<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 1-8094
SEAGULL ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 74-1764876
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or
organization)
1001 FANNIN, SUITE 1700 77002-6714
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (713) 951-4700
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- -------------------------
<S> <C>
Common Stock, par value $.10 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of March 20, 1996, the aggregate market value of the outstanding shares
of Common Stock of the Company held by non-affiliates (based on the closing
price of these shares on the New York Stock Exchange) was approximately
$714,592,713.
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT MARCH 20, 1996
----- -----------------------------
<S> <C>
Common Stock, par value $.10 per share 36,354,466
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
DOCUMENT PART OF FORM 10-K
-------- -----------------
<S> <C>
(1) Annual Report to Shareholders for PARTS I and II
year ended December 31, 1995
(2) Proxy Statement for Annual Meeting PART III
of Shareholders to be held on May 14, 1996
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. BUSINESS
Seagull Energy Corporation (the "Company" or "Seagull") is an
independent energy company primarily engaged in natural gas exploration,
development and production. The Company's operations are focused offshore
Texas and Louisiana in the Gulf of Mexico and onshore in three principal
geographic regions: (i) western Oklahoma and the Texas Panhandle; (ii) the
Arklatex area in eastern Texas and northern Louisiana and the Arkoma Basin in
eastern Oklahoma and western Arkansas; and (iii) western Canada. Seagull's two
other business segments are also natural gas related: (i) pipeline and
marketing which includes natural gas gathering, gas processing, gas marketing
and pipeline engineering, design, construction and operation; and (ii) natural
gas transmission and distribution in Alaska. In September 1995, the Company
disposed of substantially all of its gas gathering and processing assets. The
Company was incorporated in Texas in 1973 as a wholly owned subsidiary of
Houston Oil & Minerals Corporation ("HO&M"). In March 1981, the Company became
an independent entity as a result of the spin-off of its shares to the
stockholders of HO&M. The "Company" or "Seagull" refers to Seagull and its
consolidated subsidiaries, unless otherwise indicated or the context otherwise
suggests.
For financial information relating to industry segments, see Note 15 of
Notes to Consolidated Financial Statements of Seagull Energy Corporation and
Subsidiaries. The Consolidated Financial Statements of Seagull Energy
Corporation and Subsidiaries and the Notes related thereto (the "Consolidated
Financial Statements") are included in the Company's 1995 Annual Report to
Shareholders and as part of Exhibit 13 attached hereto. Prior to 1994, the
Company derived no revenues and had no material assets outside the United
States. See discussions below regarding the Company's interests in Canada and
in production licenses acquired in United Kingdom waters.
Items 1, 3 and 7 of this document include "forward looking" statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Although
the Company believes that the expectations reflected in such forward looking
statements are based upon reasonable assumptions, it can give no assurance that
its expectations will be achieved. Important factors that could cause actual
results to differ materially from the Company's expectations are disclosed in
conjunction with the forward looking statements included herein ("Cautionary
Disclosures"). Subsequent written and oral forward looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the Cautionary Disclosures.
EXPLORATION AND PRODUCTION
Seagull's exploration and production ("E&P") segment is the Company's
primary growth area and is comprised of the following material direct and
indirect wholly owned subsidiaries of the Company: Seagull Energy E&P Inc.;
HO&M; Wacker Oil Inc.; Seagull Midcon Inc.; Seagull Mid-South Inc. and Seagull
Energy Canada Ltd. ("Seagull Canada").
The Company's other exploration activities outside North America
consist of several production licenses, awarded to two exploration groups which
include Seagull, in United Kingdom waters. While the Company currently has no
producing properties in the United Kingdom waters, two exploratory wells are
scheduled to be drilled in 1996.
Seagull's ongoing North American exploration program has been
concentrated in the Gulf of Mexico, primarily in shallow waters off the central
Texas Gulf Coast. The Company has in the past financed its gas and
1
<PAGE> 3
oil exploration and development activities through internally generated funds
and participation by industry partners on a prospect-by-prospect basis. The
Company believes that its gas and oil exploration and development activities in
the foreseeable future will be financed by internally generated funds. In
1996, the Company expects E&P capital expenditures to total approximately $122
million. Of this amount, about $47 million will be devoted to exploration,
primarily in the Gulf of Mexico, $66 million to development and $9 million to
leasehold acquisition. By comparison, 1995 capital expenditures for E&P
activities totaled $76 million. Management believes that the Company's capital
resources will be sufficient to finance current and forecasted operations.
Revenues from the sale of gas and liquids production accounted for
62%, 64% and 60% of the Company's consolidated revenues for 1995, 1994 and
1993, respectively. As used in this Annual Report on Form 10-K, liquids means
oil, condensate and natural gas liquids, unless otherwise indicated or the
context otherwise suggests. Gas production in 1995 decreased from the prior
year primarily as a result of voluntary curtailments by Seagull and natural
production declines of the reserves. Production of gas and liquids for 1995
averaged 333.8 million cubic feet ("MMcf") per day ("MMcf/d") and 4,268 barrels
("Bbl") per day ("Bbl/d"), respectively, compared to 355.2 MMcf/d and 5,063
Bbl/d, respectively, in 1994.
2
<PAGE> 4
Seagull's principal gas and oil producing properties include the
following:
<TABLE>
<CAPTION>
Average Net Daily Production
for the Year Ended
At December 31, 1995 December 31, 1995
--------------------------- ----------------------------
Proved
Number of Reserves Natural Gas Liquids
Field State Gross Wells (Bcfe) (*) (MMcf) (Bbl)
----- ----- ----------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C>
UNITED STATES:
Mid-South Region:
Arklatex Area:
Carthage ................ Texas 239 197 21.1 559
Oak Hill ................ Texas 50 22 4.6 17
Waskom .................. Texas 78 59 18.9 181
Ruston .................. Louisiana 41 43 16.0 147
Sligo ................... Louisiana 49 11 4.1 37
Arkoma Basin:
Cecil ................... Arkansas 206 67 19.2 -
Aetna ................... Arkansas 107 30 11.2 -
Wilburton ............... Oklahoma 60 22 11.7 -
Other .................................. 406 86 43.0 363
Mid-Continent Region:
Panhandle West ............ Texas 119 49 13.2 8
Panhandle Gray ............ Texas 122 28 0.2 557
Watonga-Chickasha ......... Oklahoma 152 33 13.2 80
Strong City ............... Oklahoma 117 29 12.2 52
Other .................................. 262 62 22.0 336
Offshore Texas ........................... 38 59 32.7 103
Offshore Louisiana ....................... 9 29 25.9 285
Gulf Coast Onshore ....................... 17 12 4.2 451
----------------------------------------------------------------
2,072 838 273.4 3,176
CANADA .................................... 769 275 60.4 1,092
-----------------------------------------------------------------
2,841 1,113 333.8 4,268
=================================================================
</TABLE>
(*) The equivalent of one billion cubic feet ("Bcfe") of natural gas.
Liquids are converted to gas at a ratio of one barrel of liquids per
six Mcf ("Mcf" represents one thousand cubic feet) of gas, based on
relative energy content.
For additional information relating to the Company's gas and oil
reserves, based substantially upon reports of DeGolyer and MacNaughton (for the
years ended December 31, 1995, 1994 and 1993), Netherland, Sewell & Associates,
Inc. (for the years ended December 31, 1994 and 1993) and Ryder Scott Company
(for the years ended December 31, 1994 and 1993), independent petroleum
engineers (collectively the "Engineers"), see Note 7 of the Consolidated
Financial Statements included in the Company's 1995 Annual Report to
Shareholders and as part of Exhibit 13 attached hereto. The Engineers provided
the estimates of "proved developed and undeveloped reserves" and "proved
developed reserves" at the beginning and end of each of the three years
included in Note 7. Under "Standardized Measure of Discounted Future Net Cash
Flows" in Note 7, the Engineers provided all information except "discounted
income taxes" and "standardized measure of discounted future net cash flows".
All information in Note 7 not provided by the Engineers was supplied by the
Company. As required, Seagull also files estimates of gas and oil reserve data
with various governmental regulatory authorities and agencies. The basis for
reporting reserves to these authorities and agencies, in some cases, may not be
comparable. However, the difference in estimates does not exceed 5%.
The future results of this segment will be affected by the market
prices of natural gas and liquids. The availability of a ready market for gas
and liquids products in the future will depend on numerous factors beyond the
control of the Company, including weather, production of other natural gas and
liquids products, imports,
3
<PAGE> 5
marketing of competitive fuels, proximity and capacity of gas and liquids
pipelines and other transportation facilities, demand for storage refills, any
oversupply or undersupply of gas and liquids products, the regulatory
environment and other regional and political events, none of which can be
predicted with certainty. As in the past, the Company expects to continue
curtailing a portion of its gas production whenever prices are deemed to be
below acceptable levels.
GAS AND OIL DRILLING ACTIVITIES
Seagull's gas and oil exploratory and developmental drilling
activities are as follows for the periods indicated. Totals shown in each
category include wells completed as productive wells and wells abandoned as dry
holes. A well is considered productive for purposes of the following table if
it justifies the installation of permanent equipment for the production of gas
or oil. A well is deemed to be a dry hole if it is determined to be incapable
of commercial production. The term "gross wells" means the total number of
wells in which Seagull owns an interest, while the term "net wells" means the
sum of the fractional working interests Seagull owns in gross wells.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1995 1994 1993
Gross Net Gross Net Gross Net
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
UNITED STATES:
Exploratory Drilling:
Productive Wells ............ 7 5.17 5 3.23 8 5.19
Dry Holes ................... 9 6.12 10 6.48 19 9.20
Development Drilling:
Productive Wells ............ 57 28.47 119 69.34 100 54.62
Dry Holes ................... 4 1.07 11 5.11 22 13.71
CANADA:
Exploratory Drilling:
Productive Wells ............ 3 1.00 5 1.67 - -
Dry Holes ................... 3 3.00 1 0.33 - -
Development Drilling:
Productive Wells ............ 7 1.90 110 54.95 - -
Dry Holes ................... 1 0.50 1 0.50 - -
OTHER INTERNATIONAL:
Exploratory Drilling:
Dry Holes ................... 2 0.40 2 0.53 - -
</TABLE>
From January 1, 1996 through March 25, 1996, the Company drilled 14
gross (5.97 net) successful development wells in 15 attempts (6.97 net). As
of late March, the Company had seven gross (3.26 net) exploratory wells and 18
gross (9.79 net) development wells in progress or being evaluated. As of the
beginning of 1996, the Company had an inventory of approximately 100
exploratory prospects.
4
<PAGE> 6
PRODUCTION
The following table summarizes the Company's production, average sales
prices and lifting costs for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------
1995 1994 1993
---------------------------------
<S> <C> <C> <C>
UNITED STATES:
Net Production:
Gas (MMcf) ................................................................... 99,772 109,900 102,025
Oil and condensate (Mbbl)(1) ................................................. 908 1,204 1,412
Natural gas liquids (Mbbl) ................................................... 251 217 282
Combined (MMcfe)(2) .......................................................... 106,727 118,427 112,188
Average sales price (3):
Gas (per Mcf) ................................................................ $ 1.64 $ 1.88 $ 1.99
Oil and condensate (per Bbl) ................................................. $17.07 $15.98 $16.72
Natural gas liquids (per Bbl) ................................................ $ 9.48 $ 9.45 $11.10
Combined (per Mcfe) (2) ...................................................... $ 1.69 $ 1.90 $ 2.03
Average lifting costs of gas and liquids (per Mcfe) (4) ....................... $ 0.45 $ 0.44 $ 0.47
CANADA(5):
Net Production:
Gas (MMcf) .................................................................. 22,057 19,755 -
Oil and condensate (Mbbl) ................................................... 290 324 -
Natural gas liquids (Mbbl) .................................................. 109 103 -
Combined (MMcfe) ............................................................ 24,449 22,317 -
Average sales price :
Gas (per Mcf) ............................................................... $ 1.02 $ 1.55 -
Oil and condensate (per Bbl) ................................................ $14.79 $12.67 -
Natural gas liquids (per Bbl) ............................................... $ 8.29 $ 8.12 -
Combined (per Mcfe) ......................................................... $ 1.18 $ 1.66 -
Average lifting costs of gas and liquids (per Mcfe) ........................... $ 0.45 $ 0.51 -
</TABLE>
(1) Thousands of barrels ("Mbbl").
(2) The equivalent of one thousand cubic feet ("Mcfe") and one million
cubic feet ("MMcfe") of natural gas.
(3) Average sales prices are before deduction of production, severance,
and other taxes.
(4) Lifting costs represent costs incurred to operate and maintain wells
and related equipment and facilities. These costs include, among
other things, repairs and maintenance, workover expenses, labor,
materials, supplies, property taxes, insurance, severance taxes and
transportation costs.
(5) The Canadian properties were acquired on January 4, 1994 in connection
with the purchase of Seagull Canada.
5
<PAGE> 7
The following table sets forth information regarding the number of
productive wells in which the Company held a working interest at December 31,
1995. Productive wells are either producing wells or wells capable of
commercial production although currently shut-in. One or more completions in
the same borehole are counted as one well.
<TABLE>
<CAPTION>
Gross Net
------------------------ ---------------------------
United United
States Canada States Canada
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Gas (*) 1,864 760 927.17 402.32
Oil 208 9 151.70 3.38
-------- -------- ----------- ---------
Total 2,072 769 1,078.87 405.70
======== ======== =========== =========
</TABLE>
(*) Includes 333 gross (131.19 net) and 441 gross (282.20 net) gas wells
with multiple completions for the United States and Canada,
respectively.
For additional information relating to gas and oil producing
activities, see Note 7 of the Consolidated Financial Statements included in the
Company's 1995 Annual Report to Shareholders and as part of Exhibit 13 attached
hereto.
DEVELOPED AND UNDEVELOPED GAS AND OIL ACREAGE
As of December 31, 1995, the Company owned working interests in the
following developed and undeveloped gas and oil acreage:
<TABLE>
<CAPTION>
Developed Undeveloped
----------------------------- ----------------------------
Gross Net (*) Gross Net (*)
----------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
UNITED STATES:
Onshore:
Oklahoma .......................... 270,965 129,751 58,236 34,522
Arkansas .......................... 214,401 71,997 10,874 5,662
Texas ............................. 161,562 87,552 16,745 6,080
Louisiana ......................... 46,232 22,884 6,121 1,850
Other ............................. 980 533 24,728 16,396
Bays and State Waters ............... 1,054 795 2,151 1,788
Federal Offshore:
Texas ............................. 127,865 63,424 227,239 192,852
Louisiana ......................... 45,600 23,180 118,844 85,989
CANADA ................................ 392,596 202,988 437,361 271,833
UNITED KINGDOM ........................ - - 589,813 116,917
----------- -------------- ----------- ------------
1,261,255 603,104 1,492,112 733,889
============ ============== =========== ===========
</TABLE>
(*) When describing acreage on drilling locations, the term "net" refers to
the total acres on drilling locations in which the Company has a working
interest, multiplied by the percentage working interest owned by the
Company.
Additionally, as of December 31, 1995, the Company owned mineral
and/or royalty interests in 225,347 gross (32,129 net) developed and 327,302
gross (67,361 net) undeveloped gas and oil acres.
6
<PAGE> 8
COMPETITION
The Company's competitors in gas and oil exploration, development,
production and marketing include major oil companies, as well as numerous
independent oil and gas companies, individuals and drilling programs. Some of
these competitors have financial and personnel resources substantially in
excess of those available to the Company and, therefore, the Company may be
placed at a competitive disadvantage. The Company's success in discovering
reserves will depend on its ability to select suitable prospects for future
exploration in today's competitive environment.
MARKETS
The Company utilizes a variety of commodity derivative contracts to
achieve more predictable cash flows and to reduce its exposure to fluctuations
in gas and oil prices for portions of its gas and oil production . As of March
26, 1996, the Company had entered into commodity derivative contracts for as
much as 150,000 Mcf of natural gas per day. The Company's natural gas
production is equal to approximately 360,000 Mcf per day. On a Mcfe
basis, the Company's production as of March 26, 1996 was approximately 40%
hedged. The terms of the Company's derivative contracts range from one to
seven months. Of the total volume of production that has been hedged, over 80%
has been hedged in a manner which only limits the Company's exposure to price
decreases while allowing it to benefit from expected price increases. Seagull
expects to continue to leave the majority of its own E&P production either
unhedged or protected only from price decreases so that it can benefit from
expected gas price strengthening. The Company accounts for its commodity
derivative contracts as hedging activities and, accordingly, gains or losses
are included in revenues when the commodities are produced. See Note 11 to the
Company's Consolidated Financial Statements. The Company's production is sold
in the spot market, as well as to local distribution companies, other marketing
firms and end users under longer term contracts, typically with six-month to
one-year terms.
Most of the Company's natural gas is transported through gas gathering
systems and gas pipelines which are not owned by the Company. Transportation
space on such gathering systems and pipelines is occasionally limited and at
times unavailable due to repairs or improvements being made to such facilities
or due to such space being utilized by other gas shippers with priority
transportation agreements. While the Company has not experienced any inability
to market its natural gas, if transportation space is restricted or is
unavailable, the Company's cash flow from the affected properties could be
adversely affected.
REGULATION
The availability of a ready market for natural gas and oil production
depends upon numerous regulatory factors beyond the Company's control. These
factors include regulation of natural gas and oil production, federal and state
regulations governing environmental quality and pollution control and state
limits on allowable rates of production by a well or proration unit. State and
federal regulations generally are intended to prevent waste of natural gas and
oil, protect rights to produce natural gas and oil between owners in a common
reservoir, control the amount of natural gas and oil produced by assigning
allowable rates of production and control contamination of the environment.
Regulation of Natural Gas and Oil Exploration and Production.
Exploration and production operations of the Company are subject to various
types of regulation at the federal, state and local levels. Such regulation
includes requiring permits for the drilling of wells, maintaining bonding
requirements in order to drill or operate
7
<PAGE> 9
wells, and regulating the location of wells, the method of drilling and casing
wells, the surface use and restoration of properties upon which wells are
drilling and the plugging and abandonment of wells. The Company's operations
are also subject to various conservation laws and regulations. These include
the regulation of the size of drilling and spacing units or proration units and
the density of wells which may be drilled and unitization or pooling of oil and
gas properties. In this regard, some states allow the forced pooling or
integration of tracts to facilitate exploration while other states rely on
voluntary pooling of lands and leases. In addition, state conservation laws
establish maximum rates of production requirements regarding the ratability of
production. With respect to the establishment of maximum production rates from
natural gas wells, certain producing states, in an attempt to limit production
to market demand, have recently adopted (Texas and Oklahoma) or are considering
adopting (Louisiana) measures that alter the methods previously used to prorate
gas production from wells located in these states. For example, the new Texas
rules provide for reliance on information filed monthly by well operators, in
addition to historical production data for the well during comparable past
periods, to arrive at an allowable. This is in contrast to historic reliance
on forecasts of upcoming takes filed monthly by purchasers of natural gas in
formulating allowables, a procedure which resulted in substantial excess
allowables over volumes actually produced. The Company cannot predict whether
other states will adopt similar or other procedures for prorating gas
production. The effect of these regulations is to limit the amounts of natural
gas and oil the Company's operator or the Company can produce from its wells,
and to limit the number of wells or the locations at which the Company can
drill. Legislation affecting the oil and gas industry also is under constant
review for amendment or expansion. Generally, state-established allowables
have been influenced by overall natural gas market supply and demand in the
United States, as well as the specific "nominations" for natural gas from the
parties who produce or purchase gas from the field and other factors deemed
relevant by the agency. The Company cannot predict whether further changes
will be made in how these states set allowables or what impact, if any, such
further changes might have.
Natural Gas Marketing and Transportation. Federal legislation and
regulatory controls in the United States have historically affected the price
of the natural gas produced by the Company and the manner in which such
production is marketed. The transportation and sale for resale of natural gas
in interstate commerce are regulated pursuant to the Natural Gas Act of 1938
(the "NGA"), the Natural Gas Policy Act of 1978 (the "NGPA") and the Federal
Energy Regulatory Commission (the "FERC"). Although maximum selling prices of
natural gas were formerly regulated, on July 26, 1989, the Natural Gas Wellhead
Decontrol Act of 1989 ("Decontrol Act") was enacted, which terminated wellhead
price controls on all domestic natural gas on January 1, 1993, amended the NGPA
to remove completely by January 1, 1993 price and nonprice controls for all
"first sales" of natural gas, which will include all sales by the Company of
its own production; consequently, sales of the Company's natural gas currently
may be made at market prices, subject to applicable contract provisions. The
FERC's jurisdiction over natural gas transportation was unaffected by the
Decontrol Act.
The FERC regulates interstate natural gas transportation rates and
service conditions, which affect the marketing of natural gas produced by
the Company, as well as the revenues received by the Company for sales of such
natural gas. Since the latter part of 1985, the FERC has endeavored to make
interstate natural gas transportation more accessible to gas buyers and sellers
on an open and nondiscriminatory basis. The FERC's efforts have significantly
altered the marketing and pricing of natural gas. Commencing in April 1992,
the FERC issued Order Nos. 636, 636-A and 636-B (collectively, "Order No.
636"), which, among other things, require interstate pipelines to "restructure"
to provide transportation separate or "unbundled" from the pipelines' sales of
gas. Also, Order No. 636 requires pipelines to provide open-access
transportation on a basis that is equal for all gas supplies. Order No. 636
has been implemented through negotiated settlements in individual pipeline
service restructuring proceedings. In many instances, the result of the Order
No. 636 and related initiatives has been to substantially reduce or bring to an
end the interstate pipelines' traditional role as wholesalers of natural gas in
favor of providing only storage and transportation services. The FERC has
issued final orders in virtually all
8
<PAGE> 10
pipeline restructuring proceedings, and commenced a series of reviews to
determine whether refinements are required regarding individual pipeline
implementations of Order No. 636.
Although Order No. 636 does not regulate natural gas producers such as
the Company, the FERC has stated that Order No. 636 is intended to foster
increased competition within all phases of the natural gas industry. It is
unclear what impact, if any, increased competition within the natural gas
industry under Order No. 636 will have on the Company and its natural gas
marketing efforts. In addition, numerous petitions seeking judicial review of
Order No. 636 are pending. Numerous parties have also sought review of FERC
orders implementing Order No. 636 on individual pipeline systems. Order No.
636 could be reversed in whole or in part as a result. Although Order No. 636,
assuming it is upheld in its entirety in its current form, would provide the
Company with additional market access and more fairly applied transportation
service rates, terms and conditions, it could also subject the Company to more
restrictive pipeline imbalance tolerances and greater penalties for violation
of those tolerances. The Company does not believe, however, that it will be
affected by any action taken with respect to Order No. 636 materially different
than other natural gas producers and marketers with which it competes.
Additional proposals and proceedings that might affect the natural gas
industry are considered from time to time by Congress, the FERC, state
regulatory bodies and the courts. The Company cannot predict when or if any
such proposals might become effective, or their effect, if any, on the
Company's operations. The natural gas industry historically has been very
heavily regulated; therefore, there is no assurance that the less stringent
regulatory approach recently pursued by the FERC and Congress will continue
indefinitely into the future. State regulation of gathering facilities
generally includes various safety, environmental, and in some circumstances,
nondiscriminatory take requirements, but does not generally entail rate
regulation. Natural gas gathering has received greater regulatory scrutiny at
both the state and federal levels as the pipeline restructuring under Order No.
636 continues. For example, Oklahoma enacted a prohibition against
discriminatory gathering rates, and certain Texas regulatory officials have
expressed interest in evaluating similar rules in Texas.
Offshore Leasing. Certain operations the Company conducts are on
federal oil and gas leases, which the Minerals Management Service ("MMS")
administers. The MMS issues such leases through competitive bidding. These
leases contain relative standardized terms and require compliance with detailed
MMS regulations and orders pursuant to the Outer Continental Shelf Lands Act
("OCSLA") (which are subject to change by the MMS). For offshore operations,
lessees must obtain MMS approval for exploration plans and development and
production plans prior to the commencement of such operations. In addition to
permits required from other agencies (such as the Coast Guard, the Army Corps
of Engineers and the Environmental Protection Agency), lessees must obtain a
permit from the MMS prior to the commencement of drilling. The MMS has
promulgated regulations requiring offshore production facilities located on the
Outer Continental Shelf ("OCS") to meet stringent engineering and construction
specifications, and has recently proposed additional safety-related regulations
concerning the design and operating procedures for OCS production platforms and
pipelines. The MMS also has issued regulations to prohibit the flaring of
liquid hydrocarbons and oil without prior authorization. Similarly, the MMS
has promulgated other regulations governing the plugging and abandonment of
wells located offshore and the removal of all production facilities. To cover
the various obligations of lessees on the OCS, the MMS generally requires that
lessees post substantial bonds or other acceptable assurances that such
obligations will be met.
In addition, the MMS is conducting an inquiry into certain contract
settlement agreements from which producers on MMS leases have received
settlement proceeds that are royalty bearing and the extent to which producers
have paid the appropriate royalties on those proceeds. The restructuring of
oil and gas markets has resulted in a shifting of markets downstream from the
wells. Deregulation has so altered the marketplace that lessors, including the
MMS, are reevaluating the methods of valuation of gas for royalty purposes.
9
<PAGE> 11
In Canada, exploration, production and development activities are
governed by federal and provincial laws which subject operators to extensive
controls and regulations. Exports of gas and oil across interprovincial
borders or on pipelines which connect to United States pipelines are governed
by the National Energy Board and each province has its own laws governing the
operations of producers and protection of the environment.
PIPELINE AND MARKETING
Pipeline and marketing operations include the marketing of Seagull's
own and third-party gas, oil and natural gas liquids, as well as gas gathering
and gas processing. Seagull is also involved in pipeline engineering, design,
construction and operation. Revenue from the pipeline and marketing segment
accounted for 9%, 10% and 11% of the Company's consolidated revenues for 1995,
1994 and 1993, respectively.
On September 25, 1995, the Company and three other sellers completed
the sale of their disparate interests in 19 natural gas gathering systems and a
gas processing plant. Together with the sale of another of Seagull's gas
processing plants, the assets sold represent substantially all of the Company's
gas gathering and gas processing assets.
GAS MARKETING
The Company actively provides marketing services geared toward
matching gas supplies available in the major producing areas with attractive
markets available in the Midwest, Northeast, Mid-Atlantic, Appalachian and
Texas/Louisiana Gulf Coast areas. The matching process includes arranging
transportation on a network of open-access pipelines on a firm or interruptible
basis. Seagull contracts to provide natural gas and oil to various customers
and aggregates supplies from various sources including third-party producers,
marketing companies, pipelines, financial institutions and the Company's own
production. In 1995, the Company initiated an active risk management program
for both its own E&P production and third party activities, utilizing such
derivative financial instruments as futures contracts, options and swaps. The
primary objective of the risk management program is to help ensure more stable
cash flow. However, Seagull expects to leave the majority of its own E&P
production either unhedged or protected only from price decreases so that it
can benefit from expected gas price strengthening. The risk management program
is also an important part of the Company's third party marketing efforts,
allowing the Company to convert a customer's requested price to a price
structure that is consistent with the Company's overall pricing stragegy.
Marketing profit margins are often small due to competition, and
results can vary significantly from month to month. Large amounts of working
capital are involved for relatively small net margins, which makes working
capital management critical. The Company has policies and procedures in place
that are designed to minimize any potential risk of loss from these
transactions. These policies and procedures are reviewed and updated
periodically by the Company's management.
PIPELINE OPERATIONS AND CONSTRUCTION
Seagull operates certain pipelines owned by other companies. In some
cases the operating agreements provide for reimbursement of expenses incurred
in connection with operations plus a profit margin. In other cases the Company
receives a negotiated annual fee.
The Company also builds pipelines for other companies for which it
receives construction fees that are fixed, cost-plus or a combination of both.
In June 1995, Seagull was engaged to build an approximately 114-mile onshore
pipeline. The project began in late 1995 and Seagull will operate the new
pipeline upon
10
<PAGE> 12
completion. The Company recognized operating profit in 1994 and 1993 on
another gas pipeline construction project, which was completed in the first
quarter of 1994.
COMPETITION
The Company actively competes with numerous other companies for the
construction and operation of short and medium length pipelines. The Company's
competitors include oil companies, other pipeline companies, natural gas
gatherers and petrochemical transporters, many of which have financial
resources, staffs and facilities substantially larger than those of the
Company. In addition, many of the Company's gas purchasers are also
competitors or potential competitors in the sense that they have extensive
pipeline-building capabilities and experience and generally operate large
pipeline systems of their own. Seagull believes that its ability to compete
will depend primarily on its ability to complete pipeline projects quickly and
cost effectively, and to operate pipelines efficiently.
The Company's gas marketing activities are in competition with
numerous other companies offering the same services. Some of these competitors
are affiliates of companies with extensive pipeline systems that are used for
transportation from producers to end-users. The Company believes its ability
to compete depends upon building strong relationships with producers and
end-users by consistently purchasing and supplying gas at competitive prices.
ALASKA TRANSMISSION AND DISTRIBUTION
The Company operates in Alaska through ENSTAR Natural Gas Company
("ENG"), a division of the Company, and Alaska Pipeline Company ("APC"), an
Alaska corporation and a wholly owned subsidiary of the Company. ENG and APC
are currently operated as a single business unit, ENSTAR Alaska ("ENSTAR
Alaska"), and are regulated as a single operating unit by the Alaska Public
Utilities Commission (the "APUC"). APC engages in the intrastate transmission
of natural gas in South-Central Alaska. ENG engages in the distribution of
natural gas in Anchorage and other nearby communities in Alaska and is APC's
only customer. Revenues from the natural gas transmission and distribution
segment accounted for 29%, 26% and 29% of the Company's consolidated revenues
for 1995, 1994 and 1993, respectively.
ENSTAR Alaska's predecessor was formed in 1959 and began serving the
Anchorage area with natural gas in 1961. Five years later, in 1966, the
predecessor became one of the original entities that formed Alaska Interstate
Company, a newly organized public company the shares of which were traded on
the New York Stock Exchange. Alaska Interstate Company changed its name to
ENSTAR Corporation in 1982.
In 1985, the Company purchased ENSTAR Alaska for $55 million in cash
plus $10 million in the form of a seven-year unsecured, 10% subordinated note.
At the time of the acquisition, APC had outstanding debt of approximately $65
million. The transaction received the final approval of the APUC in June 1985.
GAS TRANSMISSION SYSTEM
APC owns and operates the only natural gas transmission lines in its
service area that are operated for utility purposes. The pipeline transmission
system is composed of approximately 277 miles of 12- to 20-inch diameter
pipeline and approximately 71 miles of smaller diameter pipeline. The system's
present design delivery capacity is approximately 410 MMcf/d. The average
throughput of the system in 1995, 1994 and 1993 was 122, 121 and 110 MMcf/d,
respectively.
11
<PAGE> 13
In September 1995, APC entered into a 33-year agreement to lease a
60-mile, 8-inch diameter pipeline between Anchorage, Alaska and Whittier,
Alaska. Conversion of the pipeline to natural gas is expected to be completed
in 1996. The new pipeline is expected to account for nearly 1,000 new
customers over the next two to three years.
GAS DISTRIBUTION SYSTEM
ENG distributes natural gas through approximately 1,995 miles of gas
mains to approximately 92,100 residential, commercial, industrial and electric
power generation customers within the cities and environs of Anchorage, Eagle
River, Palmer, Wasilla, Soldotna, Kenai and the Nikiski area of the Kenai
Peninsula, Alaska. During the year ended December 31, 1995, ENG added
approximately 33 miles of new gas distribution mains, installed 1,800 new
service lines and added approximately 2,000 net customers. ENG anticipates
relatively modest growth in its residential customer base and will install
additional main and service lines to accommodate this growth.
ENG distributes gas to its customers under tariffs and contracts which
provide for varying delivery priorities. ENG's business is seasonal with
approximately 67% of its revenues earned in the first and fourth quarters of
each year.
In 1995, purchase/resale volumes represented 60% of ENG's throughput
and 85% of ENG's operating margin. The remaining volumes are transported for
power, industrial and large commercial customers for a transportation fee.
ENG's five largest customers are the Municipality of Anchorage; ARCO
Alaska, Inc.; Aurora Gas, Inc.; the State of Alaska; and Unocal Corporation.
Together, they account for about $8.6 million in annual operating margin and
about 17.6 Bcf per year in volumes, which represent approximately 17% and 40%,
respectively, of ENG totals.
GAS SUPPLY
In May 1988, APC entered into a gas purchase contract (the "Marathon
Contract") with Marathon Oil Company ("Marathon") providing for the delivery of
approximately 450 Bcf of gas in the aggregate. The Marathon Contract is a
"requirements" contract with no specified daily deliverability or annual
take-or-pay quantities. APC has agreed to purchase and Marathon has agreed to
deliver all of APC's gas requirements in excess of those provided for in other
presently existing gas supply contracts, subject to certain exceptions, until
the commitment has been exhausted and without limit as to time; however,
Marathon's delivery obligations are subject to certain specified annual
limitations after 2001. The contract has a base price of $1.55 per Mcf plus
reimbursements for any severance taxes and other charges. The base price is
subject to annual adjustment based on changes in the price of certain traded
oil futures contracts. During 1995, the cost of gas purchased under the
Marathon Contract averaged $1.74 per Mcf, including reimbursements for
severance taxes. The Marathon Contract, as amended in 1991, has been approved
by the APUC.
Effective January 1, 1992, APC amended a gas purchase contract with
Shell Oil Company and ARCO Alaska, Inc. (the "Shell Contract") to extend the
term of the contract through the year 2009, modify the price, delivery and the
deliverability provisions and provide procedures for reducing take-or-pay
volumes for the effect of APC sales volumes that are displaced by gas sales
made by others. The Shell Contract provides for the delivery of up to
approximately 220 Bcf of gas. The amendments revised the price to a base price
of $1.97 per Mcf plus reimbursements for any severance taxes and an annual
adjustment based on changes in the price of certain traded oil futures
contracts from the relevant base price. Certain portions of the gas purchased
12
<PAGE> 14
under the amendments may be priced under a pricing term similar to the Marathon
Contract. The 1995 price under the Shell Contract, after application of
contractual adjustments, averaged $1.71 per Mcf, including reimbursements for
severance taxes. The amendments provide for varying deliverability, before
displaced gas sales adjustments, up to a maximum of 110 MMcf/d through 1995,
and take-or-pay quantities, before displaced gas sales adjustments, up to a
maximum of 15 Bcf per year. The Shell Contract, as amended, has been approved
by the APUC.
Combined, the Marathon and Shell Contracts will supply all of ENSTAR
Alaska's gas supply requirements through the year 2001. After that time
supplies will still be available under the contracts in accordance with their
terms, but the annual limitations contained in the Marathon Contract will take
effect. As a result, after 2001, at least a portion of ENSTAR Alaska's
requirements are expected to be satisfied outside the terms of the contracts,
as currently in effect.
Based on gas purchases during the twelve months ended December 31,
1995, which are not necessarily indicative of the volume of future purchases,
gas reserves committed to APC under the Marathon and Shell Contracts would have
a current reserve life index of approximately 15 years.
ENSTAR Alaska's average cost of gas sold in 1995, 1994 and 1993 was
$1.75, $1.74 and $2.07 per Mcf, respectively. ENSTAR Alaska's average gas
sales price in 1995, 1994 and 1993 was $3.41, $3.23 and $3.56 per Mcf,
respectively.
As stated above, ENSTAR Alaska purchases all of its natural gas under
long-term contracts in which the price is indexed to changes in the price of
crude oil futures contracts. However, because ENSTAR Alaska's sales prices are
adjusted to include the projected cost of its natural gas, there has been and
is expected to be little or no impact on margins derived from ENSTAR Alaska's
gas sales as a result of fluctuations in oil prices due to worldwide political
events and changing market conditions.
ENSTAR Alaska has no material take-or-pay obligations and does not
anticipate any such obligations in the foreseeable future.
COMPETITION
ENSTAR Alaska competes primarily with municipal and cooperative
electric power distributors and with various suppliers of fuel oil and propane
for the available energy market. There are also extensive coal reserves
proximate to ENSTAR Alaska's operating area; however, such reserves are not
presently being produced.
During the last seven years, ENSTAR Alaska's natural gas volumes
delivered on a purchase/resale basis have declined. Beginning in 1989, several
of its major customers began purchasing gas directly from gas producers or
gas marketers. However, the APUC has approved tariffs allowing ENSTAR
Alaska to transport these volumes for a transportation fee that approximates
the margin that would have been earned had the customer remained a sales
customer rather than becoming a transportation customer. Consequently,
ENSTAR Alaska anticipates no adverse economic impact to result from these
transportation arrangements.
If any other existing large customer of ENSTAR Alaska chooses to
purchase gas directly from producers, ENSTAR Alaska would expect to collect a
fee for transporting that gas equivalent to the margin earned on sales volumes
for those customers because the large distance of remaining user facilities
from producing fields would preclude the by-pass of ENSTAR Alaska's pipelines.
13
<PAGE> 15
ENSTAR Alaska supplies natural gas to its customers at prices that at
the present time economically preclude substitution of alternative fuels.
Since the Shell Contract and the Marathon Contract include prices that
fluctuate based on oil indices, a competitive margin favoring natural gas over
oil-based energy sources is expected to continue. However, there is no
assurance that the competitive advantage over other alternative fuels will not
be reduced or eliminated by the development of new energy technology or by
changes in the price of oil or refined products.
REGULATION
The APUC has jurisdiction as to rates and charges for gas sales,
construction of new facilities, extensions and abandonments of service and
certain other matters. Rates are generally designed to permit the recovery of
the cost of providing service, including purchased gas costs, and a return on
investment in plant. APC and ENG are regulated by the APUC on a combined basis
as though they were a single entity. Because ENSTAR Alaska's operations are
wholly intrastate, ENSTAR Alaska is not subject to or affected by Order 636 or
any other economic regulation by the FERC.
As a result of a proceeding filed in 1984, which was concluded in May
1986, the APUC granted ENSTAR Alaska an aggregate rate increase of 20.27% and
authorized a regulatory rate of return on common equity of 15.65%. ENSTAR
Alaska has no significant regulatory issues pending before the APUC. Since its
inception in 1961, ENSTAR Alaska has participated in only three formal rate
proceedings.
CORPORATE
REGULATION
The Company is a "public utility company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended (the "1935 Act").
Accordingly, if any "company" (as defined for purposes of the 1935 Act and
therefore including so-called "organized groups") becomes the owner of 10% or
more of the Company's outstanding voting stock, that company would be required
to register as a "holding company" under the 1935 Act, in the absence of an
exemption of the type described below. Section 9(a)(2) also requires a person
(including both individuals and "companies") to obtain prior approval from the
Securities and Exchange Commission (the "SEC") in connection with the
acquisition of 5% or more of the outstanding voting stock of a public utility
if that person is also the owner of 5% or more of the outstanding voting stock
of another public utility.
In March 1991, the Company filed in good faith with the SEC an
application pursuant to Section 2(a)(8) of the 1935 Act, seeking a
determination that Seagull was not subject to regulation as a "subsidiary
company" of FMR Corp. (the "FMR Application"), which was then the owner of
2,805,624 shares (approximately 12.5% at such time) (shares adjusted for a
2-for-1 stock split of all the issued shares of the Company's common stock (the
"Common Stock"), effected June 4, 1993) of the outstanding Common Stock. Under
the 1935 Act, a company is a "subsidiary company" of a "holding company" if the
"holding company" owns 10% or more of the total voting power of the "subsidiary
company", unless the SEC determines otherwise. Based upon the most recent
information furnished to the Company by FMR Corp., FMR Corp. was the beneficial
owner (albeit within the meaning of Section 13(d) of the Securities Exchange
Act of 1934) of 568,800 shares, which is less than 2% of the Common Stock as of
December 31, 1995. However, although FMR Corp.'s ownership and control, within
the meaning of the 1935 Act, has fallen below 10% of the outstanding voting
stock of the Company, the Company does not currently intend to withdraw the FMR
Application.
14
<PAGE> 16
In December 1993, Seagull filed in good faith with the SEC an
additional application pursuant to Section 2(a)(8) of the 1935 Act, seeking a
determination that the Company was not subject to regulation as a "subsidiary
company" of AXA Assurances I. A. R. D. Mutuelle, AXA Assurances Vie Mutuelle,
Alpha Assurances I. A. R. D. Mutuelle, Alpha Assurances Vie Mutuelle, Uni
Europe Assurance Mutuelle and AXA (collectively, the "Mutuelles AXA") and The
Equitable Companies Incorporated ("Equitable") and their respective affiliates
(collectively, the "Equitable Entities"), (the "Equitable Application"). At
such time, the Equitable Entities beneficially owned 4,495,600 shares
(approximately 12.5%) of Common Stock. Based upon the most recent information
furnished to the Company by the Equitable Entities, the Equitable Entities were
the beneficial owners (albeit within the meaning of Section 13(d) of the
Securities Exchange Act of 1934) of 1,403,000 shares, which represents
approximately 4% of the Common Stock as of December 31, 1995. However,
although the Equitable Entities' ownership and control has fallen below 10% of
the outstanding voting stock of the Company, the Company does not currently
intend to withdraw the Equitable Application.
According to information provided by Wellington Management Company
("WMC"), WMC, in its capacity as investment adviser, may be deemed the
beneficial owner of 3,712,200 shares (approximately 10%) of the Common Stock
that are owned by numerous investment counseling clients, none of which is
known to have such interest with respect to more than 5% of the class. WMC has
shared voting power as to 2,405,000 shares and shared dispositive power as to
3,712,200 shares. Because WMC has shared voting power with respect to only
2,405,000 shares, and no voting power with respect to the remaining shares
beneficially owned by WMC, it is deemed to own or control only these 2,405,000
shares (approximately 6.5%) for purposes of the 1935 Act.
Even if FMR Corp. or the Equitable Entities held 10% or more of the
outstanding voting stock of the Company, as a result of its good faith filing
of the two applications, the Company currently would not be subject to any
obligation, duty or liability imposed by the 1935 Act, unless and until the SEC
enters an order denying or otherwise adversely disposing of the applications.
To date, no such order has been issued. The Company believes that the FMR
Application and the Equitable Application ultimately should be granted.
ENVIRONMENTAL MATTERS
Seagull's operations are subject to federal, state and local laws and
regulation governing the discharge of materials into the environment or
otherwise relating to environmental protection. Numerous governmental
departments issue rules and regulations to implement and enforce such laws
which are often difficult and costly to comply with and which carry substantial
penalties for failure to comply. These laws and regulations may require the
acquisition of a permit before drilling commences, restrict the types,
quantities and concentration of various substances that can be released into
the environment in connection with drilling and production activities, limit or
prohibit drilling activities on certain lands lying within wilderness, wetlands
and other protected areas, and impose substantial liabilities for pollution
resulting from the Company's operations. In addition, these laws, rules and
regulations may restrict the rate of oil and natural gas production below the
rate that would otherwise exist. State laws often require some form of
remedial action to prevent pollution from former operations, such as pit
closure and plugging abandoned wells.
The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without
regard to fault or the legality of the original conduct, on certain classes of
persons who are considered to be responsible for the release of a "hazardous
substance" into the environment. These persons include the owner or operator
of the disposal site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances. Under
CERCLA, such persons may be subject to joint and several liability for the
costs of cleaning up the hazardous
15
<PAGE> 17
substances that have been released into the environment, for damages to natural
resources and for the costs of certain health studies. It is not uncommon for
neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by hazardous substances or other
pollutants released into the environment.
Stricter standards in environmental legislation may be imposed on the
oil and gas industry in the future. For instance, legislation has been
proposed in Congress from time to time that would reclassify certain oil and
natural gas exploration and production wastes as "hazardous wastes" and make
the reclassified wastes subject to more stringent handling, disposal and
clean-up requirements. If such legislation were to be enacted, it could have a
significant impact on the operating costs of the Company, as well as the oil
and gas industry in general. Furthermore, although petroleum, including crude
oil and natural gas, is exempt from CERCLA, at least two courts have recently
ruled that certain wastes associated with the production of crude oil may be
classified as "hazardous substances" under CERCLA and thus such wastes may
become subject to liability and regulation under CERCLA, as described above.
State initiatives to further regulate the disposal of oil and natural gas
wastes are also pending in certain states, and these various initiatives could
have a similar impact on the Company. Compliance with environmental
requirements generally could have a material adverse effect upon the capital
expenditures, earnings or competitive position of the Company. Although the
Company has not experienced any material adverse effect from compliance with
environmental requirements, there is no assurance that this will continue in
the future.
The Oil Pollution Act (the "OPA") requires persons responsible for
"offshore facilities" to establish proof of financial responsibility to cover
environmental cleanup and restoration costs likely to be incurred in connection
with an oil spill. On August 25, 1993, the MMS published an advance notice of
its intention to adopt a rule under the OPA that would define "offshore
facilities" to include all oil and gas facilities that have the potential to
affect "waters of the United States." The term "waters of the United States"
has been broadly defined to include not only the waters of the Gulf of Mexico
but also inland waterbodies, including wetlands, playa lakes and intermittent
streams. Since the Company has many oil and gas facilities that could affect
"waters of the United States," the Company would become subject to the
financial responsibility rule if it is adopted as proposed. Under the proposed
rule, financial responsibility could be established through insurance,
guaranty, indemnity, surety bond, letter of credit, qualification as a
self-insurer or a combination thereof. There is substantial opposition to the
proposed rule throughout the oil and gas industry, and the MMS has informally
indicated that it will not move forward with the adoption of the rule until
Congress has had an opportunity to reconsider the financial responsibility
requirements imposed under OPA. Absent Congressional action, the Company
cannot predict the final form of any financial responsibility rule that may be
adopted by the MMS under the OPA, but if the proposed rule were adopted no
assurance can be given as to the Company's ability to comply with such rule or
the costs of such compliance. On May 9, 1995, the U.S. House of
Representatives passed a bill that would lower the financial responsibility
requirements applicable to offshore facilities to $35 million (the current
requirement under OCSLA). The bill allows the limit to be increased to $150
million if a formal risk assessment indicates the increase is warranted. It
would also define "offshore facility" to include only OCS oil production,
transportation and storage facilities, thus excluding inland or coastal oil and
gas properties. A Senate bill that would provide the Coast Guard flexibility
to establish liability limits that correspond to the facility's potential oil
spill liability has been referred to the Senate Environmental and Public Works
Committee. The Senate bill would reduce the scope of "offshore facilities"
subject to this financial assurance requirement to those facilities seaward of
the U.S. coastline that engaged in drilling for, producing or processing oil or
that have the capacity to transport, store, transfer or handle more that 1,000
barrels of oil at a time. The Clinton Administration has indicated support for
changes to the OPA financial responsibility requirements. Whether these
legislative efforts will reduce the OPA financial responsibility requirements
applicable to the Company cannot be determined at this time. In any event, the
impact of any rule is not expected to be any more burdensome to the Company
than it will be to other similarly situated companies involved in oil and gas
exploration and production.
16
<PAGE> 18
OPA imposes a variety of additional requirements on "responsible
parties" for oil and gas facilities or vessels related to the prevention of oil
spills and liability for damages resulting from such spills in waters of the
United States. The "responsible party" includes the owner or operator of an
onshore facility or vessel or the lessee or permittee of the area in which an
offshore facility is located. OPA assigns liability to each responsible party
for oil spill removal costs and a variety of public and private damages from
oil spills. While liability limits apply in some circumstances, a party cannot
take advantage of liability limits if the spill is caused by gross negligence
or willful misconduct or resulted from violation of a federal safety,
construction or operating regulation. If a party fails to report a spill or to
cooperate fully in the cleanup, liability limits likewise do not apply. OPA
establishes a liability limit for offshore facilities of all removal costs plus
$75 million. Few defenses exist to the liability for oil spills imposed by
OPA. OPA also imposes other requirements on facility operators, such as the
preparation of an oil spill contingency plan. Failure to comply with ongoing
requirements or inadequate cooperation in a spill event may subject a
responsible party to civil or criminal enforcement actions.
In addition, the OCSLA authorizes regulations relating to safety and
environmental protection applicable to lessees and permittees operating in the
OCS. Specific design and operation standards may apply to OCS vessels, rigs,
platforms, vehicles and structures. Violations of lease conditions or
regulations issued pursuant to OCSLA can result in substantial civil and
criminal penalties, as well as potential court injunctions curtailing
operations and the cancellation of leases. Such enforcement liabilities can
result from either governmental or private prosecution.
The Federal Water Pollution Control Act ("FWPCA") imposes restrictions
and strict controls regarding the discharge of pollutants to state and federal
waters. The FWPCA provides for civil, criminal and administrative penalties
for any unauthorized discharges of oil and other hazardous substances in
reportable quantities and, along with the OPA, imposes substantial potential
liability for the costs of removal, remediation and damages. State laws for
the control of water pollution also provide varying civil, criminal and
administrative penalties and liabilities in the case of a discharge of
petroleum or its derivatives into state waters. Within the next few years,
both state water discharge regulations and the federal permits are expected to
prohibit the discharge of produced water and sand, and some other substances
related to the oil and gas industry, to coastal waters. Although the costs to
comply with zero discharge mandates under federal or state law may be
significant, the entire industry will experience similar costs and the Company
believes that these costs will not have a material adverse impact on the
Company's financial conditions and operations. Some oil and gas exploration
and production facilities are required to obtain permits for their storm water
discharges. Costs may be associated with treatment of wastewater or developing
storm water pollution prevention plans. Further, the Coastal Zone Management
Act authorizes state implementation and development of programs of management
measures for non-point source pollution to restore and protect coastal waters.
Many states in which the Company operates have recently begun to
regulate naturally occurring radioactive materials ("NORM") and NORM wastes
that are generated in connection with oil and gas exploration and production
activities. NORM wastes typically consist of very low-level radioactive
substances that become concentrated in pipe scale and in production equipment.
State regulations may require the testing of pipes and production equipment for
the presence of NORM, the licensing of NORM-contaminated facilities and the
careful handling and disposal of NORM wastes. The Company believes that the
growing regulation of NORM will have a minimal effect on the Company's
operations because the Company generates only a very small quantity of NORM on
an annual basis.
17
<PAGE> 19
EMPLOYEES
As of March 1, 1996, the Company had 637 full time employees. In
addition to the services of its full time employees, the Company employs, as
needed, the services of consulting geologists, engineers, regulatory
consultants, contract pumpers and certain other temporary employees.
ENSTAR Alaska operates under collective bargaining agreements with
separate bargaining units for operating and clerical employees. These units
represent approximately 70% of ENSTAR Alaska's work force. Contracts effective
April 1, 1992 were negotiated that set wages and work relationships extending
to April 1, 1995 for the clerical bargaining unit and until April 1, 1996 for
the operating bargaining unit. ENSTAR Alaska is in the process of
renegotiating a collective bargaining agreement with the clerical bargaining
unit. The Company is not a party to any other collective bargaining
agreements. The Company has never had a work stoppage.
The Company considers its relations with its employees to be
satisfactory.
18
<PAGE> 20
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company, each of whom has been elected
to serve until his or her successor is elected and qualified, are as follows:
<TABLE>
<CAPTION>
Years Served Years in
As Executive Current
Name Age Officer Position Positions
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Barry J. Galt 62 12 12 Chairman of the Board, President and Chief
Executive Officer
John W. Elias 55 3 1 Executive Vice President and Chief
Operating Officer
Robert W. Shower 58 4 2 Executive Vice President and Chief
Financial Officer
Richard F. Barnes 52 8 8 President of ENSTAR Natural Gas Company (a
division of the Company) and Alaska
Pipeline Company (a subsidiary of the
Company)
John N. Goodpasture 47 14 3 President, Seagull Pipeline & Marketing
Company (a subsidiary of the Company) and
Senior Vice President, Pipelines and
Marketing
T. P. McConn 62 7 3 President, Seagull Energy
E&P Inc. (a subsidiary of
the Company) and Senior
Vice President, Exploration and Production
Rodney W. Bridges 46 6 3 Vice President and Controller
Janice K. Hartrick 43 3 3 Chief Counsel and Vice President,
Environmental Affairs
</TABLE>
The business experience of each of the executive officers named above
who has held the position(s) set forth opposite his or her name for less than
five years, is as follows:
Mr. Elias joined the Company as Executive Vice President in April 1993
and was named Executive Vice President and Chief Operating Officer in January
1995. For the previous 30 years, he served in a variety of positions for Amoco
Production Company and its parent, Amoco Corporation, most recently as Group
Vice President of Worldwide Natural Gas for Amoco Production Company.
Mr. Shower joined the Company as Senior Vice President and Chief
Financial Officer in March 1992 and was named Executive Vice President of the
Company in December 1993. He served as Senior Vice President, Corporate
Development for Albert Fisher, Inc. from 1991 to February 1992. From 1990 to
1991, he was Vice President and Chief Financial Officer with AmeriServ Food
Company. From 1986 to 1990, he served as a Managing Director, Corporate
Finance, for Lehman Brothers Inc., formerly Shearson Lehman Hutton Inc.
Mr. Shower will retire as an executive officer and employee of the Company
prior to the Annual Meeting of Shareholders on May 14, 1996.
19
<PAGE> 21
Mr. Goodpasture joined the Company and has been an executive officer
since 1981 and was named President of Seagull Pipeline Company in March 1990,
and Senior Vice President, Pipelines and Marketing, in December 1992.
Mr. McConn was named Vice President, Exploration and Production of the
Company in January 1990 and President of Seagull Energy E&P Inc. in March 1991.
In December 1992, he was named Senior Vice President, Exploration and
Production.
Mr. Bridges joined the Company as Corporate Controller in August 1990,
and was named Vice President and Controller in December 1992.
Ms. Hartrick joined Seagull as Staff Counsel in 1987 and became Chief
Counsel in 1989. She was named Chief Counsel and Vice President, Environmental
Affairs in December 1992.
ITEM 2. PROPERTIES
Incorporated herein by reference to Item 1 of this Annual Report on
Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
Gulf Coast Vacuum Site. On March 19, 1993, Franks Petroleum, Inc.
("Franks") submitted a claim to Seagull Mid-South Inc., a subsidiary of the
Company ("Seagull Mid-South"), for a portion of Franks' costs incurred in
connection with the Gulf Coast Vacuum Services Superfund Site (the "GCV Site")
in Vermilion Parish, Louisiana. The United States Environmental Protection
Agency Region 6 (the "EPA") currently is seeking the cleanup of the GCV Site
under the authority of the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA").
Franks previously has been identified as a potentially responsible
party ("PRP") at the GCV Site as a result of Franks' arrangements with the
former operator of the GCV Site to transport wastes from various oil and gas
leases owned or operated by Franks in trucks owned by the GCV Site operator.
Franks' claim against Seagull Mid-South asserts that some of the wastes hauled
by the GCV Site operator on behalf of Franks came from a gas well owned by
Seagull Mid-South.
On February 9, 1993, the EPA also sent a notice to HO&M, a subsidiary
of the Company, indicating that HO&M may be a PRP at the GCV Site. Based upon
the Company's investigation of this claim, the Company believes that the basis
for HO&M's alleged liability is a series of transactions between HO&M and the
operator of the GCV Site that occurred during 1979 and 1980.
The EPA's cleanup cost estimate of the GCV Site is in the range of $17
million, although other unofficial estimates indicate the cost may be higher.
Under certain circumstances, liability under CERCLA is joint and several,
although parties whose liability is joint and several have contribution rights
against each other under CERCLA. Nevertheless, if Seagull Mid-South and/or
HO&M is found to be a responsible party at the GCV Site, the Company believes
that its liability is unlikely to be material to its financial condition,
results of operations or cash flows because of the large number of potentially
responsible parties at the GCV Site and the relative amount of contamination,
if any, that may have been caused at the GCV Site by the disposal of wastes
arising from the wells identified in the claims.
20
<PAGE> 22
Marco of Iota Superfund Site. In June 1995, the EPA advised HO&M that
it had been identified as a PRP at the Marco of Iota Superfund Site ("Iota
Site") located in Iota, Louisiana. The EPA is currently seeking the cleanup to
the Iota Site under the authority of CERCLA. The EPA's cleanup cost estimate
of the Iota Site is in the range of $5 million.
Based on the information provided by the EPA, the basis for HO&M's alleged
liability is a series of transactions between HO&M and the operator of the Iota
Site that occurred during the early 1970s through the 1980's, long before
Seagull acquired HO&M from Tenneco, Inc.
In January 1996, the Company entered into a deminimus settlement
agreement with the EPA, which established a settlement payment of approximately
$15,000. Pursuant to the provisions of the Stock Purchase Agreement dated as
of October 24, 1988 between the Company and Tenneco, Inc., Tenneco has assumed
the monetary liability for this matter.
Other. The Company is a party to ongoing litigation in the normal
course of business or other litigation with respect to which the Company is
indemnified pursuant to various purchase agreements or other contractual
arrangements. Management regularly analyzes current information and, as
necessary, provides accruals for probable liabilities on the eventual
disposition of these matters. While the outcome of lawsuits or other
proceedings against the Company cannot be predicted with certainty, management
believes that the effect on its financial condition, results of operations or
cash flows, if any, will not be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
21
<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
A. The Company's Common Stock (the "Common Stock") is traded on
the New York Stock Exchange under the ticker symbol SGO. The high and low
sales prices on the New York Stock Exchange Composite Tape for each quarterly
period during the last two fiscal years were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
High Low
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
1994 First Quarter 28 5/8 23 5/8
Second Quarter 29 3/4 23
Third Quarter 28 5/8 22 3/4
Fourth Quarter 26 17 5/8
- ----------------------------------------------------------------------------
High Low
- ----------------------------------------------------------------------------
1995 First Quarter 20 15 1/4
Second Quarter 19 7/8 16 1/2
Third Quarter 22 1/2 16
Fourth Quarter 22 1/4 16 5/8
- ----------------------------------------------------------------------------
</TABLE>
B. As of March 20, 1996, there were approximately 2,659 holders of
record of Common Stock.
C. Seagull has not declared any cash dividends on its Common
Stock since it became a public entity in 1981. The decision
to pay Common Stock dividends in the future will depend upon
the Company's earnings and financial condition and such other
factors as the Company's Board of Directors deems relevant.
The Company's credit agreement (the "Credit Agreement")
restricts the Company's declaration or payment of dividends on
and repurchases of Common Stock unless each of the following
tests have been met and after making such dividend payment
such tests continue to be met: (i) aggregate dividend
payments attributable to ENSTAR Alaska Stock must not exceed
$20 million plus 100% of the net income of ENSTAR Alaska on a
cumulative basis from January 1, 1994, (ii) aggregate dividend
payments, other than those permitted under (i) above or on up
to $150 million in preferred stock, must not exceed $20
million plus 33 1/3% of the net income of the Company
(excluding net income of ENSTAR Alaska) on a cumulative basis
from January 1, 1994 plus 100% of the net income of ENSTAR
Alaska on a cumulative basis for such period less any dividend
payments allowed under (i) above, (iii) the aggregate amount
of outstanding loans under the Credit Agreement, together with
all other senior indebtedness of Seagull and its subsidiaries
(excluding APC) then outstanding, must not exceed the
Borrowing Base and (iv) no Default or Event of Default shall
have occurred and be continuing. The foregoing restrictions
do not apply to dividends payable solely in the form of
additional shares of Common Stock or to dividends payable on
up to $150 million of preferred stock. The capitalized terms
used herein to describe the restrictions contained in the
Credit Agreement have the meanings assigned to them in the
Credit Agreement. Under the most restrictive of these tests,
as of December 31, 1995, approximately $34.6 million was
available for
22
<PAGE> 24
payment of dividends (other than the stock dividends described
above) or repurchase of Common Stock. In addition, certain
debt instruments of APC restrict the ability of APC to
transfer funds to the Company in the form of cash dividends,
loans or advances. For a description of such restrictions,
reference is made to Note 9 of the Consolidated Financial
Statements included in the Company's 1995 Annual Report to
Shareholders and as part of Exhibit 13 attached hereto.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference to the Selected Financial Data
included in the Company's 1995 Annual Report to Shareholders and as part of
Exhibit 13 attached hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated herein by reference to Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 1995 Annual Report to Shareholders and as part of Exhibit 13 attached
hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference to the Consolidated Financial
Statements and Supplementary Data included in the Company's 1995 Annual Report
to Shareholders and as part of Exhibit 13 attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to "Election of Directors" included
in the Proxy Statement for the Company's Annual Meeting of Shareholders to be
held on May 14, 1996 (the "Proxy Statement"). See also "Executive Officers of
the Company" included in Part I of this Annual Report on Form 10-K, which is
incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to "Election of Directors --Executive
Compensation--Summary Compensation Table," "--Compensation Arrangements,"
"--Option Exercises and Fiscal Year-End Values," "--Option Grants,"
"--Executive Supplemental Retirement Plan," "--ENSTAR Natural Gas Company
Supplemental Executive Retirement Plan" and "--ENSTAR Natural Gas Company
Retirement Plan"; and "Election of Directors-Compensation of Directors"
included in the Proxy Statement.
23
<PAGE> 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to "Principal Shareholders" and
"Election of Directors--Security Ownership of Directors and Management"
included in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to "Election of Directors--Certain
Transactions" included in the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS:
The following Consolidated Financial Statements and Independent
Auditors' Report thereon are included in the Company's 1995 Annual Report to
Shareholders and as part of Exhibit 13 attached hereto, and are incorporated
herein by reference:
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. SCHEDULES:
All schedules have been omitted because the required information is
insignificant or not applicable.
<TABLE>
<CAPTION>
3. EXHIBITS:
<S> <C>
3.1 Articles of Incorporation of the Company, as
amended, including Articles of Amendment filed May
12, 1988, May 21, 1991, and May 21, 1993 with the
Secretary of State of the State of Texas, that
certain Statement of Relative Rights and
Preferences related to the designation and
issuance of the Company's $2.25 Convertible
Exchangeable Preferred Stock, Series A, filed
August 6, 1986 with the Secretary of State of the
State of Texas and that certain Statement of
Resolution Establishing Series of Shares of Series
B Junior Participating Preferred Stock of Seagull
Energy Corporation filed March 21, 1989 with the
Secretary of State of the State of Texas
(incorporated by reference to Exhibit 3.1 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
3.2 Bylaws of the Company, as amended through March
17, 1995 (incorporated by reference to Exhibit 3.1
to Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995).
</TABLE>
24
<PAGE> 26
<TABLE>
<S> <C>
* 4.1 Note Agreement dated June 17, 1985 by and among
APC and The Travelers Insurance Company, The
Travelers Life Insurance Company, and the
Equitable Life Assurance Society of the United
States (collectively, the "Insurance Companies")
(including forms of notes and other exhibits
thereto) and Inducement Agreement of even date
therewith by and among Seagull and the Insurance
Companies (including exhibits thereto).
4.2 Form of Consent and Agreement dated April 15, 1991
by and among APC and the Insurance Companies
(including exhibits thereto) (incorporated by
reference to Exhibit 4.2 to Annual Report on Form
10-K for the year ended December 31, 1992).
4.3 Rights Agreement dated as of March 17, 1989
between the Company and NCNB Texas National Bank,
as Rights Agent, which includes the form of
Statement of Resolution setting forth the terms of
the Series B Junior Participating Preferred Stock,
par value $1.00 per share, as Exhibit A, the form
of Right Certificate as Exhibit B and the Summary
of Rights to Purchase Preferred Shares as Exhibit
C (incorporated by reference to Exhibit 4.8 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
4.4 First Amendment to Rights Agreement by and between
the Company and NationsBank of Texas, N. A.
(formerly NCNB Texas National Bank) dated as of
June 18, 1992 (incorporated by reference to
Exhibit 3.4 to Registration Statement on Form
S-3 (File No. 33-55426)).
4.5 Senior Indenture dated as of July 15, 1993 by and
between the Company and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.1
to Current Report on Form 8-K dated August 4,
1993).
4.6 Senior Subordinated Indenture dated as of July 15,
1993 by and between the Company and The Bank of
New York, as Trustee (incorporated by reference to
Exhibit 4.2 to Current Report on Form 8-K dated
August 4, 1993).
4.7 Specimen of 7 7/8% Senior Note due 2003 and
resolutions adopted by the Chairman of the Board
of Directors (incorporated by reference to Exhibit
4.3 to Current Report on Form 8-K dated August 4,
1993).
4.8 Specimen of 8 5/8% Senior Subordinated Note due
2005 and resolutions adopted by the Chairman of
the Board of Directors (incorporated by reference
to Exhibit 4.4 to Current Report on Form 8-K dated
August 4, 1993).
4.9 Note Agreement dated May 14, 1992 by and among
Alaska Pipeline Company and each of the purchasers
thereto (including forms of notes and other
exhibits thereto) and Inducement Agreement of even
date therewith by and among Seagull and Aid
Association for Lutherans, The Equitable Life
Assurance Society of the United States, Equitable
Variable Life Insurance Company, Provident Life &
Accident Insurance Company and Teachers Insurance
& Annuity Association of America (including
exhibits thereto) (incorporated by reference to
Exhibit 4.7 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1992).
</TABLE>
25
<PAGE> 27
<TABLE>
<S> <C>
* 4.10 Credit Agreement, U. S. $175 Million Reducing
Revolving Credit Facility, dated December 30, 1993
by and among Seagull Energy Canada Ltd., each of
the banks signatory thereto, and Chemical Bank of
Canada, The Bank of Nova Scotia and Canadian
Imperial Bank of Commerce, as co-agents (without
exhibits) (incorporated by reference to Exhibit
2.4 to Current Report on Form 8-K filed January
19, 1994; the First Amendment dated May 24, 1994
(without exhibits) is incorporated by reference to
Exhibit 4.5 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994; the Second
Amendment dated June 30, 1994 is incorporated by
reference to Exhibit 4.16 to Annual Report on Form
10-K for the year ended December 31, 1994; the
Third Amendment dated March 10, 1995 is
incorporated by reference to Exhibit 4.17 to
Annual Report on Form 10-K for the year ended
December 31, 1994; the Fourth Amendment dated
January 12, 1996 is filed herewith).
4.11 Intercreditor Agreement executed in connection
with the Credit Agreement included as Exhibit 4.10
hereto (incorporated by reference to Exhibit 2.7
to Current Report on Form 8-K filed January 19,
1994).
4.12 First Amendment to Intercreditor Agreement
executed in connection with the First Amendment to
Credit Agreement included as Exhibit 4.10 hereto
(incorporated by reference to Exhibit 4.8 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994).
4.13 Form of Bankers' Acceptance executed in connection
with the Credit Agreement included as Exhibit 4.10
hereto (incorporated by reference to Exhibit 2.8
to Current Report on Form 8-K filed January 19,
1994).
4.14 Guarantee executed in connection with the Credit
Agreement included as Exhibit 4.10 hereto
(incorporated by reference to Exhibit 2.9 to
Current Report on Form 8-K filed January 19,
1994).
4.15 Form of Note (U. S. Dollars) executed in
connection with the First Amendment to Credit
Agreement included as Exhibit 4.10 hereto
(incorporated by reference to Exhibit 4.6 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994).
4.16 Form of Note (Canadian Dollars) executed in
connection with the First Amendment to Credit
Agreement included as Exhibit 4.10 hereto
(incorporated by reference to Exhibit 4.7 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994).
* 4.17 Credit Agreement, $725 million Reducing Revolving
Credit and Competitive Bid Facility, dated May 24,
1994 by and among Seagull, each of the banks
signatory thereto and Texas Commerce Bank National
Association and Chemical Bank, as co-agents
(without exhibits and schedules) (incorporated by
reference to Exhibit 4.1 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994; the
First Amendment dated June 30, 1994 is
incorporated by reference to Exhibit 4.21 to
Annual Report on Form 10-K for the year ended
December 31, 1994; the Second Amendment dated
March 10, 1995 is incorporated by reference to
Exhibit 4.22 to Annual Report on Form 10-K for the
year ended December 31, 1994; the Third Amendment
dated January 12, 1996 is filed herewith).
</TABLE>
26
<PAGE> 28
<TABLE>
<S> <C>
4.18 Form of Committed Note executed in connection with
the Credit Agreement included as Exhibit 4.17
hereto (incorporated by reference to Exhibit 4.2
to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994).
4.19 Form of Competitive Note executed in connection
with the Credit Agreement included as Exhibit 4.17
hereto (incorporated by reference to Exhibit 4.3
to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1994).
4.20 Form of Assignment and Acceptance executed in
connection with the Credit Agreement included as
Exhibit 4.17 hereto (incorporated by reference to
Exhibit 4.4 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994).
4.21 $5,000,000 Revolving Credit Agreement between
Alaska Pipeline Company and The First National
Bank of Anchorage dated March 15, 1995
(incorporated by reference to Exhibit 4.1 to
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995).
4.22 Trust Agreement dated as of September 1, 1995 for
the Seagull Series 1995 Trust (incorporated by
reference to Exhibit 10.1 to Quarterly Report on
Form 10-Q for the quarter ended September 30,
1995).
4.23 Guaranty by Seagull Energy Corporation in favor of
the Seagull Series 1995 Trust (incorporated by
reference to Exhibit 10.2 to Quarterly Report on
Form 10-Q for the quarter ended September 30,
1995).
#*10.1 Seagull Thrift Plan, as amended and restated,
including the First through Sixth Amendments
thereto.
# 10.2 Employment Agreement dated December 30, 1983 by
and between the Company and Barry J. Galt,
Chairman of the Board, President and Chief
Executive Officer of the Company (incorporated by
reference to Exhibit 10.1 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993).
# 10.3 Outside Directors Deferred Fee Plan of the
Company, as amended and restated (incorporated by
reference to Exhibit 10.3 to Annual Report on Form
10-K for the year ended December 31, 1991).
# 10.4 Seagull Energy Corporation Executive Supplemental
Retirement Plan, as amended (incorporated by
reference to Exhibit 10.4 to Annual Report on Form
10-K for the year ended December 31, 1991).
# 10.5 Executive Supplemental Retirement Plan Membership
Agreement between the Company and Barry J. Galt
dated as of February 3, 1986, as amended
(incorporated by reference to Exhibit 10.5 to
Annual Report on Form 10-K for the year ended
December 31, 1991).
# 10.6 ENSTAR Natural Gas Company Thrift Investment Plan,
as amended and restated (the amended and restated
plan is incorporated by reference to Exhibit 10.6
to Annual Report on Form 10-K for the year ended
December 31, 1992; the First and Second Amendments
are incorporated by reference to Exhibit 10.6 to
the Annual Report on
</TABLE>
27
<PAGE> 29
<TABLE>
<S> <C>
Form 10-K for the year ended December 31, 1993;
the Third Amendment is incorporated by reference
to Exhibit 10.6 to Annual Report on Form 10-K for
the year ended December 31, 1994).
# 10.7 ENSTAR Natural Gas Company Retirement Plan for
Salaried Employees, as renamed, amended and
restated (incorporated by reference to Exhibit
10.7 to Annual Report on Form 10-K for the year
ended December 31, 1992; the First Amendment is
incorporated by reference to Exhibit 10.7 to
Annual Report on Form 10-K for the year ended
December 31, 1994).
# 10.8 ENSTAR Natural Gas Company Retirement Plan for
Operating Unit Employees, as amended and restated
(incorporated by reference to Exhibit 10.8 to
Annual Report on Form 10-K for the year ended
December 31, 1992; the First Amendment is
incorporated by reference to Exhibit 10.8 to
Annual Report on Form 10-K for the year ended
December 31, 1994).
# 10.9 ENSTAR Natural Gas Company Profit by Service Plan
for Salaried Employees, as amended and restated
(the amended and restated plan is incorporated by
reference to Exhibit 10.9 to Annual Report on Form
10-K for the year ended December 31, 1992; the
First Amendment thereto is incorporated by
reference to Exhibit 10.9 to Annual Report on Form
10-K for the year ended December 31, 1993; the
Second Amendment is incorporated by reference to
Exhibit 10.9 to Annual Report on Form 10-K for the
year ended December 31, 1994).
# 10.10 ENSTAR Natural Gas Company Profit by Service Plan
for Classified Employees, as amended and restated
(the amended and restated plan is incorporated by
reference to Exhibit 10.10 to Annual Report on
Form 10-K for the year ended December 31, 1992;
the First and Second Amendments thereto are
incorporated by reference to Exhibit 10.10 to
Annual Report on Form 10-K for the year ended
December 31, 1993; the Third Amendment is
incorporated by reference to Exhibit 10.10 to
Annual Report on Form 10-K for the year ended
December 31, 1994).
#*10.11 Seagull Energy Corporation Supplemental Benefit
Plan, as amended, including the First Amendment
thereto.
10.12 Gas Purchase Agreement among Alaska Pipeline
Company and Marathon Oil Company dated as of May
1, 1988, as amended (incorporated by reference to
Exhibit 10.2 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993).
10.13 Agreement to terminate Gas Purchase Contract among
Alaska Pipeline Company and Union Oil Company of
California (incorporated by reference to Exhibit
10.3 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993).
# 10.14 Seagull Energy Corporation 1981 Stock Option Plan
(Restated), including forms of agreements, as
amended (incorporated by reference to Exhibit 10.6
to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993; Form of Amendment to Stock
Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to
Exhibit 10.5 to the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995).
</TABLE>
28
<PAGE> 30
<TABLE>
<S> <C>
# 10.15 Seagull Energy Corporation 1983 Stock Option Plan
(Restated), including forms of agreements, as
amended (the amended and restated plan is
incorporated by reference to Exhibit 10.7 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993; the amended form of
Nonstatutory Stock Option Agreement is
incorporated by reference to Exhibit 10.15 to
Annual Report on Form 10-K for the year ended
December 31, 1993; Form of Amendment to Stock
Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to
Exhibit 10.5 to the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995).
# 10.16 Seagull Energy Corporation 1986 Stock Option Plan
(Restated), including forms of agreements, as
amended (the amended and restated plan is
incorporated by reference to Exhibit 10.8 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993; the amended form of
Nonstatutory Stock Option Agreement is filed
incorporated by reference to Exhibit 10.16 to
Annual Report on Form 10-K for the year ended
December 31, 1993; Form of Amendment to Stock
Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to
Exhibit 10.5 to the Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995).
# 10.17 Seagull Employee Stock Ownership Plan (the "Plan")
as amended, including the First through Fourth
Amendments thereto (incorporated by reference to
Exhibit 10.9 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993; the Fifth and
Sixth Amendments are incorporated by reference to
Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1995 and the Seventh
Amendment is incorporated by reference to Exhibit
10.4 to Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995).
10.18 Non-Recourse Promissory Note from the Plan to the
Company, dated November 15, 1989 (incorporated by
reference to Exhibit 10.10 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993).
10.19 Security (Pledge) Agreement dated November 15,
1989 by and between the Plan and the Company
(incorporated by reference to Exhibit 10.11 to
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
10.20 Sale Agreement made and entered into as of
November 19, 1993 between Novacor Petrochemicals
Ltd. and Seagull Energy Corporation (including
Appendix J, "Tax Provisions") (incorporated by
reference to Exhibit 2.1 to Current Report on Form
8-K filed January 19, 1994).
10.21 Guarantee executed in connection with Sale
Agreement included as Exhibit 10.20 hereto
(incorporated by reference to Exhibit 2.2 to
Current Report on Form 8-K filed January 19,
1994).
#*10.22 Seagull Energy Corporation 1990 Stock Option Plan,
including forms of agreements, as amended.
10.23 Gas Purchase Contract among Alaska Pipeline
Company and Shell Oil Company dated as of December
20, 1982, as amended (incorporated by reference to
Exhibit 10.29 to Annual Report on Form 10-K for
the year ended December 31, 1991).
</TABLE>
29
<PAGE> 31
<TABLE>
<S> <C>
# 10.24 Seagull Energy Corporation 1993 Executive
Incentive Plan (incorporated by reference to
Exhibit 10.35 to Annual Report on Form 10-K for
the year ended December 31, 1992).
# 10.25 Seagull Energy Corporation 1994 Executive
Incentive Plan (incorporated by reference to
Exhibit 10.1 to Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994).
10.26 Stock Purchase Agreement made and entered into as
of November 16, 1992 between Arkla, Inc. and
Seagull (not including disclosure schedules)
(incorporated by reference to Exhibit 2.1 to
Current Report on Form 8-K dated December 4, 1992,
as amended).
# 10.27 Seagull Energy Corporation 1993 Nonemployee
Directors' Stock Option Plan, including forms of
agreements (the Plan is incorporated by reference
to Exhibit 10.37 to Annual Report on Form 10-K for
the year ended December 31, 1992; the amended form
of Nonstatutory Stock Option Agreement is
incorporated by reference to Exhibit 10.29 to
Annual Report on Form 10-K for the year ended
December 31, 1993).
# 10.28 Seagull Energy Corporation 1993 Stock Option Plan,
including forms of agreements (the Plan is
incorporated by reference to Exhibit 10.38 to
Annual Report on Form 10-K for the year ended
December 31, 1992; the amended form of
Nonstatutory Stock Option Agreement is
incorporated by reference to Exhibit 10.30 to
Annual Report on Form 10-K for the year ended
December 31, 1993; Form of Amendment to Stock
Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to
Exhibit 10.5 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995).
# 10.29 Seagull Energy Canada Ltd. Retirement Plan
(incorporated by reference to Exhibit 10.30 to
Annual Report on Form 10-K for the year ended
December 31, 1994).
# 10.30 Seagull Energy Canada Ltd. Capital Accumulation
Plan (incorporated by reference to Exhibit 10.31
to Annual Report on Form 10-K for the year ended
December 31, 1994).
# 10.31 Restricted Stock Agreement made and entered into
as of March 17, 1995 between Seagull Energy
Corporation and Barry J. Galt (incorporated by
reference to Exhibit 10.32 to Annual Report on
Form 10-K for the year ended December 31, 1994).
# 10.32 Form of Restricted Stock Agreement made and
entered into as of March 17, 1995 between Seagull
Energy Corporation and, individually, Richard F.
Barnes (granted 2,000 shares of restricted Common
Stock), John W. Elias (granted 3,000 shares of
restricted Common Stock), Thomas P. McConn
(granted 2,000 shares of restricted Common Stock)
and Robert W. Shower (granted 3,000 shares of
restricted Common Stock) (incorporated by
reference to Exhibit 10.33 to Annual Report on
Form 10-K for the year ended December 31, 1994).
# 10.33 Form of Severance Agreement between Seagull Energy
Corporation and Richard F. Barnes, John W. Elias,
Thomas P. McConn and Robert W. Shower
(incorporated by reference to Exhibit 10.34 to
Annual Report on Form 10-K for the year ended
December 31, 1994).
</TABLE>
30
<PAGE> 32
<TABLE>
<S> <C>
# 10.34 Seagull Energy Corporation Management Stability
Plan (incorporated by reference to Exhibit 10.35
to Annual Report on Form 10-K for the year ended
December 31, 1994).
#10.35 Severance Agreement between Seagull Energy
Corporation and Barry J. Galt (incorporated by
reference to Exhibit 10.3 to Quarterly Report on
Form 10-Q for the quarter ended September 30,
1995).
#10.36 Seagull Energy Corporation 1995 Executive
Incentive Plan (incorporated by reference to
Exhibit 10.2 to Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995).
#10.37 1995 Omnibus Stock Plan (incorporated by reference
to Exhibit 10.3 to Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995).
10.38 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 (incorporated by reference to Exhibit
10.6 to Quarterly Report on Form 10-Q for the
quarter ended June 30 1995).
*13 Portions of the Seagull Energy Corporation and
Subsidiaries Annual Report to Shareholders for the
year ended December 31, 1995 which are
incorporated by reference herein to this Annual
Report on Form 10-K of Seagull Energy Corporation
and Subsidiaries for the year ended December 31,
1995.
*21 Subsidiaries of Seagull Energy Corporation.
*23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Ryder Scott Company, independent
petroleum engineers.
*23.3 Consent of DeGolyer and MacNaughton,
independent petroleum engineers.
*23.4 Consent of Netherland, Sewell and Associates,
Inc., independent petroleum engineers.
*27 Financial Data Schedule.
</TABLE>
____________________________
* Filed herewith.
# Identifies management contracts and compensatory plans or
arrangements.
(B) REPORTS ON FORM 8-K
There were no Reports on Form 8-K filed during the three months ended
December 31, 1995.
31
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
<TABLE>
<S> <C>
SEAGULL ENERGY CORPORATION
Date: March 18, 1996 By: /s/ Barry J. Galt
----------------------------------------------- ---------------------------------------------------
Barry J. Galt, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: /s/ Barry J. Galt By: /s/ Peter J. Fluor
----------------------------------------------------- ----------------------------------------------
Barry J. Galt, Chairman of the Board, President and Peter J. Fluor, Director
Chief Executive Officer and Director (Principal Date: March 18, 1996
Executive Officer) ---------------------------------------------
Date: March 18, 1996 By: /s/ William R. Grant
----------------------------------------------------- ----------------------------------------------
William R. Grant, Director
By: /s/ John W. Elias Date: March 18, 1996
----------------------------------------------------- ----------------------------------------------
John W. Elias, Executive Vice President, Chief
Operating Officer and Director By: /s/ Dean P. Guerin
Date: March 18, 1996 ----------------------------------------------
----------------------------------------------------- Dean P. Guerin, Director
Date: March 18, 1996
By: /s/ Robert W. Shower ----------------------------------------------
-----------------------------------------------------
Robert W. Shower, Executive Vice President By: /s/ Richard M. Morrow
and Chief Financial Officer and Director ----------------------------------------------
(Principal Financial Officer) Richard M. Morrow, Director
Date: March 18, 1996 Date: March 18, 1996
----------------------------------------------------- ----------------------------------------------
By: /s/ Rodney W. Bridges By: /s/ Dee S. Osborne
----------------------------------------------------- ----------------------------------------------
Rodney W. Bridges, Vice President and Controller Dee S. Osborne, Director
(Principal Accounting Officer) Date: March 18, 1996
Date: March 18, 1996
----------------------------------------------------- By: /s/ Sam F. Segnar
----------------------------------------------
By: /s/ J. Evans Attwell Sam F. Segnar, Director
----------------------------------------------------- Date: March 18, 1996
J. Evans Attwell, Director ----------------------------------------------
Date: March 18, 1996
----------------------------------------------------- /s/ George M. Sullivan
By: ----------------------------------------------
By: /s/ Thomas H. Cruikshank George M. Sullivan, Director
-----------------------------------------------------
Thomas H. Cruikshank, Director Date: March 18, 1996
----------------------------------------------
Date: March 18, 1996
-----------------------------------------------------
</TABLE>
<PAGE> 34
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS: Page
----
<S> <C> <C>
3.1 Articles of Incorporation of the Company, as amended,
including Articles of Amendment filed May 12, 1988,
May 21, 1991, and May 21, 1993 with the Secretary of
State of the State of Texas, that certain Statement
of Relative Rights and Preferences related to the
designation and issuance of the Company's $2.25
Convertible Exchangeable Preferred Stock, Series A,
filed August 6, 1986 with the Secretary of State of
the State of Texas and that certain Statement of
Resolution Establishing Series of Shares of Series B
Junior Participating Preferred Stock of Seagull
Energy Corporation filed March 21, 1989 with the
Secretary of State of the State of Texas
(incorporated by reference to Exhibit 3.1 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
3.2 Bylaws of the Company, as amended through March 17,
1995 (incorporated by reference to Exhibit 3.1 to
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995).
* 4.1 Note Agreement dated June 17, 1985 by and among APC
and The Travelers Insurance Company, The Travelers
Life Insurance Company, and the Equitable Life
Assurance Society of the United States (collectively,
the "Insurance Companies") (including forms of notes
and other exhibits thereto) and Inducement Agreement
of even date therewith by and among Seagull and the
Insurance Companies (including exhibits thereto).
4.2 Form of Consent and Agreement dated April 15, 1991 by
and among APC and the Insurance Companies (including
exhibits thereto) (incorporated by reference to
Exhibit 4.2 to Annual Report on Form 10-K for the
year ended December 31, 1992).
4.3 Rights Agreement dated as of March 17, 1989 between
the Company and NCNB Texas National Bank, as Rights
Agent, which includes the form of Statement of
Resolution setting forth the terms of the Series B
Junior Participating Preferred Stock, par value $1.00
per share, as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C (incorporated
by reference to Exhibit 4.8 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993).
</TABLE>
<PAGE> 35
<TABLE>
<S> <C>
4.4 First Amendment to Rights Agreement by and between
the Company and NationsBank of Texas, N. A.
(formerly NCNB Texas National Bank) dated as of June
18, 1992 (incorporated by reference to Exhibit 3.4 to
Registration Statement on Form S-3 (File No.
33-55426)).
4.5 Senior Indenture dated as of July 15, 1993 by and
between the Company and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 4.1 to
Current Report on Form 8-K dated August 4, 1993).
4.6 Senior Subordinated Indenture dated as of July 15,
1993 by and between the Company and The Bank of New
York, as Trustee (incorporated by reference to
Exhibit 4.2 to Current Report on Form 8-K dated
August 4, 1993).
4.7 Specimen of 7 7/8% Senior Note due 2003 and
resolutions adopted by the Chairman of the Board of
Directors (incorporated by reference to Exhibit 4.3
to Current Report on Form 8-K dated August 4, 1993).
4.8 Specimen of 8 5/8% Senior Subordinated Note due 2005
and resolutions adopted by the Chairman of the Board
of Directors (incorporated by reference to Exhibit
4.4 to Current Report on Form 8-K dated August 4,
1993).
4.9 Note Agreement dated May 14, 1992 by and among Alaska
Pipeline Company and each of the purchasers thereto
(including forms of notes and other exhibits thereto)
and Inducement Agreement of even date therewith by
and among Seagull and Aid Association for Lutherans,
The Equitable Life Assurance Society of the United
States, Equitable Variable Life Insurance Company,
Provident Life & Accident Insurance Company and
Teachers Insurance & Annuity Association of America
(including exhibits thereto) (incorporated by
reference to Exhibit 4.7 to Quarterly Report on Form
10-Q for the quarter ended June 30, 1992).
