key managers, and the other for all Seagull
employees, that are tied directly to the price of Seagull Common Stock. The
closing price of Seagull Common Stock decreased 16% in the second quarter of
1995 from $19.75 at March 31, 1995 to $16.50 on June 30, 1995 compared to a 9%
increase in the 1994 period. The closing price of Seagull Common Stock decreased
14% for the six months ended June 30, 1995 from $19.125 at December 31, 1994 to
$16.50 on June 30, 1995, compared to a 2% increase in the 1994 period. Lower
operations and maintenance expenses and general and administrative expenses
resulting from the Company's workforce reduction and consolidation are expected
to total approximately $8 million annually.
Increases in interest expense for 1995 were a result of an increase in
the overall level of interest rates since the 1994 periods. The average interest
rates on the Company's U.S. revolving credit were 6.9% and 4.7% for the six
months ended June 30, 1995 and 1994, respectively, and 6.9% and 4.9% for the
three months ended June 30, 1995 and 1994, respectively.
-17-
<PAGE> 18
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
OTHER (INCOME) EXPENSE, continued
The proceeds from the pending sale of certain pipeline assets and the
planned sale of Section 29 tax credit-bearing gas properties will be used to pay
down the Company's borrowings under the U.S. Credit Agreement and/or the
Canadian Credit Agreement. These transactions will also reduce the available
borrowing base under the U.S. Credit Agreement by approximately $70 to $75
million.
INCOME TAXES
The decrease in income taxes for the three and six months ended June
30, 1995 was primarily a result of the decrease in earnings before income taxes
for the periods. For the six months ended June 30, 1995, substantially all of
the income tax benefit was deferred.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES
- -----------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- Percent ------------------ Percent
1995 1994 Change 1995 1994 Change
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Exploration and Production:
Lease acquisitions....................... $ 1,696 $ 5,512 -69 $ 2,223 $ 7,396 - 70
Exploration costs........................ 5,439 4,648 +17 15,661 7,820 +100
Development costs........................ 6,480 19,222 -66 13,483 35,460 - 62
- -----------------------------------------------------------------------------------------------------------------
13,615 29,382 -54 31,367 50,676 - 38
Pipeline and Marketing..................... - 197 NA 137 588 - 77
Alaska Transmission and Distribution....... 1,802 1,779 + 1 2,814 3,164 - 11
Corporate.................................. 76 2,359 -97 473 2,837 - 83
- -----------------------------------------------------------------------------------------------------------------
$15,493 $33,717 -54 $34,791 $57,265 - 39
=================================================================================================================
</TABLE>
Current plans for 1995 call for capital expenditures of approximately
$100 million, including about $90 million in exploration and production, of
which $40 million is exploration. As the Company funds capital expenditures from
internally generated funds, the Company will reduce or increase capital
expenditures as economic conditions dictate.
-18-
<PAGE> 19
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
Under provisions in the U.S. Credit Agreement and the Canadian Credit
Agreement the Company, at its option, may request a reduction in the maximum
commitment. In June 1995, the Company requested the maximum commitment under the
U.S. Credit Agreement be reduced from $725 million to $650 million and under the
Canadian Credit Agreement be reduced from $175 million to $100 million. The
maximum commitment under the U.S. Credit Agreement reduces in equal quarterly
amounts of $45 million commencing with March 31, 1997, with a final reduction of
$20 million on September 30, 2000. The maximum commitment under the Canadian
Credit Agreement reduces in equal quarterly installments of approximately $10.9
million commencing on March 31, 1997, with a final reduction of $1.6 million on
June 30, 1999. Under provisions included in the U.S. Credit Agreement, the
amount of senior indebtedness available to the Company is subject to a borrowing
base (the "Borrowing Base"), based upon the proved reserves of the Company's
exploration and production segment and the financial performance of the
Company's other business segments. The Borrowing Base is generally determined
annually but may be redetermined, at the option of either Seagull or the banks,
one additional time each year, and will be redetermined upon the sale of certain
assets included in the Borrowing Base. In May 1995, the Borrowing Base was
reduced from $625 million to $575 million.
The available commitment under the U.S. Credit Agreement is subject to
the Borrowing Base and is determined after consideration of outstanding
borrowings under Seagull's other senior debt facilities. As of July 31, 1995,
borrowings outstanding under the U.S. Credit Agreement were $185.0 million,
leaving immediately available unused commitments of approximately $151.8
million, net of outstanding letters of credit of $2.9 million, $100 million of
borrowings outstanding under the Company's senior notes, the nominated borrowing
availability of $95 million under the Canadian Credit Agreement and $55.8
million of borrowings outstanding under Seagull's money market facilities.
The anticipated proceeds from the pending sale of certain pipeline
assets and the planned sale of Section 29 tax credit-bearing gas properties will
be used to pay down the Company's borrowings under the U.S. Credit Agreement
and/or Canadian Credit Agreement. The planned transactions will also reduce the
available Borrowing Base under the U.S. Credit Agreement by approximately $70 to
$75 million. However, management believes that the available unused commitments
will increase significantly as a result of these transactions and the Company's
capital resources will be sufficient to finance current and forecasted
operations.
-19-
<PAGE> 20
ITEM 2. SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(UNAUDITED)
LIQUIDITY AND CAPITAL RESOURCES, CONTINUED
During the first quarter of 1995, the Company made a capital
contribution of approximately $73 million to a wholly-owned subsidiary, Seagull
Energy Canada Ltd. ("Seagull Canada"). The Company funded the capital
contribution by an additional borrowing under the U.S. Credit Agreement. Seagull
Canada used the proceeds to repay a portion of the balance outstanding under the
Canadian Credit Agreement and concurrently elected to reduce the nominated
maximum borrowing available under the Canadian Credit Agreement from $160
million to $95 million. The Canadian Credit Agreement provides for dual currency
borrowings in U.S. and Canadian dollars and has a flexible nominated maximum
borrowing availability which amount is taken into consideration in the
calculation of availability under the U.S. Credit Agreement, and which may be
increased or decreased by Seagull Canada at its discretion.
In addition to the facilities discussed above, Seagull has money market
facilities with two major U. S. banks with a combined maximum commitment of $70
million. These lines of credit bear interest at rates made available by the
banks at their discretion and may be canceled at either Seagull's or the banks'
discretion. The lines are subject to annual renewal.
-20-
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of the Company held on May 15,
1995, the shareholders voted to elect four directors to serve until the 1998
Annual Meeting of Shareholders, adopt the Company's 1995 Omnibus Stock Plan and
ratify the selection of KPMG Peat Marwick LLP as independent auditors of the
Company for the fiscal year ended December 31, 1995. Votes cast were as follows:
<TABLE>
<CAPTION>
For Against Abstained
----------------------------------
<S> <C> <C> <C>
Election of J. Evans Attwell as a Director of the Company ......... 30,444,843 - 136,546
Election of William R. Grant as a Director of the Company ......... 30,445,358 - 136,031
Election of Richard M. Morrow as a Director of the Company ........ 30,447,697 - 133,692
Election of Dee S. Osborne as a Director of the Company ........... 30,447,543 - 133,846
Adoption of the 1995 Omnibus Stock Plan ........................... 24,292,731 4,324,265 1,964,393
Ratification of Selection of KPMG Peat
Marwick LLP as Independent Auditors for 1995 .................... 30,332,790 157,613 90,986
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
*#10.1 Seagull Thrift Plan, as amended and restated (the amended
and restated plan is incorporated by reference to Exhibit
10.46 to the Annual Report on Form 10-K for the year ended
December 31, 1990; the First and Second Amendments thereto
are incorporated by reference to Exhibit 10.1 to Annual
Report on Form 10-K for the year ended December 31, 1991;
the Third Amendment thereto is incorporated by reference
to Exhibit 10.1 to Annual Report on Form 10-K for the year
ended December 31, 1992; the Fourth Amendment thereto is
incorporated by reference to Exhibit 10.1 to the Quarterly
Report on Form 10-Q for the quarterly period ended March
31 1995; the Fifth and Sixth Amendments are filed
herewith).
*#10.2 Seagull Energy Corporation 1995 Executive Incentive Plan.
*#10.3 1995 Omnibus Stock Plan.
*#10.4 Seagull Employee Stock Ownership Plan (the "Plan") as
amended, including First through Fourth Amendments thereto
(incorporated by reference to Exhibit 10.9 to the
Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1993; the Fifth and Sixth Amendments are
filed herewith).
-21-
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K, CONTINUED
*#10.5 Form of Amendment to Stock Option Agreement(s) for the
Seagull Energy Corporation 1981 Stock Option Plan, the
Seagull Energy Corporation 1981 Stock Option Plan
(Restated), the Seagull Energy Corporation 1983 Stock
Option Plan, the Seagull Energy Corporation 1983 Stock
Option Plan (Restated), the Seagull Energy Corporation
1986 Stock Option Plan, the Seagull Energy Corporation
1986 Stock Option Plan (Restated), the Seagull Energy
Corporation 1990 Stock Option Plan and the Seagull Energy
Corporation 1993 Stock Option Plan.
* 10.6 Purchase and Sale Agreement by and among Seagull
Energy Corporation, Amoco Gas Company, Houston Pipe Line
Company, Enron Gas Processing Company and Mantaray
Pipeline Company, as sellers and Seahawk Gathering &
Liquids Company as buyer and Tejas Power Corporation as
Guarantor dated July 28, 1995.
* 27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
- ---------------
* Filed herewith.
# Identifies management contracts and compensatory plans or arrangements.
-22-
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEAGULL ENERGY CORPORATION
By: /s/ Robert W. Shower
-------------------------------------
Robert W. Shower, Executive Vice
President and Chief Financial Officer
(Principal Financial Officer)
Date: August 10, 1995
By: /s/ Rodney W. Bridges
-------------------------------------
Rodney W. Bridges, Vice President and
Controller (Principal Accounting
Officer)
Date: August 10, 1995
-23-
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
Exhibits:
<S> <C> <C>
*#10.1 Seagull Thrift Plan, as amended and restated (the amended and
restated plan is incorporated by reference to Exhibit 10.46 to
the Annual Report on Form 10-K for the year ended December 31,
1990; the First and Second Amendments thereto are incorporated
by reference to Exhibit 10.1 to Annual Report on Form 10-K for
the year ended December 31, 1991; the Third Amendment thereto
is incorporated by reference to Exhibit 10.1 to Annual Report
on Form 10-K for the year ended December 31, 1992; the Fourth
Amendment thereto is incorporated by reference to Exhibit 10.1
to the Quarterly Report on Form 10-Q for the quarterly period
ended March 31 1995; the Fifth and Sixth Amendments are filed
herewith).
*#10.2 Seagull Energy Corporation 1995 Executive Incentive Plan.
*#10.3 1995 Omnibus Stock Plan.
*#10.4 Seagull Employee Stock Ownership Plan (the "Plan") as amended,
including First through Fourth Amendments thereto
(incorporated by reference to Exhibit 10.9 to the Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1993; the Fifth and Sixth Amendments are filed herewith).
*#10.5 Form of Amendment to Stock Option Agreement(s) for the Seagull
Energy Corporation 1981 Stock Option Plan, the Seagull Energy
Corporation 1981 Stock Option Plan (Restated), the Seagull
Energy Corporation 1983 Stock Option Plan, the Seagull Energy
Corporation 1983 Stock Option Plan (Restated), the Seagull
Energy Corporation 1986 Stock Option Plan, the Seagull Energy
Corporation 1986 Stock Option Plan (Restated), the Seagull
Energy Corporation 1990 Stock Option Plan and the Seagull
Energy Corporation 1993 Stock Option Plan.
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<S> <C> <C>
* 10.6 Purchase and Sale Agreement by and among Seagull Energy
Corporation, Amoco Gas Company, Houston Pipe Line Company,
Enron Gas Processing Company and Mantaray Pipeline Company, as
sellers and Seahawk Gathering & Liquids Company as buyer and
Tejas Power Corporation as Guarantor dated July 28, 1995.
* 27.1 Financial Data Schedule.
</TABLE>
- ----------------
* Filed herewith.
# Identifies management contracts and compensatory plans or arrangements.
<PAGE> 1
Exhibit 10.1
FIFTH AMENDMENT TO
SEAGULL THRIFT PLAN
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore
adopted and maintains the SEAGULL THRIFT PLAN (the "Plan") for the benefit of
its eligible employees; and
WHEREAS, the Company desires to amend the Plan;
NOW, THEREFORE, the Plan is hereby amended as follows, effective as of
January 1, 1989, except as otherwise provided herein:
1. Sections 3.02 and 3.03 of the Plan shall be deleted and the
following shall be substituted therefor:
"3.02 COMPANY MATCHING CONTRIBUTIONS. For each
calendar month, the Company shall contribute, as Company Matching
Contributions on behalf of each Member who has completed one Year of
Service, as defined below, as of the first day of such month, an amount
which equals 100% of the Cash or Deferred Contributions which were made
pursuant to Section 3.01 on behalf of such Member during such month and
which were not in excess of 6% of such Member's Compensation for such
month. For purposes of this Section, an Employee shall be credited with
one Year of Service upon the completion of any twelve month period
commencing with his Commencement Date or any anniversary thereof during
which twelve month period such Employee is credited with 1,000 Hours of
Service. An Employee who completed one Year of Service prior to a
termination of his employment (regardless of whether such Employee had
elected to defer compensation pursuant to Section 3.01) shall continue
to be credited with one Year of Service upon his reemployment with the
Company.
3.03 COMPANY DISCRETIONARY CONTRIBUTIONS.
(a) For each Plan Year, the Company may contribute,
as a Company Discretionary Contribution, an additional amount as
determined in the discretion of the Directors.
(b) In addition to the Company Matching Contributions
made pursuant to Section 3.02 and the Company Discretionary
Contribution made pursuant to Section 3.03(a), and as authorized by the
Directors, for each Plan Year, the Company may contribute as a "safe
harbor contribution" for such Plan Year, on behalf of Members who are
not Highly Compensated Employees, the amount necessary to cause the
Plan to satisfy the restrictions
<PAGE> 2
set forth in Section 3.01(e) and Section 3.04. Any amounts contributed
pursuant to this Paragraph to cause the Plan to satisfy the
restrictions set forth in Section 3.01(e) shall be allocated to the
Cash or Deferred Accounts of the Members who are not Highly Compensated
Employees and any amounts contributed pursuant to this Paragraph to
cause the Plan to satisfy the restrictions of Section 3.04 shall be
allocated to the Cash or Deferred Accounts of the Members who are not
Highly Compensated Employees."
2. The following shall be added to Section 3.04 of the Plan:
"If multiple use of the alternative limitation (within the
meaning of section 401(m)(9) of the Code and Treasury Regulation
Section 1.401(m)-2(b)) occurs during a Plan Year, such multiple use
shall be corrected in accordance with the provisions of Treasury
Regulation Section 1.401(m)-2(c); provided, however, that if such
multiple use is not eliminated by making "safe harbor contributions"
pursuant to Section 3.03(b), then the "actual contribution
percentages" of all Highly Compensated Employees participating in the
Plan shall be reduced, and the excess contributions distributed, in
accordance with the provisions of Section 3.07(c) and applicable
Treasury Regulations, so that there is no such multiple use."
3. The following language shall be added to Section 3.07(c) of the
Plan, effective as of January 1, 1991:
"If vested Company Contributions are distributed to a Member and
nonvested Company Contributions remain credited to such Member's
Accounts, such nonvested Company Contributions shall vest at the same
rate as if such distribution had not been made."
4. Section 20.02(h) of the Plan shall be deleted and the following
shall be substituted therefor:
"(h) REMUNERATION: The total of all amounts paid by the
Company to or for the benefit of a Member for services rendered or
labor performed for the Company, which are required to be reported on
the Member's federal income tax withholding statement or statements
(Form W-2 or its subsequent equivalent) for the calendar year ending
with the Plan Year, limited to $200,000 ($150,000 for Plan Years
beginning after December 31, 1993) for any Plan Year with such
limitation to be (1) adjusted automatically to reflect any amendments
to section 401(a)(17) of the Code and any cost-of-living increases
authorized by section 401(a)(17) of the Code, (2) prorated for a Plan
Year of less than twelve months and to the extent otherwise required by
applicable law and (3) in the case of a Member who is either a
five-percent owner of the Company (within the meaning of section
416(i)(1)(A)(iii) of the Code) or is one of the ten most Highly
Compensated Employees for the Plan Year and who has a spouse and/or
lineal descendants who are under the age
-2-
<PAGE> 3
of nineteen as of the end of a Plan Year who receive Remuneration
during such Plan Year, prorated and allocated among such Member, his
spouse, and/or lineal descendants under the age of nineteen based on
the Remuneration for such Plan Year of each such individual."
5. As amended hereby, the Plan is specifically ratified and reaffirmed.
EXECUTED this 26 day of May, 1995.
SEAGULL ENERGY CORPORATION
By RODNEY W. BRIDGES
----------------------
-3-
<PAGE> 4
SIXTH AMENDMENT TO
SEAGULL THRIFT PLAN
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore
adopted and maintains the SEAGULL THRIFT PLAN (the "Plan") for the benefit of
its eligible employees; and
WHEREAS, the Company desires to amend the Plan;
NOW, THEREFORE, the Plan is hereby amended as follows, effective as of
January 1, 1995, except as otherwise provided herein:
1. The phrase "plus such Member's allocation of forfeitures" shall be
deleted from Section 1.01(10)(B) of the Plan.
2. Section 4.02(c) of the Plan shall be deleted and the following shall
be substituted therefor:
"(c) As of the last day of each Plan Year, the Company
Discretionary Contribution, if any, made pursuant to Section 3.03(a)
for such Plan Year shall be allocated as of the last day of such Plan
Year to the Company Contribution Account of each Member (regardless of
whether such Member elected to have Cash or Deferred Contributions made
to the Plan on his behalf during such Plan Year) who had completed one
Year of Service as of the last day of such Plan Year and who (A) was an
Eligible Employee on the last day of such Plan Year or (B) terminated
his employment during such Plan Year on or after his Normal Retirement
Date or by reason of total and permanent disability or death. The
allocation to each such eligible Member's Company Contribution Account
shall be that portion of such Company Discretionary Contribution which
is in the same proportion that such Member's Compensation for such Plan
Year bears to the total of all such Members' Compensation for such Plan
Year."
3. The following new Section 4.02(f) shall be added to Article IV of
the Plan:
"(f) Any amounts that are forfeited under any provision hereof
during a Plan Year shall be applied to reduce Company Matching
Contributions next coming due."
4. Section 4.04(b) of the Plan shall be deleted and the following shall
be substituted therefor:
<PAGE> 5
"(b) Contrary Plan provisions notwithstanding, in no event
shall the Annual Additions credited to a Member's Accounts for any
Limitation Year exceed the Maximum Annual Additions for such Member for
such year. If as a result of a reasonable error in estimating a
Member's Compensation, a reasonable error in determining the amount of
elective deferrals (within the meaning of section 402(g)(3) of the
Code) that may be made with respect to any individual under the limits
of section 415 of the Code, or because of other limited facts and
circumstances, the Annual Additions which would be credited to a
Member's Accounts for a Limitation Year would nonetheless exceed the
Maximum Annual Additions for such Member for such year, the excess
Annual Additions which, but for this Section, would have been allocated
to such Member's Accounts shall be disposed of as follows:
(1) first, any such excess Annual Additions in the
form of Company Discretionary Contributions shall, to the
extent such amounts would otherwise have been allocated to
such Member's Company Contribution Account, be allocated to a
suspense account and shall be held therein until used to
reduce future Company Matching Contributions in the same
manner as a forfeiture;
(2) next, any such excess Annual Additions in the
form of Cash or Deferred Contributions which are not
considered in determining the amount of Company Matching
Contributions pursuant to Section 3.02(a) shall be distributed
to such Member, adjusted for income or loss allocated thereto;
and
(3) finally, any such excess Annual Additions in the
form of Cash or Deferred Contributions which are considered in
determining the amount of Company Matching Contributions
pursuant to Section 3.02(a) shall be distributed to such
Member, adjusted for income or loss allocated thereto, and the
Company Matching Contributions based upon such distributed
Cash or Deferred Contributions shall, to the extent such
amounts would have otherwise been allocated to such Member's
Company Contribution Account, be allocated instead to a
suspense account and shall be held therein until used to
reduce future Company Matching Contributions in the same
manner as a forfeiture."
5. The phrase "and forfeitures" shall be deleted from Article VI(b),
Section 7.02(b) and Section 9.01(b) of the Plan.
6. Effective April 4, 1995, the following new Section 8.02(e) shall be
added to Article VIII the Plan:
"(e) Paragraph (b) above notwithstanding, if a Member
shall cease to be employed by reason of a reduction in force, as
hereinafter described, such Member shall then have a 100% Vested
Interest in his
-2-
<PAGE> 6
Company Contribution Account. The employment of a Member shall be
considered as having been terminated because of a `reduction in force'
if such Member's employment is terminated as the result of a workforce
reduction, geographic consolidation or segment disposition."
7. The last two sentences of Section 8.04(b) of the Plan shall be
deleted and the following shall be substituted therefor:
"Notwithstanding anything to the contrary in the Plan, forfeited
amounts to be restored by the Company pursuant to this Paragraph shall
be charged against and deducted from forfeitures for the Plan Year in
which such amounts are restored that would otherwise be available to
reduce Company Matching Contributions. If such forfeitures otherwise
available are not sufficient to provide such restoration, the portion
of such restoration not provided by forfeitures shall be charged
against and deducted from Company Contributions otherwise available for
allocation to other Members in accordance with Section 4.02(c), and any
additional amount needed to restore such forfeited amounts shall be a
minimum required Company Contribution (without regard to current or
accumulated earnings and profits)."
8. Section 8.04(e) of the Plan shall be deleted and the following shall
be substituted therefor:
"(e) Any forfeitures occurring pursuant to Paragraphs (a),
(c), or (d) above shall be held in a suspense account and shall be
applied to reduce Company Matching Contributions next coming due. For
all Valuation Dates prior to such application, forfeited amounts held
in the suspense account shall not receive allocations of net income (or
net loss) pursuant to Section 4.03."
9. Effective April 4, 1995, the following sentence shall be added to
Section 10.01(e) of the Plan:
"Notwithstanding the foregoing, in the event of a segment disposition
by the Company, the limitation of this Paragraph (e)(2) shall not apply
to a Member who transfers to the employment of the purchaser of such
segment if such segment disposition satisfies the requirements of
section 401(k)(10) of the Code."
10. Section 10.02 of the Plan shall be deleted and the following shall
be substituted therefor:
"10.02 UNCLAIMED BENEFITS. In the case of a benefit payable on
behalf of a Member, if the Committee is unable to locate the Member or
beneficiary to whom such benefit is payable, upon the Committee's
determination thereof, such benefit shall be forfeited, held in a
suspense account, and applied to reduce Company Matching Contributions
next coming due. For
-3-
<PAGE> 7
all Valuation Dates prior to such application, forfeited amounts held
in the suspense account shall not participate in allocations of the net
income (or net loss) of the Trust Fund. Notwithstanding the foregoing,
if subsequent to any such forfeiture the Member or beneficiary to whom
such benefit is payable makes a valid claim for such benefit, such
forfeited benefit shall be restored to the Plan in the manner provided
in Section 8.04(b)."
11. The third sentence of Section 18.01 of the Plan shall be deleted
and the following shall be substituted therefor:
"The provisions of the Plan shall apply separately and equally to each
Employing Company and its employees in the same manner as is expressly
provided for the Company and its Employees, except that the power to
appoint or otherwise affect the Committee or the Trustee shall be
exercised by the Directors alone and the power to amend or terminate
the Plan and Trust Agreement shall be exercised by the Company alone."
12. As amended hereby, the Plan is specifically ratified and
reaffirmed.
EXECUTED this 7th day of July, 1995.
SEAGULL ENERGY CORPORATION
By Robert W. Shower
--------------------------
-4-
<PAGE> 1
Approved March 16, 1995 Exhibit 10.2
SEAGULL ENERGY CORPORATION
1995
EXECUTIVE INCENTIVE PLAN
BACKGROUND
The 1995 Executive Incentive Plan (the "Incentive Plan") for Seagull Energy
Corporation is designed to motivate key employees of the Company to achieve
tough, but realistic performance goals and to reward those employees that
perform at or above the expected level. The Incentive Plan defines participants,
award opportunities and performance goals for the 1995 performance year. It is,
of course, based upon the 1995 Operating Plan (the "Operating Plan") and is
designed to maximize performance incentives, even though a relatively large
element of the Plan remains totally discretionary.
PARTICIPATION
Approximately 138 key employees listed or identified on pages 4-8 are or may
become participants in the Incentive Plan. They are officers or individuals
whose positions have been valued in the salary structure in and above Grade
Twelve. These are the persons responsible for the annual and longer-term success
of the Company.
TIMING OF PAYMENTS
50% of any Incentive Plan award is paid to the recipient early in the year
following the performance year, 25% in the next year and 25% in the third year.
In this case, the performance year is 1995. The award will be determined and the
first 50% increment paid in early 1996, and the two remaining installments in
early 1997 and 1998. The recipient must be an employee on the payment dates in
order to receive any of the respective payments.
AWARD OPPORTUNITIES
Annual incentive targets are expressed as a percentage of total salary earned
during a given year and can increase to double the targeted amounts or decrease
to zero, relative to the achievement of predetermined performance goals and
subject to senior management and Board of Director discretion at year-end. The
Compensation Committee of the Board reserves the right to modify the performance
measures and award levels specified in the objective components of the Incentive
Plan if presently unforeseen circumstances should occur during the year which
invalidate any of the material assumptions that underlie the Operating Plan, or
in the opinion of the Compensation Committee, such modifications are required to
avoid a result that is inequitable to either the Company or the Incentive Plan
participants.
<PAGE> 2
PAGE 2
PERFORMANCE MEASURES
The performance measures for the Incentive Plan are summarized on pages 9-11.
Four performance criteria are included with the following weightings:
<TABLE>
<S> <C>
- Pre-tax cash flow from operations 25% weight
- Pre-tax cash flow from operations
to revenue ratio to E&P peers 25% weight
- Discretionary individual performance assessment 25% weight
- Company stock performance assessment 25% weight
</TABLE>
The first component, pre-tax cash flow from operations ("PCFO"), is defined as
earnings before income taxes, plus operating and non-operating depreciation,
depletion and amortization, plus pre-tax incentive compensation expense, and is
based on actual corporate performance for the year as compared to the Company's
Operating Plan projection of PCFO.
The second component compares the ratio of PCFO from E&P to E&P revenue with the
same measures for our E&P peers. The definition of PCFO is the same as described
above, except incentive compensation expenditures are not added back to the
results, and the data is for E&P only. The PCFO and revenue figures will be for
the sum of the last four quarters ending September 30 of the performance year.
The third component, discretionary individual performance assessment, will be
determined individually and subjectively based on the respective participant's
individual job performance.
The fourth component, Company stock performance assessment, will be determined
by comparing the Company's stock performance year-end 1994 to year-end 1995 with
the average stock performance by a selected group of "peer companies" over the
same period.
Each performance component will be measured at year-end independently of the
other. At that time, the Chief Executive Officer will recommend specific awards,
subject to final approval of each element of the total awards by the
Compensation Committee and ultimately the Board of Directors.
<PAGE> 3
PAGE 3
<TABLE>
===================================================================================================
EXECUTIVE INCENTIVE PLAN AWARD HISTORICAL DATA
===================================================================================================
<CAPTION>
PLAN NUMBER OF AMOUNT PERCENT
YEAR PARTICIPANTS TOTAL COST BUDGETED PCFO OF PCFO
---- ------------ ----------- -------- ---- -------
<S> <C> <C> <C> <C> <C>
1995 138 500,000 (1)
1994 134 405,400 (2) 2,780,000 149,563,000 0.27
1993 70 1,872,400 1,798,000 154,725,000 1.21
1992 54 2,187,690 74,278,000 2.95
1991 50 568,425 61,706,000 0.92
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) A total of $500,000 in U.S. dollars was budgeted for the subjective
element of the Executive Incentive Plan for 1995. $460,000 for U.S.
Plan participants and $40,000 for Canadian Plan participants.
(2) Does not include restricted stock awarded to Messrs. Galt, Elias,
Shower, McConn, and Goodpasture.
<PAGE> 4
PAGE 4
SEAGULL ENERGY CORPORATION
1995 EXECUTIVE INCENTIVE PLAN
PARTICIPANTS AND TARGETED AWARD OPPORTUNITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
1995
---------------------------------
NAME POSITION INCENTIVE MAXIMUM SALARY
TARGET * INCENTIVE * GRADE
- ------------------------------------------------------------------------------------------------------
SENIOR
OFFICERS
- --------
<S> <C> <C> <C>
Galt Chairman, President & Chief Executive Officer 50% 100% 22
Elias Executive Vice President & Chief Operating Officer 46% 92% 20
Shower Executive Vice President & Chief Financial Officer 46% 92% 19
Goodpasture President, Seagull Pipeline & Marketing Company 42% 84% 19
McConn President, Seagull Energy E&P Inc. 42% 84% 19
</TABLE>
<PAGE> 5
PAGE 5
PERFORMANCE MEASURES
FOR THE 1995 EXECUTIVE INCENTIVE PLAN
SEAGULL ENERGY CORPORATION
PERFORMANCE WEIGHTINGS:
- 25% on pre-tax cash flow from operations
- 25% on pre-tax cash flow from operations to revenue ratio to E&P peers
- 25% on subjective individual performance assessments at discretion of
CEO, Compensation Committee and Board of Directors
- 25% on Company stock performance assessment
I. OBJECTIVE PERFORMANCE ASSESSMENT - 50%:
- Pre-Tax Cash Flow From Operations ("PCFO") - 25%
<TABLE>
<CAPTION>
COLUMN 1 COLUMN 2 COLUMN 3 COLUMN 4
-------- -------- -------- --------
PRE-TAX CASH PERCENTAGE OF PERCENTAGE OF PCFO PERCENTAGE OF TOTAL
FLOW FROM OPERATING PLAN TARGET AWARD TARGET AWARD
OPERATIONS (1) PROJECTION (2) EARNED (3) EARNED (3)
-------------- -------------- ---------- ----------
<S> <C> <C> <C>
98,061 90 0 0.00
103,509 95 10 2.50
108,957 100 20 5.00
114,405 105 35 8.75
119,853 110 50 12.50
125,301 115 65 16.25
130,748 120 80 20.00
136,196 125 100 25.00
141,644 130 120 30.00
147,092 135 140 35.00
152,540 140 160 40.00
157,988 145 180 45.00
163,436 150 200 50.00
</TABLE>
(1) Earnings before income taxes plus operating and non-operating depreciation,
depletion and amortization and also plus pre-tax incentive compensation expense
(dollars in thousands).
(2) If subsequent events over the course of the performance year invalidate any
of the basic assumptions in the Operating Plan, then the original Operating Plan
projections will be revised to conform the Operating Plan assumptions to
reality. The initial PCFO performance criteria for the Incentive Plan shown in
Column 1 will then be adjusted by applying the percentages shown in column 2 to
the revised Operating Plan projection of PCFO.
(3) If, after the actual PCFO for the performance year is determined, it falls
within the ranges shown in Column 1, the exact incentive award percentages from
Columns 3 and 4 will be calculated by interpolation.
* Expressed as a percent of total salary earned during a given year.
** New Participant in 1995.
(1) Approved at time of offer of employment.
<PAGE> 6
PAGE 6
- Pre-tax cash flow from operations to revenue ratio to E&P peers - 25%
Pre-tax cash flow will be defined in the same way as in the other
objective measure of the plan (i.e., pre-tax income plus amortization,
depreciation, and depletion). In order to allow the appropriate
performance comparisons to industry peers, only pre-tax cash flow from
the E&P segment is considered in the calculation. Further, pre-tax cash
flow levels will be expressed as a percent of E&P revenues (which are
defined as gross sales less write-offs). The PCFO pre-tax cash flow and
revenue figures will be for the sum of the last four quarters ending S
eptember 30 of the performance year.
Performance on the pre-tax cash flow to revenue ratio will be assessed
relative to the industry peer group used in the Company's Total
Shareholder Return Graph in the proxy statement. As a result, the
Company will be measured against other companies that face volatility
in the price of energy.
1995 PERFORMANCE STANDARDS:
<TABLE>
<CAPTION>
PERCENTAGE OF PCFO PERCENTAGE OF TOTAL
PCFO RELATIVE AGAINST PEERS TARGET TARGET AWARD
TO PEERS (1) AWARD EARNED EARNED
------------ ------------ ------
<S> <C> <C>
Less than 40th percentile 0 0
40th percentile 40 10
50th percentile 80 20
55th percentile 100 25
60th percentile 120 30
70th percentile 160 40
80th percentile 200 50
</TABLE>
(1)Awards for performance between stated levels will be calculated using
straight-line interpretation.
* Expressed as a percent of total salary earned during a given year.
** New Participant in 1995.
(1) Approved at time of offer of employment.
<PAGE> 7
PAGE 7
II. DISCRETIONARY PERFORMANCE ASSESSMENT - 50%:
Both the discretionary individual performance assessment and the
Company stock performance assessment will be determined informally and
subjectively.
- 25% on the respective participant's individual job
performance, based primarily on the extent to which
individual and collective goals and objectives established
at the beginning of the year are achieved.
- 25% on the Company's stock performance year-end 1994 to
year-end 1995 compared to the average stock performance by
a selected group of "peer companies" over the same period.
The comparative calculations will be done on a "total
return" basis, weighted for variances in beginning market
capitalization and in all respects consistent with the SEC
proxy disclosure rules.
At year-end, the Chief Executive Officer will counsel with his direct
reports in completing individual performance assessments for each
participant and recommend specific awards, which will be subject to
final approval by the Compensation Committee and ultimately the Board
of Directors.
Maximum potential is 100% (1)
Target goal is 50% (1)
Minimum potential is 0% (1)
(1) Expressed as a percentage of the executive's targeted incentive
opportunity as defined in the Incentive Plan.
* Expressed as a percent of total salary earned during a given year.
** New Participant in 1995.
(1) Approved at time of offer of employment.
(2) Reports to Janice K. Hartrick, Legal & Environmental Affairs.
<PAGE> 1
Exhibit 10.3
SEAGULL ENERGY CORPORATION
1995 OMNIBUS STOCK PLAN
I. PURPOSE
The purpose of the SEAGULL ENERGY CORPORATION 1995 OMNIBUS STOCK PLAN
(the "PLAN") is to provide a means through which SEAGULL ENERGY CORPORATION, a
Texas corporation (the "COMPANY"), and its subsidiaries may attract able persons
to enter the employ of the Company and to provide a means whereby those key
employees upon whom the responsibilities of the successful administration and
management of the Company rest, and whose present and potential contributions to
the welfare of the Company are of importance, can acquire and maintain stock
ownership, thereby strengthening their concern for the welfare of the Company
and their desire to remain in its employ. A further purpose of the Plan is to
provide such key employees with additional incentive and reward opportunities
designed to enhance the profitable growth of the Company. Accordingly, the Plan
provides for granting Incentive Stock Options, options which do not constitute
Incentive Stock Options, Stock Appreciation Rights, Restricted Stock Awards,
Long-Term Incentive Awards, Phantom Stock Awards, or any combination of the
foregoing, as is best suited to the circumstances of the particular employee as
provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan
unless specifically modified by any paragraph:
(a) "Award" means, individually or collectively, any Option, Restricted
Stock Award, Phantom Stock Award, Long-Term Incentive Award or Stock
Appreciation Right.
(b) "Board" means the Board of Directors of the Company.
(c) "Change of Control" means the occurrence of any of the following
events: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly-owned subsidiary of the Company), (ii) the
Company sells, leases or exchanges all or substantially all of its assets to any
other person or entity (other than a wholly-owned subsidiary of the Company),
(iii) the Company is to be dissolved and liquidated, (iv) any person or entity,
including a "GROUP" as contemplated by Section 13(d)(3) of the 1934 Act,
acquires or gains ownership or control (including, without limitation, power to
vote) of more than 40% of the outstanding shares of the Company's voting stock
(based upon voting power), or (v) as a result of or in connection with a
contested election of directors, the persons who were directors of the Company
before such election shall cease to constitute a majority of the Board.
(d) "Change of Control Value" shall mean (i) the per share price
offered to shareholders of the Company in any such merger, consolidation,
reorganization, sale of
<PAGE> 2
assets or dissolution transaction, (ii) the price per share offered to
shareholders of the Company in any tender offer or exchange offer whereby a
Change of Control takes place, or (iii) if such Change of Control occurs other
than pursuant to a tender or exchange offer, the Fair Market Value per share of
the shares into which Awards are exercisable, as determined by the Committee. In
the event that the consideration offered to shareholders of the Company consists
of anything other than cash, the Committee shall determine the fair cash
equivalent of the portion of the consideration offered which is other than cash.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to any section and any regulations under such
section.
(f) "Committee" means the Compensation Committee of the Board which
shall be (i) constituted so as to permit the Plan to comply with Rule 16b-3 and
(ii) constituted solely of "outside directors," within the meaning of section
162(m) of the Code and applicable interpretive authority thereunder.
(g) "Company" means Seagull Energy Corporation.
(h) "Director" means an individual elected to the Board by the
shareholders of the Company or by the Board under applicable corporate law who
is serving on the Board on the date the Plan is adopted by the Board or is
elected to the Board after such date.
(i) An "employee" means any person (including an officer or a Director)
in an employment relationship with the Company or any parent or subsidiary
corporation (as defined in section 424 of the Code).
(j) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(k) "Fair Market Value" means, as of any specified date, the reported
closing price of the Stock on the New York Stock Exchange Composite Tape on that
date, or if no closing price is reported on that date, on the last preceding
date on which such closing price of the Stock is so reported. In the event Stock
is not publicly traded at the time a determination of its value is required to
be made hereunder, the determination of its fair market value shall be made by
the Committee in such manner as it deems appropriate.
(l) "Holder" means an employee who has been granted an Award.
(m) "Incentive Stock Option" means an incentive stock option within the
meaning of section 422(b) of the Code.
(n) "Long-Term Incentive Award" means an Award granted under Paragraph
X of the Plan.
(o) "Long-Term Incentive Award Agreement" means a written agreement
between the Company and a Holder with respect to a Long-Term Incentive Award.
-2-
<PAGE> 3
(p) "Option" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Stock and Options which do not
constitute Incentive Stock Options to purchase Stock.
(q) "Option Agreement" means a written agreement between the Company
and a Holder with respect to an Option.
(r) "Phantom Stock Award" means an Award granted under Paragraph XI of
the Plan.
(s) "Phantom Stock Award Agreement" means a written agreement between
the Company and a Holder with respect to a Phantom Stock Award.
(t) "Plan" means the Seagull Energy Corporation 1995 Omnibus Stock
Plan, as amended from time to time.
(u) "Restricted Stock Agreement" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
(v) "Restricted Stock Award" means an Award granted under Paragraph IX
of the Plan.
(w) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act,
as such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(x) "Spread" means, in the case of a Stock Appreciation Right, an
amount equal to the excess, if any, of the Fair Market Value of a share of Stock
on the date such right is exercised over the exercise price of such Stock
Appreciation Right.
(y) "Stock" means the common stock of the Company.
(z) "Stock Appreciation Right" means an Award granted under Paragraph
VIII of the Plan.
(aa) "Stock Appreciation Rights Agreement" means a written agreement
between the Company and a Holder with respect to an Award of Stock Appreciation
Rights.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective upon the date of its adoption by the Board,
provided the Plan is approved by the shareholders of the Company within twelve
months thereafter and on or prior to the date of the first annual meeting of
shareholders of the Company held subsequent to the acquisition of an equity
security by a Holder hereunder for which exemption is claimed under Rule 16b-3.
No further Awards may be granted under the Plan
-3-
<PAGE> 4
after the expiration of ten years from the date of its adoption by the Board.
The Plan shall remain in effect until all Awards granted under the Plan have
been satisfied or expired.
IV. ADMINISTRATION
(a) Committee. The Plan shall be administered by the Committee.
(b) Powers. Subject to the provisions of the Plan, the Committee shall
have sole authority, in its discretion, to determine which employees shall
receive an Award, the time or times when such Award shall be made, whether an
Incentive Stock Option, nonqualified Option or Stock Appreciation Right shall be
granted, the number of shares of Stock which may be issued under each Option,
Stock Appreciation Right or Restricted Stock Award, and the value of each
Long-Term Incentive Award and Phantom Stock Award. In making such determinations
the Committee may take into account the nature of the services rendered by the
respective employees, their present and potential contribution to the Company's
success and such other factors as the Committee in its discretion shall deem
relevant.
(c) Additional Powers. The Committee shall have such additional powers
as are delegated to it by the other provisions of the Plan. Subject to the
express provisions of the Plan, the Committee is authorized to construe the Plan
and the respective agreements executed thereunder, to prescribe such rules and
regulations relating to the Plan as it may deem advisable to carry out the Plan,
and to determine the terms, restrictions and provisions of each Award, including
such terms, restrictions and provisions as shall be requisite in the judgment of
the Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in any agreement relating to an Award in the manner
and to the extent it shall deem expedient to carry it into effect. The
determinations of the Committee on the matters referred to in this Article IV
shall be conclusive.
V. GRANT OF OPTIONS, STOCK APPRECIATION RIGHTS,
RESTRICTED STOCK AWARDS,
LONG-TERM INCENTIVE AWARDS
AND PHANTOM STOCK AWARDS;
SHARES SUBJECT TO THE PLAN
(a) Stock Grant and Award Limits. The Committee may from time to time
grant Awards to one or more employees determined by it to be eligible for
participation in the Plan in accordance with the provisions of Paragraph VI.
Subject to Paragraph XII, the aggregate number of shares of Stock that may be
issued under the Plan shall not exceed 1,200,000 shares. Shares shall be deemed
to have been issued under the Plan only (i) to the extent actually issued and
delivered pursuant to an Award, or (ii) to the extent an Award granted under
Paragraph VII, VIII, IX or XI is settled in cash. To the extent that an Award
lapses or the rights of its Holder terminate, any shares of Stock subject to
such Award shall again be available for the grant of an Award. Separate stock
certificates shall be issued by the Company for those shares acquired pursuant
to the exercise of an Incentive
-4-
<PAGE> 5
Stock Option and for those shares acquired pursuant to the exercise of any
Option which does not constitute an Incentive Stock Option. Notwithstanding any
provision in the Plan to the contrary, the maximum number of shares of Stock
that may be subject to Awards granted to any one employee during any calendar
year is 250,000 shares of Stock (subject to adjustment in the same manner as
provided in Paragraph XII with respect to shares of Stock subject to Awards then
outstanding). The limitation set forth in the preceding sentence shall be
applied in a manner which will permit compensation generated in connection with
the exercise of Options and Stock Appreciation Rights and, if determined by the
Committee, Restricted Stock Awards to constitute "performance-based"
compensation for purposes of section 162(m) of the Code, including, without
limitation, counting against such maximum number of shares, to the extent
required under section 162(m) of the Code and applicable interpretive authority
thereunder, any shares subject to Options, Stock Appreciation Rights and, if
applicable, Restricted Stock Awards, that are cancelled or repriced. Further,
notwithstanding any provision of the Plan to the contrary, the maximum number of
shares of Stock that may be granted as Restricted Stock Awards under Paragraph
IX during the term of the Plan is 200,000 shares of Stock (subject to adjustment
in the same manner as provided in Paragraph XII with respect to shares of Stock
subject to Awards then outstanding).
(b) Stock Offered. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Stock or Stock previously issued and
outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
key employees. Awards may not be granted to any Director who is not an employee.
An Award may be granted on more than one occasion to the same person, and,
subject to the limitations set forth in the Plan, such Award may include an
Incentive Stock Option or an Option which is not an Incentive Stock Option, a
Stock Appreciation Right, a Restricted Stock Award, a Long-Term Incentive Award,
a Phantom Stock Award or any combination thereof.
VII. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) Limitations on Exercise of Option. An Option shall be exercisable
in whole or in such installments and at such times as determined by the
Committee.
(c) Special Limitations on Incentive Stock Options. To the extent that
the aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by an individual during
any calendar year under all incentive stock option plans of the Company and its
parent and subsidiary corporations exceeds $100,000, such Incentive Stock
Options shall be treated as options which do not constitute
-5-
<PAGE> 6
Incentive Stock Options. The Committee shall determine, in accordance with
applicable provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of an optionee's Incentive Stock Options will not
constitute Incentive Stock Options because of such limitation and shall notify
the optionee of such determination as soon as practicable after such
determination. No Incentive Stock Option shall be granted to an individual if,
at the time the Option is granted, such individual owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporation, within the meaning of
section 422(b)(6) of the Code, unless (i) at the time such Option is granted the
option price is at least 110% of the Fair Market Value of the Stock subject to
the Option and (ii) such Option by its terms is not exercisable after the
expiration of five years from the date of grant.
(d) Option Agreement. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. An Option Agreement may provide for the payment
of the option price, in whole or in part, by the delivery of a number of shares
of Stock (plus cash if necessary) having a Fair Market Value equal to such
option price. Each Option Agreement shall provide that the Option may not be
exercised earlier than six months from the date of grant and shall specify the
effect of termination of employment on the exercisability of the Option.
Moreover, an Option Agreement may provide for a "cashless exercise" of the
Option by establishing procedures whereby the Holder, by a properly-executed
written notice, directs (i) an immediate market sale or margin loan respecting
all or a part of the shares of Stock to which he is entitled upon exercise
pursuant to an extension of credit by the Company to the Holder of the option
price, (ii) the delivery of the shares of Stock from the Company directly to a
brokerage firm and (iii) the delivery of the option price from sale or margin
loan proceeds from the brokerage firm directly to the Company. Such Option
Agreement may also include, without limitation, provisions relating to (i)
subject to the provisions hereof accelerating such vesting on a Change of
Control, vesting of Options, (ii) tax matters (including provisions (y)
permitting the delivery of additional shares of Stock or the withholding of
shares of Stock from those acquired upon exercise to satisfy federal or state
income tax withholding requirements and (z) dealing with any other applicable
employee wage withholding requirements), and (iii) any other matters not
inconsistent with the terms and provisions of this Plan that the Committee shall
in its sole discretion determine. The terms and conditions of the respective
Option Agreements need not be identical.