* 4.10 Credit Agreement, U.S. $175 Million Reducing
Revolving Credit Facility, dated December 30, 1993 by
and among Seagull Energy Canada Ltd., each of the
banks signatory thereto, and Chemical Bank of Canada,
The Bank of Nova Scotia and Canadian Imperial Bank of
Commerce, as co-agents (without exhibits)
(incorporated by reference to Exhibit 2.4 to Current
Report on Form 8-K filed January 19, 1994; the First
Amendment dated May 24, 1994 (without exhibits) is
incorporated by reference to Exhibit 4.5 to Quarterly
Report on Form 10-Q for the quarter ended June 30,
1994; the Second Amendment dated June 30, 1994 is
incorporated by reference to Exhibit 4.16 to Annual
Report on Form 10-K for the year ended December 31,
1994; the Third Amendment dated March 10, 1995 is
incorporated by reference to Exhibit 4.17 to
</TABLE>
<PAGE> 36
<TABLE>
<S> <C>
Annual Report on Form 10-K for the year ended
December 31, 1994; the Fourth Amendment dated
January 12, 1996 is filed herewith).
4.11 Intercreditor Agreement executed in connection with
the Credit Agreement included as Exhibit 4.10 hereto
(incorporated by reference to Exhibit 2.7 to Current
Report on Form 8-K filed January 19, 1994).
4.12 First Amendment to Intercreditor Agreement executed
in connection with the First Amendment to Credit
Agreement included as Exhibit 4.10 hereto
(incorporated by reference to Exhibit 4.8 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994).
4.13 Form of Bankers' Acceptance executed in connection
with the Credit Agreement included as Exhibit 4.10
hereto (incorporated by reference to Exhibit 2.8 to
Current Report on Form 8-K filed January 19, 1994).
4.14 Guarantee executed in connection with the Credit
Agreement included as Exhibit 4.10 hereto
(incorporated by reference to Exhibit 2.9 to Current
Report on Form 8-K filed January 19, 1994).
4.15 Form of Note (U.S. Dollars) executed in connection
with the First Amendment to Credit Agreement included
as Exhibit 4.10 hereto (incorporated by reference to
Exhibit 4.6 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994).
4.16 Form of Note (Canadian Dollars) executed in
connection with the First Amendment to Credit
Agreement included as Exhibit 4.10 hereto
(incorporated by reference to Exhibit 4.7 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994).
* 4.17 Credit Agreement, $725 million Reducing Revolving
Credit and Competitive Bid Facility, dated May 24,
1994 by and among Seagull, each of the banks
signatory thereto and Texas Commerce Bank National
Association and Chemical Bank, as co-agents (without
exhibits and schedules) (incorporated by reference to
Exhibit 4.1 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994; the First Amendment
dated June 30, 1994 is incorporated by reference to
Exhibit 4.21 to Annual Report on Form 10-K for the
year ended December 31, 1994; the Second Amendment
dated March 10, 1995 is incorporated by reference to
Exhibit 4.22 to Annual Report on Form 10-K for the
year ended December 31, 1994; the Third Amendment
dated January 12, 1996 is filed herewith).
4.18 Form of Committed Note executed in connection with
the Credit Agreement included as Exhibit 4.17 hereto
(incorporated by reference to Exhibit 4.2 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1994).
4.19 Form of Competitive Note executed in connection with
the Credit Agreement included as Exhibit 4.17 hereto
(incorporated by
</TABLE>
<PAGE> 37
<TABLE>
<S> <C>
reference to Exhibit 4.3 to Quarterly Report on Form
10-Q for the quarter ended June 30, 1994).
4.20 Form of Assignment and Acceptance executed in
connection with the Credit Agreement included as
Exhibit 4.17 hereto (incorporated by reference to
Exhibit 4.4 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994).
4.21 $5,000,000 Revolving Credit Agreement between Alaska
Pipeline Company and The First National Bank of
Anchorage dated March 15, 1995 (incorporated by
reference to Exhibit 4.1 to Quarterly Report on Form
10-Q for the quarter ended March 31, 1995).
4.22 Trust Agreement dated as of September 1, 1995 for the
Seagull Series 1995 Trust (incorporated by reference
to Exhibit 10.1 to Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995).
4.23 Guaranty by Seagull Energy Corporation in favor of
the Seagull Series 1995 Trust (incorporated by
reference to Exhibit 10.2 to Quarterly Report on Form
10-Q for the quarter ended September 30, 1995).
#*10.1 Seagull Thrift Plan, as amended and restated,
including the First through the Sixth Amendments
thereto.
# 10.2 Employment Agreement dated December 30, 1983 by and
between the Company and Barry J. Galt, Chairman of
the Board, President and Chief Executive Officer of
the Company (incorporated by reference to Exhibit
10.1 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
# 10.3 Outside Directors Deferred Fee Plan of the Company,
as amended and restated (incorporated by reference to
Exhibit 10.3 to Annual Report on Form 10-K for the
year ended December 31, 1991).
# 10.4 Seagull Energy Corporation Executive Supplemental
Retirement Plan, as amended (incorporated by
reference to Exhibit 10.4 to Annual Report on Form
10-K for the year ended December 31, 1991).
# 10.5 Executive Supplemental Retirement Plan Membership
Agreement between the Company and Barry J. Galt
dated as of February 3, 1986, as amended
(incorporated by reference to Exhibit
</TABLE>
<PAGE> 38
<TABLE>
<S> <C>
10.5 to Annual Report on Form 10-K for the year ended
December 31, 1991).
# 10.6 ENSTAR Natural Gas Company Thrift Investment Plan, as
amended and restated (the amended and restated plan
is incorporated by reference to Exhibit 10.6 to
Annual Report on Form 10-K for the year ended
December 31, 1992; the First and Second Amendments
are incorporated by reference to Exhibit 10.6 to the
Annual Report on Form 10-K for the year ended
December 31, 1993; the Third Amendment is
incorporated by reference to Exhibit 10.6 to Annual
Report on Form 10-K for the year ended December 31,
1994).
# 10.7 ENSTAR Natural Gas Company Retirement Plan for
Salaried Employees, as renamed, amended and restated
(incorporated by reference to Exhibit 10.7 to Annual
Report on Form 10-K for the year ended December 31,
1992; the First Amendment is incorporated by
reference to Exhibit 10.7 to Annual Report on Form
10-K for the year ended December 31, 1994).
# 10.8 ENSTAR Natural Gas Company Retirement Plan for
Operating Unit Employees, as amended and restated
(incorporated by reference to Exhibit 10.8 to Annual
Report on Form 10-K for the year ended December 31,
1992; the First Amendment is incorporated by
reference to Exhibit 10.8 to Annual Report on Form
10-K for the year ended December 31, 1994).
# 10.9 ENSTAR Natural Gas Company Profit by Service Plan for
Salaried Employees, as amended and restated (the
amended and restated plan is incorporated by
reference to Exhibit 10.9 to Annual Report on Form
10-K for the year ended December 31, 1992; the First
Amendment thereto is incorporated by reference to
Exhibit 10.9 to Annual Report on Form 10-K for the
year ended December 31, 1993; the Second Amendment is
incorporated by reference to Exhibit 10.9 to Annual
Report on Form 10-K for the year ended December 31,
1994).
# 10.10 ENSTAR Natural Gas Company Profit by Service Plan for
Classified Employees, as amended and restated (the
amended and restated plan is incorporated by
reference to Exhibit 10.10 to Annual Report on Form
10-K for the year ended December 31, 1992; the First
and Second Amendments thereto are incorporated by
reference to Exhibit 10.10 to Annual Report on Form
10-K for the year ended December 31, 1993; the Third
Amendment is incorporated by reference to Exhibit
10.10 to Annual Report on Form 10-K for the year
ended December 31, 1994).
#*10.11 Seagull Energy Corporation Supplemental Benefit Plan,
as amended, including the First Amendment thereto.
</TABLE>
<PAGE> 39
<TABLE>
<S> <C>
10.12 Gas Purchase Agreement among Alaska Pipeline Company
and Marathon Oil Company dated as of May 1, 1988, as
amended (incorporated by reference to Exhibit 10.2 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993).
10.13 Agreement to terminate Gas Purchase Contract among
Alaska Pipeline Company and Union Oil Company of
California (incorporated by reference to Exhibit 10.3
to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993).
# 10.14 Seagull Energy Corporation 1981 Stock Option Plan
(Restated), including forms of agreements, as amended
(incorporated by reference to Exhibit 10.6 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993; Form of Amendment to Stock Option
Agreement(s) for the Seagull Energy Corporation is
incorporated by reference to Exhibit 10.5 to the
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995).
# 10.15 Seagull Energy Corporation 1983 Stock Option Plan
(Restated), including forms of agreements, as amended
(the amended and restated plan is incorporated by
reference to Exhibit 10.7 to Quarterly Report on Form
10-Q for the quarter ended June 30, 1993; the amended
form of Nonstatutory Stock Option Agreement is
incorporated by reference to Exhibit 10.15 to Annual
Report on Form 10-K for the year ended December 31,
1993; Form of Amendment to Stock Option Agreement(s)
for the Seagull Energy Corporation is incorporated
by reference to Exhibit 10.5 to the Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995).
# 10.16 Seagull Energy Corporation 1986 Stock Option Plan
(Restated), including forms of agreements, as amended
(the amended and restated plan is incorporated by
reference to Exhibit 10.8 to Quarterly Report on Form
10-Q for the quarter ended June 30, 1993; the amended
form of Nonstatutory Stock Option Agreement is filed
incorporated by reference to Exhibit 10.16 to Annual
Report on Form 10-K for the year ended December 31,
1993; Form of Amendment to Stock Option Agreement(s)
for the Seagull Energy Corporation is incorporated
by reference to Exhibit 10.5 to the Quarterly Report
on Form 10-Q for the quarter ended June 30, 1995).
# 10.17 Seagull Employee Stock Ownership Plan (the "Plan") as
amended, including the First through Fourth
Amendments thereto (incorporated by reference to
Exhibit 10.9 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993; the Fifth and Sixth
Amendments are incorporated by reference to Quarterly
Report on Form 10-Q for the quarterly period ended
June 30, 1995 and the Seventh Amendment is
incorporated by reference to Exhibit 10.4
</TABLE>
<PAGE> 40
<TABLE>
<S> <C>
to Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1995).
10.18 Non-Recourse Promissory Note from the Plan to the
Company, dated November 15, 1989 (incorporated by
reference to Exhibit 10.10 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993).
10.19 Security (Pledge) Agreement dated November 15, 1989
by and between the Plan and the Company (incorporated
by reference to Exhibit 10.11 to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993).
10.20 Sale Agreement made and entered into as of November
19, 1993 between Novacor Petrochemicals Ltd. and
Seagull Energy Corporation (including Appendix J,
"Tax Provisions") (incorporated by reference to
Exhibit 2.1 to Current Report on Form 8-K filed
January 19, 1994).
10.21 Guarantee executed in connection with Sale Agreement
included as Exhibit 10.20 hereto (incorporated by
reference to Exhibit 2.2 to Current Report on Form
8-K filed January 19, 1994).
#*10.22 Seagull Energy Corporation 1990 Stock Option Plan,
including forms of agreements, as amended.
10.23 Gas Purchase Contract among Alaska Pipeline Company
and Shell Oil Company dated as of December 20, 1982,
as amended (incorporated by reference to Exhibit
10.29 to Annual Report on Form 10-K for the year
ended December 31, 1991).
# 10.24 Seagull Energy Corporation 1993 Executive Incentive
Plan (incorporated by reference to Exhibit 10.35 to
Annual Report on Form 10-K for the year ended
December 31, 1992).
# 10.25 Seagull Energy Corporation 1994 Executive Incentive
Plan (incorporated by reference to Exhibit 10.1 to
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994).
10.26 Stock Purchase Agreement made and entered into as of
November 16, 1992 between Arkla, Inc. and Seagull
(not including disclosure schedules) (incorporated by
reference to Exhibit 2.1 to Current Report on Form
8-K dated December 4, 1992, as amended).
# 10.27 Seagull Energy Corporation 1993 Nonemployee
Directors' Stock Option Plan, including forms of
agreements (the Plan is incorporated by reference to
Exhibit 10.37 to Annual Report on Form 10-K for the
year ended December 31, 1992; the amended form of
Nonstatutory Stock Option Agreement is incorporated
</TABLE>
<PAGE> 41
<TABLE>
<S> <C>
by reference to Exhibit 10.29 to Annual Report on
Form 10-K for the year ended December 31, 1993).
# 10.28 Seagull Energy Corporation 1993 Stock Option Plan,
including forms of agreements (the Plan is
incorporated by reference to Exhibit 10.38 to Annual
Report on Form 10-K for the year ended December 31,
1992; the amended form of Nonstatutory Stock Option
Agreement is incorporated by reference to Exhibit
10.30 to Annual Report on Form 10-K for the year
ended December 31, 1993; Form of Amendment to Stock
Option Agreement(s) for the Seagull Energy
Corporation is incorporated by reference to Exhibit
10.5 to Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995).
# 10.29 Seagull Energy Canada Ltd. Retirement Plan
(incorporated by reference to Exhibit 10.30 to Annual
Report on Form 10-K for the year ended December 31,
1994).
# 10.30 Seagull Energy Canada Ltd. Capital Accumulation Plan
(incorporated by reference to Exhibit 10.31 to Annual
Report on Form 10-K for the year ended December 31,
1994).
# 10.31 Restricted Stock Agreement made and entered into as
of March 17, 1995 between Seagull Energy Corporation
and Barry J. Galt (incorporated by reference to
Exhibit 10.32 to Annual Report on Form 10-K for the
year ended December 31, 1994).
# 10.32 Form of Restricted Stock Agreement made and entered
into as of March 17, 1995 between Seagull Energy
Corporation and, individually, Richard F. Barnes
(granted 2,000 shares of restricted Common Stock),
John W. Elias (granted 3,000 shares of restricted
Common Stock), Thomas P. McConn (granted 2,000
shares of restricted Common Stock) and Robert W.
Shower (granted 3,000 shares of restricted Common
Stock) (incorporated by reference to Exhibit 10.33 to
Annual Report on Form 10-K for the year ended
December 31, 1994).
# 10.33 Form of Severance Agreement between Seagull Energy
Corporation and Richard F. Barnes, John W. Elias,
Thomas P. McConn and Robert W. Shower (incorporated
by reference to Exhibit 10.34 to Annual Report on
Form 10-K for the year ended December 31, 1994).
# 10.34 Seagull Energy Corporation Management Stability Plan
(incorporated by reference to Exhibit 10.35 to Annual
Report on Form 10-K for the year ended December 31,
1994).
#10.35 Severance Agreement between Seagull Energy
Corporation and Barry J. Galt (incorporated by
reference to Exhibit 10.3 to
</TABLE>
<PAGE> 42
<TABLE>
<S> <C>
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
#10.36 Seagull Energy Corporation 1995 Executive Incentive
Plan (incorporated by reference to Exhibit 10.2 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995).
#10.37 1995 Omnibus Stock Plan (incorporated by reference to
Exhibit 10.3 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995).
10.38 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
(incorporated by reference to Exhibit 10.6 to
Quarterly Report on Form 10-Q for the quarter ended
June 30 1995).
*13 Portions of the Seagull Energy Corporation and
Subsidiaries Annual Report to Shareholders for the
year ended December 31, 1995 which are incorporated
by reference herein to this Annual Report on Form
10-K of Seagull Energy Corporation and Subsidiaries
for the year ended December 31, 1995.
*21 Subsidiaries of Seagull Energy Corporation.
*23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Ryder Scott Company, independent petroleum
engineers.
*23.3 Consent of DeGolyer and MacNaughton, independent
petroleum engineers.
*23.4 Consent of Netherland, Sewell and Associates, Inc.,
independent petroleum engineers.
*27 Financial Data Schedule.
</TABLE>
____________________
* Filed herewith.
# Identifies management contracts and compensatory plans or arrangements.
<PAGE> 1
- --------------------------------------------------------------------------------
ALASKA PIPELINE COMPANY
--------------------------
NOTE AGREEMENT
--------------------------
Dated as of: June 17, 1985
$10,000,000 12.125% Series E Notes Due July 1, 1990
$14,500,000 12.70% Series F Notes due by July 1, 1995
$ 3,000,000 12.80% Series G Notes due July 1, 2000
$17,500,000 12.75% Series H Notes due July 1, 2000
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1 Sale and Purchase of Notes ........................ 1
2 Closing ........................................... 1
3 Conditions to Closing ............................. 2
3.1 Sale of Common Stock of the Company and Assets of
the Division ..... ................................ 2
3.3 Assumption of Intercompany Mortgage and Delivery of
Intercompany Notes ................................ 2
3.4 Inducement Agreement .............................. 2
3.5 Amendment to Gas Sale Contract .................... 2
3.6 Prepayment of the Bonds and Repayment of Bank
Indebtedness ...................................... 3
3.7 Sale of Other Notes ............................... 3
3.8 Representations and Warranties Correct ............ 3
3.9 Alaska Public Utilities Commission Approval ....... 3
3.10 Performance No Default ............................ 3
3.11 Compliance Certificate ............................ 3
3.12 Opinions of Counsel ............................... 3
3.13 Legal Investment .................................. 3
3.14 Proceedings and Documents ......................... 4
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
3.15 Tax Sharing Agreement ............................. 4
4 Use of Proceeds ................................... 4
5 Representations and Warranties .................... 4
5.1 Organization, Standing etc ........................ 4
5.2 Subsidiaries ...................................... 4
5.3 Qualification ..................................... 4
5.4 Financial Statements .............................. 5
5.5 Changes, etc ...................................... 5
5.6 Tax Returns and Liabilities ....................... 6
5.7 Indebtedness for Money Borrowed ................... 6
5.8 Title to Properties; Liens ........................ 6
5.9 Litigation ........................................ 7
5.10 Compliance with Other Instruments ................. 7
5.11 Patents, Trademarks, etc., Franchises ............. 7
5.12 Governmental Consent, etc ......................... 8
5.13 Holding Company Act ............................... 8
5.14 Gas Contracts ..................................... 8
5.15 Coverage of Fixed Charges ......................... 8
5.16 Disclosure ........................................ 8
5.17 Issue of Notes is Legal and Authorize ............. 9
5.18 ERISA ............................................. 9
5.19 No Defaults ....................................... 10
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
5.20 Private Offering .................................. 10
5.21 Certain Documents ................................. 10
6 Financial Statements and Information .............. 10
7 Inspection of Properties and Books ................ 13
8 Prepayment of Notes ............................... 13
8.1 Fixed Prepayments ................................. 13
8.2 Optional Prepayment without Premium ............... 14
8.3 Optional Prepayments with Premium ................. 14
8.4 Prepayment in Full at Option of Noteholders under
Certain Circumstances ...... ...................... 15
8.5 Allocation of Partial Prepayments ................. 15
8.6 Notice of Optional Prepayments .................... 15
8.7 Maturity; Exchange or Notation, Surrender, etc .... 15
8.8 Purchase of Notes ................................. 16
9 General Covenants ................................. 16
9.1 Accounting and Reserves ........................... 16
9.2 Payment of Taxes and Claims; Tax Sharing Agreement 16
9.3 Corporate Existence, etc .......................... 16
9.4 Maintenance of Properties, Conduct of Business;
Company Certificate ............................... 16
9.5 Insurance ......................................... 17
9.6 Delivery of Supplemental Opinion of Counsel ....... 17
10 Particular Covenants .............................. 17
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
10.1 Limitation on Indebtedness ........................ 17
10.2 Restrictions on Investments, Loans, etc ........... 18
10.3 Restricted Investments, Restricted Stock Payments
and Restricted Subordinated Debt Payments ......... 20
10.4 Restrictions on Lease-Backs, Rental Obligations,
etc ............................................... 21
10.5 Restrictions on Liens, etc ........................ 22
10.6 Issuance and Sale, etc., of Subsidiary Stock
Disposition of Subsidiary Stock and Indebtedness .. 25
10.7 Consolidation or Merger of Subsidiaries; Disposition
of Subsidiary Property as an Entirety ............. 25
10.8 Consolidation or Merger of Company; Disposition of
Company Disposition of Company Property as an
Entirety .......................................... 25
10.9 Disposition of Company and Subsidiaries Property .. 26
10.10 Gas Contracts ..................................... 27
10.11 Intercompany Notes, etc ........................... 27
10.12 Compliance with ERISA ............................. 28
11 Remedies .......................................... 28
11.1 Events of Default; Acceleration ................... 28
11.2 Notice of Default ................................. 31
11.3 Suits for Enforcement, etc ........................ 32
11.4 Remedies Cumulative ............................... 32
11.5 Remedies Not Waived ............................... 32
12 Registration Books, Transfer and Exchange of Notes 32
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<S> <C>
13. Replacement of Notes .............................. 32
14. Definitions ....................................... 33
15. Expenses, etc ..................................... 45
16. Amendment of Existing Note Agreements ............. 45
17. Survival of Agreements, etc. ...................... 46
18. Amendments and Waivers ............................ 46
19. Purchase for Investment ........................... 47
20. Payments on Notes; Notice of Sale, etc ............ 47
21. Notices, etc ...................................... 47
22. Nonenforcement for Others ......................... 47
23. Miscellaneous ..................................... 47
Schedule A - Information Relating to Purchasers
Exhibit A-1 - Form of Series E Note
Exhibit A-2 - Form of Series F Note
Exhibit A-3 - Form of Series G Notes
Exhibit A-4 - Form of Series H Notes
Exhibit B - Form of Intercompany Mortgage
Exhibit C - Form of Inducement Agreement
Exhibit D - Form of Gas Contract Amendment
Exhibit E-1 - Form of Opinion of Andrews & Kurth
Exhibit E-2 - Form of Opinion of Vinson & Elkins
Exhibit E-3 - Form of Opinion of Hughes Thorsness Gantz Powell & Brundin
</TABLE>
-v-
<PAGE> 7
Exhibit E-4 - Form of Opinion of Debevoise & Ploimpton
Exhibit F - Form of Tax Sharing Agreement
Exhibit G - Statement of Exceptions
Exhibit H - List of Agreements Relating to Short-Term Borrowing and Funded Debt
-vi-
<PAGE> 8
ALASKA PIPELINE COMPANY
3000 Spenard Road
Anchorage, Alaska 99502
TO EACH OF THE PURCHASERS LISTED
IN THE ATTACHED SCHEDULE A
Dated as of: June 17, 1985
Dear Sirs:
ALASKA PIPELINE COMPANY (the "Company"), an Alaska corporation, agrees with
you as follows:
1. Sale and Purchase of Notes. The Company will duly authorize the issue
and sale of (a) $10,000,000 aggregate principal amount of the Company's 12.125%
Series E Notes due April 1, 1990 (the "Series E Notes"), (b) $14,500,000
aggregate principal amount of the Company's 12.70% Series F Notes due April 1,
1995 (the "Series F Notes"), (c) $3,000,000 aggregate principal amount of the
Company's 12.80% Series G Notes due April 1, 2000 (the "Series G Notes"), and
(d) $17,500,000 aggregate principal amount of the Company's 12.75% Series H
Notes due April 1, 2000 (the "Series H Notes"), substantially in the forms of
Exhibits A-1 through A-4, respectively, attached hereto (such Notes, together
with all Notes issued in exchange therefor or in replacement thereof pursuant to
sections 12 and 13, being herein called the "Notes"). The Company will issue and
sell to you and, subject to the terms and conditions of this Agreement, you will
purchase from the Company, at the Closing provided for in section 2, Notes in
the principal amounts specified opposite your name in Schedule A attached hereto
at the purchase price of 100% of the principal amount thereof. Contemporaneously
with entering into this Agreement, the Company is entering into separate Note
Agreements (the "Other Agreements") identical with this Agreement with each of
the Other Purchasers named in Schedule A (the "Other Purchasers"), providing for
the sale to each Other Purchaser, at such Closing, of Notes in the principal
amount specified opposite its name in Schedule A. As used herein, the term
"Note" shall mean one of the Notes; certain other capitalized terms used herein
are defined in section 14.
2. Closing. The closing of the sale and purchase of the Notes hereunder
(the "Closing") shall take place at the office of Messrs. Vinson & Elkins, 3300
First City Tower, Houston, Texas, at 11:00 A.M., Houston time, on June 17, 1985
(or such business day prior to July 2, 1985 as the Company and you and the Other
Purchasers may agree upon). At the Closing the Company will deliver to you the
Notes to be purchased by you in the form of a single Note (or such greater
number of Notes as you may request) for each Series of Notes being purchased by
you, dated the date of the Closing, payable to you or your registered assigns,
against delivery by you to the Company or its order of immediately available
funds in the amount of the purchase price therefor. If at the Closing the
Company shall fail to tender such Notes as provided herein, or if at the Closing
any of the conditions specified in section 3 shall not have been fulfilled to
your satisfaction, you shall, at your election, be relieved of
<PAGE> 9
all further obligations under this Agreement, without thereby waiving any other
rights you may have by reason of such failure or such non-fulfillment.
3. Conditions to Closing. Your obligation to accept delivery of and pay for
the Notes to be purchased by you hereunder is subject to the fulfillment to your
satisfaction, prior to or at the Closing, of the following conditions:
3.1. Sale of Common Stock of the Company and Assets of the Division. All of
the issued and outstanding Common Stock of the Company and all or substantially
all of the assets of the Division shall have been sold to Seagull, and all of
the conditions to the obligations of any party to the Acquisition Agreement
shall have been satisfied and shall not have been waived without your prior
written consent.
3.2. No Indebtedness to ENSTAR. Neither the Company nor the Division shall
have any Indebtedness or any other liability or obligation (whether fixed,
absolute, matured, unmatured, contingent or otherwise) to ENSTAR or any of its
Affiliates except for (i) the Indebtedness of the Company to an Affiliate of
ENSTAR which the Company will prepay on the date of the Closing with a portion
of the proceeds from the sale of the Notes, (ii) income tax obligations of the
Company and the Division payable pursuant to section 8.2(b) of the Acquisition
Agreement and income tax obligations, if any, of the Company not in excess of
$3,250,000 payable after the Closing under the Tax Agreement to be entered into
pursuant to the Acquisition Agreement, and (iii) other obligations with a total
present value (discounted at current market rates), taken as a whole, not
exceeding $100,000.
3.3. Assumption of Intercompany Mortgage and Delivery of Intercompany
Notes. Seagull shall have assumed all obligations of ENSTAR under the Original
Intercompany Mortgage. The Original Intercompany Mortgage shall have been
amended and restated to read substantially as set forth in Exhibit B hereto and,
as so amended and restated, shall be in full force and effect without default by
Seagull thereunder. Seagull shall have issued and delivered to the Company its
notes (the "Intercompany Notes") in an amount equal to, and otherwise containing
terms and conditions comparable to, all liabilities of ENSTAR to the Company
evidenced by notes of ENSTAR and such notes of ENSTAR shall have been cancelled
and discharged.
3.4. Inducement Agreement. Seagull shall have executed and delivered to you
an Inducement Agreement substantially in the form of Exhibit C attached hereto
(the "Inducement Agreement"), whereby, in order to induce you to purchase the
Notes, Seagull shall make certain representations and warranties and agreements
with respect to Seagull and the Division; and such Inducement Agreement shall be
in full force and effect with no default by Seagull thereunder.
3.5. Amendment to Gas Sale Contract. The Company and Seagull shall have
entered into an amendment to the Gas Sale Contract substantially in the form of
Exhibit D attached hereto.
-2-
<PAGE> 10
3.6. Prepayment of the Bonds and Repayment of Bank Indebtedness. The
Company shall have duly taken all actions necessary to prepay in full the Bonds
and the Bank Indebtedness at the Closing with the proceeds of the Notes, and,
upon such prepayment of the Bonds, to defease the Bond Indenture.
3.7. Sale of Other Notes. Contemporaneously with the Closing the Company
shall sell to each of the Other Purchasers the Notes to be purchased by it at
the Closing as specified in Schedule A.
3.8. Representations and Warranties Correct. The representations and
warranties contained in section 5 thereof, in section 1 of the Inducement
Agreement and otherwise made in writing by or on behalf of the Company or
Seagull in connection with the transactions contemplated hereby shall be correct
at and as of the time of the Closing, except as sections 5.1, 5.5 and 5.13 are
affected by the sale of all of the assets of the Division and all of the common
stock of the Company to Seagull and except as affected by the sale of the Notes
and the amendment of the Existing Note Agreements.
3.9. Alaska Public Utilities Commission Approval. The Alaska Public
Utilities Commission ("PUC") shall have given all consents, entered all orders
and taken all such other actions as may be necessary under applicable law to
approve the transactions contemplated by the Acquisition Agreement and this
Agreement subject to no terms and conditions which, in your sole judgment,
impose an undue burden on the Company or the Division, and all such consents,
orders and other actions shall be final and not subject to any further
administrative or judicial review. For purposes hereof, the Approval Order shall
not be deemed to contain any terms or conditions which impose an undue burden on
the Company or the Division.
3.10. Performance; No Default. All agreements and conditions contained
herein required to be performed or complied with prior to or at the Closing
shall have been duly performed or complied with and at the time of the Closing
no condition or event shall exist which constitutes an Event of Default or
which, after notice or lapse of time or both, would constitute an Event of
Default.
3.11. Compliance Certificate. You shall have received an Officer's
Certificate, dated the date of the Closing, certifying that the conditions
specified in sections 3.1, 3.2, 3.5, 3.6, 3.8, 3.9 and 3.10 have been fulfilled.
3.12. Opinions of Counsel. You shall have received favorable opinions,
dated the date of the Closing and satisfactory in substance and form to you, (a)
from Andrews & Kurth, counsel for the Company, substantially in the form of
Exhibit E-1 attached hereto, (b) from Vinson & Elkins, counsel for Seagull,
substantially in the form of Exhibit E-2 attached hereto, (c) from Hughes
Thorsness Gantz Powell & Brundin, Alaska counsel for the Company, substantially
in the form of Exhibit E-3 attached hereto, and (d) from Debevoise & Plimpton,
your special counsel, substantially in the form of Exhibit E-4 attached hereto.
3.13. Legal Investment. At the time of the Closing your purchase of Notes
hereunder shall be permitted by the laws of each jurisdiction to which you may
be subject, without
-3-
<PAGE> 11
recourse to provisions such as Section 1404(a)(2) of the New York Insurance Law
permitting limited investments by life insurance companies without restriction
as to the character of the particular investment.
3.14. Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory in substance and
form to you and your special counsel, and you and your special counsel shall
have received all such counterpart originals or certified or other copies of
such documents as you or they may reasonably request.
3.15. Tax Sharing Agreement. The Company and Seagull shall have entered
into the Tax Sharing Agreement, substantially in the form of Exhibit F attached
hereto.
4. Use of Proceeds. The Company will apply the proceeds of the sale of the
Notes to (a) repay all amounts outstanding under the Company's unsecured
subordinated note payable to an Affiliate of ENSTAR in the original principal
amount of $13,400,000, (b) repay Bank Indebtedness and (c) prepay the Bonds. The
Company will not directly or indirectly (x) use any of the proceeds of the Notes
for the purpose of purchasing or carrying any "margin stock" within the meaning
of Regulation G of the Board of Governors of the Federal Reserve System (12
C.F.R. 207, as amended), or otherwise take or permit any action which would
involve a violation of such Regulation G, Regulation X (12 C.F.R. 224) or any
other regulation of the Board of Governors of the Federal Reserve System, or (y)
use any part of such proceeds for the purpose of engaging in any transaction
prohibited by the Foreign Assets Control Regulations, the Transactions Control
Regulations, the Cuban Assets Control Regulations, the Foreign Funds Control
Regulations or the Iranian Assets Control Regulations of the United States
Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended). No
Indebtedness being reduced or retired out of the proceeds of the Notes was
incurred for the purpose of purchasing or carrying any "margin stock" within the
meaning of such Regulation G. The Company does not own or have any present
intention of acquiring any such margin stock.
5. Representations and Warranties. The Company represents an warrants that:
5.1. Organization, Standing etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Alaska and has all requisite corporate power and authority to own and operate
its properties, to carry on its business as now conducted, to enter into this
Agreement, to make the borrowings hereunder, to execute and deliver the Notes
and to carry out the terms hereof and thereof. All of the issued and outstanding
Common Stock of the Company is validly issued, fully paid and nonassessable and
is owned by ENSTAR, free and clear of any security interest, mortgage, pledge,
lien, charge or encumbrance or conditional sale or other title retention
agreement, except as arising under the Acquisition Agreement and the Divestiture
Agreement.
5.2. Subsidiaries. The Company has no Subsidiaries.
5.3. Qualification. The Company is duly qualified or licensed and in good
standing as a foreign corporation duly authorized to do business in each
jurisdiction wherein the
-4-
<PAGE> 12
character of the properties owned or the nature of the activities conducted by
it makes such qualification or licensing necessary, except for such failures to
be so qualified or licensed and in good standing, if any, which when taken
together would not in the aggregate have a material adverse effect on the
condition, business or property of the Company.
5.4. Financial Statements. The Company has delivered to you financial
statements of the Company for the years ended December 31, 1980 to 1984,
inclusive, and of the Division for the years ended December 31, 1980 to 1984,
inclusive, including balance sheets of the Company (and consolidated and
consolidating balance sheets or combined and combining balance sheets of the
Company and the Division) as at such dates and statements of income and of
surplus of the Company (and consolidated and consolidating or combined and
combining statements of income and of surplus of the Company and the Division)
for the years then ended, all as certified by Peat, Marwick, Mitchell & Co.,
independent certified public accountants. The Company has also delivered to you
its unaudited balance sheet as at March 31, 1985 and its unaudited statement of
operations for the three-month period then ended. Such financial statements
fairly present the financial condition of the Company and the Division as at the
respective dates thereof and the results of the operations of the Company and
the Division for the respective periods covered thereby, were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout such periods and reflect all known liabilities, contingent or
otherwise, as at such dates which are required by generally accepted accounting
principles to be reflected therein. The Company had no Subsidiaries for the
period covered by such financial statements.
5.5. Changes, etc. Except as set forth in Exhibit G attached hereto, or in
the Company's unaudited balance sheet as at March 31, 1985 and its unaudited
statement of operations for the three-month period then ended, since December
31, 1984, there has been no material adverse change in the condition of the
Company or the Division and no material adverse occurrence or development with
respect to the business, prospects or condition (financial or otherwise) of the
Company or the Division or any of their respective properties or assets
(individually or in the aggregate material). Except as set forth in the
Company's unaudited balance sheet as at March 31, 1985 and its unaudited
statement of operations for the three-month period then ended, since December
31, 1984, there has been no change in the condition of the Company or of the
Division from that reflected in the combining balance sheets of the Company as
at such date referred to in section 5.4, other than changes in the ordinary
course of business which have not been, either in any case or in the aggregate,
materially adverse, and, except as set forth in Exhibit G attached hereto, or in
the Company's unaudited balance sheet as at March 31, 1985 and its unaudited
statement of operations for the three-month period then ended, since December
31, 1984, there has been no occurrence or development which has had or in the
opinion of the Company (a) will have a materially adverse effect on the business
or prospects of the Company or the Division or on any of their respective
properties or assets (individually or in the aggregate material) or (b)
constitutes or would result in a material adverse change in the nature or the
extent of the business of the Company or the Division. Except as disclosed in
the Company's unaudited balance sheet as at March 31, 1985 and its unaudited
statement of operations for the three-month period then ended, since December
31, 1984, the Company has not directly or indirectly made any Restricted
Investment or Restricted Stock Payment and has not made Restricted Subordinated
-5-
<PAGE> 13
Debt Payments except payments on the note referred to in section 4(a) and other
such payments not in excess of $100,000.
5.6. Tax Returns and Liabilities. The Company has filed (or obtained
extensions with respect to the filing of) all tax returns and reports required
to be filed by it and has paid all taxes, assessments and other governmental
charges imposed upon it or any of its properties, assets, income or franchises,
other than those currently payable without penalty or interest and those, not
substantial in amount, being contested as permitted by section 9.2. Until July
26, 1983, the Company was a member of the affiliated group, within the meaning
of Section 1504 of the Code, of which ENSTAR was the common parent and, as such,
joined in the filing of the consolidated Federal income tax returns of such
affiliated group for the periods ending on or before such date. The consolidated
Federal income tax returns of the ENSTAR affiliated group have been audited by
the Internal Revenue Service for all fiscal periods through December 31, 1981
and the results of such audits are duly reflected in the financial statements
referred to in section 5.4. The charges, accruals and reserves on the books of
the Company in respect of Federal, state and other income taxes for all fiscal
periods are adequate in the opinion of the Company, and the Company does not
know of any actual or proposed assessment for additional Federal, state or other
income taxes for any fiscal period.
5.7. Indebtedness for Money Borrowed. Exhibit H correctly describes all
secured and unsecured Short-Term Borrowing and Funded Debt of the Company
outstanding, or for which the Company has commitments, on the date of this
Agreement. The Company is not in default in respect of any such Short-Term
Borrowing or Funded Debt or in respect of any instrument or agreement relating
thereto and no instrument or agreement applicable to or binding on the Company
contains any restrictions on the incurrence of additional Funded Debt by the
Company, except the agreements relating to Short-Term Borrowing or Funded Debt
referred to in items 2, 4 and 5 of Exhibit H, complete and correct copies of
which have been delivered to your special counsel.
5.8. Title to Properties; Liens. The Company has good and marketable title
in fee simple absolute to all its real property on which compressor stations are
located and good and marketable title to all of its other real property and to
all of its personal property (except for property consisting of rights-of-way,
licenses, permits and franchises, as to which the Company has satisfactory title
for the purpose of constructing, operating and maintaining all property located
or proposed to be located on the real property covered thereby), in each case
subject to no mortgage, pledge, lien, security interest, lease, charge or
encumbrance other than those of the character permitted by section 10.5. None of
the properties or assets the value of which is reflected in the combining
balance sheets of the Company and the Division as at March 31, 1985, referred to
in section 5.4, is held by the Company or the Division as lessee under or
subject to any lease (except as disclosed in such balance sheets or the notes
thereto) or as conditional vendee under any conditional sale or other title
retention agreement. The Company enjoys peaceful and undisturbed possession
under all leases under which it operates, and all such leases are valid and
subsisting, with no material default on the part of the Company existing
thereunder. No financing statement under the Uniform Commercial Code which names
the Company as debtor has been filed in any state or other jurisdiction and the
Company has not signed any such financing statement or any security agreement
authorizing any secured
-6-
<PAGE> 14
party thereunder to file any such financing statement except financing
statements relating to the liens, security interests and other encumbrances
permitted by section 10.5.
5.9. Litigation. There is no litigation, proceeding or investigation
pending or, to the best of the Company's knowledge, threatened against or
affecting the Company or any Affiliate of the Company which questions the
validity of any of this Agreement or the Notes or any action taken or to be
taken pursuant hereto. Except as set forth in the notes to the financial
statements of the Company and the Division for the quarterly period ended March
31, 1985, referred to in section 5.4, and except as set forth in Exhibit G
attached hereto, there is no litigation, proceeding or investigation pending or,
to the best of the Company's knowledge, threatened against or affecting the
Company which involves the condemnation, purchase or other acquisition by any
governmental authority of any property (individually or in the aggregate
material) of the Company or which might result in any materially adverse change
in the condition, business or prospects of the Company or in any of its
properties or assets (individually or in the aggregate material). The Company is
not subject to or a party to any order of any court or governmental body arising
out of any action, suit or proceeding under any statute or other law with
respect to antitrust, monopoly, restraint of trade, unfair competition or
similar matters.
5.10. Compliance with Other Instruments. The Company is not in violation of
any term of its charter or by-laws, and neither the Company nor the Division is
in violation of any material term of any agreement, instrument, judgment,
decree, order, statute, rule, governmental regulation, franchise, certificate,
permit or the like applicable to it, and the execution, delivery and performance
of this Agreement and the Notes will not result in any such violation or be in
conflict with or constitute a default under any such term, or result in the
creation of any mortgage, lien, charge or encumbrance upon any of the properties
or assets of the Company pursuant to any such term. Except as set forth in the
notes to the financial statements of the Company and the Division for the
quarterly period ended March 31, 1985, referred to in section 5.4, and except as
set forth in the Approval Order, there is no such term which materially
adversely affects the business, operations, affairs or condition of the Company
or any of its properties or assets (individually or in the aggregate material).
5.11. Patents, Trademarks, etc., Franchises. Subject to certain pending
disputes and claims relating to the ownership and/or use of the name "ENSTAR" or
any variant thereof, the Company owns or possesses all the permits, patents,
trademarks, service marks, trade names, copyrights and licenses, and rights with
respect to the foregoing, necessary for the conduct of its business as now
conducted and proposed to be conducted, without any known conflict with the
rights of others. The Company has received a Certificate of Public Convenience
and Necessity from the PUC (the "Company Certificate"), the Division has
received a Certificate of Public Convenience and Necessity from the PUC (the
"Division Certificate"), and each of the Company and the Division has received
all material permits, licenses, franchises and other authorizations from
governmental or public bodies or authorities which are necessary for the conduct
of their business as now conducted and proposed to be conducted other than those
which are expected to be obtained without difficulty in due course. Such
Certificates of Public Convenience and Necessity have been duly and effectively
granted, are valid and enforceable in accordance with their terms and are in
full force and effect, and the Company and the
-7-
<PAGE> 15
Division have performed and complied with in all material respects all terms
thereof and of all orders of the PUC relating thereto required to be performed
and complied with by them and neither the Company nor the Division is in default
in any material respect under any such term.
5.12. Governmental Consent, etc. The Company is not required to obtain any
consent, approval or authorization of, or to make any registration, declaration
or filing with, any governmental or public body or authority as a condition
precedent to the valid execution, delivery and performance of this Agreement or
the Notes.
5.13. Holding Company Act. The Company is a subsidiary of ENSTAR which is a
subsidiary of Unimar Company ("Unimar"), a Texas general partnership whose
partners are subsidiaries of Allied Corporation ("Allied") and Ultramar PLC
("Ultramar"). On June 26, 1984, Unimar, Allied and Ultramar, acting in good
faith, filed with the Securities and Exchange Commission (the "SEC"), pursuant
to Section 3(a)(4) of the Public Utility Holding Company Act of 1935, as amended
(the "Holding Company Act"), an application (the "Exemption Application") for an
order to the effect that, upon and after Unimar's acquisition of the stock of
ENSTAR, the applicants and each of their subsidiaries will be exempt from all
the provisions of the Holding Company Act other than Section 11(b)(1) insofar as
it relates to the commitment of the applicants to divest ENSTAR's utility
operations under the Divestiture Agreement. As a result of such filing, Unimar,
Allied and Ultramar and all of their subsidiaries are exempt from the provisions
of the Holding Company Act other than Section 9(a)(2) and Section 11(b)(1)
insofar as it relates to the commitment of the applicants to divest ENSTAR's
utility operations under the Divestiture Agreement. Pursuant to Section 3(c) of
the Holding Company Act, such exemption shall continue until the SEC, after
notice and opportunity for hearing, shall enter an order denying or otherwise
disposing of the Exemption Application. As of the date hereof, the SEC has not
given any such notice nor has it otherwise acted upon the Exemption Application
in any respect.
5.14. Gas Contracts. The Company has delivered to you and your special
counsel complete and correct copies of the Gas Purchase Contracts, the Gas Sale
Contract and any Other Agreements relating to the purchase and sale of natural
gas to which the Company is a party. The Gas Purchase Contract, the Gas Sale
Contract and any other such agreement are each valid and enforceable in
accordance with their respective terms and are in full force and effect, and no
material default on the part of any party thereto exists thereunder.
5.15. Coverage of Fixed Charges. The Company's net earnings available for
fixed charges for the period of its last five fiscal years have averaged per
year not less than one and one-half times its average annual fixed charges
applicable to such period, and during at least one of its last two fiscal years
the Company's net earnings available for fixed charges have been not less than
one and one-half times its fixed charges for such fiscal year, in each case on
an unconsolidated basis. As used in this section 5.15, the terms "net earnings
available for fixed charges" and "fixed charges" have the respective meanings
specified in Section 1404 of the New York Insurance Law.
5.16. Disclosure. Neither this Agreement nor any other document,
certificate or statement furnished to you by or on behalf of the Company in
connection with the transactions
-8-
<PAGE> 16
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and therein not misleading. There is no fact known to the Company which
materially adversely affects or in the future may (so far as the Company can now
foresee) materially adversely affect the business, operations, affairs or
condition of the Company, the Division or any of their respective properties or
assets (individually or in the aggregate material) which has not been set forth
in this Agreement or in the other documents, certificates or statements
furnished to you by or on behalf of the Company prior to the date hereof in
connection with the transactions contemplated hereby.
5.17. Issue of Notes is Legal and Authorized. The Company has full power
and legal right to execute, deliver and perform this Agreement and the Notes and
has taken all corporate action necessary thereto. This Agreement constitutes,
and the Notes, when executed and delivered by the Company, will constitute,
legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms.
5.18. ERISA. (a) The Company has not engaged in any transaction in
connection with which the Company could be subjected to either a civil penalty
assessed pursuant to section 502(i) of ERISA or a tax imposed by section 4975 of
the Code which, in either case, would be materially adverse to the Company.
(b) No Plan subject to Title IV of ERISA or any trust created under any
such Plan has been terminated within the past 10 years. No liability to the
Pension Benefit Guaranty Corporation has been or is expected by the Company to
be incurred with respect to any Plan by the Company or any Related Person which
is or would be materially adverse to the Company. There has been no reportable
event (within the meaning of section 4043(b) of ERISA) or any other event or
condition with respect to any Plan which presents a risk of termination of any
such Plan by the Pension Benefit Guaranty Corporation under circumstances which
in any case could result in liability which would be materially adverse to the
Company.
(c) Except with respect to contributions on behalf of certain excluded
employees (restoration of which is not expected to exceed $150,000.00), full
payment has been made of all amounts which the Company is required under the
terms of each Plan to have paid as contributions to such Plan as of the last day
of the most recent fiscal year of such Plan ended prior to the date hereof, and
no accumulated funding deficiency (as defined in section 302 of ERISA and
section 412 of the Code), whether or not waived, exists with respect to any
Plan.
(d) The current value of all vested accrued benefits under all Plans
did not, as of the end of the Company's most recently ended fiscal year, exceed
the current value of the assets of such Plans allocable to such vested accrued
benefits by more than $500,000. The terms "current value" and "accrued benefits"
have the meanings specified in section 4062(b)(1)(A) and section 3 of ERISA,
respectively.
(e) The Company is not presently obligated, nor has it at any time
within the last six years been obligated, to contribute to any Multiemployer
Plan.
-9-
<PAGE> 17
5.19. No Defaults. No event has occurred and no condition exists which
constitutes a Default or Event of Default under this Agreement. No event has
occurred and no condition exists which constitutes, or which with the passage of
time or the giving of notice or both would constitute, an event of default under
any agreement relating to any indebtedness of the Company for money borrowed, or
a material default in the performance of any covenant or condition under any
other mortgage, indenture, contract or other instrument or under any order of
any court, governmental authority, arbitration board or tribunal, applicable to
the Company or any of its property.
5.20. Private Offering. Neither the Company nor any Person authorized or
employed by the Company as agent, broker, dealer or otherwise has offered any of
the Notes or any similar security of the Company for sale to, or solicited
offers to buy any thereof from, or otherwise approached or negotiated with
respect thereto with anyone other than you and the Other Purchasers. The Company
agrees that neither the Company nor anyone acting on its behalf will offer the
Notes or any part thereof or any similar securities for issue or sale to, or
solicit any offer to acquire any of the same from, anyone so as to bring the
issuance and sale of the Notes within the provisions of Section 5 of the
Securities Act of 1933, as amended.
5.21. Certain Documents. The Company has delivered to you and your special
counsel complete and correct copies of the Acquisition Agreement, the Approval
Order, the Divestiture Agreement and the Exemption Application, each of which is
in full force on the date hereof.
6. Financial Statements and Information. The Company will deliver (in
duplicate) to you, so long as you are committed to purchase Notes hereunder or
shall hold any Notes, and to each other holder of 10% or more in principal
amount of the Notes at the time outstanding:
(a) as soon as available and in any event within 60 days after
the end of the first, second and third quarterly accounting periods in
each fiscal year of the Company, combined and combining balance sheets
of the Company, its Subsidiaries and the Division as at the end of such
period and the related combined and combining statements of income and
surplus and of changes in financial position of the Company, its
Subsidiaries and the Division for such period, for the periods from the
beginning of the current fiscal year to the end of such quarterly
period, and for the 12-month period ended with such quarterly period,
setting forth in each case, in comparative form the figures for the
corresponding periods of the previous fiscal year, all in reasonable
detail and certified, subject to changes resulting from year-end audit
adjustments, by a principal financial officer of the Company;
(b) as soon as available and in any event within 90 days after
the end of each fiscal year of the Company, combined and combining
balance sheets of the Company, its Subsidiaries and the Division (and,
in case the Company shall have any Subsidiaries which are not
Wholly-Owned Domestic Subsidiaries, a combined balance sheet of the
Company, its Wholly-Owned Domestic Subsidiaries and the Division) as at
the end of such fiscal year and the related combined and combining
statements of income and surplus and of changes in financial position
of the Company, its Subsidiaries and the Division (and, in case the
Company shall have any Subsidiaries which are not
-10-
<PAGE> 18
Wholly-Owned Domestic Subsidiaries, combined statements of income and
surplus and of changes in financial position of the Company, its
Wholly-Owned Domestic Subsidiaries and the Division) for such fiscal
year, setting forth in each case, in comparative form the figures for
the previous fiscal year, all in reasonable detail and accompanied by
the report and opinion thereon of independent public accountants of
recognized national standing selected by the Company and reasonably
satisfactory to you, if you shall then be committed to purchase Notes
hereunder or shall hold any Notes;
(c) together with each delivery of financial statements
pursuant to subdivisions (a) and (b) above, (i) an Officer's
Certificate of the Company (x) stating that the signer has reviewed the
relevant terms of this Agreement and of the Notes and have made, or
caused to be made under their supervision, a review of the transactions
and condition of the Company and its Subsidiaries during the period in
question, and that such review has not disclosed the existence during
such period and that the signer does not have knowledge of the
existence as of the date of such Officer's Certificate of the Company
of any condition or event which constitutes a Default or an Event of
Default or, if any such Default or Event of Default existed or exists,
specifying the nature and period of existence thereof and what action
the Company has taken or is taking or proposes to take with respect
thereto, and (y) specifying the amount of all Restricted Investments,
Restricted Stock Payments and Restricted Subordinated Debt Payments
made during such period and the amount available as at the end of such
period for Restricted Investments, Restricted Stock Payments and
Restricted Subordinated Debt Payments in compliance with section 10.3
and showing in reasonable detail the calculations thereof, and (ii) an
Officer's Certificate of Seagull stating that the signer has reviewed
the relevant terms of the Seagull Documents and have made, or caused to
be made under their supervision, a review of the transactions and
condition of the Division during the period in question, and that such
review has not disclosed the existence during such period, and that the
signer does not have knowledge of the existence as of the date of such
Officer's Certificate of any condition or event which constitutes a
Default or an Event of Default or, if any such Default or Event of
Default existed or exists, specifying the nature and period of
existence thereof and what action Seagull has taken or is taking or
proposes to take with respect thereto;
(d) together with each delivery of financial statements
pursuant to subdivision (b) above, a separate report by the independent
public accountants reporting thereon (i) stating that their examination
has included a review of the relevant terms of this Agreement, the
Inducement Agreement and the Notes as they relate to accounting
matters, (ii) stating whether or not their examination has disclosed
the existence or occurrence, during or as at the end of the fiscal year
covered by such financial statements, of any condition or event which
constitutes a Default or an Event of Default, and, if their examination
has disclosed such a Default or Event of Default specifying the nature
and period of existence thereof, and (iii) specifying the amount of all
Restricted Investments, Restricted Stock Payments and Restricted
Subordinated Debt Payments made during such fiscal year and the amount
available as at the end of such fiscal year for Restricted investments,
Restricted Stock Payments and Restricted
-11-
<PAGE> 19
Subordinated Debt Payments in compliance with section 10.3 and showing
in reasonable detail the calculations thereof;
(e) within 30 days after the end of each quarterly fiscal
period in each fiscal year of the Company, an Officer's Certificate of
each of Seagull and the Company, with respect to the period beginning
on the later of the date hereof and the date of the last such
certificate and ending on the date of such certificate (i) specifying
the nature of any amendment, modification or supplement to the Gas Sale
Contract (and attaching a copy thereof) made during such period and
stating whether such amendment, modification or supplement is permitted
by the terms of section 10.10, (ii) specifying the amounts and dates of
all payments made during such period by Seagull to the Company pursuant
to the Gas Sale Contract, demonstrating in reasonable detail the
calculation thereof, and (iii) stating that the signer has reviewed the
relevant terms of the Gas Sale Contract and that such review has not
disclosed the existence during such period of any default by Seagull of
its obligations under the Gas Sale Contract, and that the signer does
not have knowledge of the existence as at the date of such Officer's
Certificate of any such default by Seagull or, if any such default
existed or exists, specifying the nature and period of existence
thereof and what action Seagull has taken or is taking or proposes to
take with respect thereto;
(f) prior to becoming liable with respect to any Funded Debt,
an Officer's Certificate of the Company stating that the signer has
reviewed the relevant terms of this Agreement and that the Funded Debt
with respect to which the Company proposes to become liable is
permitted by section 10.1 and showing in reasonable detail the
calculations thereof, with the confirmation thereof endorsed thereon by
independent public accountants of recognized national standing selected
by the Company and satisfactory to you, if you shall then be committed
to purchase Notes hereunder, or shall hold any Notes, except that such
confirmation shall not be required if the officer signing such
Officer's Certificate of the Company is engaged in accounting work or
business, whether or not a certified, licensed or public accountant;
(g) promptly upon receipt thereof, copies of all audit reports
submitted to the Company or Seagull by independent public accountants
in connection with each annual, interim or special audit of the
accounts of the Company or any of its Subsidiaries or the Division made
by such accountants;
(h) promptly upon transmission thereof, copies of each report
on Federal Energy Regulatory Commission Form 2 (or similar report)
filed by the Company with the PUC or any governmental authority
succeeding to any of its functions (and, to the extent requested by you
or such holder, copies of all regular and periodic reports filed by the
Company or any of its Subsidiaries with the PUC or any governmental
authority succeeding to any of its functions) and copies of all regular
and periodic reports filed by the Company or any of its Subsidiaries
with any securities exchange or with the Securities and Exchange
Commission or any governmental authority succeeding to any of its
functions;
-12-
<PAGE> 20
(i) forthwith upon any principal officer of the Company
obtaining knowledge of any condition or event which constitutes a
Default or an Event of Default, an Officer's Certificate of the Company
specifying the nature and period of existence thereof and what action
the Company has taken or is taking or proposes to take with respect
thereto; and
(j) with reasonable promptness, such other information and
data with respect to the Company or any of its Subsidiaries or the
Division or the performance by the Company of this Agreement or by
Seagull of the Seagull Documents as from time to time may be reasonably
requested.
7. Inspection of Properties and Books. The Company will permit you or your
authorized representative designated by you, so long as you shall be committed
to purchase Notes hereunder, or shall hold any Notes, to visit and inspect, at
your expense, any of the properties of the Company, its Subsidiaries or the
Division, to examine its and their books of account (and to make copies thereof
and take extracts therefrom) and to discuss its and their affairs, finances and
accounts (including transactions, agreements and other relations with any
stockholders) with, and to be advised as to the same by, its and their officers
and independent public accountants, all at such reasonable times and intervals
as you may desire.
8. Prepayment of Notes. 8.1. Fixed Prepayments. (a) Prepayment of the
Series E Notes. On July 1, 1989, the Company will prepay without premium
$5,000,000 principal amount of the Series E Notes, leaving $5,000,000 principal
amount of the Series E Notes for payment at their stated maturity on July 1,
1990.
(b) Prepayment of the Series F Notes. On July 1, 1991, and on each July 1
thereafter until the Series F Notes are paid in full, the Company will prepay
without premium $2,900,000 principal amount of the Series F Notes or such lesser
principal amount thereof as then remains unpaid, leaving $2,900,000 principal
amount, or such other principal amount thereof as then remains unpaid, of the
Series F Notes for payment at their stated maturity on July 1, 1995.
(c) Prepayment of the Series G Notes. On July 1, 1991, and on each July 1
thereafter until the Series G Notes are paid in full, the Company will prepay
without premium $300,000 principal amount of the Series G Notes or such lesser
principal amount thereof as then remains unpaid, leaving $300,000 principal
amount, or such other principal amount thereof as then remains unpaid, of the
Series G Notes for payment at their stated maturity on July 1, 2000.
(d) Prepayment of the Series H Notes. On July 1, 1991, and on each July 1
thereafter to and including July 1, 1995, the Company will prepay without
premium $2,300,000 principal amount of the Series H Notes or such lesser
principal amount thereof as then remains unpaid. On July 1, 1996, and on each
July 1 thereafter until the Series H Notes are paid in full, the Company will
prepay without premium $1,200,000 principal amount of the Series E Notes or such
lesser principal amount thereof as then remains unpaid, leaving $1,200,000
-13-
<PAGE> 21
principal amount, or such other principal amount thereof as then remains unpaid,
of the Series H Notes for payment at their stated maturity on July 1, 2000.
(e) No Relief From Required Prepayments. No partial prepayment of the Notes
pursuant to section 8.2 or 8.3 shall relieve the Company from its obligation to
make the required prepayments provided for in this section 8.1.
8.2. Optional Prepayment without Premium. On the date of any required
prepayment of the Series F, G or H Notes pursuant to section 8.1, the Company
may upon notice as provided in section 8.6 prepay an additional principal amount
of each Series of Notes then subject to required prepayment (in an integral
multiple of $1,000) not exceeding, in the case of each Series, the amount of the
required prepayment for such Series at the principal amount of the Notes so
prepaid, without premium, provided that no prepayment with respect to any such
Series shall be made pursuant to this section 8.2 unless (a) immediately after
giving effect to such prepayment, the total principal amount of such Series of
Notes prepaid pursuant to this section 8.2 would not exceed 25% of the original
principal amount of such Series and (b) the ratio of (i) the principal amount of
the Notes of each Series being prepaid pursuant to this Section 8.2 at such time
to (ii) the maximum principal amount of the Notes of such Series which could
then be prepaid pursuant to this Section 8.2 shall be equal for each such
Series. The right to make optional prepayments pursuant to this section 8.2
shall be noncumulative and shall lapse as to any particular optional prepayment
if and to the extent not exercised on the date when such optional prepayment may
be made.
8.3. Optional Prepayments with Premium. At any time or from time to time
after July 1, 1993, in the case of the Series F Notes, and after January 1,
1996, in the case of the Series G and H Notes, the Company may, at its option,
upon notice as provided in section 8.6, prepay all or any part of any such
Series (in an integral multiple of $1,000 and a minimum of $50,000), upon
payment of a premium (a percentage of the principal amount so prepaid)
applicable in accordance with the following table, depending upon the 12-month
period in which the date fixed for such prepayment occurred and the Series of
Notes involved:
<TABLE>
<CAPTION>
12-Month Period Series F Series G Series H
Commencing Notes Notes Notes
- ------------------------ -------- -------- --------
<S> <C> <C> <C>
July 1, 1993 ........... 1.41% -- --
July 1, 1994 ........... 0 -- --
January 1, 1996 ........ -- 3.20% 3.19%
July 1, 1996 ........... -- 2.74 2.73
July 1, 1997 ........... -- 1.83 1.82
July 1, 1998 ........... -- 0.91 0.91
July 1, 1999 ........... -- 0 0
</TABLE>
-14-
<PAGE> 22
provided that no such prepayment shall be made with respect to either of the
Series G or H Notes unless the ratio of (i) the principal amount of the Notes of
each of Series G and H being prepaid pursuant to this section 8.3 at such time
to (ii) the then outstanding principal amount of the Notes of such Series shall
be equal for each such Series.
8.4. Prepayment in Full at Option of Noteholders under Certain
Circumstances. In the event that (a) at any time Seagull shall for any reason
cease (whether voluntarily or involuntarily) to own, beneficially and of record,
more than 50% of each class of Voting Stock of the Company, or (b) substantially
all of the assets of the Company or the Division shall be subject to Total
Taking or a Total Destruction, or (c) the Division Certificate is terminated,
cancelled or changed in a manner materially adverse to the Division, the Company
shall forthwith deliver to each holder of any Note an Officer's Certificate of
the Company certifying as to the occurrence of such event and a notice fixing a
date (which shall be not less than 60 or more than 90 days after the delivery of
such notice) on which the Company will make prepayment of the Notes if requested
to do so as provided in this section 8.4, and at the written request of the
holders of at least 66 2/3% in principal amount of the Notes at the time
outstanding, received by the Company at any time within 30 days after delivery
of such Officers's Certificate of the Company and such notice, the Company will
prepay, on the date specified therefor in such notice, all, but not less than
all, of the Notes at the time outstanding, such prepayment to be made without
premium.
8.5. Allocation of Partial Prepayments. In the case of each prepayment of
less than all of a given Series of Notes, the principal amount of each Series of
Notes to be prepaid shall be allocated (in integral multiples of $1,000) among
all of the Notes of such Series at the time outstanding in proportion, as nearly
as practicable, to the respective unpaid principal amounts thereof not
theretofore called for prepayment, with adjustments, to the extent practicable,
to compensate for any prior prepayments not made exactly in such proportion.
8.6. Notice of Optional Prepayments. In the case of each prepayment of
Notes under section 8.2 or 8.3, the Company will give written notice thereof to
each holder of any of the Notes not less than 30 nor more than 60 days prior to
the date fixed for such prepayment, in each case specifying such date, the
aggregate principal amount of each Series of Notes to be prepaid on such date,
the principal amount of each Note, if any, held by such holder to be prepaid on
such date, the amount of interest on such principal amount accrued to such date
and the premium, if any, applicable to such prepayment.
8.7. Maturity; Exchange or Notation, Surrender, etc. In the case of each
prepayment of Notes, the principal amount of each Note to be prepaid shall
mature and become due and payable on the date fixed for such prepayment,
together with interest on such principal amount accrued to such date and the
applicable premium, if any. Except as otherwise provided in section 20, the
Company may, as a condition to prepaying any Note in part only, require the
holder thereof to make such Note available to the Company at the place of
payment specified therein or pursuant thereto for notation thereon of the
portion of the principal amount thereof
-15-
<PAGE> 23
then being prepaid. Any Note prepaid in full shall be surrendered to the Company
and cancelled and shall not be reissued, and no Note shall be issued in lieu of
any prepaid principal amount of any Note.
8.8. Purchase of Notes. The Company will not, and will not permit any
Subsidiary or Affiliate of the Company to, purchase or otherwise acquire any
Note except pursuant to the provisions for prepayment provided for in this
section 8.
9. General Covenants. 9.1. Accounting and Reserves. The Company will, and
will cause each Subsidiary to, (a) maintain a standard and uniform system of
accounting and keep proper books of record and account in which full, true and
correct entries will be made of its transactions, all in accordance with
Required Accounting Practice, and (b) set aside on its books for each fiscal
year all such proper reserves for depreciation, depletion, obsolescence,
amortization, bad debts and other purposes in connection with its business as
shall be required by Required Accounting Practices.
9.2. Payment of Taxes and Claims; Tax Sharing Agreement. (a) The Company
will, and will cause each Subsidiary to, pay all taxes, assessments, rates,
excises, levies, fees and other governmental charges imposed upon it or any of
its properties or assets or in respect of any of its franchises, business,
income or profits before any penalty or interest accrues thereon, and all claims
(including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
might become a lien or charge upon any of its properties or assets, provided
that no such charge or claim need be paid if the amount, applicability or
validity thereof is currently being contested in good faith by appropriate
action promptly initiated and diligently conducted and if such reserve or other
appropriate provision, if any, as shall be required by Required Accounting
Practice shall have been made therefor.
(b) The Company will not enter into any amendment of the Tax Sharing
Agreement which would materially adversely affect the Company's obligation to
make or right to receive payments thereunder.
9.3. Corporate Existence, etc. The Company will preserve and keep in full
force and effect its corporate existence, rights and franchises and those of
each of its Subsidiaries, except as otherwise permitted by sections 10.7 and
10.8 and except where any such failure to maintain such existence, rights and
franchises could not be expected to have a material adverse effect on the
Company and its Subsidiaries taken as a whole.
9.4. Maintenance of Properties, Conduct of Business; Company Certificate.
(a) The Company will maintain or cause to be maintained in good repair, working
order and condition all properties used or useful in the business of the Company
and its Subsidiaries, and from time to time will make or cause to be made all
appropriate repairs, renewals and replacements
-16-
<PAGE> 24
thereof, so that the business carried on in connection therewith may be properly
and advantageously conducted at all times.
(b) The Company will carry on its business and will cause the business of
its Subsidiaries to be carried on in an efficient manner and will not, and will
not permit any Subsidiary to, engage in any business other than the transmission
or distribution of natural gas and in businesses directly related thereto,
provided that neither the Company nor any Subsidiary will engage in the business
of exploring for or developing natural gas or other hydrocarbon reserves.
(c) The Company will at all times perform and observe all of the covenants,
agreements, terms, conditions and limitations contained in the Company
Certificate and do all things necessary to keep unimpaired all of the Company's
rights thereunder and to prevent any default by the Company thereunder or any
forfeiture or impairment thereof. The Company will not cancel or terminate, or
permit the cancellation or termination of, or default under, or make or agree to
any amendment, modification or alteration which would result in a material
adverse change in the rights of the Company under the Company Certificate.
9.5. Insurance. The Company will keep or cause to be kept all of its and
its Subsidiaries' property and business of a character usually insured by
companies of established reputation similarly situated insured by reputable
insurance companies or associations of high standing against loss or damage by
fire and such other hazards and risks (including, without limitation, public
liability, workmen's compensation, war risk and earthquake risk if and to the
extent war risk and earthquake risk insurance are at the time generally
available) as are customarily insured against by companies of established
reputations similarly situated, in such amounts as such properties and business
are usually insured by such companies. The Company will comply, and will cause
each Subsidiary to comply, with all the terms and conditions of all insurance
policies with respect to its property and business or any part thereof and with
all requirements of Boards of Underwriters or similar bodies applicable thereto.
9.6. Delivery of Supplemental Opinion of Counsel. The Company will deliver
to you and your special counsel, within 30 days of the date of the Closing,
supplemental opinions of counsel, satisfactory in scope and form to you and your
special counsel, to the effect that all filings, recordings, registrations or
other actions which are required or advisable to effect the complete and
absolute release of the liens of the Division Mortgage, the Bond Indenture, the
Note Indenture, the Division Collateral Assignment and the Company Collateral
Assignment have been made or taken.
10. Particular Covenants. 10.1. Limitation on Indebtedness. (a) General
Restrictions on Company Funded Debt. The Company will not directly or indirectly
create, incur, issue, assume, guarantee, agree to purchase or repurchase or
provide funds in respect of or otherwise become liable with respect to any
Funded Debt, unless immediately after giving effect thereto and to the
application of the proceeds thereof,
-17-
<PAGE> 25
(i) the aggregate principal amount of all Consolidated Funded
Debt of the Company and its Wholly-Owned Domestic Subsidiaries at the
time outstanding would not exceed 65% of the then Consolidated Total
Capitalization of the Company and its Wholly-Owned Domestic
Subsidiaries; and
(ii) Consolidated Net Income as Defined of the Company and its
Wholly-Owned Domestic Subsidiaries for the preceding fiscal year of the
Company plus income taxes and interest on Indebtedness of the Company
and its Wholly-Owned Domestic Subsidiaries deducted in determining such
Consolidated Net Income as Defined plus the amount of Division Income
Taxes for such preceding fiscal year would be at least 200% of the
annual interest charges on all such Indebtedness then outstanding.
(b) Restriction on Consolidated Total Debt. The Company will not, and will
not permit any Wholly-Owned Domestic Subsidiary, directly or indirectly, to
create, incur, issue, assume, guarantee, agree to purchase or repurchase or
provide funds in respect of or otherwise become liable with respect to any
Indebtedness which would constitute Consolidated Total Debt unless immediately
after giving effect thereto and the application of the proceeds thereof the
aggregate principal amount of Consolidated Total Debt at the time outstanding
would not exceed 75% of the then Consolidated Adjusted Total Capitalization of
the Company and its Wholly-Owned Domestic Subsidiaries.
(c) Restrictions on Subsidiary Funded Debt and Short-Term Borrowing. The
Company will not permit any Subsidiary, directly or indirectly, to create,
incur, issue, assume, guarantee, agree to purchase or repurchase or provide
funds in respect of or otherwise become liable with respect to any Funded Debt
or Short-Term Borrowing other than secured or unsecured Funded Debt of a
Wholly-Owned Domestic Subsidiary owing to the Company and secured or unsecured
Short-Term Borrowing of a Wholly-Owned Domestic Subsidiary owing to the Company.
(d) Prohibition of Incurrence of Funded Debt and Short-Term Borrowing
During Gas Sale Contract Payment Default. Notwithstanding the foregoing
provisions of this section 10.1, neither the Company nor any Subsidiary will
directly or indirectly, create, incur, issue, assume, guaranty, agree to
purchase or repurchase or provide funds in respect of or otherwise become liable
with respect to any Funded Debt or Short-Term Borrowing at a time when a default
has occurred and is continuing by Seagull in the due and punctual payment of the
price for natural gas under the Gas Sale Contract and such default shall be
continuing.
10.2 Restrictions on Investments, Loans, etc. The Company will not, and
will not permit any Subsidiary to, directly or indirectly purchase or otherwise
acquire or own any Securities of any other Person, or make any capital
contribution, loan or advance to any other Person, or be obligated to provide
funds to guarantee any obligation of any other Person, or otherwise invest in
any other Person, including, in any such case, a transfer of property to such
-18-
<PAGE> 26
person for an aggregate consideration of less than the amount determined by the
Company in good faith to be the aggregate fair value of such property
(collectively "Investments"), except that:
(a) the Company and any Subsidiary may purchase and own marketable
direct obligations of the United States of America maturing within one
year from the date of acquisition thereof;
(b) the Company and any Wholly-Owned Domestic Subsidiary may purchase
and own (i) certificates of deposit of any member bank of the Federal
Reserve System which either has a combined capital and surplus of not
less than $250,000,000 or which has a Standard & Poor's corporation
credit rating on its outstanding securities of not less than AA, and
(ii) certificates of deposit of National Bank of Alaska and of First
National Bank of Anchorage, in each case not exceeding $1,000,000 in
the aggregate at any time, and of First Interstate Bank of Alaska and
of Alaska National Bank of the North, in each case not exceeding
$100,000 in the aggregate at any time;
(c) subject to section 10.3, the Company may purchase and own
Securities of, or make capital contributions to, or make any loan or
advance to, or be obligated to provide funds to, any Wholly-Owned
Domestic Subsidiary or any corporation which simultaneously therewith
becomes a Wholly-Owned Domestic Subsidiary;
(d) so long as no Default or Event of Default shall have occurred and
be continuing, the Company may make any loan or advance to Seagull
evidenced by Intercompany Notes, which Intercompany Notes are secured
by the Intercompany Mortgage and bear interest at the rate required by
section 2.02 of the Intercompany Mortgage, but only if either (i) the
proceeds of any such loan or advance made after December 31, 1984 are
applied solely to finance, or to replace funds used in financing, the
construction, acquisition or improvement after January 1, 1985 of
property which is used or useful or intended for use in the Division's
business and which is subjected to the lien of the Intercompany
Mortgage, or (ii) after giving effect to such loan or advance, the
Company would be permitted to make at least $1.00 in Restricted Stock
Payments pursuant to section 10.3; and
(e) the Company may purchase and own commercial paper maturing not
more than 270 days from the date of creation thereof which has the
highest credit rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and which is not
issued by an Affiliate of the Company.
For the purpose of clause (d) above, any extension or renewal of Intercompany
Notes shall constitute a new loan or advance to the Division unless the
requirements with respect to fixing the interest rate applicable to Intercompany
Notes set forth in section 2.02 of the Intercompany Mortgage are complied with
as of the time of such extension and renewal.
-19-
<PAGE> 27
10.3. Restricted Investments, Restricted Stock Payments and Restricted
Subordinated Debt Payments. The Company will not, directly or indirectly,
(a) other than as contemplated by section 4 make any
Restricted Investment, Restricted Stock Payment or Restricted
Subordinated Debt Payment so long as any Default or Event of Default
shall have occurred and be continuing; or
(b) make any Restricted Investment, Restricted Stock Payment
or Restricted Subordinated Debt Payment from and after December 31,
1984, unless, after giving effect to the proposed action, the aggregate
amount of such Restricted Investment, such Restricted Stock Payment or
such Restricted Subordinated Debt Payment plus all other Restricted
Investments, Restricted Stock Payments and Restricted Subordinated Debt
Payments made from and after December 31, 1984 plus the aggregate
unpaid principal amount of all loans and advances made by the Company
to Seagull pursuant to clause (d)(ii) of section 10.2 would not exceed
the sum of the following:
(i) $10,000,000; plus
(ii) Consolidated Adjusted Net Earnings of the
Company and its Wholly-Owned Domestic Subsidiaries accrued
during the period from December 31, 1984 to the end of the
next preceding quarterly fiscal period (the "Computation
Period"); plus
(iii) the aggregate amount of net cash proceeds to
the Company from sales during the Computation Period of shares
of any class of its stock;
provided that the restrictions in this paragraph (b) shall not prevent
Restricted Investments not exceeding $500,000 in the aggregate, but the
aggregate amount of each such Restricted Investment shall nevertheless
be included in all subsequent calculations of the aggregate amount of
Restricted Investments pursuant to this paragraph (b).
The Company will not, directly or indirectly, declare any dividend (except a
dividend payable solely in Common Stock of the Company) for payment, or order
any distribution to be made to any holders of any stock of the Company, on a
date more than 60 days after the declaration of such dividend or the ordering of
such distribution, as the case may be. The Company will not permit any
Subsidiary to purchase or otherwise acquire or own any shares of stock of the
Company of any class or any Subordinated Indebtedness or any warrant, option or
right to purchase, subscribe for or otherwise acquire any such stock or
securities. The foregoing shall not restrict or prohibit the Company from
declaring and paying accrued dividends or making mandatory redemption payments
on its 12% Cumulative Preferred Stock outstanding on the date hereof to the
extent the same are paid or made pursuant to the terms of such 12% Cumulative
Preferred Stock on the date hereof.
-20-
<PAGE> 28
10.4. Restrictions on Lease-Backs, Rental Obligations, etc. (a) The Company
will not, and will not permit any Subsidiary to, become or be or remain liable
as lessee, directly or indirectly, upon or with respect to any lease of any
property, real or personal,
(i) previously owned by the Company or a Subsidiary and sold
or transferred by the Company or such Subsidiary after December 31,
1984 with a view to the leasing of the same back to the Company or a
Subsidiary, or
(ii) on terms involving or contemplating the substantial
equivalent of a purchase thereof or an eventual rental thereof at a
rent materially below the fair rental value thereof at the time the
lease is entered into, or
(iii) involving any option to the lessee to purchase the
leased property for an amount materially below the fair market value
thereof at the time the lease is entered into.
(b) The Company will not permit the aggregate amount (determined on a
consolidated basis) of the net rental obligations of the Company and its
Subsidiaries for any current or future 12-month period under all leases of real
and/or personal property to be at any time in excess of $100,000, exclusive of
rental obligations under
(i) leases of office and warehouse space,
(ii) leases of office furniture and equipment, automobiles,
airplanes, mobile transportation equipment, stores equipment, shop
equipment, laboratory equipment, tools and work equipment and mobile
communications equipment,
(iii) leases having a term (including terms of renewal at the
option of the lessor or the lessee, whether or not the lease has
theretofore been renewed) expiring less than 3 years after the time of
determination, and
(iv) leases of and leasehold interests in oil and gas
properties and the land covered thereby having net rental obligations
of the Company and its Subsidiaries for any current or future 12-month
period not exceeding an aggregate of $75,000.
For purposes of this paragraph (b), the net rental obligations of the Company or
any Subsidiary for any current or future 12-month period under any such lease
shall be the sum of the rental and other amounts required to be paid in such
12-month period by the Company or such Subsidiary, as the case may be,
thereunder and with respect thereto, not including, however (whether or not
designated in such lease as rental or additional rental payable thereunder), (x)
amounts not exceeding $75,000 in the aggregate during any such 12-month period,
paid as "bonuses" or similar charges with respect to the entering into of such
leases of oil and gas
-21-
<PAGE> 29
properties and lands, and (y) any amounts required to be paid on account of
maintenance and repairs, insurance, taxes, assessments, water rights and similar
charges.
10.5. Restrictions on Liens, etc. The Company will not, and will not
permit any Subsidiary to, directly or indirectly, create, assume or suffer to
exist any mortgage, lien, pledge, charge or encumbrance on or conditional sale
or other title retention arrangement with respect to or security in any property
or asset of the Company or any Subsidiary, whether now owned or hereafter
acquired, or upon any income or profits therefrom, or give its consent to any
subordination of any right or claim of the Company or such Subsidiary to any
right or claim of any other Person, other than
(a) liens on property of a Wholly-Owned Domestic Subsidiary
securing Funded Debt of such Wholly-Owned Domestic Subsidiary owing to
the Company;
(b) liens of taxes, assessments and governmental charges not
yet payable, or payable without penalty so long as so payable, or
deposits created in the ordinary course of business as security for
compliance with laws imposing taxes, assessments or governmental
charges;
(c) liens of taxes, assessments and governmental charges the
validity of which are being contested in good faith by appropriate
action promptly initiated and diligently conducted, if such reserve or
other appropriate provision, if any, as shall be required by Required
Accounting Practice shall have been made therefor;
(d) carriers', warehousemen's, materialmen's, mechanics',
repairmen's, employees' or other similar liens for services arising in
the ordinary course of business not yet due or being contested in good
faith by appropriate action promptly initiated and diligently
conducted, if such reserve or other appropriate provision, if any, as
shall be required by Required Accounting Practice shall have been made
therefor;
(e) liens incurred or deposits made in the ordinary course of
business in connection with workmen's compensation, unemployment
insurance and other social security, or to secure the performance of
leases (provided that all such liens incurred and deposits made in
connection with such leases do not at any time exceed $250,000),
tenders, statutory obligations, surety and appeal bonds, performance
and return-of-money bonds and other similar obligations (exclusive of
obligations incurred in connection with the borrowing of money or the
obtaining of advances or credit),
(f) any judgment lien, unless the judgment it secures shall
not, within 30 days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall not have been
discharged within 30 days after the expiration of any such stay;
-22-
<PAGE> 30
(g) leases granted in the ordinary course of business or
leases to which any property acquired in the ordinary course of
business is subject, provided that such leases are permitted by this
Agreement;
(h) encumbrances (other than to secure the payment of money),
easements, rights-of-way, servitudes, permits, reservations, leases and
other rights in respect of gravels, minerals, oil, gases or water or in
respect of grazing, logging, mining, canals, ditches, reservoirs or the
like, conditions, covenants, party wall agreements or other
restrictions, or easements for streets, alleys, highways, pipe lines,
telephone lines, power lines, railways and other rights-of-way, on,
over or in respect of property (other than property used or to be used
primarily for compressor stations) owned by the Company or a Subsidiary
or over which the Company or Subsidiary owns rights-of-way, easements,
permits or licenses, provided that such encumbrances, easements,
rights-of-way, servitudes, permits, reservations, leases, rights,
conditions, covenants, party wall agreements or other restrictions are
such that they will not either individually or in the aggregate, if
exercised or availed of, interfere materially with the proper use or
operation of the property affected thereby for the purpose for which
such property is or is to be used, and provided, further, that, in the
case of such of the same as relate only to property on, over or in
respect of which the Company or a Subsidiary owns rights-of-way or
easements exclusively for pipe line purposes or locations for regulator
stations or other pipe line facilities (other than compressor
stations), the Company or such Subsidiary has power under eminent
domain or similar statutes to remove the same;
(i) rights reserved to or vested in any municipality or public
authority to control or regulate any property of the Company or a
Subsidiary or to use such property in any manner which does not
materially impair the use of such property for the purposes for which
it is held by the Company or such Subsidiary;
(j) obligations or duties, affecting the property of the
Company or a Subsidiary, to any municipality or public authority with
respect to any certificate of public convenience and necessity,
franchise, grant, license or permit which do not materially impair the
use of such property for the purposes for which it is held by the
Company or such Subsidiary;
(k) zoning laws and ordinances;
(l) irregularities in or deficiencies of title to any
rights-of-way, licenses or permits for pipe lines, telephone lines,
power lines, water lines and/or appurtenances thereto or other
improvements thereon, and to any real estate used or to be used
primarily for right-of-way purposes or for regulator stations or other
pipe line facilities (other than compressor stations), provided that
the Company or a Subsidiary shall have obtained from the apparent owner
of the land or estate covered by any such
-23-
<PAGE> 31
right-of-way, license or permit a sufficient right, by the terms of the
instrument granting such right-of-way, license or permit to the use
thereof for the construction, operation or maintenance of the lines,
appurtenances or improvements for which the same is used or is to
be used, and provided, further, that the Company or such Subsidiary has
power under eminent domain or similar statutes to remove such
irregularities or deficiencies;
(m) reservations and other matters relating to titles to
leases and leasehold interests in oil and gas properties and the lands
covered thereby, if such reservations and other matters do not, in the
aggregate, materially affect the marketability of the title thereto,
and do not materially impair the use of such leases or leasehold
interests for the purposes for which they are held or the value of the
interest therein;
(n) liens and other encumbrances incurred in connection with
Indebtedness of the Company not in excess of $10,000,000 at any time
outstanding, issued by a municipality or development corporation to
finance the construction of premises to be used by the Company or a
Subsidiary thereof, the interest on which is exempt from federal income
tax under section 103(b) of the Code, provided that the incurrence of
such Indebtedness secured thereby is permitted by section 10.1;
(o) purchase money mortgages, liens or security interests in
respect of property either acquired by the Company or upon which the
Company is constructing improvements after the date of this Agreement,
or mortgage, liens or security interests existing in respect of such
property at the time of acquisition thereof, securing Indebtedness of
the Company, provided that (i) no such mortgage, lien or security
interest shall extend to or cover any other property, or secure any
other Indebtedness of the Company or any Subsidiary, (ii) the
incurrence of such Indebtedness secured thereby is permitted by section
10.1, (iii) the aggregate principal amount of all Indebtedness of the
Company secured by all such mortgages, liens and security interests
shall not exceed $2,500,000 at any time outstanding, and (iv) the
aggregate principal amount of all Indebtedness secured by all such
mortgages, liens or other security interests in respect of any such
property shall not exceed 90% of the cost or fair market value (as
determined by the Company in good faith), whichever shall be lower, of
such property at the time of the acquisition thereof by the Company;
(p) for the period prior to the Closing, the liens, pledges,
charges and other encumbrances created by or pursuant to the Bond
Indenture, the Note Indenture and the Company Collateral Assignment;
and
(q) liens and other encumbrances resulting from the placement
in trust of United States government securities for the benefit of
holders of any Indebtedness of the Company or such Subsidiary under
circumstances where such Indebtedness is deemed to be extinguished
under generally accepted accounting principles but for which the
Company or such Subsidiary remains legally liable, provided that the
current market
-24-
<PAGE> 32
value as of the date of such placement in trust of such securities
shall not exceed the unpaid balance of such Indebtedness.
The Company will not, and will not permit any Subsidiary to, sign or file in any
state or other jurisdiction a financing statement under the Uniform Commercial
Code which names the Company or such Subsidiary as debtor or sign any security
agreement authorizing any secured party thereunder to file any such financing
statement, except, in any such case, a financing statement filed or to be filed
to perfect or protect a security interest which the Company or such Subsidiary
is entitled to create, assume or incur, or permit to exist, under this section
10.5.
10.6. Issuance and Sale, etc., of Subsidiary Stock Disposition of
Subsidiary Stock and Indebtedness. The Company will not permit any Subsidiary to
issue, sell or otherwise dispose of any shares of stock of any class, or any
security convertible into or exchangeable for or carrying rights to subscribe
for shares of stock of any class, of such Subsidiary to any Person other than
the Company or a Wholly-Owned Domestic Subsidiary, except to qualify directors
if required by law. The Company will not permit any Subsidiary to have
outstanding any shares of Preferred Stock, except shares of Preferred Stock
owned or held by the Company or a Wholly-Owned Domestic Subsidiary of the
Company. The Company will not sell or otherwise dispose of any shares of stock
or any Indebtedness of any Subsidiary or permit any Subsidiary to sell, transfer
or otherwise dispose of any shares of stock or any Indebtedness of any
Subsidiary except (a) to qualify directors if required by law or (b) to the
Company or a Wholly-Owned Domestic Subsidiary of the Company.
10.7. Consolidation or Merger of Subsidiaries; Disposition of Subsidiary
Property as an Entirety. The Company will not permit any Subsidiary to
consolidate with or merge into any Person other than the Company or a
Wholly-Owned Domestic Subsidiary of the Company. The Company will not permit any
Subsidiary to sell, lease or otherwise dispose of its properties and assets as
an entirety or substantially as an entirety except to the Company or a
Wholly-Owned Domestic Subsidiary of the Company.
10.8. Consolidation or Merger of Company; Disposition of Company
Disposition of Company Property as an Entirety. The Company will not consolidate
with, merge into, or sell, lease or otherwise dispose of its properties and
assets as an entirety or substantially as an entirety to, any Person, unless
(a) the successor formed by or resulting from such
consolidation or merger or to which such disposition shall have been
made shall be a solvent corporation organized under the laws of the
United States of America or a state thereof or the District of
Columbia;
(b) simultaneously with such consolidation, merger or
disposition, such successor corporation shall execute and deliver to
each holder of any of the Notes at the time outstanding an instrument,
satisfactory in substance and form to each such
-25-
<PAGE> 33
recipient, expressly assuming the due and punctual payment of the
principal of and the premium, if any, and interest on all of the Notes
at the time outstanding, according to their tenor, and the due and
punctual performance and observance of all of the terms, covenants,
agreements and conditions of such Notes and this Agreement to be
performed or observed by the Company, to the same extent as if such
successor corporation had originally executed this Agreement in place
of the Company and had been the original maker of such Notes;
(c) at the time of such consolidation, merger or sale, such
successor corporation shall not be liable with respect to any
Indebtedness or lease (other than Indebtedness or leases of the Company
outstanding immediately prior thereto) which it could not become liable
with respect to or make hereunder immediately after giving effect to
such consolidation, merger or sale; and
(d) immediately after giving effect to such consolidation,
merger or sale (and the execution and delivery of the instrument of
assumption required under clause (b) of this section 10.8), no
condition or event shall exist which constitutes a Default or an Event
of Default.
No sale, lease, transfer or other disposition of assets permitted by this
section 10.8 shall have the effect of releasing Alaska Pipeline Company (or any
other corporation which shall at any time have assumed the liabilities or
obligations of the Company hereunder or with respect to any of the Notes) from
any liability or obligation hereunder or with respect to any of the Notes.
10.9. Disposition of Company and Subsidiaries Property. The Company will
not, and will not permit any Wholly-Owned Domestic Subsidiary to, directly or
indirectly sell or otherwise dispose of any of its properties and assets (other
than in a transaction permitted by section 10.7 or 10.8) unless, immediately
after giving effect to any such disposition,
(a) the Aggregate Value of all such properties and assets so
sold or disposed of during the period of 12 consecutive calendar months
ending with the calendar month of the date of such disposition would
not exceed 10% of Consolidated Net Tangible Assets of the Company and
its Wholly-Owned Domestic Subsidiaries as at the December 31 next
preceding the date of such disposition; or
(b) the Company could become liable (in compliance with clause
(a) of section 10.1) with respect to $1 of additional Funded Debt.
If the aggregate net cash proceeds of all such sales and other dispositions of
properties and assets of the Company and its Wholly-Owned Domestic Subsidiaries
during any fiscal year of the Company, commencing with the fiscal year ending on
December 31, 1985, shall exceed the aggregate amount expended by the Company and
its Wholly Owned Domestic Subsidiaries
-26-
<PAGE> 34
offset against such net cash proceeds as hereinafter provided, then and in each
such case the Company will, not later than November 15 of the next succeeding
fiscal year, apply such excess to the prepayment of its Funded Debt (other than
tax-exempt Funded Debt) at the time outstanding. For purposes of the foregoing,
there may be offset against the net cash proceeds of sales and other
dispositions of properties and assets during any fiscal year all or any portion
of the aggregate amount expended by the Company and its Wholly-Owned Domestic
Subsidiaries for property, plant and equipment during the period of such fiscal
year and the next following 10-month period thereafter, provided that no portion
of the amount so expended which has been so offset against the proceeds of sales
and dispositions shall again be offset, directly or indirectly, against the
proceeds of any other sales or dispositions.
10.10. Gas Contracts. The Company will at all times perform and observe all
the covenants, agreements, terms, conditions and limitations applicable to it
contained in the Gas Contracts, and will do all things necessary to keep
unimpaired all its rights thereunder and to prevent any default thereunder or
any forfeiture or impairment thereof. In case the Company shall at any time
receive any notice, demand or other communication from any other party to any of
the Gas Contracts relating to any alleged, potential or actual material default
thereunder or material breach of any of the covenants, agreements, terms,
conditions or limitations thereof, or purporting to terminate or in any other
way materially adversely affect the rights of the Company thereunder, the
Company will immediately deliver to the holders of all Notes a copy of such
notice, demand or other communication. The Company will not amend, modify,
supplement, surrender, cancel, terminate or in any way waive any covenant,
agreement, term, condition or limitation of any of the Gas Contracts, except
that the Company may amend, modify or supplement any of the Gas Contracts if
such amendment, modification or supplement does not contravene the provisions of
Article IV or Article V of the Gas Sale Contract as amended by the amendment
attached as Exhibit D hereto, and if, in the good faith judgment of the Company,
such amendment, modification or supplement is desirable in, or will not have a
material adverse effect on, the business of the Company and will not be in any
way prejudicial to the holders of the Notes. Prior to or at the Closing the
Company will cause the Gas Sale Contract to be amended to be substantially in
the form of the amendment set forth in Exhibit D attached hereto.
10.11. Intercompany Notes, etc. The Company will not transfer, assign or
encumber any of the Intercompany Notes or its rights and privileges under the
Intercompany Mortgage, nor will the Company amend, modify, supplement,
surrender, cancel, terminate or in any way waive any covenant, agreement, term,
condition or limitation of the Intercompany Mortgage or any Intercompany Note,
unless, in the good faith judgment of the Company, such action is desirable in,
or will not have a material adverse effect on, the business of the Company and
will not be in any way prejudicial to the holders of the Notes. The Company will
promptly notify the holders of the Notes in the event it becomes aware of any
default under, or material breach of any of the covenants, agreements, terms,
conditions or limitations contained in, the Intercompany Mortgage or any of the
Intercompany Notes. The Company will cause the Intercompany Mortgage and all
supplements thereto at all times to be recorded, registered and
-27-
<PAGE> 35
filed and to be kept, recorded, registered and filed in such manner and in such
places, and will pay or cause to be paid all such mortgage registration,
recording, filing and other taxes and fees, and will comply or cause Seagull to
comply with all such statutes and regulations, all as may be required by law in
order fully to create, preserve, maintain and protect the lien of the
Intercompany Mortgage on the property subject thereto.
10.12. Compliance with ERISA. The Company will not, and will not
permit any Subsidiary to,
(a) engage in any transaction in connection with which the
Company or any Subsidiary could be subject to either a civil penalty
assessed pursuant to section 502(i) of ERISA or a tax imposed by
section 4975 of the Code, terminate any Plan (other than a
Multiemployer Plan) in a manner, or take any other action with respect
to any such Plan, which could result in any liability of the Company or
any Subsidiary to the Pension Benefit Guaranty Corporation, fail to
make full payment when due of all amounts which, under the provisions
of any Plan, the Company or any Subsidiary is required to pay as
contributions thereto, or permit to exist any accumulated funding
deficiency, whether or not waived, with respect to any Plan (other than
a Multiemployer Plan), if, in any such case, such penalty or tax or
such liability, or the failure to make such payment, or the existence
of such deficiency, as the case may be, could have a material adverse
effect on the Company or any of its Subsidiaries;
(b) permit the present value of all vested accrued benefits
under all Plans maintained at such time by the Company and any
Subsidiary (other than Multiemployer Plans) guaranteed under Title IV
of ERISA to exceed the current value of the assets of such Plans
allocable to such vested accrued benefits by more than $750,000; or
(c) permit the aggregate complete or partial withdrawal
liability under Title IV of ERISA with respect to Multiemployer Plans
incurred by the Company and its Subsidiaries to exceed $1,000,000.
As used in this section 10.12, the term "accumulated funding deficiency" has the
meaning specified in section 302 of ERISA and section 412 of the Code, the term
"accrued benefit" has the meaning specified in section 3 of ERISA and the term
"current value" has the meaning specified in section 4062(b)(1)(A) of ERISA.
11. Remedies. 11.1. Events of Default; Acceleration. If any one or more of
the following events ("Events of Default") shall occur and be continuing:
(a) if default shall be made by the Company in the due and
punctual payment of any principal or premium, if any, on any Note when
and as the same shall become due and payable, whether at maturity or a
date fixed for prepayment or by declaration or otherwise;
-28-
<PAGE> 36
(b) if default shall be made in the due and punctual payment
of any interest on any Note when and as such interest shall become due
and payable, and such default shall have continued for a period of 5
days;
(c) if default shall be made by Seagull in the due and
punctual payment of any principal or premium, if any, on any
Intercompany Note when and as the same shall become due and payable,
whether at maturity or a date fixed for prepayment or by declaration or
otherwise;
(d) if default shall be made by Seagull in the due and
punctual payment of any interest on any Intercompany Note when and as
such interest shall become due and payable, and such default shall have
continued for a period of 5 days;
(e) if default shall be made by the Company in the performance
or observance of any term contained in section 9.2, 9.3, 9.4(b), 9.4(c)
or 10 or by Seagull in the performance or observance of any term
contained in section 6 of the Inducement Agreement;
(f) if default shall be made in the performance or observance
of any term contained in this Agreement, other than those referred to
above in this section 11.1, and such default shall have continued for a
period of 30 days after written notice thereof to the Company by the
holder of any Note;
(g) if default shall be made by Seagull in the due and
punctual payment of the price for natural gas under the Gas Sale
Contract and such default shall have continued for a period of 90 days
after the end of the quarterly fiscal period in which such default
occurred;
(h) if any representation made by or on behalf of the Company
or Seagull in this Agreement or the Inducement Agreement or in any
certificate, report or other instrument delivered under or pursuant to
any term hereof or thereof shall prove to have been false or incorrect
in any material respect on the date as of which made;
(i) if Seagull shall fail to perform or comply with any term
of the Seagull Documents other than those referred to above in this
section 11.1 and such default shall have continued for a period of 30
days after written notice thereof to the Company by the holder of any
Note;
(j) if the Company or any Subsidiary or Seagull shall (i) be
generally not paying its debts as they become due, (ii) file, or
consent by answer or otherwise to the filing against it of, or fail to
deny the material allegations of or to contest, a petition for relief
or reorganization or arrangement or any other petition in bankruptcy,
for liquidation or to take advantage of any bankruptcy or insolvency
law or other act for
-29-
<PAGE> 37
the relief or aid of debtors of any jurisdiction, (iii) make an
assignment for the benefit of its creditors, (iv) consent to or
acquiesce in the appointment of a custodian, receiver, liquidator,
fiscal agent, trustee or other officer with similar powers of itself or
themselves or of the whole or any substantial part of its properties
and assets, (v) be adjudicated insolvent or a bankrupt, or (vi) take
corporate action for the purpose of any of the foregoing;
(k) if a court or governmental authority of competent
jurisdiction shall enter an order, judgment or decree appointing,
without the consent or the acquiescence of the Company or a Subsidiary
or Seagull, as the case may be, a custodian, receiver, liquidator,
fiscal agent, trustee or other officer with similar powers of the
Company or such Subsidiary or Seagull or of the whole or any
substantial part of its properties and assets, or if an order for
relief shall be entered in any case or proceeding for liquidation or
reorganization or otherwise to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the reorganization,
arrangement, composition, readjustment, dissolution, winding-up,
liquidation or similar relief of the Company or such Subsidiary or
Seagull, or if any petition for any such relief shall be filed against
the Company or such Subsidiary or Seagull and such petition, order,
judgment or decree shall not be dismissed or discharged within 60 days;
(l) if, under the provisions of any other law for the relief
or aid of debtors, any court of competent jurisdiction shall assume
custody or control of the Company or any Subsidiary or Seagull or of
the whole or any substantial part of its properties and assets and such
custody or control shall remain unterminated or unstayed for an
aggregate of 60 days (whether or not consecutive) from the date of
assumption of such custody or control;
(m) if final judgment for the payment of money in excess of
$50,000 shall be rendered by a court of record against the Company or
any Subsidiary or Seagull and the Company or such Subsidiary or Seagull
shall not (i) within 60 days from the date of entry thereof, discharge
the same or provide for its discharge in accordance with its terms or
procure a stay of execution thereof, and (ii) if execution of such
judgment shall be stayed, within such period of 60 days or such longer
period during which execution of such judgment shall have been stayed,
appeal therefrom and cause the execution thereof to be stayed during
such appeal, or, after the expiration of any such stay or the denial of
such appeal, forthwith discharge the same or provide for its discharge;
or
(n) if the Company or any Subsidiary or Seagull shall default
(as principal or as guarantor or other surety) in the payment of any
principal of or premium, if any, or interest on any Indebtedness for
borrowed money (other than the Notes), or if any event shall occur or
condition shall exist in respect of any such Indebtedness or under any
evidence of any such Indebtedness, or of any mortgage, indenture or
Other Agreements relating thereto which would permit or shall have
caused the acceleration
-30-
<PAGE> 38
of the payment of such Indebtedness, and such default, event or
condition shall continue for more than the period of grace, if any,
specified therein and shall not have been waived pursuant thereto;
then and in any such event any holder or holders of 25% or more in principal
amount of the Notes at the time outstanding may at any time (unless all defaults
shall theretofore have been remedied) at its or their option, by written notice
or notices to the Company, declare all the Notes to be due and payable,
whereupon the same shall forthwith mature and become due and payable together
with interest accrued thereon and, with respect to each Series of Notes, to the
extent permitted by applicable law, a premium in the amount of the lesser of the
stated interest rate payable in respect of such Series of Notes multiplied by
the unpaid principal amount of such Notes or the amount which would be payable
if the Company then had elected to prepay the Notes of such Series at a premium
pursuant to section 8.3, without presentment, demand, protest or notice, all of
which are hereby waived, provided that during the existence of an Event of
Default described in subdivision (a) of this section 11, then, irrespective of
whether the holder or holders of 25% or more in principal amount of Notes then
outstanding shall have declared all the Notes to be due and payable pursuant to
this section 11, any holder of the Notes at the time outstanding (excluding any
Notes directly or indirectly owned by the Company or any of its Subsidiaries or
Affiliates) may, at its option, by notice in writing to the Company, declare the
Notes then held by such holder to be due and payable, whereupon the Notes then
held by such holder shall forthwith mature and become due and payable, together
with interest accrued thereon and with respect to each Series of Notes, to the
extent permitted by applicable law, a premium in the amount of the lesser of the
stated interest rate payable in respect of such Series of Notes multiplied by
the unpaid principal amount of such Notes or the amount which would be payable
if the Company then had elected to prepay the Notes of such Series at a premium
pursuant to section 8.3, without presentment, demand, protest or notice, all of
which are hereby waived. If a declaration is made pursuant to this section 11.1
by the holder or holders of at least 25% in principal amount of the Notes, then
and in each such case, the holders of at least 75% in aggregate principal amount
of the Notes at the time outstanding may, by written notice or notices to the
Company, rescind and annul such declaration and the consequences thereof,
provided that at the time such declaration is annulled and rescinded, (i) no
judgment or decree has been entered for the payment of any moneys due pursuant
to the Notes or this Agreement, (ii) all arrears of interest upon all the Notes
and all other sums payable under the Notes and under this Agreement (except any
principal or interest on the Notes which has become due and payable solely by
reason of such declaration under this section 11.1) shall have been duly paid,
and (iii) each and every other default and Event of Default shall have been
remedied, and provided, further, that no such rescission and annulment shall
extend to or affect any subsequent default or Event of Default or impair any
right consequent thereon.
11.2. Notice of Default. If any holder of any Note shall serve any notice
or take any other action in respect of a claimed default, the Company will
forthwith give written notice
-31-
<PAGE> 39
thereof to all other holders of the Notes at the time outstanding describing
such notice or action and the nature of the claimed default.
11.3. Suits for Enforcement, etc. In case any one or more Events of Default
shall have occurred and be continuing, the holder of any Note may proceed to
protect and enforce its rights by suit in equity or action at law, whether for
the specific performance of any term contained in this Agreement or for an
injunction against any breach of any such term or in aid of the exercise of any
power granted in this Agreement, or may proceed to enforce the payment of such
Note or to enforce any other legal or equitable right of the holder of such
Note, or may take any one or more of such actions. In case of a default in the
payment of any principal of or premium, if any, or interest on any Note, the
Company will pay to the holder thereof on demand such further amounts as shall
be sufficient to pay the costs and expenses of collection, including, without
limitation, reasonable attorneys' fees, expenses and disbursements.
11.4. Remedies Cumulative. No right, power or remedy conferred upon you or
the holder of any Note shall be exclusive, and each such right, power or remedy
shall be cumulative and in addition to every other right, power or remedy,
whether conferred hereby or by any Note or now or hereafter available at law or
in equity or by statute or otherwise.
11.5. Remedies Not Waived. No course of dealing between the Company and you
or the holder of any Note, and no delay in exercising any right, power or remedy
conferred hereby or by any Note or now or hereafter existing at law or in equity
or by statute or otherwise, shall operate as a waiver of or otherwise prejudice
any such right, power or remedy.
12. Registration Books, Transfer and Exchange of Notes. The Company will
keep or cause to be kept, at its principal office (or the office of its agent
for such purpose) in Anchorage, Alaska, proper books in which the names and
addresses of the holders of all Notes issued by the Company shall be registered
and in which transfers of Notes may be registered. Upon due presentment of any
Note for registration of transfer at such office, or upon surrender of any Note
for exchange at such office, the Company at its expense will issue in exchange
therefor a new Note or Notes, in such denomination or denominations as may be
requested ($1,000 and integral multiples thereof) which aggregate the unpaid
principal amount of the presented or surrendered Note, registered as such holder
or transferee may request, dated the date to which interest has been paid on the
presented or surrendered Note and otherwise of like tenor. Prior to the due
presentment of any Note for registration of transfer, the Company may treat the
registered holder thereof as the absolute owner thereof for the purpose of
receiving all payments of principal, premium, if any, and interest thereon and
for all other purposes thereof and hereof.
13. Replacement of Notes. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of any Note and, in
the case of any such loss, theft or destruction of any Note held by a Person
other than you, upon delivery of indemnity reasonably satisfactory to the
Company in form and amount, or, in the case of any
-32-
<PAGE> 40
such mutilation, upon the surrender of such Note for cancellation at the office
of the Company maintained pursuant to section 12, the Company at its expense
will execute and deliver, in lieu thereof, a new Note of like tenor, dated the
date to which interest has been paid on such lost, stolen, destroyed or
mutilated Note.
14. Definitions. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
"Acquisition Agreement" shall mean the Purchase and Sale Agreement,
dated October 30, 1984, between ENSTAR and Seagull as supplemented by a
Supplemental Agreement, dated as of May 3, 1985.
"Affiliate" of any Person shall mean any Person which directly or
indirectly controls or is controlled by or is under common control with such
Person. For the purposes of this definition, "control" (including, with
correlative meaning, the terms "controlled by" and "under common control with"),
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting Securities or
by contract or otherwise.
"Aggregate Value" shall mean, with reference to any disposition of
properties and assets, the greater of (a) the net book value of all properties
and assets disposed of, as shown on the books of the Company and its
Wholly-Owned Domestic Subsidiaries as at the date of such disposition, and (b)
the fair market value of such properties and assets, as determined in good faith
by the Board of Directors of the Company.
"Approval Order" shall mean Order No. 4 of the PUC issued April 3, 1985 in
Docket U-84-67.
"Bank Indebtedness" shall mean the indebtedness of the Company incurred
pursuant to the Credit Agreement, dated as of May 21, 1985, as amended, between
the Company and Chemical Bank.
"Board of Directors" of any corporation shall mean the Board of
Directors of such corporation or, to the extent permitted by applicable law and
the articles of incorporation and by-laws of such corporation, the Executive
Committee of such Board of Directors.
"Bond Indenture" shall mean the Indenture of Mortgage and Deed of
Trust, dated as of August 1, 1960, from the Company to MBank Houston, N.A.
(formerly named Bank of the Southwest, National Association, Houston), as
trustee, as amended and supplemented by a First Supplemental Indenture, dated as
of May 1, 1961, a Second Supplemental Indenture, dated as of December 15, 1969,
a Third Supplemental Indenture, dated as of February 18, 1972, a Fourth
Supplemental Indenture, dated as of November 15, 1975, a Fifth Supplemental
-33-
<PAGE> 41
Indenture, dated as of December 30, 1977, and a Sixth Supplemental Indenture,
dated as of January 1, 1984.
"Bonds" shall mean the Company's First Mortgage and Collateral Trust
Bonds, 7 3/4% Series due January 1, 1990, issued under the Bond Indenture.
"Closing" shall have the meaning specified in section 2.
"Code" shall mean the Internal Revenue Code of 1954, as amended from
time to time.
"Common Stock" shall mean stock or shares of any class or classes
(however designated) of a corporation, association or business trust, the
holders of which are ordinarily and generally, in the absence of contingencies,
entitled to vote for the election of a majority of the directors (or persons
performing similar functions) of such corporation, association or business
trust, even though the right so to vote has been suspended by the happening of a
contingency.
"Company" shall mean Alaska Pipeline Company, an Alaska corporation.
"Company Certificate" shall have the meaning specified in section 5.11.
"Company Collateral Assignment" shall mean the Collateral Assignment
Agreement, dated as of December 30, 1977, between the Company and MBank Houston,
N.A. (formerly named Bank of the Southwest, National Association, Houston), as
trustee, as thereafter supplemented and amended from time to time.
"Consolidated Adjusted Net Earnings" shall mean, as applied to the
Company and its Wholly-Owned Domestic Subsidiaries, the aggregate of the
Consolidated Net Income as Reported of the Company and its Wholly-Owned Domestic
Subsidiaries for each fiscal year or portion thereof during the period in
question, provided that
(a) there shall be deducted an amount equal to the excess, if
any, of (i) the aggregate amount applied by the Company during such
period to the payment, redemption, retirement and purchase of Funded
Debt of the Company and to the repayment of advances to the Company by
Seagull, over (ii) the sum of the aggregate amount of depreciation and
amortization deducted during such period in determining Consolidated
Net Income as Reported and the sinking fund payments made by Seagull to
the Company during such period in accordance with indebtedness of the
Division to the Company evidenced by the Intercompany Notes;
(b) such reserves as shall be required by Required Accounting
Practice for deferred income tax resulting from accelerated depreci-
ation or amortization shall be deducted; and
-34-
<PAGE> 42
(c) if net gains from the sale, abandonment or other
disposition of capital assets and from the purchase, sale, conversion
or other disposition of Securities shall exceed $25,000, such excess
shall be excluded and taxes in respect of such excess shall not be
deducted.
Capital assets as used in this definition shall include all fixed assets, both
tangible (such as land, buildings, machinery and equipment) and intangible (such
as patents, copyrights, trademarks, franchises and good will), and Securities.
"Consolidated Adjusted Total Capitalization" shall mean, as applied to
the Company and its Wholly-Owned Domestic Subsidiaries at any date, the
aggregate Consolidated Total Capitalization of the Company and its Wholly-Owned
Domestic Subsidiaries as at such date, plus the aggregate principal amount of
Consolidated Short-Term Borrowing outstanding on such date.
"Consolidated Funded Debt" shall mean, as applied to the Company and
its Wholly-Owned Domestic Subsidiaries, the aggregate of the Funded Debt of the
Company and its Wholly-Owned Domestic Subsidiaries outstanding on such date,
determined on a consolidated basis and in accordance with Required Accounting
Practice.
"Consolidated Net Cash Flow" shall mean, as applied to the Company and
its Wholly-Owned Domestic Subsidiaries, Consolidated Net Income as Defined of
the Company and its Wholly-Owned Domestic Subsidiaries during the period in
question, less all amounts included in the determination of Consolidated Net
Income as Defined in respect of undistributed earnings of all Subsidiaries, plus
all amounts deducted in the determination of Consolidated Net Income as Defined
in respect of depreciation and amortization, Division Depreciation and deferred
income taxes.
"Consolidated Net Income as Defined" shall mean, as applied to the
Company and its Wholly-Owned Domestic Subsidiaries, the Consolidated Net Income
as Reported for the period in question plus or minus, as the case may be, the
net income or net loss of the Division for such period as stated in the
statement of, income of the Division for such period furnished to the
Noteholders pursuant to section 4 of the Inducement Agreement.
"Consolidated Net Income as Reported" shall mean, as applied to the
Company and its Wholly-Owned Domestic Subsidiaries, the consolidated net income
(or deficit) of the Company and its Wholly-Owned Domestic Subsidiaries for the
period in question, as stated in the combined statement of income of the Company
and its Wholly-Owned Domestic Subsidiaries for such period furnished to the
Noteholders pursuant to section 6.
"Consolidated Net Tangible Assets" shall mean, as applied to the
Company and its Wholly-Owned Domestic Subsidiaries at any date, the gross book
value of all assets (exclusive of franchises, licenses, permits, patents, patent
applications, copyrights,
-35-
<PAGE> 43
trademarks, trade names, good will, experimental and organizational expense and
other like intangibles, treasury shares and unamortized debt discount) properly
appearing on a consolidated balance sheet of the Company and its Wholly-Owned
Domestic Subsidiaries as at such date prepared in accordance with Required
Accounting Practice on a consolidated basis after eliminating all intercompany
items, less the sum (without duplication) of:
(a) the amount included in such assets of any write-up
subsequent to December 31, 1984 in the book value of any asset owned by
the Company or any Wholly-Owned Domestic Subsidiary on such date
resulting from the revaluation thereof subsequent to such date, or any
write-up in excess of cost of any asset acquired subsequent to such
date except as permitted by clause (d).
(b) all reserves for depreciation, depletion, obsolescence and
amortization of properties (other than those excluded as hereinabove
provided) as shown in such balance sheet and all other proper reserves
(other than general contingency reserves and reserves representing mere
appropriations of surplus) which in accordance with Required Accounting
Practice should be set aside in connection with the business conducted;
(c) all liabilities (including tax and other proper accruals)
which would, in accordance with Required Accounting Practice, be
classified as current liabilities of the Company and its Wholly-Owned
Domestic Subsidiaries (including current maturities of Funded Debt);
and
(d) the amount included in such assets of the excess, if any,
of (i) the cost of any assets acquired by the Company or any
Wholly-Owned Domestic Subsidiary subsequent to December 31, 1984 upon
the consolidation or merger of any other corporation with or into the
Company or such Wholly-Owned Domestic Subsidiary or upon the
acquisition by the Company or any Wholly-Owned Domestic Subsidiary of
all or substantially all of the assets or any other corporation, over
(ii) the book value of such assets on the books of such other
corporation at the time of such consolidation, merger or acquisition
(other than a write-up of the book value of an asset made in accordance
with generally accepted accounting principles in connection with the
acquisition of such assets).
"Consolidated Short-Term Borrowing" shall mean, as applied to the
Company and its Wholly-Owned Domestic Subsidiaries at any date, the aggregate of
the Short-Term Borrowing of the Company and its Wholly-Owned Domestic
Subsidiaries as at such date, determined on a consolidated basis and in
accordance with Required Accounting Practice.
"Consolidated Total Capitalization" shall mean, as applied to the
Company and its Wholly-Owned Domestic Subsidiaries at any date, the aggregate of
the Total Capitalization
-36-
<PAGE> 44
of the Company and its Wholly-Owned Domestic Subsidiaries as at such date,
determined on a consolidated basis and in accordance with Required Accounting
Practice.
"Consolidated Total Debt" shall mean, as applied to the Company and its
Wholly-Owned Domestic Subsidiaries at any date, the aggregate of the Funded Debt
and the Short Term Borrowing of the Company and its Wholly-Owned Domestic
Subsidiaries as at such date, determined on a consolidated basis and in
accordance with Required Accounting Practice.
"corporation" shall include, except for the purposes of section 10.8,
an association, joint stock company, business trust or other similar
organization, and shall not include, without limitation, partnerships.
"Default" shall mean an event or condition which, with the lapse of
time or the giving of notice or both, would become an Event of Default.
"Divestiture Agreement" shall mean the continuation of Operations,
voting and Divestiture Agreement, dated June 20, 1984, between ENSTAR and
Unimar.
"Division" shall mean all of ENSTAR's current gas distribution and
sales systems business located in the State of Alaska, which are presently
operating under the name "ENSTAR Natural Gas Company, Division of ENSTAR
Corporation", which business will be sold to Seagull on or before the date of
the Closing, and as such business is conducted after the date hereof by Seagull.
Such business comprises and shall comprise the distribution and sale of natural,
manufactured and mixed gas in Alaska for residential, commercial, industrial and
electrical power plant use, the sale of gas ranges, water heaters, gas burners
and other appliances and equipment related to the use of such gas, all similar
activities in Alaska and all assets, whether or not located in the State of
Alaska, directly relating thereto or used or intended for use therein.
"Division Certificate" shall have the meaning specified in section
5.11.
"Division Collateral Assignment" shall mean the Collateral Assignment
Agreement, dated as of December 30, 1977, between Alaska Interstate Company and
MBank Houston, N.A. (formerly named Bank of the Southwest, National Association,
Houston), as trustee, as thereafter supplemented and amended from time to time.
"Division Depreciation" shall mean, for the period in question, all
amounts of depreciation deducted in determining the net income or net loss of
the Division as stated in the statement of income of the Division for such
period furnished to the Noteholders pursuant to section 6.
-37-
<PAGE> 45
"Division Income Taxes" shall mean, for the period in question, all
amounts of income taxes deducted in determining the net income or net loss of
the Division for such period as stated in the statement of income of the
Division for such period furnished to the Noteholders pursuant to section 6.
"Division Mortgage" shall mean the Mortgage and Deed of Trust dated
February 12, 1972 between Alaska Interstate Company and MBank Houston, N.A.
(formerly named Bank of the Southwest, National Association, Houston), as
trustee, as thereafter supplemented and amended from time to time.
"Domestic Subsidiary" shall mean a Subsidiary incorporated under the
laws of the United States of America or a State thereof or the District of
Columbia and owning substantially all its property and conducting substantially
all its business in the State of Alaska.
"ENSTAR" shall mean ENSTAR Corporation, a Delaware corporation.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Event of Default" shall have the meaning specified in section 11.1.
"Existing Note Agreements" shall mean (a) the Series A and B Note
Agreement, (b) the Series C Note Agreement, and (c) the Series D Note Agreement.
"Existing Notes" shall mean (a) the Series A Notes, (b) the Series B
Notes, (c) the Series C Notes and (d) the Series D Notes.
"Funded Debt" shall mean, as applied to any Person at any date, all
Indebtedness of such Person which would, in accordance with Required Accounting
Practice, be classified as funded debt, including, without limitation, all
Indebtedness for borrowed money (whether secured or unsecured) and Indebtedness
of the character referred to in subdivisions (b) and (c) of the definition of
Indebtedness, in each case maturing more than one year after the date of the
creation thereof, or directly or indirectly renewable or extendible, by its
terms or otherwise, at the option of such Person, beyond such year, and all
Indebtedness (whether secured or unsecured) incurred under a revolving credit or
similar agreement extending for more than one year after the date of the
creation thereof. Any Indebtedness which is extended or renewed (other than
pursuant to an option of the debtor) shall be deemed to have been created at the
date of the extension or renewal.
"Gas Contracts" shall mean the Gas Purchase Contracts, the Gas Sale
Contract and all other contracts and agreements for the purchase or other
acquisition, sale or other disposition, exchange or transportation of natural,
manufactured or mixed gas to which the
-38-
<PAGE> 46
Company is now or hereafter may become a party, and all renewals, extensions,
additions, amendments and modifications thereof entered into as permitted
hereby.
"Gas Purchase Contracts" shall mean (i) the Gas Purchase Contract,
dated May 13, 1960, as amended to the date hereof, between the Company and Union
Oil Company of California and Marathon Oil Company (formerly named The Ohio Oil
Company), (ii) the Gas Purchase and Sale Contract, dated as of May 1, 1984,
among the Company, Cities-Pacific Lewis River Partnership and Pacific Alaska LNG
Associates, (iii) the Agreement, dated November 26, 1984, between the Company
and Phillips Petroleum Company, (iv) the Gas Purchase Contract, dated December
16, 1982, between the Company and Marathon Oil Company, (v) the Gas Purchase
Contract, dated December 20, 1982 between the Company and Shell Oil Company, and
(vi) all renewals, extensions, additions, amendments and modifications thereof
entered into as permitted hereby.
"Gas Sale Contract" shall mean the Gas Sale Contract, dated as of
January 1, 1984, between the Company and the Division, and all renewals,
extensions, additions, amendments and modifications thereof entered into as
permitted hereby.
"Indebtedness" shall mean, as applied to any Person at any date,
(a) all items which in accordance with Required Accounting
Practice would be included on the liability side of the balance sheet
of such Person at such date, except (i) items of capital stock and of
surplus, (ii) reserves for deferred income tax resulting from
accelerated depreciation or amortization, (iii) contributions in aid of
construction, (iv) unallocated contingency reserves, and (v) reserves
properly deductible from assets in accordance with Required Accounting
Practice;
(b) all indebtedness, obligations and liabilities secured by
any mortgage, pledge, lien, charge, conditional sale agreement or other
title retention agreement existing on all property held by such Person
at such date subject to such mortgage, pledge, lien, charge or
agreement; all of such indebtedness, obligations and liabilities shall
be treated as Indebtedness of such Person, whether or not such Person
is in fact liable therefor;
(c) all indebtedness, obligations and liabilities of other
Persons, of the character referred to in the foregoing subdivisions (a)
and (b), which such Person has directly or indirectly guaranteed or
upon or with respect to which such Person is directly or indirectly
liable (by discount, endorsement--other than for deposit for
collection--sale with recourse, repurchase agreement or otherwise) or
in respect of which such Person is obligated to advance or supply
funds; and
-39-
<PAGE> 47
(d) adequate reserves in respect of disputed or contingent
indebtedness, obligations and liabilities of the character referred to
in the foregoing subdivisions (a), (b) and (c), to the extent not
included pursuant to such subdivisions.
Notwithstanding the foregoing, in determining the Indebtedness of any Person
there shall be included all indebtedness of such Person of the character
referred to in subdivisions (a), (b) and (c) deemed to be extinguished under
generally accepted accounting principles but for which such Person remains
legally liable.
"Inducement Agreement" shall have the meaning specified in section 3.4.
"Intercompany Mortgage" shall mean the Eighth Supplemental Mortgage and
Deed of Trust, substantially in the form of Exhibit B attached hereto, to be
dated June 17, 1985.
"Intercompany Notes" shall mean the Notes as defined in the Intercompany
Mortgage.
"Investment" shall have the meaning given in section 10.2.
"Multiemployer Plan" shall mean a Plan which is a "multiemployer plan"
as such term is defined in section 4001(a)(3) of ERISA.
"Note" and "Notes" shall have the meanings specified in section 1.
"Note Indenture" shall mean the Second Indenture of Mortgage and Deed
of Trust, dated as of December 30, 1977, between the Company and MBank Houston,
N.A. (formerly named Bank of the Southwest, National Association, Houston), as
trustee, as thereafter supplemented and amended from time to time.
"Officer's Certificate" shall mean a certificate executed on behalf of
any corporation by such corporation's President, vice President - Finance or
Chief Financial Officer.
"Original Intercompany Mortgage" shall mean the First Mortgage and Deed
of Trust, dated as of August 1, 1960, between the Company and Alaska Natural Gas
Corporation, as amended and supplemented prior to the Closing.
"Person" shall mean an individual, a corporation, a partnership, a
joint venture, a trust, an unincorporated organization or a government or any
agency or political subdivision thereof.
"Plan" shall mean any "employee pension benefit plan" as such term is
defined in Section 3 of ERISA, which is or has been established or maintained,
or to which
-40-
<PAGE> 48
contributions are or have been made, by the Company or, for purposes of section
5.18(b) hereof, any Related Person.
"Preferred Stock", as applied to the capital stock of any corporation,
shall mean capital stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of capital stock of any other class of such
corporation.
"PUC" shall have the meaning specified in section 3.10.
"Related Person" shall mean any trade or business, whether or not
incorporated, which, together with the Company, is under common control, as
described in section 414(b) or (c) of the Code.
"Required Accounting Practice" shall mean, as to any corporation or
division thereof, the accounting rules or regulations, if any, at the time
prescribed by the regulatory body or bodies under the jurisdiction of which such
corporation or division, as the case may be, is at the time operating, and, to
the extent that a matter is not covered by such rules or regulations, the
accounting rules or regulations at the time prescribed by the Federal Energy
Regulatory Commission for companies of established reputation engaged in a
business similar to that of such corporation or division, as the case may be,
which are at the time operating under the jurisdiction of the Federal Energy
Regulatory Commission.
"Restricted Investment" shall mean an Investment in a Wholly-Owned
Domestic Subsidiary of the kind referred to in section 10.2(c). The amount of
Investments which constitute Restricted Investments shall, for all purposes of
this Agreement, be the aggregate cost to the Company of all such Investments
determined in accordance with generally accepted accounting principles, but
without regard to unrealized increases or decreases in value or write-ups,
write-downs or write-offs, of such Investments (except to the extent that
Consolidated Adjusted Net Earnings has been increased or reduced as the result
thereof) and without regard to the existence of any undistributed earnings or
accrued interest with respect thereto accrued after the respective dates on
which such Investments were made, less any net return of capital realized during
such period upon the sale, repayment or other liquidation of such Investments
(determined in accordance with generally accepted accounting principles, but
without regard to any amounts received during such period as earnings (in the
form of dividends, interest or otherwise) on such Investments or as loans from
any Persons in whom such Investments have been made).
"Restricted Stock Payment" shall mean any of the following:
(a) any direct or indirect declaration ordering, setting aside
of funds for, payment or making of any dividend or other distribution
on or with respect to any
-41-
<PAGE> 49
stock of the Company of any class now or hereafter outstanding, other
than a dividend payable solely in Common Stock of the Company; or
(b) any direct or indirect purchase, redemption, retirement or
other acquisition of any stock of the Company of any class now or
hereafter outstanding or of any securities convertible into shares of
its stock of any class (other than payments of Indebtedness evidenced
thereby) or of any warrant, option or right to purchase, subscribe for
or otherwise acquire any such stock or securities, other than one
effected for a consideration consisting solely of Common Stock of the
Company. The amount of any Restricted Stock Payment in property of the
Company shall be deemed to be the greater of the fair value of such
property (as determined by the Board of Directors of the Company) or
the net book value of such property on the Company's books (in
accordance with Required Accounting Practice).
"Restricted Subordinated Debt Payment" shall mean any direct or
indirect payment or other distribution on account of the principal of or the
premium, if any, or interest on, or any purchase, redemption, retirement or
other acquisition of, any Subordinated Indebtedness of the Company now or
hereafter outstanding, provided that for the purposes of paragraph (b) of
section 10.3, Restricted Subordinated Debt Payments shall not include payments,
not exceeding $300,000 during any twelve-month period, on account of
Subordinated Indebtedness consisting of management fees incurred in the ordinary
course of business.
"Seagull" shall mean Seagull Energy Corporation, a Texas corporation,
and any successor to such corporation.
"Seagull Documents" shall mean the Inducement Agreement, the Intercomp-
any Mortgage, the Intercompany Notes and the Gas Sale Contract.
"Securities" shall mean any stocks, any bonds, debentures, notes or
other evidences of Indebtedness, and any other instruments generally known as
securities; any certificates of interest or participation in, temporary or
interim certificates for, receipts for, guaranties of, or warrants or rights to
subscribe to or purchase any of the foregoing and any agreements, indentures,
mortgages or other instruments providing for or securing any of the foregoing.
"Series A Notes" shall mean the Company's 8 3/8% Series A Notes due
January 1, 1993, issued pursuant to the Series A and B Note Agreement.
"Series B Notes" shall mean the Company's 10 1/4% Series B Notes due
January 1, 1995, issued pursuant to the Series A and B Note Agreement.
-42-
<PAGE> 50
"Series C Notes" shall mean the Company's 11 1/2% Series C Notes due
January 1, 1991, issued pursuant to the Series C Note Agreement.
"Series D Notes" shall mean the Company's 9.95% Series D Notes due
April 1, 1997, issued pursuant to the Series D Note Agreement.
"Series E Notes" shall have the meaning specified in section 1.
"Series F Notes" shall have the meaning specified in section 1.
"Series G Notes" shall have the meaning specified in section 1.
"Series H Notes" shall have the meaning specified in section 1.
"Series A and B Note Agreement" shall mean the Note Agreement, dated as
of August 15, 1972, between the Company and The Equitable Life Assurance Society
of the United States, as amended and modified by a letter agreement dated May
28, 1974, by the Second Supplemental Note Agreement, dated as of October 1,
1974, and by the Third Supplemental Note Agreement, dated as of November 15,
1975, and as the same may be further modified, supplemented or amended in
accordance with the terms thereof.
"Series C Note Agreement" shall mean the Note Agreement, dated as of
November 15, 1975, between the Company and The Equitable Life Assurance Society
of the United States, as the same may be modified, supplemented or amended in
accordance with the terms thereof.
"Series D Note Agreement" shall mean the Note Agreement, dated as of
March 15, 1977, between the Company and The Travelers Insurance Company, as the
same may be modified, supplemented or amended in accordance with the terms
thereof.
"Short Term Borrowing" shall mean, as applied to any Person at any
date, all Indebtedness for borrowed money of such Person maturing on demand or
within one year or less from the date of the creation thereof and not directly
or indirectly renewable or extendible, by its terms or otherwise, at the option
of the debtor, beyond such year, and not incurred under a revolving credit or
similar agreement extending for more than one year.
"Subordinated Indebtedness" shall mean all Indebtedness of the Company
to Seagull, now existing or hereafter incurred, including, without limitation,
all Indebtedness in respect of advances, open accounts, accounts payable
obligations, loans, notes, bonds, debentures or other evidences of debt whether
for principal, premium, if any, or interest, and all instruments constituting or
evidencing any of the foregoing, whether or not held
-43-
<PAGE> 51
by Seagull; all of such Indebtedness being subordinated to the prior pay-
ment in full of the Notes.
"Subsidiary" shall mean as to any entity a corporation, association or
business trust a majority (by number of votes) of either the Voting Stock or the
Common Stock of which is at the time owned or controlled, directly or
indirectly, by such entity.
"Tax Sharing Agreement" shall mean the Tax Sharing Agreement, to be
dated the date of the Closing, between the Company and Seagull, substantially in
the form of Exhibit F attached hereto.
"Total Capitalization" shall mean, as applied to a corporation, the sum
of the following, all determined in accordance with Required Accounting Practice
and as shown on the books of account of such corporation:
(a) the principal amount of all Funded Debt of such cor-
poration at the time outstanding, plus
(b) the amount of the capital stock liability of such
corporation and any premium thereon, plus
(c) the amount of any earned surplus, capital surplus and
other surplus of such corporation, less
(d) the amount of any deficit of such corporation.
"Total Destruction" shall mean, with respect to any assets, any damage
to or destruction of such a substantial part of such assets so that, in the good
faith judgment of the owner of such assets, the restoration, replacement or
rebuilding of such assets or any portion thereof as nearly as possible to their
value and condition immediately prior to such damage or destruction is not
economically feasible.
"Total Taking" shall mean, with respect to any assets, the acquisition
(other than for temporary use) of such a substantial part of such assets by any
one or more governments or municipal corporations or other governmental
subdivisions or governmental authorities or any nominee or designee thereof by
the exercise of the power of condemnation or eminent domain, by the exercise of
a right reserved to purchase the same or by a sale or conveyance by the owner of
such assets in lieu of and in reasonable anticipation of the impending exercise
of such a power or of such a right, so that, in the good faith judgment of the
owner of such assets, the restoration, replacement or rebuilding of such assets
or any portion thereof as nearly as possible to their value and condition
immediately prior to such taking is not economically feasible.
-44-
<PAGE> 52
"Unimar" shall have the meaning specified in section 5.13.
"Voting Stock" shall mean stock or shares of any class or classes
(however designated) of a corporation, association or business trust, the
holders of which are at the time entitled to vote for the election of a majority
of the directors (or persons performing similar functions) of such corporation,
association or business trust, whether or not the right to vote exists by reason
of the happening of a contingency, provided that the Company's 12% Cumulative
Preferred Stock outstanding on the date hereof shall not be considered Voting
Stock for purposes of Section 8.4 unless the holders of such Preferred Stock
shall have had the right to vote for the election of a majority of the directors
of the Company for a continuous period of at least three years.
"Wholly-Owned Domestic Subsidiary" shall mean a Domestic Subsidiary all
of the outstanding stock of which, of whatever class and having whatever rights
(other than directors' qualifying shares, if required, options to acquire which
for a nominal consideration shall have been obtained, together with the
certificates therefor, duly endorsed in blank or accompanied by stock powers
duly executed in blank), is at the time owned by the Company.
15. Expenses, etc. Whether or not the transactions contemplated hereby
shall be consummated, the Company will pay (a) the cost and expenses of
preparing and reproducing this Agreement and the Notes, of furnishing all
opinions by counsel for the Company (including any opinions requested by your
counsel as to the legal matter arising hereunder) and all certificates on behalf
of the Company, and of the Company's performance of and compliance with all
agreements and conditions contained herein on its part to be performed or
complied with (b) the cost of delivering to your home office, insured to your
satisfaction, the Notes acquired by you hereunder and any Notes delivered to you
upon any exchange or surrender pursuant hereto and of your delivering any Notes,
insured to your satisfaction, for any such exchange or surrender, (c) the
reasonable fees, expenses and disbursements of your special counsel in
connection with the transactions contemplated hereby, any matters arising
hereunder and any amendments, waivers and consents under or in respect hereof,
and (d) the reasonable out-of-pocket expenses incurred by you in connection with
the transactions contemplated hereby and any matters arising hereunder. The
Company will also pay and save you and each holder of any Notes harmless against
all liabilities, if any, with respect to all taxes, other than income taxes
(including interest and penalties) which may be payable in connection with the
execution and delivery of this Agreement and the Inducement Agreement, the
offer, issue, sale and delivery of the Notes, and any amendment, waiver or
consent under or in respect of any such instrument. The obligations of the
Company under this section 15 shall survive any disposition or payment of the
Notes.
16. Amendment of Existing Note Agreements. Upon the issue and sale of the
Notes, each of the Existing Note Agreements shall automatically be amended to
restate
-45-
<PAGE> 53
sections 6, 9, 10 and 11 thereof in their entirety as set forth in sections 6,
9, 10 and 11 respectively, hereof whereupon, for all purposes of the Existing
Note Agreements, capitalized terms used in such restated sections 6, 9, 10 and
11 shall have the definitions set forth in section 14 hereof. In addition, so
long as you or your nominee shall be the holder of any existing Note, and
notwithstanding anything to the contrary contained in section 19 of any Existing
Note Agreement, the Company will pay all sums becoming due on the Existing Notes
for principal, premium, if any, and interest by the method and at the address
specified for such purpose in the Schedule of Purchasers attached hereto, or by
such other method or at such address as you shall have from time to time
specified to the Company in writing for such purpose without the presentation or
surrender of such Note or the making of any notation thereon, except that any
Note paid or prepaid in full shall be surrendered to the Company at its
principal office for cancellation.
17. Survival of Agreements, etc. All agreements, representations and
warranties contained herein or made in writing by or on behalf of the Company in
connection with the transactions contemplated hereby shall survive the execution
and delivery of this Agreement, any investigation at any time made by you or on
your behalf, and the issue, sale and delivery of the Notes and any disposition
or payment of the Notes. All statements contained in any certificate or other
instrument delivered by or on the behalf of the Company pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed
representations and warranties by the Company hereunder.
18. Amendments and Waivers. Any term of this Agreement or of the Notes may,
with the consent of the Company, be amended and the observance of any term of
this Agreement or of the Notes may be waived (either generally or in a
particular instance and either retroactively or prospectively) only by an
instrument or instruments in writing signed by you, so long as you are committed
to purchase Notes hereunder, and by the holders of at least 66 2/3% in principal
amount of the Notes at the time outstanding (excluding any Notes directly or
indirectly owned by the Company or any of its Subsidiaries or Affiliates)
provided that no such amendment or waiver shall, without the prior written
consent of the holders of all the Notes at the time outstanding, (a) change the
stated maturity or principal amount of any Note, (b) reduce the rate or change
the time of payment of interest on any Note, (c) change the amount or the time
of payment of any principal or premium, if any, payable on any prepayment of any
Note, (d) change any of the provisions of section 11, (e) reduce the aforesaid
percentage of the principal amount of Notes the holders of which are required to
consent to any such amendment or waiver, or (f) change the percentage of
principal amount of the Notes the holders of which are entitled to accelerate
the maturity of the Notes, or reduce the percentage of the principal amount of
the Notes the holders of which are entitled to rescind and annul any such
declaration, as provided in section 11.1. Any amendment or waiver effected in
accordance with this section 18 shall be binding upon each holder of any Note at
the time outstanding, each future holder of any Note and the Company.
-46-
<PAGE> 54
19. Purchase for Investment. You represent that you are purchasing the
Notes hereunder for your own account for investment and with no present
intention of distributing or reselling any thereof, provided that the
disposition of your property shall at all times be within your control.
20. Payments on Notes; Notice of Sale, etc. So long as you or your nominee
shall be the holder of any Note, and notwithstanding anything contained herein
or in such Note to the contrary, the Company will pay all sums becoming due on
such Note for principal, premium, if any, and interest by the method and at the
address specified for such purpose in the Schedule of Purchasers, or by such
other commercially reasonable method or at such other address as you shall have
from time to time specified to the Company in writing for such purpose without
the presentation or surrender of such Note or the making of any notation
thereon, except that any Note paid or prepaid in full shall be surrendered to
the Company at its principal office for cancellation. Prior to any sale or other
disposition of any Note held by you or your nominee, you will, at your election,
either endorse thereon (or on a paper annexed thereto) the amount of principal
paid thereon and the last date to which interest has been paid thereon or
surrender such Note to the Company in exchange for a new Note or Notes pursuant
to section 12. You will promptly notify the Company of any sale or other
disposition of any Note held by you, specifying the name and address of the
transferee, if known to you. The Company will afford the benefits of this
section 20 to any institutional investor which is the direct or indirect
transferee of any Note purchased by you under this Agreement and which has made
the same agreement relating to such note as you have made in this section 20.
21. Notices, etc. All notices and other communications hereunder (other
than referred to in section 20) shall be in writing and shall be deemed to have
been given when delivered or when mailed by first class mail, postage prepaid,
addressed (a) if to you, at your address specified on the attached Schedule A,
or at such other address as you shall have furnished to the Company in writing,
or (b) if to any other holder of any Note, at the most recent address of such
holder as it appears on the registration books maintained by or on the behalf of
the Company pursuant to section 12, or (c) if to the Company, at its address as
set forth in the beginning of this Agreement, or at such other address as the
Company shall have furnished to you and each holder of any Note in writing with
a copy to Seagull at its address set forth in the Inducement Agreement or such
other address as Seagull shall have furnished to you and each holder of any Note
in writing.
22. Nonenforcement for Others. Neither this Agreement nor any disposition
of any of the Notes shall be deemed to create any liability or obligation of any
holder of any Note (including you) to enforce any provision hereof or of any of
the Notes for the benefit or on the behalf of any other Person who may be the
holder of any Note.
23. Miscellaneous. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of New York. This
Agreement
-47-
<PAGE> 55
shall be binding upon and shall inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto, including, except
as expressly limited herein, any holder or holders at the time of the Notes or
any part thereof, provided that you shall not be obligated to purchase Notes of
any Person other than the present Alaska Pipeline Company. Except as stated in
section 17, this Agreement embodies the entire agreement and understanding
between you and the Company and supersedes all prior agreements and
understandings relating to the subject matter hereof. The headings in this
Agreement are for the purpose of reference only and shall not limit or otherwise
affect the meaning hereof. Any reference herein to a section refers to a section
of this Agreement unless otherwise specifically stated herein. This Agreement
may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement between you and the Company. Please then return
one of such signed counterparts to the Company.
Very truly yours,
ALASKA PIPELINE COMPANY
By /s/ Bill B. Hickman
Title: Executive Vice
President
-48-
<PAGE> 56
The foregoing Agreement is hereby agreed to as of the date thereof.
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By /s/ John D. Miller
Title: Vice President
THE TRAVELERS INSURANCE COMPANY
By /s/ Teresa M. Torrey
Title: Investment Officer
THE TRAVELERS LIFE INSURANCE COMPANY
By /s/ Teresa M. Torrey
Title: Investment Officer
-49-
<PAGE> 57
EXHIBIT A-1
ALASKA PIPELINE COMPANY
12.125% SERIES E NOTES DUE JULY 1, 1990
$________________ NEW YORK, NEW YORK
------------
ALASKA PIPELINE COMPANY (the "Company"), an Alaska corporation, for value
received, hereby promises to pay to _______________________________, or
registered assigns, the principal amount of $_________ on July 1, 1990, with
interest (computed on the basis of a 360- day year, 30-day month) on the unpaid
balance of such principal amount from the date hereof, payable on January 1,
1986, and thereafter semi-annually on each July 1 and January 1, at the rate of
12.125% per annum until the same shall become due and payable (whether at
maturity or at a date fixed for prepayment or by declaration or otherwise), and
with interest on any overdue principal (including any overdue prepayment of
principal) and premium, if any, and (to the extent permitted under applicable
law) on any overdue installment of interest, at the rate of 14.125% per annum
until paid, payable semi-annually as aforesaid or, at the option of the holder
hereof, on demand.
Payments of principal, premium, if any, and interest shall be made in
lawful money of the United States of America at the principal office of Chemical
Bank in the Borough of Manhattan, City and State of New York.
The Series E Notes. This Note is one of the Company's 12.125% Series E
Notes due July 1, 1990 (the "Series E Notes", such term to include any Series E
Notes issued in exchange therefor or in replacement thereof), issued in the
original aggregate principal amount of $10,000,000 pursuant to a Note Agreement
(the "Note Agreement"), dated as of June 17, 1985, between the Company and
certain institutional investors. The holder hereof is entitled to the benefits,
and is subject to the provisions, of the Note Agreement and may enforce the
agreements of the Company contained therein and exercise the remedies provided
for thereby or otherwise available in respect thereof.
Prepayment of Notes. As provided in the Note Agreement, the Company will
prepay on July 1, 1989, $5,000,000 principal amount of the Series E Notes,
without premium but together with interest on the principal amount so prepaid
accrued to the date fixed for such prepayment.
Registration of Transfers, etc. Transfers of this Series E Note shall be
registered upon registration books maintained for such purpose by or on behalf
of the Company as provided in the Note Agreement. Prior to presentment of this
Series E Note for registration of transfer, the Company may treat the registered
holder hereof as the absolute owner of this Series E Note for the purpose of
receiving all payments of principal, premium, if any, and interest hereon and
for all other purposes hereof and of the Note Agreement.
<PAGE> 58
Event of Default. In case an Event of Default, as defined in the Note
Agreement, shall occur, the unpaid balance of the principal amount of this
Series E Note may be declared and become due and payable in the manner of and
with the effect provided in the Note Agreement.
Governing Law. This Series E Note shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
ALASKA PIPELINE COMPANY
By:
-----------------------
President
By:
-----------------------
Treasurer
-2-
<PAGE> 59
EXHIBIT A-2
ALASKA PIPELINE COMPANY
12.70% SERIES F NOTES DUE JULY 1, 1995
$________________ NEW YORK, NEW YORK
------------
ALASKA PIPELINE COMPANY (the "Company"), an Alaska corporation, for value
received, hereby promises to pay to _______________________________, or
registered assigns, the principal amount of $_________ on July 1, 1995, with
interest (computed on the basis of a 360- day year, 30-day month) on the unpaid
balance of such principal amount from the date hereof, payable on January 1,
1986, and thereafter semi-annually on each July 1 and January 1, at the rate of
12.70% per annum until the same shall become due and payable (whether at
maturity or at a date fixed for prepayment or by declaration or otherwise), and
with interest on any overdue principal (including any overdue prepayment of
principal) and premium, if any, and (to the extent permitted under applicable
law) on any overdue installment of interest, at the rate of 14.70% per annum
until paid, payable semi-annually as aforesaid or, at the option of the holder
hereof, on demand.
Payments of principal, premium, if any, and interest shall be made in
lawful money of the United States of America at the principal office of Chemical
Bank in the Borough of Manhattan, City and State of New York.
The Series F Notes. This Note is one of the Company's 12.70% Series F Notes
due July 1, 1995 (the "Series F Notes", such term to include any Series F Notes
issued in exchange therefor or in replacement thereof), issued in the original
aggregate principal amount of $14,500,000 pursuant to a Note Agreement (the
"Note Agreement"), dated as of June 17, 1985, between the Company and certain
institutional investors. The holder hereof is entitled to the benefits, and is
subject to the provisions, of the Note Agreement and may enforce the agreements
of the Company contained therein and exercise the remedies provided for thereby
or otherwise available in respect thereof.
Prepayment of Notes. As provided in the Note Agreement, the Company will
prepay on July 1, 1991 and on each July 1 thereafter so long as any Series F
Notes shall be outstanding, a principal amount of the Series F Notes specified
in the Note Agreement, in each case without premium but together with interest
on the principal amount so prepaid accrued to the date fixed for such
prepayment. In addition, the Series F Notes are subject to prepayment in whole
or in part, in certain cases with a premium and in other cases without a
premium, all as specified in the Note Agreement.
Registration of Transfers, etc. Transfers of this Series F
Note shall be registered upon registration books maintained for such purpose by
or on behalf of the Company as provided in the Note Agreement. Prior to
presentment of this Series F Note for registration of transfer, the Company
<PAGE> 60
may treat the registered holder hereof as the absolute owner of this Series F
Note for the purpose of receiving all payments of principal, premium, if any,
and interest hereon and for all other purposes hereof and of the Note Agreement.
Event of Default. In case an Event of Default, as defined in the Note
Agreement, shall occur, the unpaid balance of the principal amount of this
Series F Note may be declared and become due and payable in the manner of and
with the effect provided in the Note Agreement.
Governing Law. This Series F Note shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
ALASKA PIPELINE COMPANY
By:
----------------------
President
By:
----------------------
Treasurer
-2-
<PAGE> 61
EXHIBIT A-3
ALASKA PIPELINE COMPANY
12.80% SERIES G NOTES DUE JULY 1, 2000
$________________ NEW YORK, NEW YORK
------------
ALASKA PIPELINE COMPANY (the "Company"), an Alaska corporation, for value
received, hereby promises to pay to _______________________________, or
registered assigns, the principal amount of $_________ on July 1, 2000, with
interest (computed on the basis of a 360-day year, 30-day month) on the unpaid
balance of such principal amount from the date hereof, payable on January 1,
1986, and thereafter semi-annually on each July 1 and January 1, at the rate of
12.80% per annum until the same shall become due and payable (whether at
maturity or at a date fixed for prepayment or by declaration or otherwise), and
with interest on any overdue principal (including any overdue prepayment of
principal) and premium, if any, and (to the extent permitted under applicable
law) on any overdue installment of interest, at the rate of 14.80% per annum
until paid, payable semi-annually as aforesaid or, at the option of the holder
hereof, on demand.
Payments of principal, premium, if any, and interest shall be made in
lawful money of the United States of America at the principal office of Chemical
Bank in the Borough of Manhattan, City and State of New York.
1. The Series G Notes. This Note is one of the Company's 12.80% Series G
Notes due July 1, 2000 (the "Series G Notes", such term to include any Series G
Notes issued in exchange therefor or in replacement thereof), issued in the
original aggregate principal amount of $3,000,000 pursuant to a Note Agreement
(the "Note Agreement"), dated as of June 17, 1985, between the Company and
certain institutional investors. The holder hereof is entitled to the benefits,
and is subject to the provisions, of the Note Agreement and may enforce the
agreements of the Company contained therein and exercise the remedies provided
for thereby or otherwise available in respect thereof.
2. Prepayment of Notes. As provided in the Note Agreement, the Company will
prepay on July 1, 1991 and on each July 1 thereafter so long as any Series G
Notes shall be outstanding, a principal amount of Series G Notes specified in
the Note Agreement, in each case without premium but together with interest on
the principal amount so prepaid accrued to the date fixed for such prepayment.
In addition, the Series G Notes are subject to prepayment in whole or in part,
in certain cases with a premium and in other cases without a premium, all as
specified in the Note Agreement.
<PAGE> 62
3. Registration of Transfers, etc. Transfers of this Series G Note shall be
registered upon registration books maintained for such purpose by or on behalf
of the Company as provided in the Note Agreement. Prior to presentment of this
Series G Note for registration of transfer, the Company may treat the registered
holder hereof as the absolute owner of this Series G Note for the purpose of
receiving all payments of principal, premium, if any, and interest hereon and
for all other purposes hereof and of the Note Agreement.
4. Event of Default. In case an Event of Default, as defined in the Note
Agreement, shall occur, the unpaid balance of the principal amount of this
Series G Note may be declared and become due and payable in the manner of and
with the effect provided in the Note Agreement.
5. Governing Law. This Series G Note shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
ALASKA PIPELINE COMPANY
By:
-----------------------
President
By:
-----------------------
Treasurer
-2-
<PAGE> 63
EXHIBIT A-4
ALASKA PIPELINE COMPANY
12.75% SERIES H NOTES DUE JULY 1, 2000
$________________ NEW YORK, NEW YORK
------------
ALASKA PIPELINE COMPANY (the "Company"), an Alaska corporation, for value
received, hereby promises to pay to _______________________________, or
registered assigns, the principal amount of $_________ on July 1, 2000, with
interest (computed on the basis of a 360-day year, 30-day month) on the unpaid
balance of such principal amount from the date hereof, payable on January 1,
1986, and thereafter semi-annually on each July 1 and January 1, at the rate of
12.75% per annum until the same shall become due and payable (whether at
maturity or at a date fixed for prepayment or by declaration or otherwise), and
with interest on any overdue principal (including any overdue prepayment of
principal) and premium, if any, and (to the extent permitted under applicable
law) on any overdue installment of interest, at the rate of 14.75% per annum
until paid, payable semi-annually as aforesaid or, at the option of the holder
hereof, on demand.
Payments of principal, premium, if any, and interest shall be made in
lawful money of the United States of America at the principal office of Chemical
Bank in the Borough of Manhattan, City and State of New York.
1. The Series H Notes. This Note is one of the Company's 12.75% Series H
Notes due July 1, 2000 (the "Series H Notes", such term to include any Series H
Notes issued in exchange therefor or in replacement thereof), issued in the
original aggregate principal amount of $17,500,000 pursuant to a Note Agreement
(the "Note Agreement"), dated as of June 17, 1985, between the Company and
certain institutional investors. The holder hereof is entitled to the benefits,
and is subject to the provisions, of the Note Agreement and may enforce the
agreements of the Company contained therein and exercise the remedies provided
for thereby or otherwise available in respect thereof.
2. Prepayment of Notes. As provided in the Note Agreement, the Company will
prepay on July 1, 1991 and on each July 1 thereafter so long as any Series H
Notes shall be outstanding, a principal amount of Series H Notes specified in
the Note Agreement, in each case without premium but together with interest on
the principal amount so prepaid accrued to the date fixed for such prepayment.
In addition, the Series H Notes are subject to prepayment in whole or in part,
in certain cases with a premium and in other cases without a premium, all as
specified in the Note Agreement.
<PAGE> 64
3. Registration of Transfers, etc. Transfers of this Series H Note shall be
registered upon registration books maintained for such purpose by or on behalf
of the Company as provided in the Note Agreement. Prior to presentment of this
Series H Note for registration of transfer, the Company may treat the registered
holder hereof as the absolute owner of this Series H Note for the purpose of
receiving all payments of principal, premium, if any, and interest hereon and
for all other purposes hereof and of the Note Agreement.
4. Event of Default. In case an Event of Default, as defined in the Note
Agreement, shall occur, the unpaid balance of the principal amount of this
Series H Note may be declared and become due and payable in the manner of and
with the effect provided in the Note Agreement.
5. Governing Law. This Series H Note shall be construed and enforced in
accordance with and governed by the laws of the State of New York.
ALASKA PIPELINE COMPANY
By:
-----------------------
President
By:
-----------------------
Treasurer
-2-
<PAGE> 65
EXHIBIT B
[Conformed Copy]
SEAGULL ENERGY CORPORATION
As Mortgagor
TO
ALASKA PIPELINE COMPANY
As Mortgagee
---------------
EIGHTH SUPPLEMENTAL MORTGAGE
Dated as of June 17, 1985
---------------
Further Supplementing, Amending and Restating the First Mortgage and Deed of
Trust, dated as of August 1, 1960, as amended, as restated by a Fourth
Supplemental Mortgage, dated as of February 18, 1972, supplemented and amended
by a Fifth Supplemental Mortgage, dated as of November 15, 1975, a Sixth
Supplemental Mortgage, dated as of December 30, 1977, and a Seventh Supplemental
Mortgage, dated as of January 1, 1984.
<PAGE> 66
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
RECITALS ......................................................... 1
GRANTING CLAUSE I................................................. 5
General Property......................................... 5
GRANTING CLAUSE II................................................ 5
Real Property............................................ 5
GRANTING CLAUSE III............................................... 5
Gas Systems, Buildings, Equipment, Etc................... 5
GRANTING CLAUSE IV................................................ 6
Franchises and Other Rights.............................. 6
GRANTING CLAUSE V................................................. 6
Pledged Contracts........................................ 6
GRANTING CLAUSE VI................................................ 6
Further Property Conveyed to Mortgagee................... 6
GRANTING CLAUSE VII............................................... 7
Other and After-Acquired Property........................ 7
GRANTING CLAUSE VIII.............................................. 7
Appurtenances, Income, Etc............................... 7
EXCEPTED PROPERTY CLAUSE.......................................... 7
HABENDUM CLAUSE................................................... 8
SUBJECT CLAUSE.................................................... 8
DEFEASANCE CLAUSE................................................. 8
I. CERTAIN REPRESENTATIONS AND COVENANTS OF THE COMPANY.......... 8
II. AMENDMENT AND RESTATEMENT OF SUPPLEMENTED ORIGINAL
MORTGAGE................................................. 9
GRANTING CLAUSE I................................................. 9
General Property......................................... 9
</TABLE>
(i)
<PAGE> 67
Page
<TABLE>
<S> <C>
GRANTING CLAUSE II................................................ 9
Real Property............................................ 9
GRANTING CLAUSE III............................................... 9
Gas Systems, Buildings, Equipment, Etc................... 9
GRANTING CLAUSE IV................................................ 10
Franchises and Other Rights.............................. 10
GRANTING CLAUSE V................................................. 10
Pledged Contracts........................................ 10
GRANTING CLAUSE VI................................................ 10
Further Property Conveyed to Mortgagee................... 10
GRANTING CLAUSE VII............................................... 11
Other and After-Acquired Property........................ 11
GRANTING CLAUSE VIII.............................................. 11
Appurtenances, Income, Etc............................... 11
EXCEPTED PROPERTY CLAUSE.......................................... 11
HABENDUM CLAUSE................................................... 12
SUBJECT CLAUSE.................................................... 12
DEFEASANCE CLAUSE................................................. 13
GENERAL COVENANT.................................................. 13
ARTICLE 1. - Definitions.......................................... 13
Section 1.01. Definitions............................ 13
"Affiliate":.................................... 13
"Alaska":....................................... 13
"Alaska Note Agreements":....................... 13
"Alaska Notes".................................. 13
"Article," "Section", etc.:..................... 14
"Board of Directors"; "Board":.................. 14
"Common Stock":................................. 14
"Company":...................................... 14
"Construction Liens":........................... 14
"Default":...................................... 14
"Division":..................................... 14
</TABLE>
(ii)
<PAGE> 68
Page
<TABLE>
<S> <C>
"Division Certificate":......................... 15
"Event of Default":............................. 15
"ENSTAR":....................................... 15
"Excepted Property":............................ 15
"Executive Committee":.......................... 15
"Gas Sale Contract":............................ 15
"Herein"; "hereof"; "hereby"; "hereunder":...... 15
"Indebtedness":................................. 15
"Lien of this Mortgage"; "lien of the Mortgage";
"lien hereof":.................................. 16
"Mortgage":..................................... 16
"Mortgaged Property":........................... 17
"Mortgagee":.................................... 17
"Notes": ....................................... 17
"Permitted Encumbrances":....................... 17
"Person":....................................... 19
"Pledged Contracts":............................ 19
"Replacement Notes":............................ 19
"Required Accounting Practice":................. 19
"Securities":................................... 20
"Subsidiary":................................... 20
"Supplemental Mortgage"; "mortgage supplemental
hereto":....................................... 20
"Voting Stock":................................. 20
ARTICLE 2. - Description of Indebtedness Secured; Form of Notes... 20
Section 2.01. Indebtedness Secured................... 20
Section 2.02. Covenant to Issue Notes; Form of Notes. 20
ARTICLE 3. - Particular Warranties and Covenants of the Company... 22
Section 3.01. Title to Mortgaged Property; Lien...... 22
Section 3.02. Payment of Principal, Premium and Interest;
Obligation Absolute.................... 22
Section 3.03. Payment of Taxes, etc.; Observance of
Legal Requirments Liens; Contests;
Preferential Transfers Prohibited...... 23
Section 3.04. Insurance; Application of Insurance
Proceeds; Notices to Mortgagee......... 23
Section 3.05. Maintenance of Corporate Existence,
Franchises, etc., Restriction on
Business .............................. 24
Section 3.06. Maintenance and Improvement of Property 24
Section 3.07. Restrictions on Liens, etc............. 24
Section 3.08. Restrictions on Indebtedness........... 25
Section 3.09. Sale, Merger and Consolidation......... 25
Section 3.10. Subjecting of Property to the Mortgage;
Further Assurances..................... 25
Section 3.11. Recordation of Mortgage and Supplemental
Mortgages.............................. 26
Section 3.12. Payment of Stamp Taxes, etc............ 26
</TABLE>
(iii)
<PAGE> 69
Page
<TABLE>
<S> <C>
Section 3.13. Performance and Advances by Mortgagee,
etc.................................... 26
ARTICLE 4. - Pledged Contracts.................................... 27
Section 4.01. Pledge of Contracts; Other Hypothecation
Prohibited............................. 27
Section 4.02. Consents to Assignment of Pledged
Contracts, etc......................... 27
Section 4.03. Performance of Pledged Contracts; No
Assumption by Mortgagee; Notice of
Claimed Defaults....................... 27
Section 4.04. Rights as to Pledged Contracts......... 28
Section 4.05. Amendment, etc., of Pledged Contracts.. 29
Section 4.06. Third Parties Protected................ 29
ARTICLE 5. - Possession, Use and Release of Property.............. 30
Section 5.01. Possession of and Dealing With Property
until Default; Leases, etc............. 30
Section 5.02. Disposal of Worn-Out Property, Franchises,
etc., Without Mortgagee's Consent...... 30
Section 5.03. Release by Mortgagee of Property Sold
by Company............................. 32
Section 5.04. Disposal of Property of Value Without
Mortgagee's Consent.................... 32
Section 5.05. New Property Subject to Lien of
Mortgage............................... 32
Section 5.06. Release on Condemnation, etc., of
Mortgaged Property..................... 32
Section 5.07. Purchaser of Released Property Not Required
to Investigate......................... 33
Section 5.08. Confirmatory Releases, etc............. 33
Section 5.09. Exercise of Company Powers After Event
of Default............................. 33
ARTICLE 6. - Remedies Upon Default................................ 34
Section 6.01. Definition of Event of Default......... 34
Section 6.02. Acceleration of Maturity............... 34
Section 6.03. Mortgagee's Right to Enter and Take
Possession, Operate and Apply Income... 34
Section 6.04. Mortgagee's Power of Sale.............. 36
Section 6.05. Mortgagee's Power of Enforcement....... 36
Section 6.06. Adjournment of Sale.................... 37
Section 6.07. Mortgagee Authorized to Execute Deeds,
Conveyances, Deliver Possession, etc... 37
Section 6.08. Principal and Interest Become Due on
Sale................................... 37
Section 6.09. Purchase by Mortgagee.................. 37
Section 6.10. Application of Notes Toward Purchase
Price.................................. 37
Section 6.11. Receipt Sufficient Discharge to
Purchaser.............................. 38
Section 6.12. Sale a Bar Against Company............. 38
Section 6.13. Application of Proceeds of Sale........ 38
Section 6.14. Waiver of Appraisement, Valuation, Stay,
Extension and Redemption Laws.......... 39
Section 6.15. Mortgagee Entitled to Appointment of
Receiver............................... 39
Section 6.16. Suits to Protect the Mortgaged Property 39
</TABLE>
(iv)
<PAGE> 70
Page
<TABLE>
<S> <C>
Section 6.17. Mortgagee May File Proofs of Claim in
Receivership, etc...................... 39
Section 6.18. Company to Pay All Notes on Any Default
in Payment; Application of Moneys by
Mortgagee.............................. 40
Section 6.19. Delay or Omission No Waiver............ 41
Section 6.20. No Waiver of One Default to Affect
Another................................ 41
Section 6.21. Discontinuance of Proceedings--Position
of Parties Restored.................... 41
Section 6.22. Remedies Cumulative.................... 41
ARTICLE 7. - Immunity of Incorporators, Stockholders, Officers
and Directors............................................. 41
Section 7.01. Immunity of Incorporators, Stockholders,
Officers and Directors.................. 41
ARTICLE 8. - Defeasance............................................ 42
Section 8.01. Defeasance.............................. 42
ARTICLE 9. - Miscellaneous Provisions.............................. 42
Section 9.01. Successors and Assigns Included in
Parties................................. 42
Section 9.02. Addresses for Notices, etc.............. 42
Section 9.03. Table of Contents, Headings, etc........ 43
Section 9.04. Invalid Provisions to Affect No Others.. 43
Section 9.05. Changes, etc............................ 43
Section 9.06. Counterparts of Mortgage................ 43
III. MISCELLANEOUS PROVISIONS RELATING TO EIGHTH SUPPLEMENTAL
MORTGAGE.................................................. 43
ARTICLE 10. - Miscellaneous Provisions............................. 43
Section 10.01. Titles, Headings, etc................... 43
Section 10.02. Counterparts............................ 43
ARTICLE 11. - Real Property Specifically Described................. 43
Section 11.01. Real Property Specifically Described.... 43
</TABLE>
(v)
<PAGE> 71
EIGHTH SUPPLEMENTAL MORTGAGE, dated as of June 17, 1985, between SEAGULL
ENERGY CORPORATION (the "Company"), a Texas corporation, party of the first
part, and ALASKA PIPELINE COMPANY ("Alaska"), an Alaska corporation, party of
the second part.
RECITALS
WHEREAS, pursuant to a Loan Agreement dated as of August 1, 1960, as
amended by a Supplemental Agreement dated September 9, 1960, and as ratified and
confirmed by a Loan Agreement Confirmation dated as of December 15, 1969,
between Alaska and Alaska Public Service Corporation (formerly named Anchorage
Natural Gas Corporation and herein called "Service"), Alaska heretofore made
loans to Service evidenced by two series of notes of Service designated
respectively as its Secured Notes, 5-3/4% Series due February 1, 1981 (the
"Notes of the 1981 Series"), and its Secured Notes, 7-3/4% Series due January 1,
1990 (the "Notes of the 1990 Series", the Notes of the 1981 Series and the Notes
of the 1990 Series being herein collectively called the "Secured Notes");
WHEREAS, the Notes of the 1981 Series have heretofore matured, and the
indebtedness evidenced thereby has been repaid in full to the holders thereof;
WHEREAS, in order to secure the Secured Notes, Service executed and
delivered to Alaska, as Mortgagee, a First Mortgage and Deed of Trust dated as
of August 1, 1960 (the "Original Mortgage"), and three mortgages supplemental
thereto consisting of a Supplemental Mortgage dated as of September 9, 1960 (the
"First Supplemental Mortgage"), a Second Supplemental Mortgage dated as of May
1, 1961 (the "Second Supplemental Mortgage") and a Third Supplemental Mortgage
dated as of December 15, 1969 (the "Third Supplemental Mortgage");
WHEREAS, effective February 18, 1972, Alaska Interstate Company, an Alaska
corporation ("Interstate"), acquired all of the assets and business as a going
concern of Service and in connection therewith entered into a Fourth
Supplemental Mortgage dated as of February 18, 1972 (the "Fourth Supplemental
Mortgage") which, among other things (a) provided for the assumption by
Interstate of all the obligations, warranties and agreements of Service under
the Secured Notes and the Original Mortgage as supplemented and amended thereby
and by the First Supplemental Mortgage, the Second Supplemental Mortgage and the
Third Supplemental Mortgage, and (b) restated the terms and provisions of the
Original Mortgage, as supplemented and amended thereby and by the First
Supplemental Mortgage, the Second Supplemental Mortgage and the Third
Supplemental Mortgage;
WHEREAS, the Original Mortgage, as supplemented, amended and restated by
the First Supplemental Mortgage, the Second Supplemental Mortgage, the Third
Supplemental Mortgage and the Fourth Supplemental Mortgage, has been further
supplemented and amended by a Fifth Supplemental Mortgage, dated as of November
15, 1975, a Sixth Supplemental Mortgage, dated as of December 30, 1977 and a
Seventh Supplemental Mortgage, dated as of January 1, 1984 (the Original
Mortgage, as so supplemented, amended and restated by such seven supplemental
mortgages, being herein called the "Supplemented Original Mortgage");
<PAGE> 72
WHEREAS, effective June 4, 1982, Interstate was merged into ENSTAR
Corporation ("ENSTAR"), and ENSTAR, as the surviving corporation, succeeded to
all of Interstate's right, title and interest to the assets and business of
Service as a going concern, and assumed all of Interstate's obligations under
the Secured Notes and the Original Mortgage as supplemented, amended and
restated to the date thereof;
WHEREAS, following such merger, the name of Service was changed to ENSTAR
Natural Gas Company and has continued to operate as a division (the "Division")
of ENSTAR;
WHEREAS, Alaska has outstanding on the date hereof its First Mortgage and
Collateral Trust Bonds, 7 3/4% Series due January 1, 1990 (such bonds being
herein collectively referred to as the "Bonds"), which Bonds were issued under,
and are secured by, an Indenture of Mortgage and Deed of Trust, dated as of
August 1, 1960, as amended, supplemented and restated by six indentures
supplemented thereto (such Indenture of Mortgage and Deed of Trust, as so
amended, supplemented and restated, being herein referred to as the "Bond
Indenture") between Alaska and MBank Houston, N.A. (formerly, Bank of the
Southwest National Association, Houston, and herein referred to as "MBank" or
the "Trustee"), a national banking association, as successor trustee under the
Indenture to Texas Commerce Bank National Association;
WHEREAS, Alaska has outstanding on the date hereof four series of notes,
consisting of its 8-3/8% Series A Notes due January 1, 1993 (the "Series A
Notes"), its 10-1/4% Series B Notes due January 1, 1995 (the "Series B Notes"),
its 11-1/2% Series C Notes due January 1, 1991 (the "Series C Notes") and its
9.95% Series D Notes, due April 1, 1997 (the "Series D Notes") (the Series A
Notes, the Series B Notes, the Series C Notes and the Series D Notes being
sometimes collectively referred to herein as the "Existing Alaska Notes");
WHEREAS, the Series A Notes and the Series B Notes were originally issued
pursuant to a Note Agreement, dated as of August 15, 1972 (the "Series A and B
Note Agreement"), the Series C Notes were originally issued pursuant to a Note
Agreement, dated as of November 15, 1975 (the "Series C Note Agreement") and the
Series D Notes were originally issued pursuant to a Note Agreement, dated as of
March 15, 1977 (the "Series D Note Agreement"), each such agreement being
severally between Alaska and the institutional investor named therein (the
Series A and B Note Agreement, the Series C Note Agreement and the Series D Note
Agreement, as amended, being sometimes collectively referred to herein as the
"Existing Alaska Note Agreements");
WHEREAS, for the purpose of providing security for the Bonds, Alaska has
heretofore assigned certain rights, titles and interests under the Supplemented
Original Mortgage and endorsed the Secured Notes outstanding thereunder to the
Trustee under the Bond Indenture;
WHEREAS, for the purpose of providing security for the Existing Alaska
Notes, Alaska has heretofore assigned certain rights, titles and interests under
the Supplemented Original Mortgage and endorsed the Secured Notes outstanding
thereunder to MBank as trustee under a Second Indenture of Mortgage and Deed of
Trust, dated as of December 30, 1977, as supplemented and amended by a First
Supplemental Indenture, dated as of January 1, 1984
-2-
<PAGE> 73
(such Second Indenture of Mortgage and Deed of Trust, as so supplemented and
amended, being herein called the "Note Indenture");
WHEREAS, concurrently herewith Alaska is issuing to certain institutional
investors $45,000,000 aggregate principal amount of its unsecured promissory
notes, consisting of $10,000,000 aggregate principal amount of 12.125% Series E
Notes due July 1, 1990 (the "Series E Notes"), $14,500,000 aggregate principal
amount of 12.70% Series F Notes due July 1, 1995 (the "Series F Notes"),
$3,000,000 aggregate principal amount of 12.80% Series G Notes due July 1, 2000
(the "Series G Notes") and $17,500,000 aggregate principal amount of 12.75%
Series H Notes due July 1, 2000 (the "Series H Notes") (the Series E Notes, the
Series F Notes, the Series G Notes and the Series H Notes being sometimes
collectively referred to herein as the "New Alaska Notes", and the Existing
Alaska Notes and New Alaska Notes being sometimes collectively referred to
herein as the "Alaska Notes");
WHEREAS, the proceeds of the sale of New Alaska Notes will be applied in
part to the prepayment of the Bonds, whereupon the Bond Indenture will be
terminated and the lien on the Supplemented Original Mortgage and the Secured
Notes created by the Bond Indenture will be released and terminated;
WHEREAS, concurrently herewith, the Company is purchasing from ENSTAR all
of the outstanding common stock of Alaska and all of the assets and business as
a going concern of the Division pursuant to an Agreement of Purchase and Sale
dated as of October 30, 1984, as amended by a Supplemental Agreement dated May
3, 1985, which, among other things, provides for (a) the assumption by the
Company of all indebtedness of ENSTAR to Alaska and all the obligations,
warranties and agreements of ENSTAR and the Division under the Supplemented
Original Mortgage, and (b) the unconditional release and discharge of ENSTAR of
and from all such indebtedness and all the obligations, warranties and
agreements under the Supplemented Original Mortgage;
WHEREAS, at the date of execution and delivery of this Eighth Supplemental
Mortgage, the aggregate outstanding principal amount of indebtedness of ENSTAR
to Alaska is $40,623,512, which indebtedness is evidenced by promissory notes of
ENSTAR issued to Alaska, some of which are Secured Notes (collectively, the
"ENSTAR Notes");
WHEREAS, in order to evidence the assumption of the indebtedness evidenced
by the ENSTAR Notes, concurrently herewith the Company is executing and
delivering to Alaska, in exchange for and replacement of the ENSTAR Notes,
promissory notes of the Company (the "Replacement Notes") in an aggregate
principal amount equal to, and, except as provided herein, containing
substantially identical terms and conditions as, the ENSTAR Notes, and the
ENSTAR Notes are being cancelled and discharged;
WHEREAS, the Replacement Notes are being issued in renewal, extension and
refunding of the ENSTAR Notes and the lien created by the Supplemented Original
Mortgage is by this Eighth Supplemental Mortgage being carried forward and
continued in force and effect for the purpose of securing, among other
indebtedness, the indebtedness evidenced by the Replacement Notes;
-3-
<PAGE> 74
WHEREAS, in connection with the above transactions, the Company and Alaska
desire to terminate the Note Indenture such that the Existing Alaska Notes will
become unsecured obligations of Alaska, pari passu with the New Alaska Notes;
WHEREAS, (i) the holders of the Existing Alaska Notes were willing to
consent to the acquisition by the Company of Alaska and the Division, and the
termination of the Note Indenture, and (ii) the purchasers of the New Alaska
Notes were willing to purchase the New Alaska Notes, only on the condition that
the Company execute and deliver this Eighth Supplemental Mortgage in order to
assume ENSTAR's obligations, warranties and agreements under the Supplemented
Original Mortgage and to secure the Replacement Notes and certain future
indebtedness of the Company to Alaska;
WHEREAS, in furtherance of the above, the Company and Alaska desire to
amend, modify, alter, supplement and restate certain terms and conditions
contained in the Supplemented Original Mortgage, and the Company desires to
convey and mortgage, and confirm the conveyancing and mortgaging under the
Supplemented Original Mortgage and hereunder, of certain properties heretofore
acquired by the Company with respect to the operations of the Division and not
specifically described in the Supplemented Original Mortgage, and, to that end,
the Company desires to make, execute and deliver to Alaska an Eighth
Supplemental Mortgage, supplemental to the Supplemented Original Mortgage, in
the form hereof and for the purposes herein provided, which will secure all the
Notes (as defined in Section 1.01 of the Mortgage);
WHEREAS, all conditions and requirements necessary to authorize the
execution, acknowledgment and delivery of this Eighth Supplemental Mortgage and
duly and legally to effect the supplements to and modifications of the
Supplemented Original Mortgage provided for in this Eighth Supplemental Mortgage
and to make the Supplemented Original Mortgage, as supplemented, modified and
restated hereby, a valid, binding and legal instrument for the security of the
Notes (as defined in Section 1.01 of the Mortgage), have been complied with or
have been done and performed;
NOW, THEREFORE, THIS EIGHTH SUPPLEMENTAL MORTGAGE WITNESSETH THAT: the
Company, in consideration of the premises and of $10 to it duly paid by Alaska,
the receipt of which is hereby acknowledged, and in order further to secure (and
the Company hereby acknowledges and agrees that the lien of the Supplemented
Original Mortgage is hereby carried forward and continued in force and effect
for the purpose of securing) the payment of the principal of and the premium, if
any, and interest on all Notes at any time issued and outstanding under the
Supplemented Original Mortgage, as supplemented, amended and restated by this
Eighth Supplemental Mortgage (the Supplemented Original Mortgage, as
supplemented, amended and restated by this Eighth Supplemental Mortgage, being
herein referred to as the "Mortgage"), in accordance with their terms, and the
performance and observance by the Company of all of the obligations and
agreements of the Company herein and therein contained and the payment of all
amounts payable and to become payable by the Company under the Gas Sale Contract
(as defined in Section 1.01 of the Mortgage), has executed and delivered this
Eighth Supplemental Mortgage and does hereby ratify and confirm its mortgage and
pledge to Alaska of its property (other than Excepted Property, as defined in
-4-
<PAGE> 75
the Excepted Property Clause of the Supplemented Original Mortgage, and any
property heretofore released from the lien of the Supplemented Original Mortgage
pursuant thereto and other than easements, rights-of-way, permits, leaseholds,
contracts and agreements which have either expired or been completed in
accordance with their terms) described in the Supplemented Original Mortgage as
being subjected to the lien of the Supplemented Original Mortgage and has
granted, bargained, sold, released, conveyed, assigned, transferred, mortgaged,
pledged, set over and confirmed, and hereby does grant, bargain, sell, release,
convey, assign, transfer, mortgage, pledge, set over and confirm unto Alaska, as
Mortgagee under the Mortgage, and to its successors and assigns forever:
GRANTING CLAUSE I.
General Property.