(e) Option Price and Payment. The price at which a share of Stock may
be purchased upon exercise of an Option shall be determined by the Committee,
but such purchase price (i) shall not be less than the Fair Market Value of a
share of Stock on the date such Option is granted, and (ii) shall be subject to
adjustment as provided in Paragraph XII. The Option or portion thereof may be
exercised by delivery of an irrevocable notice of exercise to the Company. The
purchase price of the Option or portion thereof shall be paid in full in the
manner prescribed by the Committee.
-6-
<PAGE> 7
(f) Shareholder Rights and Privileges. The Holder shall be entitled to
all the privileges and rights of a shareholder only with respect to such shares
of Stock as have been purchased under the Option and for which certificates of
stock have been registered in the Holder's name.
(g) Options and Rights in Substitution for Stock Options Granted by
Other Corporations. Options and Stock Appreciation Rights may be granted under
the Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees as a result of a merger or
consolidation of the employing corporation with the Company or any subsidiary,
or the acquisition by the Company or a subsidiary of the assets of the employing
corporation, or the acquisition by the Company or a subsidiary of stock of the
employing corporation with the result that such employing corporation becomes a
subsidiary.
VIII. STOCK APPRECIATION RIGHTS
(a) Stock Appreciation Rights. A Stock Appreciation Right is the right
to receive an amount equal to the Spread with respect to a share of Stock upon
the exercise of such Stock Appreciation Right. Stock Appreciation Rights may be
granted in connection with the grant of an Option, in which case the Option
Agreement will provide that exercise of Stock Appreciation Rights will result in
the surrender of the right to purchase the shares under the Option as to which
the Stock Appreciation Rights were exercised. Alternatively, Stock Appreciation
Rights may be granted independently of Options in which case each Award of Stock
Appreciation Rights shall be evidenced by a Stock Appreciation Rights Agreement
which shall contain such terms and conditions as may be approved by the
Committee. The terms and conditions of the respective Stock Appreciation Rights
Agreements need not be identical. The Spread with respect to a Stock
Appreciation Right may be payable either in cash, shares of Stock with a Fair
Market Value equal to the Spread or in a combination of cash and shares of
Stock. With respect to Stock Appreciation Rights that are subject to Section 16
of the 1934 Act, however, the Committee shall, except as provided in Paragraph
XII(c), retain sole discretion (i) to determine the form in which payment of the
Stock Appreciation Right will be made (i.e., cash, securities or any combination
thereof) or (ii) to approve an election by a Holder to receive cash in full or
partial settlement of Stock Appreciation Rights. Each Stock Appreciation Rights
Agreement shall provide that the Stock Appreciation Rights may not be exercised
earlier than six months from the date of grant and shall specify the effect of
termination of employment on the exercisability of the Stock Appreciation
Rights.
(b) Exercise Price. The exercise price of each Stock Appreciation Right
shall be determined by the Committee, but such exercise price (i) shall not be
less than the Fair Market Value of a share of Stock on the date the Stock
Appreciation Right is granted (or such greater exercise price as may be required
if such Stock Appreciation Right is granted in connection with an Incentive
Stock Option that must have an exercise price equal to 110% of the Fair Market
Value of the Stock on the date of grant pursuant to Paragraph VII(c)), and (ii)
shall be subject to adjustment as provided in Paragraph XII.
-7-
<PAGE> 8
(c) Exercise Period. The term of each Stock Appreciation Right shall be
as specified by the Committee at the date of grant.
(d) Limitations on Exercise of Stock Appreciation Right. A Stock
Appreciation Right shall be exercisable in whole or in such installments and at
such times as determined by the Committee.
IX. RESTRICTED STOCK AWARDS
(a) Forfeiture Restrictions To Be Established by the Committee. Shares
of Stock that are the subject of a Restricted Stock Award shall be subject to
restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances (the
"Forfeiture Restrictions"). The Forfeiture Restrictions shall be determined by
the Committee in its sole discretion, and the Committee may provide that the
Forfeiture Restrictions shall lapse upon (i) the attainment of targets
established by the Committee that are based on (1) the price of a share of
Stock, (2) the Company's earnings per share, (3) the Company's revenue, (4) the
revenue of a business unit of the Company designated by the Committee, (5) the
return on stockholders' equity achieved by the Company, or (6) the Company's
pre-tax cash flow from operations (ii) the Holder's continued employment with
the Company for a specified period of time, or (iii) a combination of any two or
more of the factors listed in clauses (i) and (ii) of this sentence. Each
Restricted Stock Award may have different Forfeiture Restrictions, in the
discretion of the Committee. The Forfeiture Restrictions applicable to a
particular Restricted Stock Award shall not be changed except as permitted by
Paragraph IX(b) or Paragraph XII.
(b) Other Terms and Conditions. Stock awarded pursuant to a Restricted
Stock Award shall be represented by a stock certificate registered in the name
of the Holder of such Restricted Stock Award. The Holder shall have the right to
receive dividends with respect to Stock subject to a Restricted Stock Award, to
vote Stock subject thereto and to enjoy all other shareholder rights, except
that (i) the Holder shall not be entitled to delivery of the stock certificate
until the Forfeiture Restrictions shall have expired, (ii) the Company shall
retain custody of the Stock until the Forfeiture Restrictions shall have
expired, (iii) the Holder may not sell, transfer, pledge, exchange, hypothecate
or otherwise dispose of the Stock until the Forfeiture Restrictions shall have
expired, and (iv) a breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Agreement, shall cause a forfeiture
of the Restricted Stock Award. At the time of such Award, the Committee may, in
its sole discretion, prescribe additional terms, conditions or restrictions
relating to Restricted Stock Awards, including, but not limited to, rules
pertaining to the termination of employment (by retirement, disability, death or
otherwise) of a Holder prior to expiration of the Forfeiture Restrictions. Such
additional terms, conditions or restrictions shall be set forth in a Restricted
Stock Agreement made in conjunction with the Award. Such Restricted Stock
Agreement may also include, without limitation, provisions relating to (i)
subject to the provisions hereof accelerating vesting on a Change of Control,
vesting of Awards, (ii) tax matters (including provisions (y) covering any
applicable employee wage withholding requirements and (z) prohibiting an
election by the Holder under section 83(b)
-8-
<PAGE> 9
of the Code), and (iii) any other matters not inconsistent with the terms and
provisions of this Plan that the Committee shall in its sole discretion
determine. The terms and conditions of the respective Restricted Stock
Agreements need not be identical.
(c) Payment for Restricted Stock. The Committee shall determine the
amount and form of any payment for Stock received pursuant to a Restricted Stock
Award, provided that in the absence of such a determination, a Holder shall not
be required to make any payment for Stock received pursuant to a Restricted
Stock Award, except to the extent otherwise required by law.
(d) Agreements. At the time any Award is made under this Paragraph IX,
the Company and the Holder shall enter into a Restricted Stock Agreement setting
forth each of the matters contemplated hereby and such other matters as the
Committee may determine to be appropriate. The terms and provisions of the
respective Restricted Stock Agreements need not be identical.
X. LONG-TERM INCENTIVE AWARDS
(a) Performance Period. The Committee shall establish, with respect to
and at the time of each Long-Term Incentive Award, a performance period over
which the performance of the Holder shall be measured.
(b) Long-Term Incentive Awards. Each Long-Term Incentive Award shall
have a maximum value established by the Committee at the time of such Award.
(c) Performance Measures. A Long-Term Incentive Award shall be awarded
to an employee contingent upon future performance of the employee, the Company
or any subsidiary, division or department thereof by or in which is he employed
during the performance period. The Committee shall establish the performance
measures applicable to such performance prior to the beginning of the
performance period but subject to such later revisions as the Committee shall
deem appropriate to reflect significant, unforeseen events or changes.
(d) Awards Criteria. In determining the value of Long-Term Incentive
Awards, the Committee shall take into account an employee's responsibility
level, performance, potential, other Awards and such other considerations as it
deems appropriate.
(e) Payment. Following the end of the performance period, the Holder of
a Long- Term Incentive Award shall be entitled to receive payment of an amount,
not exceeding the maximum value of the Long-Term Incentive Award, based on the
achievement of the performance measures for such performance period, as
determined by the Committee. Payment of a Long-Term Incentive Award may be made
in cash, Stock or a combination thereof, as determined by the Committee. Payment
shall be made in a lump sum or in installments as prescribed by the Committee.
Any payment to be made in Stock shall be based on the Fair Market Value of the
Stock on the payment date. If a payment of cash
-9-
<PAGE> 10
is to be made on a deferred basis, the Committee shall establish whether
interest shall be credited, the rate thereof and any other terms and conditions
applicable thereto.
(f) Termination of Employment. A Long-Term Incentive Award shall
terminate if the Holder does not remain continuously in the employ of the
Company at all times during the applicable performance period, except as may be
determined by the Committee or as may otherwise be provided in the Award at the
time granted.
(g) Agreements. At the time any Award is made under this Paragraph X,
the Company and the Holder shall enter into a Long-Term Incentive Award
Agreement setting forth each of the matters contemplated hereby, and, in
addition such matters as are set forth in Paragraph IX(b) as the Committee may
determine to be appropriate. The terms and provisions of the respective
agreements need not be identical.
XI. PHANTOM STOCK AWARDS
(a) Phantom Stock Awards. Phantom Stock Awards are rights to receive
shares of Stock (or cash in an amount equal to the Fair Market Value thereof),
or rights to receive an amount equal to any appreciation in the Fair Market
Value of Stock (or portion thereof) over a specified period of time, which vest
over a period of time or upon the occurrence of an event (including without
limitation a Change of Control) as established by the Committee, without payment
of any amounts by the Holder thereof (except to the extent otherwise required by
law) or satisfaction of any performance criteria or objectives. Each Phantom
Stock Award shall have a maximum value established by the Committee at the time
of such Award.
(b) Award Period. The Committee shall establish, with respect to and at
the time of each Phantom Stock Award, a period over which or the event upon
which the Award shall vest with respect to the Holder.
(c) Awards Criteria. In determining the value of Phantom Stock Awards,
the Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(d) Payment. Following the end of the vesting period for a Phantom
Stock Award, the Holder of a Phantom Stock Award shall be entitled to receive
payment of an amount, not exceeding the maximum value of the Phantom Stock
Award, based on the then vested value of the Award. Payment of a Phantom Stock
Award may be made in cash, Stock or a combination thereof as determine by the
Committee. Payment shall be made in a lump sum or in installments as prescribed
by the Committee in its sole discretion. Any payment to be made in Stock shall
be based on the Fair Market Value of the Stock on the payment date. Cash
dividend equivalents may be paid during or after the vesting period with respect
to a Phantom Stock Award, as determined by the Committee. If a payment of cash
is to be made on a deferred basis, the Committee shall establish whether
interest shall be credited, the rate thereof and any other terms and conditions
applicable thereto.
-10-
<PAGE> 11
(e) Termination of Employment. A Phantom Stock Award shall terminate if
the Holder does not remain continuously in the employ of the Company at all
times during the applicable vesting period, except as may be otherwise
determined by the Committee or as set forth in the Award at the time of grant.
(f) Agreements. At the time any Award is made under this Paragraph XI,
the Company and the Holder shall enter into a Phantom Stock Award Agreement
setting forth each of the matters contemplated hereby and, in addition such
matters as are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.
XII. RECAPITALIZATION OR REORGANIZATION
(a) The shares with respect to which Awards may be granted are shares
of Stock as presently constituted, but if, and whenever, prior to the expiration
of an Award theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Award may thereafter be exercised or satisfied, as
applicable, (i) in the event of an increase in the number of outstanding shares
shall be proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased.
(b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of an
Award theretofore granted the Holder shall be entitled to (or entitled to
purchase, if applicable) under such Award, in lieu of the number of shares of
Stock then covered by such Award, the number and class of shares of stock and
securities to which the Holder would have been entitled pursuant to the terms of
the recapitalization if, immediately prior to such recapitalization, the Holder
had been the holder of record of the number of shares of Stock then covered by
such Award.
(c) In the event of a Change of Control, outstanding Awards other than
Options shall immediately vest and become exercisable or satisfiable, as
applicable. The Committee, in its discretion, may determine that upon the
occurrence of a Change of Control, each Award other than an Option outstanding
hereunder shall terminate within a specified number of days after notice to the
Holder, and such Holder shall receive, with respect to each share of Stock
subject to such Award, cash in an amount equal to the excess, if any, of the
Change of Control Value. Further, in the event of a Change of Control, the
Committee, in its discretion shall act to effect one or more of the following
alternatives with respect to outstanding Options, which may vary among
individual Holders and which may vary among Options held by any individual
Holder: (1) accelerate the time at which Options then outstanding may be
exercised so that such Options may be exercised in full for a limited period of
time on or before a specified date (before or after such Change of Control)
fixed by the Committee, after which specified date all unexercised Options and
all
-11-
<PAGE> 12
rights of Holders thereunder shall terminate, (2) require the mandatory
surrender to the Company by selected Holders of some or all of the outstanding
Options held by such Holders (irrespective of whether such Options are then
exercisable under the provisions of the Plan) as of a date, before or after such
Change of Control, specified by the Committee, in which event the Committee
shall thereupon cancel such Options and the Company shall pay to each Holder an
amount of cash per share equal to the excess, if any, of the Change of Control
Value of the shares subject to such Option over the exercise price(s) under such
Options for such shares, (3) make such adjustments to Options then outstanding
as the Committee deems appropriate to reflect such Change of Control (provided,
however, that the Committee may determine in its sole discretion that no
adjustment is necessary to Options then outstanding) or (4) provide that
thereafter upon any exercise of an Option theretofore granted the Holder shall
be entitled to purchase under such Option, in lieu of the number of shares of
Stock then covered by such Option the number and class of shares of stock or
other securities or property (including, without limitation, cash) to which the
Holder would have been entitled pursuant to the terms of the agreement of
merger, consolidation or sale of assets and dissolution if, immediately prior to
such merger, consolidation or sale of assets and dissolution the Holder had been
the holder of record of the number of shares of Stock then covered by such
Option. The provisions contained in this paragraph shall be inapplicable to an
Award granted within six (6) months before the occurrence of a Change of Control
if the Holder of such Award is subject to the reporting requirements of Section
16(a) of the 1934 Act. The provisions contained in this paragraph shall not
terminate any rights of the Holder to further payments pursuant to any other
agreement with the Company following a Change of Control.
(d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph XII,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Stock or other consideration subject to such Awards. In the
event of any such change in the outstanding Stock, the aggregate number of
shares available under the Plan may be appropriately adjusted by the Committee,
whose determination shall be conclusive.
(e) The existence of the Plan and the Awards granted hereunder shall
not affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act of proceeding.
(f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d)
above shall be subject to any required shareholder action.
-12-
<PAGE> 13
(g) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities convertible into shares of
stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares of obligations of the Company convertible into such shares
or other securities, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Stock subject to Awards theretofore granted or the purchase
price per share, if applicable.
XIII. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Awards have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided that no change in any Award theretofore granted may be
made which would impair the rights of the Holder without the consent of the
Holder (unless such change is required in order to cause the benefits under the
Plan to qualify as performance-based compensation within the meaning of section
162(m) of the Code and applicable interpretive authority thereunder), and
provided, further, that the Board may not, without approval of the shareholders,
amend the Plan:
(a) to increase the maximum number of shares which may be issued on
exercise or surrender of an Award, except as provided in Paragraph XII;
(b) to change the Option price;
(c) to change the class of employees eligible to receive Awards or
materially increase the benefits accruing to employees under the Plan;
(d) to extend the maximum period during which Awards may be granted
under the Plan;
(e) to modify materially the requirements as to eligibility for
participation in the Plan; or
(f) to decrease any authority granted to the Committee hereunder in
contravention of Rule 16b-3.
XIV. MISCELLANEOUS
(a) No Right To An Award. Neither the adoption of the Plan by the
Company nor any action of the Board or the Committee shall be deemed to give an
employee any right to be granted an Award to purchase Stock, a right to a Stock
Appreciation Right, a Restricted Stock Award, a Long-Term Incentive Award or a
Phantom Stock Award or any of the rights hereunder except as may be evidenced by
an Award or by an Option Agreement, Stock Appreciation Rights Agreement,
Restricted Stock Agreement, Long-Term
-13-
<PAGE> 14
Incentive Award Agreement or Phantom Stock Award Agreement duly executed on
behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The Company
shall not be required to establish any special or separate fund or to make any
other segregation of funds or assets to assure the payment of any Award.
(b) No Employment Rights Conferred. Nothing contained in the Plan shall
(i) confer upon any employee any right with respect to continuation of
employment with the Company or any subsidiary or (ii) interfere in any way with
the right of the Company or any subsidiary to terminate his or her employment at
any time.
(c) Other Laws; Withholding. The Company shall not be obligated to
issue any Stock pursuant to any Award granted under the Plan at any time when
the shares covered by such Award have not been registered under the Securities
Act of 1933 and such other state and federal laws, rules or regulations as the
Company or the Committee deems applicable and, in the opinion of legal counsel
for the Company, there is no exemption from the registration requirements of
such laws, rules or regulations available for the issuance and sale of such
shares. No fractional shares of Stock shall be delivered, nor shall any cash in
lieu of fractional shares be paid. The Company shall have the right to deduct in
connection with all Awards any taxes required by law to be withheld and to
require any payments required to enable it to satisfy its withholding
obligations.
(d) No Restriction on Corporate Action. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No employee,
beneficiary or other person shall have any claim against the Company or any
subsidiary as a result of any such action.
(e) Restrictions on Transfer. An Award shall not be transferable
otherwise than by will or the laws of descent and distribution or pursuant to a
"qualified domestic relations order" as defined by the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder, and shall be exercisable during the Holder's lifetime only by such
Holder or the Holder's guardian or legal representative.
(f) Rule 16b-3. It is intended that the Plan and any grant of an Award
made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Award would
disqualify the Plan or such Award under, or would otherwise not comply with,
Rule 16b-3, such provision or Award shall be construed or deemed amended to
conform to Rule 16b-3.
(g) Section 162(m). It is intended that the Plan comply fully with and
meet all the requirements of Section 162(m) of the Code so that Options and
Stock Appreciation Rights granted hereunder and, if determined by the Committee,
Restricted Stock Awards, shall constitute "performance-based" compensation
within the meaning of such section. If any provision of the Plan would
disqualify the Plan or would not otherwise permit the Plan
-14-
<PAGE> 15
to comply with Section 162(m) as so intended, such provision shall be construed
or deemed amended to conform to the requirements or provisions of Section
162(m); provided that no such construction or amendment shall have an adverse
effect on the economic value to a Holder of any Award previously granted
hereunder.
(h) Governing Law. This Plan shall be construed in accordance with the
laws of the State of Texas.
-15-
<PAGE> 1
Exhibit 10.4
FIFTH AMENDMENT TO
SEAGULL EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore
adopted and maintains the SEAGULL EMPLOYEE STOCK OWNERSHIP PLAN (the "Plan")
for the benefit of its eligible employees; and
WHEREAS, the Company desires to amend the Plan;
NOW, THEREFORE, the Plan is hereby amended as follows:
I. Effective January 1, 1989:
1. In order to correct an inadvertent omission from the Plan,
Section 1.01(15) of the Plan shall be deleted and the following shall be
substituted therefor:
"(15) ELIGIBLE EMPLOYEE: Any Employee other than (A) an Employee
whose terms and conditions of employment are governed by a
collective bargaining agreement unless such collective
bargaining agreement provides for his coverage under the Plan,
(B) any nonresident alien who has no United States source
income, (C) any Employee who is a Leased Employee, (D) any
Employee employed by the Company's ENSTAR Natural Gas Company
Division and (E) any Employee employed by the Alaska Pipeline
Company."
2. Section 12.01(f) shall be deleted and the following shall be
substituted therefor:
"(f) A Member's Benefit Disbursement Date shall be in
compliance with the provisions of section 401(a)(9) of the Code and
applicable Treasury Regulations thereunder and shall in no event be
later than:
(1) In the case of a Member who attains the age
of seventy and one-half prior to January 1, 1988 and is not a
"five-percent owner" (within the meaning of section 416(i) of
the Code) at any time during the five Plan Year period ending
in the calendar year in which such Member attains the age of
seventy and one-half, April 1 following the later of (A) the
calendar year in which such Member attains the age of seventy
and one-half or (B) the calendar year in which such Member
terminates his employment with the Employer, or if such Member
becomes a "five-percent owner" following the end of such five
<PAGE> 2
Plan year period, April 1 of the calendar year following the
calendar year in which such Member becomes a "five-percent
owner;"
(2) In the case of a Member who does not attain
the age of seventy and one-half prior to January 1, 1988 or is
a "five-percent owner" (within the meaning of section 416(i)
of the Code) at any time during the five Plan Year period
ending in the calendar year in which such Member attains the
age of seventy and one-half, April 1 of the calendar year
following the calendar year in which such Member attains the
age of seventy and one-half; and
(3) In the case of a benefit payable pursuant to
Article XI, the last day of the five-year period following the
death of such Member.
For purposes of Paragraph (f)(2) above, a Member who attains the age
of seventy and one-half in 1988, is not a "five-percent owner" (within
the meaning of section 416(i) of the Code) at any time during the five
Plan Year period ending in 1988 and does not terminate employment with
the Employer prior to January 1, 1989, shall be considered to attain
the age of seventy and one-half in 1989. Further, the preceding
provisions of this Section notwithstanding, a Member may not elect to
defer the receipt of his benefit hereunder to the extent that such
deferral creates a death benefit that is more than incidental within
the meaning of section 401(a)(9)(G) of the Code and applicable
Treasury Regulations thereunder."
II. Effective January 1, 1991, Section 12.01(c) shall be deleted and the
following shall be substituted therefore:
"(c) Unless (1) the Member has attained age sixty-five or
died, (2) the Member consents to a distribution pursuant to Paragraph
(a) within the ninety-day period ending on the date payment of his
benefit hereunder is to be made pursuant to Paragraph (a), or (3) the
Member's Vested Interest in his Accounts is not in excess of $2,000,
the Member's Benefit Disbursement Date shall be deferred to the date
which is as soon as administratively feasible after the Valuation Date
coincident with or next succeeding the earlier of the date the Member
attains age sixty-five or the Member's date of death, or such earlier
Valuation Date as the Member may elect by written notice to the
Committee prior to such Valuation Date. The Committee shall inform
the Member of his right to defer his Benefit Disbursement Date no less
than thirty days and no more than ninety days before his Benefit
Disbursement Date."
III. Effective January 1, 1993:
-2-
<PAGE> 3
1. The following new Paragraphs (12A), (13A), (15A) and (15B)
shall be added to Section 1.01 of the Plan:
"(12A) DIRECT ROLLOVER: A payment by the Plan to an Eligible
Retirement Plan designated by a Distributee.