All premises, property, rights and franchises directly relating to or used
or intended for use in the business of the Division which have been constructed
or acquired by the Company since the execution and delivery of the Original
Mortgage, have not heretofore been specifically subjected to the lien thereof
and are owned by the Company on the date of the execution hereof or which may be
hereafter owned, constructed or acquired by the Company, of every character
whatever and wherever situated, except as hereinafter expressly excepted in the
Excepted Property Clause of this Eighth Supplemental Mortgage, including, among
other things, and without limitation, those referred to in the following
Granting Clauses (reference to or enumeration of any particular kind, class or
item of property shall not be deemed to exclude from the operation and effect of
the Mortgage and this Eighth Supplemental Mortgage any kind, class or item not
so referred to or enumerated).
GRANTING CLAUSE II.
Real Property.
All real property and interests therein specifically described in Schedule
I attached hereto and made a part hereof for all purposes, except as expressly
excepted therein.
GRANTING CLAUSE III.
Gas Systems, Buildings, Equipment, Etc.
All systems for the gathering, transmission, distribution and storage of
natural, manufactured or mixed gas; all plants, buildings, structures, erections
and works, together with their fixtures and appurtenances; all pumps, pumping
stations, compressors, compressor stations, reservoirs, boilers, boiler houses,
tanks, gates, mains, pipe lines (main, branch, lateral, extension, loop, tap,
plant and all other types), service laterals, pipes, tunnels, sewerage lines,
field lines, power lines, poles, wires, conduits, fittings, casings, valves,
reducers, gauges, regulators, protection units, bypasses, scrubbers, service and
other connections, meters, meter installations, meter stations, regulatory
stations, measuring stations and all other stations; all measuring, regulating
and control equipment, and all other equipment, machinery, facilities,
-5-
<PAGE> 76
materials, supplies and tools; and all other property, of every character and
wherever situated; in each case directly relating to or used or intended for use
in the business of the Division and which have been constructed or acquired by
the Company since the execution and delivery of the Original Mortgage and not
heretofore subjected to the lien thereof and are owned by the Company on the
date of the execution hereof or which may hereafter be so owned, constructed or
acquired by the Company; but, as to all such property, except as hereinafter
expressly excepted in the Excepted Property Clause of this Eighth Supplemental
Mortgage.
GRANTING CLAUSE IV.
Franchises and Other Rights.
The Division Certificate (as defined in Section 1.01 of the Mortgage) and
all other franchises (corporate and other) of every character whatever, and all
certificates of convenience or necessity, immunities, privileges, permits,
licenses, easements, consents, grants, ordinances, leaseholds, rights-of-way and
other rights, of every character whatever, and all renewals, extensions,
additions, amendments, modifications and replacements of any of the foregoing;
in each case (a) directly relating to or used or intended for use in the
business of the Division and (b) which have been acquired by the Company since
the execution and delivery of the Original Mortgage, have not heretofore been
specifically subjected to the lien thereof and are owned, held or enjoyed by the
Company on the date of the execution hereof or which may hereafter be acquired,
owned, held or enjoyed by the Company; but, as to all such property, only to the
extent permitted by law and except as hereinafter expressly excepted in the
Excepted Property Clause of this Eighth Supplemental Mortgage.
GRANTING CLAUSE V.
Pledged Contracts.
All right, title and interest of the Company in, to and under the Gas Sale
Contract (as defined in Section 1.01 of the Mortgage) and all other contracts
and agreements for the purchase or other acquisition, sale or other disposition,
exchange or transportation of natural, manufactured or mixed gas which are used
or intended for use in or directly relating to the business of the Division, and
in, to and under all renewals, extensions, additions, amendments and
modifications of any of the foregoing; in each case which have been acquired,
assumed or entered into by the Company since the execution and delivery of the
Original Mortgage and have not heretofore been specifically subjected to the
lien thereof or which may hereafter be acquired, assumed or entered into by the
Company, other than contracts and agreements not involving the receipt by the
Company of more than $100,000 in any calendar year.
GRANTING CLAUSE VI.
Further Property Conveyed to Mortgagee.
All property, of every character whatever, which from time to time after
the date of the Original Mortgage may have been, or hereafter may be, delivered
or, by writing of any kind,
-6-
<PAGE> 77
conveyed, mortgaged, pledged, assigned, or transferred to the Mortgagee (as
defined in Section 1.01 of the Mortgage) by the Company or by any other Person
(as so defined) to be held as a part of the Mortgaged Property (as so defined),
except as hereinafter expressly excepted in the Excepted Property Clause of this
Eighth Supplemental Mortgage.
GRANTING CLAUSE VII.
Other and After-Acquired Property.
All other property, of every character whatever, which the Company now owns
and which it may hereafter acquire and which, in each case, directly relates to
or is used or intended for use in the business of the Division, except as
hereinafter expressly excepted in the Excepted Property Clause of this Eighth
Supplemental Mortgage.
GRANTING CLAUSE VIII.
Appurtenances, Income, Etc.
All the tenements, hereditaments and appurtenances belonging or in any way
pertaining to the above-mentioned premises, property, franchises, rights,
contracts and agreements, or any part thereof, with all reversions and
remainders thereof, and, to the extent permitted by law and subject to the
applicable terms of the Mortgage, all tolls, rents, revenues, issues, income,
products and profits thereof, and all the estate, right, title, interest and
claim whatever at law and in equity which the Company now has or may hereafter
acquire in and to the same.
EXCEPTED PROPERTY CLAUSE.
EXCEPTING, HOWEVER, from the lien, operation and effect of this Eighth
Supplemental Mortgage and the Mortgage all Excepted Property (as defined in the
Excepted Property Clause of the Mortgage) other than any of such property which
hereby is or at any time hereafter may be specifically transferred or assigned
to or pledged or deposited with Alaska, as Mortgagee under the Mortgage, or
required by the terms of the Mortgage or hereby so to be; provided that if, upon
the occurrence of an Event of Default (as defined in section 1.01 of the
Mortgage), Alaska, or any receiver or trustee appointed under the Mortgage or
upon the application of Alaska, shall enter upon and take possession of all or
substantially all of the Mortgaged Property, Alaska or such receiver or trustee
may, to the full extent permitted by law, at the same time likewise take
possession of any or all of the Excepted Property then on hand which is directly
related to or used or intended for use in connection with the business of the
Division, and use and administer the same, to the full extent permitted by law,
to the same extent as if such Excepted Property were part of the Mortgaged
Property, unless and until such Event of Default shall be remedied or waived in
the manner provided in the Mortgage and possession of the Mortgaged Property
restored to the Company or its successors and assigns.
-7-
<PAGE> 78
HABENDUM CLAUSE.
TO HAVE AND TO HOLD all such premises, properties, franchises, rights,
contracts and agreements so granted, bargained, sold, released, conveyed,
assigned, transferred, mortgaged, pledged, set over or confirmed by the Company
as aforesaid or intended so to be, unto Alaska, as Mortgagee, and to its
successors and assigns forever, for the equal and proportionate benefit and
security of Alaska, in its capacity as a creditor under the Gas Sale Contract,
and the holders of the Notes issued or to be issued under the Mortgage, as
hereby and hereafter supplemented, amended and restated, without preference of
any such Notes over any other by reason of priority in the time of the issuance
or negotiation thereof or by reason of the date of maturity thereof or for any
other reason whatever.
SUBJECT CLAUSE.
SUBJECT, HOWEVER, to the exceptions, reservations and matters herein
recited, to Permitted Encumbrances (as defined in Section 1.01 of the Mortgage)
and, to the extent permitted by the Mortgage, to Construction Liens (as so
defined).
DEFEASANCE CLAUSE.
PROVIDED, HOWEVER, that if the Company, or its successors or assigns shall
pay or cause to be paid, or shall make provision in the manner provided in
Article 8 of the Mortgage for the payment of the principal, interest and
premium, if any, to become due in respect of all of the Notes at the time and in
the manner stipulated therein and in the Mortgage, and shall perform and comply
with all the covenants, agreements and conditions contained in the Notes and in
the Mortgage and shall perform and comply with all the covenants, agreements and
conditions contained in the Gas Sale Contract, then the estate and rights hereby
and thereby granted shall cease, determine and be void, otherwise to remain in
full force and effect.
I. CERTAIN REPRESENTATIONS AND COVENANTS OF THE COMPANY.
(a) The Company hereby assumes and agrees to fully and timely pay, satisfy,
discharge and perform all debts, liabilities, duties and obligations of ENSTAR
(absolute, accrued, contingent or otherwise) under, resulting from or in any way
relating to the Supplemented Original Mortgage and agrees that it shall be
legally bound by the Supplemented Original Mortgage the same as if it were the
original mortgagor named therein. The Company hereby confirms and ratifies in
all respects the Supplemented Original Mortgage and the lien created thereby.
(b) The Company hereby represents and warrants that it is duly authorized
under the laws of the State of Texas, and all other applicable laws, to assume
the Supplemented Original Mortgage, to create and issue the Replacement Notes
and to execute and deliver this Eighth Supplemental Mortgage, and all corporate
action on its part required for the lawful execution and delivery of the
Replacement Notes and this Eighth Supplemental Mortgage have been duly and
effectively taken; and the Replacement Notes and all other Notes issued or to be
issued
-8-
<PAGE> 79
are and will be valid and enforceable obligations of the Company in accordance
with their terms and are and will be entitled to the security, lien and benefits
of the Mortgage.
II. AMENDMENT AND RESTATEMENT OF SUPPLEMENTED
ORIGINAL MORTGAGE.
The Company and Alaska, in consideration of the premises and other good and
valuable consideration, hereby agree that the Granting Clauses, Excepted
Property Clause, Habendum Clause, Subject Clause, Defeasance Clause, General
Covenant and Articles 1 through 10, inclusive, of the Original Mortgage, as
amended by the First Supplemented Mortgage, the Second Supplemental Mortgage,
the Third Supplemental Mortgage, the Fourth Supplemental Mortgage, the Fifth
Supplemental Mortgage, the Sixth Supplemental Mortgage and the Seventh
Supplemental Mortgage (said Supplemental Mortgages, together with this Eighth
Supplemental Mortgage, being hereinafter collectively called the "Supplemental
Mortgages"), are hereby amended, supplemented and restated to read as follows:
GRANTING CLAUSE I.
General Property.
All premises, property, rights and franchises of the Company, whether now
owned or hereafter constructed or acquired, directly relating to or used or
intended for use in the business of the Division, of every character whatever
and wherever situated, except as hereinafter expressly excepted in the Excepted
Property Clause, including, among other things and without limitation, those
referred to in the following Granting Clauses (reference to or enumeration of
any particular kind, class or item of property shall not be deemed to exclude
from the operation and effect of this Mortgage any kind, class or item not so
referred to or enumerated).
GRANTING CLAUSE II.
Real Property.
All real property and interests therein now owned or hereafter acquired by
the Company directly relating to or used or intended for use in the business of
the Division, except as hereinafter expressly excepted in the Excepted Property
Clause, including, without limitation, those specifically described in the
Original Mortgage and the Supplemental Mortgages, except as expressly excepted
therein.
GRANTING CLAUSE III.
Gas Systems, Buildings, Equipment, Etc.
All systems for the gathering, transmission, distribution and storage of
natural, manufactured or mixed gas; all plants, buildings, structures, erections
and works, together with their fixtures and appurtenances; all pumps, pumping
stations, compressors, compressor stations, reservoirs, boilers, boiler houses,
tanks, gates, mains, pipe lines (main, branch, lateral,
-9-
<PAGE> 80
extension, loop, tap, plant and all other types), service laterals, pipes,
tunnels, sewerage lines, field lines, power lines, poles, wires, conduits,
fittings, casings, valves, reducers, gauges, regulators, protection units,
bypasses, scrubbers, service and other connections, meeters, meter
installations, meter stations, regulatory stations, measuring stations and all
other stations; all measuring, regulating and control equipment, and all other
equipment, machinery, facilities, materials, supplies and tools; and all other
property, of every character and wherever situated; in each case which is now
owned or hereafter acquired by the Company and which directly relates to or is
used or intended for use in the business of the Division; but, as to all such
property, except as hereinafter expressly excepted in the Excepted Property
Clause.
GRANTING CLAUSE IV.
Franchises and Other Rights.
The Division Certificate (as defined in section 1.01) and all other
franchises (corporate and other) of every character whatever, and all
certificates of convenience or necessity, immunities, privileges, permits,
licenses, easements, consents, grants, ordinances, leaseholds, rights-of-way and
other rights, of every character whatever, and all renewals, extensions,
additions, amendments, modifications and replacements of any of the foregoing;
in each case which is now or hereafter owned, held or enjoyed by the Company and
which directly relates to or is used or intended for use in the business of the
Division; but, as to all such property, only to the extent permitted by law and
except as hereinafter expressly excepted in the Excepted Property Clause.
GRANTING CLAUSE V.
Pledged Contracts.
All right, title and interest of the Company in, to and under the Gas Sale
Contract, and all other contracts and agreements for the purchase or other
acquisition, sale or other disposition, exchange or transportation of natural,
manufactured or mixed gas to which the Company hereafter may become a party, and
which are used or intended for use in or directly related to the business of the
Division, and in, to and under all renewals, extensions, additions, amendments
and modifications of any of the foregoing, other than contracts and agreements
not involving the payment or receipt by the Company or the Division of more than
$100,000 in any calendar year.
GRANTING CLAUSE VI.
Further Property Conveyed to Mortgagee.
All property, of every character whatever, which from time to time after
the date of this Mortgage may be delivered, or may by writing of any kind be
conveyed, mortgaged, pledged, assigned or transferred to the Mortgagee by the
Company or the Division or by any other person to be held as part of the
Mortgaged Property (as defined in section 1.01), except as hereinafter expressly
excepted in the Excepted Property Clause.
-10-
<PAGE> 81
GRANTING CLAUSE VII.
Other and After-Acquired Property.
All other property, of every character whatever, which the Company now owns
and which it may hereafter acquire and which, in each case, directly relates to
or is used or intended for use in the business of the Division, except as
hereinafter expressly excepted in the Excepted Property Clause.
GRANTING CLAUSE VIII.
Appurtenances, Income, Etc.
All the tenements, hereditaments, and appurtenances belonging or in any way
pertaining to the above-mentioned premises, property, franchises, rights,
contracts and agreements or any part thereof, with all reversions and remainders
thereof, and, to the extent permitted by law and subject to the applicable terms
of this Mortgage, all tolls, rents, revenues, issues, income, products and
profits thereof, and all the estate, right, title, interest and claim whatever
at law and in equity which the Company or the Division now has or may hereafter
acquire in and to the same.
EXCEPTED PROPERTY CLAUSE.
EXCEPTING, HOWEVER, from the lien, operation and effect of the Mortgage,
all of the following property ("Excepted Property"), whether now owned or
hereafter acquired:
(a) all cash on hand and in banks, and all bills, notes and accounts
receivable;
(b) all contracts and choses in action, obligations, mortgages, and
other Securities;
(c) all office furniture and equipment, automobiles, airplanes, mobile
transportation equipment, stores equipment, shop equipment, laboratory
equipment, tools and work equipment, and mobile communications
equipment;
(d) all materials, merchandise, appliances and supplies acquired for
the purpose of resale or for leasing to customers or for promotional
or educational use in the ordinary course of business of the Division,
and all gas, oil, coal, fuel, materials, stores and supplies
consumable (otherwise than by ordinary wear and tear) in their use in
the ordinary operation of the business of the Division;
(e) all gas, oil, coal and other hydrocarbons in pipe lines or in
processing or testing plants, and all gas (other than cushion gas) in
storage in underground reservoirs or other facilities used for the
storage of gas in gaseous or in liquefied state; and all leases, other
mineral interests, gas and oil rights, wells, equipment and other
properties,
-11-
<PAGE> 82
whether producing or nonproducing, used or useful primarily and
principally for the production of natural gas up to a point of
connection with any gathering system or for the production, processing
or treatment of oil or condensate;
(f) not more than five one-family houses owned and operated by or on
behalf of the Division exclusively for the purpose of providing
housing and related facilities for employees of the Division;
(g) the last day of each lease to the Company which is subject to the
lien of this Mortgage; and
(h) all property, real and personal, tangible and intangible, which is
not directly related to or used or intended for use in the business of
the Division;
other than any of the foregoing which hereby are or at any time hereafter may be
specifically transferred or assigned to or pledged or deposited with the
Mortgagee hereunder or required by the terms of this Mortgage so to be; provided
that if, upon the occurrence of an Event of Default, the Mortgagee or any
receiver or trustee appointed hereunder or upon the application of the Mortgagee
shall enter upon and take possession of all or substantially all of the
Mortgaged Property, the Mortgagee or such receiver or trustee may, to the full
extent permitted by law, at the same time likewise take possession of any or all
of the Excepted Property then on hand, which is used or useful in connection
with the business of the Division, and use and administer the same, to the full
extent permitted by law, to the same extent as if such Excepted Property were
part of the Mortgaged Property, unless and until such Event of Default shall be
remedied and possession of the Mortgaged Property restored to the Company or its
successors or assigns.
HABENDUM CLAUSE.
TO HAVE AND TO HOLD all such premises, property, franchises, rights,
contracts and agreements so granted, bargained, sold, released, conveyed,
assigned, transferred, mortgaged, pledged, set over or confirmed by the Company
as aforesaid or intended so to be, unto the Mortgagee and its successors and
assigns forever, for the equal and proportionate benefit and security of Alaska,
in its capacity as a creditor under the Gas Sale Contract, and the holders of
the Notes issued and to be issued hereunder, without preference of any of such
Notes over any others by reason of priority in the time of the issue or
negotiation thereof or by reason of the date of maturity thereof or for any
other reason whatever.
SUBJECT CLAUSE.
SUBJECT, HOWEVER, to Permitted Encumbrances (as defined in section 1.01)
and to Construction Liens (as so defined) existing on property owned by the
Company on the date of the execution and delivery hereof and, to the extent
permitted hereby, on property hereafter acquired by the Company.
-12-
<PAGE> 83
DEFEASANCE CLAUSE.
PROVIDED, HOWEVER, that if the Company, or its successors or assigns, shall
pay or cause to be paid, or shall make provision in the manner provided in
Article 8 for payment of, the principal, interest and premium, if any, to become
due in respect of all the Notes at the times and in the manner stipulated
therein and herein, and shall perform and comply with all covenants, agreements
and conditions contained in the Notes and in this Mortgage and shall perform and
comply with all of its covenants, agreements and conditions contained in the Gas
Sale Contract, then this Mortgage and the estate and rights hereby granted shall
cease, determine and be void, otherwise to remain in full force and effect.
GENERAL COVENANT.
IT IS HEREBY COVENANTED, DECLARED AND AGREED, by and between the parties
hereto, that all the Notes are to be issued and delivered, and that the
Mortgaged Property is to be held and applied, subject to the further covenants,
agreements, conditions and uses hereinafter set forth; and the Company, for
itself and its successors, does hereby covenant and agree to and with the
Mortgagee, and to and with its successors and assigns, as follows:
1.
Definitions.
1.1. Definitions. Unless the context otherwise requires, the terms defined
in this section 1.01 shall for all purposes of this Mortgage have the respective
meanings set forth below, the following definitions to be equally applicable to
both the singular and the plural forms of any of the terms defined:
"Affiliate":
When used with reference to any Person, any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with the Person referred to; for the purposes of this definition, "control"
shall mean the power to direct or cause the direction of the management and
policies of a Person, directly or through one or more intermediaries, whether
through the ownership of voting Securities, by contract or otherwise, and
"controlling" and "controlled" shall have meanings correlative to the foregoing.
"Alaska":
Alaska Pipeline Company, an Alaska corporation and a Subsidiary of the
Company.
"Alaska Note Agreements":
The note agreements, as amended, providing for the issuance of the Alaska
Notes.
"Alaska Notes":
(a) Alaska's 8-38% Series A Notes due January 1, 1993 issued in the
original aggregate principal amount of $5,000,000, (b) Alaska's 10-1/4% Series B
Notes due January 1, 1995 issued in the original aggregate principal amount of
$5,000,000, (c) Alaska's 11-1/2%
-13-
<PAGE> 84
Series C Notes due January 1, 1991 issued in the original aggregate principal
amount of $5,000,000, (d) Alaska's 9.95% Series D Notes due April 1, 1997 issued
in the original aggregate principal amount of $7,000,000, (e) Alaska's 12.125%
Series E Notes due July 1, 1990 issued in the original aggregate principal
amount of $10,000,000, (f) Alaska's 12.70% Series F Notes due July 1, 1995
issued in the original aggregate principal amount of $14,500,000, (g) Alaska's
12.80% Series G Notes due July 1, 2000 issued in the original aggregate
principal amount of $3,000,000, (h) Alaska's 12.75% Series H Notes due July 1,
2000 issued in the original aggregate principal amount of $17,500,000 and (i)
any further series promissory notes of Alaska which are originally issued with
the prior written consent of the holders of at least at a majority in principal
amount of each series of Alaska Notes outstanding immediately prior to such
issuance.
"Article," "Section", etc.:
All references herein to any Article, section, paragraph or other
subdivision are to the corresponding Article, section, paragraph or subdivision
of this Mortgage.
"Board of Directors"; "Board":
The Board of Directors of the Company.
"Common Stock":
Stock or shares of any class or classes (however designated) of a
corporation, association or business trust, the holders of which are ordinarily
and generally, in the absence of contingencies, entitled to vote for the
election of a majority of the directors (or persons performing similar
functions) of such corporation, association or business trust, even though the
right so to vote has been suspended by the happening of a contingency.
"Company":
Seagull Energy Corporation, a Texas corporation, and, subject to section
3.09, its successors and assigns.
"Construction Liens":
Carriers', warehousemen's, materialmen's, mechanics', repairmen's,
employees' or other similar liens (not including any indeterminate or inchoate
lien or charge incidental to current construction) arising out of the
construction or improvement of the Mortgaged Property or the furnishing of
materials or supplied therefor, and existing at the time in question upon any of
the Mortgaged Property which are prior to the lien of this Mortgage.
"Default":
A failure on the part of the Company to perform or comply with any of the
terms of this Mortgage required to be performed or complied with by the Company,
whether or not such failure shall constitute an Event of Default.
"Division":
All of the Company' current and future gas distribution and sales systems
located in the State of Alaska, which are presently operating under the name
"ENSTAR Natural Gas Company, Division of Seagull Energy Corporation", formerly
named "ENSTAR Natural Gas
-14-
<PAGE> 85
Company, Division of ENSTAR Corporation", and prior thereto named "Alaska Gas
and Service Company, Division of Alaska Interstate Company" and which, prior to
February 18, 1972, were owned and operated by Alaska Public Service Corporation.
Such business comprises and shall comprise the distribution and sale of natural,
manufactured and mixed gas in Alaska for residential, commercial, industrial and
electrical power plant use, the sale of gas ranges, water heaters, gas burners
and other appliances and equipment related to the use of such gas, all similar
activities in Alaska and all assets, whether or not located in the State of
Alaska, directly relating thereto or used or intended for use therein.
"Division Certificate": The
Certificate of Public Convenience and Necessity No.4 granted by the Alaska
Public Utilities Commission to Alaska Public Service Corporation and transferred
to the Company pursuant to an Order of the Alaska Public Utilities Commission,
dated April 3, 1985, and any renewals, extensions, additions, amendments,
modifications or replacements thereof.
"Event of Default":
As specified in section 7.01.
"ENSTAR":
ENSTAR Corporation, a Delaware corporation, and, with respect to the
Division, predecessor in interest to the Company.
"Excepted Property":
As specified in the Excepted Property Clause hereof.
"Executive Committee":
The Executive Committee of the Company, appointed by the Board in
accordance with the By-Laws of the Company.
"Gas Sale Contract":
The Gas Sale Contract between Alaska and the Company, dated as of January
1, 1984, as amended by an Amendment to Gas Sale Contract dated the date hereof,
and all renewals, extensions, additions, amendments and modifications thereof
entered into pursuant thereto.
"Herein"; "hereof"; "hereby"; "hereunder":
Such terms and other terms of similar import refer to this Mortgage as a
whole and not to any particular Article, section, paragraph, subdivision or
other portion hereof.
"Indebtedness":
As applied to any Person at any date,
(a) all items which in accordance with Required Accounting Practice
would be included on the liability side of the balance sheet of such
Person at such date, except (i) items of capital stock and of surplus,
(ii) reserves for deferred income tax resulting from accelerated
depreciation or amortization, (iii) contributions in aid of
construction,
-15-
<PAGE> 86
(iv) unallocated contingency reserves, and (v) reserves properly
deductible from assets in accordance with Required Accounting
Practice;
(b) all indebtedness, obligations and liabilities secured by any
mortgage, pledge, lien, charge, conditional sale agreement or other
title retention agreement existing on all property held by such Person
at such date subject to such mortgage, pledge, lien, charge or
agreement; all of such indebtedness, obligations and liabilities shall
be treated as Indebtedness of such Person, whether or not such Person
is in fact liable therefor;
(c) all indebtedness, obligations and liabilities of other Persons, of
the character referred to in the foregoing subdivisions (a) and (b),
which such Person has directly or indirectly guaranteed or upon or
with respect to which such Person is directly or indirectly liable (by
discount, endorsement -- other than for deposit for collection -- sale
with recourse, repurchase agreement or otherwise) or in respect of
which such Person is obligated to advance or supply funds; and
(d) adequate reserves in respect of disputed or contingent
indebtedness, obligations and liabilities of the character referred to
in the foregoing subdivisions (a), (b) and (c), to the extent not
included pursuant to such subdivisions;
provided that "Indebtedness" of any Person shall not include indebtedness for
money borrowed, in case, prior to or at the maturity thereof , there shall have
been deposited with the proper depositary, in trust, the funds (of evidence of
such indebtedness, if permitted by the instrument creating such indebtedness)
necessary for the redemption, payment or satisfaction of all such indebtedness
so to be redeemed, paid or satisfied, and in case all other steps prerequisite
to such redemption, payment or satisfaction shall have been duly taken or duly
provided for; in such case the funds and evidences of indebtedness so deposited
shall not be included in any computation of the assets of such Person.
"Lien of this Mortgage"; "lien of the Mortgage"; "lien hereof":
The lien created by this Mortgage (including the after-acquired property
clauses hereof), or created by any subsequent conveyance hereunder to the
Mortgagee (whether made by the Company or any other Person), or otherwise
created, effectively constituting any property a part of the security held by
the Mortgagee for the benefit of the Notes.
"Mortgage":
The First Mortgage and Deed of Trust dated as of August 1, 1960, as
supplemented and amended by the Supplemental Mortgage, dated September 9, 1960,
a Second Supplemental Mortgage, dated as of May 1, 1961, a Third Supplemental
Mortgage, dated as of December 15, 1969, a Fourth Supplemental Mortgage, dated
as of February 18, 1972, a Fifth Supplemental Mortgage, dated as of November 15,
1975, a Sixth Supplemental Mortgage, dated as of December 30, 1977, a Seventh
Supplemental Mortgage, dated as of January 1, 1984, and an Eighth Supplemental
Mortgage dated as of June 17, 1985, or if further supplemented or amended by any
one or more supplemental mortgages, then as so supplemented or amended.
-16-
<PAGE> 87
"Mortgaged Property":
As of any particular time, all property then subject or intended to be
subject to the lien of this Mortgage.
"Mortgagee":
Alaska.
"Notes":
All of the Replacement Notes and all promissory notes of the Company issued
after the date hereof to Alaska evidencing loans or advances by Alaska to the
Company. The term "Notes" shall also mean and include all promissory notes of
the Company issued in exchange for or in replacement of any note referred to in
the preceding sentence.
"Permitted Encumbrances":
As applied to the Company:
(a) the lien of this Mortgage;
(b) liens of taxes, assessments and governmental charges not yet
payable, or payable without penalty so long as so payable, or deposits
created in the ordinary course of the business of the Division as
security for compliance with laws imposing taxes, assessments or
governmental charges;
(c) liens of taxes, assessments and governmental charges the validity
of which are being contested in good faith by appropriate action
promptly initiated and diligently conducted, if such reserve or other
appropriate provision, if any, as shall be required by Required
Accounting practice shall have been made therefor;
(d) carriers', warehousemen's, materialmen's, mechanics', repairmen's,
employees' or other similar liens for services arising in the ordinary
course of the business of the Division not yet due or being contested
in good faith by appropriate action promptly initiated and diligently
conducted if such reserve or other appropriate provision, if any, as
shall be required by Required Accounting Practice shall have been made
therefor;
(e) liens incurred or deposits made in the ordinary course of the
business of the Division in connection with workmen's compensation,
unemployment insurance and other social security, or to secure the
performance of leases (provided that all such liens incurred and
deposits made in connection with such leases do not any any time
exceed $250,000), tenders, statutory obligations, surety and appeal
bonds, performance and return-of-money bonds and other similar
obligations (exclusive of obligations incurred in connection with the
borrowing of money or the obtaining of advances or credit);
(f) any judgment lien, unless the judgment it secures shall not,
within 30 days after the entry thereof, have been discharged or
execution thereof stayed
-17-
<PAGE> 88
pending appeal, or shall not have been discharged within 30 days after
the expiration of any such stay;
(g) leases granted in the ordinary course of business of the Division
or leases to which any property acquired in the ordinary course of
such business is subject;
(h) encumbrances (other than to secure the payment of money),
easements, rights-of-way, servitudes, permits, reservations, leases
and other rights in respect of gravels, minerals, oil, gases or water
or in respect of grazing, logging, mining, canals, ditches, reservoirs
or the like, conditions, covenants, party wall agreements or other
restrictions, or easements for streets, alleys, highways, pipe lines,
telephone lines, power lines, railways and other rights-of-way, on,
over or in respect of property (other than property used or to be used
primarily for compressor stations) owned by the Company or over which
the Company owns rights-of-way, easements, permits or licenses,
provided that such encumbrances, easements, rights-of-way, servitudes,
permits, reservations, leases, rights, conditions, covenants, party
wall agreements or other restrictions are such that they will not
either individually or in the aggregate, if exercised or availed of,
interfere materially with the proper use or operation of the property
affected thereby for the purpose for which such property is or is to
be used, and provided, further, that, in the case of such of the same
as relate only to property on, over or in respect of which the Company
owns rights-of-way or easements exclusively for pipe line purposes or
locations for regulator stations or other pipe line facilities (other
than compressor stations), the Company has power under eminent domain
or similar statutes to remove the same;
(i) rights reserved to or vested in any municipality or public
authority to control or regulate any property of the Company or to use
such property in any manner which does not materially impair the use
of such property for the purposes for which it is held;
(j) obligations or duties, affecting the property of the Company, to
any municipality or public authority with respect to any certificate
of public convenience and necessity, franchise, grant, license or
permit which do not materially impair the use of such property for the
purposes for which it is held;
(k) zoning laws and ordinances;
(l) irregularities in or deficiencies of title to any rights-of-way,
licenses or permits for pie lines, telephone lines, power lines, water
lines and/or appurtenances thereto or other improvements thereon, and
to any real estate used or to be used primarily for right-of-way
purposes or for regulator stations or other pipe line facilities
(other than compressor stations), provided that the Company shall have
obtained from the apparent owner of the land or estate covered by any
such right-of-way, license or permit, and shall hold as an asset of
the Division, a sufficient right, by the terms of the instrument
granting such right-of-way, license or permit to the use thereof for
the construction, operation or maintenance of the lines, appurtenances
or improvements for
-18-
<PAGE> 89
which the same is used or is to be used, and provided, further, that
the Company has power under eminent domain or similar statutes to
remove such irregularities or deficiencies;
(m) reservations and other matters relating to titles to leases and
leasehold interests in oil and gas properties and the lands covered
thereby, if such reservations and other matters do not, in the
aggregate, materially affect the marketability of the title thereto,
and do not materially impair the use of such leases or leasehold
interests for the purposes for which they are held or the value of the
interest therein;
(n) liens and other encumbrances incurred in connection with
Indebtedness of the Company not in excess of $10,000,000 at any time
outstanding issued by a municipality or development corporation to
finance the acquisition and construction of the property subject to
such lien and other encumbrances, the interest on which is exempt from
Federal income tax under Section 103(b) of the Internal Revenue Code
of 1954, as amended; and
(o) purchase money mortgages, liens or security interests in respect
of property either acquired by the Company or upon which the Company
is constructing improvements after the date of the Eighth Supplemented
Mortgage, or mortgages, liens or security interests existing in
respect of such property at the time of acquisition thereof securing
Indebtedness of the Company, provided that (i) no such mortgage, lien
or security interest shall extend to or cover any other property or
secure any other Indebtedness of the Company, (ii) the aggregate
principal amount of all Indebtedness of the Company secured by all
such mortgages, liens and security interests shall not exceed
$2,500,000 at any time outstanding, and (iii) the aggregate principal
amount of all Indebtedness secured by all such mortgages, liens or
other security interests in respect of any such property shall not
exceed 90% of the cost or fair market value (as determined by the
Company in good faith), whichever shall be lower, of such property at
the time of the acquisition thereof by the Company.
"Person":
An individual, a corporation (including the Company), a partnership, a
trust, an unincorporated organization or a government or any agency or political
subdivision thereof.
"Pledged Contracts":
All contracts and agreements to which the Company now is or hereafter may
become a party and all contracts and agreements to which the Company now is or
hereafter may become a party, in each case relating to or used or intended for
use in the business of the Division (including all renewals, extensions,
additions, amendments and modifications thereof), and now or hereafter subjected
to the lien of this Mortgage or required so to be.
"Replacement Notes":
The sixteen promissory notes of the Company payable to the order of Alaska
in the aggregate principal sum of $40,623,512, each of which promissory notes is
dated the date hereof and was issued to Alaska in renewal, extension and
refunding of certain promissory
-19-
<PAGE> 90
notes of ENSTAR held by Alaska prior to the acquisition by the Company of the
Division from ENSTAR.
"Required Accounting Practice":
With respect to the Company, generally accepted accounting principles; with
respect to the Division, the accounting rules or regulations, if any, at the
time prescribed by the regulatory body or bodies under the jurisdiction of which
the Division is at the time operating, and, to the extent that a matter is not
covered by such rules or regulations, the accounting rules or regulations at the
time prescribed by the Federal Energy Regulatory Commission for companies of
established reputation engaged in a business similar to that of the Division
which are at the time operating under the jurisdiction of the Federal Energy
Regulatory Commission.
"Securities":
Any stocks, any bonds, debentures, notes or other evidences of
Indebtedness, and any other instruments generally known as securities; any
certificates of interest or participation in, temporary or interim certificates
for, receipts for, guaranties of, or warrants or rights to subscribe to or
purchase, any of the foregoing; and any agreements, indentures, mortgages or
other instruments providing for or securing any of the foregoing.
"Subsidiary":
A corporation, association or business trust a majority (by number of
votes) of either the Voting Stock or the Common Stock of which is at the time
owned or controlled, directly or indirectly, by the Company.
"Supplemental Mortgage"; "mortgage supplemental hereto":
Any mortgage hereafter duly entered into between the Company and the
Mortgagee.
"Voting Stock":
Stock or shares of any class or classes (however designated) of a
corporation, association or business trust, the holders of which are at the time
entitled to vote for the election of a majority of the directors (or persons
performing similar functions) of such corporation, association or business
trust, whether or not the right so to vote exists by reason of the happening of
a contingency.
2.
Description of Indebtedness Secured; Form of Notes.
2.1. Indebtedness Secured. This Mortgage is intended to and shall secure
all indebtedness evidenced by the Notes (principal, premium and interest), the
Gas Sale Contract and all obligations, duties and liabilities of the Company
under this Mortgage.
2.2. Covenant to Issue Notes; Form of Notes. The company shall not accept
any loan or advance from Alaska unless, promptly upon receipt thereof, the
Company shall duly execute and deliver to the order of Alaska a promissory note
of the Company, dated the date of such loan or advance, in an aggregate
principal amount equal to the amount of such loan or advance.
-20-
<PAGE> 91
Each such promissory note (and any promissory note issued in exchange therefor
or in replacement thereof) shall (i) be in substantially the form set forth
below (appropriately completed) and (ii) provide for interest at a rate not less
than the rate of interest applicable to the Indebtedness for borrowed money, if
any, incurred by Alaska for the purpose of making such loan or advance or, in
the absence of any such borrowing by Alaska, at a rate not less than the rate of
interest determined by Alaska in good faith to be its then effective borrowing
rate, provided that, in the case of any extension or renewal of any Replacement
Note, the interest rate applicable to such extension or renewal need not exceed
the average interest rate then applicable to the Alaska Notes referred to in
clauses (e) through (h) of the definition of "Alaska Notes" in Section 1.01.
[Form of Note]
$
SEAGULL ENERGY CORPORATION ("Seagull"), a Texas corporation, for value
received, hereby promises to pay to ALASKA PIPELINE COMPANY ("Pipeline"), an
Alaska corporation, or order, the principal sum of $ [insert terms specifying
amortization of principal].
Seagull promises to pay interest on the unpaid principal hereof [insert
terms specifying interest rate and manner of payment].
Payment of principal and interest shall be made in lawful money of the
United States of America at the principal office of Pipeline in Anchorage,
Alaska. This Note is subject to prepayment, in whole or in part, without premium
or penalty.
This Note is issued under and secured by a First Mortgage and Deed of
Trust, dated as of August 1, 1960 (the "Original Mortgage"), as supplemented and
amended by a Supplemental Mortgage, dated September 9, 1960, a Second
Supplemental Mortgage, dated as of May 1, 1961, a Third Supplemental Mortgage,
dated as of December 15, 1969, as supplemented, amended and restated by a Fourth
Supplemental Mortgage, dated as of February 18, 1972, as further supplemented
and amended by a Fifth Supplemental Mortgage, dated as of November 15, 1975, a
Sixth Supplemental Mortgage, dated as of December 30, 1977, a Seventh
Supplemental Mortgage, dated as of January 1, 1984, as further supplemented,
amended and restated by an Eighth Supplemental Mortgage, dated as of June 17,
1985 [describe other supplements, if any], and as may hereafter be further
supplemented, amended or restated, between Seagull, as Mortgagor, and Pipeline,
as Mortgagee (the Original Mortgage, as so supplemented, amended and restated,
being hereinafter called the "Mortgage'). The holder of this Note is entitled to
the benefits and security of the Mortgage, and, subject to the terms thereof,
may enforce the agreements of Seagull contained therein and exercise the
remedies provided thereby. All capitalized terms used herein without definition
shall have the meanings ascribed to such terms in the Mortgage.
-21-
<PAGE> 92
In case an Event of Default shall occur, the unpaid balance of the
principal amount of this Note may be declared due and payable in the manner and
with the effect provided in the Mortgage. This Note shall become immediately due
and payable in the event of an acceleration of the maturity of any of the Alaska
Notes following the occurrence of an Event of Default (as defined in therein)
under the related Alaska Note Agreements.
If Seagull shall default in the payment of the principal of or interest on
this Note when due, Seagull agrees to pay, in addition to any amounts due
hereunder, any costs or expenses of collection (including reasonable attorneys'
fees) incurred by the holder hereof.
No delay on the part of the holder hereof in exercising any of its options,
powers or rights, or partial or single exercise thereof shall constitute a
waiver of any such options, powers or rights.
The ability of Pipeline to transfer, assign or encumber this Note is
restricted by the provisions of the Alaska Note Agreements.
[If Note is being issued in exchange for and replacement of an outstanding
Note, insert appropriate statement to such effect.]
This note shall be governed by and construed in accordance with the laws of
the State of Alaska.
SEAGULL ENERGY CORPORATION
By:
Title:
3.
Particular Warranties and Covenants of the Company.
3.1. Title to Mortgaged Property; Lien. The Company hereby represents and
warrants that it will, as of the date of any Supplemental Mortgage, be the
absolute owner of the legal and beneficial title to all property therein
described or referred to as then mortgaged thereby and that all such property
shall be subject to no mortgage, pledge, lien, encumbrance, claim or charge
prior to or on a party with the lien of this Mortgage except for Permitted
Encumbrances and Construction Liens. The Company at its expense will warrant and
defend its title to all such property and the lien of this Mortgage therein
against all claims of others, and will maintain and preserve the lien of this
Mortgage so long as any Notes are outstanding.
3.2. Payment of Principal, Premium and Interest; Obligation Absolute. The
Company will duly and punctually pay or cause to be paid the principal of and
the premium, if any, and interest on all the Notes (whether Replacement Notes or
otherwise) issued hereunder according
-22-
<PAGE> 93
to the terms hereof and thereof. If the Company shall default in any payment of
principal, premium, if any, or interest in respect of any such Note, it will
also pay interest on all overdue principal thereof and premium, if any, thereon,
and, if and to the extent permitted by law, on all overdue installments of
interest thereon, in each case at a rate per annum equal to the rate of interest
specified in such Note plus 2%.
No reference in this Mortgage to the Notes or to any Supplemental Mortgage
and no term hereof or of any Supplemental Mortgage or contained in any Note
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of and the premium, if any, and interest on
all the Notes.
3.3. Payment of Taxes, etc.; Observance of Legal Requirements; Liens;
Contests; Preferential Transfers Prohibited. (a) The Company will duly pay and
discharge or cause to be paid and discharged, as the same shall become due and
payable, all taxes, assessments, rates, excises, levies, fees and other charges
levied and imposed upon or with respect to the Mortgaged Property or any part
thereof or any other property of the Company, or upon or with respect to the
interest of the Mortgagee in the Mortgaged Property or any part thereof or any
income or profits therefrom, or upon or measured by the income, profits or
business of the Company.
(b) The Company will not claim or demand or be entitled to receive any
credit against the interest payable on the Notes or against any other payment
secured hereby for any portion of any tax, assessment, rate, excise, levy, fee
or charge assessed against the Mortgaged Property or any part thereof or any
other property, and the Company hereby waives the provisions of any present or
future law, statute or constitutional provision permitting or entitling the
Company to receive any such credit.
(c) The Company will at all times protect its title to the Mortgaged
Property and every part thereof against loss by reason of any foreclosure or
other proceeding to enforce any lien thereon prior to the lien of this Mortgage.
The Company will promptly discharge or cause to be discharged any Construction
Lien now existing or hereafter created on the Mortgaged Property or any part
thereof.
(d) The Company will duly observe and comply with all valid laws, statutes,
codes, acts, ordinances, orders, judgments, decrees, injunctions, rules,
regulations, certificates, franchises, permits, licenses, authorizations,
directions and requirements of all federal, state, county, municipal and other
governments, departments, commissions, boards, courts, authorities, officials
and officers, domestic or foreign, which now or at any time hereafter may be
applicable to the Mortgaged Property or any part thereof, or any use, manner of
use or condition of the Mortgaged Property or any part thereof, and will duly
observe and comply with all terms upon or under which any of the Mortgaged
Property is held.
(e) Nothing contained in this section 3.03 shall be deemed to require the
Company to pay or discharge or cause to be paid or discharged any such tax,
assessment, rate, excise, levy, fee or charge, or any such lien, or to observe
or comply with or to cause to be observed or complied with any such legal
requirement, so long as the Company in good faith by
-23-
<PAGE> 94
appropriate action (prior written notice of which, in the case of any proceeding
involving a material item of property, shall have been given to the Mortgagee by
the Company), promptly initiated and diligently conducted, shall contest or
cause to be contested the validity thereof, unless, in the opinion of the
Mortgagee, the security conferred by this Mortgage might be materially impaired
or endangered by such contest.
(f) The Contest will not directly or indirectly transfer any Mortgaged
Property for the purpose of subjecting the same to the payment of any
Indebtedness in priority to the payment of the Notes.
3.4. Insurance; Application of Insurance Proceeds; Notice to Mortgagee. (a)
The Company will keep or cause to be kept all properties of, or directly
relating to or used or intended for use in the business of, the Division and the
Division's business of a character usually insured by companies of established
reputation similarly situated insured by reputable insurance companies or
associations of high standing against loss or damage by fire and such other
hazards and risks (including, without limitation, public liability, workmen's
compensation and war risks, if and to the extent war risk insurance is at the
time generally available) as are customarily insured against by companies of
established reputation similarly situated in such amount as such property and
business is usually insured by such companies. The Company will comply with all
the terms and conditions of all insurance policies with respect to its property
and business or any part thereof and with all requirements of Boards of
Underwriters or similar bodies applicable thereto.
(b) All insurance policies with respect to the Mortgaged Property or any
part thereof shall be payable to the Mortgagee as its interest may appear under
standard mortgagee clauses acceptable to the Mortgagee, except that the loss
payable clause in any such insurance policy may provide that any one loss not in
excess of $50,000 (whether payable by one or more insurers) shall be paid to the
Company, provided that the aggregate amount payable to the Company under all
such policies for all losses in any one calendar year shall not exceed $100,000.
Any moneys received by the Mortgagee pursuant to this Section 3.04 shall be
applied by the Mortgagee on the date of receipt of such moneys to the prepayment
of an equal principal amount of Notes at the time outstanding.
(c) The Company will promptly apply the proceeds of any insurance received
by it to the repair, restoration or replacement of the property destroyed or
damaged.
3.5. Maintenance of Corporate Existence, Franchises, etc.; Restriction on
Business. (a) The Company will at all times maintain and keep and cause to be
maintained and kept in full force and effect its corporate existence, good
standing, franchises, rights and privileges as a corporation under the laws of
the State of Texas and its qualification and good standing as a foreign
corporation in each jurisdiction wherein the character of the properties owned
or the nature of the activities conducted makes such qualification or licensing
necessary.
(b) The Division will not, and the Company will not permit the Division to,
engage in any business other than the construction, ownership, operation and
maintenance of systems
-24-
<PAGE> 95
for the distribution of natural, manufactured or mixed gas, and activities
incidental to the foregoing.
3.6. Maintenance and Improvement of Property. Except as to property
released pursuant to Article 5, the Company will at all times maintain, preserve
and keep all of its property used or useful or intended for use in the business
of the Division and all of the Division's property in proper repair, working
order and condition, and make all necessary or appropriate repairs, renewals,
replacements, additions, betterments and improvements to such property, so that
the efficiency of all such property shall at all times be properly preserved and
maintained.
3.7. Restrictions on Liens, etc. The Company will not directly or
indirectly create, assume or suffer to exist, any mortgage, lien, pledge, charge
or encumbrance or conditional sale or other title restriction arrangement with
respect to any property or asset of, or used or useful in or relating to the
business of, the Division, whether owned on the date of delivery hereof or
subsequently acquired, or upon any income or profits therefrom, other than
(a) Permitted Encumbrances;
(b) Construction Liens incurred in the ordinary course of business for
sums which are not yet due but will become due within 60 days after
completion, provided that adequate provision for payments thereof
shall have been made, or such sums are being contested in good faith
by appropriate action promptly initiated and diligently conducted and
if such reserve or other appropriate provision, if any, as shall be
required by Required Accounting Practice shall have been made
therefor, and
(c) liens on one-family houses referred to in subclause (f) of the
Excepted Property Clause hereof.
The Company will not sign or file in any state or other jurisdiction a financing
statement under the Uniform Commercial Code with respect to any such property or
asset or sign any security agreement with respect to any such property or asset
authorizing any secured party thereunder to file any such financing statement,
except, in any such case, a financing statement filed or to be filed to perfect
or protect a security interest which the Company is entitled to create, assume
or incur, or permit to exist under this Section 3.07.
3.8. Restrictions on Indebtedness. So long as any Notes are outstanding,
the Company will not directly or indirectly create, incur, issue, assume or
otherwise become or remain liable with respect to any Indebtedness secured by
the lien of this Mortgage other than the Notes.
3.9. Sale, Merger and Consolidation. (a) The Company will not directly
or indirectly sell, transfer or otherwise dispose of all or substantially all of
its properties and assets, or merge into or consolidate with any other
corporation or permit any other corporation to consolidate with or merge into
it, unless (i) the acquiring or surviving person shall be a corporation
incorporated under the laws of the United States of America or any state thereof
-25-
<PAGE> 96
and (if other than the Company) shall expressly assume in writing all
obligations of the Company hereunder, and (ii) immediately after giving effect
to such action (and, if applicable, such assumption) no default shall exist
hereunder, provided that no such sale, transfer or other disposition of all or
substantially all of the properties and assets of the Company shall release the
Company from any of its obligations hereunder unless the Mortgagee shall have
consented to such release by an instrument in writing.
(b) The Company will not sell, lease, transfer or otherwise dispose of any
part of the Mortgaged Property without obtaining a release thereof from the lien
of this Mortgage in accordance with the provisions of Article 5, except to the
extent of sales or dispositions (without a release) permitted by sections 5.02
and 5.04.
3.10. Subjecting of Property to the Mortgage; Further Assurances. (a) All
property which the Company agrees by any of the terms of this Mortgage to
convey, pledge or assign, or cause to be conveyed, pledged or assigned, to the
Mortgagee, and all property at any time acquired by the Company or the Division
and provided by this Mortgage to become subject hereto, shall, immediately upon
the acquisition thereof by the Company or the Division and without further
conveyance or acquisition thereof by the Company or the Division and without
further conveyance or assignment, become and be subject to the lien of this
Mortgage as fully and completely as though now owned by the Company or the
Division and specifically described in the Granting Clauses hereof or in Article
11, but at any and all times the Company will make and deliver, or cause to be
made and delivered, such further assurances or conveyances or assignments
thereof as the Mortgagee from time to time may reasonably require for the
purpose of expressly and specifically subjecting the same to the lien of this
Mortgage.
(b) The Company will also do, execute, acknowledge and deliver and cause to
be done, executed, acknowledged and delivered all and every such further acts,
deeds, conveyances, mortgages, pledges, assignments, transfers and instruments
for the better assuring, conveying, mortgaging, pledging, assigning and
confirming unto the Mortgagee all and singular the premises, estates, rights and
properties hereby conveyed, mortgaged, pledged, assigned or transferred or
intended so to be, or which the Company may be or become bound to convey, pledge
or assign to the Mortgagee, as the Mortgagee from time to time may reasonably
require.
3.11. Recordation of Mortgage and Supplemental Mortgages. The Company will
cause this Mortgage and all mortgages supplemental hereto at all times to be
recorded, registered and filed and to be kept recorded, registered and filed in
such manner and in such places, and will pay or cause to be paid all such
mortgage registration recording, filing or other taxes and fees, and will comply
with all such statutes and regulations, all as may be required by law in order
fully to create, preserve, maintain and protect the lien of this Mortgage on the
Mortgaged Property (including, without limitation, property acquired after the
date of execution hereof) and the security of the Notes and the rights of the
Mortgagee hereunder.
3.12. Payment of Stamp Taxes, etc. The Company will pay and discharge or
cause to be paid and discharged, when and as due, any and all stamp and other
taxes, imposts and charges in connection with the execution, delivery and
recordation of this Mortgage and any
-26-
<PAGE> 97
mortgage supplemental thereto, any other instrument executed pursuant hereto,
and the issue of any Notes hereunder.
3.13. Performance and Advances by Mortgagee, etc. (a) If the Company shall
fail to perform or cause to be performed any of the covenants or agreements
contained in this Mortgage, the Mortgagee (or any receiver, trustee or custodian
appointed in any action or proceeding for the foreclosure hereof or for the
enforcement of any of the rights of the Mortgagee hereunder or under the Notes)
may, directly or through any agent or representative, perform the same on behalf
of the Company, and may make advances for the purpose.
(b) The Company will repay on demand all sums so advanced on its behalf,
with interest from the date of demand at a rate per annum equal to average per
annum rate on the Notes then outstanding, and all sums so advanced (with
interest as aforesaid) shall be secured hereby and by the lien hereof in
priority to the lien of the Notes.
(c) No such performance or advance by the Mortgagee shall impair or
prejudice any of the rights, powers or remedies of the Mortgagee under this
Mortgage by reason of any such failure on the part of the Company, or shall
relieve the Company from any Default hereunder.
4.
Pledged Contracts.
4.01. Pledge of Contracts; Other Hypothecation Prohibited. (a) Promptly
after entering into any gas purchase, sale, exchange or transportation contract
or agreement which is required to be assigned to and pledged and mortgaged with
the Mortgagee hereunder, the Company will
(i) deliver to the Mortgagee an executed counterpart of such contract
or agreement, or a complete and correct copy thereof certified as such
by the Secretary or an Assistant Secretary of the Company,
(ii) at its expense, execute and deliver to the Mortgagee all such
instruments of assignment or transfer as shall be necessary in the
opinion of the Mortgagee effectually to assign to and pledge and
mortgage hereunder with the Mortgagee, as further security for the
Notes, all the right, title and interest of the Company in, to and
under such contract or agreement (subject to any restrictions as to
the assignability thereof),
(iii) give written notice of such assignment, pledge and mortgage to
all other parties to such contract or agreement,
(iv) duly file or record notice of such assignment, pledge and
mortgage in all places required by law to perfect and maintain the
lien of this Mortgage on such contract or agreement, and
-27-
<PAGE> 98
(v) keep its records and books of account in such manner as to give
adequate notice that such contract or agreement has been assigned,
pledged and mortgaged hereunder.
(b) The Company will not assign, pledge, mortgage or otherwise hypothecate,
or permit the assignment, pledge, mortgage or hypothecation of, any of its
right, title or interest in, to or under any gas purchase, sale, exchange or
transportation contract or agreement required to be assigned, pledged or
mortgaged hereunder, whether existing on the date of delivery hereof or
subsequently entered into, or any amendment or supplement thereto, except to or
with the Mortgagee hereunder.
4.02. Consents to Assignment of Pledged Contracts, etc. The Company will
use its best efforts to obtain appropriate consents of other contracting parties
under any contract or agreement assigned, pledged or mortgaged or required to be
assigned, pledged or mortgaged hereunder, to the extent that any such consent is
required for the effectiveness of such assignment, pledge or mortgage. The
Company will not enter into any such contract or agreement which by its terms is
not assignable to the Mortgagee or which requires any consent for the assignment
thereof to the Mortgagee.
4.03. Performance of Pledged Contracts; No Assumption by Mortgagee; Notice
of Claimed Defaults. (a) The Company will at all times perform and observe all
the covenants, agreements, terms, conditions and limitations applicable to it
contained in any contract or agreement assigned, pledged or mortgaged or
required to be assigned, pledged or mortgaged hereunder and will do all things
necessary to keep unimpaired all its rights under all such contracts or
agreements and to prevent any default thereunder or any forfeiture or impairment
thereof; and, without limitation, the Company, subject to delays resulting from
disputes in good faith and to adverse claims of independent third parties, will
promptly pay suppliers for all gas purchased in accordance with the terms
contained in the respective gas purchase contracts assigned, pledged, mortgaged
or required to be assigned, pledged or mortgaged hereunder.
(b) No assignment, pledge or mortgage hereunder of any contract or
agreement by or on behalf of the Company shall
(i) relieve the Company of its obligations and liabilities under such
contract or agreement, all of which shall continue to be the
obligations and liabilities of the Company, or
(ii) impose any obligations or liabilities upon the Mortgagee with
respect to the performance or nonperformance of any such contract or
agreement, all of which obligations and liabilities shall continue to
be those of the Company.
(c) In case the Company shall at any time receive any notice, demand or
other communication from any other party to any contract or agreement assigned,
pledged or mortgaged or required to be assigned, pledged or mortgaged hereunder,
relating to any alleged, potential or actual material default thereunder or
material breach of any of the covenants, agreements, terms, conditions or
limitations thereof, or purporting to terminate or in any other
-28-
<PAGE> 99
way adversely affect the rights of the Company thereunder, the Company will
immediately deliver or cause to be delivered to the Mortgagee a copy of such
notice, demand or other communication.
4.04. Rights as to Pledged Contracts. (a) Unless and until an Event of
Default shall have occurred and be continuing, the Company shall be entitled, to
the extent permitted by law, to collect and retain all sums due under, and to
receive and dispose of all gas deliverable under, all contracts and agreements
subject to the lien hereof and to require and enforce the performance of any and
all such contracts and agreements, without further consent of or action by the
Mortgagee; but the Mortgagee shall, if the Company shall so request, deliver to
the Company suitable orders in favor of the Company or its nominee or nominees
for the payment of all sums, delivery of all gas and the performance of all acts
and things under such contracts and agreements. Such orders shall be expressed
to be revocable by the Mortgagee whenever an Event of Default shall have
occurred and be continuing.
(b) Promptly upon the occurrence of an Event of Default,
(i) the Mortgagee shall give written notice of the occurrence of such
Event of Default hereunder, describing the effect of clause (ii) of
this paragraph (b), to all parties (other than the Company) to all
contracts and agreements at the time subject to the lien hereof; and
(ii) the Mortgagee or any receiver or trustee in bankruptcy or other
Person who shall rightfully be in possession of the Mortgaged Property
shall collect and retain, as part of the Mortgaged Property, all sums
due under, receive and dispose of all gas deliverable under, and
require and enforce the performance of, any and all such contracts and
agreements, all for the benefit and further security of the Notes;
provided that, if such Event of Default shall be made good or waived and shall
be no longer continuing, the Mortgagee, or any receiver or trustee in bankruptcy
or other Person who shall rightfully be in possession of the Mortgaged Property,
shall so notify all parties who received notice pursuant to the provisions of
clause (i) of this paragraph (b) and shall discontinue the collection of any
sums due under such contracts and agreements and the receipt and disposal of any
gas deliverable thereunder; all sums theretofore collected pursuant to clause
(ii) of this paragraph (b) shall be applied, first, to the items referred to in
subdivisions (aa) to (gg), inclusive, of paragraph (d) of section 6.03, and any
remainder shall be paid to or upon the order of the Company.
4.05. Amendment, etc., of Pledged Contracts. (a) Unless and until an Event
of Default shall have occurred and be continuing, the Company shall have the
right to amend, modify, supplement, surrender, cancel, terminate, or replace any
contract or agreement at the time subject to the lien hereof, provided that, in
connection with any such amendment, modification, supplement, surrender,
cancellation, termination or replacement, the Company shall comply with the
terms of paragraph (a) of section 4.01.
-29-
<PAGE> 100
(b) Whenever an Event of Default shall have occurred and be continuing, the
Company may, so long as the Company shall be in possession of the Mortgaged
Property, perform the acts specified in paragraph (a) of this section 4.05, upon
the conditions stated in such paragraph, except that the prior written approval
and consent of the Mortgagee shall be required in every case.
(c) Whenever the Company shall no longer be in possession of the Mortgaged
Property, the rights of the Company under paragraph (a) of this section 4.05
may, upon the conditions therein stated, be exercised by the Mortgagee or (with
the prior written approval and consent of the Mortgagee) by a receiver or
trustee in bankruptcy or other Person rightfully in possession of the Mortgaged
Property.
4.06. Third Parties Protected. Any party to any contract or agreement
subject to the lien hereof may, until such party shall have received written
notice to the contrary, conclusively assume that no Event of Default has
occurred and is continuing and that the Company is in possession of the
Mortgaged Property, is entitled to perform and accept performance of any such
contract or agreement, including the receipt of any gas deliverable thereunder
and the receipt of all sums due thereunder, and is entitled to amend, modify,
supplement, surrender, cancel, terminate or replace any such contract or
agreement on the conditions set forth in paragraph (a) of section 4.05.
5.
Possession, Use and Release of Property.
5.01. Possession of and Dealing With Property until Default; Leases, etc.
Unless and until an Event of Default shall have occurred and be continuing, and
subject to Article 4 (relating to Pledged Contracts), the Company shall be
permitted to possess, use and enjoy all the Mortgaged Property, and to receive
and use the tolls, rents, revenues, issues, income, product and profits thereof,
with power in the ordinary course of business freely and without hindrance on
the part of the Mortgagee,
(a) to use, consume, sell or dispose of materials, supplies and
products,
(b) except as herein otherwise expressly provided to the contrary, to
deal with closes in action, leases, leasehold interests and contracts,
and to exercise the rights and powers conferred upon it thereby,
(c) to repair and alter buildings and structures (including leasehold
improvements),
(d) to change the position of pipes, mains, conduits, transmission or
distribution systems or other property, provided that such change
shall not impair the lien of this Mortgage thereon,
(e) to replace and renew any equipment, machinery or other property,
and
-30-
<PAGE> 101
(f) to make any lease as lessor, or grant or convey any right-of-way,
easement or license, provided that
(i) no such lease, grant or conveyance shall be made unless, in
the opinion of the Board or Executive Committee, the same would
not be prejudicial to the security of the Notes; and
(ii) any property so leased and any property over, through, under
or with respect to which any such right-of-way, easement or
license shall be so granted or conveyed shall remain subject to
the lien of this Mortgage to the same extent and in the same man-
ner as it was prior to such lease, grant or conveyance.
5.02. Disposal of Worn-Out Property, Franchises, etc., Without Mortgagee's
Consent. Unless and until an Event of Default shall occur and be continuing, the
Company may, at any time and from time to time, without any release or consent
by the Mortgagee:
(a) Replacement of Worn-Out Property. Sell or otherwise dispose of,
free from the lien of this Mortgage, any apparatus, tools, implements,
machinery, equipment, pipe lines and related facilities, pipe or other
similar property comprising part of the Mortgaged Property, which has
become work out, obsolete, unserviceable or unnecessary for use in the
conduct of the business of the division, upon replacing the same with
or substituting for the same other property which is of a fair value
at the time of replacement or substitution at least equal to the fair
value at the time of disposition of the property so sold or disposed
of and which, upon such replacement or substitution, shall become
subject to the lien of this Mortgage, free and clear of all liens
prior to, or on a parity with, the lien hereof other than Permitted
Encumbrances.
(b) Abandonment of Worn-Out Property. In the ordinary course of
business demolish, dismantle, tear down, use as scrap, abandon or
surrender and, having done so, sell or otherwise dispose of any
Mortgaged Property if it has become worn out, unserviceable or
unnecessary for use in the conduct of the business of the Division,
and the best interests of the Division and the Mortgagee require such
treatment thereof and do not require any replacement thereof or
substitution therefor, provided that the Company shall forthwith pay
to the Mortgagee any net cash proceeds thereof, to the extent such net
cash proceeds exceed $250,000. Such net cash proceeds shall be applied
by the Mortgagee on the date of receipt of such proceeds to the
prepayment of an equal principal amount of Notes at the time
outstanding.
(c) Modification or Surrender of Franchises, etc. Assent to the
modification, or surrender in whole or in part, of any franchise,
license, permit, authority, easement, right-of-way or lease which it
may hold or under which it may be operating, provided that
(i) the Company will have the right,
-31-
<PAGE> 102
(x) under the modified franchise, license, permit, authority,
easement, right-of-way or lease, or
(y) under a new franchise, license, permit, authority, easement,
right-of-way or lease received in exchange in the event of such a
surrender, or
(z) under some other franchise, license, permit, authority, ease-
ment, right-of-way or lease,
to conduct the same or an extended business in the same or an
extended territory during the same or an extended or unlimited or
indefinite period of time, or
(ii) it is no longer necessary or desirable in the profitable
conduct of the business of the Division or in the best interests of
the Division or the Mortgagee to comply with the terms of such
franchise, license, permit, authority, easement, right-of-way or lease
or to operate the properties covered thereby, and that the value and
utility generally of all the Company's properties as an entirety and
the security for the Notes will not be impaired by the surrender of
such franchise, license,permit, authority, easement, right-of-way or
lease;
For the purposes of this paragraph (c), any right of any municipality
or other governmental body to terminate a franchise, license, permit
or authority by purchase shall not be deemed to abridge or affect its
duration.
5.03. Release by Mortgagee of Property Sold by Company. The Company may
sell, exchange or otherwise dispose of any (but less than all or substantially
all) of the Mortgaged Property (in addition to the dispositions referred to in
sections 5.01 and 5.02), and the Mortgagee shall release the same from the lien
hereof, upon receipt by the Mortgagee of (a) any money received as consideration
for any property so to be released to which the Company is entitled and (b) if
any property other than cash is included in such consideration, such instruments
of conveyance, assignment and transfer, if any, as may be necessary to subject
to the lien of this Mortgage all the right, title and interest of the Company in
and to such property. All moneys received by the Mortgagee pursuant to clause
(a) of this section 5.03 shall be applied by the Mortgagee on the date of
receipt of such moneys to the prepayment of an equal principal amount of Notes
at the time outstanding.
5.04. Disposal of Property of Value Without Mortgagee's Consent. Unless and
until an Event of Default shall have occurred and be continuing, the Company may
sell, exchange or otherwise dispose of any of its tangible property (in addition
to the dispositions referred to in sections 5.01, 5.02 and 5.02) at any time
subject to the lien hereof having an aggregate fair value not exceeding $500,000
without notice to or any release or consent by the Mortgagee; provided that
promptly after the end of each calendar year, and at any time during any
calendar year when the aggregate fair value of the property so sold, exchanged
or otherwise disposed of and not theretofore covered by the payment of cash to
the Mortgagee as hereinafter in this
-32-
<PAGE> 103
section 5.04 provided shall equal or exceed $500,000 the Company shall forthwith
pay to the Mortgagee a sum in cash at least equal to the aggregate fair value of
the property so sold, exchanged or otherwise disposed of (but not less than the
consideration received by the Company for such property). Such cash paid to the
Mortgagee shall be applied by the Mortgagee on the date of receipt of such cash
to the prepayment of an equal principal amount of Notes at the time outstanding.
5.05. New Property Subject to Lien of Mortgage. Any new property acquired
by the Company (by exchange, purchase, construction or otherwise) to take the
place of any property released hereunder shall forthwith and without further
conveyance become subject to the lien of and be covered by this Mortgage.
5.06. Release on Condemnation, etc., of Mortgaged Property. In the event
that any one or more governments or municipal corporations or other governmental
subdivisions or governmental authorities or any nominee or designee thereof
shall at any time acquire all or any part of the Mortgaged Property,
(a) by the exercise of the power of condemnation or eminent domain,
(b) by the exercise of a right reserved to purchase the same, or
(c) by a sale or conveyance by the Company in lieu of and in
reasonable anticipation of the impending exercise of such a power or
of such a right,
the award or consideration therefor shall be paid to the Mortgagee and applied
by the Mortgagee on the date of receipt thereof to the prepayment of an equal
principal amount of Notes at the time outstanding.
5.07. Purchaser of Released Property Not Required to Investigate. In no
event shall any purchaser in good faith of any property which the Mortgagee has
purported to release hereunder be bound to ascertain the authority of the
Mortgagee to execute the release, or to inquire as to any facts required by the
terms hereof for the exercise of such authority, or to see to the application of
the purchase money; nor shall any purchaser of property sold pursuant to section
5.02, 5.03 or 5.04 be under obligation to ascertain or inquire into the
occurrence of the event on which any such sale is hereby authorized.
5.08. Confirmatory Releases, etc. The Mortgagee shall, upon request by the
Company, execute and deliver any confirmatory release or other instrument
necessary or appropriate to confirm that any property released from the lien of
this Mortgage is permitted by this Article 5; provided that, in the case of any
sale, exchange or other disposition of property by the Company pursuant to
section 5.02 or 5.04, the execution of such release or other instrument shall
not be a condition precedent to the right of the Company to make such sale,
exchange or other disposition free from the lien of this Mortgage.
5.09. Exercise of Company Powers After Event of Default. (a)
Notwithstanding that an Event of Default shall have occurred and be
continuing, in case the Mortgaged Property
-33-
<PAGE> 104
or any part thereof shall be in the possession of a receiver, trustee or other
custodian, lawfully appointed, or of an assignee for the benefit of creditors,
the powers conferred upon the Company by this Article 5 may, with the consent of
the Mortgagee, be exercised by such receiver, trustee, custodian or assignee
with respect to such part of the Mortgaged Property as may then be in his or its
possession.
(b) If the Mortgagee shall be in possession of the Mortgaged Property or
any part thereof under any of the terms of this Mortgage or otherwise, all the
powers conferred upon the Company by this Article 5 may be exercised by the
Mortgagee, in its discretion, with respect to such part of the Mortgaged
Property as may then be in its possession.
(c) Notwithstanding that an Event of Default shall have occurred and be
continuing, the Company, so long as it shall be in possession of the Mortgaged
Property, may, with the prior written approval and consent of the Mortgagee,
exercise any of the powers conferred upon it by this Article 5.
6.
Remedies Upon Default.
6.01. Definition of Event of Default. The term "Event of Default", wherever
used in this Mortgage, shall mean any one or more of the following events,
whether or not the occurrence of such event shall, on the part of the Company,
Alaska, or any Subsidiary of Alaska, be voluntary or involuntary or come about
or be effected by operation of law or pursuant to or in compliance with any
judgment, decree or order of a court of competent jurisdiction or any order,
rule or regulation of any administrative or governmental body or otherwise:
(a) failure by the Company for 10 days to pay any principal of or
premium on any Note when and as the same shall become due and payable,
whether at a maturity, on a date fixed for prepayment, by declaration
or otherwise; or
(b) failure by the Company for 10 days to pay any interest on any
Note, when and as the same shall become due and payable; or
(c) failure by the Company for 30 days to perform and comply with any
term of paragraph (b) of section 3.05 (relating to restrictions on the
business of the Division), section 3.07 (relating to restrictions on
liens, etc.), section 3.08 (relating to restrictions on indebtedness)
or section 3.09 (relating to consolidations, mergers, etc.); or
(d) failure by the Company to perform and comply with any term of this
Mortgage (other than those referred to in clause (c) of this section
6.01 or in any supplemental mortgage for 30 days after written notice
specifying such failure shall have been given to the Company; or
-34-
<PAGE> 105
(e) an "Event of Default", under any of the Alaska Notes or Alaska
Note Agreements shall occur and shall be continuing.
6.02. Acceleration of Maturity. If an Event of Default shall have occurred
and be continuing, the Mortgagee may declare the principal of all the Notes then
outstanding (if not then due and payable) to be due and payable, and upon any
such declaration the same shall become and be immediately due and payable,
anything in this Mortgage or in the Notes contained to the contrary
notwithstanding.
6.03. Mortgagee's Right to Enter and Take Possession, Operate and Apply
Income. (a) if an Event of Default shall have occurred and be continuing, the
Company, upon demand of the Mortgagee, shall forthwith surrender to the
Mortgagee the actual possession, and, if and to the extent permitted by law, the
Mortgagee itself, or by such officers or agents as it may appoint, may enter and
take possession of all the Mortgaged Property together with all other property
which the Mortgagee is permitted to take possession of, use and administer, and
may exclude the Company and its agents and employees wholly therefrom, and may
have joint access with the Company to the books, papers and accounts of the
Division.
(b) If the Company shall for any reason fail to surrender or deliver any
such Mortgaged Property or part thereof after such demand by the Mortgagee, the
Mortgagee may (i) obtain a judgment conferring on the Mortgagee the right to
immediate possession or requiring the Company to deliver immediate possession of
all or part of such Mortgaged Property to the Mortgagee, to the entry of which
judgment the Company hereby specifically consents, and (ii) pursue all or part
of such Mortgaged Property wherever it may be found and enter any of the
premises of the Company wherever such Mortgaged Property may be or be supposed
to be and search for such Mortgaged Property and take possession of and remove
such Mortgaged Property.
(c) The Company will pay to the Mortgagee, upon demand, all expenses of
obtaining such judgment or of pursuing, searching for and taking such property,
and reasonable compensation to the Mortgagee, its attorneys and agents; and all
such expenses and compensation shall, until paid, be secured by the lien of this
Mortgage.
(d) Upon every such entering upon or taking of possession, the Mortgagee
may hold, store, use, operate, manage and control the Mortgaged Property and
conduct the business thereof, and, from time to time
(i) make all necessary and proper maintenance, repairs, renewals,
replacements, additions, betterments and improvements thereto and
thereon and purchase or otherwise acquire additional equipment,
machinery, tools and other property,
(ii) insure or keep insured such of the same as is usually insured by
companies of established reputation engaged in a similar business and
in the same manner and to the same extent,
-35-
<PAGE> 106
(iii) manage the same and exercise all the rights and powers of the
Company, in its name or otherwise, with respect to the same, and
(iv) enter into any and all agreements with respect to the exercise by
others of any of the powers herein granted the Mortgagee,
all as the Mortgagee from time to time may determine to be to its best advan-
tage; and the Mortgagee may collect and receive all the income, revenues, tolls,
rents, issues and profits of the same, and, after deducting
(aa) all expenses of taking, holding and operating the Mortgaged
Property and of operating and conducting the business thereof
(including compensation for the services of all persons employed for
such purposes),
(bb) the cost of all such maintenance, repairs, renewals,
replacements, additions, betterments, improvements and purchases and
acquisitions,
(cc) the cost of such insurance,
(dd) such taxes, assessments and other charges prior to the lien of
this Mortgage as the Mortgagee may determine to pay,
(ee) any sums advanced by the Mortgagee under the provisions of
section 3.19,
(ff) other proper charges upon the Mortgaged Property or any part
thereof, and
(gg) the reasonable compensation, expenses and disbursements of the
attorneys and agents of the Mortgagee (including engineers and
accountants employed to examine, inspect and make reports upon the
properties and books and records of the Company),
shall apply the remainder of the moneys so received by the Mortgagee, first, to
the payment of the interest in default, in the order of the maturity of the
installments of such interest, with interest (if and to the extent permitted by
law) on all overdue installments of interest at a rate per annum equal, in the
case of each Note, to the rate of interest specified in such Note plus 2%;
second, in case the principal of any of the Notes then outstanding shall have
become due, by declaration or otherwise, to the payment of the principal of all
Notes then due, with interest on any overdue principal at a rate per annum
equal, in the case of each Note, to the rate of interest specified in such Note
plus 2%; and third, to the payment of any premium which may be due and payable
upon Notes theretofore called for prepayment, with interest on any overdue
premium at a rate per annum equal, in the case of each Note, to the rate of
interest specified in such Note plus 2%; such payments, respectively, to be made
ratably, without preference or priority of any one over any other.
-36-
<PAGE> 107
(e) Whenever all that is due upon such interest installments and upon the
principal of and premium on such Notes, and under any of the terms of this
Mortgage, shall have been paid and all Defaults made good, the Mortgagee shall
surrender possession of the Mortgaged Property, and any other property of the
Company in its possession, to the Company, its successors or assigns. The same
right of taking possession, however, shall exist if any subsequent Event of
Default shall occur and be continuing.
6.04. Mortgagee's Power of Sale. If an Event of Default shall have occurred
and be continuing, the Mortgagee may, if and to the extent and in the manner
permitted by law, itself, or by such agents and attorneys as it may appoint,
with or without entry or taking possession, sell the Mortgaged Property as an
entirety or in such separate lots or parcels as the Mortgagee may determine, at
public or private sale and, except as otherwise required by law, at such place
or places (whether or not the Mortgaged Property be present), at such time or
times, upon such terms (including credit, secured or unsecured) and upon such
notice (by publication or otherwise), if any, as the Mortgagee in its discretion
may determine.
6.05. Mortgagee's Power of Enforcement. If an Event of Default shall have
occurred and be continuing, the Mortgagee may, either with or without entry or
taking possession as hereinabove provided or otherwise, proceed by suit or suits
at law or in equity or by any other appropriate proceeding or remedy (a) to
enforce payment of the Notes or the performance of any term hereof or any other
right, (b) to foreclose this Mortgage and to sell, as an entirety or in separate
lots or parcels, the Mortgaged Property, under the judgment or decree of a court
or courts of competent jurisdiction and to attach, levy or execute upon any
other property of the Company and (c) to pursue any other remedy available to
it, all as the Mortgagee, with the advice of counsel, shall deem most effectual
for such purposes. The Mortgagee shall take action either by such proceedings or
by the exercise of its powers with respect to entry or taking possession or
sale, as the Mortgagee may determine.
6.06. Adjournment of Sale. From time to time the Mortgagee may, to the
extent permitted by law, adjourn any sale to be made under the terms of this
Mortgage or otherwise, by announcement at the time and place appointed for such
sale, or for such adjourned sale or sales; and without further notice, the
Mortgagee may make such sale at the time and place to which the same shall be so
adjourned.
6.07. Mortgagee Authorized to Execute Deeds, Conveyances, Deliver
Possession, etc. The Mortgagee is irrevocably appointed the agent and
attorney-in-fact of the Company, in its name and stead and on its behalf, for
the purpose of effectuating any sale for the enforcement of this Mortgage,
whether under the power of sale hereby given or pursuant to judicial proceedings
or otherwise, to execute and deliver all such deeds, conveyances, bills of sale,
assignments, transfers and other instruments as the Mortgagee may consider
necessary or appropriate, and to substitute one or more Persons with like power,
the Company hereby ratifying and confirming all that the Mortgagee, or such
substitute or substitutes, shall lawfully do by virtue hereof.
Nevertheless, if so requested by the Mortgagee, or by any purchaser, the
Company shall ratify and confirm any such sale by executing and delivering to
the Mortgagee or to such
-37-
<PAGE> 108
purchaser or purchasers all such proper deeds, conveyances, assignments,
instruments of transfer and releases as may be designated in any such request.
Upon any such sale being made, the Company shall deliver the Mortgaged
Property so sold in accordance with the instructions of the Mortgagee. If the
Company shall fail for any reason to deliver such Mortgaged Property or part
thereof after receiving instructions from the Mortgagee, the Mortgagee shall
have all of the rights granted to the Mortgagee upon failure of the Company to
deliver Mortgaged Property as specified in section 6.03.
6.08. Principal and Interest Become Due on Sale. Upon any sale being made,
either under the power of sale hereby given or pursuant to judicial proceedings
or otherwise, for the enforcement of this Mortgage, the principal of all Notes
then outstanding, if not previously due, and the interest accrued thereon, shall
at once become and be immediately due and payable.
6.09. Purchase by Mortgagee. Upon any such sale, whether under the power of
sale hereby given or pursuant to judicial proceedings or otherwise, the
Mortgagee may bid for and purchase the Mortgaged Property and, upon compliance
with the terms of sale, may hold, retain and possess and dispose of such
property in its own absolute right without further accountability.
6.10. Application of Notes Toward Purchase Price. Upon any such sale,
whether under the power of sale hereby given or pursuant to judicial proceedings
or otherwise, any purchaser may, if permitted by law, after allowing for the
proportion of the total purchase price required to be paid in cash for the costs
and expenses of the sale, compensation and other charges, in paying the purchase
price, apply to the purchase price Notes then outstanding, in lieu of cash, to
the amount which shall, upon distribution of the net proceeds of such sale, be
payable thereon.
6.11. Receipt Sufficient Discharge to Purchaser. Upon any such sale,
whether under the power of sale hereby given or pursuant to judicial proceedings
or otherwise, the receipt of the Mortgagee or of the officer making a sale under
judicial proceedings shall be a sufficient discharge to the purchaser or
purchasers for the purchase money, and such purchasers, and their assigns or
personal representatives, shall not, after paying such purchase money and
receiving such receipt therefor, be obliged to see to the application of such
purchase money, or be in any wise answerable for any loss, misapplication or
nonapplication thereof.
6.12. Sale a Bar Against Company. Any such sale, whether under the power of
sale hereby given or pursuant to judicial proceedings or otherwise, shall
operate to divest all right, title, interest, claim and demand whatsoever, at
law or in equity or by statute or otherwise, of the Company in and to the
property sold, and, so far as permitted by law, shall be a perpetual bar at law
and in equity and otherwise against the Company and its successors and assigns
and all Persons now or hereafter claiming such property or any part thereof
from, through or under the Company or its successors or assigns.
6.13. Application of Proceeds of Sale. The proceeds of any such sale,
whether under the power of sale hereby given or pursuant to judicial proceedings
or otherwise, together with
-38-
<PAGE> 109
any other moneys then held by the Mortgagee under this Mortgage as part of the
Mortgaged Property or the proceeds thereof, shall be applied as follows:
First: to the payment of all lawful taxes, assessments or liens prior
to the lien of this Mortgage, except those subject to which such sale
shall have been made, and of all costs and expenses of such sale,
including the reasonable compensation, expenses and disbursements of
the Mortgagee and its agents and attorneys, and of all other sums
payable to the Mortgagee hereunder by reason of any liabilities
incurred or advances made by it in connection with the management or
administration of the Mortgaged Property;
Second: to the payment of the whole amount then due and unpaid upon
the Notes then outstanding for principal, premium, if any, and
interest, with interest on the overdue principal, premium, if any, and
(if and to the extent permitted by law) interest at a rate per annum
equal, in the case of each Note, to the rate of interest specified
therein plus 2%; and, in case such proceeds shall be insufficient to
pay in full the whole amount so due and unpaid, then to the payment of
such principal, premium, if any, and interest ratably, without
preference or priority of any one over any other, or of any
installment of interest over any other installment of interest; and
Third: any surplus then remaining, to the Company or its successors or
assigns, or to whomsoever may be lawfully entitled to receive the
same.
In the event of any sale of the Mortgaged Property, or any part thereof,
under this Article on terms of credit, the Mortgagee shall receive and hold as
property subject to the lien of this Mortgage all agreements and instruments
evidencing the indebtedness of the purchaser or purchasers, shall administer and
enforce the same, shall collect all moneys becoming due thereunder and apply
such moneys as provided in this section 6.13. The Mortgagee is hereby
authorized, in its discretion, to sell and dispose of the indebtedness evidenced
by such agreements or instruments and to collect the proceeds thereof, which
shall thereupon be applied as provided in this section 6.13.
6.14. Waiver of Appraisement, Valuation, Stay, Extension and Redemption
Laws. The Company agrees, to the full extent that it may lawfully so agree, that
in case of a Default on its part hereunder, neither the Company nor anyone
claiming through or under it shall or will set up, claim or seek to take
advantage of any appraisement, valuation, stay, extension or redemption laws now
or hereafter in force in any locality where any property subject to the lien
hereof may be situated, in order to prevent or hinder the enforcement or
foreclosure of this Mortgage, or in the absolute sale of the property hereby
conveyed, or the final and absolute putting into possession thereof, immediately
after such sale, of the purchasers thereat, and the Company, for itself and all
who may at any time claim through or under it, hereby waives to the full extent
that it may lawfully so do, the benefit of all such laws, and any and all right
to have the assets comprised in the security intended to be created hereby
marshaled upon any foreclosure of the lien hereof and agrees that the Mortgagee
or any court having jurisdiction to foreclose such lien may sell the Mortgaged
Property as an entirety.
-39-
<PAGE> 110
6.15. Mortgagee Entitled to Appointment of Receiver. If an Event of Default
shall occur and be continuing, then upon the filing of a bill in equity or other
commencement of judicial proceedings to enforce the rights of the Mortgagee, the
Mortgagee, to the extent permitted by law, shall be entitled as a matter of
right to the appointment of a receiver or receivers of the Mortgaged Property,
and of the tolls, rents, revenues, issues, income, product and profits thereof,
pending such proceedings, with such powers as the court making such appointment
shall confer, but, notwithstanding the appointment of any receiver, trustee or
other custodian, the Mortgagee shall be entitled as pledgee to the possession
and control of any cash, or other instruments at the time held by, or payable or
deliverable under the terms of this Mortgage to, the Mortgagee.
6.16. Suits to Protect the Mortgaged Property. The Mortgagee shall have
power (a) to institute and maintain such suits and proceedings as it may deem
expedient to prevent any impairment of the Mortgaged Property by any acts which
may be unlawful or any violation of the Mortgage, (b) to preserve or protect its
interests in the Mortgaged Property and in the income, revenues, tolls, rents
and profits arising therefrom, and (c) to restrain the enforcement of or
compliance with any legislation or other governmental enactment, rule or order
that may be unconstitutional or otherwise invalid, if the enforcement of, or
compliance with, such enactment, rule or order would impair the security
hereunder or be prejudicial to the interests of the Mortgagee.
6.17. Mortgagee May File Proofs of Claim in Receivership, etc. In the case
of any receivership, insolvency, bankruptcy, reorganization, arrangement,
adjustment, composition, or other judicial proceedings affecting the Company,
its creditors or its property, the Mortgagee shall, to the extent permitted by
law, be entitled to file such proofs of claim and other documents as may be
necessary or advisable in order to have the claims of the Mortgagee allowed in
such proceedings for the entire amount due and payable by the Company under this
Mortgage at the date of the institution of such proceedings and for any
additional amount which may become due and payable by the Company hereunder
after such date.
6.18. Company to Pay All Notes on Any Default in Payment; Application of
Moneys by Mortgagee. If Default shall be made in the payment of any principal
of, or premium, if any, or interest on any of the Notes, when and as due and
payable, then, upon demand of the Mortgagee, the Company will pay to the
Mortgagee, the whole amount due and payable on all Notes at the time outstanding
for principal, premium, if any, and interest, with interest on the overdue
principal, premium, if any, and (if and to the extent permitted by law) interest
at a rate per annum equal, in the case of each Note, to the rate of interest
specified therein plus 2%; and in case the Company shall fail to pay the same
forthwith upon such demand, the Mortgagee shall be entitled to sue for and to
recover judgment for the whole amount so due and unpaid together with costs,
which shall include the reasonable compensation, expenses and disbursements of
the Mortgagee's agents and attorneys.
The Mortgagee shall be entitled to sue and recover judgment as aforesaid
either before, after or during the pendency of any proceedings for the
enforcement of this Mortgage, and the right of the Mortgagee to recover such
judgment shall not be affected by any taking, possession
-40-
<PAGE> 111
or sale hereunder, or by the exercise of any other right, power or remedy for
the enforcement of the terms of this Mortgage, or the foreclosure of the lien
hereof.
In case of a sale of any of the Mortgaged Property and of the application
of the proceeds of sale to the payment of the debt hereby secured, the Mortgagee
shall be entitled to enforce payment of and to receive all amounts then
remaining due and unpaid upon any and all of the Notes then outstanding, and the
Mortgagee shall be entitled to recover judgment for any portion of the debt
remaining unpaid, with interest.
The Company agrees, to the full extent that it may lawfully so agree, the
no recovery of any such judgment by the Mortgagee and no attachment or levy of
any execution upon any such judgment upon any of the Mortgaged Property or upon
any other property shall in any manner or to any extent affect the lien of this
Mortgage upon the Mortgaged Property or any part thereof or any lien, rights,
powers or remedies of the Mortgagee hereunder, but such lien, rights, powers and
remedies shall continue unimpaired as before.
Any moneys thus collected by the Mortgagee or received by the Mortgagee
under this section 6.18 shall be applied as follows:
First, to the payment of the reasonable compensation, expenses and
disbursements of the agents and attorneys of the Mortgagee; and
Second, toward payment of the amounts then due and unpaid upon the
Notes in respect of which such moneys shall have been collected,
ratably and without any preference or priority of any kind, according
to the amounts due and payable upon such Notes.
6.19. Delay or Omission No Waiver. No delay or omission of the Mortgagee or
of any holder of Notes outstanding hereunder to exercise any right, power or
remedy accruing upon any Default shall exhaust or impair any such right, power
or remedy or shall be construed to be a waiver of any such Default, or
acquiescence therein; and every right, power and remedy given by this Mortgage
to the Mortgagee may be exercised from time to time and as often as may be
deemed expedient by the Mortgagee.
6.20. No Waiver of One Default to Affect Another. No waiver of any Default
hereunder shall extend to or shall affect any subsequent or any other then
existing Default or shall impair any rights, powers or remedies consequent
thereon.
6.21. Discontinuance of Proceedings--Position of Parties Restored. In case
the Mortgagee shall have proceeded to enforce any right or remedy under this
Mortgage by foreclosure, entry or otherwise, and such proceedings shall have
been discontinued or abandoned for any reason, or shall have been determined
adversely to the Mortgagee, then and in every such case the Company and the
Mortgagee shall be restored to their former positions and rights hereunder, and
all rights, powers and remedies of the Mortgagee shall continue as if no such
proceeding had been taken.
-41-
<PAGE> 112
6.22. Remedies Cumulative. No right, power or remedy conferred upon or
reserved to the Mortgagee by this Mortgage is intended to be exclusive of any
other right, power or remedy, but each and every such right, power and remedy
shall be cumulative and concurrent and shall be in addition to any other right,
power and remedy given hereunder or now or hereafter existing at law or in
equity or by statute.
7.
Immunity of Incorporators, Stockholders,
Officers and Directors.
7.01. Immunity of Incorporators, Stockholders, Officers and Directors. No
recourse under or upon any obligation, covenant or agreement contained in this
Mortgage or in any mortgage supplemental hereto, or in any Note (other than by
endorsement thereof), or because of any Indebtedness hereby secured, shall be
had against any incorporator, or against any past, present or future
stockholder, officer or director, as such, of the Company or of any successor
corporation, either directly or through the Company or any successor corporation
under any rule of law, statute or constitutional provision or by the enforcement
of any assessment or by any legal or equitable proceedings or otherwise; it
being agreed and understood that this Mortgage, any mortgage supplemental hereto
and the obligations hereby secured, are solely corporate obligations, and that
no personal liability whatever shall attach to, or be incurred by, such
incorporators, stockholders, officers or directors, as such, of the Company or
of any successor corporation, or any of them, because of the incurring of the
indebtedness hereby authorized, or under or by reason of any of the obligations,
covenants or agreements contained in this Mortgage or in any mortgage
supplemental hereto or in any of the Notes, or implied therefrom.
8.
Defeasance.
8.01. Defeasance. If the Company shall pay and discharge or provide for the
payment and discharge of the entire Indebtedness on all Notes at the time
outstanding by paying or causing to be paid the principal of, and the premium,
if any, and interest on the Notes, at the time and in the manner therein and
herein expressed, and if the Company shall also pay and discharge all amounts
and obligations under the Gas Sale Contract, and if the Company shall also
(a) pay or cause to be paid all other sums payable hereunder by the
Company or make provision satisfactory to the Mortgagee for the
payment thereof, and
(b) duly perform and comply with all covenants, agreements, terms and
conditions on the part of the Company contained in this Mortgage
according to the true intent and meaning thereof,
-42-
<PAGE> 113
then and in that case all property, rights and interests hereby conveyed or
assigned or pledged shall revert to the Company, and the estate, right, title
and interest of the Mortgagee therein shall thereupon cease, terminate and
become void; and the Mortgagee in such case, on demand of the Company and at its
cost and expense, shall execute and deliver to the Company a proper instrument
or instruments acknowledging the satisfaction and termination of this Mortgage
and all mortgages supplemental hereto, and shall convey, assign and transfer, or
cause to be conveyed, assigned or transferred, and shall deliver or cause to be
delivered, to the Company all property, including money, then held by the
Mortgagee, other than moneys paid to the Mortgagee for the payment of the
principal of and premium, if any, or interest on any Notes.
9.
Miscellaneous Provisions.
9.01. Successors and Assigns Included in Parties. Whenever in this Mortgage
one of the parties hereto is named or referred to, the successors and assigns of
such party shall be included, and all covenants and agreements contained in this
Mortgage by or on behalf of the Company or by or on behalf of Alaska shall bind
and inure to the benefit of their respective successors and assigns, whether so
expressed or not.
9.02. Addresses for Notices, etc. Any notice, demand or other instrument
authorized by this Mortgage to be served on or given to the Company may be
served on or given to the Company at First City Tower, 1001 Fannin, Suite 1700,
Houston, Texas 77002, or at such other address as may have been furnished in
writing to the Mortgagee by the Company.
Any notice, demand or other instrument to be served on or given to Alaska
may be served on or given to Alaska at 3000 Spenard Road, Anchorage, Alaska
99502, or at such other address as may have been furnished in writing to the
Company by Alaska.
9.03. Table of Contents, Headings, etc. The table of contents, the headings
of the Articles, sections, paragraphs and subdivisions of this Mortgage are for
convenience of reference only, are not to be considered a part hereof, and shall
not limit or otherwise affect any of the terms hereof.
9.04. Invalid Provisions to Affect No Others. In case any one or more of
the covenants, agreements, terms or provisions contained in this Mortgage or any
mortgage supplemental hereto or in the Notes shall be invalid, illegal or
unenforceable in any respect, the validity of the remaining covenants,
agreements, terms or provisions contained herein and in the Notes shall be in no
way affected, prejudiced or disturbed thereby.
9.05. Changes, etc. Neither this Mortgage nor any term hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
-43-
<PAGE> 114
9.06. Counterparts of Mortgage. The Mortgage may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
III. MISCELLANEOUS PROVISIONS RELATING TO
EIGHTH SUPPLEMENTAL MORTGAGE.
10.
Miscellaneous Provisions.
10.01. Titles, Headings, etc. The titles and headings of the articles,
sections and subdivisions of this Eighth Supplemental Mortgage have been
inserted for convenience of reference only, are not to be considered a part
hereof, and shall in no way modify or restrict any of the terms or provisions
hereof.
10.02. Counterparts. This Eighth Supplemental Mortgage may be executed in
any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
11.
Real Property Specifically Described.
11.01. Real Property Specifically Described. The real property and
interests referred to in the Granting Clauses of this Eighth Supplemental
Mortgage are set forth in Schedule I attached hereto and made a part hereof for
all purposes.
IN WITNESS WHEREOF, the parties have caused this Eighth Supplemental
Mortgage to be executed by their respective officers thereunto duly authorized,
all as of the day and year first above written.
SEAGULL ENERGY CORPORATION
By: /s/ Barry J. Galt,
Chairman and Chief
Executive Officer
[Corporate Seal]
Attest:
By: /s/ Joe T. Rye, Secretary
-44-
<PAGE> 115
ALASKA PIPELINE COMPANY
By: /s/ Bill B. Hickman,
Executive Vice President
[Corporate Seal]
Attest:
By: /s/ Eugene S. Clark, Secretary
-45-
<PAGE> 116
STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
Before me, the undersigned authority, on this day personally appeared Barry
J. Galt, known to me to be the person whose name is subscribed to the foregoing
instrument, and known to me to be the Chairman and Chief Executive Officer of
Seagull Energy Corporation, a Texas corporation, and acknowledged to me that he
executed said instrument for the purposes and consideration therein expressed,
and in the capacity therein stated, as the free and voluntary act and deed of
the said corporation for the uses and purposes therein mentioned.
Given under my hand and seal of office this 17th day of June, 1985.
/s/ DeBra D. Edwards
Notary Public in and for the
State of Texas
My Commission Expires
April 17, 1989
[Notarial Seal]
STATE OF TEXAS ss.
ss.
COUNTY OF HARRIS ss.
Before me, the undersigned authority, on this day personally appeared Bill
B. Hickman, known to me to be the person whose name is subscribed to the
foregoing instrument, and known to me to be an Executive Vice President of
Alaska Pipeline Company, an Alaska corporation, and acknowledged to me that he
executed said instrument for the purposes and consideration therein expressed,
and in the capacity therein stated, as the free and voluntary act and deed of
the said corporation for the uses and purposes therein mentioned.
Given under my hand and seal of office this 17th day of June, 1985.
/s/ DeBra D. Edwards
Notary Public in and for t
State of Texas
My Commission Expires
April 17, 1989
[Notarial Seal]
-46-
<PAGE> 117
EXHIBIT C
SEAGULL ENERGY CORPORATION
TO
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
THE TRAVELERS INSURANCE COMPANY
AND
THE TRAVELERS LIFE INSURANCE COMPANY
----------------------
INDUCEMENT AGREEMENT
----------------------
Dated as of: June 17, 1985
<PAGE> 118
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Representations by Seagull ...................................... 1
1.1. Incorporation, Standing, etc .................................... 1
1.2. Qualification ................................................... 2
1.3. Authority Binding Effect ........................................ 2
1.4. Financial Statements ............................................ 2
1.5. Changes, etc .................................................... 2
1.6. Litigation, etc ................................................. 3
1.7. Compliance with Other Instruments, etc .......................... 3
1.8. Governmental Consent, etc ....................................... 3
1.9. Title to Properties; Liens ...................................... 3
1.10. Holding Company Act ............................................. 4
1.11. Disclosure ...................................................... 4
2. [Intentionally Omitted.] ........................................ 4
3. Subordination ................................................... 4
4. Financial Statements and Other Information ...................... 7
5. Inspection ...................................................... 8
6. Covenants of Seagull ............................................ 9
6.1. Accounting and Reserves ......................................... 9
6.2. Consolidated Net Tangible Assets ................................ 9
6.3. Insurance ....................................................... 10
6.4. Maintenance of Corporate Existence, Franchises, etc ............. 10
6.5. Maintenance and Improvement of Division Property ................ 10
6.6. Restrictions on Liens, etc ...................................... 11
6.7. Recordation of Intercompany Mortgage ............................ 13
6.8. Performance of Franchises; Extension, Amendment, etc. of Division
Certificate ..................................................... 14
6.9. Gas Sale Contract ............................................... 14
6.10. Sale, Merger and Consolidation .................................. 14
7. Costs and Expenses .............................................. 15
8. Notices etc ..................................................... 15
9. Miscellaneous ................................................... 15
EXHIBIT A - Litigation
</TABLE>
-i-
<PAGE> 119
SEAGULL ENERGY CORPORATION
1001 Fannin, Suite 1700
Houston, Texas 77002
Dated as of: June 17, 1985
The Equitable Life Assurance Society
of the United States
1285 Avenue of the Americas
New York, New York 10019
Attention: Corporate Finance Department
The Travelers Insurance Company
The Travelers Life Insurance Company
One Tower Square
Hartford, Connecticut 06115
Attention: Securities Department
Private Placement Division
Dear Sirs:
You expect to purchase, collectively, $10,000,000 aggregate principal
amount of the 12.125% Series E Notes due July 1, 1990 (the "Series E Notes"),
$14,500,000 aggregate principal amount of the 12.70% Series F Notes due July 1,
1995 (the "Series F Notes"), $3,000,000 aggregate principal amount of the 12.80%
Series G Notes due July 1, 2000 (the "Series G Notes") and $17,500,000 aggregate
principal amount of the 12.75% Series H Notes due July 1, 2000 (the "Series H
Notes" and, together with the Series E, F and G Notes, the "New Notes") of
Alaska Pipeline Company (the "Company"). Such purchases by each of you will be
made pursuant to identical Note Agreements, dated the date hereof, between the
Company and each of you (collectively, the "New Note Agreements"). You
previously purchased the Existing Notes pursuant to one or more of the Existing
Note Agreements (as these and other capitalized terms used herein without
definition are defined in the New Note Agreements). Hereinafter, the New Notes
and the Existing Notes will be collectively referred to as the "Notes" and the
New Note Agreements and the Existing Note Agreements will be collectively
referred to as the "Note Agreements". Seagull Energy Corporation, a Texas
corporation ("Seagull"), has agreed to acquire all of the issued and outstanding
common stock of the Company and the assets and liabilities of the Division
pursuant to a Purchase and Sale Agreement, dated October 10, 1984, between
ENSTAR Corporation ("ENSTAR") and Seagull, as supplemented by a Supplemental
Agreement dated as of May 3, 1985 (the "Acquisition Agreement"). In order to
induce you to enter into the New Note Agreements and to purchase the New Notes
pursuant thereto, and to release certain collateral securing the Existing Notes,
Seagull agrees with each of you as follows:
1. Representations by Seagull. Seagull represents and warrants to you at:
1.1. Incorporation, Standing, etc. Seagull is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Texas and has all requisite corporate power and authority to own and operate
its properties, to carry on its business as now
<PAGE> 120
conducted and as now proposed to be conducted, and to enter into and perform the
Acquisition Agreement and the Seagull Documents.
1.2. Qualification. Seagull is duly qualified or licensed and in good
standing as a foreign corporation duly authorized to do business in the State of
Alaska and in each jurisdiction wherein the character of the properties owned or
the nature of the activities conducted by Seagull makes necessary such
qualification or licensing as a foreign corporation, except for such failures to
be so qualified or licensed and in good standing, if any, which when taken
together would not in the aggregate have a material adverse effect on the
condition, business or property of Seagull.
1.3. Authority Binding Effect. The execution, delivery and performance by
Seagull of the Acquisition Agreement and the Seagull Documents have been duly
authorized by all necessary action on the part of Seagull. This Agreement and
the Acquisition Agreement have been duly executed and delivered by the duly
authorized officers of Seagull and, assuming due authorization, execution and
delivery by the other parties thereto, constitute legal, valid and binding
obligations of Seagull enforceable against Seagull in accordance with their
respective terms. When executed and delivered by Seagull each of the other
Seagull Documents shall have been duly executed and delivered by the duly
authorized officers of Seagull and, assuming due authorization, execution and
delivery by the other parties thereto, shall constitute legal, valid and binding
obligations of Seagull enforceable against Seagull in accordance with their
respective terms.
1.4. Financial Statements. Seagull has delivered to you financial
statements of Seagull for the years ended December 31, 1983 to 1984, inclusive,
and for the quarterly period ended March 31, 1985, containing consolidated
balance sheets of Seagull and its consolidated subsidiaries as at such dates and
the related consolidated statements of income and surplus for such years and for
such quarterly period, all (except such financial statements for such quarterly
period) as certified by Peat, Marwick, Mitchell & Co. Such financial statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved and fairly present
the financial condition and the results of operations of Seagull and its
consolidated subsidiaries as at such dates and for such years and quarterly
period. Seagull has also delivered to you copies of (i) Seagull's Annual Report
on Form 10-K for the year ended December 31, 1984 (the "1984 10-K"), (ii)
Seagull's Quarterly Report on Form 10-Q for the quarter ended March 31, 1985
(the "10Q"), (iii) the Prospectus dated January 15, 1985 relating to the
underwritten public offering by Seagull of 850,000 shares of its common stock
(the "Prospectus"), (iv) the Acquisition Agreement and (v) Seller's Disclosure
Schedule (as defined in the Acquisition Agreement). The 1984 10-K, the 10Q, the
Prospectus, the Acquisition Agreement, Seller's Disclosure Schedule and the
financial statements referred to in this section 1.4 are hereinafter
collectively called the "Disclosure Documents".
1.5. Changes, etc. Since March 31, 1985, there has been no material adverse
change in the financial condition of Seagull and its consolidated subsidiaries,
taken as a whole, from that reflected in the consolidated balance sheet as at
such date referred to in section 1.4, and there has been no occurrence or
development which has had or in the opinion of Seagull will have a materially
adverse effect on the financial condition of Seagull and its consolidated
-2-
<PAGE> 121
subsidiaries, the Company or the Division, or the ability of Seagull to perform
its obligations under the Seagull Documents.
1.6. Litigation, etc. There is no litigation, proceeding or investigation
pending or, to the best of Seagull's knowledge, threatened against Seagull which
questions the validity of the Acquisition Agreement or the Seagull Documents or
any action taken or to be taken pursuant to any thereof. Except as disclosed on
Exhibit A attached hereto, there is no litigation, proceeding or investigation
pending or, to the best of Seagull's knowledge, threatened against Seagull which
involves the condemnation, purchase or other acquisition by any governmental
authority of any property (individually or in the aggregate material) of
Seagull, the Company or the Division or which might result in any materially
adverse change in the condition, business or prospects of Seagull, the Company
or the Division or in any of their respective properties or assets (individually
or in the aggregate material), except as described in the Disclosure Documents.
1.7. Compliance with Other Instruments, etc. The execution, delivery and
performance by the Company of the New Note Agreements or the Gas Contracts, or
by Seagull of the Acquisition Agreement and the Seagull Documents, and the
issuance and sale of the New Notes, will not result in any violation of any term
or condition of (i) the charter or by-laws of Seagull, or (ii) any material
contract, agreement, instrument, judgment, decree, order, franchise,
certificate, permit and the like or, to the actual knowledge of the executive
officers of Seagull, any statute, rule, regulation or ordinance of any court or
governmental authority applicable to Seagull or by which it is bound or to which
any of its properties or assets is subject.
1.8. Governmental Consent, etc. Except for (i) the approval of the PUC to
the transfer of the Division Certificate from ENSTAR to Seagull, (ii) routine
filings and the like required in the ordinary course of business of Seagull, the
Company or the Division, (iii) the approvals, consents, filings and the like
referred to in Part VI of Seller's Disclosure Schedule, (iv) the filing by
Seagull of a report on Form 8-K relating to the closing under the Acquisition
Agreement, and (v) any filings required pursuant to section 6.7 hereof or
referred to in section 9.6 of the Note Agreement, no consent, approval or
authorization of, or registration, declaration or filing with, any governmental
or public body or authority is required in connection with the valid execution,
delivery and performance by Seagull of the Acquisition Agreement and the Seagull
Documents, or the carrying out of any of the transactions contemplated by any
thereof.
1.9. Title to Properties; Liens. Seagull will have, upon the consummation
of the transactions contemplated by the Acquisition Agreement, good and
marketable title to (i) substantially all of the Division's real and personal
property (except for property consisting of rights-of-way, licenses, permits and
franchises, as to which Seagull will have satisfactory title for the purposes of
constructing, operating and maintaining all property located or proposed to be
located on the real property covered thereby), and (ii) all of the issued and
outstanding Common Stock of the Company, in each case subject to no mortgage,
pledge, lien, security interest, lease, charge or encumbrance or conditional
sale or other title retention agreement other than, with respect only to the
Division's real and personal property, those permitted by section 6.6 and other
than, with respect only to such Common Stock, the security interest and
-3-
<PAGE> 122
pledge, if any, securing the indebtedness of Seagull referred to in Section
5.2.3 of the Acquisition Agreement.
1.10. Holding Company Act. Seagull is not, and upon the consummation of the
transactions contemplated by the Acquisition Agreement shall not be, a "holding
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended (the "PUHCA" ore than 10% of the common stock of Seagull is
beneficially owned by Finial Investment Corporation, a Texas corporation
("Finial"), and the Division constitutes a "public utility company" within the
meaning of the PUHCA. On May 23, 1985, Seagull, acting in good faith, filed with
the Securities and Exchange Commission ("SEC") pursuant to Section 2(a)(8) of
the PUHCA, an application (the "Application") for an order to the effect that
Seagull is not a "subsidiary" of Finial within the meaning of the PUHCA. As a
result of such filing, Seagull is not a "subsidiary" of a "holding company" or
an "affiliate" of a "holding company" or of a "subsidiary" of a "holding
company", all within the meaning of the PUHCA. Pursuant to Section 3(c) of the
PUHCA, the non-subsidiary status of Seagull shall continue until the SEC, after
notice and opportunity for hearing, shall enter an order denying or otherwise
disposing of the Application. As of the date hereof, the SEC has not given any
such notice nor has it otherwise acted upon the Application in any respect.
1.11. Disclosure. Neither this Agreement nor any certificate, statement or
other document furnished by or on behalf of Seagull in connection with the
transactions referred to in this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein and therein not misleading. There is no fact known
to Seagull which materially adversely affects or in the future may (so far as
Seagull can now reasonably foresee) materially adversely affect the business
operations, affairs or condition of Seagull, the Company or the Division or any
of its properties or assets (individually or in the aggregate material) which
has not been set forth in this Agreement, or in the other documents,
certificates or statements furnished to you by or on behalf of Seagull prior to
the date hereof pursuant hereto in connection with such transactions.
2. [Intentionally Omitted.]
3. Subordination. All Indebtedness of the Company to Seagull, now existing
or hereafter incurred, including, without limitation, all Indebtedness in
respect of advances, open accounts, accounts payable obligations, loans, notes,
bonds, debentures or other evidences of debt whether for principal, premium, if
any, or interest, and all instruments constituting or evidencing any of the
foregoing, whether or not held by Seagull (the "Subordinated Indebtedness")
shall be subordinate, subject and junior in right of payment to the prior
payment in full of all the Notes in the manner and with the effect provided
below in this section 3:
(a) Upon the happening of an event which would constitute an Event of
Default under any of the Note Agreements (an "Event of Default")
unless and until such Event of Default shall have been remedied or
waived or shall have ceased to exist, no direct or indirect payment
(in cash, property or securities or by set-off or otherwise) shall be
made or agreed to be made on account of the principal of, or premium,
if any, or interest on any Subordinated Indebtedness, or as a sinking
fund for the Subordinated
-4-
<PAGE> 123
Indebtedness, or in respect of any redemption, retirement, purchase or
other acquisition of any of the Subordinated Indebtedness.
(b) In the event of (i) any insolvency, bankruptcy, receivership,
liquidation, reorganization, readjustment, composition or other
similar proceeding relative to the Company, its creditors, as such, or
its property, (ii) any proceeding for the liquidation, dissolution or
other winding-up of the Company, voluntary or involuntary, whether or
not involving insolvency or bankruptcy proceedings, (iii) any
assignment by the Company for the benefit of creditors, or (iv) any
other marshalling of the assets of the Company, then and in any such
event:
(1) the holders of Subordinated Indebtedness shall not be entitled to
receive any payment or distribution of any character, whether in cash,
securities or other property, in respect of any Subordinated
Indebtedness unless and until all the Notes (including any interest
thereon accruing at the legal rate after the commencement of any such
proceedings and any additional interest thereon that would have
accrued thereon but for the commencement of such proceedings) shall
have been paid in full;
(2) all Subordinated Indebtedness shall forthwith become due and
payable (notwithstanding the terms thereof) and any payment or
distribution of any character, whether in cash, securities or other
property, which would otherwise (but for the terms of this section 3)
be payable or deliverable in respect of any Subordinated Indebtedness
shall be paid or delivered directly to the holders of the Notes, to be
applied, pro rata, to the reduction of the then outstanding principal
balance of the Notes until all the Notes shall have been paid in full;
(3) the holders of Subordinated Indebtedness irrevocably authorize and
empower you to demand, sue for, collect and receive all such payments
and distributions and to receipt therefor, and to file and prove all
such claims and take all such other action in the name of the holders
of Subordinated Indebtedness, or otherwise, as you may determine to be
necessary or appropriate for the enforcement of this section 3; and
(4) the holders of Subordinated Indebtedness will execute and deliver
to you all such further instruments confirming the above
authorization, and all such powers of attorney, proofs of claim,
assignments of claim and other instruments, and will take all such
other action as may be reasonably requested by you in order to enable
you to enforce all claims upon such payment or distribution in respect
of Subordinated Indebtedness.
(c) In the event that any Subordinated Indebtedness is declared due
and payable as a result of the occurrence of one or more defaults in
respect thereof under circumstances when the terms of subdivision (b)
are not applicable, no payment shall be made in respect of any
Subordinated Indebtedness unless and until all the Notes outstanding
at the time such Subordinated Indebtedness is so declared due and
payable
-5-
<PAGE> 124
shall have been paid in full or such declaration and its consequences
shall have been rescinded and all such defaults shall have been
remedied or waived or shall have ceased to exist.
(d) If any payment or distribution of any character, whether in cash,
securities or other property in respect of any Subordinated
Indebtedness (other than payments not prohibited pursuant to this
section 3) shall, despite the foregoing terms, be received by any
holders of Subordinated Indebtedness before all the Notes shall have
been paid in full, such payment or distribution shall be received in
trust for the benefit of the holders of the Notes. Such trust and all
claims of the holders of the Notes with respect to any such payment or
distribution received by any holders of Subordinated Indebtedness
shall terminate 365 days following the receipt of such payment or
distribution by such holders of Subordinated Indebtedness unless, (x)
prior to the expiration of such 365-day period, such holders of
Subordinated Indebtedness shall have actual knowledge or should have
had actual knowledge that an Event of Default had occurred and was
continuing under any of the Note Agreements at the time of such
payment or distribution or (y) such Event of Default shall relate to
any act or omission of Seagull or any condition with respect to
Seagull. Unless such trust and such claims shall terminate in
accordance with the prior sentence, each such payment and distribution
so received shall be paid over or delivered and transferred to the
holders of the Notes, and applied, pro rata, to the reduction of the
then outstanding principal balance of the Notes to the extent
necessary to pay all the Notes in full. In the event of the failure of
the holder of any Subordinated Indebtedness to endorse or assign any
such payment, distribution or security, each holder of the Notes is
hereby irrevocably authorized to endorse or assign the same.
(e) No present or future holder of the Notes shall be prejudiced in
the right to enforce subordination of Subordinated Indebtedness by any
act or failure to act on the part of the Company.
(f) The Company will not execute and deliver, issue or give, and
neither Seagull nor any other holder of Subordinated Indebtedness will
demand, accept or receive, any instrument or other evidence of any
Subordinated Indebtedness.
(g) Unless and until all the Notes shall have been paid in full,
neither Seagull nor any other holder of Subordinated Indebtedness will
assign or otherwise transfer any Subordinated Indebtedness without, in
each case, your prior written consent, except that all Subordinated
Indebtedness held by Seagull may be transferred to any corporation
assuming the obligations of Seagull hereunder in accordance with a
transaction permitted by section 6.
(h) Seagull and the Company will each mark its books of account in
such manner as shall be effective to give proper notice of the
subordination effected by this Agreement.
(i) This Agreement shall continue to be effective, or be reinstated,
as the case may be, if at any time payment, in whole or in part, of
any of the sums due any holder of the Notes for principal, interest or
premium, if any, is rescinded or must otherwise
-6-
<PAGE> 125
be restored or returned by such holder upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Company, or upon or
as a result of the appointment of a custodian, receiver, liquidator,
fiscal agent, trustee or other officer with similar powers with respect
to the Company or any substantial part of its property, or otherwise,
all as though such payments had not been made. For the purposes of this
Agreement, no Note shall be deemed to have been paid in full unless the
holder thereof shall have received (free and clear of any lien, charge
or encumbrance created by or through the Company), cash equal to the
principal amount of such Note at the time remaining unpaid, together
with interest, and premium, if any, then due thereon, and none of such
cash shall be required to be restored or returned by such holder for a
reason set forth above or for any other reason.
(j) Upon the payment in full of all the Notes, the holders of
Subordinated Indebtedness shall be subrogated to all rights of any
holders of the Notes to receive any further payments or distributions
applicable to the Notes until the Subordinated Indebtedness shall have
been paid in full, and for the purposes of such subrogation, no
payment or distribution received by the holders of the Notes of cash,
securities or other property to which the holders of the Subordinated
Indebtedness would have been entitled except for these subordination
provisions shall, as between the Company and its creditors other than
the holders of the Notes, on the one hand, and the holders of
Subordinated Indebtedness, on the other, be deemed to be a payment or
distribution by the Company to or on account of the Notes.
4. Financial Statements and Other Information. Seagull will deliver (in
duplicate) to you, so long as you shall hold any Notes, and to each other holder
of at least 10% in principal amount of any Series of the Notes at the time
outstanding:
(a) as soon as available and in any event within 60 days after the end
of the first, second and third quarterly accounting periods in each
fiscal year of Seagull, a balance sheet of the Division and a
consolidated balance sheet of Seagull and its consolidated
subsidiaries as at the end of such period and the related statements
of income and surplus and changes in financial position of the
Division and consolidated statements of income and surplus and changes
in financial position of Seagull and its consolidated subsidiaries for
the period from the beginning of the current fiscal year to the end of
such quarterly period, setting forth in each case in comparative form
the figures for the corresponding periods of the previous year, all in
reasonable detail and certified, subject to changes resulting from
year-end audit adjustments, by a principal financial officer of
Seagull;
(b) as soon as available and in any event within 90 days after the end
of each fiscal year of Seagull, a balance sheet of the Division and a
consolidated balance sheet of Seagull and its consolidated
subsidiaries as at the end of such fiscal year and the related
statements of income and surplus and changes in financial position of
the Division and consolidated statements of income and surplus and
changes in financial position of Seagull and its consolidated
subsidiaries for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all in
reasonable
-7-
<PAGE> 126
detail and accompanied by the report and opinion thereon of
independent public accountants of recognized national standing
selected by Seagull;
(c) together with each delivery of financial statements pursuant to
subdivisions (a) and (b) above, an Officer's Certificate (i) stating
that the signer has reviewed the relevant terms of the Seagull
Documents, and has made, or caused to be made under his supervision, a
review of the transactions and conditions of the Division and of
Seagull and its consolidated subsidiaries during the period in
question, and that such review has not disclosed the existence during
such period, and that the signer did not have knowledge of the
existence as at the date of such Officer's Certificate, of any default
by Seagull under any Seagull Documents or, if any such default existed
or exists, specifying the nature and period of existence thereof and
what action Seagull has taken or is taking or proposes to take with
respect thereto, and (ii) specifying the amount of Consolidated Net
TangibIe Assets as at the end of such period, showing in reasonable
detail the calculation thereof;
(d) together with each delivery of financial statements pursuant to
subdivision (b) above, a separate report by the independent public
accountants reporting thereon (i) stating that their examination has
included a review of the relevant terms of the Seagull Documents, as
they relate to accounting matters, and (ii) stating whether or not
their examination has disclosed the existence, during or as as the end
of the fiscal year covered by such financial statements, of any
default under any Seagull Document and, if their examination has
disclosed such a default, specifying the nature and period of
existence thereof;
(e) promptly upon transmission thereof, copies of each report on
Federal Energy Regulatory Commission Form 2 (or similar report) filed
by Seagull with the PUC or any governmental authority succeeding to
any of its functions (and, to the extent requested by you or such
holder, copies of all regular and periodic reports filed by Seagull
with the PUC or any governmental authority succeeding to any of its
functions) and copies of all regular and periodic reports filed by
Seagull with any securities exchange or with the Securities and
Exchange Commission or any governmental authority succeeding to any of
its functions; and
(f) with reasonable promptness, such other financial data and
information as from time to time may be reasonably requested.
5. Inspection. At any and all reasonable times, Seagull will permit any
registered holder of at least 10% of the aggregate principal amount of any
series of the Notes then outstanding, or any agents or representatives
designated by it, to examine all the books of account, records, reports and
other papers of Seagull and of the Division (and to make copies and extracts
therefrom), to inspect any property of Seagull and of the Division and to
discuss the business and affairs of Seagull and of the Division with its and
their officers and independent public accountants; provided, however, that
Seagull shall have no obligation to provide access to (i) trade secrets, (ii)
proprietary information of Seagull or any of its subsidiaries (other than the
Division), (iii) any information covered by a confidentiality restriction or
covenant entered into in good faith and applicable to Seagull or any of its
-8-
<PAGE> 127
Subsidiaries (other than the Division) or (iv) any information (including,
without limitation, Seagull's shareholder lists) not relating to the Division
and not reasonably related to the performance by Seagull of its obligations
under the Seagull Documents.
6. Covenants of Seagull.
6.1. Accounting and Reserves. Seagull will (a) maintain a standard and
uniform system of accounting and keep proper books of record and account in
which full, true and correct entries will be made of its transactions and,
separately, transactions of the Division, all in accordance with generally
accepted accounting principles or, in the case of the Division, Required
Accounting Practice, and (b) set aside on its books and on the books of the
Division for each fiscal year all such proper reserves for depreciation,
depletion, obsolescence, amortization, bad debts and other purposes in
connection with its business and the business of the Division as shall be
required by Required Accounting Practice.
6.2. Consolidated Net Tangible Assets. Seagull shall at all times maintain
Consolidated Net Tangible Assets in an amount at least equal to $55,000,000. For
purposes of this Agreement, Consolidated Net Tangible Assets shall mean, as
applied to Seagull and its consolidated subsidiaries at any date, the gross book
value of all assets (exclusive of franchises, licenses, permits, patents, patent
applications, copyrights, trademarks, trade names, good will, experimental and
organizational expense and other like intangibles, treasury shares and
unamortized debt discount) properly appearing on a consolidated balance sheet of
Seagull and its consolidated subsidiaries as at such date prepared in accordance
with generally accepted accounting principles on a consolidated basis after
eliminating all intercompany items, less the sum (without duplication) of:
(a) the amount included in such assets of any write-up subsequent to
December 31, 1984 in the book value of any asset owned by Seagull or
any consolidated subsidiary on such date resulting from the
revaluation thereof subsequent to such date, or any write-up in excess
of cost of any asset acquired subsequent to such date;
(b) all reserves for depreciation, depletion, obsolescence and
amortization of properties (other than those excluded as hereinabove
provided) as shown in such balance sheet and all other proper reserves
(other than general contingency reserves and reserves representing
mere appropriations of surplus) which in accordance with generally
accepted accounting principles should be set aside in connection with
the business conducted;
(c) all liabilities (including tax and other proper accruals) which
would, in accordance with generally accepted accounting principles, be
classified as current liabilities of Seagull and its consolidated
subsidiaries (including current maturities of Funded Debt); and
(d) the amount included in such assets of the excess, if any, of (i)
the cost of any assets acquired by Seagull or any of its consolidated
subsidiaries subsequent to December 31, 1984 upon the consolidation or
merger of any other corporation with or into Seagull or any of its
consolidated subsidiaries or upon the acquisition by Seagull or
-9-
<PAGE> 128
any of its consolidated subsidiaries of all or substantially all of
the assets of any other corporation, over (ii) the book value of such
assets on the books of such other corporation at the time of such
consolidation, merger or acquisition (other than the write-up of the
book value of an asset made in accordance with generally accepted
accounting principles in connection with the acquisition of such
asset).
6.3. Insurance. Seagull will keep or cause to be kept all of its and its
Subsidiaries' property, directly relating to or used or useful or intended for
use in the business of the Division and of a character usually insured by
companies of established reputation similarly situated insured by reputable
insurance companies or associations of high standing against loss or damage by
fire and such other hazards and risks (including, without limitation, public
liability, workmen's compensation and war risks and earthquake risks, if and to
the extent war risk and earthquake risk insurance is at the time generally
available) as are customarily insured against by companies of established
reputation similarly situated, in such amount as such property and business is
usually insured by such companies. Seagull will comply with all the terms and
conditions of all insurance policies with respect to such property and business
or any part thereof and with all requirements of Boards of Underwriters or
similar bodies applicable thereto.
6.4. Maintenance of Corporate Existence, Franchises, etc. Restrictions on
Business. (a) Seagull will at all times maintain and keep and cause to be
maintained and kept in full force and effect its corporate existence, good
standing, franchises, rights and privileges as a foreign corporation under the
laws of the State of Alaska and its qualification and good standing as a foreign
corporation in each jurisdiction wherein the character of the properties owned
or the nature of the activities conducted makes such qualification or licensing
necessary, except where any such failure to maintain franchises, rights and
privileges in such jurisdictions could not be reasonably expected (in the
judgment of Seagull's executive officers) to have a material adverse effect on
Seagull, the Division or the Company; provided, however, that nothing in this
paragraph shall prohibit Seagull from merging or consolidating with any entity
(whether as the surviving or resulting corporation or not) to the extent
permitted by section 6.10.
(b) The Division will not engage in any business other than the
construction, ownership, operation and maintenance of systems for the
distribution of natural, manufactured or mixed gas, and activities
incidental to the foregoing.
6.5. Maintenance and Improvement of Division Property. Seagull will at all
times maintain, preserve and keep all of its property used or useful or intended
for use in the Division's business and all of the Division's property in proper
repair, working order and condition, and make all necessary or appropriate
repairs, renewals, replacements, additions, betterments and improvements to such
property, so that the efficiency of all such property shall at all times be
properly preserved and maintained, provided that Seagull need not make such
repair, renewal, replacement, addition, betterment or improvement if Seagull
shall in good faith determine that such repair, renewal, replacement, addition,
betterment or improvement is not necessary or desirable for the continued
efficient and profitable operation of the Division's properties and business.
-10-
<PAGE> 129
6.6. Restrictions on Liens, etc. Seagull will not directly or indirectly
create, assume or suffer to exist any mortgage, lien, pledge, charge or
encumbrance on or conditional sale or other title retention arrangement with
respect to any property or asset of the Division, whether owned on the date of
delivery hereof or subsequently acquired, or upon any income or profits
therefrom, other than:
(a) the lien of the Intercompany Mortgage;
(b) liens of taxes, assessments and governmental charges not yet
payable, or payable without penalty so long as so payable, or deposits
created in the ordinary course of business of the Division as security
for compliance with laws imposing taxes, assessments or governmental
charges;
(c) liens of taxes, assessments and governmental charges the validity
of which are being contested in good faith by appropriate action
promptly initiated and diligently conducted, if such reserve or other
appropriate provision, if any, as shall be required by Required
Accounting Practice shall have been made therefor;
(d) carriers', warehousemen's, materialmen's, mechanics', repairmen's,
employees' or other similar liens for services arising in the ordinary
course of the business of the Division not yet due or being contested
in good faith by appropriate action promptly initiated and diligently
conducted, if such reserve or other appropriate provision, if any, as
shall be required by Required Accounting Practice shall have been made
therefor;
(e) liens incurred or deposits made in the ordinary course of the
business of the Division in connection with workmen's compensation,
unemployment insurance and other social security, or to secure the
performance of leases (provided that all such liens incurred and
deposits made in connection with such leases do not at any time exceed
$250,000), tenders, statutory obligations, surety and appeal bonds,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations incurred in connection with the borrowing of
money or the obtaining of advances or credit);
(f) any judgment lien, unless the judgment it secures shall not,
within 30 days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall not have been
discharged within 30 days after the expiration of any such stay;
(g) leases granted in the ordinary course of the business of the
Division or leases to which any property acquired in the ordinary
course of the business of the Division is subject;
(h) encumbrances (other than to secure the payment of money),
easements, rights-of-way, servitudes, permits, reservations, leases
and other rights in respect of gravels, minerals, oil, gases or water
or in respect of grazing, logging, mining, canals, ditches, reservoirs
or the like, conditions, covenants, party wall agreements or other
restrictions, or easements for streets, alleys, highways, pipe lines,
telephone lines, power
-11-
<PAGE> 130
lines, railways and other rights-of-way, on, over or in respect of
property (other than property used or to be used primarily for
compressor stations) owned by Seagull or over which Seagull owns
rights-of-way, easements, permits or licenses, provided that such
encumbrances, easements, rights-of-way, servitudes, permits,
reservations, leases, rights, conditions, covenants, party wall
agreements or other restrictions are such that they will not either
individually or in the aggregate, if exercised or availed of,
interfere materially with the proper use or operation of the property
affected thereby for the purpose for which such property is or is to
be used, and provided, further, that, in the case of such of the same
as relate only to property on, over or in respect of which Seagull
owns rights-of-way or easements exclusively for pipe line purposes or
locations for regulator stations or other pipe line facilities (other
than compressor stations), Seagull has power under eminent domain or
similar statutes to remove the same;
(i) rights reserved to or vested in any municipality or public
authority to control or regulate any property of Seagull or to use
such property in any manner which does not materially impair the use
of such property for the purposes for which it is held;
(j) obligations or duties, affecting the property of Seagull, to any
municipality or public authority with respect to any certificate of
public convenience or necessity, franchise, grant, license or permit
which do not materially impair the use of such property for the
purposes for which it is held;
(k) zoning laws and ordinances;
(l) irregularities in or deficiencies of title to any rights-of-way,
licenses or permits for pipe lines, telephone lines, power lines,
water lines and/or appurtenances thereto or other improvements
thereon, and to any real estate used or to be used primarily for
right-of-way purposes or for regulator stations or other pipe line
facilities (other than compressor stations), provided that Seagull
shall have obtained from the apparent owner of the land or estate
covered by any such right-of-way, license or permit, and shall hold as
an asset of the Division a sufficient right, by the terms of the
instrument granting such right-of-way, license or permit to the use
thereof for the construction, operation or maintenance of the lines,
appurtenances or improvements for which the same is used or is to be
used, and provided, further, that Seagull has power under eminent
domain or similar statutes to remove such irregularities or
deficiencies;
(m) reservations and other matters relating to titles to leases and
leasehold interests in oil and gas properties and the lands covered
thereby, if such reservations and other matters do not, in the
aggregate, materially affect the marketability of the title thereto,
and do not materially impair the use of such leases or leasehold
interests for the purposes for which they are held or the value of the
interest therein;
(n) liens and other encumbrances incurred in connection with
Indebtedness of Seagull not in excess of $10,000,000 at any time
outstanding issued by a municipality or development corporation to
finance the acquisition and construction of the property subject to
such lien to be used by the Company or a Subsidiary thereof, the
interest on which is exempt from federal income tax under section
103(b) of the Code; and
-12-
<PAGE> 131
(o) purchase money mortgages, liens or security interests in respect
of property held as an asset of the Division either acquired by
Seagull or upon which Seagull is constructing improvements after the
date of this Agreement, or mortgages, liens or security interests
existing in respect of such property at the time of acquisition
thereof, securing Indebtedness of Seagull, provided that (i) no such
mortgage, lien or security interest shall extend to or cover any other
property, or secure any other Indebtedness of Seagull, (ii) the
aggregate principal amount of all Indebtedness of Seagull secured by
all such mortgages, liens and security interest shall not exceed
$2,500,000 at any time outstanding, and (iii) the aggregate principal
amount of all Indebtedness secured by all such mortgages, liens or
other security interests in respect of any such property shall not
exceed 90% of the cost or fair market value (as determined by Seagull
in good faith), whichever shall be lower, of such property at the time
of the acquisition thereof by Seagull.
Seagull will not sign or file in any state or other jurisdiction a financing
statement under the Uniform Commercial Code with respect to any such property or
asset or sign any security agreement with respect to any such property or asset
authorizing any secured party thereunder to file any such financing statement,
except, in any such case, a financing statement filed or to be filed to perfect
or protect a security interest which Seagull is entitled to create, assume or
incur, or permit to exist, under this section 6.6.
6.7. Recordation of Intercompany Mortgage. Seagull, at its expense, will at
all times cause the Intercompany Mortgage and any instruments amendatory thereof
or supplemental thereto and any instruments of assignment thereof (and any
appropriate financing statements or other instruments and continuations thereof
with respect to any thereof) to be recorded, registered and filed and to be kept
recorded, registered and filed in such manner and in such places, and will pay
all such recording, registration, filing fees and other charges, and will comply
with all such statutes and regulations as may be required by law in order to
establish, preserve, perfect and protect the lien of the Intercompany Mortgage
as a valid, direct first mortgage lien on and first priority perfected security
interest in the property subject thereto, subject only to any encumbrances
permitted thereby. Seagull will pay or cause to be paid all taxes (including
interest and penalties) at any time payable in connection with the filing and
recording of the Intercompany Mortgage and any and all supplements and
amendments thereto. Seagull, at its expense, will execute and deliver to the
Company (and will record) an instrument supplemental to the Intercompany
Mortgage, whenever such an instrument is necessary or desirable under applicable
law to subject to the lien of the Intercompany Mortgage all right, title and
interest of the Division in and to all property required by the Intercompany
Mortgage to be subject to the lien thereof and acquired by the Division since
the date of the Intercompany Mortgage or the date of the most recent
supplemental instrument so subjecting property to the lien thereof, whichever is
later. Seagull, at its expense, will furnish to the holders of the Notes upon
request from any holder of at least 10% of the aggregate principal amount of any
Series of Notes then outstanding, an opinion of counsel reasonably satisfactory
to you specifying the action taken by Seagull to comply with this section 6.7
since the date of the most recent opinion furnished pursuant to this section 6.7
(or, if no opinion has been so furnished, since the date hereof), stating that
in the opinion of such counsel such action has been duly taken and stating that
no other action is at the time required to be taken pursuant to this section 6.7
or if any such action is then required, specifying the same; provided, however,
-13-
<PAGE> 132
that in no event shall Seagull be required to furnish more than one such opinion
of counsel during any 12-month period.
6.8. Performance of Franchises; Extension, Amendment, etc. of Division
Certificate. (a) Seagull will at all times perform and observe all of the
material covenants, agreements, terms, conditions and limitations contained in
the Division Certificate and all other franchises for the distribution of gas at
the time held by the Division or held by Seagull and directly relating to or
used or useful or intended for use in the operations of the Division, and do all
things necessary to keep unimpaired all of Seagull's rights thereunder and to
prevent any default by Seagull thereunder or any forfeiture or impairment
thereof.
(b) Seagull will not cancel or terminate, or permit the cancellation
or termination of, or default under, or make or agree to any
amendment, modification or alteration which would result in a material
adverse change in the rights of Seagull under the Division
Certificate.
6.9. Gas Sale Contract. Seagull will not assign, pledge, mortgage or
otherwise hypothecate, or permit the assignment, pledge, mortgage or
hypothecation of, any of its right, title or interest in, to or under the Gas
Sale Contract. Seagull will at all times perform and observe all the covenants,
agreements, terms, conditions and limitations applicable to it contained in the
Gas Sale Contract and will do all things necessary to keep unimpaired all its
rights under the Gas Sale Contract and to prevent any default thereunder or any
forfeiture or impairment thereof; and, without limitation, Seagull, subject to
delays resulting from disputes in good faith and to adverse claims of
independent third parties, will promptly make the payments to the Company
specified in the Gas Sale Contract. Seagull will not amend, modify, supplement,
surrender, cancel, terminate or replace or in any way waive any covenant,
agreement, term, condition or limitation of the Gas Sale Contract, except that
Seagull may amend, modify or supplement the Gas Sale Contract if such amendment,
modification or supplement does not contravene the provisions of Article IV or
Article V (as amended on the date hereof pursuant to section 3.5 of the New Note
Agreements) and if, in the good faith judgment of Seagull, such amendment,
modification or supplement is desirable in, or will not have a material adverse
effect on, the business of the Division and will not be in any way prejudicial
to the holders of the Notes.
6.10. Sale, Merger and Consolidation. Seagull will not directly or
indirectly sell, transfer or otherwise dispose of all or substantially all of
its properties and assets, or merge into or consolidate with any other
corporation, or permit any other corporation to consolidate with or merge into
it, unless (a) such sale of properties and assets, or such merger, as the case
may be, effects the transfer of the properties and assets of the Division and
all of the then issued and outstanding Common Stock of the Company as a unit to
the acquiring or surviving Person or results in the retention of the same, as a
unit, by Seagull, (b) if such properties and assets are so transferred, the
acquiring or surviving Person shall be a corporation incorporated under the laws
of the United States of America or any state thereof and (if other than Seagull)
shall expressly assume in writing all obligations of Seagull under the Seagull
Documents and (c) immediately after giving effect to such action (and, if
applicable, such assumption) no default shall exist under any Seagull Document,
provided that no such sale, transfer or other disposition of all or
substantially all of the properties and assets of Seagull shall release Seagull
from any
-14-
<PAGE> 133
of its obligations hereunder or under the Intercompany Notes or the Intercompany
Mortgage. Except as provided in the prior sentence, Seagull will not directly or
indirectly sell, transfer or otherwise dispose of all or substantially all of
the properties and assets of the Division.
7. Costs and Expenses. Seagull will pay (or provide reimbursement for) all
costs and expenses (including, without limitation, attorneys' fees and expenses)
reasonably incurred by or on behalf of any holder of the Notes in enforcing the
obligation of Seagull under this Agreement or in connection with any amendment,
modification or waiver of this Agreement.
8. Notices etc. Any notice or other communication hereunder shall be in
writing and shall be deemed to have been properly given when a single copy
thereof shall have been delivered or mailed by first class registered or
certified mail, postage prepaid, addressed (a) if to the holder of any Note at
the last address of such holder appearing on the registration books of the
Company maintained pursuant to the Note Agreements, or at such other address as
such holder shall have furnished to the Company and Seagull in writing, or (b)
if to the Company, at 3000 Spenard Road, Anchorage, Alaska, or at such other
address as the Company shall have furnished to Seagull and each holder of a Note
in writing, with a copy to Seagull, or (c) if to Seagull, at 1001 Fannin, Suite
1700, Houston, Texas 77002, or at such other address as Seagull shall furnish to
the Company and each holder of a Note in writing.
9. Miscellaneous. This Agreement may be changed, waived, discharged or
terminated only by an instrument in writing signed by the Company, Seagull and,
so long as any of the Notes remain unpaid, by the holders of 66 2/3% in
principal amount of the Notes at the time outstanding. Any change, waiver,
discharge or termination pursuant to the preceding sentence shall apply equally
to all holders of the Notes and shall be binding upon them, upon each future
holder of any Note and upon Seagull and the Company. This Agreement shall be
binding upon the respective successors and assigns of the Company and Seagull
and shall inure to the benefit of you and each other holder of Notes and shall
be enforceable by each of you, so long as you shall hold any Notes, and by each
other holder of at least 10% in principal amount of any Series of the Notes at
the time outstanding. This Agreement shall be construed in accordance with and
governed by the laws of the State of New York. This Agreement embodies the
entire agreement and understanding between you and Seagull and supersedes all
prior agreements and understandings relating to the subject matter hereof. The
headings in this Agreement are for the purpose of reference only and shall not
limit or otherwise affect the meaning hereof. Nothing contained herein shall be
construed to constitute a guarantee by Seagull of the Notes or of the payment by
the Company of any principal, premium or interest due or to become due thereon.
This Agreement may be executed in any number of counterparts, each of which is
an original, but all of which shall constitute one instrument.
-15-
<PAGE> 134
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterparts of this letter, whereupon this letter
shall become a binding agreement between you and Seagull. Please then return one
of such signed counterparts to Seagull.
Very truly yours,
SEAGULL ENERGY CORPORATION
By /s/ Barry J. Galt
Title: Chairman and Chief Executive
Officer
The Company hereby acknowledges receipt of this Inducement Agreement and agrees
to perform and observe all the provisions therein relating to the Company.
ALASKA PIPELINE COMPANY
By /s/ Bill B. Hickman
Executive Vice President
The foregoing Agreement is hereby agreed to as of the date hereof.
THE EQUITABLE LIFE ASSURANCE SOCIETY
OF THE UNITED STATES
By /s/ John D. Miller
Title: Vice President
THE TRAVELERS INSURANCE COMPANY
By /s/ Teresa M. Torrey
Title: Investment Officer
THE TRAVELERS LIFE INSURANCE COMPANY
By /s/ Teresa M. Torrey
Title: Investment Officer
-16-
<PAGE> 1
EXHIBIT 4.10
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT ("Fourth Amendment")
effective as of January 12, 1996 (the "Fourth Amendment Effective Date") is
made and entered into by and among SEAGULL ENERGY CANADA LTD. (the "Borrower"),
a corporation duly organized and validly existing under the laws of the
Province of Alberta, Canada, the banking institutions from time to time a party
to the Credit Agreement (as hereinafter defined) as amended by this Fourth
Amendment (each, together with its successors and assigns, a "Bank" and
collectively, the "Banks"), CHEMICAL BANK OF CANADA, as arranger and as
administrative agent for the Banks (in such capacity, the "Administrative
Agent"), THE BANK OF NOVA SCOTIA, as paying agent and co-agent for the Banks
(in such capacity, the "Paying Agent"), and CANADIAN IMPERIAL BANK OF COMMERCE
(in such capacity, the "Co-Agent"), as co-agent for the Banks.
RECITALS
WHEREAS, the Borrower, the Administrative Agent, the Paying Agent, the
Co-Agent and the Banks are parties to a Credit Agreement dated as of December
30, 1993, as amended by the First Amendment to Credit Agreement dated as of May
24, 1994, the Second Amendment to Credit Agreement dated as of June 30, 1994
and the Third Amendment to Credit Agreement dated as of March 10, 1995
(collectively, the "Credit Agreement"); and
WHEREAS, the Borrower, the Administrative Agent, the Paying Agent, the
Co-Agent and the Banks have agreed, on the terms and conditions herein set
forth, that the Credit Agreement be amended in certain respects;
NOW, THEREFORE, IT IS AGREED:
Section 1. Definitions. Terms used herein which are defined in the
Credit Agreement shall have the same meanings when used herein unless otherwise
provided herein.
Section 2. Waiver of Default. The Administrative Agent, the Paying
Agent, the Co-Agent and the Banks hereby waive any default occurring before the
effectiveness of this Fourth Amendment and resulting from a breach of Section
10.2 of the Credit Agreement with respect to liens held by third parties
relating to any margin account balances of the Parent or any of its
Subsidiaries with respect to exchange traded contracts for the delivery of
natural gas, where such margin account balances exceed in the aggregate, and
together with debt secured by liens not otherwise permitted under Section 10.2
of the Credit Agreement, U.S. $3,000,000.
Section 3. Amendments to the Credit Agreement. On and after the Fourth
Amendment Effective Date, the Credit Agreement shall be amended as follows:
Section 10.2 of the Credit Agreement is hereby amended by deleting the
word "and" following the semi-colon at the end of clause (x), changing the
period (.) at the end of clause (y) to a semi-colon (;) and inserting the word
"and" after such semi-colon and by adding a new clause (z), such clause (z) to
read in its entirety as follows:
<PAGE> 2
(z) Liens (i) granted to or existing in favor of third
parties on margin accounts of the Parent or any of its Subsidiaries
relating to exchange traded contracts for the delivery of natural
gas pursuant to which the Parent or any such Subsidiary intends to
take actual delivery of such natural gas within forty (40) days
from the then current date in the ordinary course of business and
not for speculative purposes, and (ii) on margin accounts of the
Parent or any of its Subsidiaries relating to exchange traded
contracts for the delivery of natural gas, provided, however, the
aggregate balance of the margin accounts subject to the Liens
permitted by this clause (ii) shall not exceed from time to
time U.S. $10,000,000.
Section 4. Limitations. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Credit Agreement or any
of the other Loan Documents (except as specifically set forth in Section 2 of
this Fourth Amendment), or (b) except as expressly set forth herein, prejudice
any right or rights which the Banks may now have or may have in the future
under or in connection with the Credit Agreement, the Loan Documents or any of
the other documents referred to therein. Except as expressly modified hereby or
by express written amendments thereof, the terms and provisions of the Credit
Agreement, the Notes, and any other Loan Documents or any other documents or
instruments executed in connection with any of the foregoing are and shall
remain in full force and effect. In the event of a conflict between this Fourth
Amendment and any of the foregoing documents, the terms of this Fourth
Amendment shall be controlling.
Section 5. Payment of Expenses. The Borrower agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save
the Agents harmless from and against liability for the payment of all
reasonable substantiated out-of-pocket costs and expenses arising in connection
with the preparation, execution, delivery, amendment, modification, waiver and
enforcement of, or the preservation of any rights under this Fourth Amendment,
including, without limitation, the reasonable fees and expenses of any local or
other counsel for the Administrative Agent, and all stamp taxes (including
interest and penalties, if any), recording taxes and fees, filing taxes and
fees, and other charges which may be payable in respect of, or in respect of
any modification of, the Credit Agreement and the other Loan Documents. The
provisions of this Section shall survive the termination of the Credit
Agreement and the repayment of the Loans.
Section 6. Governing Law. THIS FOURTH AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS (OTHER THAN THE CONFLICT
OF LAWS RULES) OF THE PROVINCE OF ALBERTA AND OF CANADA FROM TIME TO TIME IN
EFFECT.
Section 7. Descriptive Headings, etc. The descriptive headings of the
several Sections of this Fourth Amendment are inserted for convenience only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 8. Entire Agreement. This Fourth Amendment and the documents
referred to herein represent the entire understanding of the parties hereto
regarding the subject matter hereof and supersede all prior and contemporaneous
oral and written agreements of the parties hereto with respect to the subject
matter hereof, including, without limitation, any commitment letters regarding
the transactions contemplated by this Fourth Amendment.
2
<PAGE> 3
Section 9. Counterparts. This Fourth Amendment may be executed in any
number of counterparts and by different parties on separate counterparts and
all of such counterparts shall together constitute one and the same instrument.
Section 10. Amended Definitions. As used in the Credit agreement
(including all Exhibits thereto) and all other instruments and documents
executed in connection therewith, on and subsequent to the Fourth Amendment
Effective Date the term "Agreement" shall mean the Credit Agreement as amended
by this Fourth Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be duly executed and delivered by their respective duly authorized
offices and effective as of the date first above written.
SEAGULL ENERGY CANADA LTD.,
a Texas corporation
By: /s/ ROBERT W. SHOWER
----------------------------
Robert W. Shower
Vice Chairman and
Chief Financial Officer
3
<PAGE> 4
CHEMICAL BANK OF CANADA
individually and as Arranger
and as Administrative Agent
By: /s/ DAVID MCGORMAN
---------------------------------
Name: David McGorman
Title: Vice President
By: /s/ DALE G. BLUE
---------------------------------
Name: Dale G. Blue
Title:
THE BANK OF NOVA SCOTIA, as Paying
Agent, as Co-Agent and as a Bank
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
CANADIAN IMPERIAL BANK OF COMMERCE,
as Co-Agent and as a Bank
By: /s/ CAROL D. ROGERS
---------------------------------
Name: Carol D. Rogers
Title: Director
4
<PAGE> 5
ABN AMRO BANK CANADA
By: /s/ ROBERT DUFFIELD
---------------------------------
Name: Robert Duffield
Title: Vice President
By: /s/ P.K. CHAN
---------------------------------
Name: P.K. Chan
Title: Vice President, Credit
PARIBAS BANK OF CANADA
By: /s/ JOHN PLANT
---------------------------------
Name: John Plant
Title: Vice President
By:
---------------------------------
Name:
Title:
MELLON BANK CANADA
By: /s/ J.L. CAVANAUGH
---------------------------------
Name: J.L. Cavanaugh
Title: Vice President
5
<PAGE> 6
NBD BANK, CANADA
By: /s/ J.S. BEADLE
-----------------------------------
Name: J.A. Beadle
Title: Assistant Vice President
By: /s/ J.A. HYNES
-----------------------------------
Name: J.A. Hynes III
Title: Vice President
SOCIETE GENERALE (CANADA)
By
-----------------------------------
Name:
Title:
THE BANK OF TOKYO CANADA
By:
-----------------------------------
Name:
Title:
CREDIT LYONNAIS CANADA
By:
-----------------------------------
Name:
Title:
6
<PAGE> 7
BANK OF MONTREAL
By: /s/ ROBERT J. ROBERTS
-----------------------------------
Name: Robert J. Roberts
Title: Director, U.S. Corporate Banking
<PAGE> 8
The undersigned hereby joins in the execution of this Fourth Amendment
to evidence its consent hereto and its acknowledgment that the Guarantee shall
continue to apply to the Credit Agreement, as amended hereby.
SEAGULL ENERGY CORPORATION
By: /s/ ROBERT W. SHOWER
---------------------------------
Robert W. Shower
Executive Vice President and
Chief Financial Officer
7
<PAGE> 1
EXHIBIT 4.17
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT ("Third Amendment") effective
as of January 12, 1996 (the "Third Amendment Effective Date") is made and
entered into by and among SEAGULL ENERGY CORPORATION (the "Borrower"), a Texas
corporation, the banking institutions from time to time a party to the Credit
Agreement (as hereinafter defined) as amended by this Third Amendment (each,
together with its successors and assigns, a "Bank" and collectively, the
"Banks"), TEXAS COMMERCE BANK NATIONAL ASSOCIATION, individually and as
administrative agent for the Banks (in such capacity, the "Administrative
Agent") and CHEMICAL BANK, as auction agent.
RECITALS
WHEREAS, the Borrower, the Administrative Agent and the Banks are
parties to a Credit Agreement dated as of May 24, 1994, as amended pursuant
to a First Amendment to Credit Agreement dated as of June 30, 1994 and a
Second Amendment to Credit Agreement dated as of March 10, 1995
(collectively, the "Credit Agreement"); and
WHEREAS, the Borrower, the Administrative Agent and the Banks have
agreed, on the terms and conditions herein set forth, that the Credit Agreement
be amended in certain respects;
NOW, THEREFORE, IT IS AGREED:
Section 1. Definitions. Terms used herein which are defined in the
Credit Agreement shall have the same meanings when used herein unless otherwise
provided herein.
Section 2. Waiver of Default. The Administrative Agent and the Banks
hereby waive any default occurring before the effectiveness of this Third
Amendment and resulting from a breach of Section 10.2 of the Credit Agreement
by the Borrower with respect to liens held by third parties relating to any
margin account balances of the Borrower or any of its Subsidiaries with respect
to exchange traded contracts for the delivery of natural gas, where such margin
account balances exceed in the aggregate, and together with debt secured by
liens not otherwise permitted under Section 10.2 of the Credit Agreement,
$3,000,000.
Section 3. Amendments to the Credit Agreement. On and after the Third
Amendment Effective Date, the Credit Agreement shall be amended as follows:
Section 10.2 of the Credit Agreement is hereby amended by deleting the
word "and" following the semi-colon at the end of clause (y), changing the
period (.) at the end of clause (z) to a semi-colon (;) and inserting the word
"and" after such semi-colon and by adding a new clause (aa), such clause (aa)
to read in its entirety as follows:
(aa) Liens (i) granted to or existing in favor of third
parties on margin accounts of the Company or any of its
Subsidiaries relating to exchange traded contracts for the delivery
of natural gas pursuant to which the Company or any such Subsidiary
intends to take actual delivery of such natural gas within forty
(40) days from the then current date in the ordinary course
of business and not for speculative
<PAGE> 2
purposes, and (ii) on margin accounts of the Company or any of its
Subsidiaries relating to exchange traded contracts for the delivery
of natural gas, provided, however, the aggregate balance of the
margin accounts subject to the Liens permitted by this clause (ii)
shall not exceed from time to time $10,000,000.
Section 4. Limitations. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Credit Agreement or any
of the other Loan Documents (other than as specifically set forth in Section 2
of this Third Amendment), or (b) except as expressly set forth herein,
prejudice any right or rights which the Banks may now have or may have in the
future under or in connection with the Credit Agreement, the Loan Documents or
any of the other documents referred to therein. Except as expressly modified
hereby or by express written amendments thereof, the terms and provisions of
the Credit Agreement, the Notes, and any other Loan Documents or any other
documents or instruments executed in connection with any of the foregoing are
and shall remain in full force and effect. In the event of a conflict between
this Third Amendment and any of the foregoing documents, the terms of this
Third Amendment shall be controlling.
Section 5. Payment of Expenses. The Borrower agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save
the Administrative Agent harmless from and against liability for the payment of
all reasonable substantiated out-of-pocket costs and expenses arising in
connection with the preparation, execution, delivery, amendment, modification,
waiver and enforcement of, or the preservation of any rights under this Third
Amendment, including, without limitation, the reasonable fees and expenses of
any local or other counsel for the Administrative Agent, and all stamp taxes
(including interest and penalties, if any), recording taxes and fees, filing
taxes and fees, and other charges which may be payable in respect of, or in
respect of any modification of, the Credit Agreement and the other Loan
Documents. The provisions of this Section shall survive the termination of the
Credit Agreement and the repayment of the Loans.
Section 6. Governing Law. This Third Amendment and the rights and
obligations of the parties hereunder and under the Credit Agreement shall be
construed in accordance with and be governed by the laws of the State of Texas
and the United States of America.
Section 7. Descriptive Headings, etc. The descriptive headings of the
several Sections of this Third Amendment are inserted for convenience only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 8. Entire Agreement. This Third Amendment and the documents
referred to herein represent the entire understanding of the parties hereto
regarding the subject matter hereof and supersede all prior and contemporaneous
oral and written agreements of the parties hereto with respect to the subject
matter hereof, including, without limitation, any commitment letters regarding
the transactions contemplated by this Third Amendment.
Section 9. Counterparts. This Third Amendment may be executed in any
number of counterparts and by different parties on separate counterparts and
all of such counterparts shall together constitute one and the same instrument.
2
<PAGE> 3
Section 10. Amended Definitions. As used in the Credit agreement
(including all Exhibits thereto) and all other instruments and documents
executed in connection therewith, on and subsequent to the Third Amendment
Effective Date the term "Agreement" shall mean the Credit Agreement as amended
by this Third Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment
to be duly executed and delivered by their respective duly authorized offices
effective as of the date first above written.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE SS.26.02
THIS THIRD AMENDMENT AND OTHER LOAN DOCUMENTS EXECUTED BY ANY OF THE
PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN LOAN AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENT BETWEEN THE PARTIES.
SEAGULL ENERGY CORPORATION,
a Texas corporation
By: /s/ ROBERT W. SHOWER
--------------------------------
Robert W. Shower
Executive Vice President and
Chief Financial Officer
3
<PAGE> 4
CHEMICAL BANK,
as Auction Agent
By: /s/ RONALD POTTER
----------------------------------
Name: Ronald Potter
Title: Managing Director
Address for Notices:
140 East 45th
29th Floor
New York, New York 10017
Attention: Ms. Terri Reilly
4
<PAGE> 5
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
as Administrative Agent and as a Bank
By: /s/ SCOTT RICHARDSON
-----------------------------------
Name: Scott Richardson
Title: Vice President
Address for Notices:
712 Main Street
Houston, Texas 77002
Attention: Manager, Energy Division
5
<PAGE> 6
THE CHASE MANHATTAN BANK, N.A.
By: /s/ BETTYLOU J. ROBERT
----------------------------------
Name: Bettylou J. Robert
Title: Vice President
Address for Notices:
1221 McKinney, Suite 3000
Houston, Texas 77010
Attention: Scott Porter
Vice President
6
<PAGE> 7
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ PHILIP W. MCNEAL
-----------------------------------
Name: Philip W. McNeal
Title: Vice President
Address for Notices:
60 Wall Street
New York, New York, 10260-0060
Attention: Loan Department
7
<PAGE> 8
NATIONSBANK OF TEXAS, N.A.
By: /s/ JO A. TAMALIS
----------------------------------
Name: Jo A. Tamalis
Title: Senior Vice President
Address for Notices:
700 Louisiana Street
Houston, Texas 77002
Attention: Jo A. Tamalis
Senior Vice President
8
<PAGE> 9
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ GEORGE W. PASSELA
----------------------------------
Name: George W. Passela
Title: Managing Director
Address for Notices:
100 Federal Street
Energy & Utilities 01-15-04
Boston, Massachusetts 02110
Attention: George W. Passela
Managing Director
9
<PAGE> 10
ABN AMRO BANK N.V.,
HOUSTON AGENCY
ABN AMBRO NORTH AMERICA, INC.
as Agent
By: /s/ CHERYL I. LIPSHUTZ
-----------------------------------
Name: Cheryl I. Lipshutz
Title: Vice President and Director
By: /s/ JONATHAN C. HOMEYER
-----------------------------------
Name: Jonathan C. Homeyer
Title: Officer
Address for Notices:
Three Riverway, Suite 1600
Houston, Texas 70056
Attention: Ms. Cheryl I. Lipshutz
10
<PAGE> 11
THE BANK OF NEW YORK
By: /s/ RENEE BIJLANI
----------------------------------
Name: Renee Bijlani
Title: Vice President
Address for Notices:
One Wall Street
New York, New York 10296
Attention: Mr. Andrew G. Mathews
Vice President
11
<PAGE> 12
BANQUE PARIBAS HOUSTON AGENCY
By: /s/ MARIAN LIVINGSTON
-----------------------------------
Name: Marion Livingston
Title: Vice President
By: /s/ BRIAN MALONE
-----------------------------------
Name: Brian Malone
Title: Vice President
Address for Notices:
1200 Smith Street, Suite 3100
Houston, Texas 77002
Attention: Barton D. Shouest
Group Vice President
12
<PAGE> 13
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ PASCAL POUPELLE
-----------------------------------
Name: Pascal Poupelle
Title: Senior Vice President
Address for Notices:
c/o Credit Lyonnais Representative
Office
1000 Louisiana, Suite 5360
Houston, Texas 77002
Atention: Mr. A. David Dodd
13
<PAGE> 14
THE FUJI BANK, LIMITED
HOUSTON AGENCY
By: /s/ SOICHI YOSHIDA
----------------------------------
Name: Soichi Yoshida
Title: Vice President And Senior
Manager
Address for Notices:
909 Fannin, Suite 2800
Houston, Texas 77010
Attention: Mr. Jacques Azagury
Assistant Vice President
14
<PAGE> 15
NBD BANK, N.A.
By: /s/ GEORGE R. SCHANZ
----------------------------------
Name: George R. Schanz
Title: Vice President
Address for Notices:
611 Woodward Avenue
Detroit, Michigan 48226
Attention: Mr. George R. Shanz
Vice President
15
<PAGE> 16
SOCIETE GENERALE,
SOUTHWEST AGENCY
By: /s/ RICHARD A. ERBERT
-----------------------------------
Name: Richard A. Erbert
Title: Vice President
Address for Notices:
4800 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Mr. Ralph Saheb
Vice President
With a copy to:
1111 Bagby, Suite 2020
Houston, Texas 77002
Attention: Mr. Richard Erbert
Vice President
16
<PAGE> 17
THE BANK OF TOKYO, LTD.,
DALLAS AGENCY
By: /s/ JOHN MCINTYRE
---------------------------------
Name: J. Mcintyre
Title: Vice President
Address for Notices:
909 Fannin, Suite 1104
Two Houston Center
Houston, Texas 77010
Attention: Mr. John M. McIntyre
Vice President
17
<PAGE> 18
BANK OF SCOTLAND
By: /s/ CATHERINE M. ONIFFEREY
----------------------------------
Name: Catherine M. Onifferey
Title: Vice President
Address for Notices:
380 Madison Avenue
New York, New York 10017
Attention: Mr. Joseph Fratus
18
<PAGE> 19
CAISSE NATIONALE DE CREDIT
AGRICOLE
By: /s/ DAVID BOUHL
----------------------------------
Name: David Bouhl, F.v.p.
Title: Head Of Corporate Banking
Chicago
Address for Notices:
600 Travis, Suite 2340
Houston, Texas 77002
Attention: Brian Knezeak
Vice President
19
<PAGE> 20
CHRISTIANIA BANK OG KREDITKASSE
By: /s/ JAHN O. ROISING
----------------------------------
Name: Jahn O. Roising
Title: First Vice President
By: /s/ CARL-PETER SVENDSEN
----------------------------------
Name: Carl-Peter Svendsen
Title: First Vice President
Address for Notices:
11 West 42nd Street, 7th Floor
New York, New York 10036
Attention: Mr. Jahn Roising
First Vice President
20
<PAGE> 21
DEN NORSKE BANK AS
By: /s/ BYRON L. COOLEY
----------------------------------
Name: Byron L. Cooley
Title: First Vice President
By: /s/ NILS FYKSE
----------------------------------
Name: Nils Fykse
Title: Vice President
Address for Notices:
333 Clay Street
Suite 4890
Houston, Texas 77002
Attention: Mr. Byron L. Cooley
First Vice President
21
<PAGE> 22
MIDLAND BANK PLC,
NEW YORK BRANCH
By: /s/ DOUGLAS R. LIFTMAN
-----------------------------------
Name: Douglas R. Liftman
Title: Director
Address for Notices:
140 Broadway
New York, New York 1000
Attention: Mr. Doug Liftman
Director
22
<PAGE> 23
FIRST INTERSTATE BANK OF
TEXAS, N.A.
By: /s/ COLLIE C. MICHAELS
----------------------------------
Name: Collie C. Michaels
Title: Vice President
Address for Notices:
1000 Louisiana
3rd Floor/MS #156
Houston, Texas 77002
Attention: Ms. Collie Michaels
Vice President
23
<PAGE> 24
THE BANK OF NOVA SCOTIA
By: /s/ F. C. H. ASHBY
----------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan
Operations
Address for Notices:
Suite 3000, 1100 Louisiana
Houston, Texas 77002
Attention: Mr. Mark Ammerman
With copies to:
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Attention: Ms. Lauren Bianchi
24
<PAGE> 25
CIBC INC.
By: /s/ GARY C. GASKILL
----------------------------------
Name: Gary C. Gaskill
Title: Vice President
Address for Notices:
Two Pac s West
2727 Paces Ferry Road
Suite 1200
Atlanta, Georgia 30339
Attention: Loan Operations
With a copy to:
Canadian Imperial Bank of Commerce
Two Houston Center
909 Fannin Street
Houston, Texas 77010
Attention: Mr. Brian Swinford
Vice President
25
<PAGE> 26
CITIBANK, N.A.
By: /s/ AREZOO JAFARI
----------------------------------
Name: Arezoo Jafari
Title: Assistant Vice President
Address for Notices:
1200 Smith Street
20th Floor
Houston, Texas 77002
Attention: Ms. Lydia Junek
26
<PAGE> 27
MELLON BANK
By: /s/ E. MARC CUENOD, JR.
----------------------------------
Name: E. Marc Cuenod, Jr.
Title: First Vice President
Address for Notices:
Mellon Bank
One Mellon Bank Center
Room 151-4425
Pittsburgh, Pennsylvania 15258-0001
Attention: Mr. A. Gary Chace
Senior Vice President
Energy & Utilities Group
With a copy to:
Mellon Financial Services
1100 Louisiana, 36th Floor
Houston, Texas 77002-5210
Attention: Mr. Richard Gould
27
<PAGE> 28
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: /s/ MICHAEL J. KOLOSOWSKY
----------------------------------
Name: Michael J. Kolosowsky
Title: Vice President
Address for Notices:
First Union Corporation of North
Carolina
1001 Fannin, Suite 2255
Houston, Texas 77002
Attention: Mr. Jay M. Chernosky
Vice President
28
<PAGE> 29
BANK OF MONTREAL
By: /S/ J.B. WHITMORE
----------------------------------
Name: J.S. Whitmore
Title: Director
Address for Notices:
700 Louisiana, Suite 4400
Houston, Texas 77002
Attention: Mr. Robert L. Roberts
Director, U.S. Corporate
Banking
29
<PAGE> 1
EXHIBIT 10.1
SEAGULL THRIFT PLAN
Effective Date: January 1, 1989
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
I - DEFINITIONS AND CONSTRUCTION ............................... I-1
II - PARTICIPATION .............................................. II-1
III - CONTRIBUTIONS .............................................. III-1
IV - ALLOCATIONS ................................................ IV-1
V - INVESTMENT OF FUNDS ........................................ V-1
VI - RETIREMENT BENEFITS ........................................ VI-1
VII - DISABILITY BENEFITS ........................................ VII-1
VIII - SEVERANCE BENEFITS ......................................... VIII-1
IX - DEATH BENEFITS ............................................. IX-1
X - TIME AND MANNER OF PAYMENT OF BENEFITS ..................... X-1
XI - WITHDRAWALS AND LOANS ...................................... XI-1
XII - ADMINISTRATION OF PLAN ..................................... XII-1
XIII - ADMINISTRATION OF FUNDS .................................... XIII-1
XIV - TRUSTEE'S POWERS AND DUTIES ................................ XIV-1
XV - FIDUCIARY PROVISIONS ....................................... XV-1
XVI - AMENDMENTS ................................................. XVI-1
XVII - DISCONTINUANCE OF CONTRIBUTIONS,
TERMINATION AND MERGER OR CONSOLIDATION ................. XVII-1
XVIII - OTHER EMPLOYING COMPANIES .................................. XVIII-1
XIX - MISCELLANEOUS .............................................. XIX-1
XX - TOP-HEAVY STATUS ........................................... XX-1
XXI - SECURITIES REGULATIONS ..................................... XXI-1
</TABLE>
(i)
<PAGE> 3
SEAGULL THRIFT PLAN
THIS AGREEMENT AND DECLARATION OF TRUST is by and between SEAGULL ENERGY
CORPORATION, a Texas corporation, hereinafter referred to as the "Company," and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, Houston, Texas, a national banking
association, hereinafter referred to as "Trustee."
W I T N E S S E T H :
WHEREAS, Company has heretofore adopted the SEAGULL THRIFT PLAN,
hereinafter referred to as the "Plan," for the benefit of its employees; and
WHEREAS, the Company has heretofore entered into a trust agreement with
the Trustee establishing a trust to hold and invest contributions made under the
Plan and from which benefits have been distributed under the Plan;
WHEREAS, the Company desires to restate the Plan and to amend the Plan
in several respects, intending thereby to provide an uninterrupted and
continuing program of benefits and to incorporate the trust agreement into the
Plan document;
NOW THEREFORE, the Plan and the trust agreement are hereby restated in
their entirety as follows with no interruption in time, effective as of January
1, 1989, except as otherwise indicated herein:
(ii)
<PAGE> 4
I.
DEFINITIONS AND CONSTRUCTION
1.01 DEFINITIONS. Where the following words and phrases appear in the
Plan, they shall have the respective meanings set forth below, unless their
context clearly indicates to the contrary.
(1) ACCOUNTS: The total of the amounts allocated to a Member's Cash or
Deferred Account, Company Contribution Account and Member
Contribution Account.
(2) ACT: The "Employee Retirement Income Security Act of 1974, as amended."
(3) BENEFIT COMMENCEMENT DATE: With respect to each Member or beneficiary,
the date such Member's or beneficiary's benefit is paid to him from
the Trust Fund.
(4) CASH OR DEFERRED ACCOUNT: An individual account for each Member to
which is credited the Cash or Deferred Contributions made by the
Company on such Member's behalf and the Company Discretionary
Contributions, if any, made on such Member's behalf pursuant to Section
3.03(b) and which is credited (or debited) for such account's
allocation of net income (or net loss) of the Trust Fund.
(5) CASH OR DEFERRED CONTRIBUTIONS: Contributions made to the Plan by the
Company on a Member's behalf in accordance with the Member's elections
to defer Compensation under the Plan's qualified cash or deferred
arrangement as described in Section 3.01.
(6) CODE: The Internal Revenue Code of 1986, as amended.
(7) COMMENCEMENT DATE: The date on which an Employee first performs an Hour
of Service.
(8) COMMITTEE: The administrative committee appointed by the Directors to
administer the Plan.
(9) COMPANY: Seagull Energy Corporation.
(10) COMPANY CONTRIBUTION ACCOUNT: An individual account for each Member to
which is credited the sum of (A) the Company Matching Contributions
made on such Member's behalf and (B) the Company Discretionary
Contributions made on such Member's behalf pursuant to Section 3.03(a)
plus such Member's allocation of forfeitures and which is credited (or
debited) for such account's allocation of net income (or net
loss) of the Trust Fund.
I-1
<PAGE> 5
(11) COMPANY CONTRIBUTIONS: The total of Company Discretionary Contributions
and Company Matching Contributions.
(12) COMPANY DISCRETIONARY CONTRIBUTIONS: Contributions made to the Plan by
the Company pursuant to Section 3.03.
(13) COMPANY MATCHING CONTRIBUTIONS: Contributions made to the Plan by the
Company pursuant to Section 3.02.
(14) COMPANY STOCK: The common stock of Seagull Energy Corporation.
(15) 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 or 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 nonqualified, welfare
benefits, amounts realized from the exercise of a stock option which is
not an incentive stock option within the meaning of section 422A of the
Code or when property described in section 83 of the Code is no longer
subject to a substantial risk of forfeiture, any amount realized as a
result of a disqualifying disposition within the meaning of section
421(a) of the Code and any other amounts which 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(A)(8), 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 $200,000 for any
Plan Year (with such amount to be (i) adjusted automatically to reflect
any cost-of-living increases authorized by section 401(a)(17) of the
Code and (ii) prorated for a Plan Year of less than twelve months and
to the extent otherwise required by applicable law).
(16) CONTROLLED ENTITY: Each corporation that is a member of a controlled
group of corporations, within the meaning of section 1563(a)
(determined without regard to sections 1563(a)(4) and 1563(e)(3)(C)) of
the Code, of which the Company is a member, each trade or business
(whether or not incorporated) with which the Company is under common
control and each member of an affiliated service group,
I-2
<PAGE> 6
within the meaning of section 414(m) of the Code, of which the Company
is a member.
(17) DIRECTORS: The Board of Directors of the Company.
(18) EFFECTIVE DATE: January 1, 1989, as to this restatement of the Plan,
except (A) as otherwise indicated in specific provisions of the Plan
and (B) that provisions of the Plan required to have an earlier
effective date by provision of the Tax Reform Act of 1986, the
Technical and Miscellaneous Revenue Act of 1988, technical corrections
to the Retirement Equity Act of 1984 and the Deficit Reduction Act of
1984 and by regulations issued pursuant to such Acts shall be effective
as of the required effective date in such Acts and regulations.
(19) ELIGIBLE EMPLOYEE: Any Employee other than (A) an Employee whose terms
and conditions of employment are governed by a collective bargaining
agreement unless such agreement provides for his coverage under the
Plan, (B) any non-resident alien who has no United States source
income, (C) any Employee who is a Leased Employee, (D) any Employee who
is employed at the ENSTAR Natural Gas Company division of the Company
and (E) any Employee who is employed by the Alaska Pipeline Company.
(20) EMPLOYEE: Any individual employed by the Company and any Leased
Employee.
(21) FUND: A portion of the Trust Fund which is invested in a
specified manner.
(22) HIGHLY COMPENSATED EMPLOYEE: Any Employee who performs services during
the Plan Year for which the determination of who is highly compensated
is being made (the "Determination Year") and who (A) is a five-percent
owner of the Company (within the meaning of section 416(i)(1)(A)(iii)
of the Code) at any time during the Determination Year or the
twelve-month period immediately preceding the Determination Year (the
"Look-Back Year"), (B) receives compensation (within the meaning of
section 415(c)(3) of the Code, including elective or salary reduction
contributions to a cafeteria plan, cash or deferred arrangement or
tax-sheltered annuity; "compensation" for purposes of this Paragraph)
in excess of $75,000 (with such amount to be adjusted automatically to
reflect any cost-of-living adjustments authorized by section 414(q)(1)
of the Code) during the Look-Back Year, (C) receives compensation in
excess of $50,000 (with such amount to be adjusted automatically to
reflect any cost-of-living adjustments authorized by section 414(q)(1)
of the Code) during the Look-Back Year and is a member of the top 20%
of Employees for the Look-Back Year (other than Employees described in
section 414(q)(8) of the Code) ranked on the basis of compensation
received during the year, (D) is an officer (within the meaning of
section 416(i) of the Code) during the Look-Back Year and receives
compensation in the Look-Back Year greater than 50% of the amount in
effect under section 415(b)(1)(A) of the Code for the
I-3
<PAGE> 7
calendar year in which the Look-Back Year begins or (E) is described in
clauses (B), (C) or (D) above (after modifying such clauses to
substitute the Determination Year for the Look-Back Year) and is one of
the 100 Employees who receives the most compensation from the Company
during the Determination Year. For purposes of the preceding sentence,
(i) no more than 50 Employees (or, if lesser, the greater of three
Employees or 10% of the Employees) shall be treated as officers, (ii)
if no officer has compensation in excess of 50% of the amount in effect
under section 415(b)(1)(A) of the Code, then the highest-paid officer
shall be deemed to be a Highly Compensated Employee, (iii) all
employers aggregated with the Company under section 414(b), (c), (m) or
(o) of the Code shall be treated as a single employer and (iv) a former
Employee who had a separation year (generally, the Determination Year
such Employee separates from service) prior to the Determination Year
and who was an active Highly Compensated Employee for either such
separation year or any Determination Year ending on or after such
Employee's fifty-fifth birthday shall be deemed to be a Highly
Compensated Employee. Further, if any individual is a member of the
family of a five-percent owner or of a Highly Compensated Employee in
the group consisting of the ten Highly Compensated Employees paid the
greatest compensation during the year, then such individual shall not
be considered a separate employee and any compensation paid to such
individual (and any applicable contribution or benefit on behalf of
such individual) shall be treated as if it were paid to (or on behalf
of) the five-percent owner or Highly Compensated Employee. For purposes
of the preceding sentence, the term "family" means, with respect to any
active or former Employee, such Employee's spouse and lineal ascendants
and descendants and the spouses of such lineal ascendants and
descendants. To the extent that the provisions of this Paragraph are
inconsistent or conflict with the definition of a "highly compensated
employee" set forth in section 414(q) of the Code and the Treasury
Regulations thereunder, the relevant terms and provisions of section
414(q) of the Code and the Treasury Regulations thereunder shall govern
and control.
(23) HOUR OF SERVICE: An Hour of Service is each hour for which an Employee
is directly or indirectly paid, or entitled to payment, by the Company
or a Controlled Entity for the performance of duties or for reasons
other than the performance of duties; provided, however, that no more
than 501 Hours of Service shall be credited to an Employee on account
of any continuous period during which he performs no duties. Such Hours
of Service shall be credited to the Employee for the computation period
in which such duties were performed or in which occurred the period
during which no duties were performed. An Hour of Service also includes
each hour, not credited above, for which back pay, irrespective of
mitigation of damages, has been either awarded or agreed to by the
Company or a Controlled Entity. These Hours of Service shall be
credited to the Employee for the computation period to which the award
or agreement pertains rather than the computation period in which the
award, agreement or payment is made. Solely for purposes of determining
whether a One-Year Break-in-Service has occurred, an
I-4
<PAGE> 8
Hour of Service is also each normal work hour, not otherwise credited
above, during which an Employee is absent from work by reason of the
Employee's pregnancy, the birth of a child of the Employee or the
placement of a child with the Employee in connection with the adoption
of such child by the Employee or for purposes of caring for such child
for the period immediately following such birth or placement. The
Committee may require, as a condition to the crediting of Hours of
Service under this provision, that the Employee furnish appropriate and
timely information to the Committee establishing the reason for any
such absence. These Hours of Service shall be credited to the Employee
for the computation period in which the absence from work begins if
such crediting is necessary to prevent the occurrence of a One-Year
Break-in-Service in such computation period, otherwise these Hours of
Service shall be credited to the Employee in the next following
computation period.
The number of Hours of Service to be credited to an Employee for any
computation period shall be governed by section 2530.200b-2(b) and (c)
of the Labor Department Regulations relating to the Act.