(13A) DISTRIBUTEE. Each (A) Member entitled to an Eligible Rollover
Distribution, (B) Member's surviving spouse with respect to
the interest of such surviving spouse in an Eligible Rollover
Distribution, and (C) former spouse of a Member who is an
alternate payee under a qualified domestic relations order, as
defined in section 414(p) of the Code, with regard to the
interest of such former spouse in an Eligible Rollover
Distribution.
(15A) ELIGIBLE RETIREMENT PLAN: (A) With respect to a Distributee
other than a surviving spouse, an individual retirement
account described in section 408(a) of the Code, an individual
retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a
qualified plan described in section 401(a) of the Code, which
under its provisions accepts such Distributee's Eligible
Rollover Distribution and (B) with respect to a Distributee
who is a surviving spouse, an individual retirement account
described in section 408(a) of the Code or an individual
retirement annuity described in section 408(b) of the Code.
(15B) ELIGIBLE ROLLOVER DISTRIBUTION: Any distribution of all or any
portion of the Accounts of a Distributee other than (A) a
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the Distributee or the
joint lives (or joint life expectancies) of the Distributee
and the Distributee's designated beneficiary or for a
specified period of ten years or more, (B) a distribution to
the extent such distribution is required under section
401(a)(9) of the Code, (C) the portion of a distribution that
is not includable in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect
to employer securities) and (D) any other distribution so
designated by the Internal Revenue Service in revenue rulings,
notices, and other guidance of general applicability."
2. The last sentence of Section 12.01(c) of the Plan shall be
deleted and the following shall be substituted therefor:
-3-
<PAGE> 4
"No less than thirty days and no more than ninety days before his
Benefit Disbursement Date, the Committee shall inform the Member of
his right to defer his Benefit Disbursement Date and shall describe
the Member's Direct Rollover election rights pursuant to Section 12.10
below."
3. The following new Section 12.10 shall be added to Article XII
of the Plan:
"12.10 DIRECT ROLLOVER ELECTION.
(a) Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a Distributee's election under
this Section, a Distributee may elect, at the time and in the manner
prescribed by the Committee, to have all or any portion of an Eligible
Rollover Distribution (other than any portion attributable to the
offset of an outstanding loan balance of such Member pursuant to the
Plan's loan procedure) paid directly to an Eligible Retirement Plan
specified by the Distributee in a Direct Rollover. The preceding
sentence notwithstanding, a Distributee may elect a Direct Rollover
pursuant to this Section only if such Distributee's Eligible Rollover
Distributions during the Plan Year are reasonably expected to total
S200 or more. Furthermore, if less than 100% of the Member's Eligible
Rollover Distribution is to be a Direct Rollover, the amount of the
Direct Rollover must be $500 or more. Prior to any Direct Rollover
pursuant to this Section, the Distributee shall furnish the Committee
with a statement from the plan, account, or annuity to which the
benefit is to be transferred verifying that such plan, account, or
annuity is, or is intended to be, an Eligible Retirement Plan."
IV. Effective August 5, 1993, the following shall be added to the end of
Section 1.01(19) of the Plan:
"Hours of Service shall also include any hours required to be credited
by federal law other than the Act or the Code, but only under the
conditions and to the extent so required by such federal law."
V. Effective January 1, 1994, Section 1.01(11) of the Plan shall be
deleted and the following shall be substituted therefor:
"(11) COMPENSATION: The total of all wages, salaries, fees for
professional service and other amounts received in cash or in
kind by a Member for services actually rendered or labor
performed for the Company while a Member to the extent such
amounts are includable in gross income, excluding, however,
bonuses, incentive or other supplemental pay, reimbursements
and other expense allowances, cash and noncash fringe
benefits, moving expenses, Company contributions to or
payments from this or any other deferred compensation program,
whether such program is qualified under section 401(a) of the
Code or
-4-
<PAGE> 5
nonqualified, welfare benefits, amounts realized from the
receipt or exercise of a stock option that is not an incentive
stock option within the meaning of section 422 of the Code,
amounts realized at the time property described in section 83
of the Code is freely transferable or no longer subject to a
substantial risk of forfeiture, amounts realized as a result
of an election described in section 83(b) of the Code, any
amount realized as result of a disqualifying disposition
within the meaning of section 421(a) of the Code and any other
amounts that receive special tax benefits under the Code but
are not hereinafter included; provided that, for the purposes
of this definition, the following shall also be included: (A)
elective contributions made on a Member's behalf by the
Company that are not includable in income under section 125,
section 402(e)(3), section 402(h) or section 403(b) of the
Code, (B) compensation deferred under an eligible deferred
compensation plan within the meaning of section 457(b) of the
Code and (C) employee contributions described in section
414(h) of the Code that are picked up by the employing unit
and are treated as employer contributions. The above
notwithstanding, the Compensation of any Member taken into
account for purposes of the Plan shall be limited to $150,000
for any Plan Year with such amount to be (i) adjusted
automatically to reflect any amendments to section 401(a)(17)
of the Code and any cost-of-living increases authorized by
section 401(a)(17) of the Code, (ii) prorated for a Plan Year
of less than twelve months and to the extent otherwise
required by applicable law, and (iii) in the case of a Member
who is either a five-percent owner of the Company (within the
meaning of section 416(i)(1)(A)(iii) of the Code) or is one of
the ten most Highly Compensated Employees for the Plan Year
and who has a spouse and/or lineal descendants who are under
the age of nineteen as of the end of a Plan Year who receive
Compensation during such Plan Year, prorated and allocated
among such Member, his spouse, and/or lineal descendants under
the age of nineteen based on the Compensation for such Plan
Year of each such individual."
VI. As amended hereby, the Plan is specifically ratified and reaffirmed.
EXECUTED this 26 day of October, 1994
SEAGULL ENERGY CORPORATION
By /s/ ROBERT M. KING
-5-
<PAGE> 6
SIXTH AMENDMENT TO
SEAGULL EMPLOYEE STOCK OWNERSHIP PLAN
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore
adopted and maintains the SEAGULL EMPLOYEE STOCK OWNERSHIP PLAN (the "Plan") for
the benefit of its eligible employees; and
WHEREAS, the Company desires to amend the Plan;
NOW, THEREFORE, the Plan is hereby amended as follows, effective as of
April 4, 1995:
1. The following new Section 10.02(d) shall be added to Article X of
the Plan:
"(d) Paragraph (b) above notwithstanding, if a Member shall
cease to be employed by reason of a reduction in force, as hereinafter
described, such Member shall then have a 100% Vested Interest in his
Accounts. The employment of a Member shall be considered as having been
terminated because of a `reduction in force' if such Member's
employment is terminated as the result of a workforce reduction,
geographic consolidation or segment disposition."
2. The following sentence shall be added to Section 12.01(a) of the
Plan:
"The preceding sentence notwithstanding, and subject to the remaining
Paragraphs of this Section 12.01, in the case of a Member whose
employment is terminated because of a `reduction in force' as described
in Section 10.02(d) and therefore becomes entitled to a benefit
pursuant to Article X, payment of such Member's benefit shall commence
as soon as administratively feasible following the Valuation Date
coincident with or next succeeding the date such Member terminates
employment with the Company."
3. As amended hereby, the Plan is specifically ratified and reaffirmed.
EXECUTED this 7th day of July, 1995.
SEAGULL ENERGY CORPORATION
By Robert W. Shower
---------------------
<PAGE> 1
Exhibit 10.5
AMENDMENT TO
STOCK OPTION AGREEMENT(S)
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has previously
adopted the SEAGULL ENERGY CORPORATION 1981 STOCK OPTION PLAN, the SEAGULL
ENERGY CORPORATION 1981 STOCK OPTION PLAN (RESTATED), the SEAGULL ENERGY
CORPORATION 1983 STOCK OPTION PLAN, the SEAGULL ENERGY CORPORATION 1983 STOCK
OPTION PLAN (RESTATED), the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN,
the SEAGULL ENERGY CORPORATION 1986 STOCK OPTION PLAN (RESTATED), the SEAGULL
ENERGY CORPORATION 1990 STOCK OPTION PLAN and the SEAGULL ENERGY CORPORATION
1993 STOCK OPTION PLAN (collectively, the "Option Plans"); and
WHEREAS, certain nonstatutory stock options ("NSOs") and incentive
stock options (collectively, "Options") have heretofore been granted to the
optionee, an employee of the Company other than an individual subject to Section
16 of the Securities Exchange Act of 1934, as amended (the "Employee"), that are
currently outstanding under the Option Plans, each of such Options being listed
on the schedule attached hereto and evidenced by a Nonstatutory Stock Option
Agreement or an Incentive Stock Option Agreement (collectively, the
"Agreements"); and
WHEREAS, the Employee's employment with the Company will be terminated
as the result of the Company's workforce reduction, geographic consolidation and
segment disposition announced April 4, 1995, and the Company desires to amend
the Agreements in certain respects;
NOW, THEREFORE, the Agreements shall be amended as follows, effective
as of _______________ (Employee's employment termination date):
1. The vesting schedule contained in the Agreements shall be waived and
all Options outstanding under such Agreements shall be exercisable in full.
2. Notwithstanding any provision in the Agreements to the contrary,
with respect to any NSOs (or portions thereof) that were exercisable under the
Agreements as of _______________ (day before Employee's employment termination
date)("Vested NSOs"), such Vested NSOs shall continue to be exercisable by the
Employee, his estate or the person who acquires such Vested NSOs by will or the
laws of descent and distribution, at any time on or before December 31, 1996.
3. As amended hereby, the Agreements are specifically ratified and
reaffirmed.
<PAGE> 2
IN WITNESS WHEREOF, the Company has caused this amendment to be duly
executed by one of its officers thereunto duly authorized, and the Employee has
executed this amendment, effective as of ________________ (Employee's employment
termination date).
SEAGULL ENERGY CORPORATION
By _______________________________________
_______________________________________
Employee
<PAGE> 1
EXHIBIT 10.6
PURCHASE AND SALE AGREEMENT
BY AND AMONG
SEAGULL ENERGY CORPORATION,
AMOCO GAS COMPANY,
HOUSTON PIPE LINE COMPANY,
ENRON GAS PROCESSING COMPANY
and
MANTARAY PIPELINE COMPANY,
AS SELLERS
and
SEAHAWK GATHERING & LIQUIDS COMPANY
AS BUYER
AND TEJAS POWER CORPORATION
AS GUARANTOR
July 28, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
ARTICLE 1.
<S> <C>
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 2.
PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 The Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 Deliveries at or Prior to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Revenues and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SELLERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Authorizations; Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 Capitalization of Purchased Designated Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 13
3.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.8 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.9 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.12 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.13 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.14 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.15 Title to Equity Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.16 Title to the Subject Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.17 Gas Regulatory Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.19 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.20 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.21 Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.22 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.23 Copies of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.24 Idle Pipelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
i
<PAGE> 3
<TABLE>
ARTICLE 4.
<S> <C>
REPRESENTATIONS AND WARRANTIES OF BUYER AND GUARANTOR . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.3 Authorizations; Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.5 Brokers' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.6 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.7 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 5.
COVENANTS OF SELLER AND BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.1 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.2 Conduct of Business Pending the Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.4 Commercially Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.5 Use of Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.6 Delivery and Retention of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.7 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.8 Amendments of Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.9 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
5.10 Jurisdictional Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.11 Pending Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 6.
INDEPENDENT INVESTIGATION AND DISCLAIMER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.1 Independent Investigation and Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 7.
TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.1 Application of Article 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.2 Section 338(h)(10) Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.3 Preparation of Tax Returns; Responsibility for Taxes . . . . . . . . . . . . . . . . . . . . . . . 27
7.4 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.5 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 8.
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
8.1 Conditions Precedent to Obligation of Each Party . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.2 Additional Conditions Precedent to Obligations of Buyer . . . . . . . . . . . . . . . . . . . . . 29
8.3 Additional Conditions Precedent to Obligations of Seller . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 9.
INDEMNIFICATION AND ASSUMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.1 By Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.2 By Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.3 Express Negligence Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.4 Exceptions to Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.5 Notice of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.6 Third-Party Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.7 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.8 Exclusive Remedies; Survival of Representations and Warranties;
Limitation of Certain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.9 Other Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.10 Waiver of Texas DTPA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 10.
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 11.
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.2 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.3 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.4 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.10 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.11 Entire Agreement; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.12 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.13 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
iii
<PAGE> 5
Exhibits
- --------
Exhibit A - Subject Assets
Exhibit B - Seagull Excluded Assets
Exhibit C - Other Excluded Assets
Exhibit D - Idle Pipelines
Exhibit E - Form of Transition Agreement
Schedules
- ---------
Schedule 2.1 - Purchased Shares
Schedule 2.4(c)(iii) - HPLC Assignments
Schedule 2.4(c)(iv) - Mantaray Assignments
Schedule 2.4(c)(vi) - EGPC Assignments
Disclosure Schedule
Section 3.1 Directors and Officers
Section 3.2 Qualifications
Section 3.3 Governmental Consents
Section 3.4 Third-Party Consents
Section 3.6 Subsidiary Information
Section 3.7 Balance Sheets
Section 3.8 Material Contracts
Section 3.9 Changes
Section 3.10 Tax Matters
Section 3.11 Litigation
Section 3.12 Legal Compliance
Section 3.13 Permits
Section 3.15 Title to Equity Interests
Section 3.16 Title to the Subject Asses
Section 3.18 Insurance
Section 3.20 Environmental
Section 3.22 Affiliate Transactions
Schedule 5.11 - Pending Agreements
Schedule 8.2 - Pending Agreements to be Executed
Schedule 8.3 - Certain Conditions to Closing by HPLC and EGPC
Schedule 9.9 - Indemnity Matters by Seagull
<PAGE> 6
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is entered into as
of this 28th day of July, 1995 by and among SEAGULL ENERGY CORPORATION, a Texas
corporation ("Seagull"), HOUSTON PIPE LINE COMPANY, a Delaware corporation
("HPLC"), ENRON GAS PROCESSING COMPANY, a Delaware corporation ("EGPC"),
MANTARAY PIPELINE COMPANY, a Delaware corporation ("Mantaray"), and AMOCO GAS
COMPANY, a Delaware corporation ("Amoco"; and together with Seagull, HPLC, EGPC
and Mantaray, the "Sellers" and individually each a "Seller"), SEAHAWK GATHERING
& LIQUIDS COMPANY, a Delaware corporation ("Buyer") and TEJAS POWER CORPORATION,
a Delaware corporation ("Guarantor"). Sellers and Buyer are referred to
collectively herein as the "Parties" and individually as a "Party."
RECITALS
WHEREAS, Seagull owns all of the capital stock of Seagull Pipeline &
Marketing Company, a Delaware corporation ("SPM");
WHEREAS, Seagull Transmission Company, a wholly owned subsidiary of SPM
and a Texas corporation, owns a 19.418% general partner interest in Seagull
Shoreline System, a Texas general partnership ("SSS");
WHEREAS, HPLC owns a 38.836% general partner interest in SSS;
WHEREAS, Mantaray owns a 41.746% general partner interest in SSS;
WHEREAS, Seagull Processing Company, a wholly owned subsidiary of SPM
and a Delaware corporation, owns a 65% undivided interest in the Processing
Plant (as defined below), the remaining 35% undivided interest in which is owned
by EGPC;
WHEREAS, Amoco Cavallo Investment Company, a wholly owned subsidiary of
Amoco, and a Delaware corporation, owns a 50% general partner interest in
Cavallo Pipeline Company, a Texas general partnership, and Seagull Industrial
Pipeline Company, a wholly owned subsidiary of SPM and a Texas corporation, owns
a 50% general partner interest in Cavallo Pipeline Company;
WHEREAS, HPLC owns the El Gordo Pipeline (as hereinafter defined) and
EGPC owns the Oyster Lake Facilities (as hereinafter defined);
WHEREAS, Buyer is an indirect wholly owned subsidiary of Guarantor; and
WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to acquire
from Sellers, the Purchased Shares (as defined below) and the Purchased Subject
Assets pursuant to the terms of this Agreement.
<PAGE> 7
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained, the Parties hereto
hereby agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 Defined Terms. Capitalized terms not otherwise defined herein or in
the recitals to this Agreement used in this Agreement shall have the meanings
ascribed to them in this Section 1.1.
"Account" shall have the meaning given such term in Section 3.7.
"Adjusted Purchase Price" shall have the meaning given such term in
Section 2.2.
"Affiliate" shall mean with respect to any Person, any Person which,
directly or indirectly, controls, is controlled by, or is under a common control
with, such Person. The term "control" (including the terms "controlled by" and
"under common control with") as used in the preceding sentence means the
possession, directly or indirectly, of the power to direct or cause the
direction of management and policies of a Person, whether through the ownership
of voting securities, by contract, or otherwise.
"Amoco Cavallo" shall mean Amoco Cavallo Investment Company, a Delaware
corporation.
"Amoco Cavallo Shares" shall mean all of the issued and outstanding
common stock, no par value, of Amoco Cavallo.
"Buyer Indemnified Liabilities" shall have the meaning given such term
in Section 9.1.
"Buyer Material Adverse Effect" shall mean any material and adverse
effect on the assets, liabilities, financial condition, business, operations,
affairs or circumstances of Buyer and Guarantor, taken together.
"Buyer Parties" shall have the meaning given such term in Section 9.1.
"Capped Purchase Price" shall mean a dollar amount equal to (i) with
respect to Seagull, 65% of the Purchase Price, (ii) with respect to HPLC and
EGPC, 17% of the Purchase Price in the aggregate, (iii) with respect to
Mantaray, 9% of the Purchase Price and (iv) with respect to Amoco, 9% of the
Purchase Price.
"Cavallo Assets" shall mean those properties and assets owned by the
Cavallo Pipeline Company described under the heading "Cavallo Assets" in Exhibit
A hereto.
"Cavallo Operating Agreement" shall mean the operating agreement,
described under the heading "Cavallo Operating Agreement" in Exhibit A hereto.
2
<PAGE> 8
"Cavallo Partnership Interest" shall mean all of the partnership
interests of Amoco Cavallo and Seagull Industrial in Cavallo Pipeline Company, a
Texas general partnership.
"Claim" shall mean all demands, claims, actions, investigations, causes
of action, proceedings and arbitrations, whether or not ultimately determined to
be valid.
"Claim Notice" shall have the meaning given such term in Section
9.5(b).
"Closing" shall have the meaning given such term in Section 2.3.
"Closing Date" shall have the meaning given such term in Section 2.3.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commonly Controlled Entity" shall have the meaning given such term in
Section 3.14(b).
"Computed Interest" shall mean an amount equal to the interest on the
Adjusted Purchase Price calculated on the number of days from the Effective Date
to the Closing Date at the Interest Rate; provided, however, if the Closing has
not occurred as a result of the failure by any Seller to perform its obligations
hereunder (including without limitation any obligations it may have under
Section 5.3 or 5.11), then no interest shall accrue after the Effective Date, or
if later, the date of such failure by such Seller.
"Confidentiality Agreement" shall have the meaning given such term in
Section 5.1.
"Customary Post-Closing Consents" shall mean consents and approvals
from Governmental Authorities that are customarily obtained after closing in
connection with a sale of (i) stock of a corporation owning and operating assets
of the nature owned by a Designated Subsidiary (other than the Partnerships) or
(ii) assets similar to those Subject Assets owned by Sellers.
"Deductible Amount" shall mean a dollar amount equal to (i) with
respect to Seagull, 1.30% of the Purchase Price, (ii) with respect to HPLC and
EGPC, 0.34% of the Purchase Price in the aggregate, (iii) with respect to Amoco,
0.18% of the Purchase Price and (iv) with respect to Mantaray, 0.18% of the
Purchase Price, being an aggregate dollar amount equal to 2% of the Purchase
Price.
"Designated Subsidiaries" shall have the meaning given such term in
Section 3.1, and except with respect to Sections 3.1 and 3.2 and as otherwise
provided in this Agreement, such term shall include the Cavallo Pipeline Company
in the context of Seagull or Amoco as Seller and SSS in the context of Seagull,
Mantaray or HPLC as Seller.
"Disclosure Schedule" shall have the meaning given such term in the
first sentence of Article 3.
"Effective Date" shall mean September 30, 1995.
3
<PAGE> 9
"Election Period" shall have the meaning given such term in Section
9.6.
"El Gordo Pipeline" shall mean the assets and properties described
under the heading "El Gordo Pipeline" in Exhibit "A" hereto.
"Encumbrance" shall mean any lien, pledge, condemnation proceeding,
claim, restriction, security interest, mortgage or similar encumbrance.
"Environmental Laws" shall mean any and all federal, state and local
laws, statutes, regulations, rules, orders, ordinances or permits of any
governmental authority pertaining to health, the environment, wildlife or
natural resources in effect in any and all jurisdictions in which the Subject
Assets are located, including, without limitation, the Clean Air Act, as
amended, and the Federal Water Pollution Control Act, as amended, the Rivers and
Harbors Act of 1899, as amended, the Safe Drinking Water Act, as amended, the
Comprehensive Environmental Response, Compensation and Liability Act , as
amended, the Superfund Amendments and Reauthorization Act of 1986, as amended,
the Resource Conservation and Recovery Act, as amended, The Hazardous and Solid
Waste Amendments Act of 1984, as amended, the Toxic Substances Control Act, as
amended, the Occupational Safety and Health Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Natural Gas Pipeline Safety Act of
1968, as amended and the Hazardous Liquid Pipeline Safety Act of 1979, as
amended.
"Excluded Assets" shall mean the Seagull Excluded Assets and the other
assets and properties of any Seller described on Exhibit C hereto.
"Excluded Records" shall mean all books and records of (i) each Seller
and its Designated Subsidiaries to the extent relating to the Excluded Assets
and (ii) the SPM Retained Subsidiaries.
"FERC" shall have the meaning given such term in Section 3.17.
"Forms" shall have the meaning given such term in Section 7.2.
"Galveston 20 in./12 in. System" shall mean the assets and properties
described under the heading "Galveston 20 in./12 in. System" in Exhibit A
hereto.
"Governmental Authority" shall mean the United States and any state,
county, city or other political subdivision, agency, court or instrumentality.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Hazardous Material" shall have the meaning given such term in Section
3.20.
4
<PAGE> 10
"Idle Lateral Pipelines" shall mean those certain lateral pipelines and
the easements, rights-of-way and permits relating thereto described under the
heading "Idle Lateral Pipelines" in Exhibit D hereto.
"Idle Pipelines" shall mean the Idle Lateral Pipelines and the Idle
System Pipelines.
"Idle System Pipelines" shall mean those certain pipeline systems and
the easements, rights-of-way and permits relating thereto described under the
heading "Idle System Pipelines" in Exhibit D hereto.
"Indemnified Party" shall have the meaning given such term in Section
9.5(a).
"Indemnifying Party" shall have the meaning given such term in Section
9.5(a).
"Interest Credit" shall mean the amount equal to the interest on the
Adjusted Purchase Price calculated on the number of days from the Closing Date
to the Effective Date at the Interest Rate.
"Interest Rate" shall mean a rate of 10% per annum (based on a 365 day
year).
"Laws" shall mean any constitution, statute, code, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of any
applicable Governmental Authority.
"Leabo System Assets" shall mean the assets and properties described
under the heading "Leabo System Assets" in Exhibit A hereto.