The above notwithstanding, Hours of Service with Wacker Oil Inc. prior
to the date it became a Controlled Entity shall be taken into account
for all purposes under the Plan except that in determining whether a
Member has one Year of Service for purposes of
Section 3.02 (a) and 4.02(c) of the Plan, a Member shall not be
considered to have one Year of Service before January 1, 1991 based
upon Hours of Service with Wacker Oil Inc.
(24) LEASED EMPLOYEE: Any person who is not an employee of the Company or a
Controlled Entity but who performs services for the Company or a
Controlled Entity pursuant to an agreement (oral or written) between
the Company or a Controlled Entity and any leasing organization,
provided that such person has performed such services for the Company
or a Controlled Entity or for related persons (within the meaning of
section 144(a)(3) of the Code) on a substantially full-time basis for a
period of at least one year and such services are of a type
historically performed by the Company's or Controlled Entity's
employees in the Company's or Controlled Entity's field of business.
(25) MEMBER: Any individual who has met the eligibility requirements for
participation in the Plan.
(26) MEMBER CONTRIBUTION ACCOUNT: An individual account for each Member to
which is credited his Member contributions made prior to January 1,
1987 and which is credited (or debited) for such account's allocation
of net income (or net loss) of the Trust Fund.
(27) NORMAL RETIREMENT DATE: The date a Member attains the age of
sixty-five.
I-5
<PAGE> 9
(28) ONE-YEAR BREAK-IN-SERVICE: Any Plan Year during which an Employee has
no more than 500 Hours of Service.
(29) PLAN: The Seagull Thrift Plan, as amended from time to time.
(30) PLAN YEAR: The twelve-consecutive month period commencing January 1 of
each year.
(31) TRUST: The trust established herein to hold and invest contributions
made under the Plan, and income thereon, and from which the
benefits will be distributed.
(32) TRUST FUND: The funds and properties held pursuant to the provisions
hereof for the use and benefit of the Members, together with all
income, profits and increments thereto.
(33) TRUSTEE: The trustee or trustees qualified and acting hereunder
at any time.
(34) VALUATION DATES: The last day of each calendar quarter and any other
interim Valuation Date determined by the Committee on a nondiscrimi-
natory basis.
(35) VESTED INTEREST: The portion of a Member's Accounts which, pursuant to
the Plan, is nonforfeitable.
(36) VESTING SERVICE: The measure of service used in determining a Member's
Vested Interest as determined pursuant to Section 8.03.
(37) Voting Fiduciary: The independent fiduciary, if any, appointed by the
Committee pursuant to the provisions of Section 12.07(1) to receive
voting directions from the Members and vote Company Stock in accordance
with the provisions of Section 5.03(a).
1.02 NUMBER AND GENDER. Wherever appropriate herein, words used in
the singular shall be considered to include the plural and the plural to
include the singular. The masculine gender, where appearing in this Plan, shall
be deemed to include the feminine gender.
1.03 HEADINGS. The headings of Articles and Sections herein are
included solely for convenience and if there is any conflict between such
headings and the text of the Plan, the text shall control.
I-6
<PAGE> 10
II.
PARTICIPATION
2.01 ELIGIBILITY. Any Eligible Employee shall become a Member upon
the first day of the month coincident with or next following the date on which
he completes an Hour of Service. Notwithstanding the foregoing:
(a) an Eligible Employee who was a Member of the Plan on the
day prior to the Effective Date shall remain a Member of this
restatement thereof as of the Effective Date;
(b) an Eligible Employee who was a Member of the Plan, or who
was eligible to become a Member of the Plan, prior to a termination of
employment shall become a Member immediately upon his reemployment as
an Eligible Employee; and
(c) an Employee who has completed an Hour of Service but who
has not become a Member of the Plan because he was not an Eligible
Employee shall become a Member of the Plan immediately upon becoming an
Eligible Employee as a result of a change in his employment status; and
(d) an Eligible Employee who completed an Hour of Service but
who terminated employment prior to the date upon which he would have
become a Member shall become a Member immediately upon his
reemployment.
II-1
<PAGE> 11
III.
CONTRIBUTIONS
3.01 CASH OR DEFERRED CONTRIBUTIONS.
(a) A Member may elect to defer an integral percentage of from
1% to 14% of his Compensation for a Plan Year by having the Company contribute
the amount so deferred to the Plan. Compensation for a Plan Year not so
deferred by such election shall be received by such Member in cash. A Member's
election to defer an amount of his Compensation pursuant to this Section shall
be made on the date he first becomes a Member or upon the first day of any
subsequent month by executing a Compensation reduction agreement pursuant to
which the Member authorizes the Company to reduce his Compensation in the
elected amount and the Company, in consideration thereof, agrees to contribute
an equal amount to the Plan. The reduction in a Member's Compensation for a
Plan Year pursuant to his election under a Compensation reduction agreement
shall be effected by Compensation reductions as of each payroll period within
such Plan Year following the effective date of such agreement. The amount of
Compensation elected to be deferred by a Member for a Plan Year pursuant to
this Section shall become a part of the Company's Cash or Deferred
Contributions for such Plan Year.
(b) A Member's Compensation reduction agreement shall remain in
force and effect for all periods following the date of its execution until
modified or terminated or until such Member terminates his employment. A Member
who has elected to defer a portion of his Compensation may change his deferral
election percentage (within the percentage limits set forth in Paragraph (a)
above), effective as of the first day of any month by executing and delivering
to the Committee a new Compensation reduction agreement within the time period
prescribed by the Committee. Only one such change may be made in any calendar
quarter.
(c) A Member may cancel his Compensation reduction agreement,
effective as of the first day of any month by executing and delivering to the
Committee a Compensation reduction cancellation agreement in the form
prescribed by the Committee within the time period prescribed by the Committee.
A Member who so cancels his Compensation reduction agreement may resume
Compensation deferrals, effective as of the first day of any month that is at
least six months after such cancellation, by executing and delivering to the
Committee a new Compensation reduction agreement within the time period
prescribed by the Committee.
(d) In restriction of the Members' elections provided in
Paragraphs (a), (b) and (c) above, the Cash or Deferred Contributions on behalf
of any Member for any calendar year shall not exceed $7,000 (with such amount
to be adjusted automatically to reflect any cost-of-living adjustments
authorized by section 402(g)(5) of the Code), reduced by any "excess deferrals"
from other plans allocated to the Plan by March 1 of the next
III-1
<PAGE> 12
following calendar year within the meaning of, and pursuant to the provisions
of, section 402(g)(2) of the Code.
(e) In further restriction of the Members' elections provided
in Paragraphs (a), (b) and (c) above, it is specifically provided that one of
the "actual deferral percentage" tests set forth in section 401(k)(3) of the
Code and the Treasury Regulations thereunder must be met in each Plan Year.
(f) If the restrictions set forth in Paragraph (e) above would
not otherwise be met for any Plan Year, the Compensation deferral elections
made pursuant to Paragraphs (a), (b) and (c) above of all Members who are
Highly-Compensated Employees shall automatically be revised by the Committee on
a temporary basis to the extent necessary to meet such restrictions. Any
reduction of amounts to be deferred by Members who are Highly-Compensated
Employees shall be applied by first reducing on an equal basis Compensation
deferral elections of 14%, then reducing on an equal basis Compensation
deferral elections of 13% or more and continuing in such manner until the
restrictions set forth in Paragraph (e) are met. A Member whose Compensation
deferral election percentage has been reduced pursuant to this Paragraph shall
be notified of such reduction in writing by the Committee. The intent of the
foregoing provision is to effect a prospective reduction in a Member's deferral
election percentage. If the Committee temporarily reduces Members' deferral
elections pursuant to this Paragraph and subsequently determines at any time
that, on a projected basis for such Plan Year, such Members' deferral
elections, as originally made, may be wholly or partially restored, the
Committee shall increase the deferral elections of such Members in the same
manner as such deferral elections were reduced to the extent consistent with
meeting the restrictions referred to in the first sentence of this Paragraph as
of the last day of such Plan Year.
(g) As of the last day of each month, the Company shall
contribute, as Cash or Deferred Contributions with respect to each Member, an
amount equal to the amount of Compensation elected to be deferred, pursuant to
Paragraphs (a) and (b) above (as adjusted pursuant to Paragraph (f) above), by
such Member during such month. Such contributions, as well as the contributions
pursuant to Sections 3.02 and 3.03, shall be made without regard to current or
accumulated profits of the Company. Notwithstanding the foregoing, the Plan is
intended to qualify as a profit sharing plan for purposes of sections 401(a),
402, 412 and 417 of the Code.
3.02 COMPANY MATCHING CONTRIBUTIONS.
(a) For each calendar month, the Company shall contribute, out
of its current or accumulated earnings and profits, 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
III-2
<PAGE> 13
such month and which were not in excess of 6% of such Member's Compensation for
such month. For purposes of this Paragraph (a), 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.
(b) If current or accumulated earnings and profits on any
contribution date are not sufficient to permit the Company to make such
contributions, the Company may make such contributions at a subsequent time
when current or accumulated earnings and profits are sufficient.
3.03 COMPANY DISCRETIONARY CONTRIBUTIONS.
(a) For each Plan Year, the Company may contribute, out of its
current or accumulated earnings and profits, 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 out of its current or accumulated earnings and profits, on behalf of
Members who are not Highly Compensated Employees, the amount necessary to cause
the Plan to satisfy the restrictions 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
Company Contribution Accounts of the Members who are not Highly Compensated
Employees.
3.04 RESTRICTIONS ON COMPANY CONTRIBUTIONS. In restriction of the
Company Contributions hereunder, it is specifically provided that one of the
"actual contribution percentage" tests set forth in section 401(m) of the Code
and the Treasury Regulations thereunder must be met in each Plan Year. The
Committee may elect, in accordance with applicable Treasury Regulations, to
treat Cash or Deferred Contributions to the Plan as Company Matching
Contributions for purposes of meeting this requirement.
3.05 PAYMENTS TO TRUSTEE. Contributions under the Plan shall be paid
by the Company directly to the Trustee as soon as practicable. On or about the
date of any such payment, the Committee shall be informed as to the amount of
such payment.
III-3
<PAGE> 14
3.06 RETURN OF CONTRIBUTIONS. Anything to the contrary herein
notwithstanding, the Company's contributions to the Plan are contingent upon
the deductibility of such contributions under section 404 of the Code. To the
extent that a deduction for contributions is disallowed, such contributions
shall, upon the written demand of the Company, be returned to the Company by
the Trustee within one year after the date of disallowance, reduced by any net
losses of the Trust Fund attributable thereto but not increased by any net
earnings of the Trust Fund attributable thereto. Moreover, if Company
contributions are made under a mistake of fact, such contributions shall, upon
the written demand of the Company, be returned to the Company by the Trustee
within one year after the payment thereof, reduced by any net losses of the
Trust Fund attributable thereto but not increased by any net earnings of the
Trust Fund attributable thereto.
3.07 DISTRIBUTION OF EXCESS CONTRIBUTIONS.
(a) Anything to the contrary herein notwithstanding, any Cash
or Deferred Contributions to the Plan for a calendar year on behalf of a Member
in excess of the limitations set forth in Section 3.01(d) shall be distributed
to such Member not later than April 15 of the next following calendar year.
(b) Anything to the contrary herein notwithstanding, if, for
any Plan Year, the aggregate Cash or Deferred Contributions made by the Company
on behalf of Highly Compensated Employees exceeds the maximum amount of Cash or
Deferred Contributions permitted on behalf of such Highly Compensated Employees
pursuant to Section 3.01(e) (determined by reducing Cash or Deferred
Contributions on behalf of Highly Compensated Employees in order of the "actual
deferral percentages" (as that term is defined in section 401(k)(3)(B) of the
Code and the Treasury Regulations thereunder) beginning with the highest of
such percentages), such excess shall be distributed to the Highly Compensated
Employees on whose behalf such excess was contributed before the end of the
next following Plan Year. For purposes of this Paragraph, the determination and
correction of excess Cash or Deferred Contributions of a Member whose actual
deferral percentage is determined under the family aggregation rules of
sections 401(k) and 414(q) of the Code shall be made in accordance with the
provisions of such sections and the Treasury Regulations thereunder.
(c) Anything to the contrary herein notwithstanding, if, for
any Plan Year, the aggregate Company Contributions allocated to the Accounts of
Highly Compensated Employees exceeds the maximum amount of such Company
Contributions permitted on behalf of such Highly Compensated Employees pursuant
to Section 3.04 (determined by reducing Company Contributions made on behalf of
Highly Compensated Employees in order of the "contribution percentages" (as
that term is defined in section 401(m)(3) of the Code and Treasury Regulations
thereunder) beginning with the highest of such percentages), such excess shall
be distributed to the Highly Compensated Employees on whose behalf such excess
contributions were made (or, if such excess contributions are forfeitable, they
shall be forfeited) before the end of the next following Plan Year. For
III-4
<PAGE> 15
purposes of this Paragraph, the determination and correction of excess Company
Contributions allocated to the Account of a Member whose contribution
percentage is determined under the family aggregation rules of sections 401(m)
and 414(q) of the Code shall be made in accordance with the provisions of such
sections and the Treasury Regulations thereunder. Any excess contribution which
is forfeitable shall be considered forfeited on March 15 of the next following
Plan Year.
(d) In coordinating distributions of excess contributions
pursuant to this Section, such excess contributions shall be distributed in the
following order:
(1) first, excess deferrals described in Paragraph (a)
above shall be distributed;
(2) second, excess Cash or Deferred Contributions described
in Paragraph (b) above shall be distributed; and
(3) third, excess Company Contributions described in
Paragraph (c) above shall be distributed (or, if forfeitable,
forfeited).
(e) Any distribution of excess contributions pursuant to this
Section shall be adjusted for income or loss allocated thereto in a manner
consistent with applicable Treasury Regulations, rulings and notices.
III-5
<PAGE> 16
IV.
ALLOCATIONS
4.01 SUSPENSE ACCOUNT. All contributions, forfeitures and the net
income (or net loss) of the Trust Fund shall be held in a suspense account
until allocated to the Accounts of the Members as provided herein.
4.02 ALLOCATION OF CONTRIBUTIONS AND FORFEITURES.
(a) Cash or Deferred Contributions made by the Company on a
Member's behalf pursuant to Section 3.01 shall be allocated to such Member's
Cash or Deferred Account as of the last day of the month for which they were
made.
(b) The 100% Company Matching Contributions for each month
pursuant to Section 3.02 on behalf of a Member shall be allocated as of the end
of such month to the Company Contribution Account of such Member.
(c) As of the last day of each Plan Year, the sum of (1) the
Company Discretionary Contribution, if any, made pursuant to Section 3.03(a)
for such Plan Year plus (2) any amounts which are forfeited under any
provisions hereof during 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 and forfeitures 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.
(d) As of the last day of each Plan Year, the Company
Discretionary Contribution, if any, made pursuant to Section 3.03(b) for such
Plan Year in order to satisfy the restrictions set forth in Section 3.01(e)
shall be allocated to the Cash or Deferred Accounts of Members who are not
Highly Compensated Employees on the basis of such Members' Cash or Deferred
Contributions for such Plan Year and each such Member's Cash or Deferred
Account shall be allocated that portion of such contribution which such
Member's Cash or Deferred Contributions for such Plan Year is of all such
Members' Cash or Deferred Contributions for such Plan Year.
(e) As of the last day of each Plan Year, the Company
Discretionary Contribution, if any, made pursuant to Section 3.03(b) for such
Plan Year in order to satisfy the restrictions set forth in Section 3.04 shall
be allocated to the Cash or Deferred Accounts of Members who are not Highly
Compensated Employees on the basis of such
IV-1
<PAGE> 17
Members' share of Company Matching Contributions for such Plan Year and each
such Member's Cash or Deferred Account shall be allocated that portion of such
contribution which such Member's share of Company Matching Contributions for
such Plan Year is of all such Members' share of Company Matching Contributions
for such Plan Year.
4.03 ALLOCATION OF NET INCOME OR LOSS.
(a) As of each Valuation Date, the Trustee shall determine the
fair market value of the Trust Fund assets and the net income (or net loss) of
the Trust Fund. The net income (or net loss) of each Fund within the Trust Fund
since the next preceding Valuation Date shall be ascertained by the Trustee and
shall be determined on the accrual basis of accounting; provided, however, that
such net income (or net loss) shall include any net increase or net decrease in
the value of the assets of each such Fund since the next preceding Valuation
Date to the extent not otherwise accrued. As soon as is practicable after each
Valuation Date, the Trustee shall deliver to the Committee a written statement
of such determination.
(b) For purposes of allocations of net income (or net loss) of
the Trust Fund, each Member's Accounts (or subaccounts) shall be divided into
subaccounts to reflect such Member's investment designation in a particular
Fund or Funds pursuant to Article V. As of each Valuation Date, the Committee
shall adjust the Accounts of each Member as follows:
(1) The net income (or net loss) of each Fund, separately
and respectively, shall be allocated among the corresponding
subaccounts of the Members who had such corresponding subaccounts on
the next preceding Valuation Date and each such corresponding
subaccount shall be credited (or debited) with that portion of such net
income (or net loss) which the value of each such corresponding
subaccount on such next preceding Valuation Date was of the value of
all such corresponding subaccounts on such date; provided, however,
that the value of such subaccounts as of the next preceding Valuation
Date shall be reduced by the amount of any withdrawals or distributions
made therefrom since the next preceding Valuation Date.
(2) With respect to each Member whose employment is
terminated for any reason, so long as there is any balance in any of
his Accounts, such Account or Accounts shall continue to receive
allocations pursuant to this Section; provided, however, that the value
of such Accounts as of the next preceding Valuation Date shall be
reduced by the amount of any payments made therefrom since the next
preceding Valuation Date.
(c) Plan provisions to the contrary notwithstanding, the
provisions of this Paragraph shall be applicable with respect to allocations
and accounting for Company Stock held by the Plan. All amounts which are
allocated to a Member's Accounts under the Plan and are to be invested in
Company Stock shall be used to purchase shares of
IV-2
<PAGE> 18
Company Stock as soon as practicable after such allocation. Shares of Company
Stock so purchased for a Member's Accounts shall be earmarked for the benefit
of such Member. Any cash dividends received by the Trustee with respect to
Company Stock earmarked for Members' Accounts shall be invested in additional
shares of Company Stock which shall be earmarked for the benefit of such
Member. Any such additional Company Stock, plus any other Company Stock
received as a result of a stock split or stock dividend, shall be allocated pro
rata to the Members' Accounts in proportion to the respective balances of
Company Stock credited to such Accounts as of the appropriate record date and
following an allocation of such shares to a Member's Accounts such shares shall
be earmarked for the benefit of such Member.
4.04 LIMITATIONS.
(a) For purposes of this Section, the following terms and
phrases shall have these respective meanings:
(1) "ANNUAL ADDITIONS" of a Member for any Limitation
Year shall mean the total of (A) the Company Contributions, Cash or
Deferred Contributions and forfeitures allocated to such Member's
Accounts for such year, (B) Member's contributions, if any, (excluding
any rollover contributions) for such year and (C) amounts referred to
in sections 415(l)(1) and 419A(d)(2) of the Code.
(2) "LIMITATION YEAR" shall mean the Plan Year.
(3) "MAXIMUM ANNUAL ADDITIONS" of a Member for any
Limitation Year shall mean the lesser of (A) $30,000 (or, if greater,
one-fourth of the dollar limitation in effect under section
415(b)(1)(A) of the Code for such Limitation Year) or (B) 25% of such
Member's compensation, within the meaning of section 415(c)(3) of the
Code as limited by section 401(a)(17) of the Code for Limitation Years
beginning after December 31, 1988, during such year except that the
limitation in this Clause (B) shall not apply to any contribution for
medical benefits (within the meaning of section 419A(f)(2) of the Code)
after separation from service with the Company or a Controlled Entity
which is otherwise treated as an Annual Addition or to any amount
otherwise treated as an Annual Addition under section 415(l)(1)
of the Code.
(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 allocation of forfeitures, a reasonable error in estimating a
Member's Compensation 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:
IV-3
<PAGE> 19
(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 allocated to Members' Company Contribution Accounts
in the same manner as a forfeiture;
(2) next, any such excess Annual Additions in the form of
Company Matching 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 allocated to Members' Company Contribution Accounts in
the same manner as a forfeiture;
(3) finally, any such excess Annual Additions in the form
of Cash or Deferred Contributions shall be allocated instead to a
suspense account and shall be held therein until allocated to such
Member's Cash or Deferred Account in future Limitation Years before any
Cash or Deferred Contributions are made to the Plan on behalf of
such Member.
(c) If a suspense account is in existence at any time during a
Limitation Year pursuant to this Section, it will not participate in
allocations of the net income (or net loss) of the Trust Fund.
(d) For purposes of determining whether the Annual Additions
under this Plan exceed the limitations herein provided, all defined
contribution plans of the Company are to be treated as one defined contribution
plan. In addition, all defined contribution plans of Controlled Entities shall
be aggregated for this purpose. For purposes of this Section only, a
"Controlled Entity" (other than an affiliated service group member within the
meaning of section 414(m) of the Code) shall be determined by application of a
more than 50% control standard in lieu of an 80% control standard. Effective
from and after January 1, 1989 and through December 31, 1990, if the Annual
Additions credited to a Member's Accounts for any Limitation Year under this
Plan plus the additions credited on his behalf under other defined contribution
plans required to be aggregated pursuant to this Paragraph would exceed the
Maximum Annual Additions for such Member for such Limitation Year, the
additions under such other plans shall be reduced to the extent possible prior
to any reduction of the Annual Additions under this Plan. Effective from and
after January 1, 1991, if the Annual Additions credited to a Member's Accounts
for any Limitation Year under this Plan plus the additions credited on his
behalf under other defined contribution plans required to be aggregated
pursuant to this Paragraph would exceed the Maximum Annual Additions for such
Member for such Limitation Year, the Annual Additions under this Plan shall be
reduced to the extent possible prior to any reductions of additions under such
other plan or plans.
(e) In the case of a Member who also participated in a defined
benefit plan of the Company or a Controlled Entity (as defined in Paragraph (d)
above), the Company
IV-4
<PAGE> 20
shall reduce the Annual Additions credited to the Accounts of such Member under
this Plan pursuant to the provisions of Paragraph (b) to the extent necessary
to prevent the limitation set forth in section 415(e) of the Code from being
exceeded. Notwithstanding the foregoing, the provisions of this Paragraph shall
only apply if such defined benefit plan does not provide for a reduction of
benefits thereunder to ensure that the limitation set forth in section 415(e)
of the Code is not exceeded.
(f) If the limitations set forth in this Section would not
otherwise be met for any Limitation Year, the Compensation deferral elections
pursuant to Section 3.01 of affected Members shall be revised prospectively by
the Committee on a temporary basis to the extent necessary to meet such
limitations in the manner described in Section 3.01(f).
IV-5
<PAGE> 21
V.
INVESTMENT OF FUNDS
5.01 INVESTMENT OPTIONS FOR MEMBERS' CONTRIBUTIONS. On the form
prescribed by the Committee, each Member shall designate the manner in which
the amounts allocated to his Accounts shall be invested from among the
following options:
OPTION 1 In Company Stock. Amounts invested under this Option 1 shall
be invested as one Fund referred to as Fund A.
OPTION 2 In such general equity investments (other than Company
Stock or other securities of the Company) as the Trustee may
determine. Amounts invested under this Option 2 shall be
invested as one Fund referred to as Fund B.
OPTION 3 In such general money market investments (other than Company
Stock or other securities of the Company) as the Trustee may
determine. Amounts invested under this Option 3 shall be
invested as one Fund referred to as Fund C.
OPTION 4 In a combination of general equity investments (other than
Company Stock or other securities of the Company) and
general fixed income investments (other than Company Stock
or other securities of the Company) as the Trustee may
determine. Amounts invested under this Option 4 shall be
invested as one Fund referred to as Fund D.
It is specifically provided that the Trustee may invest the assets of Fund B,
Fund C or Fund D in one or more mutual funds or group annuity contracts
provided that the underlying investments of such mutual funds or group annuity
contracts are consistent with the investment objectives of such funds as
described above. A Member may designate one of such options for all of the
contributions to his Accounts or he may split the investment of the
contributions to his Accounts between such options. If a Member fails to make a
designation, his Accounts shall be invested in Option 3.
5.02 INVESTMENT OPTION CHANGES.
(a) A Member may change his designated investment option for
future contributions as of the first day of any month in the manner and on the
form prescribed by the Committee; provided, however, that the designation may
not be changed more frequently than once every calendar quarter.
V-1
<PAGE> 22
(b) A Member may elect, in the manner and on the form
prescribed by the Committee, to convert up to 100% of the amounts in his
Accounts from one investment Fund to another of the Funds permitted by Section
5.01, as of the last day of any calendar quarter. No more than one such
election may be made during any calendar quarter.
5.03 VOTING AND OTHER RIGHTS.
(a) Each Member whose Accounts are invested in Fund A shall be
entitled to direct the Committee or the Voting Fiduciary if one has been
appointed as to the manner in which his Accounts' pro rata interest in Company
Stock held in Fund A shall be voted. In the absence of voting instructions by a
Member, Company Stock held in Fund A shall be voted by the Committee or the
Voting Fiduciary if one has been appointed to the extent possible to reflect
the voting directions the Committee or the Voting Fiduciary if one has been
appointed has received from Members with respect to Company Stock held in Fund
A.
(b) If a "cash tender offer" or "exchange offer" for shares of
Company Stock is made, a Member's pro rata interest in Company Stock held in
Fund A shall be tendered or exchanged by the Trustee pursuant to such "cash
tender offer" or "exchange offer" only in accordance with the written
instructions and directions of such Member to the Trustee to so tender or
exchange. If written instructions or directions are not timely received from a
Member whose Accounts are invested in Fund A, such Member's pro rata interest
in the shares of Company Stock held in Fund A shall not be tendered or
exchanged pursuant to such "cash tender offer" or "exchange offer." For
purposes of this Paragraph, the term "cash tender offer" shall include a tender
offer for, or request or invitation for tenders of, shares of Company Stock in
exchange for cash, as made to the Plan or to holders of shares of Company Stock
generally; the term "exchange offer" shall include a tender offer for, or
request or invitation for tenders of, any shares of Company Stock in exchange
for any consideration other than for all cash, as made to the Plan or to
holders of shares of Company Stock generally. If a "cash tender offer" or
"exchange offer" for shares of Company Stock is made, the Trustee shall use its
best efforts to take those steps reasonably necessary to furnish information
to, and allow decision by, each Member whose Accounts are invested in Fund A
with respect to such "cash tender offer" or "exchange offer" in substantially
the same manner as would be available to holders of Company Stock generally,
and, in that connection, the Trustee shall:
(1) inform each such Member as to the existence of such
"cash tender offer" or "exchange offer;"
(2) transmit to each such Member as soon as practicable such
written information, explanation and other materials relative to such
"cash tender offer" or "exchange offer" as are made available by the
Company or by the persons or entities making such "cash tender offer"
or "exchange offer" to the holders of shares of Company Stock
generally;
V-2
<PAGE> 23
(3) request detailed written instructions and directions
from each such Member as to whether to tender or exchange each such
Member's pro rata interest in the shares of Company Stock held in Fund
A and, if so instructed and directed, as to the time and manner of such
tender or exchange, and such instructions and directions of the
individual Members shall be given to the election judge or the Trustee
and shall be kept confidential from the Company; and
(4) use its best efforts to effect on a confidential and
nondiscriminatory basis the tender or exchange of Company Stock held
under the Plan with respect to such "cash tender offer" or "exchange
offer" solely in accordance with written instructions and directions
received from such Members.
V-3
<PAGE> 24
VI.
RETIREMENT BENEFITS
A Member who terminates his employment on or after his Normal
Retirement Date shall be entitled to an Article X benefit equal in value to the
sum of:
(a) the amount in his Accounts as of the Valuation Date next
preceding his Benefit Commencement Date plus any Cash or Deferred
Contributions and Company Matching Contributions allocated to his
Accounts after such Valuation Date; and
(b) if such Member's Benefit Commencement Date occurs prior to
the close of the Plan Year during which his termination of employment
occurred, the amount of such Member's allocation of Company
Discretionary Contributions and forfeitures for such Plan Year.
VI-1
<PAGE> 25
VII.
DISABILITY BENEFITS
7.01 TOTAL AND PERMANENT DISABILITY DETERMINED. The Committee shall
determine whether a Member has become totally and permanently disabled and
shall so notify such Member within sixty days thereafter. A Member shall be
considered totally and permanently disabled if such disability is so certified
by the Committee and, unless waived by the Committee as unnecessary, supported
by a written medical opinion that such Member will be permanently incapable of
performing his job for physical or mental reasons.
7.02 DISABILITY BENEFITS. In the event a Member's employment is
terminated due to total and permanent disability as of the Committee's
certification thereof, such Member shall be entitled to an Article X benefit
equal in value to the sum of:
(a) the amount in his Accounts as of the Valuation Date next
preceding his Benefit Commencement Date plus any Cash or Deferred
Contributions and Company Matching Contributions allocated to his
Accounts after such Valuation Date; and
(b) if such Member's Benefit Commencement Date occurs prior to
the close of the Plan Year during which such disability was determined,
the amount of such Member's allocation of Company Discretionary
Contributions and forfeitures for such Plan Year.
VII-1
<PAGE> 26
VIII.
SEVERANCE BENEFITS
8.01 NO BENEFITS UNLESS HEREIN SET FORTH. Except as set forth in this
Article, upon termination of employment of a Member for any reason other than
total and permanent disability, retirement or death, such Member shall acquire
no right to any benefit from the Plan or the Trust Fund.
8.02 SEVERANCE BENEFIT.
(a) Each Member whose employment is terminated prior to his
Normal Retirement Date for any reason other than total and permanent disability
or death shall be entitled to an Article X benefit equal in value to his Vested
Interest in the amount in his Accounts as of the Valuation Date next preceding
his Benefit Commencement Date plus any Cash or Deferred Contributions and
Company Matching Contributions allocated to his Accounts after such Valuation
Date.
(b) For purposes of this Section, a Member's Vested Interest in
his Company Contribution Account shall be determined by such Member's years of
Vesting Service in accordance with the following schedule:
<TABLE>
<CAPTION>
YEARS OF VESTING SERVICE VESTED INTEREST
------------------------ ---------------
<S> <C>
Less than 2 years 0%
2 years 25%
3 years 40%
4 years 55%
5 years 70%
6 years 85%
7 years or more 100%
</TABLE>
(c) Paragraph (b) above notwithstanding, a Member shall have a
100% Vested Interest in his Company Contribution Account upon attainment of his
Normal Retirement Date.
(d) A Member shall have a 100% Vested Interest in his Cash
or Deferred Account and his Member Contribution Account at all times.
8.03 VESTING SERVICE.
(a) For the period preceding the Effective Date, an
Employee shall be credited with Vesting Service in an amount equal to all
service credited to him for vesting purposes under the Plan as it existed on
the day prior to the Effective Date.
VIII-1
<PAGE> 27
(b) For the Plan Year beginning with the Effective Date
and all Plan Years thereafter, subject to the provisions of Paragraphs (c) and
(d) below, 1,000 or more Hours of Service during any Plan Year shall constitute
one year of Vesting Service.
(c) In the case of an Employee who terminates employment
at a time when he does not have any Vested Interest in his Company Contribution
Account and who then incurs a number of consecutive One-Year Breaks-in-Service
which equals or exceeds the greater of (1) five years or (2) his years of
Vesting Service prior to such One-Year Breaks-in-Service, such Employee's years
of Vesting Service completed before such One-Year Breaks-in-Service shall be
disregarded in determining his years of Vesting Service.
(d) In the case of a Member who incurs five consecutive
One-Year Breaks-in-Service, such Member's years of Vesting Service completed
after such One-Year Breaks-in-Service shall be disregarded in determining such
Member's Vested Interest in any Plan benefits derived from Company
contributions on his behalf prior to such One-Year Breaks-in-Service.
8.04 FORFEITURES.
(a) With respect to a Member (1) who terminates employment
with the Company with a Vested Interest in his Company Contribution Account
which is less than 100% and (2) who either (A) is not entitled to a
distribution from the Plan or (B) if he is entitled to a distribution, he
receives such distribution no later than the close of the second Plan Year
following the Plan Year in which his employment is terminated, the forfeitable
amount credited to the terminated Member's Company Contribution Account as of
the Valuation Date next preceding his Benefit Commencement Date shall become a
forfeiture as of his Benefit Commencement Date (or as of his date of
termination of employment if no amount is payable from the Trust Fund on behalf
of such Member with such Member being considered to have received a
distribution of zero dollars on his date of termination of employment).
(b) In the event that an amount credited to a terminated
Member's Company Contribution Account becomes a forfeiture pursuant to
Paragraph (a) above, the terminated Member shall, upon subsequent reemployment
with the Company prior to incurring five consecutive One-Year
Breaks-in-Service, have the forfeited amount restored to such Member's Company
Contribution Account, unadjusted by any subsequent gains or losses of the Trust
Fund; provided, however, that such restoration shall be made only if such
Member repays in cash an amount equal to the amount so distributed to him
pursuant to Paragraph (a) above within five years from the date the Member is
reemployed; provided, further, that such Member's repayment of amounts
distributed to him from his Cash or Deferred Account shall be limited to the
portion thereof which was attributable to contributions with respect to which
the Company made Company Matching Contributions. A reemployed Member who was
not entitled to a distribution from
VIII-2
<PAGE> 28
the Plan on his date of termination of employment shall be considered to have
repaid a distribution of zero dollars on the date of his reemployment. Any such
restoration shall be made as of the Valuation Date coincident with or next
succeeding the date of repayment. 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 otherwise
available for allocation to other Members in accordance with Section 4.02(c) in
the Plan Year in which such amounts are restored. 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 such excess amount shall be a minimum
required Company contribution (without regard to current or accumulated
earnings and profits).
(c) With respect to a Member whose Vested Interest in
his Company Contribution Account is less than 100% and who receives a
termination distribution from his Company Contribution Account after the close
of the second Plan Year following the Plan Year in which his employment is
terminated, any amount remaining in his Company Contribution Account shall
continue to be maintained as a separate account. At any relevant time, such
Member's nonforfeitable portion of his separate account shall be determined in
accordance with the following formula:
X = P(AB + (R X D)) - (R X D)
For purposes of applying the formula: X is the nonforfeitable portion of such
separate account at the relevant time; P is the Member's Vested Interest in his
Company Contribution Account at the relevant time; AB is the balance of such
separate account at the relevant time; R is the ratio of the balance of such
separate account at the relevant time to the balance of such separate account
after the distribution; and D is the amount of the distribution. For all other
purposes of the Plan, a Member's separate account shall be treated as a Company
Contribution Account. Upon his incurring five consecutive One-Year
Breaks-in-Service, the forfeitable portion of a terminated Member's separate
account and Company Contribution Account shall be forfeited as of the end of
the Plan Year during which the terminated Member incurred his fifth such
consecutive One-Year Break-in-Service.
(d) With respect to a Member who terminates employment
with the Company with a Vested Interest in his Company Contribution Account
greater than 0% but less than 100% and who is not otherwise subject to the
forfeiture provisions of Paragraph (a) or Paragraph (c) above, the forfeitable
portion of his Company Contribution Account shall be forfeited as of the end of
the Plan Year during which the terminated Member incurs his fifth consecutive
One-Year Break-in-Service.
(e) Any forfeitures occurring pursuant to Paragraphs (a),
(c) or (d) above shall be held in a suspense account and shall be available for
allocation to the Accounts
VIII-3
<PAGE> 29
of the eligible Members pursuant to Section 4.02(c), as of the end of the Plan
Year in which such forfeitures occurred. For all Valuation Dates prior to such
allocation, forfeited amounts held in the suspense account shall receive
allocations of net income (or net loss) pursuant to Section 4.03.
(f) Distributions of benefits described in this Section
shall be subject to the time of payment requirements of Section 10.01.
VIII-4
<PAGE> 30
IX.
DEATH BENEFITS
9.01 DEATH BENEFITS. Upon the death of a Member while an Employee,
the Member's designated beneficiary shall be entitled to an Article X benefit
equal in value to the sum of:
(a) the amount in his Accounts as of the Valuation Date
next preceding his Benefit Commencement Date plus any Cash or Deferred
Contributions and Company Matching Contributions allocated to his
Accounts after such Valuation Date; and
(b) if such Member's Benefit Commencement Date occurs prior
to the close of the Plan Year during which his death occurred, the
amount of such Member's allocation of Company Discretionary
Contributions and forfeitures for such Plan Year.
9.02 DESIGNATION OF BENEFICIARIES.
(a) Each Member shall have the right to designate
the beneficiary or beneficiaries to receive payment of his Article X benefit in
the event of his death. Each such designation shall be made by executing the
beneficiary designation form prescribed by the Committee and filing same with
the Committee. Any such designation may be changed at any time by execution of
a new designation in accordance with this Section. Notwithstanding the
foregoing, if a Member who is married on the date of his death designates other
than his surviving spouse as his beneficiary, such designation shall not be
effective unless (1) such spouse has consented thereto in writing and such
consent (A) acknowledges the effect of such specific designation, (B) either
consents to the specific designated beneficiary (which designation may not
subsequently be changed by the Member without spousal consent) or expressly
permits such designation by the Member without the requirement of further
consent by the spouse and (C) is witnessed by a Plan representative (other than
the Member) or a notary public or (2) such consent may not be obtained because
such spouse cannot be located or because of other circumstances described by
applicable Treasury Regulations. Any such consent by such surviving spouse
shall be irrevocable.
(b) If no such designation is on file with the Committee
at the time of the death of the Member or such designation is not effective for
any reason as determined by the Committee, the designated beneficiary or
beneficiaries to receive such Article X benefit shall be as follows:
(1) If a Member leaves a surviving spouse, his Article X
benefit shall be paid to such surviving spouse;
IX-1
<PAGE> 31
(2) If a Member leaves no surviving spouse, his Article X
benefit shall be paid to such Member's executor or administrator or to
his heirs at law if there is no administration of such Member's
estate.
IX-2
<PAGE> 32
X.
TIME AND MANNER OF PAYMENT OF BENEFITS
10.01 TIME AND MANNER OF PAYMENT.
(a) Subject to the provisions of the remaining Paragraphs
of this Section, payment of a Member's benefit hereunder shall be made as soon
as administratively feasible after the Valuation Date coincident with or next
succeeding the date the Member or his beneficiary becomes entitled to a benefit
pursuant to Article VI, VII, VIII or IX.
(b) 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 commence pursuant to Paragraph (a) or (3) the Member's Vested
Interest in his Accounts is not in excess of $3,500, the Member's Benefit
Commencement 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
Commencement Date.
(c) A Member's Benefit Commencement Date shall in no event
be later than the sixtieth day following the close of the Plan Year during
which such Member attains, or would have attained, age sixty-five or, if later,
terminates his employment with the Company or a Controlled Entity.
(d) A Member's Benefit Commencement 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 1st following the
later of (i) the calendar year in which such Member attains the age of
seventy and one-half, or (ii) the calendar year in which such Member
terminates his employment with the Company, or if such Member becomes a
"five-percent owner" following the end of such five Plan Year period,
April 1st of the calendar year following the calendar year in which
such Member becomes a "five-percent owner;" and
(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
X-1
<PAGE> 33
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 1st of the calendar year
following the calendar year in which such Member attains the
age of seventy and one-half.
(3) In the case of a benefit payable pursuant to Article IX,
the last day of the five-year period following the death of such Member.
For purposes of subparagraph (d)(2) above, a Member who attains the age
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
Company 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.
(e) Subject to the provisions of Paragraphs (c) and (d)
above, a Member's Benefit Commencement Date shall not occur before the
expiration of the latest to end of the following periods:
(1) a period during which the Member is employed by the
Company or any Controlled Entity; or
(2) a period during which the Member is employed by a
purchaser of assets from the Company or a Controlled Entity if such
Member transfers to employment with such purchaser in connection with
such purchase.
(f) A Member's benefit shall be provided from the
Member's Account balance(s) under the Plan and shall be paid in one lump sum on
the Member's Benefit Commencement Date. The Member's benefit shall be paid to
the Member unless the Member has died prior to his Benefit Commencement Date,
in which case the Member's benefit shall be paid to his beneficiary designated
in accordance with the provisions of Section 9.02.
(g) Benefits shall be paid in cash except that a Member
(or his designated beneficiary or legal representative in the case of a
deceased Member) may elect to have the portion of his Accounts invested in Fund
A distributed in full shares of Company Stock to the extent of the Member's
pro-rata portion of the shares of Company Stock held in Fund A with any balance
of the Member's interest in Fund A (including fractional shares) to be paid in
cash.
X-2
<PAGE> 34
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 available for
allocation to the Accounts of the eligible Members pursuant to Section 4.02 as
of the end of the Plan Year in which the forfeiture occurred. For all Valuation
Dates prior to such allocation, 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).
10.03 CLAIMS REVIEW. In any case in which a claim for Plan benefits of
a Member or beneficiary is denied or modified, the Committee shall:
(a) state the specific reason or reasons for the denial or
modification;
(b) provide specific reference to pertinent Plan provisions on
which the denial or modification is based;
(c) provide a description of any additional material or
information necessary for the Member, his beneficiary or representative
to perfect the claim and an explanation of why such material or
information is necessary; and
(d) explain the Plan's claim review procedure as contained
herein.
In the event the request is denied or modified, if the Member, his beneficiary
or representative desires to have such denial or modification reviewed, he
must, within sixty days following receipt of the notice of such denial or
modification, submit a written request for review by the Committee of its
initial decision. Within sixty days following such request for review the
Committee shall, after providing a full and fair hearing, render its final
decision in writing to the Member, his beneficiary or representative stating
specific reasons for such decision. If special circumstances require an
extension of such sixty-day period, the Committee's decision shall be rendered
as soon as possible, but not later than 120 days after receipt of the request
for review. If an extension of time for review is required, written notice of
the extension shall be furnished to the Member, beneficiary or representative
prior to the commencement of the extension period.
X-3
<PAGE> 35
XI.
WITHDRAWALS AND LOANS
11.01 WITHDRAWALS.
(a) A Member may withdraw an amount that is not less than
25% nor more than 100% of the then value of his Member Contribution Account.
Only one such withdrawal may be made in any twenty-four month period.
(b) A Member who has attained age fifty-nine and one-half
may withdraw from his Cash or Deferred Account an amount not less than 25% nor
more than 100% of the then value of such Account. Only one such withdrawal may
be made in any twenty-four month period.
(c) A Member who has a financial hardship, as determined
by the Committee, and who has made all available withdrawals pursuant to the
Paragraphs above and pursuant to the provisions of any other plans of the
Company and any Controlled Entities of which he is a member and who has
obtained all available loans pursuant to Section 11.02 and pursuant to the
provisions of any other plans of the Company and any Controlled Entities of
which he is a member may withdraw from his Cash or Deferred Account amounts not
to exceed the lesser of (1) the then value of such Account or (2) the amount
determined by the Committee as being available for withdrawal pursuant to this
Paragraph. For purposes of this Paragraph, financial hardship means the
immediate and heavy financial needs of the Member. A withdrawal based upon
financial hardship pursuant to this Paragraph shall not exceed the amount
required to meet the immediate financial need created by the hardship and not
reasonably available from other resources of the Member. The determination of
the existence of a Member's financial hardship and the amount required to be
distributed to meet the need created by the hardship shall be made by the
Committee. A withdrawal shall be deemed to be made on account of an immediate
and heavy financial need of a Member if the withdrawal is on account of:
(1) medical expenses described in section 213(d) of the
Code incurred by the Member, the Member's spouse or any dependents of
the Member (as defined in section 152 of the Code) and not reimbursed
by insurance;
(2) purchase (excluding mortgage payments) of a principal
residence of the Member;
(3) payment of tuition for the next semester or quarter of
post-secondary education of the Member, or the Member's spouse,
children or dependents (as defined in section 152 of the Code);
XI-1
<PAGE> 36
(4) the need to prevent the eviction of the Member from
his principal residence or foreclosure on the mortgage of the Member's
principal residence; or
(5) such other financial needs which the Commissioner of
Internal Revenue may deem to be immediate and heavy financial needs
through the publication of revenue rulings, notices and other documents
of general applicability.
The decision of the Committee shall be final and binding, provided that all
Members similarly situated shall be treated in a uniform and nondiscriminatory
manner. The above notwithstanding, (1) withdrawals under this Paragraph from a
Member's Cash or Deferred Account shall be limited to the sum of the Member's
Cash or Deferred Contributions to the Plan, plus income allocable thereto and
credited to the Member's Cash or Deferred Account as of December 31, 1988, less
any previous withdrawals of such amounts, and (2) amounts allocated to a
Member's Cash or Deferred Account pursuant to the provisions of Section 4.02(d)
or (e) and Company Matching Contributions used to satisfy the restrictions set
forth in Section 3.01(e) shall not be subject to withdrawal. A Member who makes
a withdrawal under this Paragraph may not again make elective contributions or
employee contributions to the Plan or any other qualified or nonqualified plan
of the Company or any Controlled Entity for a period of twelve months following
such withdrawal. Further, such Member may not make elective contributions under
the Plan or any other plan maintained by the Company or any Controlled Entity
for such Member's taxable year immediately following the taxable year of the
withdrawal in excess of the applicable limit set forth in Section 3.01(d) for
such next taxable year less the amount of such Member's elective contributions
for the taxable year of the withdrawal.
(d) All withdrawals pursuant to this Section shall be
made only as of the first day of any month by executing and filing with the
Committee the form prescribed by the Committee at least ten days prior to the
proposed date of withdrawal. Notwithstanding the provisions of this Section, no
withdrawal shall be made from an Account to the extent such Account has been
pledged to secure a loan under Section 11.02. If a Member's Account from which
a withdrawal is made is invested in more than one Fund, the Member shall
designate which Fund, or combination of Funds, from which the withdrawal shall
be made. In the absence of such designation, the withdrawal shall be made pro
rata from each Fund in which such Account is invested.
(e) This Section shall not be applicable to a Member
following termination of employment and the amounts in such Member's Accounts
shall be distributable in accordance with the provisions of Article X.
XI-2
<PAGE> 37
11.02 LOANS.
(a) Upon application by (1) any Member who is an Employee
or (2) any Member no longer employed by the Company, a beneficiary of a
deceased Member or an alternate payee under a qualified domestic relations
order who retains an Account balance under the Plan and who is a
party-in-interest, as that term is defined in section 3(14) of the Act, as to
the Plan (an individual who is eligible to apply for a loan under this Section
being hereinafter referred to as a "Member" for purposes of this Section), the
Committee may in its discretion direct the Trustee to make a loan or loans to
such Member, not to exceed 50% of the then value of the Member's Vested
Interest in his Accounts. Such loans shall be made pursuant to the provisions
of the Committee's written loan procedure, which procedure is hereby
incorporated by reference as a part of the Plan.
(b) Paragraph (a) above to the contrary notwithstanding,
the amount of a loan made to a Member under this Section shall not exceed an
amount equal to the difference between:
(1) the lesser of $50,000 (reduced by the excess, if any,
of (A) the highest outstanding balance of loans from the Plan during
the one-year period ending on the day before the date on which the loan
is made, over (B) the outstanding balance of loans from the Plan on the
date on which the loan is made) or one-half of the present value of the
Member's total nonforfeitable accrued benefit under all qualified plans
of the Company or a Controlled Entity (but not less than $10,000);
minus
(2) the total outstanding loan balance of the Member under
all other loans from all qualified plans of the Company or a Controlled
Entity.
XI-3
<PAGE> 38
XII.
ADMINISTRATION OF THE PLAN
12.01 APPOINTMENT OF COMMITTEE. The general administration of the Plan
shall be vested in the Committee which shall be appointed by the Directors and
shall consist of one or more persons. Any individual, whether or not an
Employee, is eligible to become a member of the Committee. Each member of the
Committee shall, before entering upon the performance of his duties, qualify by
signing a consent to serve as a member of the Committee under and pursuant to
the Plan and by filing such consent with the records of the Committee. For
purposes of the Act, the Committee shall be the Plan "administrator" and shall
be the "named fiduciary" with respect to the general administration of the Plan
(except as to the investment of the assets of the Trust Fund).
12.02 TERM, VACANCIES, RESIGNATION AND REMOVAL. Each member of the
Committee shall serve until he resigns, dies or is removed by the Directors. At
any time during his term of office, a member of the Committee may resign by
giving written notice to the Directors and the Committee, such resignation to
become effective upon the appointment of a substitute member or, if earlier,
the lapse of thirty days after such notice is given as herein provided. At any
time during his term of office, and for any reason, a member of the Committee
may be removed by the Directors. Any member of the Committee who is an Employee
shall automatically cease to be a member of the Committee as of the date he
ceases to be employed by the Company or a Controlled Entity.
12.03 OFFICERS, RECORDS AND PROCEDURES. The Committee may select
officers and may appoint a secretary who need not be a member of the Committee.
The Committee shall keep appropriate records of its proceedings and the
administration of the Plan and shall make available for examination during
business hours to any Member or beneficiary such records as pertain to that
individual's interest in the Plan. The Committee shall designate the person or
persons who shall be authorized to sign for the Committee and, upon such
designation, the signature of such person or persons shall bind the Committee.
12.04 MEETINGS. The Committee shall hold meetings upon such notice and
at such time and places as it may from time to time determine. Notice to a
member shall not be required if waived in writing by that member. A majority of
the members of the Committee duly appointed shall constitute a quorum for the
transaction of business. All resolutions or other actions taken by the
Committee at any meeting where a quorum is present shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions may
be adopted or other action taken without a meeting upon written consent signed
by all of the members of the Committee.
12.05 SELF-INTEREST OF MEMBERS. No member of the Committee shall have
any right to vote or decide upon any matter relating solely to himself under
the Plan or to vote in
XII-1
<PAGE> 39
any case in which his individual right to claim any benefit under the Plan is
particularly involved. In any case in which a Committee member is so
disqualified to act and the remaining members cannot agree, the Directors shall
appoint a temporary substitute member to exercise all the powers of the
disqualified member concerning the matter in which he is disqualified.
12.06 COMPENSATION AND BONDING. The members of the Committee shall not
receive compensation with respect to their services for the Committee. To the
extent required by the Act or other applicable law, or required by the Company,
members of the Committee shall furnish bond or security for the performance of
their duties hereunder.
12.07 COMMITTEE POWERS AND DUTIES. The Committee shall supervise the
administration and enforcement of the Plan according to the terms and
provisions hereof and shall have all powers necessary to accomplish these
purposes, including, but not by way of limitation, the right, power, authority
and duty:
(a) to make rules, regulations and bylaws for the
administration of the Plan which are not inconsistent with the terms
and provisions hereof, provided such rules, regulations and bylaws are
evidenced in writing and copies thereof are delivered to the Trustee
and to the Company;
(b) to construe all terms, provisions, conditions and
limitations of the Plan. In all cases, the construction necessary for
the Plan to qualify under the applicable provisions of the Code
shall control;
(c) to correct any defect or supply any omission or reconcile
any inconsistency that may appear in the Plan, in such manner and to
such extent as it shall deem expedient to effectuate the purposes of
the Plan;
(d) to employ and compensate such accountants, attorneys,
investment advisors and other agents and employees as the Committee may
deem necessary or advisable in the proper and efficient
administration of the Plan;
(e) to determine all questions relating to eligibility;
(f) to prescribe procedures to be followed by distributees in
obtaining benefits hereunder;
(g) to prepare, file and distribute, in such manner as the
Committee determines to be appropriate, such information and material
as is required by the reporting and disclosure requirements of the Act;
(h) to make a determination as to the right of any person to
a benefit under the Plan;
XII-2
<PAGE> 40
(i) to receive and review reports from the Trustee as to the
financial condition of the Trust Fund, including its receipts and
disbursements;
(j) to instruct the Trustee as to the loans to Members pursuant
to the provisions of Section 11.02.
(k) to instruct the Trustee as to the investment and
reinvestment of the Trust Fund in mutual funds and group annuity
contracts consistent with the Fund investment objectives set forth in
Article V; and
(l) to vote any shares of Company Stock or mutual funds held
in the Trust Fund, provided, however, that the Committee shall follow
the directions of the Members pursuant to Section 5.03(a) in voting
Company Stock, and further provided, that the Committee may appoint a
Voting Fiduciary to vote Company Stock in accordance with the
directions from the Members.
12.08 COMPANY TO SUPPLY INFORMATION. The Company shall supply full and
timely information to the Committee relating to the Compensation of all
Members, their ages, their retirement, death or other cause for termination of
employment and such other pertinent facts as the Committee may require. The
Company shall advise the Trustee of such of the foregoing facts as are deemed
necessary for the Trustee to carry out the Trustee's duties under the Plan.
When making a determination in connection with the Plan, the Committee shall be
entitled to rely upon the aforesaid information furnished by the Company.
12.09 INDEMNIFICATION. The Company shall indemnify and hold harmless
each member of the Committee against any and all expenses and liabilities
arising out of his or her administrative functions or fiduciary
responsibilities, excepting only expenses and liabilities arising out of the
individual's own gross negligence or willful misconduct. Expenses against which
such person shall be indemnified hereunder include, without limitation, the
amounts of any settlement or judgment, costs, counsel fees and related charges
reasonably incurred in connection with a claim asserted or a proceeding brought
or settlement thereof.
XII-3
<PAGE> 41
XIII.
ADMINISTRATION OF FUNDS
13.01 PAYMENT OF EXPENSES. All expenses incident to the administration
of the Plan and Trust, including but not limited to, legal, accounting, Trustee
fees, expenses of the Committee and the cost of furnishing any bond or security
required of the Committee, may be paid by the Company and, if not paid by the
Company, shall be paid by the Trustee from the Trust Fund and, until paid,
shall constitute a claim against the Trust Fund which is paramount to the
claims of Members and beneficiaries; provided, however, that in the event the
Trustee's compensation is to be paid, pursuant to this Section, from the Trust
Fund, any individual serving as Trustee who already receives full-time pay from
an employer or an association of employers whose employees are participants in
the Plan, or from an employee organization whose members are participants in
the Plan, shall not receive any additional compensation for serving as Trustee.
13.02 TRUST FUND PROPERTY. All income, profits, recoveries,
contributions, forfeitures and any and all moneys, securities and properties of
any kind at any time received or held by the Trustee hereunder shall be held
for investment purposes as a commingled Trust Fund. The Committee shall
maintain Accounts in the name of each Member, but the maintenance of an Account
designated as the Account of a Member shall not mean that such Member shall
have a greater or lesser interest than that due him by operation of the Plan
and shall not be considered as segregating any funds or property from any other
funds or property contained in the commingled fund. No Member shall have any
title to any specific asset in the Trust Fund.
13.03 DISTRIBUTIONS FROM MEMBERS' ACCOUNTS. Distributions from a
Member's Accounts shall be made by the Trustee only if, when, and in the amount
and manner directed in writing by the Committee. Any distribution made to a
Member or for his benefit shall be debited to such Member's Account or
Accounts. All distributions hereunder shall be made in cash except as otherwise
specifically provided herein.
XIII-1
<PAGE> 42
XIV.
TRUSTEE'S POWERS AND DUTIES
14.01 ACCEPTANCE OF FUND. The Trustee accepts the Trust Fund hereunder
and agrees to accept and retain, manage, administer and hold the Trust Fund in
accordance with the terms and provisions of this Plan. The Trustee shall
receive any securities or other properties that are tendered to the Trustee
pursuant to the Plan that are acceptable to the Trustee. For purposes of the
Act, the Trustee shall be the "named fiduciary" with respect to the investment
of the assets of the Trust Fund.
14.02 COMMITTEE DISCHARGING DUTY. The Trustee may assume that the
Committee is discharging its duties under the Plan until and unless the Trustee
is notified to the contrary in writing by any person known to be a Member or by
the Company. Upon receipt of such notice, the Trustee may, if the Trustee so
desires, apply to a court of competent jurisdiction for guidance with respect
to the disposition of the Trust Fund.
14.03 TAXES. If, pursuant to the provisions of any law now or
hereafter enacted, any tax shall be imposed upon the Trustee with respect to
the assets or income of the Trust Fund, the Trustee (without the necessity of
any direction or approval by the Committee) may pay such tax from the Trust
Fund, provided such payment is not otherwise prohibited by law. The Trustee,
however, shall not be obligated to pay any such tax as long as the validity
thereof is contested in good faith. In determining whether or not to pay any
such tax, the Trustee may obtain the advice of counsel (including, but not
limited to, counsel for the Company or the Committee).
14.04 POWERS OF THE TRUSTEE. Subject to any limitations stated
elsewhere herein, in addition to the authority, rights, privileges, powers and
duties elsewhere herein vested in the Trustee and those now or hereafter
conferred by law, the Trustee shall also have the following authority, rights,
privileges, powers and duties:
(a) To hold, manage, control, collect and use the Trust
Fund in accordance with the terms of this instrument.
(b) To sell (for cash or on credit, or both), exchange
or otherwise dispose of, the whole or any part of the Trust Fund, at
public or private sale; to lease (including, but not limited to, oil,
gas or mineral leases), rent, mortgage (including purchase money
mortgages), pledge or otherwise encumber, the whole or any part of the
Trust Fund; and to loan or borrow money in any manner, including by
joint and several obligations, all upon such terms, regardless of the
duration of the Trust, as the Trustee may deem advisable (provided that
neither the Company nor any Member may borrow from the Trust Fund
except as otherwise permitted herein).
XIV-1
<PAGE> 43
(c) To invest or reinvest the Trust Fund in property of
any description whatsoever (including, but not limited to, oil, gas or
mineral interests; common or preferred stock; shares of investment
trusts or companies; group annuity contracts; bills, notes and other
evidences of indebtedness; non-income producing property; and
property outside of Texas).
(d) To make or hold investments of any part of the Trust
Fund in common or undivided interest with other persons or entities,
including an undivided interest in any property in which any Trustee,
individually or otherwise, may hold an undivided interest; to buy from,
or sell to, any person or entity to the extent not otherwise
prohibited herein.
(e) To make commingled, collective or common investments;
and to invest and reinvest all or any portion of the Trust Fund
collectively with funds of other pension and profit sharing trusts
exempt from tax under section 501(a) of the Code by reason of
qualifying under section 401(a) of said Code, including, without
limitation, power to invest collectively with such other funds through
the medium of one or more of the common, collective or commingled trust
funds which has been or may hereafter be established and maintained by
the Trustee. To the extent of the interest of the Trust Fund in any
such collective trust, the agreement or declaration of trust
establishing such collective trust shall be deemed to be adopted and
made a part of the Plan and Trust as if set forth in full herein.
(f) To deposit or invest all or a part of the Trust Fund
in savings accounts, certificates of deposit or other deposits which
bear a reasonable rate of interest in a bank or similar financial
institution, including the commercial department of the Trustee, if
such bank or other institution is supervised by any agency of a
state or the federal government.
(g) To employ and compensate such attorneys, counsel,
brokers, banks, investment advisors or other agents or employees and to
delegate to them such of the duties, rights and powers of the Trustee
as may be deemed advisable in handling and administering the Plan.
(h) To partition any property or interest held as a part
of the Trust Fund and, in any and all such partitions, to pay or
receive such money or property as may be necessary or advisable to
equalize differences; and to evaluate any property belonging to
the Trust Fund.
(i) To institute, join in, maintain, defend, compromise, submit
to arbitration or settle any litigation, claim, obligation or
controversy with respect to any matter affecting the Trust Fund,
regardless of the manner in which such matter may have arisen, all in
the name of the Trustee and without the joinder of any Member.
XIV-2
<PAGE> 44
(j) To hold uninvested for a reasonable period of time
any moneys received by it until the same shall be invested or disbursed
pursuant to the provisions of the Plan.
The Trustee is also authorized to exercise all the rights, powers, options and
privileges now or hereafter granted to, provided for, or vested in, trustees
under the Texas Trust Code, except such as conflict with the terms of this
instrument or applicable law. As far as possible, no subsequent legislation or
regulation shall be in limitation of the rights, powers or privileges granted
the Trustee hereunder or in the Texas Trust Code as it exists at the time of
the execution hereof. Generally, the Trustee shall have, hold, manage, control,
use, invest and reinvest, disburse and dispose of, the Trust Fund under all
circumstances to the same extent as if the Trustee were the owner thereof in
fee simple, subject only to such limitations as are contained herein and such
applicable laws as cannot be waived. This instrument shall always be construed
in favor of the validity of any act or omission by or of the Trustee.
Notwithstanding the foregoing, the Trustee may not invest the Trust Fund assets
in any Company security which is not a "qualifying Company security" or in any
Company real property which is not "qualifying Company real property." The
Trustee may, however, acquire or hold "qualifying Company securities" or
"qualifying Company real property" as an investment provided that any such
acquisition or investment will not result in the Trust Fund's holding more than
50% of the then fair market value of the assets of the Trust Fund in
"qualifying Company securities" and "qualifying Company real property." The
term "qualifying Company securities" means stock or marketable obligations of
the Company or an affiliate. The term "qualifying Company real property" means
parcels of real property leased to the Company or an affiliate if a substantial
number of the parcels are dispersed geographically and if each parcel is
suitable for, or adaptable to, more than one use.
14.05 COMPENSATION, EXPENSES AND BOND OF TRUSTEE. Unless prohibited by
Section 13.01, the Trustee shall receive such compensation for services as
Trustee hereunder as may be agreed upon from time to time by the Company and
the Trustee. The Trustee shall be reimbursed for all reasonable expenses
incurred while acting as Trustee as provided in Section 13.01. No bond or other
security shall be required of the Trustee unless otherwise required by law or
by the Company.
14.06 RELIANCE. The Trustee shall be fully protected in relying upon a
resolution of the Directors as to the membership of the Committee as it then
exists and in continuing to rely upon such resolution until a subsequent
resolution is filed with the Trustee by the Directors. The Trustee may accept
as true all papers, certificates, statements and representations of fact that
are presented to the Trustee by the Committee without investigation,
questioning or verification if the Trustee believes same to be true and
authentic and may rely solely on the written advice of the Committee on any
question of fact.
XIV-3
<PAGE> 45
14.07 ACCOUNTING. As soon as possible after the end of each Plan Year,
the Trustee shall render a written accounting of the administration of the
Trust Fund showing all receipts and disbursements during the year and the then
value of the assets of the Trust Fund. This accounting shall be transmitted to
the Committee and to the Company.
14.08 JUDICIAL PROTECTION. The Trustee may seek judicial protection by
any action or proceeding deemed necessary to settle the accounts of the Trustee
or may obtain a judicial determination or a declaratory judgment as to a
question of construction of the Plan. The Trustee need join as parties
defendant in any such action only the Committee and the Company, although the
Trustee may join other parties if the Trustee deems it advisable to do so.
14.09 RESIGNATION AND REMOVAL. Any Trustee may resign at any time by
giving at least thirty days written notice of such resignation to the
Directors. Any Trustee may be removed, with or without cause, by the Directors
on written notice of such removal to such Trustee. The Directors may appoint a
successor Trustee by instrument in writing, copies of which shall be delivered
to the Committee and the former Trustee. If there would be no other Trustee
acting hereunder, the actual appointment and qualification of a successor
Trustee to whom the Trust Fund may be transferred are conditions which must be
fulfilled before the resignation or removal of a Trustee shall become
effective. The Directors may by resolution increase or decrease the number of
Trustees at any time acting hereunder.
XIV-4
<PAGE> 46
XV.
FIDUCIARY PROVISIONS
15.01 ARTICLE CONTROLS. This Article shall control over any contrary,
inconsistent or ambiguous provisions contained in the Plan.
15.02 GENERAL ALLOCATION OF DUTIES. Each fiduciary with respect to the
Plan shall have only those specific powers, duties, responsibilities and
obligations as are specifically given him under the Plan. The Directors shall
have the sole authority to appoint and remove the Trustee or members of the
Committee. Except as otherwise specifically provided, the Committee shall have
the sole responsibility for the administration of the Plan, which
responsibility is specifically described herein. Except as otherwise
specifically provided, the Trustee shall have the sole responsibility for the
administration, investment and management of the assets held under the Plan.
However, if the Committee, as a co-fiduciary, shall exercise its power given
hereunder at any time, and from time to time, by written notice to the Trustee,
to direct the Trustee in the management, investment and reinvestment of the
Trust Fund, then in that event the Trustee shall be subject to all proper
directions of the Committee which are made in accordance with the terms of the
Plan and the Act. It is intended under the Plan that each fiduciary shall be
responsible for the proper exercise of his own powers, duties, responsibilities
and obligations hereunder and shall not be responsible for any act or failure
to act of another fiduciary except to the extent provided by law or as
specifically provided herein.
15.03 FIDUCIARY DUTY. Each fiduciary under the Plan, including but not
limited to the Committee and the Trustee as "named fiduciaries," shall
discharge his duties and responsibilities with respect to the Plan:
(a) solely in the interest of the Members, for the exclusive
purpose of providing benefits to Members, and their beneficiaries, and
defraying reasonable expenses of administering the Plan;
(b) with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims;
(c) by diversifying the investments of the Plan so as to
minimize the risk of large losses, unless under the circumstances it is
prudent not to do so; and
(d) in accordance with the documents and instruments governing
the Plan insofar as such documents and instruments are consistent with
applicable law.
XV-1
<PAGE> 47
No fiduciary shall cause the Plan or Trust Fund to enter into a "prohibited
transaction" as provided in section 4975 of the Code.
15.04 DELEGATION AND ALLOCATION. The Committee may appoint
subcommittees, individuals or any other agents as it deems advisable and may
delegate to any of such appointees any or all of the powers and duties of the
Committee. Such appointment and delegation must be in writing, specifying the
powers or duties being delegated, and must be accepted in writing by the
delegatee. Upon such appointment, delegation and acceptance, the delegating
Committee members shall have no liability for the acts or omissions of any such
delegatee, as long as the delegating Committee members do not violate their
fiduciary responsibility in making or continuing such delegation.
15.05 INVESTMENT MANAGER. The Committee may, in its sole discretion,
appoint an "investment manager," with power to manage, acquire or dispose of
any asset of the Plan and to direct the Trustee in this regard, so long as:
(a) the investment manager is (1) registered as an investment
adviser under the Investment Advisers Act of 1940, (2) a bank, as
defined in the Investment Advisers Act of 1940, or (3) an insurance
company qualified to do business under the laws of more than one
state; and
(b) such investment manager acknowledges in writing that he
is a fiduciary with respect to the Plan.
Upon such appointment, the Committee shall not be liable for the acts of the
investment manager, as long as the Committee members do not violate their
fiduciary responsibility in making or continuing such appointment. The Trustee
shall follow the directions of such investment manager and shall not be liable
for the acts or omissions of such investment manager. The investment manager
may be removed by the Committee at any time and within its sole discretion.
XV-2
<PAGE> 48
XVI.
AMENDMENTS
No amendment of the Plan may be made which would vest in the Company,
directly or indirectly, any interest in or control of the Trust Fund. No
amendment may be made which would vary the Plan's exclusive purpose of
providing benefits to Members, and their beneficiaries, and defraying
reasonable expenses of administering the Plan or which would permit the
diversion of any part of the Trust Fund from that exclusive purpose. No
amendment shall be made which would reduce any then nonforfeitable interest of
a Member. No amendment shall increase the duties or responsibilities of the
Trustee unless the Trustee consents thereto in writing. Subject to these
limitations and any other limitations contained in the Act or the Code, the
Company may from time to time amend, in whole or in part, any or all of the
provisions of the Plan on behalf of the Company and other Employing Companies.
Specifically, but not by way of limitation, the Company may make any amendment
necessary to acquire and maintain a qualified status for the Plan under the
Code, whether or not retroactive.
XVI-1
<PAGE> 49
XVII.
DISCONTINUANCE OF CONTRIBUTIONS
TERMINATION AND MERGER OR CONSOLIDATION
17.01 DECLARATION OF INTENT. The Company has established the Plan with
the bona fide intention and expectation that from year to year it will be able
to, and will deem it advisable to, make its contributions as herein provided.
However, the Company realizes that circumstances not now foreseen, or
circumstances beyond its control, may make it either impossible or inadvisable
to continue to make its contributions to the Trustee. Therefore, the Company
shall have the power to discontinue contributions to the Plan, terminate the
Plan or partially terminate the Plan at any time hereafter. Each member of the
Committee and the Trustee shall be notified of such discontinuance, termination
or partial termination.
17.02 ADMINISTRATION OF PLAN IN CASE OF DISCONTINUANCE OF
CONTRIBUTIONS OR TERMINATION.
(a) If the Plan is amended so as to permanently
discontinue Company contributions, or if Company contributions are in fact
permanently discontinued, the Vested Interest of each affected Member shall be
100%, effective as of the date of discontinuance. In case of discontinuance,
the Committee shall remain in existence and all other provisions of the Plan
which are necessary, in the opinion of the Committee, for equitable operation
of the Plan shall remain in force.
(b) If the Plan is terminated or partially terminated,
the Vested Interest of each affected Member shall be 100%, effective as of the
termination date. Unless the Plan is otherwise amended prior to dissolution of
the Company, the Plan shall terminate as of the date of dissolution of the
Company.
(c) Upon discontinuance or termination, any previously
unallocated contributions, forfeitures and net income (or net loss) shall be
allocated among the Accounts of the Members on such date of discontinuance or
termination according to the provisions of Article IV, as if such date of
discontinuance or termination were a Valuation Date. Thereafter, the net income
(or net loss) shall continue to be allocated to the Accounts of the Members
until the balances are distributed. In the event of termination, the date of
the final distribution shall be treated as a Valuation Date.
(d) In the case of a total or partial termination of the
Plan, and in the absence of a Plan amendment to the contrary, the Trustee shall
pay the balance of the Accounts of a Member for whom the Plan is terminated to
such Member, subject to the time of payment, manner of payment and consent
provisions of Article X.
XVII-1
<PAGE> 50
17.03 MERGER, CONSOLIDATION OR TRANSFER. This Plan and Trust Fund may
not merge or consolidate with, or transfer its assets or liabilities to, any
other plan, unless immediately thereafter each Member would, in the event such
other plan terminated, be entitled to a benefit which is equal to or greater
than the benefit to which he would have been entitled if the Plan were
terminated immediately before the merger, consolidation or transfer. Prior to
any such merger, consolidation or transfer, the Committee shall make a
determination regarding compliance with this Section and shall also comply with
the provisions of section 6058(b) of the Code.
XVII-2
<PAGE> 51
XVIII.
OTHER EMPLOYING COMPANIES
18.01 ADOPTION BY OTHER EMPLOYING COMPANIES. It is contemplated that
other corporations, associations, partnerships or proprietorships may adopt
this Plan and thereby become an "Employing Company" hereunder. Any such entity,
whether or not presently existing, may become, upon approval of the Directors,
a party hereto by appropriate action of its Board of Directors or noncorporate
counterpart. 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 and, in the case of Employing
Companies which are Controlled Entities, forfeitures to be allocated pursuant
to Section 4.02 shall be allocated on an aggregate basis among the Members
employed by all Employing Companies. Nevertheless, any Employing Company may,
with the consent of the Directors, incorporate in its adoption agreement or in
an amendment document specific provisions relating to the operation of the
Plan, and such provisions shall become a part of the Plan as to such Employing
Company only. Transfer from the employment of the Company or an Employing
Company to the employment of the Company or any other Employing Company shall
not be considered a termination of employment hereunder, and an Hour of Service
with one shall be considered as an Hour of Service with all others. Any
Employing Company may, by appropriate action of its Board of Directors or
noncorporate counterpart, terminate its participation in the Plan. Moreover,
the Directors may, in their discretion, terminate an Employing Company's Plan
participation at any time.
18.02 SINGLE PLAN. For purposes of the Code and the Act, the Plan as
adopted by the Employing Companies shall constitute a single plan rather than a
separate plan of each Employing Company. All assets in the Trust Fund shall be
available to pay benefits to all Members and their beneficiaries.
XVIII-1
<PAGE> 52
XIX.
MISCELLANEOUS
19.01 NOT CONTRACT OF EMPLOYMENT. The adoption and maintenance of this
Plan shall not be deemed to be a contract between the Company and any person or
to be consideration for the employment of any person. Nothing herein contained
shall be deemed to give any person the right to be retained in the employ of
the Company or to restrict the right of the Company to discharge any person at
any time nor shall the Plan be deemed to give the Company the right to require
any person to remain in the employ of the Company or to restrict any person's
right to terminate his employment at any time.
19.02 PAYMENTS SOLELY FROM TRUST FUND. All benefits payable under the
Plan shall be paid or provided for solely from the Trust Fund and neither the
Company nor the Trustee assumes any liability or responsibility for the
adequacy thereof. The Committee or the Trustee may require execution and
delivery of such instruments as are deemed necessary to assure proper payment
of any benefits.
19.03 ALIENATION OF INTEREST FORBIDDEN. Except as otherwise provided
with respect to "qualified domestic relations orders" pursuant to section
206(d) of the Act and sections 401(a)(13) and 414(p) of the Code and except as
otherwise provided under other applicable law, no right or interest of any kind
in any benefit shall be transferable or assignable by any Member or any
beneficiary or be subject to anticipation, adjustment, alienation, encumbrance,
garnishment, attachment, execution or levy of any kind. Plan provisions to the
contrary notwithstanding, the Committee shall comply with the terms and
provisions of any "qualified domestic relations orders," including orders which
require distributions to an alternate payee prior to a Member's "earliest
retirement age" as such term is defined in section 206(d)(3)(E)(ii) of the Act
and section 414(p)(4)(B) of the Code, and shall establish appropriate
procedures to effect the same.
19.04 NO BENEFITS TO THE COMPANY. No part of the corpus or income of
the Trust Fund shall be used for any purpose other than the exclusive purpose
of providing benefits for the Members and their beneficiaries and defraying
reasonable expenses of administering the Plan. Anything to the contrary herein
notwithstanding, the Plan shall never be construed to vest any rights in the
Company other than those specifically given hereunder.
19.05 SEVERABILITY. If any provision of this Plan shall be held
illegal or invalid for any reason, said illegality or invalidity shall not
affect the remaining provisions hereof; instead, each provision shall be fully
severable and the Plan shall be construed and enforced as if said illegal or
invalid provision had never been included herein.
19.06 JURISDICTION. The situs of the Plan and the Trust hereby created
is Texas. All provisions of the Plan shall be construed in accordance with the
laws of Texas except to the extent preempted by federal law.
XIX-1
<PAGE> 53
XX.
TOP-HEAVY STATUS
20.01 ARTICLE CONTROLS. Any Plan provisions to the contrary
notwithstanding, the provisions of this Article shall control to the extent
required to cause the Plan to comply with the requirements imposed under
section 416 of the Code.
20.02 DEFINITIONS. For purposes of this Article, the following terms
and phrases shall have these respective meanings:
(a) ACCOUNT BALANCE: As of any Valuation Date, the
aggregate amount credited to an individual's account or accounts under
a qualified defined contribution plan maintained by the Company or a
Controlled Entity (excluding employee contributions which were
deductible within the meaning of section 219 of the Code and rollover
or transfer contributions made after December 31, 1983 by or on behalf
of such individual to such plan from another qualified plan sponsored
by an entity other than the Company or a Controlled Entity), increased
by (1) the aggregate distributions made to such individual from such
plan during a five-year period ending on the Determination Date and (2)
the amount of any contributions due as of the Determination Date
immediately following such Valuation Date.
(b) ACCRUED BENEFIT: As of any Valuation Date, the
present value (computed on the basis of the Assumptions) of the
cumulative accrued benefit (excluding the portion thereof which is
attributable to employee contributions which were deductible pursuant
to section 219 of the Code, to rollover or transfer contributions made
after December 31, 1983 by or on behalf of such individual to such plan
from another qualified plan sponsored by an entity other than the
Company or a Controlled Entity, to proportional subsidies or to
ancillary benefits) of an individual under a qualified defined benefit
plan maintained by the Company or a Controlled Entity increased by (1)
the aggregate distributions made to such individual from such plan
during a five-year period ending on the Determination Date and (2) the
estimated benefit accrued by such individual between such Valuation
Date and the Determination Date immediately following such Valuation
Date. Solely for the purpose of determining top-heavy status, the
Accrued Benefit of an individual shall be determined under (1) the
method, if any, that uniformly applies for accrual purposes under all
qualified defined benefit plans maintained by the Company and the
Controlled Entities or (2) if there is no such method, as if such
benefit accrued not more rapidly than under the slowest accrual rate
permitted under section 411(b)(1)(C) of the Code.
(c) AGGREGATION GROUP: The group of qualified plans
maintained by the Company and each Controlled Entity consisting of (1)
each plan in which a Key Employee participates and each other plan
which enables a plan in which a Key
XX-1
<PAGE> 54
Employee participates to meet the requirements of sections 401(a)(4) or
410 of the Code or (2) each plan in which a Key Employee participates,
each other plan which enables a plan in which a Key Employee
participates to meet the requirements of sections 401(a)(4) or 410 of
the Code and any other plan which the Company elects to include as a
part of such group; provided, however, that the Company may elect to
include a plan in such group only if the group will continue to meet
the requirements of sections 401(a)(4) and 410 of the Code with
such plan being taken into account.
(d) ASSUMPTIONS: The interest rate and mortality
assumptions specified for top-heavy status determination purposes in
any defined benefit plan included in the Aggregation Group
including the Plan.
(e) DETERMINATION DATE: For the first Plan Year of any
plan, the last day of such Plan Year and for each subsequent Plan Year
of such plan, the last day of the preceding Plan Year.
(f) KEY EMPLOYEE: A "key employee" as defined in section 416(i)
of the Code and the Treasury Regulations thereunder.
(g) PLAN YEAR: With respect to any plan, the annual accounting
period used by such plan for annual reporting purposes.
(h) REMUNERATION: Compensation within the meaning of section
415(c)(3) of the Code, as limited by section 401(a)(17) of the Code.
(i) VALUATION DATE: With respect to any Plan Year of any
defined contribution plan, the most recent date within the twelve-month
period ending on a Determination Date as of which the trust fund
established under such plan was valued and the net income (or loss)
thereof allocated to participants' accounts. With respect to any Plan
Year of any defined benefit plan, the most recent date within a
twelve-month period ending on a Determination Date as of which the plan
assets were valued for purposes of computing plan costs for purposes of
the requirements imposed under section 412 of the Code.
20.03 TOP-HEAVY STATUS.
(a) The Plan shall be deemed to be top-heavy for a Plan
Year, if, as of the Determination Date for such Plan Year, (1) the sum of
Account Balances of Members who are Key Employees exceeds 60% of the sum of
Account Balances of all Members unless an Aggregation Group including the Plan
is not top-heavy or (2) an Aggregation Group including the Plan is top-heavy.
An Aggregation Group shall be deemed to be top-heavy as of a Determination Date
if the sum (computed in accordance with section 416(g)(2)(B) of the Code and
the Treasury Regulations promulgated thereunder) of (1)
XX-2
<PAGE> 55
the Account Balances of Key Employees under all defined contribution plans
included in the Aggregation Group and (2) the Accrued Benefits of Key Employees
under all defined benefit plans included in the Aggregation Group exceeds 60%
of the sum of the Account Balances and the Accrued Benefits of all individuals
under such plans. Notwithstanding the foregoing, the Account Balances and
Accrued Benefits of individuals who are not Key Employees in any Plan Year but
who were Key Employees in any prior Plan Year shall not be considered in
determining the top-heavy status of the Plan for such Plan Year. Further,
notwithstanding the foregoing, the Account Balances and Accrued Benefits of
individuals who have not performed services for the Company or any Controlled
Entity at any time during the five-year period ending on the applicable
Determination Date shall not be considered.
(b) If the Plan is determined to be top-heavy for a Plan
Year, the Vested Interest in his Company Contribution Account of each Member
who is credited with an Hour of Service during such Plan Year shall be
determined in accordance with the following schedule:
<TABLE>
<CAPTION>
YEARS OF VESTING SERVICE VESTED INTEREST
------------------------ ---------------
<S> <C>
Less than 2 years 0%
2 years 25%
3 years 40%
4 years 60%
5 years 80%
6 years or more 100%
</TABLE>
(c) If the Plan is determined to be top-heavy for a Plan
Year, the Company shall contribute to the Plan for such Plan Year on behalf of
each Member who is not a Key Employee and who has not terminated his employment
as of the last day of such Plan Year an amount equal to:
(1) the lesser of (A) 3% of such Member's Remuneration for
such Plan Year or (B) a percent of such Member's Remuneration for such
Plan Year equal to the greatest percent determined by dividing for each
Key Employee the amounts allocated to such Key Employee's Cash or
Deferred Account and Company Contribution Account (other than Rollover
Contributions) for such Plan Year by such Key Employee's
Remuneration; reduced by
(2) the amounts allocated to such Member's Cash or Deferred
Account and Company Contribution Account for such Plan Year.
The minimum contribution required to be made for a Plan Year pursuant to this
Paragraph for a Member employed on the last day of such Plan Year shall be made
regardless of whether such Member is otherwise ineligible to receive an
allocation of the
XX-3
<PAGE> 56
Company's contributions for such Plan Year. The minimum contribution required
to be made pursuant to this Paragraph shall also be made for an Eligible
Employee who is not a Key Employee and who is excluded from participation in
the Plan for failing to make Cash or Deferred Contributions. Notwithstanding
the foregoing, if the Plan is deemed to be top-heavy for a Plan Year, the
Company's contribution for such Plan Year pursuant to this Paragraph shall be
increased by substituting "4%" in lieu of "3%" in Clause (1) hereof to the
extent that the Directors determine to so increase such contribution to comply
with the provisions of section 416(h)(2) of the Code. Notwithstanding the
foregoing, no contribution shall be made pursuant to this Paragraph for a Plan
Year with respect to a Member who is a participant in another defined
contribution plan sponsored by the Company or a Controlled Entity if such
Member receives under such other defined contribution plan (for the Plan Year
of such plan ending with or within the Plan Year of this Plan) a contribution
which is equal to or greater than the minimum contribution required by section
416(c)(2) of the Code. Notwithstanding the foregoing, no contribution shall be
made pursuant to this Paragraph for a Plan Year with respect to a Member who is
a participant in a defined benefit plan sponsored by the Company or a
Controlled Entity if such Member accrues under such defined benefit plan (for
the Plan Year of such plan ending with or within the Plan Year of this Plan) a
benefit which is at least equal to the benefit described in section 416(c)(1)
of the Code. If the preceding sentence is not applicable, the requirements of
this Paragraph shall be met by providing a minimum benefit under such defined
benefit plan which, when considered with the benefit provided under the Plan as
an offset, is at least equal to the benefit described in section 416(c)(1) of
the Code.
20.04 TERMINATION OF TOP-HEAVY STATUS. If the Plan has been deemed to
be top-heavy for one or more Plan Years and thereafter ceases to be top-heavy,
the provisions of this Article shall cease to apply to the Plan effective as of
the Determination Date on which it is determined to no longer be top-heavy.
Notwithstanding the foregoing, the Vested Interest of each Member as of such
Determination Date shall not be reduced and, with respect to each Member who
has five or more years of Vesting Service on such Determination Date (three or
more years of Vesting Service for Determination Dates occurring in Plan Years
beginning after December 31, 1988), the Vested Interest of each such Member
shall continue to be determined in accordance with the schedule set forth in
Section 20.03(b).
20.05 EFFECT OF ARTICLE. Notwithstanding anything contained herein to
the contrary, the provisions of this Article shall automatically become
inoperative and of no effect to the extent not required by the Code or the Act.
XX-4
<PAGE> 57
XXI.
SECURITIES REGULATIONS
Notwithstanding any other provision hereof, it is specifically provided
that the Trustee shall not purchase Company Stock or other Company securities
during any period in which such purchase is, in the opinion of counsel for the
Company or the Committee, restricted by any law or regulation applicable
thereto. During such period, amounts that would otherwise be invested in
Company Stock or other Company securities shall be invested in such other
assets as the Trustee may in its discretion determine or the Trustee may hold
such amounts uninvested for a reasonable period pending the designated
investment.
XXI-1
<PAGE> 58
EXECUTED this 10th day of December, 1990.
SEAGULL ENERGY CORPORATION
By: /s/ JOE T. RYE
---------------------------------
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, TRUSTEE
By: /s/ LUKE PROVENZANO
---------------------------------
(iii)
<PAGE> 59
FIRST AMENDMENT TO SEAGULL THRIFT PLAN
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore
adopted the SEAGULL THRIFT PLAN (the "Plan"); and
WHEREAS, the Company has amended and restated the Plan, effective as of
January 1, 1989 except as otherwise indicated therein; and
WHEREAS, the Company desires to further amend the Plan;
NOW, THEREFORE, the Plan is hereby amended, effective as of January 1,
1991, by adding the following sentence to the third paragraph of Section
1.01(23) of the Plan:
"Further, Hours of Service with Mesa Limited Partnership, and any
entity which would be a Controlled Entity if Mesa Limited Partnership
were the Company (Mesa Limited Partnership and such entities being
hereinafter referred to as the "Mesa Controlled Group"), shall be taken
into account for all purposes under the Plan with respect to employees
of the Mesa Controlled Group who become Employees in connection with
the acquisition of assets from the Mesa Controlled Group by the
Company."
As amended hereby, the Plan is specifically ratified and reaffirmed.
Executed this 22 day of May, 1991.