"Loss" shall mean all debts, liabilities, obligations, losses, damages,
costs and expenses (including, without limitation, interest including
prejudgment interest in any litigated matter), penalties, fines, court costs and
reasonable attorneys' fees and expenses, judgments, settlements and assessments.
"Permits" shall have the meaning given such term in Section 3.13.
"Oyster Lake Facilities" shall mean the assets and properties described
under the heading "Oyster Lake Facilities" in Exhibit A hereto.
"Parties" shall have the meaning given in the introductory paragraph of
this Agreement.
"Partnership" shall mean Cavallo Pipeline Company or SSS, as the
context requires, and "Partnerships" means both Cavallo Pipeline Company and
SSS.
"Permitted Encumbrance" shall mean any of the following: (i) any liens
for taxes and assessments not yet delinquent or, if delinquent, that are being
contested in good faith in the ordinary course of business; (ii) any obligations
or duties reserved to or vested in any municipality or other Governmental
Authority to regulate any Subject Asset in any manner including all applicable
Laws; (iii) the terms and conditions of all leases, servitudes, contracts for
sale, purchase, exchange, refining
5
<PAGE> 11
or processing of hydrocarbons, operating agreements, construction agreements,
construction and operation agreements, partnership agreements, processing
agreements, plant agreements, pipeline, gathering, exchange and transportation
agreements, disposal agreements, permits, licenses and other agreements
including, without limitation, the terms and conditions of any and all contracts
and agreements set forth in Exhibit A and the Disclosure Schedule; (iv)
Customary Post-Closing Consents; (v) any required third party consents to
assignment and similar agreements and obligations with respect to which prior to
Closing (A) waivers or consents have been obtained from the appropriate person,
(B) the applicable period of time for asserting such rights has expired without
any exercise of such rights or (C) arrangements reasonably satisfactory to Buyer
have been made by the Parties to allow Buyer to receive substantially the same
economic benefits as if all such waivers and consents had been obtained; (vi)
easements, rights of way, servitudes, permits, surface leases and other rights
with respect to surface obligations, pipelines, grazing, canals, ditches,
reservoirs, or the like, conditions, covenants or other restrictions, and
easements of streets, alleys, highways, pipelines, telephone lines, power lines,
railways and other easements and rights of way on, over or in respect of any of
the Subject Assets, so long as individually or in the aggregate they are not
such as are reasonably likely to have a material adverse effect on the use,
ownership or operation of the Subject Assets owned by a Seller or its Designated
Subsidiaries, taken as a whole; (vii) materialmen's, mechanics', repairmen's,
employees', contractors', operators', tax and other similar liens or charges
arising in the ordinary course of business incidental to construction,
maintenance or operation of any of the Subject Assets (A) if they have not been
filed pursuant to law, (B) if filed, they have not yet become due and payable or
payment is being withheld as provided by law or (C) if their validity is being
contested in good faith in the ordinary course of business by appropriate
action; and (viii) any other liens, charges, encumbrances, contracts,
agreements, instruments, obligations, defects or irregularities of any kind
whatsoever affecting the Subject Assets that individually or in the aggregate
are not such as are reasonably likely to have a material adverse effect on the
use, ownership or operation of the Subject Assets owned by a Seller or its
Designated Subsidiaries, taken as a whole.
"Person" shall mean any natural person, firm, partnership, association,
corporation, limited liability company, trust, entity, public body or
government.
"Processing Plant" shall mean that certain gas processing plant known
as the "Matagorda Processing Plant" located in Matagorda County, Texas as is
more particularly described under the heading "Matagorda Processing Plant" in
Exhibit A hereto (other than the Processing Plant Fee Property).
"Processing Plant Fee Property" shall mean that certain real property
upon which the Processing Plant is located as is more particularly described
under the heading "Matagorda Processing Plant Fee Property" in Exhibit A hereto.
"Processing Plant Interest" shall mean all of the interest of EGPC and
Seagull Processing in the Processing Plant.
6
<PAGE> 12
"Purchased Designated Subsidiary" shall mean either of SPM or Amoco
Cavallo as the context requires.
"Purchase Price" shall have the meaning given such term in Section 2.2.
"Purchased Shares" shall mean (i) all of the issued and outstanding
shares of common stock, par value $.01 per share, of SPM and (ii) all of the
issued and outstanding shares of common stock, no par value, of Amoco Cavallo.
"Purchased Subject Assets" shall mean (i) the Subject Assets other than
those owned by SPM (including those owned by SPM as of the Closing Date), the
SPM Subsidiaries, Amoco Cavallo and the Partnerships and (ii) the interests of
HPLC and Mantaray in SSS.
"Records" shall have the meaning given such term in Section 5.6.
"Seagull Excluded Assets" shall mean the properties and assets
described in Exhibit B.
"Seagull Industrial" shall mean Seagull Industrial Pipeline Company, a
Texas corporation.
"Seagull Miscellaneous Personalty" shall mean those certain vehicles
and other personal property described under the heading "Seagull Miscellaneous
Personalty" in Exhibit A hereto.
"Seagull Natural Gas" shall mean Seagull Natural Gas Company, a
Delaware corporation.
"Seagull Processing" shall mean Seagull Processing Company, a Delaware
corporation.
"Seagull Products" shall mean Seagull Products Pipeline Corporation, a
Delaware corporation.
"Seagull Subsidiary Shares" shall mean the shares of capital stock of
Seagull Natural Gas, Seagull Processing, Seagull Transmission and Seagull
Industrial.
"Seagull Transmission" shall mean Seagull Transmission Company, a Texas
corporation.
"Seller Group" shall have the meaning given such term in Section 7.1.
"Seller Material Adverse Effect" shall mean any material and adverse
effect on the use, ownership or operation of the Subject Assets, the Purchased
Shares and the Purchased Designated Subsidiaries, taken as a whole.
"Seller Parties" shall have the meaning given such term in Section
9.2(a).
"SMS/SNG Contracts" shall mean those certain contracts and agreements
described under the heading "SMS/SNG Contracts" in Exhibit A hereto.
7
<PAGE> 13
"SPM Retained Subsidiaries" shall mean Seagull Products Pipeline
Corporation, Seagull Storage Corporation, Seagull Marketing Services, Inc. and
Seagull Argentina Corporation.
"SPM Retained Subsidiary Shares" shall mean the shares of capital stock
in the SPM Retained Subsidiaries held directly or indirectly by SPM.
"SPM Shares" shall mean all of the issued and outstanding shares of
common stock, par value $.01 per share, of SPM.
"SPM Subsidiaries" shall mean Seagull Natural Gas, Seagull Processing,
Seagull Transmission and Seagull Industrial.
"SSS Assets" shall mean those properties and assets owned by SSS
described in Exhibit A attached hereto.
"SSS Partnership Interest" shall mean all of the interest of Mantaray,
HPLC and Seagull Transmission in SSS.
"Subject Assets" shall mean the Leabo System Assets, the SSS
Partnership Interest, the Cavallo Partnership Interest, the Processing Plant Fee
Property, Victoria Office Property, Cavallo Operating Agreement, SMS/SNG
Contracts, the El Gordo Pipeline, the Oyster Lake Facilities, the Processing
Plant, the Cavallo Assets and the SSS Assets and the properties listed or
described on Exhibit A hereto.
"Tax Items" shall have the meaning given such term in Section 7.3.
"Termination Date" shall mean October 31, 1995.
"Third-Party Claim" shall mean a Claim asserted against an Indemnified
Party by a Person other than a party to this Agreement or any Affiliate thereof
that could give rise to a right of indemnification under this Agreement.
"Victoria Office Property" shall mean that certain property described
under the heading "Victoria Office Property" in Exhibit A hereto.
ARTICLE 2.
PURCHASE AND SALE
2.1 The Transaction. Subject to and in accordance with the terms and
conditions of this Agreement, Buyer agrees to purchase from Sellers the
Purchased Shares and the Purchased Subject Assets for the Purchase Price, as
adjusted in the manner described in Section 2.2. Subject to and in accordance
with the terms and conditions of this Agreement, each Seller, severally and not
jointly, agrees to sell to Buyer the Purchased Shares indicated on Schedule 2.1
with respect to such Seller and the Purchased Subject Assets owned by such
Seller, its
8
<PAGE> 14
Designated Subsidiaries or its Designated Subsidiaries' subsidiaries, for the
aggregate payment to all Sellers equal to the Purchase Price.
2.2 Purchase Price. Subject to the terms and conditions of this
Agreement, Buyer agrees to pay to Sellers at the Closing an aggregate amount of
$153,500,000.00 (the "Purchase Price"), as adjusted in the manner described in
this Section 2.2, and, if the Closing occurs after the Effective Date, the
Computed Interest; provided that if the Closing occurs prior to the Effective
Date, the Purchase Price shall be reduced by the Interest Credit. The Purchase
Price shall be adjusted by adding to the Purchase Price the amount of Operating
Cash Flow (as hereinafter defined) attributable to the Subject Assets, as
determined in the manner set forth in Section 2.5(c). The Purchase Price, as
adjusted for such Operating Cash Flow but before any adjustment for the Interest
Credit or Computed Interest, as applicable, is hereinafter referred to as the
"Adjusted Purchase Price". The Adjusted Purchase Price, increased by the
Computed Interest or decreased by the Interest Credit, as applicable, shall be
payable by Buyer by wire transfer or delivery of other immediately available
funds to the account of Seagull for the benefit of the Sellers, Account of
Seagull Energy Corporation, Account No. 00101766047, at Texas Commerce Bank,
Houston, ABA Routing No. 113000609 (or to such other bank and account designated
in writing by Sellers to Buyer) for the further account of Sellers.
2.3 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Vinson & Elkins
L.L.P., 2300 First City Tower, Houston, Texas 77002 commencing at 10:00 a.m.,
local time, on (i) September 1, 1995, unless, subject to Section 5.4, the
approvals and consents described in Section 5.3 have not been obtained and
alternative arrangements have not been made with respect to such approvals and
consents in accordance with Section 8.1(c), (ii) the date (if later than
September 1, 1995) when the last of all approvals and consents described in
Section 5.3 has been obtained or alternative arrangements have been made with
respect to such approvals or consents in accordance with Section 8.1(c) or (iii)
such other date as the Parties shall agree in writing (the "Closing Date").
2.4 Deliveries at or Prior to Closing. (a) At or prior to the Closing,
Seagull, SPM and the SPM Subsidiaries shall (i) distribute or convey to an
Affiliate or Affiliates of Seagull (other than SPM and the SPM Subsidiaries) the
SPM Retained Subsidiary Shares and the Seagull Excluded Assets and all
associated liabilities and (ii) enter into and deliver such assignments, bills
of sale and other transfer documents as Seagull, SPM and the SPM Subsidiaries
deem necessary or advisable (with the approval of Buyer, which approval shall
not be unreasonably withheld) to transfer fully and effectively record ownership
of the foregoing from SPM and the SPM Subsidiaries.
(b) At or prior to Closing, Seagull, Seagull Marketing Services, Inc.
and Seagull Products, as applicable, shall (i) distribute or convey to SPM the
Processing Plant Fee Property, the Victoria Office Property, the SMS/SNG
Contracts, Leabo System Assets, the Seagull Miscellaneous Personalty, the
Galveston 20 in./12 in. System and the Cavallo Operating Agreement and all
liabilities associated with such assets and (ii) enter into and deliver such
assignments, bills of sale and other transfer documents as Seagull, Seagull
Marketing Services, Inc. and SPM deem necessary or advisable (with the approval
of Buyer, which approval shall not be unreasonably withheld) to transfer fully
and effectively record ownership of the foregoing.
9
<PAGE> 15
(c) At the Closing (i) Sellers will deliver to Buyer the various
certificates, instruments, and documents referred to in Section 8.2, (ii)
Seagull will deliver to Buyer stock certificates representing all of the SPM
Shares endorsed in blank or accompanied by duly executed assignment documents,
(iii) HPLC will deliver to Buyer assignments of those Purchased Subject Assets
owned by HPLC, such assignments to be in substantially the same form as Schedule
2.4(c)(iii), (iv) Mantaray will deliver to Buyer assignments of those Purchased
Subject Assets owned by Mantaray, such assignments to be in substantially the
same form as Schedule 2.4(c)(iv), (v) Amoco will deliver to Buyer stock
certificates representing all of the Amoco Cavallo Shares endorsed in blank or
accompanied by duly executed assignment documents, (vi) EGPC will deliver to
Buyer assignments of those Purchased Subject Assets owned by EGPC, such
assignments to be in substantially the same form as Schedule 2.4(c)(vi) and
(vii) Buyer will deliver to Sellers the various certificates, instruments and
documents referred to in Section 8.3, and (iv) Buyer will deliver to Seagull the
Adjusted Purchase Price, increased by the Computed Interest or decreased by the
Interest Credit, as applicable, for the account of Sellers.
2.5 Revenues and Expenses. (a) Each Seller shall be (i) entitled to all
operating revenues (and related accounts receivable) arising in the ordinary
course of business attributable to the Purchased Shares and the Subject Assets
owned by each Seller, its Designated Subsidiaries or Designated Subsidiaries'
subsidiaries, and (ii) responsible for the payment of all operating expenses
(and related accounts payable) arising in the ordinary course of business,
including the payment of ad valorem taxes, attributable to the Purchased Shares
and the Subject Assets owned by each Seller, its Designated Subsidiaries or
Designated Subsidiaries' subsidiaries, in each case to the extent the foregoing
relate to the period of time prior to August 31, 1995. Buyer shall be (i)
entitled to all operating revenues (and related accounts receivable) arising in
the ordinary course of business attributable to the Purchased Shares and the
Subject Assets, and (ii) responsible for the payment of all operating expenses
(and related accounts payable) arising in the ordinary course of business,
including the payment of ad valorem taxes, attributable to the Purchased Shares
and Subject Assets, in each case to the extent the foregoing relate to the
period of time occurring on and after August 31, 1995.
(b) To the extent that Buyer receives any funds to which any Seller is
entitled pursuant to Section 2.5 (a), Buyer shall promptly deliver such funds to
the Seller who owned such Subject Assets or Purchased Shares prior to the
Closing Date. To the extent that any Seller receives any funds to which Buyer is
entitled pursuant to Section 2.5(a), such Seller shall promptly deliver such
funds to Buyer. If any Party pays any operating expense (or related account
payable) that are properly borne by another Party pursuant to Section 2.5(a),
the Party responsible for such operating expense (or related account payable)
pursuant to Section 2.5(a) shall promptly reimburse the Party who made such
payment. The obligations of Buyer and Sellers hereunder shall be performed
without any right of setoff.
(c) In light of the fact that (with the exception of EGPC and HPLC) the
Sellers are not Affiliates and the Subject Assets have been owned by disparate
parties, and in light of the fact that the parties desire to be able to
determine with certainty the Adjusted Purchase Price on the Closing Date, the
parties have elected to have the provisions of this Section 2.5 apply to a
cut-off date of August 31, 1995, and have agreed that the amount of operating
cash flow attributable to the Subject
10
<PAGE> 16
Assets that will inure to the benefit of the Sellers for the one month period
ending on the Effective Date shall be $1.5 million (the "Operating Cash Flow"),
regardless of the actual amount thereof.
(d) Except as expressly set forth in this Section 2.5 with respect to
liability of the Parties for the reimbursement of operating revenues (and
related accounts receivable) or for the payment of operating expenses (and
related accounts payable) arising in the ordinary course of business, in the
event of any conflict between the provisions of this Section 2.5 and the
provisions of Article 9, the provisions of Article 9 shall control.
2.6 Allocation of Purchase Price. The Parties agree to work in good
faith to jointly prepare a schedule to be signed by each of them setting forth
the following items: (a) the Purchase Price paid by Buyer for the Purchased
Subject Assets and the Purchased Shares pursuant to this Agreement; and (b) an
allocation of such Purchase Price among each of the items comprising the
Purchased Subject Assets and the Purchased Shares. Any allocations to which the
parties so agree will be used by Buyer and Sellers as the basis for reporting
asset values and other items for purposes of all required Tax Returns (as
defined herein). If the parties are able to agree on such a schedule, Buyer and
Sellers agree not to assert, or to permit any of their respective Affiliates to
assert, before any Governmental Authority or in connection with any tax audit or
other proceeding, any asset values or other items inconsistent with the
allocations set forth in such schedule. Notwithstanding the above, no Seller
shall have an obligation to agree to any allocation that is inconsistent with
the percentage of the Capped Purchase Price attributable to such Seller.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each Seller hereby severally and not jointly represents and warrants to
Buyer as follows, subject to the matters set forth in the disclosure schedule
delivered by Sellers to Buyer on the date hereof (the "Disclosure Schedule"),
each item of which shall specifically refer to the article and section of this
Agreement to which such disclosure responds:
3.1 Organization. Such Seller and each of its subsidiaries that owns
any Subject Assets or the stock of any subsidiary that owns any Subject Assets
("Designated Subsidiaries") is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation.
Within seven (7) days following the execution of this Agreement, such Seller
shall deliver to Buyer true and complete copies of the charter and bylaws of
each of its Designated Subsidiaries, each as amended to date and presently in
effect. Section 3.1 of the Disclosure Schedule lists the directors and officers
of each of such Seller's Designated Subsidiaries. Each Partnership of which such
Seller or any of its Designated Subsidiaries is a partner, if any, has been duly
formed under the laws of the jurisdiction of its formation, and such Seller has
delivered to Buyer true and complete copies of the agreements forming such
Partnership and all amendments thereto.
3.2 Qualification. Except as set forth in Section 3.2 of the Disclosure
Schedule such Seller and each of its Designated Subsidiaries is duly qualified
to do business as a foreign corporation and is in good standing in Texas and
each other jurisdiction in which the nature of the business as now conducted or
the character of the property owned or leased by it makes such
11
<PAGE> 17
qualification necessary, except where the failure to be so qualified or in good
standing would not have a Seller Material Adverse Effect. Each Partnership of
which Seller or any of its Designated Subsidiaries is a partner, if any, has the
qualifications necessary in each jurisdiction in which the nature of the
business as now conducted or the character of the property owned or leased by it
makes such qualification necessary, except where the failure to be so qualified
or in good standing would not have a Seller Material Adverse Effect.
3.3 Authorizations; Approvals. The execution and delivery by such
Seller of this Agreement and the performance of its obligations and the
obligations of its Designated Subsidiaries hereunder have been duly and validly
authorized by all requisite corporate action. This Agreement has been duly
executed and delivered by such Seller, and this Agreement constitutes the legal,
valid and binding obligation of such Seller and such Seller's Designated
Subsidiaries enforceable against it in accordance with its terms except insofar
as the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by general
principles of equity regardless of whether such principles are considered in a
proceeding at law or in equity. Except pursuant to the HSR Act or as disclosed
in Section 3.3 of the Disclosure Schedule, neither such Seller nor any of its
Designated Subsidiaries needs to give any notice to, make any filing or register
with, or obtain any consent, approval, authorization, waiver, permit,
certificate or order of any Governmental Authority to consummate the
transactions contemplated by this Agreement except for those the absence of
which are not reasonably likely to have a Seller Material Adverse Effect.
3.4 Absence of Conflicts. Neither the execution and delivery of this
Agreement by such Seller, nor the consummation of the transactions contemplated
hereby by such Seller will (assuming receipt of all consents, approvals,
authorizations, waivers, permits, certificates and orders disclosed in Section
3.4 of the Disclosure Schedule): (a) violate or breach the terms of, cause a
default under, conflict with, result in acceleration of, create in any party the
right to accelerate, terminate, modify or cancel or require any notice under (i)
any applicable Law, (ii) the charter or bylaws of such Seller or any of its
Designated Subsidiaries or (iii) any contract, agreement, lease, license or
other arrangement to which such Seller or any of its Designated Subsidiaries is
a party or by which it, or any of its properties, is bound; (b) result in the
creation or imposition of any Encumbrance (other than a Permitted Encumbrance)
on any of the Subject Assets attributable to such Seller or any of its
Designated Subsidiaries; (c) result in the cancellation, forfeiture, revocation,
suspension or adverse modification of any existing consent, approval,
authorization, license, permit, certificate or order of any Governmental
Authority having jurisdiction over such Seller or any of its Designated
Subsidiaries; or (d) with the passage of time or the giving of notice or the
taking of any action of any third party have any of the effects set forth in
clause (a), (b) or (c) of this Section, except, in the case of clauses (a)
through (d), where such violation, conflict, breach, default, acceleration,
termination, modification, cancellation, claim, encumbrance, forfeiture,
suspension, revocation or lien is not reasonably likely to have a Seller
Material Adverse Effect or materially impair the ability of such Seller to
consummate the transactions contemplated by this Agreement.
12
<PAGE> 18
3.5 Capitalization of Purchased Designated Subsidiaries.
(a) The entire authorized and issued capital stock of any
Purchased Designated Subsidiary being sold by such Seller, if any,
consists of the Purchased Shares applicable to such Purchased
Designated Subsidiary. Any such Purchased Shares of such Seller have
been duly authorized, are validly issued, fully paid and nonassessable,
and are held beneficially and of record by such Seller, free and clear
of all Encumbrances.
(b) There are no contracts, agreements, commitments or other
arrangements obligating any Purchased Designated Subsidiary of such
Seller, if any, (i) to issue, sell, pledge, dispose of or encumber, or
any options, warrants or rights of any kind to acquire, or any
securities that are convertible into or exercisable or exchangeable
for, any shares of any class of capital stock of any such Purchased
Designated Subsidiary, (ii) to redeem, purchase or acquire or offer to
acquire, or any outstanding option, warrant or right to acquire, or any
securities that are convertible into or exercisable or exchangeable
for, any shares of any class of capital stock of any such Purchased
Designated Subsidiary or (iii) to make any dividend or distribution of
any kind in excess of the amount of cash in bank accounts immediately
prior to August 31, 1995, except for dividends from cash from revenues,
proceeds and receivables attributable to the period of time prior to
August 31, 1995.
(c) There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights affecting the
capital stock of any Purchased Designated Subsidiary of such Seller, if
any. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of any
such Purchased Designated Subsidiary.
3.6 Subsidiaries; Equity Investments. Section 3.6 of the Disclosure
Schedule sets forth for each of such Seller's Designated Subsidiaries (other
than SPM, Amoco Cavallo or the Partnerships): (a) its name and jurisdiction of
incorporation, (b) the number of authorized shares of each class of its capital
stock, (c) the number of issued and outstanding shares of each class of its
capital stock, and (d) the number of shares of its capital stock held in
treasury. All of the issued and outstanding shares of capital stock of each of
such Seller's Designated Subsidiaries (other than SPM, Amoco Cavallo or the
Partnerships) have been duly authorized and are validly issued, fully paid and
nonassessable. Except as set forth in Section 3.6 of the Disclosure Schedule,
there are no outstanding or authorized options, warrants, purchase rights,
conversion rights, exchange rights, or other contracts or commitments that could
require any of such Seller's Designated Subsidiaries to sell, transfer or
otherwise dispose of any capital stock of any of its subsidiaries or that could
require any of such Seller's Designated Subsidiaries to issue, sell, or
otherwise cause to become outstanding any of such Designated Subsidiary's
capital stock. There are no outstanding stock appreciation, phantom stock,
profit participation, or similar rights affecting the capital stock of any of
such Seller's Designated Subsidiaries. There are no voting trusts, proxies or
other agreements or understandings with respect to the voting of any capital
stock of any of such Seller's Designated Subsidiaries.
13
<PAGE> 19
3.7 Financial Statements. Section 3.7 of the Disclosure Schedule sets
forth the unaudited balance sheets as of March 31, 1995 of each of such Seller's
Purchased Designated Subsidiaries, if any, and such Purchased Designated
Subsidiaries' subsidiaries (the "Balance Sheets"). The Balance Sheets of such
Seller's Purchased Designated Subsidiaries present fairly in all material
respects the financial position of the entities to which they relate after
taking into account the transactions contemplated in Section 2.4(a) and 2.4(b).
To the knowledge of such Seller, each account receivable reflected on the
Balance Sheets of such Seller's Purchased Designated Subsidiaries (each, an
"Account") represents the genuine, valid and legally enforceable indebtedness of
the account debtor and, except as set forth in Section 3.7 of the Disclosure
Schedule, no contra account, set-off, defense, counterclaim, allowance or
adjustment (other than discounts for prompt payment shown on the invoice) has
been asserted or, to the knowledge of such Seller, is threatened against any
individual Account in excess of $25,000. Such Seller's Purchased Designated
Subsidiaries, if any, and such Purchased Designated Subsidiaries' subsidiaries
do not have any material liabilities, whether absolute, accrued or contingent
and whether due or to become due, which were not reserved against or disclosed
in the respective Balance Sheet of such entity as of March 31, 1995 in
accordance with generally accepted accounting principles. Except as set forth on
Section 3.7 of the Disclosure Schedule, the Purchased Subject Assets
attributable to such Seller are not subject to any material liabilities, whether
absolute, accrued or contingent and whether due or to become due and, (in the
case where such Seller or its Seller's Purchased Designated Subsidiaries
provided the Balance Sheets with respect to such Subject Assets), which
liabilities were not reserved against or disclosed in the respective Balance
Sheet of any of the foregoing entities as of March 31, 1995 in accordance with
generally accepted accounting principles.
3.8 Contracts and Commitments. Exhibit A and Section 3.8 of the
Disclosure Schedule includes a list of all material contracts and agreements
(including, without limitation, any contract, lease, agreement or commitment,
written or oral, providing for receipt or payment, contingent or otherwise, of
$100,000 or more or which may not be terminated without payment or penalty with
notice of ninety (90) days or less) relating to the continued ownership and
operation of the Subject Assets owned by such Seller or its Designated
Subsidiary (other than contracts and agreements to which neither such Seller nor
any of its Designated Subsidiaries is a party and which is not being conveyed or
assigned to Buyer hereunder, or contracts and agreements that are part of the
Excluded Assets, in each case, as to which no representation or warranty is
made) (the "Contracts"), and each such Contract is in full force and effect,
except where the failure to be in full force and effect is not reasonably likely
to have a Seller Material Adverse Effect and except with respect to the Idle
Pipelines. Except with respect to the Idle Pipelines, such Seller or its
Designated Subsidiaries have in all respects performed all material obligations
required to be performed by them to date under the Contracts, and are not in
default under any material obligation of any such Contracts. To the knowledge of
such Seller, no other party to any Contract is in default thereunder. Neither
such Seller nor its Designated Subsidiary has assigned to any other person any
of its rights under the Contracts. Such Seller or its Designated Subsidiary has
not waived any of its rights of material value under the Contracts.
3.9 Absence of Changes. Except as set forth in Section 3.9 of the
Disclosure Schedule, since March 31, 1995:
14
<PAGE> 20
(i) there has not been any Seller Material Adverse Effect;
(ii) to such Seller's knowledge, the Purchased Subject Assets and
the Purchased Designated Subsidiaries being sold by such Seller
have been operated and maintained in a prudent manner and in
the ordinary course of the business;
(iii) there has not been any material damage, destruction or loss to
any material portion of the Purchased Subject Assets or any
material portion of the assets of the Purchased Designated
Subsidiaries being sold by such Seller, whether covered by
insurance or not;
(iv) there has been no issuance by any Purchased Designated
Subsidiary being sold by such Seller of any shares of its
respective capital stock, or any repurchase or redemption by
any of them of any shares of their respective capital stocks;
(v) there has been no merger or consolidation of any Designated
Subsidiary of such Seller with any other person or any
acquisition by any Purchased Designated Subsidiary being sold
by such Seller of the stock or business of any other person;
(vi) except for distribution and/or dividends of cash (without
duplication) (A) not in excess of the amount of cash in bank
accounts immediately prior to August 31, 1995, or (B) from
revenues, proceeds and/or receivables attributable to the
period of time prior to August 31, 1995, there has been no
declaration or payment of any dividend on, or any other
distribution with respect to, the equity securities of any
Designated Subsidiary of such Seller;
(vii) there has been no borrowing of funds, agreement to borrow funds
or guaranty by any Designated Subsidiary of such Seller;
(viii) such Seller's Designated Subsidiaries have not made or entered
into any employment, consulting, severance or indemnification
agreement with any of its employees, nor has such Seller's
Designated Subsidiaries incurred or entered into any collective
bargaining agreement or other obligation to any labor
organization or employee;
(ix) there has been no actual, pending, or to the knowledge of
Sellers, threatened change in the relationship of the Purchased
Designated Subsidiaries or affecting the Purchased Subject
Assets being sold by such Seller, with any customers, licensor,
suppliers, distributors or sales representatives, except such
as has not had, and is not reasonably expected to have a Seller
Material Adverse Effect; and
(x) there is no contract, commitment or agreement to do any of the
foregoing, except as expressly permitted hereby.
15
<PAGE> 21
3.10 Taxes. Except as set forth in Section 3.10 of the Disclosure
Schedule: (a) all returns and reports of or with respect to any federal, state
or other tax which are required to be filed on or before the Closing Date by or
with respect to any of such Seller's Purchased Designated Subsidiary or any of
such Purchased Designated Subsidiary's subsidiaries ("Tax Returns") have been or
will be duly and timely filed; (b) all taxes which are shown to be due on such
Tax Returns have been or will be timely paid in full; (c) all withholding tax
requirements imposed on or with respect to any such Purchased Designated
Subsidiary or any of such Purchased Designated Subsidiary's subsidiaries have
been satisfied in full in all respects; (d) no assessment, deficiency or
adjustment has been asserted with respect to any Tax Return; and (e) there is
not in force any extension of time with respect to the due date for the filing
of any Tax Return or any waiver or agreement for any extension of time for the
assessment or payment of any tax due with respect to the period covered by any
Tax Return.
3.11 Litigation. Except as disclosed in Section 3.11 of the Disclosure
Schedule, there are no actions at law, suits in equity, investigations,
proceedings or claims pending, affecting or, to the knowledge of such Seller,
threatened against such Seller or any of its Designated Subsidiaries or the
Purchased Subject Assets attributable to such Seller before or by any federal,
state, foreign or local court, tribunal or governmental agency or authority
except such as in the aggregate are not reasonably likely to have a Seller
Material Adverse Effect.
3.12 Compliance with Law. Except as disclosed in Section 3.12 of the
Disclosure Schedule, such Seller and each of its Designated Subsidiaries are in
compliance with all applicable Laws, except where the failure to be in
compliance is not reasonably likely to have a Seller Material Adverse Effect;
provided, however, notwithstanding the foregoing, no representation or warranty
in this Section 3.12 is made with respect to compliance with environmental
matters (other than safety laws not described in the definition "Environmental
Laws"), which are covered exclusively by the provisions set forth in Section
3.20.
3.13 Permits. Except as set forth in Section 3.13 of the Disclosure
Schedule and with respect to the Idle Pipelines, each of such Seller and its
Designated Subsidiaries, owns or holds all franchises, licenses, permits,
consents, approvals and authorizations of all Governmental Authorities necessary
for the conduct of its business with respect to the Subject Assets
(collectively, the "Permits"), except for those Permits which the failure to own
or hold are not reasonably likely to have a Seller Material Adverse Effect.
Except with respect to the Idle Pipelines, (i) each Permit is in full force and
effect, and such Seller and each of its Designated Subsidiaries is in compliance
with all of its obligations with respect thereto, except where the failure to be
in full force and effect or to be in compliance would not have a Seller Material
Adverse Effect, and (ii) to the knowledge of such Seller, no event has occurred
that permits, or upon the giving of notice or the lapse of time or otherwise
would permit, revocation or termination of any Permit except such as in the
aggregate would not have a Seller Material Adverse Effect. All Permits
attributable to such Seller shall be, subject to the Permitted Encumbrances (i)
owned or held as of the Closing by such Seller's Purchased Designated
Subsidiaries and (ii) transferred by such Seller to the Buyer with respect to
such Seller's Purchased Subject Assets, subject to receipt (or other disposition
as permitted hereunder) of all consents, approvals, authorizations, and waivers
applicable to such permits.
16
<PAGE> 22
3.14 Employee Benefit Plans and Policies. (a) No Designated Subsidiary
of such Seller sponsors, maintains or contributes to or has an obligation to
contribute to, and no such Designated Subsidiary has at any time within six
years prior to the Closing Date sponsored, maintained or contributed to or had
an obligation to contribute to, any "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), including a multiemployer plan within the meaning of
Section 3(37) of ERISA. No Designated Subsidiary of such Seller has any employee
or any contractual obligation to any employee of such Seller.
(b) With respect to any employee benefit plan, within the meaning of
Section 3(3) of ERISA, which is sponsored, maintained or contributed to, or has
been sponsored, maintained or contributed to within six years prior to the
Closing Date, by any corporation, trade, business or entity under common control
with such Seller or its Designated Subsidiaries, within the meaning of Section
414(b), (c) or (m) of the Code or Section 4001 of ERISA ("Commonly Controlled
Entity"), (i) no withdrawal liability, within the meaning of Section 4201 of
ERISA, has been incurred, which withdrawal liability has not been satisfied,
(ii) no liability to the Pension Benefit Guaranty Corporation has been incurred
by any Commonly Controlled Entity, which liability has not been satisfied, (iii)
no accumulated funding deficiency, whether or not waived, within the meaning of
Section 302 of ERISA or Section 412 of the Code has been incurred, and (iv) all
contributions (including installments) to such plan required by Section 302 of
ERISA and Section 412 of the Code have been timely made.
3.15 Title to Equity Interests. As of the Closing Date, such Seller
owns of record and beneficially the equity interest(s), if any, set opposite its
name in Section 3.15 of the Disclosure Schedule, free and clear of all
Encumbrances.
3.16 Title to the Subject Assets. As of the Closing Date, such Seller
or its Designated Subsidiaries or the Partnerships attributable to such Seller
owns those Subject Assets set opposite its name in Section 3.16 of the
Disclosure Schedule, free and clear of all Encumbrances other than the Permitted
Encumbrances.
3.17 Gas Regulatory Matters. Neither such Seller nor any of its
Designated Subsidiaries is subject to the jurisdiction of the Federal Energy
Regulatory Commission ("FERC") under the Natural Gas Act of 1938, as amended,
except pursuant to the extent that such jurisdiction might attach to activities
under Subpart C of Part 284 of the FERC's regulations, to activities under the
limited jurisdiction blanket certificate issued each to Seagull Natural Gas and
HPLC under Section 284.227 of the FERC's regulations, 18 C.F.R. Section 284.227
(1995) and to activities under the limited jurisdiction blanket certificate
issued to Amoco under Section 284.224 of the FERC's regulations, 18 C.F.R.
Section 284.224 (1995).
3.18 Insurance. Section 3.18 of the Disclosure Schedule identifies, by
name of underwriter, risk insured, amount insured, policy number and date of
issuance, all policies of insurance to which any of such Seller's Purchased
Designated Subsidiaries, if any, or any of such Seller's Purchased Designated
Subsidiaries' subsidiaries is a party as of the date hereof or as to which such
Purchased Designated Subsidiaries or any of such Purchased Designated
Subsidiaries'
17
<PAGE> 23
subsidiaries, as of the date hereof, are beneficiaries. All such policies are
currently in full force and effect.
3.19 Brokers' Fees. Except for Dillon, Read & Co. Inc., neither such
Seller nor any of its Designated Subsidiaries has any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. Sellers shall be responsible for
all fees payable to Dillon, Read & Co. Inc.
3.20 Environmental Matters. Except as listed or described in Section
3.20 of the Disclosure Schedule:
(a) To the knowledge of such Seller, the Subject Assets
attributable to such Seller or its Designated Subsidiaries are (i) not
in violation of any Environmental Laws, and (ii) are not (and would not
be, if all relevant facts known to such Seller were also known to the
applicable Governmental Authorities) subject to any remedial
obligations under such Environmental Laws, other than such violations
or obligations which are not reasonably likely to have a Seller
Material Adverse Effect.
(b) To the knowledge of such Seller, such Seller or its
Designated Subsidiaries have in effect, or applications pending for,
all permits required by applicable Environmental Laws for the operation
and ownership of the Subject Assets attributable to such Seller except
where the failure to own or hold such permits are not reasonably likely
to have a Seller Material Adverse Effect, and, to the knowledge of such
Seller, such Seller or its Designated Subsidiaries are not in violation
of the terms and conditions of such permits, other than such violations
that are not reasonably likely to have a Seller Material Adverse
Effect.
(c) To the knowledge of such Seller, such Seller or its
Designated Subsidiaries (i) are not subject to any consent decree,
compliance order or administrative order issued pursuant to applicable
Environmental Laws, and (ii) has not received written notice under the
citizen suit provision of any Environmental Law or written request for
information, notice of violation, demand letter, administrative
inquiry, complaint or claim from any governmental agency pursuant to
applicable Environmental Laws, other than such of the foregoing that
are not reasonably likely to have a Seller Material Adverse Effect.
(d) To the knowledge of such Seller, no conditions or
circumstances exist or have existed with respect to the off-site
disposal of any substance that is regulated under any Environmental Law
("Hazardous Material"), that could impose any liability attributable to
such Subject Assets of such Seller or its Designated Subsidiaries with
respect to any Environmental Law, other than liabilities that are not
reasonably likely to have a Seller Material Adverse Effect.
(e) To the knowledge of such Seller, no conditions or
circumstances exist or have existed, and no activities are occurring or
have occurred, on or in connection with the Subject Assets attributable
to such Seller or its Designated Subsidiaries that are resulting or
have resulted in the exposure of any person to a Hazardous Material
such that such Seller or its
18
<PAGE> 24
Designated Subsidiaries (or the Subject Assets attributable to each of
them) are reasonably likely to incur liability to such persons for
personal injuries, damages or death resulting from such exposure,
except for liabilities that are not reasonably likely to have a Seller
Material Adverse Effect.
3.21 Public Utility Holding Company Act. Neither such Seller nor its
Designated Subsidiaries is a "holding company" or a "subsidiary company" of a
"holding company" or an affiliate of a "holding company," or an "affiliate" of a
"subsidiary company" of a "holding company," in each case within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
3.22 Affiliate Transactions. Except as disclosed in Section 3.22 or
Section 3.8 of the Disclosure Schedule or as is otherwise expressly permitted
hereunder, (a) there are no outstanding notes payable to, accounts receivable
from or advances by any of such Seller's Purchased Designated Subsidiaries or
any Partnership attributable to such Seller to, and no Purchased Designated
Subsidiary of such Seller or Partnership attributable to such Seller is
otherwise a creditor of, and (b) since March 31, 1995, no Purchased Designated
Subsidiaries of such Seller or any Partnership attributable to such Seller has
purchased, transferred or leased any real or personal property from or for the
benefit of, paid any commission, salary or bonus to or for, the benefit of, or
purchased any product or services from or for the benefit of, or otherwise
incurred any obligation or liability to be entered into or agreed to enter into
any transactions with or for the benefit of, in the case of either clause (a) or
(b) above, such Seller, or any director, officer or Affiliate of such Seller.
3.23 Copies of Documents. All contracts, agreements, instruments,
non-financial statements, reports and filings (including all amendments,
supplements and modifications thereto) (the "Documents"), delivered or made
available to Buyer or any representative of Buyer by such Seller or its
representatives in connection with the transactions contemplated hereby
constitute complete copies of such Documents.
3.24 Idle Pipelines. Such Seller has not received any revenue
attributable to the Idle System Pipelines since January 1, 1993. The Idle
Laterals Pipelines attributable to such Seller no longer connect to any
producing well.
19
<PAGE> 25
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES
OF BUYER AND GUARANTOR
Buyer and Guarantor jointly and severally represent and warrant to
Sellers as follows:
4.1 Corporate Organization. Each of Buyer and Guarantor is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
4.2 Qualification. Each of Buyer and Guarantor is duly qualified to do
business as a foreign corporation and is in good standing in Texas and each
other jurisdiction in which the nature of the business as now conducted or the
character of the property owned or leased by it makes such qualification
necessary, except where the failure to be so qualified or in good standing would
not have a Buyer Material Adverse Effect.
4.3 Authorizations; Approvals. The execution and delivery by each of
Buyer and Guarantor of this Agreement and the performance of its obligations
hereunder have been duly and validly authorized by all requisite corporate
action. This Agreement has been duly executed and delivered by each of Buyer and
Guarantor, and this Agreement constitutes the legal, valid and binding
obligation of each of them enforceable against it in accordance with its terms
except insofar as the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
by general principles of equity regardless of whether such principles are
considered in a proceeding at law or in equity. Except pursuant to the HSR Act,
neither Buyer nor Guarantor needs to give any notice to, make any filing or
register with, or obtain any consent, approval, authorization, waiver, permit,
certificate or order of any Governmental Authority to consummate the
transactions contemplated by this Agreement.
4.4 Absence of Conflicts. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby will to
the knowledge of either of Buyer or Guarantor, violate or breach the terms of,
cause a default under, conflict with, result in acceleration of, create in any
party the right to accelerate, terminate, modify or cancel or require any notice
under (a) any applicable Law, (b) the charter or bylaws of either Buyer or
Guarantor, or (c) any material contract, agreement, lease, license or other
arrangement to which either Buyer or Guarantor is a party or by which it, or any
of its properties, is bound.
4.5 Brokers' Fees. Except for Rauscher Pierce Refsnes, Inc. and Ronald
K. Page, neither Buyer nor Guarantor has any liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement. Buyer and Guarantor shall be
responsible for all fees payable to Rauscher Pierce Refsnes, Inc. and Ronald K.
Page.
4.6 Investment. Buyer is not acquiring the Purchased Shares or any
Subject Assets with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities
20
<PAGE> 26
Act of 1933, as amended. Buyer, together with the Guarantor and their respective
directors and executive officers and advisors, is familiar with investments of
the nature of the Purchased Shares and the Subject Assets, understands that this
investment involves substantial risks, has adequately investigated the
Designated Subsidiaries and the Subject Assets and has substantial knowledge and
experience in financial and business matters such that it is capable of
evaluating, and has evaluated, the merits and risks inherent in purchasing the
Purchased Shares and/or the Subject Assets, and is able to bear the economic
risks of such investment.
4.7 Financing. Buyer has sufficient cash, available lines of credit or
other sources of immediately available funds to enable it to make payment of the
Purchase Price at the Closing.
4.8 Litigation. There are no actions, suits, proceedings or
governmental investigations or inquiries pending, or to the knowledge of either
Buyer or Guarantor, threatened, against Buyer or Guarantor or any of their
respective properties, assets, operations or businesses that might delay,
prevent or hinder the consummation of the transactions contemplated hereby.
ARTICLE 5.
COVENANTS OF SELLER AND BUYER
5.1 Access. Upon reasonable notice and at Buyer's sole risk, liability
and expense, and during normal business hours, each Seller shall afford Buyer
and its representatives reasonable access, from the date hereof until the
Closing Date, to the Subject Assets attributable to such Seller (including
without limitation for the purpose of safety and environmental inspections,
assessments and testing of such Subject Assets by a safety and/or an
environmental engineering firm designated by Buyer and reasonably satisfactory
to such Seller) and the contracts, books, records and data of such Seller and
its Designated Subsidiaries related thereto; provided, such access shall be
subject to such Seller's obtaining all necessary consents and approvals from
third parties. Such Seller shall promptly notify Buyer in each case when such
consents are required, and when they have been obtained or withheld. Buyer's
investigation shall be conducted in a manner that does not unreasonably
interfere with such Seller's normal operations. Notwithstanding the foregoing,
Buyer shall not have access to personnel records of such Seller (or any
Affiliates thereof) relating to individual performance or evaluation records,
medical histories or other information that, in such Seller's good faith
opinion, is sensitive or the disclosure of which could subject such Seller or
any of its Designated Subsidiaries to risk of liability. Buyer agrees to
maintain the confidentiality of all such information pursuant to the terms of
that certain letter agreement regarding confidentiality dated April 18, 1995
between Dillon Read and Guarantor, as amended from time to time (the
"Confidentiality Agreement"). BUYER HEREBY AGREES TO DEFEND, INDEMNIFY, RELEASE,
PROTECT, SAVE AND HOLD HARMLESS THE SELLER PARTIES FROM AND AGAINST ANY AND ALL
LOSSES ARISING OUT OF OR RELATING TO ANY CLAIMS RELATING TO ANY PLANT OR FIELD
VISIT, OR OTHER DUE DILIGENCE ACTIVITY, CONDUCTED BY BUYER OR ANY OF ITS AGENTS,
REPRESENTATIVES, AFFILIATE, SUCCESSOR, ASSIGN, OFFICER, REPRESENTATIVE OR
DIRECTOR, INCLUDING WITHOUT LIMITATION ANY LOSSES RESULTING, IN WHOLE OR IN
PART, FROM THE SOLE, CONCURRENT OR JOINT NEGLIGENCE OR STRICT LIABILITY OF ANY
SELLER PARTY.