SEAGULL ENERGY CORPORATION
By /s/ JOE T. RYE
------------------------------------
Joe, T. Rye, Senior Vice President
and Chief Financial Officer
<PAGE> 60
SECOND AMENDMENT TO
SEAGULL THRIFT PLAN
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore
adopted the SEAGULL THRIFT PLAN (the "Plan"); and
WHEREAS, the Company has amended and restated the Plan, effective as of
January 1, 1989, except as otherwise indicated therein; and
WHEREAS, the Company desires to further amend the Plan;
NOW, THEREFORE, the Plan is hereby amended as follows, effective as of
January 1, 1991:
1. Sections 3.07(c), (d) and (e) of the Plan shall be deleted and
the following shall be substituted therefor:
"(c) Anything to the contrary herein notwithstanding, if,
for any Plan Year, the aggregate Company Contributions allocated to the
Accounts of Highly Compensated Employees exceeds the maximum amount of
such Company Contributions permitted on behalf of such Highly
Compensated Employees pursuant to Section 3.04 (determined by reducing
Company Contributions made on behalf of Highly Compensated Employees in
order of the `CONTRIBUTION PERCENTAGES' (as that term is defined in
section 401(m)(3) of the Code and Treasury Regulations thereunder)
beginning with the highest of such percentages), such excess shall be
distributed to the Highly Compensated Employees on whose behalf such
excess contributions were made (or, if such excess contributions are
forfeitable, they shall be forfeited) before the end of the next
following Plan Year. For purposes of this Paragraph, the determination
and correction of excess Company Contributions allocated to the Account
of a Member whose contribution percentage is determined under the
family aggregation rules of sections 401(m) and 414(q) of the Code
shall be made in accordance with the provisions of such sections and
the Treasury Regulations thereunder. Any excess contribution which is
forfeitable shall be considered forfeited on the date which is 2-1/2
months after the end of the Plan Year. Company Contributions shall be
forfeited pursuant to this Paragraph only if distribution of all vested
Company Contributions is insufficient to meet the requirements of this
Paragraph.
(d) In coordinating excess contributions pursuant to this
Section, such excess contributions shall be treated in the following
order:
<PAGE> 61
(1) first, excess deferrals described in Paragraph (a)
above shall be distributed;
(2) second, excess Cash or Deferred Contributions described
in Paragraph (b) above shall be distributed; and
(3) third, excess Company Contributions described in
Paragraph (c) above shall be distributed (or, if forfeitable,
forfeited).
(e) If, after all distributions and forfeitures required
by Paragraphs (a), (b), (c) and (d) above have been completed for a
Plan Year, Cash or Deferred Contributions, which were considered in
determining the amount of Company Contributions allocated to a Member
pursuant to Section 4.02 for such Plan Year, have been distributed, but
the Company Contributions which were allocated to such Member based
upon such distributed Cash or Deferred Contributions have not been
either distributed or forfeited, such remaining Company Contributions
with respect to such distributed Cash or Deferred Contributions shall
be forfeited, without regard to whether they were otherwise forfeitable
under the Plan. Such forfeiture shall be considered to have
occurred on the date which is 2-1/2 months after the end of the Plan
Year.
(f) Any distribution or forfeiture of excess contributions
pursuant to this Section shall be adjusted for income or loss allocated
thereto in accordance with the provisions of Section 4.03 through the
Valuation Date next preceding the date of the distribution or
forfeiture."
2. Section 4.04(b) of the Plan shall be deleted and the following
shall be substituted therefor:
"(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 allocation of forfeitures, a
reasonable error in estimating a Member's Compensation 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 and forfeitures shall, to
the extent such amounts
-2-
<PAGE> 62
would otherwise have been allocated to such Member's Company
Contribution Account, be allocated to a suspense account and
shall be held therein until allocated to Members' Company
Contribution Accounts in the same manner as a forfeiture;
(2) next, any such excess Annual Additions in the form of
Cash or Deferred Contributions on behalf of such Member which
would not have been considered in determining the amount of
Company Contributions allocated to such Member pursuant to
Section 4.02 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 on behalf of such Member
which would have been considered in determining the amount of
Company Contributions allocated to such Member pursuant to
Section 4.02 shall be distributed to such Member, adjusted for
income or loss allocated thereto, and the Company 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 allocated to Members' Company Contribution
Accounts in the same manner as a forfeiture."
3. Section 11.01(c) of the Plan shall be deleted and the following
shall be substituted therefor:
"(c) A Member who has a financial hardship, as determined
by the Committee, and who has made all available withdrawals pursuant
to the Paragraphs above and pursuant to the provisions of any other
plans of the Company and any Controlled Entities of which he is a
member and who has obtained all available loans pursuant to Section
11.02 and pursuant to the provisions of any other plans of the Company
and any Controlled Entities of which he is a member may withdraw from
his Cash or Deferred Account amounts not to exceed the lesser of (1)
the then value of such Account or (2) the amount determined by the
Committee as being available for withdrawal pursuant to this Paragraph.
For purposes of this Paragraph, financial hardship means the immediate
and heavy financial needs of the Member. A withdrawal based upon
financial hardship pursuant to this Paragraph shall not exceed the
amount required to meet the immediate financial need created by the
hardship and not reasonably available from other resources of the
Member. The amount required to meet the immediate financial need may
include any amounts necessary to pay any federal, state or local income
taxes or penalties reasonably anticipated to result from the
distribution. The determina-
-3-
<PAGE> 63
tion of the existence of a Member's financial hardship and the amount
required to be distributed to meet the need created by the hardship
shall be made by the Committee. A withdrawal shall be deemed to be made
on account of an immediate and heavy financial need of a Member if
the withdrawal is for:
(1) expenses for medical care described in section 213(d)
of the Code previously incurred by the Member, the Member's
spouse or any dependents of the Member (as defined in section
152 of the Code) or necessary for these persons to obtain
medical care described in section 213(d) of the Code and which
are not reimbursed or reimbursable by insurance;
(2) costs directly related to the purchase of a principal
residence for the Member (excluding mortgage payments);
(3) payment of tuition and related educational fees for
the next twelve months of post-secondary education for the
Member, the Member's spouse, children or dependents (as defined
in section 152 of the Code);
(4) payments necessary to prevent the eviction of the
Member from his principal residence or foreclosure on the
mortgage of the Member's principal residence; or
(5) such other financial needs which the Commissioner of
Internal Revenue may deem to be immediate and heavy financial
needs through the publication of revenue rulings, notices and
other documents of general applicability.
The decision of the Committee shall be final and binding, provided that
all Members similarly situated shall be treated in a uniform and
nondiscriminatory manner. The above notwithstanding, (1) withdrawals
under this Paragraph from a Member's Cash or Deferred Account shall be
limited to the sum of the Member's Cash or Deferred Contributions to
the Plan, plus income allocable thereto and credited to the Member's
Cash or Deferred Account as of December 31, 1988, less any previous
withdrawals of such amounts, and (2) amounts allocated to a Member's
Cash or Deferred Account pursuant to the provisions of Section 4.02(d)
or (e) shall not be subject to withdrawal. A Member who makes a
withdrawal under this Paragraph may not again make elective
contributions or employee contributions to the Plan or any other
qualified or nonqualified plan of the Company or any Controlled Entity
for a period of twelve months following such withdrawal. Further, such
Member may not make elective contributions under the Plan or any
other plan maintained by the Company or any Controlled Entity for
-4-
<PAGE> 64
such Member's taxable year immediately following the taxable year of
the withdrawal in excess of the applicable limit set forth in Section
3.01(d) for such next taxable year less the amount of such Member's
elective contributions for the taxable year of the withdrawal."
4. As amended hereby, the Plan is specifically ratified and
reaffirmed.
EXECUTED this 15th day of November, 1991.
SEAGULL ENERGY CORPORATION
By /s/ JOE T. RYE
-----------------------------------
Joe T. Rye, Senior Vice President
and Chief Financial Officer
-5-
<PAGE> 65
THIRD AMENDMENT TO
SEAGULL THRIFT PLAN
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore
adopted the SEAGULL THRIFT PLAN (the "Plan"); and
WHEREAS, pursuant to Section 7.1.2(a) of the Stock Purchase Agreement
dated November 16, 1992 between Arkla, Inc. and the Company and any amendments
thereto, the Company agreed to cover employees of Arkla Exploration Company
("AEC") under the Plan effective as of January 1, 1993 and to give such
employees credit thereunder for their period of employment with AEC, Arkla,
Inc. or any affiliate thereof; and
WHEREAS, the Company desires to amend the Plan to accomplish such
purpose;
NOW, THEREFORE, the Plan is hereby amended, effective as of January 1,
1993, by adding the following sentence to the third paragraph of Section
1.01(23) of the Plan:
"Further, Hours of Service with Arkla Exploration Company ("AEC"), and
any entity which would be a Controlled Entity if AEC were the Company,
shall be taken into account for all purposes under the Plan with
respect to Employees who were employees of AEC on the closing date of
the Company's acquisition of the stock of AEC from Arkla, Inc."
As amended hereby, the Plan is specifically ratified and reaffirmed.
Executed this 22 day of December, 1992.
SEAGULL ENERGY CORPORATION
By /s/ ROBERT M. KING
----------------------------------
<PAGE> 66
FOURTH 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:
I. Effective January 1, 1993:
1. The following new Paragraphs (16A), (17A), (19A) and (19B)
shall be added to Section 1.01 of the Plan:
"(16A) DIRECT ROLLOVER: A payment by the Plan to an Eligible
Retirement Plan designated by a Distributee.
(17A) 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.
(19A) 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 Roll-over 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.
(19B) 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
<PAGE> 67
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), (D) a loan treated as a distribution
under section 72(p) of the Code and not excepted by section
72(p)(2), (E) a loan in default that is a deemed
distribution, (F) any corrective distributions provided in
Sections 3.07 and 4.04(b), and (G) 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 10.01(b) of the Plan shall be deleted
and the following shall be substituted therefor:
"No less than thirty days and no more than ninety days before his
Benefit Commencement Date, the Committee shall inform the Member of his
right to defer his Benefit Commencement Date and shall describe the
Member's Direct Rollover election pursuant to Section 10.04 below."
3. Section 10.01(g) of the Plan shall be deleted and the following
shall be substituted therefor:
"Benefits shall be paid (or transferred pursuant to Section 10.04) in
cash except that a Member (or his designated beneficiary or legal
representative in the case of a deceased Member) may elect to have the
portion of his Accounts invested in Fund A distributed (or transferred
pursuant to Section 10.04) in full shares of Company Stock to the
extent of the Member's pro rata portion of the shares of Company Stock
held in Fund A with any balance of the Member's interest in Fund A
(including fractional shares) to be paid or transferred in cash."
4. The following new Section 10.04 shall be added to Article X of the
Plan:
"10.04 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
-2-
<PAGE> 68
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
Distributions during the Plan Year are reasonably expected to total
$200 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.
(b) No less than thirty days and no more than ninety
days before his Benefit Commencement Date, the Committee shall inform
the Distributee of his Direct Rollover right pursuant to this Section.
A distribution or Direct Rollover of the Distributee's benefit may
commence less than thirty days after such notice is given, provided
that (1) the Committee clearly informs the Distributee that the
Distributee has a right to a period of at least thirty days after
receiving the notice to consider the decision of whether or not to
elect a Direct Rollover and (2) the Distributee, after receiving the
notice, affirmatively elects either a distribution or a Direct
Rollover or a combination thereof."
5. The following sentence shall be added to the end Section
11.01(d) of the Plan:
"Any withdrawal pursuant to this Article XI shall be subject to the
Direct Rollover election described in Section 10.04."
II. Effective August 5, 1993, the following shall be added to the end of
Section 1.01(23) 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."
III. Effective January 1, 1994, Section 1.01(15) of the Plan shall be
deleted and the following shall be substituted therefor:
"(15) 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
-3-
<PAGE> 69
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."
IV. As amended hereby, the Plan is specifically ratified and reaffirmed.
EXECUTED this 1st day of September, 1994.
SEAGULL ENERGY CORPORATION
By /s/ ROBERT M. KING
-----------------------------------
-4-
<PAGE> 70
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> 71
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 ss.
1.401(m)-2(b)) occurs during a Plan Year, such multiple use shall be
corrected in accordance with the provisions of Treasury Regulation ss.
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> 72
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 /s/ ILLEGIBLE
----------------------------------
-3-
<PAGE> 73
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> 74
"(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> 75
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> 76
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 /s/ ROBERT W. SHOWER
---------------------------------
-4-
<PAGE> 1
EXHIBIT 10.11
SEAGULL ENERGY CORPORATION
SUPPLEMENTAL BENEFIT PLAN
Effective: January 1, 1991
<PAGE> 2
SEAGULL ENERGY CORPORATION
SUPPLEMENTAL BENEFIT PLAN
WITNESSETH:
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore
adopted the SEAGULL ENERGY CORPORATION SUPPLEMENTAL THRIFT PLAN (the "Plan")
for the benefit of certain of its eligible employees; and
WHEREAS, the Company desires to restate the Plan and amend the Plan in
several respects, intending thereby to provide an uninterrupted and continuing
program of benefits; and
WHEREAS, the Company, in restating and amending the Plan, desires to
change the name of the Plan to the "SEAGULL ENERGY CORPORATION SUPPLEMENTAL
BENEFIT PLAN;"
NOW, THEREFORE, the Plan is hereby restated in its entirety as follows
with no interruption in time, effective as of January 1, 1991:
(i)
<PAGE> 3
ARTICLE I
DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. Where the following words and phrases appear in the
Plan, they shall have the respective meanings set forth below, unless their
context clearly indicates otherwise:
(1) ACCOUNT: A memorandum bookkeeping account established on the records
of the Company for a Participant which is credited with amounts
determined pursuant to Sections 3.1, 3.2, 3.3 and 3.4 of the Plan. Each
Participant shall have three Accounts, a Deferred Compensation Account,
an ESOP Account and a Match Account. As of any determination date, a
Participant's benefit under this Plan shall be equal to the
amount credited to his Accounts as of such date.
(2) BONUS: With respect to any Participant for a Plan Year, amounts
considered as annual or incentive bonuses.
(3) CODE: The Internal Revenue Code of 1986, as amended.
(4) COMMITTEE: The Compensation Committee of the Board of Directors of the
Company.
(5) COMPANY: Seagull Energy Corporation.
(6) COMPANY CONTRIBUTIONS: Contributions made to the ESOP by the Company
with respect to a Participant pursuant to Section 5.02 of the ESOP.
(7) COMPANY MATCHING CONTRIBUTIONS: Contributions made to the Thrift Plan
by the Company on a Participant's behalf pursuant to Section 3.03 of
such Thrift Plan.
(8) COMPENSATION: With respect to any Participant for a Plan Year, amounts
considered as compensation pursuant to Section 1.01(15) of the Thrift
Plan, determined without regard to the limitations imposed by section
401(a)(17) of the Code.
(9) DEFERRED COMPENSATION ACCOUNT: An Account credited with amounts deter-
mined pursuant to Sections 3.1 and 3.4 of the Plan.
(10) EFFECTIVE DATE: January 1, 1991 as to this restatement of the Plan.
(11) ERISA: The Employee Retirement Income Security Act of 1974, as amended.
(12) ESOP: The Seagull Employee Stock Ownership Plan.
I-1
<PAGE> 4
(13) ESOP ACCOUNT: An account credited with amounts determined pursuant to
Sections 3.3 and 3.4 of the Plan.
(14) LIMITATIONS: Benefit limitations imposed on the ESOP and the Thrift
Plan by ERISA and by sections 401(a)(17), 401(k)(3), 401(m)(2), 402(g)
and 415 of the Code.
(15) MATCH ACCOUNT: An account credited with amounts determined pursuant to
Sections 3.2 and 3.4 of the Plan.
(16) PARTICIPANT: Any employee of the Company who has been designated by the
Committee as a Participant in the Plan until such employee ceases to be
a Participant in accordance with Section 2.1 of the Plan.
(17) PLAN: The Seagull Energy Corporation Supplemental Benefit Plan.
(18) PLAN YEAR: The twelve-consecutive month period commencing January 1 of
each year.
(19) THRIFT PLAN: The Seagull Thrift Plan.
1.2 CONSTRUCTION. The masculine gender, where appearing in the Plan,
shall be deemed to include the feminine gender; the singular shall include the
plural, and vice versa; unless the context clearly indicates to the contrary.
The headings of Articles and Sections herein are indicated solely for
convenience and if there is any conflict between such headings and the text of
the Plan, the text shall control.
I-2
<PAGE> 5
ARTICLE II
PARTICIPATION
2.1 ELIGIBILITY. Any employee of the Company shall become a
Participant upon designation by the Committee. Once an employee has been
designated as a Participant, he shall automatically continue to be a
Participant until he ceases to be an employee of the Company or is removed as a
Participant by the Committee.
2.2 COMPENSATION DEFERRAL ELECTION. Any Participant may elect to
defer receipt of an integral percentage of from 1% to 14% of his Compensation
for any calendar year under this Plan. A Participant's election to defer
receipt of Compensation for any subsequent calendar year under this Plan shall
be made prior to the January 1 of such calendar year and shall be irrevocable
for such calendar year. The reduction in a Participant's Compensation pursuant
to his election shall be effected by Compensation reductions as of each payroll
period within the election period.
2.3 BONUS DEFERRAL ELECTION. Any Participant may elect to defer
receipt of an integral percentage of from 1% to 14% of his Bonus for any
calendar year under this Plan. A Participant's election to defer receipt of a
percentage of his Bonus under this Plan shall be made prior to January 1 of the
calendar year during which such Bonus is earned and shall be irrevocable for
such calendar year. The reduction of a Participant's Bonus pursuant to this
election shall be effected at the time such Bonus is paid.
II-1
<PAGE> 6
ARTICLE III
BENEFITS
3.1 AMOUNT OF DEFERRED COMPENSATION BENEFIT. As of the last day of
each month of each Plan Year, a Participant's Deferred Compensation Account
shall be credited with an amount equal to the Compensation or Bonus deferred
under this Plan pursuant to an election by the Participant described in Article
II for such month.
3.2 AMOUNT OF SUPPLEMENTAL THRIFT BENEFIT. As of the last day of each
month of each Plan Year, the Match Account of any Participant who makes the
maximum allowable contribution under the Thrift Plan but, as a result of the
Limitations, such contribution is less than the percentage of Compensation such
Participant actually elected under such Plan shall be credited with an amount
equal to the excess, if any, of (a) over (b) where:
(a) equals the Company Matching Contributions to which such
Participant would have been entitled under the Thrift Plan based
upon the percentage of Compensation such Participant actually
elected to defer under such Plan for such month assuming none
of the Limitations were imposed; and
(b) equals the Company Matching Contributions which were made on
behalf of such Participant under the Thrift Plan for such month.
3.3 AMOUNT OF SUPPLEMENTAL ESOP BENEFIT. As of the last day of each
Plan Year, a Participant's ESOP Account shall be credited with an amount equal
to the excess, if any, of (a) over (b) where:
(a) is the amount of Company Contributions which would have been
allocated to such Participant's Stock and Investment Accounts
under the ESOP assuming none of the Limitations were imposed; and
(b) is the amount of Company Contributions actually allocated to
such Participant's Stock and Investment Accounts under the ESOP.
3.4 CREDITING OF INCOME.
(a) INTEREST EQUIVALENTS. As of the last day of each calendar
quarter, each of a Participant's Accounts shall be credited with a dollar
amount equal to interest on the amounts credited to such Account (excluding any
amounts being credited to such Account as of such date) computed at the sum of:
(1) the prime rate published in the Wall Street Journal
on the last business day of such calendar quarter, plus
III-1
<PAGE> 7
(2) a rate based upon the number of complete Plan Years which
have elapsed since the date the Participant commenced
participation in the Plan in accordance with the following
schedule:
<TABLE>
<CAPTION>
NUMBER OF PLAN YEARS ADDITIONAL RATE OF INTEREST
-------------------- ---------------------------
<S> <C>
Less than 5 0%
5 but less than 10 1%
10 or more 2%
</TABLE>
(b) ALTERNATIVE INVESTMENT IN STOCK UNITS. In lieu of having
his Accounts credited with interest equivalents pursuant to Paragraph (a) above,
a Participant may elect in accordance with the provisions of Paragraph (c) below
to have the value of his Accounts determined as if they had been credited with a
number of shares of stock (the "Phantom Stock") equal to the number of shares of
common stock of the Company which could have been purchased with such Accounts
on the date of such election and, for amounts which are subsequently credited to
the Participant's Account, on the date such amounts are so credited, based upon
the average of the closing prices of common stock of the Company on the twenty
trading days preceding such date. As of the last day of each calendar quarter
and as of any other date which the Committee shall determine, the Committee
shall redetermine the value of each Participant's Accounts credited with Phantom
Stock based upon the increase or decrease in the value of the common stock of
the Company during such quarter plus credit for dividends paid during such
quarter; for the purpose of such redetermination, one share of Phantom Stock
shall be deemed to be the equivalent of one share of the common stock of the
Company.
(c) CREDITING ELECTION. Prior to the first day of any calendar
quarter, a Participant may elect to have his Accounts credited with Phantom
Stock pursuant to Paragraph (b) above for such quarter. Any such election shall
be effective until revoked by the Participant. If a Participant revokes an
election made pursuant to this Paragraph as of the first day of any calendar
quarter, such Participant's Accounts shall be credited with the value of the
number of shares of Phantom Stock credited to his Accounts as of the last day of
the prior calendar quarter, based upon the average of the closing prices of
common stock of the Company on the twenty trading days preceding such date. If a
Participant fails to make any election under this Paragraph, his Accounts shall
be credited with interest equivalents pursuant to Paragraph (a) above.
III-2
<PAGE> 8
ARTICLE IV
FORFEITURES
If any portion of a Participant's Company Matching Account under the
Thrift Plan or such Participant's Stock Account or Investment Account under the
ESOP is forfeited for any reason, amounts equal to the percentages of his Match
or ESOP Accounts under this Plan which correspond to the percentages of his
Accounts under the Thrift Plan or the ESOP which were forfeited shall be
debited from his Accounts. Notwithstanding the preceding sentence, in the event
of a change of control that is not approved, recommended and supported by at
least two-thirds of the Directors that were also Directors prior to the
occurrence of any such change of control in actions taken prior to, and with
respect to, such change of control, amounts credited to a Participant's
Accounts shall be nonforfeitable as of the date of such change of control.
Further, in the event of a change of control other than as described in the
preceding sentence, amounts credited to a Participant's Accounts shall be
nonforfeitable upon involuntary termination of employment within the
twelve-month period following the date of such change of control. For purposes
of the Plan, a "change of control" shall be deemed to have occurred if (i) any
person (other than Employee or the Company) including a "group" as determined
in accordance with Section 13(d)(3) of the Securities Exchange Act of 1934,
becomes the beneficial owner of shares of the Company having 40% or more of the
total number of votes that may be cast for the election of Directors; or (ii)
as a result of, or in connection with, any cash tender or exchange offer,
merger or other business combination, sale of assets or contested election, or
any combination of the foregoing transactions (a "Transaction"), the persons
who were Directors before the Transaction shall cease to constitute a majority
of the Board of Directors of the Company or any successor thereto. The
determinations of whether a change of control has occurred and whether such
change of control was not approved, recommended or supported by the Directors
in actions taken prior to, and with respect to, such change of control shall be
made by the Committee as existing at least six months prior to the occurrence
of such change of control and its determination shall be final.
IV-1
<PAGE> 9
ARTICLE V
FORM AND TIMING OF BENEFITS
Upon a Participant's termination of employment, his benefit under this
Plan shall be paid to him (or his beneficiary) in a lump sum in cash as soon as
practicable following such termination of employment. Notwithstanding the
preceding sentence, in the event of a change of control that is not approved,
recommended and supported by at least two-thirds of the Directors that were
also Directors prior to the occurrence of any such change of control in actions
taken prior to, and with respect to, such change of control, each Participant's
benefit under this Plan shall be paid to him (or his beneficiary) in a lump sum
in cash as soon as practicable, but no later than thirty days following the
date on which such change of control occurs. If a Participant has elected to
have his Accounts credited with Phantom Stock pursuant to Section 3.4(c), the
Participant shall be paid an amount equal to the value of his Accounts as of
the last day of the calendar month preceding his termination of employment or
the change of control as described in the preceding sentence, based upon the
average of the closing prices of common stock of the Company on the twenty
trading days preceding such date. If a Participant's employment is terminated
by reason of death, his benefit under this Plan shall be paid to the same
recipient or recipients as are paid his benefits under the Thrift Plan.
V-1
<PAGE> 10
ARTICLE VI
MISCELLANEOUS
6.1 ADMINISTRATION. This Plan shall be administered by the Committee
as an unfunded plan which is not intended to meet the qualification
requirements of section 401 of the Code. The Committee shall have full power
and authority to interpret, construe and administer this Plan and the
Committee's interpretations and construction hereof, and actions hereunder,
including the timing, form, amount or recipient of any payment to be made
hereunder, shall be binding and conclusive on all persons for all purposes. In
the event that an individual's claim for a benefit is denied or modified, the
Committee shall provide such individual with a written statement setting forth
the specific reasons for such denial or modification in a manner calculated to
be understood by the individual. Any such written statement shall reference the
pertinent provisions of the Plan upon which the denial or modification is based
and shall explain the Plan's claim review procedure. Such individual may,
within sixty days of receipt of such written statement, make written request to
the Committee for review of its initial decision. Within sixty days following
such request for review, the Committee shall, after affording such individual a
reasonable opportunity for a full and fair hearing, render its final decision
in writing to such individual. No member of the Committee shall be liable to
any person for any action taken or omitted in connection with the
interpretation and administration of this Plan unless attributable to his own
willful misconduct or lack of good faith. Members of the Committee shall not
participate in any action or determination regarding their own benefits
hereunder.
6.2 INDEMNIFICATION. The Company shall indemnify and hold harmless
each member of the Committee and any other person acting on its behalf, against
any and all expenses and liabilities arising out of his or her administrative
functions or fiduciary responsibilities, excepting only expenses and
liabilities arising out of the individual's own willful misconduct. Expenses
against which such person shall be indemnified hereunder include, without
limitation, the amounts of any settlement or judgment, costs, counsel fees and
related charges reasonably incurred in connection with a claim asserted or a
proceeding brought or settlement thereof.
6.3 AMENDMENT OR TERMINATION. The Company may, in its sole discretion,
terminate, suspend, or amend this Plan at any time or from time to time, in
whole or in part, by means of 30 days written notice given to each Participant.
If the Company should amend or suspend this Plan, no such amendment or
suspension shall reduce any amounts credited to a Participant's Accounts which
are nonforfeitable as of the date of such amendment or suspension.
Notwithstanding any provision to the contrary, if the Company terminates this
Plan, all amounts credited to the Participants' Account shall become
nonforfeitable as of the date of such termination and the Committee, in its
sole discretion, may elect to pay all such amounts as soon as practicable
following such date.
VI-1
<PAGE> 11
6.4 PARACHUTE PAYMENT LIMITATIONS. To the extent that any amounts
payable pursuant to this Plan would result in the receipt by Participant of a
"parachute payment," as such term is defined in section 280G(b)(2)(A) of the
Code, Participant shall be entitled to receive only that amount which would
result in Participant's receiving an aggregate present value of all payments in
the nature of compensation received by or for the benefit of Participant from
the Company and its affiliates that are contingent on a change in the ownership
or effective control of the Company or in the ownership of a substantial
portion of the assets of the Company, whether pursuant to the Plan or other
arrangements, which is equal to 2.999 times Participant's "base amount," as
such term is defined in section 280G(b)(3)(A) of the Code. The foregoing
limitation is intended to provide the Company with the discretion to reduce
payments in the nature of compensation to or for the benefit of Participant
that are contingent on a change in the ownership or effective control of the
Company or in the ownership of a substantial portion of the assets of the
Company, whether pursuant to the Plan or other arrangements,in whatever manner
is most suitable under the circumstances so as to avoid imposition of the
sanctions imposed under sections 280G and 4999 of the Code with respect to
"excess parachute payments," as such term is defined in section 280G(b)(1) of
the Code; provided, however, that the Company shall have the obligation to
exercise such discretion in a manner that results in the minimization of
federal income tax incidence to Participant.
6.5 NONGUARANTEE OF EMPLOYMENT. Nothing contained in this Plan shall
be construed as a contract of employment between the Company and any
Participant, or as a right to have benefits which are provided by the Company
maintained, or as a right of any Participant to be continued in the employment
of the Company, or as a limitation of the right of the Company to discharge any
of its Participants, with or without cause.
6.6 RIGHTS TO COMPANY'S ASSETS. No Participant shall have any right
to, or interest in, any assets of the Company upon termination of employment or
otherwise, except as provided from time to time under this Plan, and then only
to the extent of the benefits payable under the Plan to such Participant. This
Plan is unfunded, and all payments of benefits as provided for in this Plan
shall be made solely out of the general assets of the Company on a current
disbursements basis.
6.7 NONALIENATION OF BENEFITS. Subject to income tax withholding,
benefits payable under this Plan shall not be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution, or levy of any kind, either voluntary or
involuntary, including any such liability which is for alimony or other
payments for the support of a spouse or former spouse, or for any other
relative of the Participant, prior to actually being received; and any attempt
to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or
otherwise dispose of any right to benefits payable hereunder, shall be void.
The Company shall not in any manner be liable for, or subject to, the debts,
contracts, liabilities, engagements or torts of any person entitled to benefits
hereunder.
VI-2
<PAGE> 12
6.8 WITHHOLDING TAXES. The Company shall have the right to deduct
from all payments made under this Plan, any federal, state or local taxes
required by law to be withheld with respect to such payments.
6.9 SEVERABILITY. If any provision of this Plan shall be held illegal
or invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions hereof; instead, each provision shall be fully severable
and the Plan shall be construed and enforced as if said illegal or invalid
provision had never been included herein.
6.10 OTHER EMPLOYING COMPANIES. Any subsidiary or affiliate of the
Company which has adopted the Thrift Plan may adopt this Plan for the benefit
of its employees. The provisions of this Plan shall be applicable with respect
to each employer separately, and amounts payable hereunder shall be paid by the
employer which employs the particular employee. If any employee shall be
entitled to benefits under the Thrift Plan on account of service with more than
one employer, the obligations under this Plan shall be apportioned among such
employers on the basis of time of service with each.
6.11 JURISDICTION. The situs of the Plan hereby created is Texas. All
provisions of the Plan shall be construed in accordance with the laws of Texas
except to the extent preempted by federal law.
VI-3
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
executed this 6th day of February, 1991.
SEAGULL ENERGY CORPORATION
By /s/ JOE T. RYE
-----------------------------------
Joe T. Rye
Senior Vice President and
Chief Financial Officer
(ii)
<PAGE> 14
FIRST AMENDMENT TO
SEAGULL ENERGY CORPORATION
SUPPLEMENTAL BENEFIT PLAN
WHEREAS, SEAGULL ENERGY CORPORATION (the "Company") has heretofore
adopted the SEAGULL ENERGY CORPORATION SUPPLEMENTAL BENEFIT PLAN (the "Plan");
and
WHEREAS, the Company desires to amend the Plan;
NOW, THEREFORE, the Plan shall be amended as follows, effective as of
January 1, 1992:
1. Section 2.2 of the Plan shall be deleted and the following shall
be substituted therefor:
"2.2 COMPENSATION DEFERRAL ELECTION. Any Participant may elect
to defer receipt of an integral percentage of from 1% to 14% of his
Compensation for any calendar year under this Plan. A Participant's
election to defer receipt of Compensation for any calendar year under
this Plan shall be made prior to the January 1 of such calendar year
and shall be irrevocable for such calendar year. Notwithstanding the
preceding sentence, in the case of an employee who first becomes a
Participant after the beginning of a calendar year, such Participant
may elect prospectively to defer receipt of an integral percentage of
from 1% to 14% of his Compensation for the remaining portion of such
calendar year under this Plan; provided, however, that such election
must be made within thirty days after the date he becomes a
Participant. The reduction in a Participant's Compensation pursuant to
his election shall be effected by Compensation reductions as of each
payroll period within the election period."
2. Section 3.2 of the Plan shall be deleted and the following shall
be substituted therefor:
"3.2 AMOUNT OF SUPPLEMENTAL THRIFT BENEFIT.
(a) As of the last day of each month of each Plan Year, and at
the discretion of the Committee, the Match Account of any Participant
who is not eligible to receive Company Matching Contributions under the
Thrift Plan because he has not completed the required period of service
with the Company shall be credited with an amount equal to 6% of such
Participant's Compensation for such month.
<PAGE> 15
(b) As of the last day of each month of each Plan Year, the
Match Account of any Participant who makes the maximum allowable
contribution under the Thrift Plan but, as a result of the Limitations,
such contribution is less than the percentage of Compensation such
Participant actually elected under such Plan shall be credited with an
amount equal to the excess, if any, of (1) over (2) where:
(1) equals the Company Matching Contributions to which such
Participant would have been entitled under the Thrift Plan
based upon the percentage of Compensation such Participant
actually elected to defer under such Plan for such month
assuming none of the Limitations were imposed; and
(2) equals the Company Matching Contributions which were made on
behalf of such Participant under the Thrift Plan for such
month."
3. As amended hereby, the Plan is specifically ratified and
reaffirmed.
EXECUTED this 2nd day of March, 1992.
SEAGULL ENERGY CORPORATION
By /s/ ILLEGIBLE
----------------------------------
-2-
<PAGE> 1
EXHIBIT 10.22
SEAGULL ENERGY CORPORATION
1990 STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The SEAGULL ENERGY CORPORATION 1990 STOCK OPTION PLAN (the "Plan") is
intended to provide a means whereby certain employees of SEAGULL ENERGY
CORPORATION, a Texas corporation (the "Company"), and its subsidiaries may
develop a sense of proprietorship and personal involvement in the development
and financial success of the Company, and to encourage them to remain with and
devote their best efforts to the business of the Company, thereby advancing the
interests of the Company and its shareholders. Accordingly, the Company may
grant to certain employees the option ("Option") to purchase shares of the
common stock of the Company ("Stock"), as hereinafter set forth. Options
granted under the Plan may be either incentive stock options, within the
meaning of section 422A(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), ("Incentive Stock Options") or options which do not constitute
Incentive Stock Options.
II. ADMINISTRATION
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). Members of
the Committee shall be persons that are "disinterested persons" within the
meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934,
as amended (the "1934 Act"). The Committee shall have sole authority to select
the individuals who are to be granted Options from among those eligible
hereunder and to establish the number of shares which may be issued under each
Option. The Committee is authorized to interpret the Plan and may from time to
time adopt such rules and regulations, consistent with the provisions of the
Plan, as it may deem advisable to carry out the Plan. All decisions made by the
Committee in selecting the individuals to whom Options shall be granted, in
establishing the number of shares which may be issued under each Option and in
construing the provisions of the Plan shall be final.
III. OPTION AGREEMENTS
Each Option shall be evidenced by an Option Agreement and shall contain
such terms and conditions, and may be exercisable for such periods, as may be
approved by the Committee. The terms and conditions of the respective Option
Agreements need not be identical. Specifically, an Option Agreement may provide
for the surrender of the right to purchase shares under the Option in return
for a payment in cash or shares of Stock or a combination of cash and shares of
Stock equal in value to the excess of the fair market value of the shares with
respect to which the right to purchase is surrendered over the option price
therefor ("Stock Appreciation Rights"), on such terms and conditions as the
Committee in its sole discretion may prescribe; provided, that with
<PAGE> 2
respect to Stock Appreciation Rights granted to employees who are subject to
Section 16 of the 1934 Act, except as provided in Subparagraph VIII(c) hereof,
the Committee shall retain final authority (i) to determine whether an optionee
shall be permitted, or (ii) to approve an election by an optionee, to receive
cash in full or partial settlement of Stock Appreciation Rights. Moreover, 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. Finally, in
the case of an option which does not constitute an Incentive Stock Option, an
Option Agreement may provide for payment of the amount of federal or state
income tax withholding required with respect to the exercise of such Option by
permitting an Optionee to surrender shares of Stock or authorize the Company to
withhold from shares of Stock acquired upon exercise of such Option shares of
Stock equal in value to such withholding. For all purposes under the Plan, the
fair market value of a share of Stock on a particular date shall be equal to
the closing price of the Stock on the New York Stock Exchange Composite Tape on
that date, or if no prices are reported on that date, on the last preceding
date on which such prices of the Stock are so reported. Each Option and all
rights granted thereunder shall not be transferable other than by will or the
laws of descent and distribution, and shall be exercisable during the
optionee's lifetime only by the optionee or the optionee's guardian or legal
representative.
IV. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are key employees
(including officers and directors who are also key employees) of the Company or
any parent or subsidiary corporation (as defined in section 425 of the Code) of
the Company at the time the Option is granted. Options may be granted to the
same individual on more than one occasion. 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 422A(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. 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 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
-2-
<PAGE> 3
limitation and shall notify the optionee of such determination as soon as
practicable after such determination.
V. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options
granted under the Plan shall not exceed 500,000 shares of Stock. Such shares
may consist of authorized but unissued shares of Stock or previously issued
shares of Stock reacquired by the Company. Any of such shares which remain
unissued and which are not subject to outstanding Options at the termination of
the Plan shall cease to be subject to the Plan, but, until termination of the
Plan, the Company shall at all times make available a sufficient number of
shares to meet the requirements of the Plan. Should any Option hereunder expire
or terminate prior to its exercise in full, the shares theretofore subject to
such Option may again be subject to an Option granted under the Plan. The
aggregate number of shares which may be issued under the Plan shall be subject
to adjustment in the same manner as provided in Paragraph VIII hereof with
respect to shares of Stock subject to Options then outstanding. Exercise of an
Option in any manner, including an exercise involving a Stock Appreciation
Right, shall result in a decrease in the number of shares of Stock which may
thereafter be available, both for purposes of the Plan and for sale to any one
individual, by the number of shares as to which the Option is exercised.
Separate stock certificates shall be issued by the Company for those shares
acquired pursuant to the exercise of an Incentive Stock Option and for those
shares acquired pursuant to the exercise of any Option which does not
constitute an Incentive Stock Option.
VI. OPTION PRICE
The purchase price of Stock issued under each Option shall be
determined by the Committee, but in the case of an Incentive Stock Option, such
purchase price shall not be less than the fair market value of Stock subject to
the Option on the date the Option is granted.
VII. TERM OF 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. Except with respect to Options then outstanding, if not
sooner terminated under the provisions of Paragraph IX, the Plan shall
terminate upon and no further Options shall be granted after the expiration of
ten years from the date of its adoption by the Board.
VIII. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options 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 or proceeding.
-3-
<PAGE> 4
(b) The shares with respect to which Options may be granted are shares
of Stock as presently constituted, but if, and whenever, prior to the
expiration of an Option 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 Option may thereafter be
exercised (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.
(c) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise of an Option theretofore granted the
optionee shall be entitled to purchase under such Option, in lieu of the number
of shares of Stock as to which such Option shall then be exercisable, the
number and class of shares of stock and securities to which the optionee would
have been entitled pursuant to the terms of the recapitalization if,
immediately prior to such recapitalization, the optionee had been the holder of
record of the number of shares of Stock as to which such Option is then
exercisable. If (i) the Company shall not be the surviving entity in any merger
or consolidation (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 or agrees to sell, lease or exchange 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 Stock, 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 (each
such event is referred to herein as a "Corporate Change"), then effective as of
a date (selected by the Committee) within (a) ten days after the approval by
the shareholders of the Company of such merger, consolidation, sale, lease or
exchange of assets or dissolution or such election of directors or (b) thirty
days of such change of control, the Committee, acting in its sole discretion
without the consent or approval of any optionee, shall effect one or more of
the following alternatives, which may vary among individual optionees: (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 Corporate Change) fixed by the
Committee, after which specified date all unexercised Options and all rights of
optionees thereunder shall terminate, (2) require the mandatory surrender to
the Company by selected optionees of some or all of the outstanding Options
held by such optionees (irrespective of whether such Options are then
-4-
<PAGE> 5
exercisable under the provisions of the Plan) as of a date, before or after
such Corporate Change, specified by the Committee, in which event the Committee
shall thereupon cancel such Options and pay to each optionee an amount of cash
per share equal to the excess of the amount calculated in Subparagraph (d)
below (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 Corporate Change (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 optionee shall be entitled to purchase under such
Option, in lieu of the number of shares of Stock as to which such Option shall
then be exercisable, the number and class of shares of stock or other
securities or property to which the optionee 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 optionee had been the holder of record of the number
of shares of Stock as to which such Option is then exercisable.
(d) For the purposes of clause (2) in Subparagraph (c) above, the
"Change of Control Value" shall equal the amount determined in clause (i), (ii)
or (iii), whichever is applicable, as follows: (i) the per share price offered
to shareholders of the Company in any such merger, consolidation, sale of
assets or dissolution transaction, (ii) the price per share offered to
shareholders of the Company in any tender offer or exchange offer whereby a
Corporate Change takes place, or (iii) if such Corporate Change occurs other
than pursuant to a tender or exchange offer, the fair market value per share of
the shares into which such Options being surrendered are exercisable, as
determined by the Committee as of the date determined by the Committee to be
the date of cancellation and surrender of such Options. In the event that the
consideration offered to shareholders of the Company in any transaction
described in this Subparagraph (d) or Subparagraph (c) above 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) Any adjustment provided for in Subparagraphs (b) or (c) above shall
be subject to any required shareholder action.
(f) 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 or 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 Options theretofore granted or the
purchase price per share.
IX. AMENDMENT OR TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Options 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 Option theretofore granted may be
made which would impair the rights of the optionee without the consent of such
optionee; and provided, further, that the Board may not make any alteration or
amendment which would materially increase the benefits accruing to participants
under the Plan, increase the aggregate number of shares which may be issued
pursuant to the provisions of the Plan, change the class of individuals eligible
to receive Options under the Plan or extend the term of the Plan, without the
approval of the shareholders of the Company.
-5-
<PAGE> 6
NONSTATUTORY STOCK OPTION AGREEMENT
AGREEMENT made as of the ______ day of ________________, 19___, between
SEAGULL ENERGY CORPORATION, a Texas corporation (the "Company") and
____________________________ ("Employee").
To carry out the purposes of the SEAGULL ENERGY CORPORATION 1990 STOCK
OPTION PLAN (the "Plan"), by affording Employee the opportunity to purchase
shares of common stock of the Company ("Stock"), and in consideration of the
mutual agreements and other matters set forth herein and in the Plan, the
Company and Employee hereby agree as follows:
1. GRANT OF OPTION. The Company hereby irrevocably grants to Employee
the right and option ("Option") to purchase all or any part of an aggregate of
______ shares of Stock, on the terms and conditions set forth herein and in the
Plan, which Plan is incorporated herein by reference as a part of this
Agreement. This Option shall not be treated as an incentive stock option within
the meaning of section 422A(b) of the Internal Revenue Code of 1986, as amended
(the "Code").
2. PURCHASE PRICE. The purchase price of Stock purchased pursuant to
the exercise of this Option shall be $_______ per share. For all purposes of
this Agreement, fair market value of Stock shall be determined in accordance
with the provisions of the Plan.
3. EXERCISE OF OPTION. Subject to the earlier expiration of this
Option as herein provided, this Option may be exercised, by written notice to
the Company at its principal executive office addressed to the attention of its
Corporate Secretary, at any time and from time to time after the date of grant
hereof, but, except as otherwise provided below, this Option shall not be
exercisable for more than a percentage of the aggregate number of shares
offered by this Option determined by the number of full years from the date of
grant hereof to the date of such exercise, in accordance with the following
schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES THAT
NUMBER OF FULL YEARS MAY BE PURCHASED
-------------------- ----------------
<S> <C>
Less than 1 year 0%
1 year 20%
2 years 40%
3 years 60%
4 years 80%
5 years or more 100%
</TABLE>
Notwithstanding anything in this agreement to the contrary, the Committee
appointed by the Board of Directors to the Company to administer the Plan (the
"Committee") in its sole discretion may waive the foregoing schedule of vesting
and permit Employee to exercise the Option in such amount or amounts and at
such time or times as the Committee shall determine.
<PAGE> 7
This Option is not transferable by Employee otherwise than by will or
the laws of descent and distribution, and may be exercised only by Employee
during Employee's lifetime and while Employee remains an employee of the
Company, except that:
(a) If Employee's employment with the Company terminates for cause or
voluntarily by Employee (other than by reason of normal
retirement at or after age sixty-five) without the written
consent of the Company, this Option shall immediately terminate
and shall no longer be exercisable. For purposes of this
Agreement, "cause" shall mean Employee's gross negligence or
willful misconduct in performance of the duties of Employee's
employment, or Employee's final conviction of a felony or of a
misdemeanor involving moral turpitude.
(b) If Employee's employment with the Company terminates for any
reason other than death or as described in (a) above, this Option
may be ex- ercised by Employee at any time during the period of
three months following such termination, or by Employee's
estate (or the person who acquires this Option by will or the
laws of descent and distribution or otherwise by reason of the
death of Employee) during a period of one year following
Employee's death if Employee dies during such three- month
period, but in each case only as to the number of shares Employee
was entitled to purchase hereunder as of the date Employee's
employment so terminates unless such termination was by reason of
retirement (including normal retirement at or after age
sixty-five or early retirement with the prior written consent
of the Company) or total and permanent disability in either
which case this Option shall be exercisable in full.
(c) If Employee dies while in the employ of the Company, Employee's
estate, or the person who acquires this Option by will or the
laws of descent and distribution or otherwise by reason of the
death of Employee, may exercise this Option in full at any time
during the period of one year following the date of
Employee's death.
This Option shall not be exercisable in any event after the expiration of ten
years from the date of grant hereof. The purchase price of shares as to which
this Option is exercised shall be paid in full at the time of exercise (a) in
cash (including check, bank draft or money order payable to the order of the
Company), (b) by delivering to the Company shares of Stock having a fair market
value equal to the purchase price, or (c) any combination of cash or Stock.
No fraction of a share of Stock shall be issued by the Company upon exercise of
an Option or accepted by the Company in payment of the purchase price thereof;
rather, Employee shall provide a cash payment for such amount as is necessary
to effect the issuance and acceptance of only whole shares of Stock. Unless and
until a certificate or certificates representing such shares shall have been
issued by the Company to Employee, Employee (or the person permitted to
exercise this Option in the event of Employee's death) shall not be or have any
of the rights or privileges of a shareholder of the Company with respect to
shares acquirable upon an exercise of this Option.
4. WITHHOLDING OF TAX. To the extent that the exercise of this Option
or the disposition of shares of Stock acquired by exercise of this Option
results in compensation
-2-
<PAGE> 8
income to Employee for federal or state income tax purposes, except as
hereinafter provided, Employee shall deliver to the Company at the time of such
exercise or disposition such amount of money as the Company may require to meet
its obligation under applicable tax laws or regulations. Employee may elect
with respect to this Option to surrender or authorize the Company to withhold
shares of Stock (valued at their fair market value on the date of surrender or
withholding of such shares) in satisfaction of any such withholding obligation
(a "Stock Surrender Withholding Election"); provided, however, that:
(a) Any Stock Surrender Withholding Election shall be made by written
notice to the Company and thereafter shall be irrevocable by
Employee;
(b) Any Stock Surrender Withholding Election shall be subject to
disapproval by the Committee at any time;
(c) Any Stock Surrender Withholding Election shall be made prior to the
date Employee recognizes income with respect to the exercise of
this Option (the "Tax Date"); and
(d) If Employee is an "officer" of the Company or other person subject
to section 16(b)of the Securities Exchange Act of 1934, as
amended, or any successor law and wishes to make a Stock Surrender
Withholding Election, such person shall make any Stock Surrender
Withholding Election:
(i) more than six months after the date of grant of this Option,
except that this limitation shall not apply in the event of
death or disability of Employee prior to the expiration of
the six-month period; and
(ii) either at least six months prior to the Tax Date or during
the period beginning on the third business day following the
date of release for publication of the Company's summary
statement of sales and earnings for a quarter or fiscal year
and ending on the twelfth business day following such date.
(e) When the Tax Date falls after the exercise of this Option and
Employee makes a Stock Surrender Withholding Election, the full
number of shares of Stock for which this Option is being exercised
shall be issued, but Employee shall be unconditionally obligated
to deliver to the Company on the Tax Date a number of shares of
Stock having a value equal to any tax required to be withheld.
If Employee fails to deliver such money or make a Stock Surrender Withholding
Election pursuant to this Paragraph, the Company is authorized to withhold from
any cash or Stock remuneration then or thereafter payable to Employee any tax
required to be withheld.
5. STATUS OF STOCK. The Company intends to register for issue under
acquirable upon exercise of this Option, and to keep such registration
effective throughout the period this Option is exercisable. In the absence of
such effective registration or an available exemption from registration under
the Act, issuance of shares of Stock acquirable upon exercise of this Option
-3-
<PAGE> 9
will be delayed until registration of such shares is effective or an exemption
from registration under the Act is available. The Company intends to use its
best efforts to ensure that no such delay will occur. In the event exemption
from registration under the Act is available upon an exercise of this Option,
Employee (or the person permitted to exercise this Option in the event of
Employee's death or incapacity), if requested by the Company to do so, will
execute and deliver to the Company in writing an agreement containing such
provisions as the Company may require to assure compliance with applicable
securities laws.
Employee agrees that the shares of Stock which Employee may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable securities laws, whether
federal or state. Employee also agrees (i) that the certificates representing
the shares of Stock purchased under this Option may bear such legend or legends
as the Committee deems appropriate in order to assure compliance with
applicable securities laws, (ii) that the Company may refuse to register the
transfer of the shares of Stock purchased under this Option on the stock
transfer records of the Company if such proposed transfer would in the opinion
of counsel satisfactory to the Company constitute a violation of any applicable
securities law and (iii) that the Company may give related instructions to its
transfer agent, if any, to stop registration of the transfer of the shares of
Stock purchased under this Option.
6. EMPLOYMENT RELATIONSHIP. For purposes of this Agreement, Employee
shall be considered to be in the employment of the Company as long as Employee
remains an employee of either the Company, a parent or subsidiary corporation
(as defined in section 425 of the Code) of the Company, or a corporation or a
parent or subsidiary of such corporation assuming or substituting a new option
for this Option. Any question as to whether and when there has been a
termination of such employment, and the cause
-4-
<PAGE> 10
of such termination, shall be determined by the Committee, and its
determination shall be final.
7. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of any successors to the Company and all persons lawfully claiming
under Employee.
8. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Texas.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its officer thereunto duly authorized, and Employee has executed
this Agreement, all as of the day and year first above written.
SEAGULL ENERGY CORPORATION
By:
--------------------------------
-----------------------------------
Employee
-5-
<PAGE> 11
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> 12
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
================================================================================
CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Unaudited) . . . . . . . . . . . . . . . . . . . . 20
Consolidated Statements of Earnings . . . . . . . . . . . . . . . . . . . . . 32
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . 34
Consolidated Statements of Shareholders'Equity . . . . . . . . . . . . . . . 35
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . 36
Report of Management to Shareholders . . . . . . . . . . . . . . . . . . . . 64
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA(1)(2)
(Dollars in Thousands Except Per Share Amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . $ 336,273 $ 408,104 $ 377,165 $ 238,829 $ 248,537
Earnings applicable to
common stock(3) . . . . . 632 3,246 27,198 6,688 5,107
Earnings per share(3)(4) . . 0.02 0.09 0.76 0.26 0.23
Net cash provided by
operating activities before
changes in operating
assets and liabilities . . 97,384 166,765 160,762 81,368 66,654
Net cash provided by
operating activities . . . 63,283 170,925 119,761 72,187 69,773
Total assets . . . . . . . . 1,198,796 1,299,550 1,118,251 1,102,964 618,552
Long-term portion of debt . . 545,343 620,805 459,787 608,011 219,154
Shareholders' equity(5) . . . 447,668 441,101 439,379 243,673 235,797
Capital expenditures . . . . 85,347 150,252 112,042 43,651 71,709
Acquisitions,
net of cash acquired . . . -- 193,859 29,470 401,888 201,767
</TABLE>
(1) Reference is made to the Consolidated Financial Statements of Seagull
Energy Corporation and Subsidiaries and Notes thereto, appearing on pages
32 through 63 of this Annual Report.
(2) Includes (i) certain gas and oil assets purchased from Mesa Limited
Partnership since March 8, 1991, (ii) Seagull Mid-South Inc. since December
31, 1992, and (iii) Seagull Energy Canada Ltd. since January 4, 1994.
(3) 1992 includes the cumulative effect of two changes in accounting principles
representing an increase in earnings of approximately $2.3 million, or
$0.09 per share.
(4) Per share data have been restated to reflect a two-for-one split of the
Company's common shares effected June 4, 1993.
(5) The Company has not declared any cash dividends on its common stock since
it became a public entity in 1981.
-------------------------------
Seagull Energy Corporation 19
<PAGE> 2
================================================================================
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (UNAUDITED)
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
CONSOLIDATED HIGHLIGHTS
(Dollars in Thousands Except Per Share Amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent Change
1995 1994 1993 1994-'95 1993-'94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Exploration and production . . . . . . . . . . . . . . $ 209,328 $ 262,543 $ 227,437 - 20 + 15
Pipeline and marketing . . . . . . . . . . . . . . . . 29,175 39,963 42,484 - 27 - 6
Alaska transmission and distribution . . . . . . . . . 97,770 105,598 107,244 - 7 - 2
- ------------------------------------------------------------------------------------------------------------------------------------
$ 336,273 $ 408,104 $ 377,165 - 18 + 8
====================================================================================================================================
Operating profit (loss):
Exploration and production . . . . . . . . . . . . . . $ (46,756) $ 28,266 $ 42,969 - 265 - 34
Pipeline and marketing . . . . . . . . . . . . . . . . 9,165 11,936 14,065 - 23 - 15
Alaska transmission and distribution . . . . . . . . . 23,141 21,865 18,955 + 6 + 15
- ------------------------------------------------------------------------------------------------------------------------------------
$ (14,450) $ 62,067 $ 75,989 - 123 - 18
====================================================================================================================================
Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 632 $ 3,246 $ 27,198 - 81 - 88
Net cash provided by operating activities before
changes in operating assets and liabilities . . . . . . 97,384 166,765 160,762 - 42 + 4
Net cash provided by operating activities . . . . . . . . 63,283 170,925 119,761 - 63 + 43
Earnings per share . . . . . . . . . . . . . . . . . . . 0.02 0.09 0.76 - 78 - 88
====================================================================================================================================
Weighted average number of common shares
outstanding (in thousands) . . . . . . . . . . . . . . 36,717 36,904 35,790 - 1 + 3
====================================================================================================================================
</TABLE>
Revenues and operating profit (loss) are discussed in the respective segment
sections.
- --------------------------------------------------------------------------------
1995 RESULTS COMPARED TO 1994
- --------------------------------------------------------------------------------
Seagull Energy Corporation and Subsidiaries ("Seagull" or the "Company")
recorded a decrease in net earnings for the year ended December 31, 1995 as
compared to 1994 primarily due to a decrease in operating profit and an
increase in general and administrative ("G&A") expense, which were
substantially offset by the pre-tax gain on the sale of certain pipeline assets
in September 1995 of $82 million. The decrease in operating profit is primarily
due to declines in the exploration and production ("E&P") segment resulting
from the 16% reduction in the Company's average realized natural gas prices and
a $44.4 million non-cash charge for the impairment of gas and oil properties.
The increase in G&A expense is primarily due to one-time pre-tax charges of $8
million for expenses involved in the workforce reduction and consolidation
implemented by the Company during the second quarter of 1995. See the
"Exploration and Production," "Pipeline and Marketing" and "Other (Income)
Expense" sections below for further discussion.
Net cash provided by operating activities before and after changes in
operating assets and liabilities decreased for the year ended December 31, 1995
versus 1994 primarily due to decreases in E&P revenues, which are a result of
lower natural gas prices and lower natural gas production, and one-time pre-tax
charges of $8 million for expenses involved in the workforce reduction and
consolidation. Net cash provided by operating activities after changes in
operating assets and liabilities was further
- -------------------------------
20 Seagull Energy Corporation
<PAGE> 3
================================================================================
reduced by an increase in accounts receivable due to increased natural gas
prices and marketing volumes in late 1995 as compared to the 1994 period and a
decrease in accounts payable as a result of lower accrued capital expenditures.
- --------------------------------------------------------------------------------
1994 RESULTS COMPARED TO 1993
- --------------------------------------------------------------------------------
Net earnings decreased for the year ended December 31, 1994 as compared to
1993 due to a decrease in operating profit and an increase in interest expense,
partially offset by a decrease in income taxes. Operating profit decreased
primarily due to a 34% decrease in the operating profit of the E&P segment. The
40% increase in interest expense was a result of a higher level of debt
outstanding due to debt incurred to finance the acquisition of Novalta
Resources Inc. (the "Seagull Canada Acquisition") and an increase in interest
rates. Net earnings in 1994 include a pre-tax expense of approximately $2
million relating to costs incurred in obtaining shareholder approval to create
a new class of common stock of the Company intended to reflect separately the
performance of the Company's Alaska transmission and distribution segment (the
"ENSTAR Alaska Stock"). There were no shares of the ENSTAR Alaska Stock issued
or outstanding as of December 31, 1995 and 1994. The 1993 results included a
pre-tax gain of approximately $3.8 million relating to sales of non-strategic
producing properties.
Net cash provided by operating activities before changes in operating assets
and liabilities for 1994 increased in comparison to 1993 primarily due to the
Seagull Canada Acquisition and to production beginning in late 1993 and early
1994 from certain of the Company's discoveries, partially offset by lower
natural gas prices and higher interest expense. Net cash provided by operating
activities after changes in operating assets and liabilities for 1994 increased
substantially in comparison to 1993 primarily due to significant decreases
during 1993 in both accounts payable and prepaid gas and oil sales. Accounts
payable recorded in connection with the purchase of Seagull Mid-South Inc.,
formerly Arkla Exploration Company, at December 31, 1992 decreased
substantially during the first year of operations by the Company.
-------------------------------
Seagull Energy Corporation 21
<PAGE> 4
================================================================================
EXPLORATION AND PRODUCTION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
Percent Change
1995 1994 1993 1994-'95 1993-'94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Natural gas . . . . . . . . . . . . . . . . . . . . . . $ 186,055 $ 237,269 $ 203,137 - 22 + 17
Oil and condensate . . . . . . . . . . . . . . . . . . 19,788 23,346 23,597 - 15 - 1
Natural gas liquids . . . . . . . . . . . . . . . . . . 3,283 2,889 3,132 + 14 - 8
Other . . . . . . . . . . . . . . . . . . . . . . . . . 202 (961) (2,429) + 121 + 60
- ------------------------------------------------------------------------------------------------------------------------------------
209,328 262,543 227,437 - 20 + 15
Lifting costs . . . . . . . . . . . . . . . . . . . . . . 58,633 63,989 53,243 - 8 + 20
General operating expense . . . . . . . . . . . . . . . . 8,410 11,353 10,408 - 26 + 9
Exploration charges . . . . . . . . . . . . . . . . . . . 29,555 26,888 17,265 + 10 + 56
Depreciation, depletion and amortization . . . . . . . . 115,110 132,047 103,552 - 13 + 28
Impairment of gas and oil properties . . . . . . . . . . 44,376 -- -- NA --
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) . . . . . . . . . . . . . . . . . $ (46,756) $ 28,266 $ 42,969 - 265 - 34
====================================================================================================================================
OPERATING DATA:
Net daily production(1):
Natural gas (MMcf) . . . . . . . . . . . . . . . . . . 333.8 355.2 279.5 - 6 + 27
Oil and condensate (Bbl) . . . . . . . . . . . . . . . 3,282 4,186 3,868 - 22 + 8
Natural gas liquids (Bbl) . . . . . . . . . . . . . . . 986 877 773 + 12 + 13
Combined (MMcfe)(2) . . . . . . . . . . . . . . . . . . 359.4 385.6 307.4 - 7 + 25
Average sales prices:
Natural gas ($ per Mcf) . . . . . . . . . . . . . . . . 1.53 1.83 1.99 - 16 - 8
Oil and condensate ($ per Bbl) . . . . . . . . . . . . 16.52 15.28 16.72 + 8 - 9
Natural gas liquids ($ per Bbl) . . . . . . . . . . . . 9.12 9.03 11.10 + 1 - 19
Combined ($ per Mcfe)(2) . . . . . . . . . . . . . . . 1.60 1.87 2.03 - 14 - 8
Lifting costs ($ per Mcfe):
Lease operating expense . . . . . . . . . . . . . . . . 0.27 0.26 0.25 + 4 + 4
Workover expense . . . . . . . . . . . . . . . . . . . 0.02 0.02 0.04 -- - 50
Production taxes . . . . . . . . . . . . . . . . . . . 0.05 0.06 0.08 - 17 - 25
Transportation expense . . . . . . . . . . . . . . . . 0.08 0.08 0.07 -- + 14
Ad valorem taxes . . . . . . . . . . . . . . . . . . . 0.03 0.03 0.03 -- --
Total . . . . . . . . . . . . . . . . . . . . . . . . . 0.45 0.45 0.47 -- - 4
DD&A rate ($ per Mcfe) . . . . . . . . . . . . . . . . . 0.88 0.94 0.92 - 6 + 2
====================================================================================================================================
</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) Mcfe and MMcfe represent the equivalent of one thousand cubic feet and
one million cubic feet of natural gas, respectively. Oil, 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.
- --------------------------------------------------------------------------------
1995 RESULTS COMPARED TO 1994
- --------------------------------------------------------------------------------
The decrease in operating profit of the E&P segment for the year ended
December 31, 1995 as compared to the 1994 period was primarily due to a 20%
decrease in revenues and a $44.4 million non-cash charge for impairment of gas
and oil properties, partially offset by decreased depreciation, depletion and
amortization ("DD&A") expense, lower lifting costs and reduced general
operating expenses.
The decrease in revenues was primarily the result of a 16% year-to-year
decrease in the average realized natural gas price and a 6% decline in gas
production. The price decline was due to several factors beyond the control of
- -------------------------------
22 Seagull Energy Corporation
<PAGE> 5
================================================================================
the Company, including warm weather, new gas supply, utilization of competitive
fuels and low demand for storage refills. The Company's average realized gas
prices remained depressed throughout much of the year, averaging as low as
$1.40 per Mcf in the U.S. during February and $0.90 per Mcf in Canada during
August. Average prices for the full year were $1.64 per Mcf domestically and
$1.02 per Mcf in Canada. The decrease in production was due to lower
sustainable deliverability, a consequence of normal declines in production from
developed properties and the combined impact of substantially lower levels of
development expenditures in late 1994 and all of 1995 and voluntary production
curtailments over that same period, both of which were a result of the low
natural gas price environment. The Company's long-standing policy is to curtail
production as well as reduce the level of development expenditures when prices
are not at acceptable levels.
Lifting costs decreased as a result of the lower production. While the
overall amount of lifting costs decreased, lifting costs per equivalent unit of
production were unchanged.
General operating expense was lower year-to-year as a result of the workforce
reduction and consolidation implemented by the Company during the second
quarter of 1995. Estimated annual savings from the Company's workforce
reduction and consolidation are expected to total approximately $8 million and
will be reflected in lower general operating and G&A expenses.
Exploration charges, which include seismic costs, dry hole costs and delay
rentals, increased due to a significant increase in seismic costs during 1995.
The increase in seismic costs is due to increased use of 3-D seismic surveys on
offshore exploratory blocks. While dry hole costs were essentially unchanged
from the prior year, Seagull was successful on 12 gross exploratory wells in 26
attempts (including two wells being completed at year-end) compared with 10
successes out of 23 wells drilled in 1994. Those results include three
successful gross exploratory wells in six attempts in Canada during 1995
compared with five successful gross exploratory wells in six attempts during
1994.
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 this standard, 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 $0.94 per
Mcfe for 1994 to $0.88 per Mcfe for 1995. DD&A expense for 1995 decreased from
the 1994 period due to this lower average DD&A rate per equivalent unit of
production as well as the 7% decrease in total production.
- --------------------------------------------------------------------------------
1994 RESULTS COMPARED TO 1993
- --------------------------------------------------------------------------------
Operating profit for the E&P segment in 1994 as compared to 1993 decreased,
despite higher natural gas production, due to lower natural gas prices and
increased DD&A expense, lifting costs and exploration charges.
The 27% increase in natural gas production was primarily due to production
contributed from properties acquired in connection with the Seagull Canada
Acquisition on January 4, 1994, which averaged 54.1 MMcf per day in 1994, and
to production beginning in late 1993 and early 1994 from certain of the
Company's discoveries. The increases in production would have been higher but
for voluntary curtailments for approximately one-third of the year during 1994
when natural gas prices were below acceptable levels.
The increases in DD&A expense and lifting costs resulted from the significant
increases in production. DD&A expense per equivalent unit of production also
increased from 1993 to 1994 primarily as a result of the change in the mix of
the properties being produced. While
-------------------------------
Seagull Energy Corporation 23
<PAGE> 6
================================================================================
total lifting costs increased from 1993 to 1994, lifting costs per equivalent
unit of production declined 4% due primarily to a decrease in workover expenses
and production taxes.
Exploration charges increased primarily due to higher dry hole costs and the
increased use of 3-D seismic surveys on offshore exploratory blocks. During
1994 Seagull was successful on 10 gross exploratory wells in 23 attempts,
compared with eight successes out of 27 wells drilled in 1993. The increased
dry hole expense per well is primarily due to Seagull retaining larger working
interests in 1994 in the wells drilled offshore Texas and Louisiana and costs
associated with deepening successful exploratory wells to deeper zones that
ultimately proved to be dry.
- --------------------------------------------------------------------------------
OUTLOOK
- --------------------------------------------------------------------------------
The E&P segment is the Company's primary growth area. That growth has been
achieved over the past eight years primarily through acquisitions: Houston Oil
& Minerals Corporation in 1988; the assets of Houston Oil Trust in 1989; Wacker
Oil Inc. in 1990; certain gas and oil assets from Mesa Limited Partnership in
1991; Seagull Mid-South Inc. in 1992 and Seagull Energy Canada Ltd. ("Seagull
Canada"), formerly Novalta Resources Inc. ("Novalta") in 1994. See Note 5 of
Notes to Consolidated Financial Statements beginning on page 40 of this Annual
Report.
The future results of the E&P segment will be affected by the market prices
of natural gas and oil. The availability of a ready market for oil, natural gas
and liquid products in the future will depend on numerous factors beyond the
control of the Company, including weather, production of other crude oil,
natural gas and liquid products, imports, marketing of competitive fuels,
proximity and capacity of oil and gas pipelines and other transportation
facilities, any oversupply or undersupply of oil, gas and liquid products, the
regulatory environment, and other regional and political events, none of which
can be predicted with certainty. While sustained cold weather has helped
increase natural gas prices during late 1995 and the first weeks of 1996,
short-term natural gas prices remain volatile. As in the past, the Company
expects to continue curtailing a portion of its gas production whenever prices
are deemed to be below acceptable levels.
PIPELINE AND MARKETING
- --------------------------------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
Percent Change
1995 1994 1993 1994-'95 1993-'94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C><C> <C> <C>
OPERATING PROFIT (*):
Pipelines . . . . . . . . . . . . . . . . . . . . . . . . $ 5,554 $ 6,334 $ 8,561 - 12 - 26
Marketing and supply . . . . . . . . . . . . . . . . . . 1,634 3,772 2,862 - 57 + 32
Gas processing . . . . . . . . . . . . . . . . . . . . . 1,144 784 518 + 46 + 51
Operating and construction services . . . . . . . . . . . 833 1,046 2,124 - 20 - 51
- ------------------------------------------------------------------------------------------------------------------------------------
$ 9,165 $ 11,936 $ 14,065 - 23 - 15
====================================================================================================================================
OPERATING DATA (*):
Average daily volumes (MMcf):
Gas gathering . . . . . . . . . . . . . . . . . . . . . 214 277 311 - 23 - 11
Partnership systems (net) . . . . . . . . . . . . . . . 106 112 117 - 5 - 4
Marketing and supply . . . . . . . . . . . . . . . . . 560 552 446 + 1 + 24
Gas processing:
Average daily inlet volumes (MMcf) . . . . . . . . . . 238 278 273 - 14 + 2
Average daily net production (Bbl) . . . . . . . . . . 3,926 4,140 3,305 - 5 + 25
====================================================================================================================================
</TABLE>
(*) On September 25, 1995, the Company sold substantially all of its pipelines
and gas processing assets. Average daily volumes for pipelines and gas
processing assets are based on the number of days those assets were owned by
the Company.
- -------------------------------
24 Seagull Energy Corporation
<PAGE> 7
================================================================================
- --------------------------------------------------------------------------------
1995 RESULTS COMPARED TO 1994
- --------------------------------------------------------------------------------
On September 25, 1995, the Company and three other sellers completed the sale
of their disparate interests in 19 natural gas gathering systems and a gas
processing plant. The purchaser paid Seagull and the other sellers $154.8
million in cash for the assets. The Company's share of gross proceeds was
approximately $100 million. Net proceeds after payment of approximately $3
million in transaction costs were used to lower the Company's borrowings under
its U.S. revolving credit facility (the "U.S. Credit Agreement"). From its
share of the proceeds, Seagull realized a one-time, pre-tax gain of
approximately $82 million recorded in the third quarter. For the nine months
ended September 30, 1995, the pipeline assets the Company disposed of (the
"Pipeline Assets") contributed $6.2 million and for the years ended December
31, 1994 and 1993, the Pipeline Assets contributed $6.7 million and $8.4
million, respectively, to the operating profit of the pipeline and marketing
segment. In accordance with SFAS No. 121, the Company ceased depreciating the
Pipeline Assets in April 1995 at the time of the announcement of the Company's
intention to sell those assets.
Operating profit for the pipeline and marketing segment declined $2.8 million
in 1995 from 1994 primarily for three reasons -- lower margins received on
third party marketing sales, lower marketing fees received from the sale of the
E&P segment's domestic gas production (which were due to lower gas prices and
production), and the sale of the Pipeline Assets in the third quarter of 1995
(such assets contributed approximately $1.6 million operating profit in the
fourth quarter of 1994).
- --------------------------------------------------------------------------------
1994 RESULTS COMPARED TO 1993
- --------------------------------------------------------------------------------
In the pipeline and marketing segment, operating profit decreased in 1994 as
compared to 1993 primarily due to declines in the pipelines and operating and
construction services areas, partially offset by an increase in marketing and
supply.
Operating profit in the pipelines area, which included the Company's gas
gathering and product pipeline systems as well as the Company's interests in
two partnership systems, decreased primarily as a result of reduced volumes
delivered as a result of the natural depletion of the reserves serviced by the
systems.
In the marketing and supply area, operating profit improved in 1994 over 1993
due to a 24% increase in sales volumes due primarily to increases in the E&P
segment's domestic natural gas production.
Operating profit for the operating and construction services area declined in
1994 because of the first quarter completion of a gas pipeline construction
project the Company began in mid-1993.
- --------------------------------------------------------------------------------
OUTLOOK
- --------------------------------------------------------------------------------
Operating profit for the pipelines and gas processing areas is expected to be
significantly reduced in 1996 due to the sale of the Pipeline Assets. The
Company is however expanding its marketing activities by adding staff,
upgrading support facilities and expanding the marketing activities it conducts
for third parties. Seagull also expects to continue to market the E&P segment's
production and to continue its efforts in the operations and construction
services area.
Furthermore in 1995, the Company initiated an active risk management program
for both its own E&P production and third party activities, utilizing such
derivative financial instruments as futures contracts, options and swaps. The
primary objective of the risk management program is to help ensure more stable
cash flow. However, Seagull expects to leave the majority of its own E&P
production either unhedged or protected only from price decreases so that it
can benefit from expected gas price strengthening. The risk management program
is also an important part of the Company's third party marketing efforts,
allowing the Company to convert a customer's requested price to a price
structure that is consistent with the Company's overall pricing strategy.
The operations and construction services area was engaged in 1995 to build an
approximately 114-mile onshore pipeline. The project began in late 1995 and
Seagull will operate the new pipeline upon completion.
-------------------------------
Seagull Energy Corporation 25
<PAGE> 8
================================================================================
ALASKA TRANSMISSION AND DISTRIBUTION
- --------------------------------------------------------------------------------
(Dollars in Thousands Except Per Unit Amounts)
<TABLE>
<CAPTION>
Percent Change
1995 1994 1993 1994-'95 1993-'94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C><C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 97,770 $ 105,598 $ 107,244 - 7 - 2
Cost of gas sold . . . . . . . . . . . . . . . . . . . . 46,328 54,465 59,898 - 15 - 9
Operations and maintenance expense . . . . . . . . . . . 20,504 21,516 20,880 - 5 + 3
Depreciation, depletion and amortization . . . . . . . . 7,797 7,752 7,511 + 1 + 3
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit . . . . . . . . . . . . . . . . . . . . $ 23,141 $ 21,865 $ 18,955 + 6 + 15
====================================================================================================================================
OPERATING DATA:
Degree days(1) . . . . . . . . . . . . . . . . . . . . . 9,997 10,291 9,382 - 3 + 10
Volumes (Bcf)(2):
Gas Sold . . . . . . . . . . . . . . . . . . . . . . . 26.4 31.3 28.9 - 16 + 8
Gas Transported . . . . . . . . . . . . . . . . . . . . 17.9 12.8 11.3 + 40 + 13
Combined . . . . . . . . . . . . . . . . . . . . . . . 44.3 44.1 40.2 -- + 10
Margins ($ per Mcf):
Gas Sold . . . . . . . . . . . . . . . . . . . . . . . 1.66 1.49 1.49 + 11 --
Gas Transported . . . . . . . . . . . . . . . . . . . . 0.43 0.35 0.36 + 23 - 3
Combined . . . . . . . . . . . . . . . . . . . . . . . 1.16 1.16 1.17 -- - 1
Year-end customers . . . . . . . . . . . . . . . . . . . 92,100 90,100 88,200 + 2 + 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) Natural gas stated in billion cubic feet ("Bcf").
- --------------------------------------------------------------------------------
1995 RESULTS COMPARED TO 1994
- --------------------------------------------------------------------------------
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 year ended December 31, 1995 improved from the 1994 period primarily as
a result of lower operations and maintenance expense due to lower permit fees
paid.
In the first quarter of 1995, two large military power plants that previously
purchased gas from ENSTAR Alaska began purchasing gas directly from gas
producers. However, ENSTAR Alaska has been authorized by the Alaska Public
Utilities Commission to transport the customers' gas supplies for a fee that is
essentially comparable to the margin (revenues net of the associated cost of
gas sold) it previously earned. Accordingly, overall operating profit for the
Alaska transmission and distribution segment was basically unaffected by this
change.
- --------------------------------------------------------------------------------
1994 RESULTS COMPARED TO 1993
- --------------------------------------------------------------------------------
Operating profit from ENSTAR Alaska for the year ended December 31, 1994
increased from 1993 primarily due to higher non-power customer demand due to an
increase in customers and colder weather.
- --------------------------------------------------------------------------------
OUTLOOK
- --------------------------------------------------------------------------------
Future operating profit for this segment will be affected by weather,
regulatory action and customer growth in ENSTAR Alaska's service area.
The Company expects customer growth to continue to be relatively modest.
During the 1995 summer construction season, approximately 33 miles of new
distribution pipeline were installed to connect some 2,000 new customers. In
September 1995, ENSTAR Alaska entered into a
- -------------------------------
26 Seagull Energy Corporation
<PAGE> 9
================================================================================
33-year agreement to lease a 60 mile, 8-inch diameter pipeline between
Anchorage, Alaska and Whittier, Alaska. Conversion of the pipeline to natural
gas is expected to be completed in 1996. The new pipeline is expected to
account for nearly 1,000 new customers over the next two to three years.
OTHER (INCOME) EXPENSE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Percent Change
1995 1994 1993 1994-'95 1993-'94
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
General and administrative . . . . . . . . . . . . . . . $ 19,167 $ 10,252 $ 11,666 + 87 - 12
Interest expense . . . . . . . . . . . . . . . . . . . . 52,814 51,550 36,753 + 2 + 40
Gain on sales of property, plant and equipment, net . . . (83,591) (413) (3,929) + 20,140 - 89
Interest income and other . . . . . . . . . . . . . . . . (1,160) (254) (1,779) + 357 - 86
- ------------------------------------------------------------------------------------------------------------------------
$ (12,770) $ 61,135 $ 42,711 - 121 + 43
========================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
1995 RESULTS COMPARED TO 1994
- --------------------------------------------------------------------------------
General and administrative expenses represent various overhead costs of
corporate departments. All overhead expenses directly related to the operations
of the Company's business segments are included in operations and maintenance
costs and exploration charges. G&A expenses increased in 1995 primarily due to
one-time pre-tax charges of $8 million for expenses involved in the Company's
workforce reduction and consolidation and an increase in 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 the
Company's common stock ("Common Stock"). The closing price of Seagull Common
Stock increased 16% from $19.125 at December 31, 1994 to $22.25 on December 31,
1995, compared to a 25% decrease in the 1994 period. Lower operations and
maintenance expenses and G&A expenses resulting from the Company's workforce
reduction and consolidation are expected to total approximately $8 million
annually.
In October 1995, the Financial Accounting Standards Board approved the
issuance of SFAS No. 123, "Accounting for Stock-Based Compensation." This SFAS
establishes financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 allows a company to adopt a fair
value based method of accounting for an employee stock-based compensation plan
or to continue to use the intrinsic value based method of accounting prescribed
by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," Seagull's current accounting method. Under the intrinsic
value method, the Company records no compensation expense for stock options
granted, as the exercise price of all options granted is equal to the closing
price of Seagull's common stock on the day of grant. However, under the fair
value method, the Company would record compensation expense for similar grants
based on an option-pricing model that takes into account the exercise price and
expected life of the option, the current price of the stock and its expected
volatility and the risk-free interest rate for the expected term of the option.
Seagull has undertaken a preliminary study of SFAS No. 123 and has determined
that the Company will continue to follow the intrinsic value method. The
disclosures required by SFAS No. 123 will be included in the Company's
consolidated financial statements for the year ended December 31, 1996.
The increase in interest expense for the year ended December 31, 1995 over
1994 was a result of an increase in the overall level of interest rates since
the 1994 period. The average interest rates on the Company's U.S. Credit
Agreement were 6.8% and 5.2% for the years ended December 31, 1995 and 1994,
respectively.
-----------------------------
Seagull Energy Corporation 27
<PAGE> 10
================================================================================
After giving effect to the Company's interest rate swaps, between 55% and
65% of the Company's long-term debt bears interest at various fixed rates
through the end of 1996. The remainder of the outstanding debt bears interest
at various market sensitive interest rates.
During 1995, the Company repaid a portion of the debt balance outstanding
under the Company's Canadian revolving credit facility (the "Canadian Credit
Agreement"). While the payment of the Canadian Credit Agreement was funded
through additional borrowings under the U.S. Credit Agreement, the average
interest rate for the U.S. Credit Agreement was significantly lower than the
average interest rate for the Canadian Credit Agreement. In addition, since
proceeds from the sales of the Pipeline Assets and substantially all of the
Company's Internal Revenue Code Section 29 Tax Credit- bearing gas properties
(the "Section 29 Properties") were used to pay down the Company's borrowings
under the U.S. Credit Agreement, the Company expects its interest costs to
decrease substantially for the year ended December 31, 1996.
The increase in the gain on sales of property, plant and equipment for the
year ended December 31, 1995 as compared to 1994 is primarily due to the $82
million pre-tax gain on the sale of the Pipeline Assets.
Interest income and other for 1994 includes approximately $2 million
relating to costs incurred in gaining shareholder approval to create the ENSTAR
Alaska Stock.
- --------------------------------------------------------------------------------
1994 RESULTS COMPARED TO 1993
- --------------------------------------------------------------------------------
General and administrative expenses decreased 12% from 1993 to 1994
primarily as a result of costs associated with the three compensation plans
discussed above, partially offset by increases in costs related to potential
acquisitions which were not consummated. The closing price of the Common Stock
decreased 25% from $25.375 at December 31, 1993 to $19.125 at December 31,
1994, compared to a 63% increase in the 1993 period.
Interest expense increased in 1994 compared to 1993 as a result of an
increase in the level of debt outstanding due primarily to new debt incurred in
early 1994 to finance the Seagull Canada Acquisition and secondarily to the
steady increase in short-term interest rates during the year.
Gain on sales of property, plant and equipment for 1993 includes a pre-tax
gain of approximately $3.8 million relating to sales of non-strategic oil and
gas producing properties. Net proceeds from the sales totaled approximately $13
million.
As discussed above, interest income and other for 1994 includes
approximately $2 million relating to the ENSTAR Alaska Stock.
INCOME TAXES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1995 RESULTS COMPARED TO 1994
- --------------------------------------------------------------------------------
Seagull's income tax benefit was essentially unchanged from 1994 to 1995.
Seagull recognized an income tax benefit of $2.3 million for 1995 versus the
income tax benefit of $0.6 million that would have resulted in 1995 using the
statutory federal tax rate of 35%. This difference is primarily attributable to
the utilization of approximately $3.1 million in Internal Revenue Code Section
29 Tax Credits ("Section 29 Credits") to reduce its 1995 regular income tax
liability. The Section 29 Credits are allowed for production of fuels derived
from nonconventional sources that are sold to nonrelated parties. The Section
29 Credits decreased from the prior year due to a decrease in production and
the sale of the Section 29 Properties during the third quarter of 1995.
- --------------------------------------------------------------------------------
1994 RESULTS COMPARED TO 1993
- --------------------------------------------------------------------------------
The decrease in income taxes for the year ended December 31, 1994 versus
the prior year was primarily the result of lower earnings before income taxes.
Seagull
- -----------------------------
28 Seagull Energy Corporation
<PAGE> 11
================================================================================
incurred an income tax benefit of $2.3 million for 1994 versus the income tax
expense of $0.3 million that would have resulted using the statutory federal
tax rate of 35% primarily due to the utilization of approximately $5.5 million
in Section 29 Credits to reduce its 1994 regular income tax liability.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CAPITAL EXPENDITURES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Percent Change
1995 1994 1993 1994-'95 1993-'94
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES:
Exploration and production:
Lease acquisitions . . . . . . . . . . . . . . . . $ 12,003 $ 17,144 $ 7,396 - 30 +132
Exploration . . . . . . . . . . . . . . . . . . . 32,124 35,107 26,824 - 8 + 31
Development . . . . . . . . . . . . . . . . . . . 32,075 83,839 63,598 - 62 + 32
- ------------------------------------------------------------------------------------------------------------------------
76,202 136,090 97,818 - 44 + 39
Pipeline and marketing . . . . . . . . . . . . . . 137 2,026 2,115 - 93 - 4
Alaska transmission and distribution . . . . . . . 7,611 7,626 10,094 -- - 24
Corporate . . . . . . . . . . . . . . . . . . . . . 1,397 4,510 2,015 - 69 +124
- ------------------------------------------------------------------------------------------------------------------------
$ 85,347 $150,252 $112,042 - 43 + 34
========================================================================================================================
ACQUISITIONS, NET OF CASH ACQUIRED . . . . . . . . . . . $ -- $193,859 $ 29,470 - 100 +558
========================================================================================================================
</TABLE>
The goals of Seagull's E&P capital expenditure program are twofold - expand
production via the drill bit and/or acquisition of producing properties, and
maintain sustainable deliverability. However, it is also the Company's long-
standing policy that total capital expenditures will not be allowed to exceed
net cash flow from operating activities before changes in operating assets and
liabilities, and therefore, E&P capital spending may be reduced when natural
gas prices are below acceptable levels. The Company was successful in 1994 and
1993 in replacing 223% and 126%, respectively, of production. The 1993 success
was primarily due to drilling results while 1994 was primarily due to the
Seagull Canada Acquisition. The reserve replacement ratio for 1995 was 60%.
Seagull maintained sustainable deliverability in both 1994 and 1993 but
fell short of this goal in 1995. The success in 1994 and 1993 was due to
sufficient levels of development spending in both years and to the Seagull
Canada Acquisition in 1994. Sustainable deliverability dropped in 1995 due to
reductions in development spending because natural gas prices remained below
acceptable levels for much of the year.
Plans for 1996 call for capital expenditures of approximately $132 million,
including about $122 million in E&P. Seagull anticipates spending
approximately $66 million for development, $9 million for lease acquisitions
and $47 million for exploration.
- --------------------------------------------------------------------------------
CAPITAL RESOURCES
- --------------------------------------------------------------------------------
The growth in the E&P segment over the past eight years has been
accomplished primarily through acquisitions financed initially by bank
borrowings; however, since August 1990, the Company has reduced borrowings
under existing bank facilities by $520 million with net proceeds received from
three separate Common Stock offerings and the July 1993 sale of Senior and
Senior Subordinated Notes, all in underwritten public offerings. In addition,
Seagull reduced its borrowings under existing bank facilities in 1995 by $143
million with the proceeds from the sale of the Pipeline Assets and the Section
29 Properties, see below. See Notes 3, 9 and 12 of Notes to Consolidated
Financial Statements beginning on page 36 of this Annual Report.
-----------------------------
Seagull Energy Corporation 29
<PAGE> 12
================================================================================
In 1993, the Company entered into the U.S. Credit Agreement with a group of
major U. S. and international banks (the "Banks"). Under provisions in the U.S.
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.
The maximum commitment under the U.S. Credit Agreement reduces in equal
quarterly amounts of $45 million commencing on March 31, 1997, with a final
reduction of $20 million on September 30, 2000. The amount of senior
indebtedness available to the Company under the provisions of the U.S. Credit
Agreement 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 one additional
time each year, at the option of either Seagull or the banks, and upon the sale
of certain assets included in the Borrowing Base. The sale of the Pipeline
Assets and Section 29 Properties reduced the available Borrowing Base under the
U.S. Credit Agreement from $575 million to $500 million. See Notes 3 and 9 of
Notes to Consolidated Financial Statements beginning on page 36 of this Annual
Report.
As of February 27, 1996, borrowings outstanding under the U.S. Credit
Agreement were $99 million, leaving approximately $185 million of unused
borrowing base immediately available, net of outstanding letters of credit of
$3 million, $100 million of borrowings under the Senior Notes discussed below,
the nominated maximum borrowing availability of $95 million under the Canadian
Credit Agreement discussed below, and $18 million in borrowings outstanding
under Seagull's money market facilities discussed below.
In September 1995, the Company sold its Section 29 Properties to an
investment group which includes a Seagull subsidiary and two financial
investors. For accounting purposes, the Company has treated the sale as a
non-recourse monetary production payment reflected in long-term debt on the
balance sheet. Net of transaction costs, the proceeds from the sale were
approximately $46.3 million in cash. Payments of the production payment
liability are funded from the operating cash flow of the properties, less funds
required for working capital purposes. The investors are expected to recoup
their investment plus their required after-tax rate of return by 2002.
Seagull's pre-tax effective interest rate is currently estimated to be 4%.