21
<PAGE> 27
5.2 Conduct of Business Pending the Closing. Each Seller covenants and
agrees, severally and not jointly, that, from the date of this Agreement until
the Closing Date, unless Buyer shall otherwise agree or as otherwise
contemplated by this Agreement (including, without limitation, as contemplated
in Section 2.4(a)):
(a) Such Seller will, or such Seller will cause its Designated
Subsidiaries or the operator to, operate any Subject Assets
attributable thereto in all material respects in the same manner as
presently being operated, and to refrain from entering into any
transaction or contract relating directly to any such Subject Assets
other than in the ordinary course of business;
(b) Such Seller will not, and such Seller will not cause or
permit any of its Designated Subsidiaries or the operator to, take any
action with respect to the Subject Assets attributable thereto that are
operated by unaffiliated third parties that could reasonably be
expected to change in any material respect the manner in which such
asset is presently being operated;
(c) Such Seller will not and Seller will not cause or permit
any of its Designated Subsidiaries to, directly or indirectly, do any
of the following: (i) issue, sell, pledge, dispose of or encumber: (A)
any capital stock of any Designated Subsidiary or (B) except for
Permitted Encumbrances, any Subject Assets other than in the ordinary
course of business and consistent with past practice and not relating
to the borrowing of money, (ii) amend or propose to amend the charter,
bylaws or partnership agreements of any of its Designated Subsidiaries,
(iii) except to the extent permitted in Section 3.5(b), split, combine
or reclassify any outstanding capital stock of its Designated
Subsidiaries, or declare, set aside or pay any dividend or other
distribution payable in cash, stock, property or otherwise with respect
to any such capital stock whether now or hereafter outstanding, (iv)
redeem, purchase or acquire or offer to acquire any such capital stock,
(v) incur any indebtedness for borrowed money other than in the
ordinary course of business, (vi) enter into any transaction with such
Seller or any of its Affiliates other than in the ordinary course of
business, (vii) except for the distribution of cash (without
duplication) (aa) not in excess of the amount of cash in bank accounts
immediately prior to August 31, 1995 or (bb) from revenues, proceeds
and/or receivables attributable to the period of time prior to August
31, 1995, make any distribution of property to the partners of any
Partnership or (viii) enter into any contract, agreement, commitment or
arrangement with respect to any of the matters prohibited by this
Section 5.2(c);
(d) Such Seller will, or such Seller will cause each of its
Designated Subsidiaries or the operator to, use commercially reasonable
efforts to perform its obligations under any contracts and agreements
to which it is a party or to which the Subject Assets attributable
thereto are subject, except for such obligations as it in good faith
may dispute and except for such failures to perform as would not in the
aggregate have a Seller Material Adverse Effect; and
22
<PAGE> 28
(e) Such Seller will not increase the salary, benefits, stock
options, bonus or other compensation to any officer, director or
employee actively involved in the operation of any of such Seller's
Designated Subsidiaries except as scheduled in the ordinary course of
business; and shall not take any action with respect to the grant of
any severance or termination pay to any such person except as scheduled
in the ordinary course of business.
5.3 Consents. Each of the Parties, severally and not jointly, will use
its commercially reasonable efforts to obtain the authorizations, consents,
orders and approvals of Governmental Authorities and any other third parties
that may be or become necessary or advisable for the performance of its
obligations pursuant to this Agreement and the consummation of the transactions
contemplated hereby and will cooperate in all reasonable respects with each
other in promptly seeking to obtain such authorizations, consents, orders and
approvals as may be necessary or advisable for the performance of their
respective obligations pursuant to this Agreement. Within 10 business days after
the date hereof, each Party will file or cause its ultimate parent entity
(within the meaning of the HSR Act) to file all materials required to be filed
by it under the HSR Act and will promptly file any supplemental materials
required and will comply in all material respects with the requirements of the
HSR Act. Each of the Parties shall request early termination of the HSR Act
waiting period and any filings to be made. In addition, each of the Parties
shall make such similar filings or notices with any other Governmental
Authorities as may be necessary or advisable. None of the Parties will take any
action that is reasonably likely to have the effect of delaying, impairing or
impeding the receipt of any required approvals and will use their commercially
reasonable efforts to secure such approvals as promptly as possible.
5.4 Commercially Reasonable Efforts. Each of the Parties, severally and
not jointly, shall use commercially reasonable efforts to obtain the
satisfaction of all conditions of Closing attributable to such Party in an
expeditious matter.
5.5 Use of Name. As soon as practicable, but in any event within 60
days after the Closing Date, Buyer shall remove the words "Seagull," "Houston
Pipe Line," "Enron," "Mantaray" or "Amoco" or any words or expressions similar
thereto from the Subject Assets. As soon as practicable, but in any event within
7 days after the Closing Date, Buyer shall (a) change the name of all Purchased
Designated Subsidiaries to remove such words and (b) cease using any of such
words for all purposes including, without limitation, as a corporate,
partnership or assumed name.
5.6 Delivery and Retention of Records. On or before the Closing Date,
each Seller will deliver or cause to be delivered to Buyer all files, records,
information and data relating to the Purchased Designated Subsidiaries and the
Purchased Subject Assets that are not part of the Excluded Assets and that are
in the possession or control of such Seller (together with all of such Seller's
contractual rights to request other such files, records, information and data
from any third party) (the "Records"). Buyer agrees to (a) hold the Records and
not to destroy or dispose of any thereof for a period of six years from the
Closing Date or such longer time as may be required by law, provided that, if it
desires to destroy or dispose of such Records during such period, it will first
offer in writing at least 60 days prior to such destruction or disposition to
surrender them to the applicable Seller and if such Seller does not accept such
offer within 20 days after receipt of such offer, Buyer may take such action and
(b) following the Closing Date to afford such Seller and its
23
<PAGE> 29
accountants and counsel, during normal business hours, upon reasonable request,
at any time, full access to the Records and to Buyer's employees to the extent
that such access may be requested for any legitimate purpose at no cost to such
Seller (other than for reasonable out-of-pocket expenses), provided however,
that such access will not operate to cause the waiver of any attorney-client,
work product or like privilege; provided, further, that in the event of any
litigation nothing herein shall limit either party's rights of discovery under
applicable law. Buyer shall have the same rights, and each Seller the same
obligations, as are set forth above in this Section 5.6 with respect to any
copies of Records of such Seller pertaining to the Subject Assets that are
retained by such Seller, with the exception of tax returns retained by such
Seller, provided that such access will not operate to cause the waiver of any
attorney-client, work product, or like privilege.
5.7 Financing. Upon any Seller's request, Buyer will furnish such
Seller with such information and documents (including commitment letters, if
applicable) confirming the availability of the financing referred to in Section
4.7.
5.8 Amendments of Disclosure Schedule. Any Seller may, from time to
time, prior to the Closing, by written notice to Buyer, supplement or amend the
Disclosure Schedule to correct any matter that would constitute a breach of any
representation or warranty of such Seller herein contained; provided, however,
except as provided in the following sentence, no such supplement or amendment
will affect the rights or obligations of the parties to this Agreement
(including without limitation Buyer's rights and obligations under Section
8.2(a) hereof) until after the Closing Date. Notwithstanding any other provision
hereof, if the Closing occurs, any such supplement or amendment of any Schedule
will be effective to cure and correct for indemnification purposes (but only for
such purposes) any breach of any representation, warranty or covenant that would
have existed by reason of such Seller not having made such supplement or
amendment.
5.9 Employee Matters. Buyer will evaluate its personnel needs and
consider offering employment to certain employees of Sellers on a case-by-case
basis; provided, however, Buyer shall have no obligation to hire any such
employees. After the Closing Date, Buyer agrees to provide salaries, wages and
employee benefits to any employees who transfer to the employments of Buyer (the
"Employees") that are the same as the salaries, wages and employee benefits
(under employee plans sponsored by Buyer) provided to similarly situated
employees of Buyer. Further, to the extent permitted under employee benefit and
medical plans sponsored by Buyer, Buyer shall (i) waive, or cause the Designated
Subsidiaries to waive, any preexisting condition limitations applicable to the
Employees under Buyer's group medical plan to the extent that an Employee's
condition would not have operated as a preexisting condition limitation under
the applicable Seller's group medical plan and (ii) ensure that Employees are
given full credit for all co-payments and deductible incurred by such Employees
under the applicable Seller's group medical plan for the 1995 plan year, (iii)
cause any employee pension benefit plan (as such term is defined in Section 3(2)
of ERISA) that is intended to be qualified under Section 401 of the Code to be
amended to provide that the Employees shall receive credit for participation and
vesting purposes under such plan for their period of employment with the
applicable Seller and its predecessors to the extent such predecessor employment
was recognized by such Seller, and (iv) credit the Employees under each other
employee benefit plan or policy of the Buyer for their period of employment with
the applicable Seller or its predecessors to the extent such predecessor
employment was recognized by such Seller,
24
<PAGE> 30
but not in excess of the maximum credit available to Buyer's employees under
such plan or policy. Buyer shall not be responsible for any costs, obligations
or liabilities that may result from employment by any Seller of any Employee or
the termination of such employment, and the applicable Seller shall be
responsible for all such costs, obligations and liabilities, including, without
limitation, liabilities under such Seller's severance plans. Each of Sellers
acknowledge that the Employees who are terminated by such Seller in connection
with the transactions contemplated by this Agreement, whether or not employed by
Buyer, will have experienced a termination of employment and be entitled from
the applicable Seller to health care continuation benefits as described in
Section 4980B of the Code. Effective as of the Closing Date, each Seller shall
cause each of the Employees hired by Buyer to have a fully non-forfeitable right
to such employee's accrued benefits, if any, under the qualified plan of such
Seller. Buyer agrees to provide to such Seller no later than 5 days prior to
Closing a list of such Seller's employees to whom it has offered employment and
a summary of the terms of employment offered. For a period of 30 days after the
Closing, if Buyer offers employment to employees of such Seller that are not on
the list provided to such Seller prior to Closing, then Buyer shall give prompt
written notice to such Seller identifying such employees and the employment
terms offered to such employees. If the terms of employment offered by Buyer to
any such employees are modified prior to employment and the expiration of such
30 day period, then Buyer shall give prompt written notice to Seller describing
any such modification.
5.10 Jurisdictional Status. If and to the extent Buyer elects, by the
filing of an application for FERC declaratory order or otherwise, each of
Seagull, HPLC and Mantaray shall cooperate with Buyer in Buyer's efforts to
change the recognized federal jurisdictional status of the SSS from transmission
facilities, in whole or in part, to wholly gathering status. Without limiting
the foregoing, each of Seagull, HPLC and Mantaray agree to support Buyer, and
will cause their respective Affiliates not to oppose Buyer in any FERC
proceedings relating to such matter. Amoco, subject to the terms of that certain
Settlement Agreement between SSS and Amoco Energy Trading Corporation dated
January 24, 1995, will not oppose through formal intervention or any other means
any Buyer efforts to change the recognized federal jurisdictional status of the
SSS from transmission facilities, in whole or in part, to wholly gathering
status.
5.11 Pending Agreements. To the extent a Seller will be a party to the
pending agreements set forth in Schedule 5.11 hereof, such Seller shall use its
commercially reasonable efforts to obtain the execution of such agreements prior
to the Closing Date.
ARTICLE 6.
INDEPENDENT INVESTIGATION AND DISCLAIMER
6.1 Independent Investigation and Disclaimer. Buyer acknowledges that
(a) it has had and pursuant to this Agreement will have prior to the Closing
access to Sellers, the Designated Subsidiaries and the Subject Assets and the
officers and employees of Sellers and the Designated Subsidiaries and (b) in
making the decision to enter into this Agreement and consummate the transactions
contemplated hereby, Buyer has relied solely on the basis of its own independent
investigation and upon the expressed representations, warranties, covenants and
agreements set forth
25
<PAGE> 31
in this Agreement. Accordingly, Buyer acknowledges that, except as expressly set
forth herein, Sellers have not made, AND SELLERS HEREBY EXPRESSLY DISCLAIM AND
NEGATE, ANY REPRESENTATION OR WARRANTY, EXPRESSED, IMPLIED, AT COMMON LAW, BY
STATUTE, OR OTHERWISE RELATING TO (i) THE CONDITION OF THE PURCHASED SHARES OR
THE SUBJECT ASSETS (INCLUDING WITHOUT LIMITATION, ANY IMPLIED OR EXPRESSED
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY
TO MODELS OR SAMPLES OF MATERIALS, OR ENVIRONMENTAL CONDITION), (ii) ANY
INFRINGEMENT BY ANY SELLER OF ANY PATENT OR PROPRIETARY RIGHT OF ANY THIRD
PARTY, AND (iii) ANY INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL)
FURNISHED TO BUYER BY OR ON BEHALF OF ANY SELLER (INCLUDING, WITHOUT LIMITATION,
IN RESPECT OF THE EXISTENCE OR EXTENT OF OIL, GAS OR OTHER MINERAL RESERVES, THE
RECOVERABILITY OF OR THE COST OF RECOVERING ANY SUCH RESERVES AND THE ABILITY OF
BUYER TO BECOME OPERATOR OF THE SUBJECT ASSETS UNDER ANY OPERATING OR SIMILAR
AGREEMENT); AND BUYER WILL HAVE SOLE RESPONSIBILITY FOR ANY ACTION TAKEN BY
BUYER, OR BY OTHERS RELYING ON BUYER'S ADVICE, BASED ON THE GEOLOGICAL MAPS,
RECORDS, LOGS, PRODUCTION OR RESERVE FORECASTS AND OTHER DATA, IF ANY,
TRANSFERRED UNDER THIS AGREEMENT. As used in the disclaimer provisions of this
Section 6.1, "Seller" or "Sellers" shall include the Seller Parties.
ARTICLE 7.
TAX MATTERS
7.1 Application of Article 7. The provisions of this Article 7 shall be
applied separately with respect to Seagull, as Seller of the SPM Shares, and
Amoco, as Seller of the Amoco Cavallo Shares. Except for the provisions of
Section 7.5, the provisions of Article 7 shall not apply to any Seller other
than Seagull or Amoco. For purposes of this Article 7, the "Seller Group" means,
with respect to Seagull, the affiliated group of corporations filing a
consolidated federal income Tax Return of which Seagull is the common parent
and, with respect to Amoco, the affiliated group of corporations filing a
consolidated federal income Tax Return of which Amoco is a member and Amoco
Corporation is the common parent.
7.2 Section 338(h)(10) Elections. Each of (i) Seagull and Buyer and
(ii)Amoco Corporation and Buyer shall make a joint election under section
338(h)(10) of the Code and similar elections under any applicable state income
tax law for SPM and for each of the SPM Subsidiaries, in the case of Seagull or,
in the case of Amoco, Amoco Cavallo (collectively, the "Section 338(h)(10)
Elections"). At the Closing each of Amoco and Seagull shall deliver to Buyer an
Internal Revenue Service Form 8023-A and any similar form under applicable state
income tax law (the "Forms") with respect to the Section 338(h)(10) Elections,
which shall have been duly executed by an authorized person for such Seller.
Amoco shall cause the Section 338(h)(10) Elections with respect to Amoco Cavallo
to be executed by Amoco Corporation. Buyer shall cause the Forms to be duly
executed by an authorized person for Buyer, shall complete any schedules
required to be attached thereto, shall provide a copy of the executed Forms and
schedules to such Seller, and shall
26
<PAGE> 32
duly and timely file the Forms as prescribed by Treasury Regulation Section
1.338(h)(10)-1 or the corresponding provisions of applicable state income tax
law. Each of Amoco and Seagull severally represents and warrants to Buyer that
its Purchased Designated Subsidiary sold to Buyer by such Seller is a member of
such Seller's Seller Group, and a Section 338(h)(10) Election may be made with
respect to Buyer's acquisition of the stock of such Seller's Purchased
Designated Subsidiary pursuant to the provisions hereof and may be made with
respect to the deemed acquisition (which occurs by reason of the Section
338(h)(10) Election with respect to the Purchased Designated Subsidiary) of the
stock of such Purchased Designated Subsidiary's subsidiaries.
7.3 Preparation of Tax Returns; Responsibility for Taxes. (a) Each of
Amoco and Seagull shall cause to be included in its consolidated federal income
Tax Returns (and the state income Tax Returns of any state that permits
consolidated, combined or unitary income Tax Return, if any) of its Seller Group
for all periods ending on or before the Closing Date, all items of income, gain,
loss, deduction and credit and other tax items ("Tax Items") of its Purchased
Designated Subsidiary and, in the case of SPM, the SPM Subsidiaries which are
required to be included therein, shall file timely all such Tax Returns with the
appropriate taxing authorities, and shall be responsible for the timely payment
(and entitled to any refund) of all taxes due with respect to the periods
covered by such Tax Returns. At or prior to the Closing, each of Amoco and
Seagull shall cause its Purchased Designated Subsidiary and, in the case of SPM,
the SPM Subsidiaries, to distribute to such Seller the amount reflected as a
liability for such taxes on the Balance Sheets, to the extent not previously
distributed to such Seller.
(b) With respect to any Tax Return covering a taxable period ending on
or before the Closing Date that is required to be filed after the Closing Date
with respect to its Purchased Designated Subsidiary and, in the case of SPM,
any SPM Subsidiary that is not described in paragraph (a) above, each of
Seagull and Amoco shall cause such Tax Return applicable to it to be prepared,
shall cause to be included in such Tax Return all Tax Items required to be
included therein, shall file timely such Tax Return with the appropriate
taxing authority, and shall be responsible for the timely payment (and entitled
to any refund) of all taxes due with respect to the period covered by such Tax
Return. At or prior to the Closing, each of Amoco and Seagull shall cause its
Purchased Designated Subsidiary and, in the case of SPM, the SPM Subsidiaries,
to distribute to such Seller the amount reflected as a liability for such taxes
on the Balance Sheets, to the extent not previously distributed to such Seller.
(c) With respect to any Tax Return covering a taxable period beginning
on or before the Closing Date and ending after the Closing Date that is
required to be filed after the Closing Date with respect to a Purchased
Designated Subsidiary and, in the case of SPM, any SPM Subsidiary, Buyer shall
cause such Tax Return to be prepared, shall cause to be included in such Tax
Return all Tax Items required to be included therein, shall file timely such Tax
Return with the appropriate taxing authority, and shall be responsible for the
timely payment (and entitled to any refund) of all taxes due with respect to the
period covered by such Tax Return. Buyer and, as applicable, Seagull or Amoco
shall determine (by an interim closing of the books as of the Closing Date
except for ad valorem taxes which shall be prorated on a daily basis) the
portion of the tax due with respect to the period covered by such Tax Return
applicable to it which is attributable to the portion of such taxable period
ending on the Closing Date. If (i) the amount of tax so determined
27
<PAGE> 33
to be attributable to the portion of such taxable period ending on the Closing
Date exceeds (ii) the amount reflected as a liability for such tax on the
Balance Sheets, Amoco or Seagull, as applicable, shall pay to Buyer the amount
of such excess tax not less than 5 days prior to the due date of such Tax
Return; if the amount determined in clause (ii) exceeds the amount determined in
clause (i), Buyer shall pay to Amoco or Seagull, as applicable, the amount of
such excess not later than five days prior to the due date of such Tax Return.
(d) Notwithstanding anything to the contrary herein, any franchise
tax paid or payable with respect to a Purchased Designated Subsidiary and, in
the case of SPM, any SPM Subsidiary shall be allocated to the taxable period
during which the right to do business obtained by the payment of such franchise
tax relates, regardless of whether such franchise tax is measured by income,
operations, assets or capital relating to another taxable period. With respect
to any franchise tax so allocated to the taxable period in which the Closing
Date occurs: (i) the amount of such franchise tax shall be prorated on a daily
basis between the portion of such taxable period ending on the Closing Date
and the remaining portion of such taxable period, and (ii) if the amount of
such franchise tax paid or provided for as of the Closing Date exceeds the
amount so prorated to the portion of such taxable period ending on the Closing
Date, Buyer shall pay to the applicable Seller the excess amount upon the
Closing.
(e) Any Tax Return to be prepared pursuant to the provisions of this
Section 7.3 shall be prepared in a manner consistent with practices followed
in prior years with respect to similar Tax Returns, except for changes
required by changes in law or fact.
7.4 Access to Information. (a) Each of Amoco and Seagull and each
member of its Seller Group shall grant to Buyer (or its designees) access at all
reasonable times to all of the information, books and records relating to its
Purchased Designated Subsidiary and, in the case of SPM, the SPM Subsidiaries
within the possession of such Seller or any member of its Seller Group
(including work papers and correspondence with taxing authorities), and shall
afford Buyer (or its designees) the right (at Buyer's expense) to take extracts
therefrom and to make copies thereof, to the extent reasonably necessary to
permit Buyer (or its designees) to prepare Tax Returns and to conduct
negotiations with taxing authorities.
(b) Buyer shall grant or cause the Purchased Designated Subsidiary
and, in the case of SPM, the SPM Subsidiaries to grant to the applicable
Seller (or its designees) access at all reasonable times to all of the
information, books and records relating to the Purchased Designated
Subsidiary and, in the case of SPM, the SPM Subsidiaries within the possession
of Buyer, the Purchased Designated Subsidiary and, in the case of SPM, the SPM
Subsidiaries (including work papers and correspondence with taxing authorities),
and shall afford such Seller (or its designees) the right (at such Seller's
expense) to take extracts therefrom and to make copies thereof, to the extent
reasonably necessary to permit such Seller (or its designees) to prepare Tax
Returns and to conduct negotiations with taxing authorities.
7.5 Transfer Taxes. Buyer shall be responsible for the payment of all
state and local transfer, sales, use or other similar taxes resulting from the
transactions contemplated by this Agreement.
28
<PAGE> 34
ARTICLE 8.
CONDITIONS TO CLOSING
8.1 Conditions Precedent to Obligation of Each Party. The respective
obligations of each Party to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) No order shall have been entered and remain in effect in
any action or proceeding before any federal, state, foreign or local
court or governmental agency or other federal, state, foreign or local
regulatory or administrative agency or commission that would prevent or
make illegal the consummation of the transactions contemplated by this
Agreement and no action or proceedings that has a reasonable likelihood
of preventing or materially hindering the transactions contemplated
hereby shall have been instituted, which shall not have been
subsequently dismissed;
(b) Any applicable waiting period under the HSR Act relating to
the transaction as contemplated hereby shall have expired or been
terminated; and
(c) Any and all consents of third parties, including
Governmental Authorities (other than Customary Post-Closing Consents),
necessary in connection with the transactions contemplated hereby shall
have been obtained or arrangements shall have been made reasonably
satisfactory to Buyer to allow Buyer to receive substantially the same
economic benefits as if all such consents had been obtained.
8.2 Additional Conditions Precedent to Obligations of Buyer. The
obligation of Buyer to consummate the transactions contemplated by this
Agreement are also subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) The representations and warranties contained in Article 3,
to the extent qualified as to materiality shall be accurate in all
respects, and, to the extent not so qualified, shall be accurate in all
material respects, as of the Closing Date as though such
representations and warranties had been made at and as of that time;
all of the terms, covenants and conditions of this Agreement to be
complied with and performed by each Seller and its Designated
Subsidiary on or before the Closing Date shall have been duly complied
with and performed in all material respects, and a certificate to the
foregoing effect dated the Closing Date and signed by an authorized
executive officer of each Seller shall have been delivered to Buyer;
(b) Buyer shall have received a copy of the resignation,
effective as of the Closing Date, of each officer and director of the
Purchased Designated Subsidiaries;
(c) Seagull, HPLC, EGPC and Buyer shall have entered into and
executed a mutually agreeable transitional services agreement in
substantially the form of Exhibit E attached hereto; and
29
<PAGE> 35
(d) The agreements set forth in Schedule 8.2 hereof shall have been
executed by the parties thereto.
8.3 Additional Conditions Precedent to Obligations of Seller. The
obligation of Seller to consummate the transactions contemplated by this
Agreement are also subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) The representations and warranties of Buyer and Guarantor
contained in Article 4 shall be accurate in all material respects as of
the Closing Date as though such representations and warranties had been
made at and as of that time; all the terms, covenants and conditions of
this Agreement to be complied with and performed by Buyer and Guarantor
on or before the Closing Date shall have been duly complied with and
performed in all material respects; and a certificate to the foregoing
effect dated the Closing Date and signed by an authorized executive
officer of each of Buyer and Guarantor shall have been delivered to
Sellers; and
(b) Buyer shall have satisfied the conditions set forth in
Schedule 8.3 hereof.
ARTICLE 9.
INDEMNIFICATION AND ASSUMPTION
9.1 By Seller. Subject to the terms and conditions of this Article 9,
each Seller, severally and not jointly, hereby agrees to indemnify, defend and
hold harmless Buyer, its Affiliates and its and their respective directors,
officers, shareholders and employees (collectively, the "Buyer Parties"), from
and against the following (collectively, the "Buyer Indemnified Liabilities"):
any Claim individually constituting a Loss in excess of $5,000 asserted against,
imposed upon, or incurred by any Buyer Party, directly or indirectly, by reason
of, arising out of, or resulting from (a) the inaccuracy or breach of any
representation or warranty made by such Seller or, subject to Section 9.8(c),
attributable to the Purchased Subject Assets or the Purchased Shares sold by
such Seller contained in or made pursuant to this Agreement, (b) the breach of
any covenant or agreement of such Seller contained in or made pursuant to this
Agreement or (c) the use, ownership and operation of the Excluded Assets owned
by such Seller or the Seagull Retained Subsidiaries retained by such Seller;
provided, none of the Buyer Parties shall be entitled to assert rights of
indemnification by such Seller under this Article 9 for Buyer Indemnified
Liabilities unless and until the aggregate of all such Buyer Indemnified
Liabilities exceeds the Deductible Amount applicable to such Seller (it being
understood that such Buyer Indemnified Liabilities shall accumulate until such
time or times as the aggregate of all such Buyer Indemnified Liabilities exceeds
the Deductible Amount applicable to such Seller, whereupon the Buyer Parties
shall be entitled to indemnification by such Seller hereunder to the extent of
such excess); provided, further, such Seller's maximum indemnification
obligation under Sections 9.1(a) and 9.1(b) shall be capped at an aggregate
amount equal to such Capped Purchase Price applicable to such Seller. For
purposes of this Article 9, in determining whether there has occurred a breach
of a representation or warranty of such Seller contained in or made pursuant to
this Agreement, as well as the amount of any Loss resulting therefrom, the
provisions of Article 3 that are qualified by a Seller Material Adverse Effect
shall be read and interpreted as if such qualification was not included therein.
30
<PAGE> 36
9.2 By Buyer. (a) As of the Closing and subject to indemnity
obligations of Sellers under Sections 9.1 and 9.9, Buyer assumes all obligations
and liabilities that are attributable to the ownership and/or operation of
Purchased Subject Assets, which assumption by Buyer is made regardless of
whether any such obligation or liability is attributable to events or periods of
time prior to or after the Closing Date (such assumed obligations and
liabilities being hereinafter collectively referred to as the "Assumed
Obligations"). Subject to the terms and conditions of this Article 9, Buyer
hereby agrees to indemnify, defend and hold harmless each of Sellers and its
Affiliates and their respective directors, officers, shareholders and employees
(collectively, "Seller Parties"), from and against the following (collectively,
the "Seller Indemnified Liabilities"); any Claim individually constituting a
Loss in excess of $5,000 asserted against, imposed upon or incurred by any such
person, directly or indirectly, by reason of, arising out of or resulting from
(i) the inaccuracy or breach of any representation or warranty of Buyer
contained in or made pursuant to this Agreement, (ii) the breach of any covenant
or agreement of it contained in or made pursuant to this Agreement, (iii) the
operation of the business of the Purchased Designated Subsidiaries and the
operation and ownership of the Subject Assets from and after the Closing Date,
and (iv) the Assumed Obligations. Notwithstanding anything in this Section 9.2
to the contrary, the assumption by Buyer of the Assumed Obligations and Buyer's
indemnification of the Seller Parties for such Assumed Obligations shall not in
any way adversely affect or diminish any Buyer Party's right to indemnification
by any Seller Party in accordance with this Article 9.
(b) Subject to the terms and conditions of this Article 9, Guarantor
hereby agrees to indemnify, defend and hold harmless each of Seller Parties from
and against any Claim individually constituting a Loss in excess of $5,000
asserted against, imposed upon or incurred by any such person, directly or
indirectly, by reason of, arising out of or resulting from (i) the inaccuracy or
breach of any representation or warranty by Guarantor contained in or made
pursuant to this Agreement and (ii) the breach of any covenant or agreement of
Guarantor contained in or made pursuant to this Agreement.
9.3 Express Negligence Rule. WITHOUT LIMITING OR ENLARGING THE SCOPE OF
THE INDEMNIFICATION OBLIGATIONS SET FORTH IN THIS AGREEMENT, AN INDEMNIFIED
PARTY SHALL BE ENTITLED TO INDEMNIFICATION HEREUNDER IN ACCORDANCE WITH THE
TERMS HEREOF, REGARDLESS OF WHETHER THE LOSS OR CLAIM GIVING RISE TO SUCH
INDEMNIFICATION OBLIGATION IS THE RESULT OF THE SOLE, CONCURRENT OR COMPARATIVE
NEGLIGENCE, STRICT LIABILITY OR VIOLATION OF ANY LAW OF OR BY SUCH INDEMNIFIED
PARTY. THE PARTIES AGREE THAT THIS PARAGRAPH CONSTITUTES A CONSPICUOUS LEGEND.
9.4 Exceptions to Indemnities. Notwithstanding anything to the contrary
set forth in Section 9.1, Buyer Indemnified Liabilities shall not include any
and all Claims to the extent same are attributable to a breach of any
representation, warranty, covenant or agreement of Buyer under this Agreement.
Notwithstanding anything to the contrary set forth in Section 9.2, Seller
Indemnified Liabilities shall not include any and all Claims to the extent same
are attributable to a breach of any representation, warranty, covenant or
agreement of any Seller under this Agreement.
31
<PAGE> 37
9.5 Notice of Claim. (a) For purposes of this Article 9, the term
"Indemnifying Party" when used in connection with a particular Claim shall mean
the party having an obligation to indemnify another party with respect to such
Claim pursuant to this Article 9, and the term "Indemnified Party" when used in
connection with a particular Claim shall mean the party having the right to be
indemnified with respect to such Claim by another party pursuant to this Article
9.
(b) Promptly after any Indemnified Party becomes aware of facts giving
rise to a Claim by it for indemnification pursuant to this Article 9, such
Indemnified Party will provide notice thereof in writing to the Indemnifying
Party (a "Claim Notice") specifying the nature and specific basis for such Claim
and a copy of all papers served with respect to such Claim (if any). For
purposes of this Section 9.5(b), receipt by a party of written notice of any
demand, assertion, claim, action or proceeding (judicial, administrative or
otherwise) by or from any person or entity other than a party to this Agreement
which gives rise to a Claim on behalf of such party shall constitute the
discovery of facts giving rise to a Claim by it and shall require prompt notice
of the receipt of such matter as provided in the first sentence of this Section
9.5(b). Each Claim Notice shall set forth a reasonable description of the Claim
as the Indemnified Party shall then have and shall contain a statement to the
effect that the Indemnified Party giving the notice is making a claim pursuant
to and formal demand for indemnification under this Article 9. The Claim Notice
must set forth the particular provision in this Article 9 and any related
provision in this Agreement pursuant to which such indemnification claim is
made. For example, if an Indemnified Party elects to assert an indemnification
claim for breach of the Indemnifying Party's breach of representation, the
Indemnified Party's Claim Notice would provide that the Claim is asserted under
Section 9.1(a) or 9.2(a)(i), as applicable, and that the representation
allegedly breached is, for example, the litigation representation contained in
Section 3.11 or 4.8, as applicable.
9.6 Third-Party Claims. (a) If an Indemnified Party shall have any
Third-Party Claim asserted against such Indemnified Party, the Indemnified Party
promptly shall transmit to the Indemnifying Party a Claim Notice relating to
such Third-Party Claim. Prior to the expiration of the 45-day period following
the Indemnifying Party's receipt of such notice (the "Election Period"), the
Indemnifying Party shall notify the Indemnified Party (i) whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article 9 with respect to such Third-Party Claim and (ii) whether the
Indemnifying Party elects, at the sole cost and expense of such Indemnifying
Party, to defend the Indemnified Party against such Third-Party Claim.
(b) If an Indemnifying Party notifies an Indemnified Party within the
Election Period that the Indemnifying Party does not dispute its potential
liability to the Indemnified Party under this Article 9 and that the
Indemnifying Party elects to assume the defense of the Third-Party Claim, then
the Indemnifying Party shall have the right to defend, at its sole cost and
expense, such Third-Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the Indemnifying Party in accordance
with this Section 9.6(b). The Indemnifying Party shall have full control of such
defense and proceedings, including any compromise or settlement thereof. If
requested by the Indemnifying Party, the Indemnified Party agrees to cooperate
fully with the Indemnifying Party and its counsel at the Indemnifying Party's
expense in contesting any Third-Party Claim that the Indemnifying Party elects
to contest, including, without limitation, the making of any related
counterclaim against the
32
<PAGE> 38
Person asserting the Third-Party Claim or any cross-complaint against any
Person. The Indemnified Party shall have the right to participate in, but not
control, any defense or settlement of any Third-Party Claim controlled by the
Indemnifying Party pursuant to this Section 9.6(b) and shall bear its own costs
and expenses with respect to any such participation.
9.7 Subrogation. In the event that any Indemnified Party has a right
against a third party with respect to any damages, losses, costs or expenses
paid to such Indemnified Party by an Indemnifying Party, then such Indemnifying
Party shall, to the extent of such payment, be subrogated to the right of such
Indemnified Party.
9.8 Exclusive Remedies; Survival of Representations and Warranties;
Limitation of Certain Liabilities.
(a) Buyer and each of Sellers (i) agree that only actual damages shall
be recoverable under this Agreement and (ii) hereby waive any right to recover
special, punitive, consequential, incidental or exemplary damages except to the
extent any such party suffers such damages to an unaffiliated third-party in
connection with a Third-Party Claim, in which event such damages shall be
recoverable. Notwithstanding anything to the contrary in this Agreement, the
indemnification provisions of this Agreement shall be the exclusive remedies for
any Claim based upon this Agreement or the transactions described herein
following Closing. In furtherance of the foregoing, all other remedies available
at law or in equity, in tort, contract or otherwise are hereby waived, released
and discharged by each of Sellers and Buyer. No Claim of any nature can be
brought by any Buyer Party against any of Sellers unless written notice of such
Claim has been given on or before (A) one hundred twenty (120) days of the
expiration of the applicable statute of limitations with respect to a claim
involving a Claim for taxes (whether arising out of Section 3.10, Article 7 or
otherwise) or (B) the second anniversary of the Closing Date and otherwise in
accordance with this Article 9 with respect to any other Claim; provided, the
time limitations set forth in this Section 9.8(a) shall not affect the
representations set forth in Section 3.15 or Seagull's indemnification
obligations under Section 9.9, which representation and indemnity obligation
shall survive indefinitely. Indemnity obligations of any Indemnifying Party
shall be reduced by any insurance proceeds realized by any Indemnified Party.
(b) Neither Buyer Parties or Seller Parties may assert any claim under
this Article 9 based on facts constituting a breach of any of the
representations and warranties hereunder to the extent such person had actual
knowledge of such facts prior to the Closing Date.
(c) Notwithstanding anything in this Agreement to the contrary but
subject to the provisions of the last sentence of this paragraph (c), each
Seller's obligations hereunder are (i) limited to those liabilities specifically
related to such Seller's representations, warranties, covenants and agreements
and to the representations, warranties, covenants and agreements attributable to
the Purchased Subject Assets or the Purchased Shares sold by such Seller, and
(ii) several, not joint and several. No Seller hereunder shall be deemed to have
made any representations or warranties or provided any indemnities with respect
to any of the Subject Assets not owned by it or any of its Designated
Subsidiaries, and any indemnities with respect to any Subject Assets jointly
owned by more than one of Sellers (or such Seller's Designated Subsidiaries)
shall be several,
33
<PAGE> 39
and not joint and several, in proportion to the respective ownership of such
Subject Assets by such Sellers or such Sellers' Designated Subsidiaries.
Notwithstanding any provision to the contrary in this Agreement, EGPC and
HPLC shall be jointly and severally liable for the obligations and
liabilities of each other under this Agreement.
9.9 Other Indemnities. Seagull hereby agrees to defend, indemnify and
hold the Buyer Parties harmless from and against any Claim asserted against,
imposed upon, or incurred by any Buyer Party directly or indirectly, by reason
of, arising out of, or resulting from (i) the matter set forth in Schedule 9.9
to the extent set forth therein, and (ii) that certain suit styled Jose Romeo
Garcia and Ofelia Garcia vs. Seagull Energy Corporation.
9.10 Waiver of Texas DTPA. It is the intent of the parties that Buyer's
rights and remedies with respect to this transaction and with respect to all
acts or practices of Sellers, past, present or future, in connection with this
transaction shall be governed by legal principles other than the Texas Deceptive
Trade Practices -- Consumer Protection Act, Tex. Bus. & Com. Code Ann. Section
17.41 et seq. (Vernon 1987 and Supp. 1994) (the "DTPA"). As such, Buyer hereby
waives the applicability of the DTPA to this transaction and any and all duties,
rights or remedies that might be imposed by the DTPA, whether such duties,
rights or remedies are applied directly by the DTPA itself or indirectly in
connection with other statutes; provided, however, Buyer does not waive Section
17.555 of the DTPA. Buyer acknowledges, represents and warrants that it is
purchasing the assets covered by this Agreement for commercial or business use;
that Buyer has assets of Five Million Dollars ($5,000,000) or more according to
its most recent financial statement prepared in accordance with generally
accepted accounting principles; that Buyer has knowledge and experience in
financial and business matters that enable it to evaluate the merits and risks
of a transaction such as this; and that it is not in a significantly disparate
bargaining position with Seller. Buyer expressly recognizes that the price for
which the applicable Seller has agreed to sell the Purchased Subject Assets and
perform its obligations under this Agreement has been predicated upon the
inapplicability of the DTPA and this waiver of the DTPA. Buyer further
recognizes that Sellers, in determining to proceed with the entering into of
this Agreement, have expressly relied on this waiver and the inapplicability of
the DTPA.
ARTICLE 10.
TERMINATION
10.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned as follows:
(a) By the mutual written consent of Buyer and each of Sellers at any
time prior to the Closing;
(b) By Buyer or any of Sellers if a final, non-appealable order to
restrain, enjoin or otherwise prevent the consummation of the transactions
contemplated hereby shall have been entered;
34
<PAGE> 40
(c) By any of Sellers at any time prior to the Closing if the Closing
shall not have occurred on or before the Termination Date by reason of a failure
of any condition precedent under Section 8.1 or 8.3 unless the failure results
primarily from the breach by such Seller of any representation, warranty or
covenant contained in this Agreement; or
(d) By Buyer at any time prior to the Closing if the Closing shall not
have occurred on or before the Termination Date by reason of a failure of any
condition precedent under Section 8.1 or 8.2 unless the failure results
primarily from Buyer itself breaching any representation, warranty or covenant
contained in this Agreement.
10.2 Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 10.1, (i) Sellers and Buyer shall have no
obligation or liability to each other except that the provisions of Section 5.1
and the provisions of Article 9 shall survive any such termination, and (ii)
nothing herein and no termination pursuant hereto will relieve any party from
liability for any breach of this Agreement prior to such termination or, with
respect to those provisions that survive such termination, prior to or following
termination.
ARTICLE 11.
MISCELLANEOUS
11.1 Expenses. Each of Sellers and Buyer shall bear and pay all costs
and expenses incurred by it in connection with the transactions contemplated by
this Agreement.
11.2 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the Party that is entitled to the benefits thereof. This
Agreement may not be amended or supplemented at any time, except by an
instrument in writing signed on behalf of each Party hereto. The waiver by any
Party hereto of any condition or of a breach of another provision of this
Agreement shall not operate or be construed as a waiver of any other condition
or subsequent breach. The waiver by any Party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived.
11.3 Public Statements. Each of Sellers and Buyer agree to consult
with, and obtain the approval of (which approval will not be unreasonably
withheld), each other prior to issuing any press release or otherwise making any
public statement with respect to the transactions contemplated hereby, and shall
not issue any such press release or make any such public statement prior to such
consultation and approval, except as may be required by law.
11.4 Assignment. This Agreement shall inure to the benefit of and will
be binding upon the Parties hereto and their respective legal representatives,
successors and permitted assigns. This Agreement shall not be assignable by the
Parties hereto without the prior written consent of the other Parties hereto.
11.5 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (a) delivered
in person or by courier, (b) sent by telecopy or facsimile
35
<PAGE> 41
transmission, answer back requested, or (c) mailed, by registered or certified
mail, postage prepaid, return receipt requested, to the parties hereto at the
following addresses:
if to Sellers: Seagull Energy Corporation
1001 Fannin, Suite 1700
Houston, TX 77002
Fax: (713) 951-4733
Attention: Chairman of the Board
Enron Gas Processing Company
Houston Pipe Line Company
1400 Smith Street
Houston, Texas
Fax: (713) 646-8416
Attention: Stephen A. Smaby
Mantaray Pipeline Company
5400 Westheimer Court
Houston, Texas 77056
Fax: (713) 627-6273
Attention: Michael J. Bradley
Amoco Gas Company
c/o Amoco Production Company
501 WestLake Park Blvd.
Houston, Texas 77079
Fax: (713) 366-7544
Attention: John D. Spence
with a copy to: Vinson & Elkins L.L.P.
1001 Fannin, Suite 2300
Houston, TX 77002-6760
Attention: J. Mark Metts
Keith L. Head
Mantaray Pipeline Company
5400 Westheimer Court
Houston, Texas 77056
Fax: (713) 989-3190
Steve Van Hooser
Enron Capital Trade & Resources Corp.
1400 Smith Street
Houston, TX 77002
Fax: (713) 646-3490
36
<PAGE> 42
Jackson M. Cooley
c/o Amoco Production Company
501 WestLake Park Blvd.
Houston, Texas 77079
Fax: (713) 366-7583
if to Buyer or Guarantor: 200 WestLake Park Blvd., Suite 1000
Houston, Texas 77079
Attention: Ronald H. Benson
with a copy to: Baker & Botts, L.L.P.
3000 One Shell Plaza
910 Louisiana
Houston, Texas 77002-4993
Attention: Stephen A. Massad
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 11.5. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when the
answer back is received, or (iii) if mailed, the date of delivery as shown by
the return receipt therefor.
11.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas, excluding any choice of law
rules that may direct the application of the laws of another jurisdiction.
11.7 Further Assurances. In case at any time after the Closing Date any
further action is necessary to carry out the purposes of this Agreement
including, without limitation, the transfer of the Purchased Shares and the
Purchased Subject Assets to Buyer, the transfer of the Seagull Excluded Assets
and Seagull Retained Subsidiaries to an Affiliate or Affiliates of Seagull (as
contemplated in Section 2.4(a)) and obtaining all Customary Post Closing
Consents, Sellers and Buyer will take or cause to be taken such further action
(including the execution and delivery of such further instruments and documents)
as the other party reasonably may request all without further consideration.
11.8 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired or invalidated unless such an interpretation
would materially alter the rights and privileges of any party hereto or
materially alter the terms of the transactions contemplated hereby.
11.9 Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute one
and the same agreement.
37
<PAGE> 43
11.10 Headings. The section headings herein are for convenience only
and shall not affect the construction hereof.
11.11 Entire Agreement; No Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Disclosure Schedule and any other
documents executed and delivered pursuant to this Agreement and the
Confidentiality Agreement constitute the entire agreements and supersede all
other prior agreements and understandings, both oral and written, among the
Parties or any of them, with respect to the subject matter hereof and neither
this nor any document delivered in connection with this Agreement, confers upon
any person not a party hereto any rights or remedies hereunder.
11.12 Guarantee. As part of the consideration for the execution of this
Agreement by Sellers, Guarantor has agreed to be liable to Sellers for all of
the obligations, duties and liabilities of Buyer hereunder, and accordingly
Guarantor hereby joins in the execution of this Agreement and unconditionally
guarantees unto Sellers the performance by Buyer of all of the terms and
provisions of this Agreement.
11.13 Financial Information. To the extent reasonably requested by
Buyer, each Seller shall provide to Buyer as promptly as reasonably practical
any financial statements, schedules or information (including without limitation
access to the work papers of KPMG Peat Marwick related to the financial
statements described in this Section 11.13, but subject to such firm's policies
and procedures relating to such work papers) relating to the Subject Assets
attributable to such Seller, but only to the extent required to be included by
Buyer or Guarantor in any registration statement or periodic or current report
required to be filed with the Securities and Exchange Commission by Buyer or any
of its Affiliates under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, and any additional financial or
operating data relating to any of the financial statements, schedules or
information referred to in this Section 11.13 relating to any of the Subject
Assets. Buyer shall bear all out-of-pocket expenses of Sellers resulting from
compliance by Sellers with the provisions of this Section 11.13.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
SELLERS:
SEAGULL ENERGY CORPORATION
By: /s/ JOHN N. GOODPASTURE
-----------------------------
Name: JOHN N. GOODPASTURE
Title: Senior Vice President,
Pipelines and Marketing
38
<PAGE> 44
HOUSTON PIPE LINE COMPANY
By: /s/ STEPHEN A. SMABY
-------------------------------
Name: Stephen A. Smaby
Title: President
ENRON GAS PROCESSING COMPANY
By: /s/ STEPHEN A. SMABY
-------------------------------
Name: Stephen A. Smaby
Title: Vice President
MANTARAY PIPELINE COMPANY
By: /s/ Michael J. BRADLEY
-------------------------------
Name: Michael J. Bradley
Title: Vice President
AMOCO GAS COMPANY
By: /s/ S.D. BOJACK
-------------------------------
Name: S.D. Bojack
Title: President And Chairman
39
<PAGE> 45
BUYER:
SEAHAWK GATHERING & LIQUIDS
COMPANY
By: /s/ J. CHRIS JONES
------------------------------
Name: J. Chris Jones
Title: Vice President
GUARANTOR:
TEJAS POWER CORPORATION
By: /s/ J. CHRIS JONES
------------------------------
Name: J. Chris Jones
Title: Senior Vice President
40
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 12,470
<SECURITIES> 0
<RECEIVABLES> 74,624
<ALLOWANCES> 0
<INVENTORY> 5,800
<CURRENT-ASSETS> 98,416
<PP&E> 1,621,535
<DEPRECIATION> 576,702
<TOTAL-ASSETS> 1,198,855
<CURRENT-LIABILITIES> 98,313
<BONDS> 0
<COMMON> 3,644
0
0
<OTHER-SE> 394,617
<TOTAL-LIABILITY-AND-EQUITY> 1,198,855
<SALES> 176,337
<TOTAL-REVENUES> 176,337
<CGS> 26,488
<TOTAL-COSTS> 208,209
<OTHER-EXPENSES> 11,752
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,931
<INCOME-PRETAX> (71,555)
<INCOME-TAX> (25,880)
<INCOME-CONTINUING> (45,675)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45,675)
<EPS-PRIMARY> (1.27)
<EPS-DILUTED> (1.27)
</TABLE>