In connection with the Seagull Canada Acquisition, Seagull Canada, the
indirect wholly owned subsidiary of Seagull which acquired Novalta, entered
into the Canadian Credit Agreement with a group of the Banks or their Canadian
affiliates. The Canadian Credit Agreement provides for dual currency borrowings
in U.S. and Canadian dollars and has a flexible nominated maximum borrowing
availability which may be increased or decreased by Seagull Canada at its
discretion. During 1995, the Company elected to reduce the nominated maximum
borrowing available under the Canadian Credit Agreement from $160 million to
$95 million. The Canadian Credit Agreement matures on December 31, 2000 and
commitments thereunder begin to decline on March 31, 1997 in equal quarterly
reductions of approximately $10.9 million.
At December 31, 1995, the Company was not in compliance with a certain
covenant contained in the U.S. Credit Agreement and a similar covenant in the
Canadian Credit Agreement (neither of which was a payment default). The Banks
have consented to and waived the event of noncompliance under both the U.S. and
Canadian Credit Agreements. Subsequent to December 31, 1995, the Company
obtained amendments to the U.S. and Canadian Credit Agreements from the Banks
which modify the covenants discussed above.
- -----------------------------
30 Seagull Energy Corporation
<PAGE> 13
================================================================================
Under both the U.S. and Canadian Credit Agreements, maximum commitments
begin to decline in 1997 and any amounts in excess of the maximum commitment
must be repaid. As a result of the voluntary reductions in the maximum
commitment of each agreement discussed above, approximately $19 million (based
on the balances outstanding at December 31, 1995) would be payable during 1997
to remain below the declining maximum commitment levels. The Company intends to
revise both the U.S. and Canadian Credit Agreements during 1996 to extend the
maturity date of both agreements and delay the reductions in the maximum
commitments.
In July 1993, Seagull sold $100 million of senior notes (the "Senior
Notes") and $150 million of senior subordinated notes (the "Senior Subordinated
Notes") (collectively the "Notes"). The Senior Notes bear interest at 7-7/8%
per annum, are not redeemable prior to maturity or subject to any sinking fund
and mature on August 1, 2003. The Senior Subordinated Notes bear interest at
8-5/8% per annum, are not subject to any sinking fund and mature on August 1,
2005. On or after August 1, 2000, the Senior Subordinated Notes are redeemable
at the option of the Company, in whole or in part, at redemption prices
declining from 102.59% in 2000 to 100.00% in 2003 and thereafter. The Notes
were issued at par and interest is paid semi-annually. Net proceeds from the
offering, totaling approximately $245 million, were used to repay borrowings
outstanding under the U.S. Credit Agreement.
In addition to the facilities discussed above, Seagull has money market
facilities with three major U. S. banks with a combined maximum commitment of
$75 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.
Management believes that the Company's capital resources will be sufficient
to finance current and forecasted operations. However, the Company continues to
actively pursue potential acquisitions and, depending upon the size and terms
of any such acquisition, additional financing may be required.
- --------------------------------------------------------------------------------
ENVIRONMENTAL
- --------------------------------------------------------------------------------
To date, compliance with applicable environmental and safety regulations by
the Company has not required any significant capital expenditures or materially
affected its business or earnings. The Company believes it is in substantial
compliance with environmental and safety regulations and foresees no material
expenditures in the future; however, the Company is unable to predict the
impact that compliance with future regulations may have on capital
expenditures, earnings and competitive position.
-----------------------------
Seagull Energy Corporation 31
<PAGE> 14
================================================================================
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Exploration and production . . . . . . . . . . . . . $ 209,328 $ 262,543 $ 227,437
Pipeline and marketing . . . . . . . . . . . . . . . 29,175 39,963 42,484
Alaska transmission and distribution . . . . . . . . 97,770 105,598 107,244
- --------------------------------------------------------------------------------------------------------
336,273 408,104 377,165
- --------------------------------------------------------------------------------------------------------
Costs of Operations:
Alaska transmission and distribution cost of gas sold 46,328 54,465 59,898
Operations and maintenance . . . . . . . . . . . . . 105,674 119,987 107,457
Exploration charges . . . . . . . . . . . . . . . . 29,555 26,888 17,265
Depreciation, depletion and amortization . . . . . . 124,790 144,697 116,556
Impairment of gas and oil properties . . . . . . . . 44,376 -- --
- --------------------------------------------------------------------------------------------------------
350,723 346,037 301,176
- --------------------------------------------------------------------------------------------------------
Operating Profit (Loss) . . . . . . . . . . . . . . . . . (14,450) 62,067 75,989
Other (Income) Expense:
General and administrative . . . . . . . . . . . . . 19,167 10,252 11,666
Interest expense . . . . . . . . . . . . . . . . . . 52,814 51,550 36,753
Gain on sales of property, plant and equipment, net (83,591) (413) (3,929)
Interest income and other . . . . . . . . . . . . . (1,160) (254) (1,779)
- --------------------------------------------------------------------------------------------------------
(12,770) 61,135 42,711
- --------------------------------------------------------------------------------------------------------
Earnings (Loss) Before Income Taxes . . . . . . . . . . . (1,680) 932 33,278
Income Tax Expense (Benefit) . . . . . . . . . . . . . . (2,312) (2,314) 6,080
- --------------------------------------------------------------------------------------------------------
Net Earnings . . . . . . . . . . . . . . . . . . . . . . $ 632 $ 3,246 $ 27,198
========================================================================================================
Earnings Per Share . . . . . . . . . . . . . . . . . . . $ 0.02 $ 0.09 $ 0.76
========================================================================================================
Weighted Average Number of Common Shares
Outstanding (in thousands) . . . . . . . . . . . . 36,717 36,904 35,790
========================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
- -----------------------------
32 Seagull Energy Corporation
<PAGE> 15
================================================================================
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 11,205 $ 6,432
Accounts receivable, net . . . . . . . . . . . . . . . . . . . 119,898 101,346
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 4,947 4,530
Prepaid expenses and other . . . . . . . . . . . . . . . . . . 11,331 7,055
- --------------------------------------------------------------------------------------------------------
Total Current Assets . . . . . . . . . . . . . . . . . . . 147,381 119,363
Property, Plant and Equipment - at cost (successful efforts
method for gas and oil properties) . . . . . . . . . . . . . . 1,581,002 1,592,152
Accumulated Depreciation, Depletion and Amortization . . . . . . . 569,587 467,845
- --------------------------------------------------------------------------------------------------------
1,011,415 1,124,307
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 55,880
- --------------------------------------------------------------------------------------------------------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,198,796 $ 1,299,550
========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 83,111 $ 97,315
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 33,080 31,598
Prepaid gas and oil sales . . . . . . . . . . . . . . . . . . -- 2,732
Current maturities of long-term debt . . . . . . . . . . . . . 1,214 1,549
- --------------------------------------------------------------------------------------------------------
Total Current Liabilities . . . . . . . . . . . . . . . . 117,405 133,194
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . 545,343 620,805
Other Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . 52,276 57,737
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . 36,104 46,713
Shareholders' Equity:
Common Stock, $.10 par value; authorized 100,000,000 shares;
issued 36,561,290 (1995) and 36,432,514 shares (1994) . . 3,656 3,643
Additional paid-in capital . . . . . . . . . . . . . . . . . . 326,918 324,820
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 124,591 123,959
Foreign currency translation adjustment . . . . . . . . . . . 389 (2,684)
Less - note receivable from employee stock ownership plan . . (4,922) (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 . . . . . . . . . . . . . . . . 447,668 441,101
Commitments and Contingencies
- --------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity . . . . . . . . . . . . $ 1,198,796 $ 1,299,550
========================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-----------------------------
Seagull Energy Corporation 33
<PAGE> 16
================================================================================
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 632 $ 3,246 $ 27,198
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, depletion and amortization . . . . . . . . . . . 129,141 147,713 119,544
Impairment of gas and oil properties . . . . . . . . . . . . . 44,376 -- --
Amortization of deferred financing costs . . . . . . . . . . . 3,429 3,841 4,261
Deferred income taxes . . . . . . . . . . . . . . . . . . . . (12,355) (5,689) 1,050
Dry hole expense . . . . . . . . . . . . . . . . . . . . . . . 16,147 15,931 10,534
Gain on sales of property, plant and equipment, net . . . . . (83,591) (413) (3,929)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (395) 2,136 2,104
- -------------------------------------------------------------------------------------------------------------------
97,384 166,765 160,762
Changes in operating assets and liabilities,
net of acquisitions:
Decrease (Increase) in accounts receivable . . . . . . . . (19,094) 8,204 (7,029)
Decrease in inventories, prepaid expenses and other . . . 2,104 5,217 757
Increase (Decrease) in accounts payable . . . . . . . . . (13,399) 5,360 (16,292)
Decrease in prepaid gas and oil sales . . . . . . . . . . (2,732) (7,591) (27,933)
Increase (Decrease) in accrued expenses and other . . . . (980) (7,030) 9,496
- -------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities . . . . . . . 63,283 170,925 119,761
Investing Activities
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (85,347) (150,252) (112,042)
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . -- (193,859) (29,470)
Proceeds from sales of property, plant and equipment . . . . . . . 107,514 762 13,428
- -------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Investing Activities . . 22,167 (343,349) (128,084)
Financing Activities
Proceeds from revolving lines of credit and
other borrowings . . . . . . . . . . . . . . . . . . . . . . . . 610,373 753,138 599,490
Principal payments on revolving lines of credit and
other borrowings . . . . . . . . . . . . . . . . . . . . . . . . (733,812) (582,827) (750,039)
Proceeds from monetary production payment liability . . . . . . . . 46,242 -- --
Principal payments of monetary production payment liability . . . . (2,386) -- --
Fees paid to acquire financing . . . . . . . . . . . . . . . . . . (273) (52) (6,535)
Proceeds from sales of common stock . . . . . . . . . . . . . . . . 1,583 473 166,140
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,356) 911 957
- -------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Financing Activities . . (80,629) 171,643 10,013
Effect of Exchange Rate Changes on Cash . . . . . . . . . . . . . . . (48) 1,641 --
- -------------------------------------------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents . . . . . . . . . 4,773 860 1,690
Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . 6,432 5,572 3,882
- -------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . $ 11,205 $ 6,432 $ 5,572
===================================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
- -----------------------------
34 Seagull Energy Corporation
<PAGE> 17
================================================================================
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Foreign
Additional Currency Note
Common Paid-in Retained Translation Receivable Treasury
Stock Capital Earnings Adjustment From ESOP Stock Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January 1, 1993 . . . . . . . . . . . . $ 1,298 $ 158,503 $ 93,515 $ -- $ (6,508) $ (3,135) $ 243,673
Net earnings . . . . . . . . . . . . -- -- 27,198 -- -- -- 27,198
Issuance of common stock,
5,060,000 shares . . . . . . . . . 506 163,131 -- -- -- -- 163,637
Two-for-one stock split . . . . . . 1,807 (1,807) -- -- -- -- --
Exercise of stock
options, 271,645 shares . . . . . 27 2,476 -- -- -- -- 2,503
Repayment of note
receivable by ESOP . . . . . . . . -- -- -- -- 479 -- 479
Other . . . . . . . . . . . . -- 1,889 -- -- -- -- 1,889
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1993 . . . . . . . . . . . 3,638 324,192 120,713 -- (6,029) (3,135) 439,379
Net earnings . . . . . . . . . . . . -- -- 3,246 -- -- -- 3,246
Exercise of stock
options, 53,855 shares . . . . . . 5 468 -- -- -- -- 473
Foreign currency
translation adjustment . . . . . . -- -- -- (2,684) -- -- (2,684)
Repayment of note
receivable by ESOP . . . . . . . . -- -- -- -- 527 -- 527
Other . . . . . . . . . . . . -- 160 -- -- -- -- 160
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1994 . . . . . . . . . . . 3,643 324,820 123,959 (2,684) (5,502) (3,135) 441,101
Net earnings . . . . . . . . . . . . -- -- 632 -- -- -- 632
Exercise of stock
options, 128,776 shares . . . . . 13 1,570 -- -- -- -- 1,583
Treasury stock issued as
executive incentive compensation,
18,000 shares . . . . . . . . . . -- 164 -- -- -- 171 335
Foreign currency
translation adjustment . . . . . . -- -- -- 3,073 -- -- 3,073
Repayment of note
receivable by ESOP . . . . . . . . -- -- -- -- 580 -- 580
Other . . . . . . . . . . . . -- 364 -- -- -- -- 364
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 1995 . . . . . . . . . . . $ 3,656 $ 326,918 $ 124,591 $ 389 $ (4,922) $ (2,964) $ 447,668
============================================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
-----------------------------
Seagull Energy Corporation 35
<PAGE> 18
================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2. Summary of Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . 36
3. Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4. Workforce Reduction and Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5. Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6. Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7. Supplemental Gas and Oil Producing Activities (Unaudited) . . . . . . . . . . . . . . . . . 42
8. Other Noncurrent Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9. Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10. Other Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11. Fair Value of Financial Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12. Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
13. Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
14. Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
15. Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
16. Selected Quarterly Financial Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . 62
17. Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
- --------------------------------------------------------------------------------
1. ORGANIZATION
Seagull Energy Corporation and Subsidiaries (the "Company" or "Seagull") is
an independent energy company primarily focused on natural gas through three
segments. The Company's exploration and production operations are focused
offshore Texas and Louisiana in the Gulf of Mexico and onshore in three
principal geographic regions: (i) western Oklahoma and the Texas Panhandle;
(ii) the Arklatex area in eastern Texas and northern Louisiana and the Arkoma
Basin in eastern Oklahoma and western Arkansas; and (iii) western Canada.
Seagull's two other business segments are also natural gas related: (i)
pipeline and marketing which includes gas gathering, gas processing, gas
marketing, and pipeline engineering, design, construction and operation; and
(ii) natural gas transmission and distribution in Alaska. In September 1995,
the Company disposed of substantially all of its gas gathering and processing
assets (see Note 3).
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Seagull Energy Corporation and Subsidiaries, all of which are wholly owned at
December 31, 1995. All significant intercompany transactions have been
eliminated.
- -------------------------------
36 Seagull Energy Corporation
<PAGE> 19
================================================================================
The results of operations of Seagull Energy Canada Ltd. ("Seagull Canada"),
formerly Novalta Resources Inc. ("Novalta"), have been included with those of
the Company since January 4, 1994 (see Note 5).
Partnerships in which Seagull held a 50% interest or less were accounted for
using the equity method.
REGULATION
The Company operates in Alaska through ENSTAR Natural Gas Company ("ENG"), a
division of the Company, and Alaska Pipeline Company ("APC"), a wholly owned
subsidiary (collectively referred to herein as "ENSTAR Alaska"). ENSTAR Alaska
is subject to regulation by the Alaska Public Utilities Commission ("APUC"),
which has jurisdiction over, among other things, rates, accounting procedures
and standards of service.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Supplemental disclosures of cash flow information are shown below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Year Ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest, net of amount capitalized . . . . . . . . . . . . . . . . . . . $ 46,663 $ 44,914 $ 26,753
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,393 1,621 7,140
====================================================================================================================================
</TABLE>
INVENTORIES
Materials and supplies are valued at the lower of average cost or market
value (net realizable value). Inventories of hydrocarbon products are valued on
a first-in, first-out (FIFO) basis at the lower of cost or market value.
GAS AND OIL PROPERTIES
The Company uses the successful efforts method of accounting for its gas and
oil operations. The costs of unproved leaseholds are capitalized pending the
results of exploration efforts. Unproved leaseholds with significant
acquisition costs are assessed periodically, on a property-by-property basis,
and a loss is recognized to the extent, if any, that the cost of the property
has been impaired. Unproved leaseholds whose acquisition costs are not
individually significant are aggregated, and the portion of such costs
estimated to ultimately prove nonproductive, based on experience, are amortized
over an average holding period. As unproved leaseholds are determined to be
productive, the related costs are transferred to proved leaseholds. Exploratory
dry holes and geological and geophysical charges are expensed. Depletion of
proved leaseholds and amortization and depreciation of the costs of all
development and successful exploratory drilling are provided by the
unit-of-production method based upon estimates of proved gas and oil reserves
on a depletable unit basis. Estimated costs (net of salvage value) of
dismantling and abandoning gas and oil production facilities are computed and
included in depreciation and depletion using the unit-of-production method. The
total estimated future dismantlement and abandonment cost being amortized as of
December 31, 1995 was approximately $26.6 million.
Effective March 31, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This SFAS
requires that an impairment loss be recognized whenever the carrying amount of
an asset exceeds the
-------------------------------
Seagull Energy Corporation 37
<PAGE> 20
================================================================================
sum of the estimated future cash flows (undiscounted) of the asset. Under SFAS
No. 121, the Company performed its impairment review of proved gas and oil
properties on a depletable unit basis. For each depletable unit determined to
be impaired, an impairment loss equal to the difference between the carrying
value and the fair value of the depletable unit was recognized. Fair value, on
a depletable unit basis, was estimated to be the present value of expected
future cash flows computed by applying estimated future gas and oil prices, as
determined by management, to estimated future production of gas and oil
reserves over the economic lives of the reserves. As a result of the adoption
of SFAS No. 121, the Company recognized a non-cash pre-tax charge against
earnings of $44.4 million.
Prior to March 31, 1995, the Company determined the impairment of proved gas
and oil properties on a world-wide basis. Using the world-wide basis, if the
net capitalized costs exceeded the estimated future undiscounted after-tax net
cash flows from proved gas and oil reserves using period-end pricing, such
excess costs would be charged to expense.
OTHER PROPERTY, PLANT AND EQUIPMENT
Depreciation of gas gathering pipeline facilities is computed principally
using the unit-of-production method based on the estimated proved reserves to
be transported through the pipeline facility. Depreciation of the utility
plant, gas processing plant and other property is computed using the
straight-line method over their estimated useful lives, which vary from 3 to 33
years.
Under SFAS No. 121, long-lived assets held for sale are not depreciated while
they are held for disposal. Accordingly, the Company ceased depreciating the
pipeline assets disposed of at the time of the announcement in April 1995 of
the Company's intention to sell those assets (see Note 3).
Utility plant facilities are subject to APUC regulation. When utility
properties are disposed of or otherwise retired, the original cost of the
property, plus cost of retirement, less salvage value, is charged to
accumulated depreciation.
Maintenance, repairs and renewals are charged to operations and maintenance
expense except that renewals which extend the life of the property are
capitalized.
TREASURY STOCK
The Company follows the average cost method of accounting for treasury stock
transactions.
REVENUE RECOGNITION
The Company records revenue following the entitlement method of accounting
for production gas imbalances (see Note 8).
Seagull constructs pipeline systems for third parties and recognizes profits
on construction under the percentage-of-completion method.
ENSTAR Alaska's operating revenues are based on rates authorized by the APUC
which are applied to customers' consumption of natural gas. ENSTAR Alaska
records unbilled revenue, including amounts to be billed under a purchased gas
adjustment clause, at the end of each accounting period.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into a variety of commodity derivative contracts for
non-trading purposes as a hedging strategy to manage commodity prices
associated with gas and oil sales and to reduce the impact of price
fluctuations. The Company primarily uses futures contracts, price swaps and
options to hedge its commodity prices. Gains or losses on these hedging
activities are recognized in exploration and production or marketing revenues
when the commodities are produced. Any realized gains or losses that are
deferred at the balance sheet date are included in net current assets. Margin
accounts for futures contracts are included on the balance sheet in net current
assets.
The Company has entered into interest rate swap agreements to manage the
impact of changes in interest rates. The differential interest to be paid or
received is accrued as
- -------------------------------
38 Seagull Energy Corporation
<PAGE> 21
================================================================================
interest rates change and is recognized over the life of the agreements as a
component of interest expense.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense represents various overhead costs of
corporate departments. All overhead expenses directly related to the operations
of the Company's business segments are included in operations and maintenance
expense and exploration charges.
INCOME TAXES
The Company uses the liability method of accounting for income taxes under
which deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized as part of the provision for
income taxes in the period that includes the enactment date.
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is the
applicable local currency. Translation from applicable foreign currencies to U.
S. dollars is performed for balance sheet accounts using exchange rates in
effect at the balance sheet date and for revenue and expense accounts using
primarily a weighted average exchange rate during the period. Adjustments
resulting from such translation are included as a separate component of
shareholders' equity. Deferred income taxes have not been provided on
translation adjustments because unremitted earnings from Seagull's foreign
operations are considered to be permanently invested.
EARNINGS PER SHARE
The weighted average number of common shares outstanding for the computation
of earnings per share for the years ended December 31, 1995, 1994 and 1993
gives effect to the assumed exercise of dilutive stock options as of the
beginning of the year.
On June 4, 1993, Seagull effected, in the form of a 100 percent stock
dividend, a two-for-one stock split (the "Stock Split") of all the issued
shares of the Company's common stock ("Common Stock"). The weighted average
number of common shares outstanding and per share amounts for the year ended
December 31, 1993 have been restated to reflect the Stock Split. None of the
share amounts included in the consolidated statements of shareholders' equity
as of dates prior to June 4, 1993 were adjusted to reflect the Stock Split.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates, judgments and
assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CHANGES IN FINANCIAL PRESENTATION
Certain reclassifications have been made in the 1994 and 1993 financial
statements to conform to the presentation used in 1995.
-------------------------------
Seagull Energy Corporation 39
<PAGE> 22
================================================================================
- --------------------------------------------------------------------------------
3. DISPOSITION OF ASSETS
On September 25, 1995, the Company and three other sellers completed the sale
of their disparate interests in 19 natural gas gathering systems and a gas
processing plant. The purchaser paid Seagull and the other sellers $154.8
million in cash for the assets. The Company's share of gross proceeds was
approximately $100 million. Net proceeds after payment of approximately $3
million in transaction costs were used to reduce the Company's borrowings under
its U.S. revolving credit facility (the "U.S. Credit Agreement"). From its
share of the proceeds, Seagull realized a one-time, pre-tax gain of
approximately $82 million recorded in the third quarter. For the nine months
ended September 30, 1995, the pipeline assets the Company disposed of (the
"Pipeline Assets") contributed $6.2 million and for the years ended December
31, 1994 and 1993, the Pipeline Assets contributed $6.7 million and $8.4
million, respectively, to the operating profit of the pipeline and marketing
segment.
In September 1995, the Company sold certain Internal Revenue Code Section 29
Tax Credit-bearing gas properties (the "Section 29 Properties") to an
investment group which includes a Seagull subsidiary and two financial
investors. For accounting purposes, the Company has treated the sale as a
non-recourse monetary production payment reflected in long-term debt on the
balance sheet (see Note 9). Net of transaction costs, the proceeds from the
sale of approximately $46.3 million in cash were used to pay down the Company's
borrowings under the U.S. Credit Agreement.
During the year ended December 31, 1993, the Company recorded a pre-tax gain
of approximately $3.8 million relating to sales of non-strategic gas and oil
producing properties. Net proceeds from the sales totaled approximately $13
million. The parcels sold had proven reserves estimated at approximately 19
billion cubic feet ("Bcf") of natural gas equivalents.
- --------------------------------------------------------------------------------
4. WORKFORCE REDUCTION AND CONSOLIDATION
In April 1995, the Company announced plans to reduce its workforce and
consolidate operations into a smaller number of locations. Company-wide,
approximately 90 of about 770 positions were eliminated in the combined
workforce reduction and consolidation. The eliminated positions primarily
represent technical and administrative positions in two regional offices. In
the second quarter of 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.
Furthermore, the sale of the Pipeline Assets resulted in the elimination of
approximately 35 additional jobs, primarily field positions.
- --------------------------------------------------------------------------------
5. ACQUISITIONS
On January 4, 1994, an indirect wholly owned subsidiary of Seagull acquired
all of the outstanding shares of stock of Novalta and an intercompany note from
Novalta to its parent, Novacor Petrochemicals Ltd., for a purchase price of
approximately $202 million in cash (the "Seagull Canada Acquisition").
Effective as of the January 4, 1994 closing date, Novalta was amalgamated with
Seagull Canada, the indirect subsidiary of Seagull that acquired Novalta. As a
result of the amalgamation, the intercompany note was extinguished. The
acquisition was accounted for as a purchase. Seagull Canada's assets consist
primarily of natural gas and oil reserves and developed and undeveloped lease
acreage concentrated principally in a small number of fields located in
Alberta, Canada.
- -------------------------------
40 Seagull Energy Corporation
<PAGE> 23
================================================================================
- --------------------------------------------------------------------------------
6. PROPERTY, PLANT AND EQUIPMENT
The major classes of the Company's property, plant and equipment are shown
below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
December 31,
1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gas and oil properties . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,325,183 $ 1,289,541
Pipeline facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,255 48,264
Gas processing plants . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,535 16,128
Utility plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,883 223,335
Equipment and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,146 14,884
- --------------------------------------------------------------------------------------------------------------------------
$ 1,581,002 $ 1,592,152
==========================================================================================================================
</TABLE>
Interest cost capitalized as property, plant and equipment amounted to
approximately $0.9 million, $0.6 million and $0.9 million in 1995, 1994 and
1993, respectively. Total depreciation, depletion and amortization related to
property, plant and equipment amounted to approximately $173.5 million, $147.7
million and $119.5 million in 1995, 1994 and 1993, respectively. As discussed
in Note 2, the Company recognized a non-cash pre-tax charge against earnings of
$44.4 million related to the adoption of SFAS No. 121. This charge is included
in the accumulated depreciation, depletion and amortization related to
property, plant and equipment at December 31, 1995.
As discussed in Note 3, the Company sold the Pipeline Assets during the year
ended December 31, 1995.
-------------------------------
Seagull Energy Corporation 41
<PAGE> 24
================================================================================
- --------------------------------------------------------------------------------
7. SUPPLEMENTAL GAS AND OIL PRODUCING ACTIVITIES (Unaudited)
CAPITALIZED COSTS RELATING TO GAS AND OIL PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) United Other
States Canada International Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995:
Proved properties . . . . . . . . . . . . . . . . . $ 1,058,415 $ 234,437 $ -- $ 1,292,852
Unproved properties . . . . . . . . . . . . . . . . 25,428 2,722 4,181 32,331
- ------------------------------------------------------------------------------------------------------------------------------------
1,083,843 237,159 4,181 1,325,183
Accumulated depreciation, depletion and amortization 448,279 34,015 815 483,109
- ------------------------------------------------------------------------------------------------------------------------------------
$ 635,564 $ 203,144 $ 3,366 $ 842,074
====================================================================================================================================
December 31, 1994:
Proved properties . . . . . . . . . . . . . . . . . $ 1,036,494 $ 225,365 $ -- $ 1,261,859
Unproved properties . . . . . . . . . . . . . . . . 19,376 3,216 5,090 27,682
- ------------------------------------------------------------------------------------------------------------------------------------
1,055,870 228,581 5,090 1,289,541
Accumulated depreciation, depletion and amortization 332,108 16,098 497 348,703
- ------------------------------------------------------------------------------------------------------------------------------------
$ 723,762 $ 212,483 $ 4,593 $ 940,838
====================================================================================================================================
</TABLE>
COSTS INCURRED IN GAS AND OIL PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) United Other
States Canada(*) International Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995:
Acquisition of properties:
Proved . . . . . . . . . . . . . . . . . . . . . . $ 11 $ 553 $ -- $ 564
Unproved . . . . . . . . . . . . . . . . . . . . . 10,360 873 206 11,439
Exploration costs . . . . . . . . . . . . . . . . . 28,480 764 2,880 32,124
Development costs . . . . . . . . . . . . . . . . . 29,568 2,507 -- 32,075
- ------------------------------------------------------------------------------------------------------------------------------------
$ 68,419 $ 4,697 $ 3,086 $ 76,202
====================================================================================================================================
Year Ended December 31, 1994:
Acquisition of properties:
Proved . . . . . . . . . . . . . . . . . . . . . . $ 4,144 $ 218,871 $ -- $ 223,015
Unproved . . . . . . . . . . . . . . . . . . . . . 5,581 3,216 2,426 11,223
Exploration costs . . . . . . . . . . . . . . . . . 28,728 801 5,578 35,107
Development costs . . . . . . . . . . . . . . . . . 65,009 18,830 -- 83,839
- ------------------------------------------------------------------------------------------------------------------------------------
$ 103,462 $ 241,718 $ 8,004 $ 353,184
====================================================================================================================================
Year Ended December 31, 1993:
Acquisition of properties:
Proved . . . . . . . . . . . . . . . . . . . . . . $ 22,568 $ -- $ -- $ 22,568
Unproved . . . . . . . . . . . . . . . . . . . . . 7,657 -- 93 7,750
Exploration costs . . . . . . . . . . . . . . . . . 26,824 -- -- 26,824
Development costs . . . . . . . . . . . . . . . . . 63,598 -- -- 63,598
- ------------------------------------------------------------------------------------------------------------------------------------
$ 120,647 $ -- $ 93 $ 120,740
====================================================================================================================================
</TABLE>
(*) Includes Seagull Canada since January 4, 1994.
- -------------------------------
42 Seagull Energy Corporation
<PAGE> 25
================================================================================
RESULTS OF OPERATIONS FOR GAS AND OIL PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands) United Other
States Canada(1) International Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1995:
Revenues . . . . . . . . . . . . . . . . . . . . . $ 180,491 $ 28,837 $ -- $ 209,328
Lifting costs:
Lease operating expense . . . . . . . . . . . . . 27,856 8,482 -- 36,338
Workover expense . . . . . . . . . . . . . . . . . 1,566 647 -- 2,213
Production taxes . . . . . . . . . . . . . . . . . 6,390 -- -- 6,390
Transportation expense . . . . . . . . . . . . . . 8,189 1,949 -- 10,138
Ad valorem taxes . . . . . . . . . . . . . . . . . 3,554 -- -- 3,554
- ------------------------------------------------------------------------------------------------------------------------------------
47,555 11,078 -- 58,633
General operating expense . . . . . . . . . . . . . 6,554 1,856 -- 8,410
Exploration charges . . . . . . . . . . . . . . . . 19,996 2,866 6,693 29,555
Depreciation, depletion and amortization . . . . . 96,544 18,046 520 115,110
Impairment of gas and oil properties . . . . . . . 44,376 -- -- 44,376
- ------------------------------------------------------------------------------------------------------------------------------------
Operating loss . . . . . . . . . . . . . . . . . . (34,534) (5,009) (7,213) (46,756)
Income tax benefit(2) . . . . . . . . . . . . . . . (14,983) (2,233) (318) (17,534)
- ------------------------------------------------------------------------------------------------------------------------------------
Results of operations from producing activities . . $ (19,551) $ (2,776) $ (6,895) $ (29,222)
====================================================================================================================================
Year Ended December 31, 1994:
Revenues . . . . . . . . . . . . . . . . . . . . . $ 225,475 $ 37,068 $ -- $ 262,543
Lifting costs:
Lease operating expense . . . . . . . . . . . . . 27,948 9,003 -- 36,951
Workover expense . . . . . . . . . . . . . . . . . 2,593 725 -- 3,318
Production taxes . . . . . . . . . . . . . . . . . 8,712 -- -- 8,712
Transportation expense . . . . . . . . . . . . . . 9,967 1,712 -- 11,679
Ad valorem taxes . . . . . . . . . . . . . . . . . 3,329 -- -- 3,329
- ------------------------------------------------------------------------------------------------------------------------------------
52,549 11,440 -- 63,989
General operating expense . . . . . . . . . . . . . 9,779 1,574 -- 11,353
Exploration charges . . . . . . . . . . . . . . . . 19,617 2,308 4,963 26,888
Depreciation, depletion and amortization . . . . . 114,738 16,558 751 132,047
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) . . . . . . . . . . . . . . 28,792 5,188 (5,714) 28,266
Income tax expense(2) . . . . . . . . . . . . . . . 2,761 2,300 -- 5,061
- ------------------------------------------------------------------------------------------------------------------------------------
Results of operations from producing activities . . $ 26,031 $ 2,888 $ (5,714) $ 23,205
====================================================================================================================================
Year Ended December 31, 1993:
Revenues . . . . . . . . . . . . . . . . . . . . . $ 227,437 $ -- $ -- $ 227,437
Lifting costs:
Lease operating expense . . . . . . . . . . . . . 28,806 -- -- 28,806
Workover expense . . . . . . . . . . . . . . . . . 4,249 -- -- 4,249
Production taxes . . . . . . . . . . . . . . . . . 9,133 -- -- 9,133
Transportation expense . . . . . . . . . . . . . . 7,764 -- -- 7,764
Ad valorem taxes . . . . . . . . . . . . . . . . . 3,291 -- -- 3,291
- ------------------------------------------------------------------------------------------------------------------------------------
53,243 -- -- 53,243
General operating expense . . . . . . . . . . . . . 10,408 -- -- 10,408
Exploration charges . . . . . . . . . . . . . . . . 16,579 -- 686 17,265
Depreciation, depletion and amortization . . . . . 103,537 -- 15 103,552
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) . . . . . . . . . . . . . . 43,670 -- (701) 42,969
Income tax expense(2) . . . . . . . . . . . . . . . 9,241 -- -- 9,241
- ------------------------------------------------------------------------------------------------------------------------------------
Results of operations from producing activities . . $ 34,429 $ -- $ (701) $ 33,728
====================================================================================================================================
</TABLE>
(1) Includes Seagull Canada since January 4, 1994.
(2) Income tax expense (benefit) for United States operations and U.S.
subsidiaries conducting international operations is calculated by
applying the current U.S. effective income tax rate, before the Internal
Revenue Code Section 29 Tax Credits, to operating profit and reducing
(increasing) the resulting income tax expense (benefit) by the Section 29
Tax Credits. Income tax expense for Canada is calculated by applying the
current statutory rate to operating profit. No income tax expense
(benefit) was applied to Other International operations in 1994 and 1993
as these operations had no impact on the Company's consolidated tax
return.
-------------------------------
Seagull Energy Corporation 43
<PAGE> 26
================================================================================
RESERVE QUANTITY INFORMATION (1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
United States Canada(2) Total
Gas Oil Gas Oil Gas Oil
(MMcf) (Mbbl) (MMcf) (Mbbl) (MMcf) (Mbbl)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1993:
Proved developed and undeveloped reserves:
Beginning of year . . . . . . . . . . . . 884,327 18,149 -- -- 884,327 18,149
Purchases of reserves in place . . . . . . 34,350 198 -- -- 34,350 198
Sales of reserves in place . . . . . . . . (9,587) (1,554) -- -- (9,587) (1,554)
Revisions of previous estimates . . . . . 24,924 (1,281) -- -- 24,924 (1,281)
Extensions and discoveries . . . . . . . . 83,158 972 -- -- 83,158 972
Production . . . . . . . . . . . . . . . . (102,025) (1,694) -- -- (102,025) (1,694)
- ------------------------------------------------------------------------------------------------------------------------------------
End of year(3) . . . . . . . . . . . . . . 915,147 14,790 -- -- 915,147 14,790
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1994:
Proved developed and undeveloped reserves:
Beginning of year . . . . . . . . . . . . 915,147 14,790 -- -- 915,147 14,790
Purchases of reserves in place . . . . . . 7,168 67 261,785 2,923 268,953 2,990
Sales of reserves in place . . . . . . . . (923) (17) (2,711) (8) (3,634) (25)
Revisions of previous estimates . . . . . (61,357) (442) 449 685 (60,908) 243
Extensions and discoveries . . . . . . . . 50,576 331 28,212 878 78,788 1,209
Production . . . . . . . . . . . . . . . . (109,900) (1,421) (19,755) (427) (129,655) (1,848)
- ------------------------------------------------------------------------------------------------------------------------------------
End of year(3) . . . . . . . . . . . . . . 800,711 13,308 267,980 4,051 1,068,691 17,359
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995:
Proved developed and undeveloped reserves:
Beginning of year . . . . . . . . . . . . 800,711 13,308 267,980 4,051 1,068,691 17,359
Purchases of reserves in place . . . . . . -- -- 1,494 74 1,494 74
Sales of reserves in place . . . . . . . . (4,019) (78) (2,457) (153) (6,476) (231)
Revisions of previous estimates . . . . . (11,379) 4,000 3,159 (164) (8,220) 3,836
Extensions and discoveries . . . . . . . . 47,633 1,371 4,773 258 52,406 1,629
Production . . . . . . . . . . . . . . . . (99,772) (1,159) (22,057) (399) (121,829) (1,558)
- ------------------------------------------------------------------------------------------------------------------------------------
End of year(4) . . . . . . . . . . . . . . 733,174 17,442 252,892 3,667 986,066 21,109
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Proved developed reserves:
December 31, 1992 . . . . . . . . . . . . 675,861 11,552 -- -- 675,861 11,552
December 31, 1993 . . . . . . . . . . . . 693,610 9,362 -- -- 693,610 9,362
December 31, 1994 . . . . . . . . . . . . 650,371 7,882 243,042 3,587 893,413 11,469
December 31, 1995 . . . . . . . . . . . . 610,651 9,344 225,544 3,196 836,195 12,540
====================================================================================================================================
</TABLE>
(1) Gas stated in million cubic feet ("MMcf"); oil stated in thousands of
barrels ("Mbbl").
(2) Includes Seagull Canada since January 4, 1994.
(3) At December 31, 1994, includes approximately 154 Mbbl of oil related to
prepaid oil sales. At December 31, 1993, includes approximately 620 MMcf
of gas and 529 Mbbl of oil related to prepaid gas and oil sales.
(4) At December 31, 1995, includes approximately 74,713 MMcf of gas and 2,281
Mbbl of oil dedicated to the monetary production payment (see Note 3).
- -------------------------------
44 Seagull Energy Corporation
<PAGE> 27
================================================================================
The reserve volumes are estimates only and should not be construed as being
exact quantities. These reserves may or may not be recovered and may increase
or decrease as a result of future operations of the Company and changes in
market conditions. The Company's standardized measure of discounted future net
cash flows and changes therein as of December 31, 1995, 1994 and 1993 are based
substantially on the present value of future net revenues from proved gas and
oil reserves estimated by independent petroleum engineers in accordance with
guidelines established by the Securities and Exchange Commission. These
estimates were computed by applying appropriate year-end prices for gas and oil
to estimated future production of proved gas and oil reserves over the economic
lives of the reserves and assuming continuation of existing economic
conditions. Year-end 1995 calculations were made utilizing average prices for
natural gas and oil, condensate and natural gas liquids that existed at
December 31, 1995 of $2.09 per thousand cubic feet ("Mcf") and $14.51 per
barrel ("Bbl"), respectively, for the United States and $1.13 per Mcf and
$14.26 per Bbl, respectively, for Canada. Income taxes are computed by applying
the statutory federal income tax rate to the net cash inflows relating to
proved gas and oil reserves less the tax bases of the properties involved and
giving effect to any net operating loss carryforwards, tax credits and
allowances relating to such properties.
Standardized Measure of Discounted Future Net Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
United
States Canada Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1995:
Future cash inflows . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,788,343 $ 345,380 $ 2,133,723
Future development costs . . . . . . . . . . . . . . . . . . . . . . (161,332) (20,297) (181,629)
Future production costs . . . . . . . . . . . . . . . . . . . . . . . (483,879) (113,917) (597,796)
- ------------------------------------------------------------------------------------------------------------------------------------
Future net cash flows before income taxes . . . . . . . . . . . . . . 1,143,132 211,166 1,354,298
10% annual discount . . . . . . . . . . . . . . . . . . . . . . . . . (486,558) (98,399) (584,957)
- ------------------------------------------------------------------------------------------------------------------------------------
Discounted future net cash flows before income taxes . . . . . . . . 656,574 112,767 769,341
Discounted income taxes . . . . . . . . . . . . . . . . . . . . . . . (103,749) (33,286) (137,035)
- ------------------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future net cash flows . . . . . . $ 552,825 $ 79,481 $ 632,306
====================================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1994:
Future cash inflows . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,537,172 $ 386,249 $ 1,923,421
Future development costs . . . . . . . . . . . . . . . . . . . . . . (175,394) (20,863) (196,257)
Future production costs . . . . . . . . . . . . . . . . . . . . . . . (474,545) (114,831) (589,376)
- ------------------------------------------------------------------------------------------------------------------------------------
Future net cash flows before income taxes . . . . . . . . . . . . . . 887,233 250,555 1,137,788
10% annual discount . . . . . . . . . . . . . . . . . . . . . . . . . (354,360) (119,168) (473,528)
- ------------------------------------------------------------------------------------------------------------------------------------
Discounted future net cash flows before income taxes . . . . . . . . 532,873 131,387 664,260
Discounted income taxes . . . . . . . . . . . . . . . . . . . . . . . (37,348) (41,224) (78,572)
- ------------------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future net cash flows . . . . . . $ 495,525 $ 90,163 $ 585,688
====================================================================================================================================
</TABLE>
-------------------------------
Seagull Energy Corporation 45
<PAGE> 28
================================================================================
Principal Sources of Change in the Standardized Measure of Discounted Future
Net Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Year Ended December 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Standardized measure of discounted future net cash flows,
beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 585,688 $ 727,648 $ 694,448
Purchases of reserves in place . . . . . . . . . . . . . . . . . . . 930 197,301 28,871
Sales of reserves in place . . . . . . . . . . . . . . . . . . . . . (5,238) (2,932) (13,679)
Revisions of previous quantity estimates less related costs . . . . 1,666 (51,622) 16,660
Extensions and discoveries less related costs . . . . . . . . . . . 68,265 50,062 87,345
Net changes in prices and production costs . . . . . . . . . . . . . 146,709 (348,609) 28,393
Development costs incurred during period and
changes in estimated future development costs . . . . . . . . . . 27,867 66,991 22,248
Sales of gas and oil produced during period, net of lifting costs . (150,695) (198,554) (174,194)
Accretion of discount . . . . . . . . . . . . . . . . . . . . . . . 66,426 89,333 83,454
Net change in income taxes . . . . . . . . . . . . . . . . . . . . . (58,464) 87,109 (25,591)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,848) (31,039) (20,307)
- ------------------------------------------------------------------------------------------------------------------------------------
46,618 (141,960) 33,200
- ------------------------------------------------------------------------------------------------------------------------------------
Standardized measure of discounted future net cash flows, end of year . $ 632,306 $ 585,688 $ 727,648
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
8. OTHER NONCURRENT ASSETS
Other noncurrent assets include the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
December 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Natural gas imbalances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,336 $ 26,350
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,979 16,066
Equity investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 8,837
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,685 4,627
- ------------------------------------------------------------------------------------------------------------------------------------
$ 40,000 $ 55,880
====================================================================================================================================
</TABLE>
NATURAL GAS IMBALANCES
The Company records revenue following the entitlement method of accounting
for production imbalances, in which any excess amount received above the
Company's share is treated as a liability. If less than the Company's
entitlement is received, the underproduction is recorded as an asset. The
Company records revenue from gas marketing sales net of the cost of gas and
third-party delivery fees, with any resulting transportation imbalances
recorded as a current receivable or payable.
- -------------------------------
46 Seagull Energy Corporation
<PAGE> 29
================================================================================
The Company's natural gas and transportation imbalance assets and liabilities
were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands and Volumes in Bcf)
December 31,
1995 1994
Amount Volume Amount Volume
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,213 7.4 $ 8,970 5.7
Noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,336 16.1 26,350 17.5
- ------------------------------------------------------------------------------------------------------------------------------------
$ 35,549 23.5 $ 35,320 23.2
====================================================================================================================================
LIABILITIES:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,219 7.6 $ 10,130 6.0
Noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,235 13.5 25,607 16.4
- ------------------------------------------------------------------------------------------------------------------------------------
$ 31,454 21.1 $ 35,737 22.4
====================================================================================================================================
</TABLE>
DEFERRED FINANCING COSTS
Deferred financing costs represent financing costs incurred in connection
with the execution of various facilities entered into or securities issued by
the Company. These costs are capitalized and amortized to interest expense over
the life of the related debt. As discussed in Note 9, the Company has a $650
million revolving credit line which matures in 2000. Financing costs initially
incurred in 1992 of approximately $16.7 million were capitalized in connection
with this facility and will be amortized to interest expense over periods
ending December 31, 2000. Approximately $5.0 million in financing costs
incurred in connection with the Company's July 1993 issuance of $250 million in
senior and senior subordinated notes was capitalized and will be amortized to
interest expense over periods ending August 1, 2005 (see Note 9).
EQUITY INVESTMENTS
All of the Company's equity investments in two partnerships and one
corporation were sold during the year ended December 31, 1995 (See Note 3
regarding the sale of the Pipeline Assets which included the Company's equity
investments in two partnerships).
-------------------------------
Seagull Energy Corporation 47
<PAGE> 30
================================================================================
- --------------------------------------------------------------------------------
9. LONG-TERM DEBT
Long-term debt for 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
December 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Seagull Energy Corporation:
Money market facilities, variable rates (6.6% and 7% at
December 31, 1995 and 1994, respectively) due in 1996 . . . . . . . . . . . . . . $ 27,527 $ 6,173
Revolving credit, variable rates (6.20%-6.475%
and 6.09%-7.4% at December 31, 1995 and 1994,
respectively) due in 1997-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 89,000 155,000
Senior notes, 7.875%, due August 1, 2003 . . . . . . . . . . . . . . . . . . . . . 100,000 100,000
Senior subordinated notes, 8.625%, due August 1, 2005 . . . . . . . . . . . . . . . 150,000 150,000
Monetary production payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,856 --
Seagull Energy Canada Ltd.:
Revolving credit, variable rates (6.94%
and 6.94%-8.25% at December 31, 1995 and 1994,
respectively) due in 1997-2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 75,396 148,275
Alaska Pipeline Company:
Unsecured industrial development bonds:
7.75%-8.00% due in 1995-2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,140 12,035
Other unsecured indebtedness:
9.95%-12.80% notes, due in 1995-2000 . . . . . . . . . . . . . . . . . . . . . . . 750 2,100
8.15%-8.81% notes, due in 1997-2009 . . . . . . . . . . . . . . . . . . . . . . . 50,000 50,000
Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 18
- ------------------------------------------------------------------------------------------------------------------------------------
547,683 623,601
Less: Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,214 1,549
Unamortized debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . 1,126 1,247
- ------------------------------------------------------------------------------------------------------------------------------------
$ 545,343 $ 620,805
====================================================================================================================================
</TABLE>
SEAGULL ENERGY CORPORATION
MONEY MARKET FACILITIES
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.
SEAGULL ENERGY CORPORATION REVOLVING CREDIT
During 1995, the Company requested the maximum commitment under the U.S.
Credit Agreement be reduced from $725 million to $650 million. Under the terms
of the U.S. Credit Agreement, the commitments thereunder begin to decline on
March 31, 1997 in equal quarterly reductions of $45 million and a final
reduction of $20 million on September 30, 2000.
The U.S. Credit Agreement is an unsecured credit facility that contains
restrictive provisions regarding the incurrence of additional debt, the making
of investments
- -------------------------------
48 Seagull Energy Corporation
<PAGE> 31
================================================================================
outside existing lines of business, the maintenance of certain financial ratios
(based upon Seagull's consolidated financial condition and results of
operations), the incurrence of additional liens, the declaration or payment of
dividends (other than dividends payable on up to $150 million of preferred
stock or dividends payable solely in the form of additional shares of Common
Stock) and the repurchase or redemption of capital stock. Under the most
restrictive of these provisions, approximately $34.6 million was available for
payment of cash dividends on Common Stock or to repurchase Common Stock as of
December 31, 1995. The U.S. Credit Agreement also includes restrictive
provisions whereby a change in control of the Company would constitute an Event
of Default, thereby accelerating all amounts due under the U.S. Credit
Agreement.
The U.S. Credit Agreement bears interest, at Seagull's option, at a rate
equal to (i) either one, two, three or six month Adjusted LIBOR, plus a margin
(the "LIBOR Margin"), (ii) the Reference Rate, plus a margin (the "Prime
Margin") or (iii) a competitive bid rate. The "Reference Rate" is the greater
of (i) 0.5% per annum above the daily federal funds rate or (ii) the prime rate
of the agent bank. The LIBOR Margin ranges from 0.625% to 1.5% per annum,
depending upon Seagull's consolidated Debt to Capitalization Ratio (as defined
under the U.S. Credit Agreement), and the Prime Margin ranges from 0% to 0.5%
per annum, depending upon the same factor.
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. As a result of the sale of the Pipeline Assets
and Section 29 Properties, the available Borrowing Base decreased by
approximately $75 million to $500 million. If the Borrowing Base is
redetermined in such a manner that the amount outstanding under the U.S. Credit
Agreement (together with any other permitted senior debt facility) exceeds the
new Borrowing Base, then the Company must repay the U.S. Credit Agreement or
such other indebtedness in an amount necessary to cure the deficiency. If such
deficiency has not been cured within 30 days, such deficiency must be cured in
three equal quarterly installments.
As of December 31, 1995, the available commitment under the U.S. Credit
Agreement is subject to a $500 million Borrowing Base and is determined after
consideration of outstanding borrowings under Seagull's other senior debt
facilities. On that date, borrowings outstanding under the U.S. Credit
Agreement were $89 million, leaving immediately available unused commitments of
approximately $185.6 million, net of outstanding letters of credit of $2.9
million, $100 million of borrowings outstanding under the Senior Notes (defined
below), the nominated maximum borrowing availability of $95 million under the
$175 million reducing revolving credit facility (the "Canadian Credit
Agreement"), and $27.5 million in borrowings outstanding under Seagull's money
market facilities.
At December 31, 1995, the Company was not in compliance with a certain
covenant contained in the U.S. Credit Agreement and a similar covenant in the
Canadian Credit Agreement (neither of which was a payment default). The banks
have consented to and waived this event of noncompliance for both the U.S. and
Canadian Credit Agreements. Subsequent to December 31, 1995, the Company
obtained amendments to the U.S. and Canadian Credit Agreements from the banks
which modify the covenants discussed above.
-------------------------------
Seagull Energy Corporation 49
<PAGE> 32
================================================================================
SENIOR AND SENIOR SUBORDINATED NOTES
In July 1993, Seagull sold $100 million of senior notes (the "Senior Notes")
and $150 million of senior subordinated notes (the "Senior Subordinated Notes")
(collectively the "Notes") in an underwritten public offering. The Senior Notes
bear interest at 7-7/8% per annum, are not redeemable prior to maturity or
subject to any sinking fund and mature on August 1, 2003. The Senior
Subordinated Notes bear interest at 8-5/8% per annum, are not subject to any
sinking fund and mature on August 1, 2005. On or after August 1, 2000, the
Senior Subordinated Notes are redeemable at the option of the Company, in whole
or in part, at redemption prices declining from 102.59% in 2000 to 100.00% in
2003 and thereafter (expressed as a percentage of principal amount), plus
accrued interest to the redemption date. The Notes were issued at par and
interest is paid semiannually.
The Notes represent unsecured obligations of the Company. The Senior Notes
rank pari passu with senior indebtedness of the Company while the Senior
Subordinated Notes are subordinate in right of payment to all existing and
future senior indebtedness of the Company. The Notes contain conditions and
restrictive provisions including, among other things, restrictions on
additional indebtedness by the Company and by its subsidiaries, the right of
each note holder to have the notes repurchased by the Company at 101% of the
principal amount upon a change in control, as well as restrictions on the
incurrence of secured debt and entering into sale and leaseback transactions.
Net proceeds from the offering, totaling approximately $245 million, were used
to repay borrowings outstanding under the U.S. Credit Agreement.
INTEREST RATE SWAP AGREEMENTS
The Company enters into interest rate swap agreements to manage the impact of
changes in interest rates. During 1995, the following interest rate swap
agreements were in effect:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Interest Rate
Notional Amount Effective Date Maturity Date Receive Pay
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 40,000 09/11/92 09/11/95 Floating 6.76%
50,000 08/02/93 01/31/97 5.635% Floating
50,000 08/02/93 01/31/97 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>
While notional amounts are used to express the volume of the interest rate
swap transactions discussed above, the amount potentially subject to credit
risk, in the event of nonperformance by Seagull's counterparties, is
significantly smaller.
MONETARY PRODUCTION PAYMENT
On September 1, 1995, the Company sold the Section 29 Properties for $46.3
million in net proceeds. The transaction was recorded as a monetary production
payment for accounting purposes. The investors receive the operating cash flow
from the properties, less funds required for working capital purposes, and are
expected to recoup their investment plus their required after-tax rate of
return by
- -------------------------------
50 Seagull Energy Corporation
<PAGE> 33
================================================================================
2002. Seagull's pre-tax effective interest rate is currently estimated to be
approximately 4%.
SEAGULL ENERGY CANADA LTD.
In connection with the Seagull Canada Acquisition (see Note 5), Seagull
Canada entered into the Canadian Credit Agreement with a group of major U. S.
and international banks or their Canadian affiliates. In June 1995, the Company
requested the maximum commitment under the Canadian Credit Agreement be reduced
from $175 million to $100 million. The Canadian Credit Agreement provides for
dual currency borrowings in U. S. and Canadian dollars with a nominated maximum
borrowing availability of $95 million, which may be increased or decreased by
the Company at any time pursuant to provisions of the Canadian Credit
Agreement. The Canadian Credit Agreement matures on December 31, 2000 and
commitments thereunder begin to decline on March 31, 1997 in equal quarterly
reductions of approximately $10.9 million.
Borrowings outstanding in Canadian dollars bear interest, at Seagull Canada's
option, at a rate equal to (i) either one, two, three or six month Bankers'
Acceptance Rate plus the LIBOR Margin or (ii) the Paying Agent's prime rate
plus the Prime Margin. Borrowings outstanding under the Canadian Credit
Agreement funded in U. S. dollars bear interest, at Seagull Canada's option, in
a manner similar to borrowings outstanding under the U.S. Credit Agreement as
described above. The Canadian Credit Agreement is an unsecured credit facility
guaranteed by Seagull and contains restrictive provisions similar to those
included in the U.S. Credit Agreement.
ALASKA PIPELINE COMPANY
All long-term debt of ENSTAR Alaska is issued by APC. The majority of the
capital requirements of ENG is met by loans from APC pursuant to intercompany
notes secured by a mortgage on the properties, rights and franchises (other
than certain excepted properties) of ENG. The senior unsecured notes of APC
provide for restrictions on dividends, additional borrowings and purchases,
redemptions or retirements of shares of capital stock, other than in stock of
APC. Under the most restrictive provisions of these financing arrangements,
approximately $12.0 million was available for the making of restricted
investments, restricted stock payments and restricted subordinated debt
payments as of December 31, 1995.
ENSTAR Alaska also has a money market facility with a maximum commitment of
$5 million that is subject to annual renewal. There were no balances
outstanding under this facility during 1995 or 1994.
ANNUAL MATURITIES
At December 31, 1995, the Company's aggregate annual maturities of long-term
debt are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Year Ending December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,214
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,373
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,847
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,174
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,187
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323,888
====================================================================================================================================
</TABLE>
For purposes of the above table, the required payments related to the money
market facilities are considered to be funded with amounts available under the
U.S. Credit Agreement.
-------------------------------
Seagull Energy Corporation 51
<PAGE> 34
================================================================================
- --------------------------------------------------------------------------------
10. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities include the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
December 31,
1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Natural gas imbalances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,235 $ 25,607
Refundable customer advances for construction . . . . . . . . . . . . . . . . . . . . . . 11,037 12,668
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,004 19,462
- ------------------------------------------------------------------------------------------------------------------------------------
$ 52,276 $ 57,737
====================================================================================================================================
</TABLE>
NATURAL GAS IMBALANCES
This represents revenues for natural gas production received and sold by the
Company in excess of the Company's ownership percentage of total gas production
(see Note 8).
REFUNDABLE CUSTOMER ADVANCES FOR CONSTRUCTION
This represents customer deposits received by ENSTAR Alaska for construction
of main extensions refundable either wholly or in part over a period not to
exceed 10 years.
- -------------------------------
52 Seagull Energy Corporation
<PAGE> 35
================================================================================
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are summarized
as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
December 31,
1995 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents . . . . . . . . . . . . . . $ 11,205 $ 11,205 $ 6,432 $ 6,432
Liabilities:
Customer deposits . . . . . . . . . . . . . . . . . . (1,698) (1,552) (1,639) (1,513)
Refundable customer advances for construction . . . . (13,168) (10,434) (12,927) (10,144)
Long-term debt:
U.S. Credit Agreement and money market facilities . (116,527) (116,527) (161,173) (161,173)
Senior Notes . . . . . . . . . . . . . . . . . . . . (100,000) (98,600) (100,000) (89,000)
Senior Subordinated Notes . . . . . . . . . . . . . (150,000) (143,580) (150,000) (130,500)
Seagull Energy Canada Ltd. Credit Agreement . . . . (75,396) (75,396) (148,275) (148,275)
Monetary production payment . . . . . . . . . . . . (43,856) (43,294) -- --
Alaska Pipeline Company, including
current maturities . . . . . . . . . . . . . . . . (60,778) (68,600) (62,906) (65,100)
Derivative transactions:
Interest rate swap agreements:
In a receivable position . . . . . . . . . . . . . . -- 440 -- 138
In a payable position . . . . . . . . . . . . . . . -- (1,604) -- (11,541)
Commodity price swaps:
In a receivable position . . . . . . . . . . . . . . -- 981 -- --
In a payable position . . . . . . . . . . . . . . . -- (1,897) -- --
Commodity futures:
In a payable position . . . . . . . . . . . . . . . -- (1,465) -- --
Commodity options:
In a payable position . . . . . . . . . . . . . . . (105) (326) -- --
====================================================================================================================================
</TABLE>
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short maturity of
these instruments.
CUSTOMER DEPOSITS AND REFUNDABLE CUSTOMER ADVANCES FOR CONSTRUCTION
The fair value is based on discounted cash flow analyses utilizing a discount
rate of 8.75% and 7.75% at December 31, 1995 and 1994, respectively, with
monthly payments ratably over the estimated period of deposit or advance
refunding.
LONG-TERM DEBT
SEAGULL ENERGY CORPORATION:
The carrying amount of borrowings outstanding under the Company's U.S. Credit
Agreement and money market facilities approximates fair value because these
instruments bear interest at rates tied to current market rates.
The fair value of Seagull's Senior and Senior Subordinated Notes is estimated
based on quoted market prices for the same issues.
The fair value of the monetary production payment is estimated using
discounted cash flow analyses utilizing a discount rate of 3.83% at December
31, 1995.
-------------------------------
Seagull Energy Corporation 53
<PAGE> 36
================================================================================
SEAGULL ENERGY CANADA LTD.:
The carrying amount of borrowings outstanding under the Canadian Credit
Agreement approximates fair value because this instrument bears interest at
rates tied to current market rates.
ALASKA PIPELINE COMPANY:
The fair value of APC's long-term debt is estimated based on quoted market
prices for the same or similar issues.
DERIVATIVE TRANSACTIONS
INTEREST RATE SWAP AGREEMENTS:
The fair values are obtained from the financial institutions that are
counterparties to the transactions. These values represent the estimated amount
the Company would pay or receive to terminate the agreements, taking into
consideration current interest rates and the current creditworthiness of the
counterparties. Seagull's interest rate swap agreements are off balance sheet
transactions and, accordingly, no respective carrying amounts for these
transactions are included in the accompanying consolidated balance sheets as of
December 31, 1995 and 1994.
COMMODITY RELATED TRANSACTIONS:
The Company uses derivative financial instruments for non-trading purposes as
a hedging strategy to reduce the impact of market volatility and to ensure cash
flows or to convert a customer's requested price structure to a price structure
that is consistent with the Company's overall pricing strategy. Gains and
losses on these hedging transactions are recorded when the related gas or oil
production has been produced or delivered. If a derivative financial instrument
no longer qualifies for hedge accounting, changes in the market value of that
instrument will be recorded in income in the period in which the changes occur.
Gains and losses are generally offset by similar changes in the price of
natural gas and oil. While derivative financial instruments are intended to
reduce the Company's exposure to declines in the market price of natural gas
and oil, the derivative financial instruments may limit the Company's gain from
increases in the market price of natural gas and oil. At December 31, 1995, the
Company had deferred realized losses of $2.3 million and unrealized losses of
$1.5 million, included in net current assets, related to commodity hedging
activities.
COMMODITY PRICE SWAPS
The fair value is the estimated amount the Company would receive or pay to
terminate the swap agreements at the reporting date, taking into account the
difference between New York Mercantile Exchange ("NYMEX") prices or index
prices at year-end and the fixed swap price. At December 31, 1995, the Company
had open swap agreements for the Company's production of 23,051,000 million
British thermal units ("MMbtu") of natural gas for February 1996 through
December 1998. Seagull had no open oil price swaps at year-end.
COMMODITY FUTURES
The fair value is the estimated amount the Company would receive or pay to
close the futures contracts at the reporting date, taking into account the
difference between the NYMEX gas prices at year-end and the fixed futures
price. At December 31, 1995, the Company had outstanding futures contracts
covering notional volumes of 6,180,000 MMbtu for February 1996 through June
1996.
COMMODITY OPTIONS
The fair value is the estimated amount the Company would receive or pay to
close the option contracts at the reporting date, taking into account the
difference between NYMEX or index prices at year-end and the option "strike"
prices. At December 31, 1995, the Company had open option contracts on
2,430,000 MMbtu for February 1996 through June 1996.
Fair value estimates are dependent upon subjective assumptions and involve
significant uncertainties resulting in variability in estimates with changes in
assumptions. Also, potential taxes and other expenses that would be incurred in
an actual sale or settlement are not reflected in amounts disclosed.
- -------------------------------
54 Seagull Energy Corporation
<PAGE> 37
================================================================================
- --------------------------------------------------------------------------------
12. SHAREHOLDERS' EQUITY
COMMON STOCK
In February 1993, Seagull sold 5,060,000 shares (10,120,000 shares after the
Stock Split) of Common Stock in an underwritten public offering. Net proceeds
from the offering, totaling approximately $163.6 million, were used to retire
debt.
See Note 9 for information concerning restrictions imposed by the U.S. Credit
Agreement on the Company's future purchases of Common Stock.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock, par
value $1.00 per share, in one or more series. There were no shares issued or
outstanding as of December 31, 1995 and 1994.
PREFERRED SHARE PURCHASE RIGHTS
In 1989, Seagull adopted a Share Purchase Rights Plan to protect the
Company's shareholders from coercive or unfair takeover tactics. Under the
Plan, each outstanding share and each share of Common Stock subsequently issued
has attached to it one Right, exercisable at $32.75 (adjusted for Stock Split),
subject to certain adjustments. Generally, in the event a person or group
acquires 20% or more of the outstanding Common Stock other than pursuant to a
cash tender offer for all shares of such Common Stock (provided that the tender
offer increases the acquiring person's or group's ownership to at least 85% of
the outstanding Common Stock), or in the event the Company is acquired in a
merger or other business combination or 50% or more of the Company's
consolidated assets or earning power is sold, each Right entitles the holder to
purchase shares of Common Stock of the Company or of the acquiring company,
having a value of twice the exercise price. The Rights, under certain
circumstances, are redeemable at the option of Seagull's Board of Directors at
a price of $0.01 per Right, within 10 days (subject to extension) following the
day on which the acquiring person or group exceeds the 20% threshold. The
Rights expire on March 22, 1999.
ENSTAR ALASKA STOCK
In June 1994, shareholders approved an amendment to the Company's articles of
incorporation to create and issue a new class of common stock of the Company
intended to reflect separately the performance of ENSTAR Alaska. There were no
shares issued or outstanding as of December 31, 1995 and 1994.
- --------------------------------------------------------------------------------
13. BENEFIT PLANS
STOCK OPTION PLANS
The Company currently has seven stock option plans: the 1981 Stock Option
Plan; the 1983 Stock Option Plan; the 1986 Stock Option Plan; the 1990 Stock
Option Plan; the 1993 Stock Option Plan; the 1993 Nonemployee Directors' Stock
Option Plan and the 1995 Omnibus Stock Plan. Twenty percent of (i) all options
granted through December 31, 1992, (ii) 100,000 options granted in May 1993,
and (iii) all options granted under the 1993 Nonemployee Directors' Stock
Option Plan become exercisable on a cumulative basis in each of the first five
years and expire 10 years after the date of grant. Forty percent of all other
options granted after 1992 become exercisable after three years and twenty
percent become exercisable on a cumulative basis in each of the next three
years, and the options expire 10 years after the date of grant. The options are
granted at the closing market price of Seagull's Common Stock on the New York
Stock Exchange on the date of grant. Accordingly, no compensation expense is
recognized in the Company's results of operations relating to these options.
-------------------------------
Seagull Energy Corporation 55
<PAGE> 38
================================================================================
Information relating to stock options is summarized as follows (adjusted for
Stock Split):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
Shares Option Price Shares Option Price Shares Option Price
Per Share Per Share Per Share
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance outstanding -
Beginning of year . . . . . . . . . . . 2,692,504 2,159,892 1,862,872
Granted . . . . . . . . . . . . . . . 610,000 $ 17.25- 628,500 $ 25.50 615,000 $ 26.38
$ 18.88
Exercised . . . . . . . . . . . . . . (128,776) $ 6.31- (55,388) $ 6.31 - (304,952) $ 6.31 -
$ 17.38 $ 14.88 $ 14.88
Canceled . . . . . . . . . . . . . . . (114,700) (40,500) (13,028)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance outstanding - End of year . . . . 3,059,028 $ 6.31- 2,692,504 $ 6.31 - 2,159,892 $ 6.31 -
$ 26.38 $ 26.38 $ 26.38
====================================================================================================================================
Options exercisable - End of year . . . . 1,110,061 1,003,970 763,892
====================================================================================================================================
Options available for grant - End of year 1,546,360 842,060 1,430,060
====================================================================================================================================
</TABLE>
In October 1995, the Financial Accounting Standards Board approved the
issuance of SFAS No. 123, "Accounting for Stock-Based Compensation." This SFAS
establishes financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 allows a company to adopt a fair
value based method of accounting for an employee stock-based compensation plan
or to continue to use the intrinsic value based method of accounting prescribed
by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees," Seagull's current accounting method. Under the intrinsic
value method, the Company records no compensation expense for stock options
granted, as the exercise price of all options granted is equal to the closing
price of Seagull's common stock on the day of grant. However, under the fair
value method, the Company would record compensation expense for similar grants
based on an option-pricing model that takes into account the exercise price and
expected life of the option, the current price of the stock and its expected
volatility and the risk-free interest rate for the expected term of the option.
Seagull has undertaken a preliminary study of SFAS No. 123 and has determined
that the Company will continue to follow the intrinsic value method. The
disclosures required by SFAS No. 123 will be included in the Company's
consolidated financial statements for the year ended December 31, 1996.
DEFINED BENEFIT PLANS
The Company has an unfunded retirement plan which provides for supplemental
benefits to certain officers and key employees. As of December 31, 1995, only
one person was designated to participate in such plan. Total expenses of the
plan were approximately $0.2 million, $0.3 million and $0.2 million for 1995,
1994 and 1993, respectively. The retirement plan's costs are included in
general and administrative expenses.
ENSTAR Alaska has two defined benefit retirement plans which cover salaried
employees (the "Salaried Retirement Plan") and operating employees (the
"Operating Unit Plan"). Clerical unit personnel, which constitute approximately
25% of total ENSTAR Alaska personnel, are not covered under a retirement plan.
Determination of benefits for the salaried employees is based upon a
combination of years of service and final monthly compensation. Benefits for
operating employees are based solely on years of service. ENSTAR Alaska's
policy is to fund the minimum contributions required by
- -------------------------------
56 Seagull Energy Corporation
<PAGE> 39
================================================================================
applicable regulations. The net pension costs are included in operations and
maintenance expenses.
The following table sets forth the ENSTAR Alaska plans' funded status and the
amounts recognized in the consolidated financial statements at December 31,
1995 and 1994:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
1995 1994
Salaried Operating Salaried Operating
Employees Employees Employees Employees
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation . . . . . . . . . . . . . . . . $ (6,529) $ (3,701) $ (4,517) $ (2,405)
====================================================================================================================================
Accumulated benefit obligation . . . . . . . . . . . . . . $ (6,578) $ (3,708) $ (4,582) $ (2,416)
====================================================================================================================================
Projected benefit obligation for services rendered to date . $ (7,984) $ (3,708) $ (5,415) $ (2,416)
Plan assets at fair value, primarily listed stocks
and corporate and U. S. bonds . . . . . . . . . . . . . . 5,377 3,412 3,818 2,513
- ------------------------------------------------------------------------------------------------------------------------------------
Plan assets at fair value in excess of (less than)
projected benefit obligation . . . . . . . . . . . . . . . (2,607) (296) (1,597) 97
Unrecognized prior service cost . . . . . . . . . . . . . . . 87 16 96 17
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . 1,300 847 121 432
Unrecognized net obligation (asset) arising out of the initial
application of SFAS No. 87, amortized over 15 years
(salaried) and 18 years (operating) . . . . . . . . . . . 561 (83) 655 (92)
Additional minimum liability . . . . . . . . . . . . . . . . (542) (779) (38) --
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost . . . . . . . . . . . . . . . $ (1,201) $ (295) $ (763) $ 454
====================================================================================================================================
Net pension cost includes the following components:
Service cost - benefits earned during the period . . . . . $ 172 $ 94 $ 226 $ 111
Interest cost on projected benefit obligation . . . . . . 469 210 440 206
Actual loss (gain) on plan assets . . . . . . . . . . . . (1,337) (840) 331 198
Net amortization and deferral . . . . . . . . . . . . . . 1,126 642 (559) (402)
- ------------------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost . . . . . . . . . . . . . . . . . . $ 430 $ 106 $ 438 $ 113
====================================================================================================================================
</TABLE>
The assumed weighted average discount rate for both ENSTAR Alaska plans was
7% and 8.5% for 1995 and 1994, respectively, and the rate of increase in future
compensation for the Salaried Retirement Plan used in determining the projected
benefit obligation was 5% for both 1995 and 1994. The expected long-term rate
of return on plan assets for both ENSTAR Alaska plans was 8% for both 1995 and
1994.
PROFIT SHARING PLANS
ENSTAR Alaska has trusteed profit sharing plans for salaried employees and
union employees. Annual contributions for each plan are determined by the
Company's Board of Directors pursuant to formulae which contain minimum
contribution requirements. Profit sharing expense was approximately $0.3
million for each of the
-------------------------------
Seagull Energy Corporation 57
<PAGE> 40
================================================================================
years 1995, 1994 and 1993, and is included in operations and maintenance
expenses.
THRIFT PLANS
The Seagull Thrift Plan and the ENSTAR Natural Gas Company Thrift Plan are
qualified employee savings plans in accordance with the provisions of Section
401(k) of the Internal Revenue Code of 1986, as amended. Seagull Canada's
Retirement Plan and Capital Accumulation Plan are qualified employee savings
plans in accordance with the provisions of the Income Tax Act of Canada.
Company contributions to these four plans (collectively, the "Thrift Plans")
were approximately $1.8 million, $1.8 million and $1.3 million for the years
1995, 1994 and 1993, respectively. The Thrift Plans' costs are included in
operations and maintenance expenses and general and administrative expenses.
EMPLOYEE STOCK OWNERSHIP PLAN
On November 15, 1989, the Company formed the Seagull Employee Stock Ownership
Plan (the "ESOP") for the benefit of the non-Alaskan employees of the Company.
The ESOP borrowed from the Company $7.7 million at an interest rate of 10
percent per annum to be repaid in twelve equal annual installments of principal
and interest. The ESOP used the borrowed funds and the 1989 contributions from
the Company to purchase 948,150 shares (adjusted for Stock Split) of Common
Stock at $8.438 per share (adjusted for Stock Split) from Seagull's treasury.
The purchase price was based upon the closing price of the Common Stock on the
New York Stock Exchange on the date the ESOP was formed.
The promissory note has been and will be funded entirely by contributions
from Seagull. Company contributions of approximately $0.6 million in 1995 and
$0.5 million in both 1994 and 1993 are included in operations and maintenance
expenses and general and administrative expenses.
POSTRETIREMENT MEDICAL PLAN
ENSTAR Alaska has a postretirement medical plan which covers all of its
salaried employees. Determination of benefits is based upon the combined age of
the retiree and years of service at retirement. The Company accrues for such
benefits during the years the plan participants render service. Expenses
related to the postretirement medical plan of $0.2 million in each of the years
1995, 1994 and 1993 are included in operations and maintenance expenses.
- --------------------------------------------------------------------------------
14. INCOME TAXES
Total income tax expense (benefit) for the years ended December 31, 1995, 1994
and 1993 was allocated as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . $ (2,312) $ (2,314) $ 6,080
Additional paid-in capital for compensation expense for tax purposes in
excess of amounts recognized for financial reporting purposes . . . . (374) (160) (1,966)
- ------------------------------------------------------------------------------------------------------------------------------------
$ (2,686) $ (2,474) $ 4,114
====================================================================================================================================
</TABLE>
- -------------------------------
58 Seagull Energy Corporation
<PAGE> 41
================================================================================
The income tax expense (benefit) for each of the years ended December 31, 1995,
1994 and 1993 was as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,115 $ 1,651 $ 3,667
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466 399 --
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,462 1,325 1,363
- ------------------------------------------------------------------------------------------------------------------------------------
Total current . . . . . . . . . . . . . . . . . . . . . . . . . . 10,043 3,375 5,030
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,633) (6,655) 1,128
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,935) 1,256 --
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (787) (290) (78)
- ------------------------------------------------------------------------------------------------------------------------------------
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . . (12,355) (5,689) 1,050
- ------------------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . $ (2,312) $ (2,314) $ 6,080
====================================================================================================================================
</TABLE>
The provision for income taxes for each of the years ended December 31, 1995,
1994 and 1993 was different than the amount computed using the federal
statutory rate (35%) for the following reasons:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount computed using the statutory rate . . . . . . . . . . . . . . . . . $ (588) $ 326 $ 11,647
Increase (Reduction) in taxes resulting from:
Utilization of Internal Revenue Code Section 29 (Tight Sands) credits . . (3,096) (5,534) (4,773)
State income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . 1,739 673 835
Deferred tax asset valuation allowance . . . . . . . . . . . . . . . . . (981) (380) (859)
Foreign Tax Effect - Canada . . . . . . . . . . . . . . . . . . . . . . . 2,391 2,961 --
Adjustments to beginning-of-the-year tax bases per the
1994 and 1992 tax returns and effects of IRS exam . . . . . . . . . . . (1,385) -- (657)
Increase in the beginning-of-the-year balance of the deferred tax
liabilities due to the increase in the corporate federal income
tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 960
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (392) (360) (1,073)
- ------------------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . $ (2,312) $ (2,314) $ 6,080
====================================================================================================================================
</TABLE>
-------------------------------
Seagull Energy Corporation 59
<PAGE> 42
================================================================================
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the years ended December
31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense (benefit)
(exclusive of the effects of other components listed below) . . . . . . . $ (11,374) $ (5,309) $ 949
Decrease in deferred tax asset valuation allowance . . . . . . . . . . . . (981) (380) (859)
Increase in the beginning-of-the-year balance of the deferred
tax liabilities due to the increase in the corporate federal
income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 960
- ------------------------------------------------------------------------------------------------------------------------------------
$ (12,355) $ (5,689) $ 1,050
====================================================================================================================================
</TABLE>
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax liabilities and deferred tax assets as of December 31,
1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities:
Property, plant and equipment, due to differences in depreciation,
depletion and amortization . . . . . . . . . . . . . . . . . . . . $ 57,301 $ 63,303 $ 45,296
Investments in partnership, due to difference in depreciation . . . -- 564 606
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197 513 509
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . 57,498 64,380 46,411
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Minimum tax credit carryforwards . . . . . . . . . . . . . . . . . (18,102) (14,367) (12,221)
Investment tax credit carryforwards . . . . . . . . . . . . . . . . (1,165) (2,274) (2,771)
Deferred compensation/retirement related items accrued for
financial reporting purposes . . . . . . . . . . . . . . . . . . . (4,349) (3,965) (3,269)
Contingent consideration related to acquisitions/dispositions . . . (651) (1,052) (604)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,948) (1,690) (3,134)
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . (27,215) (23,348) (21,999)
Less - valuation allowance . . . . . . . . . . . . . . . . . . . . . 582 1,563 1,943
- ------------------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . (26,633) (21,785) (20,056)
- ------------------------------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . $ 30,865 $ 42,595 $ 26,355
====================================================================================================================================
</TABLE>
For federal income tax purposes, as of December 31, 1995, the Company has
unused investment tax credits of approximately $1.2 million which will expire
in the years 1999 and 2000, and unused minimum tax credits of approximately
$18.1 million which are available over an indefinite period.
- -------------------------------
60 Seagull Energy Corporation
<PAGE> 43
================================================================================
- --------------------------------------------------------------------------------
15. BUSINESS SEGMENTS
Information on the Company's operations by business segment is as follows for
the year ended December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Exploration and production . . . . . . . . . . . . . . . . . . . . $ 209,328 $ 262,543 $ 227,437
Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . 29,175 39,963 42,484
Alaska transmission and distribution . . . . . . . . . . . . . . . 97,770 105,598 107,244
- ------------------------------------------------------------------------------------------------------------------------------------
$ 336,273 $ 408,104 $ 377,165
====================================================================================================================================
OPERATING PROFIT (LOSS):
Exploration and production(1) . . . . . . . . . . . . . . . . . . . $ (46,756) $ 28,266 $ 42,969
Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . 9,165 11,936 14,065
Alaska transmission and distribution . . . . . . . . . . . . . . . 23,141 21,865 18,955
- ------------------------------------------------------------------------------------------------------------------------------------
(14,450) 62,067 75,989
====================================================================================================================================
General and administrative expense . . . . . . . . . . . . . . . . (19,167) (10,252) (11,666)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . (52,814) (51,550) (36,753)
Gain on sales of property plant and equipment, net . . . . . . . . 83,591 413 3,929
Interest income and other . . . . . . . . . . . . . . . . . . . . . 1,160 254 1,779
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes . . . . . . . . . . . . . . . . . $ (1,680) $ 932 $ 33,278
====================================================================================================================================
OPERATIONS AND MAINTENANCE EXPENSE:
Exploration and production . . . . . . . . . . . . . . . . . . . . $ 67,043 $ 75,342 $ 63,651
Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . 18,127 23,129 22,926
Alaska transmission and distribution . . . . . . . . . . . . . . . 20,504 21,516 20,880
- ------------------------------------------------------------------------------------------------------------------------------------
$ 105,674 $ 119,987 $ 107,457
====================================================================================================================================
DEPRECIATION, DEPLETION AND AMORTIZATION:
Exploration and production(1) . . . . . . . . . . . . . . . . . . . $ 159,486 $ 132,047 $ 103,552
Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . 1,883 4,898 5,493
Alaska transmission and distribution . . . . . . . . . . . . . . . 7,797 7,752 7,511
- ------------------------------------------------------------------------------------------------------------------------------------
$ 169,166 $ 144,697 $ 116,556
====================================================================================================================================
IDENTIFIABLE ASSETS:
Exploration and production(2) . . . . . . . . . . . . . . . . . . . $ 897,233 $ 1,001,263 $ 816,812
Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . 75,954 72,377 70,675
Alaska transmission and distribution . . . . . . . . . . . . . . . 189,081 190,087 185,701
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,528 35,823 45,063
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,198,796 $ 1,299,550 $ 1,118,251
====================================================================================================================================
CAPITAL EXPENDITURES:
Exploration and production . . . . . . . . . . . . . . . . . . . . $ 76,202 $ 136,090 $ 97,818
Pipeline and marketing . . . . . . . . . . . . . . . . . . . . . . 137 2,026 2,115
Alaska transmission and distribution . . . . . . . . . . . . . . . 7,611 7,626 10,094
Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,397 4,510 2,015
- ------------------------------------------------------------------------------------------------------------------------------------
$ 85,347 $ 150,252 $ 112,042
====================================================================================================================================
ACQUISITIONS, NET OF CASH ACQUIRED . . . . . . . . . . . . . . . . . $ -- $ 193,859 $ 29,470
====================================================================================================================================
</TABLE>
(1) Includes $44.4 million relating to the impairment of gas and oil
properties for the year ended December 31, 1995.
(2) Includes identifiable assets related to Canadian operations, acquired on
January 4, 1994, of $221.0 million and $224.7 million at December 31,
1995 and 1994, respectively. Net assets related to Canadian operations
were $110.4 million and $44.2 million at December 31, 1995 and 1994,
respectively.
-------------------------------
Seagull Energy Corporation 61
<PAGE> 44
================================================================================
- --------------------------------------------------------------------------------
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands Except Per Share Amounts)
Earnings (Loss)
Revenues Operating Profit (Loss) Net Earnings (Loss) Per Share(1)
1995 1994 1995 1994 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
March 31, . . . . $ 94,850 $ 127,063 $ (41,712)(2) $ 34,829 $(38,550)(2) $ 12,915 $ (1.07)(2) $ 0.35
June 30, . . . . 81,487 99,559 9,840 17,246 (7,125)(3) 2,581 (0.20)(3) 0.07
September 30, . . 68,087 81,044 455 3,418 41,550(4) (6,291) 1.13(4) (0.17)
December 31, . . 91,849 100,438 16,967 6,574 4,757 (5,959) 0.13 (0.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Total . . . . . . $336,273 $ 408,104 $ (14,450) $ 62,067 $ 632 $ 3,246 $ 0.02 $ 0.09
====================================================================================================================================
</TABLE>
(1) Quarterly earnings (loss) per common share do not total to the full year
per share amount for 1995, as the weighted average number of shares
outstanding for each quarter fluctuated as a result of the assumed
exercise of stock options (see Note 2).
(2) Includes $44.4 million non-cash charge relating to the impairment of gas
and oil properties (see Note 2).
(3) Includes one-time pre-tax charges of $8 million for expenses involved in
the workforce reduction and consolidation (see Note 4).
(4) Includes $82 million pre-tax gain on the sale of the Pipeline Assets (see
Note 3).
- --------------------------------------------------------------------------------
17. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain office space and equipment under operating lease
arrangements which contain renewal options and escalation clauses. Future
minimum rental payments under these leases range between $1.9 million and $2.9
million in each of the years 1996-2000, and total $10.1 million for all
subsequent years.
Total rental expense under operating leases for 1995, 1994 and 1993 was
approximately $2.8 million, $2.8 million and $2.5 million, respectively.
CONCENTRATIONS OF RISK
The future results of the exploration and production segment will be affected
by the market prices of natural gas and oil. The availability of a ready market
for natural gas, oil and liquid products in the future will depend on numerous
factors beyond the control of the Company, including weather, production of
other natural gas, crude oil and liquid products, imports, marketing of
competitive fuels, proximity and capacity of gas and oil pipelines and other
transportation facilities, any oversupply or undersupply of gas, oil and liquid
products, the regulatory environment, and other regional and political events,
none of which can be predicted with certainty.
The Company operates in various phases of the natural gas industry with sales
to resellers such as pipeline companies and local distribution companies as
well as to end-users such as commercial businesses, industrial concerns and
residential consumers. While certain of these customers are affected by
periodic downturns in the economy in general or in their specific segment of
the natural gas industry, the Company believes that its level of credit-related
losses due to such economic fluctuations has been immaterial and will continue
to be immaterial to the Company's results of operations in the long term.
Derivative financial instruments that hedge the price of natural gas and oil
and interest rates are generally executed with major financial or commodities
trading institutions which expose the Company to acceptable levels of market and
credit risks and may at times be concentrated with certain counterparties or
groups of counterparties. Although notional amounts are used to express the
volume of these contracts, the amounts potentially subject to credit risk, in
the event of non-performance by the counterparties, are substantially smaller.
The credit worthiness of counterparties is subject to continuing review and
full performance is anticipated.
- -------------------------------
62 Seagull Energy Corporation
<PAGE> 45
================================================================================
LITIGATION
The Company is a party to ongoing litigation in the normal course of business
or other litigation with respect to which the Company is indemnified pursuant
to various purchase agreements or other contractual arrangements. 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 or results of operations, if any, will not be material.
-------------------------------
Seagull Energy Corporation 63
<PAGE> 46
================================================================================
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT TO SHAREHOLDERS
- --------------------------------------------------------------------------------
The management of Seagull Energy Corporation is responsible for the
preparation and integrity of financial statements and related data in this
Annual Report, whether audited or unaudited. The financial statements were
prepared in conformity with generally accepted accounting principles and are
not misstated due to material fraud or error. The financial statements include
certain estimates and judgments which management believes are reasonable under
the circumstances. The other information in the Annual Report is consistent
with that in the financial statements.
Management is responsible for and maintains a system of internal accounting
controls that is functioning as intended as of the end of the fiscal year.
Management believes the system of internal controls is sufficient to provide
reasonable assurance that assets are safeguarded against loss or unauthorized
use and that financial records are reliable for preparing financial statements,
as well as to prevent and detect fraudulent financial reporting. The internal
control system is supported by written policies and procedures and the
employment of trained, qualified personnel. The Company has an internal
auditing staff which reviews the adequacy of the internal accounting controls
and compliance with them. Management has considered the recommendations of the
internal auditing staff and KPMG Peat Marwick LLP concerning the Company's
system of internal controls and has responded appropriately to those
recommendations.
The accompanying consolidated financial statements of Seagull Energy
Corporation and Subsidiaries as of December 31, 1995 have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. Their audits were
made in accordance with generally accepted auditing standards and included a
review of the system of internal controls to the extent considered necessary to
determine the audit procedures required to support their opinion on the
consolidated financial statements. The Auditors' Report appears on page 65.
The Board of Directors, through its Audit Committee composed exclusively of
outside directors, meets periodically with representatives of management, the
internal auditing staff and the independent auditors to ensure the existence of
effective internal accounting controls and to ensure that financial information
is reported accurately and timely with all appropriate disclosures included.
The independent auditors and the internal auditing staff have full and free
access to, and meet with, the Audit Committee, with and without management
present.
s/Barry J. Galt
Chairman, President and
Chief Executive Officer
s/Robert W. Shower
Executive Vice President and
Chief Financial Officer
s/Rodney W. Bridges
Vice President and Controller
- -------------------------------
64 Seagull Energy Corporation
<PAGE> 47
================================================================================
- --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Seagull Energy Corporation:
We have audited the accompanying consolidated balance sheets of Seagull
Energy Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of earnings, shareholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Seagull
Energy Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 2, in 1995, the Company changed its method of accounting
for the impairment of long-lived assets and for long-lived assets to be
disposed of to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of."
/s/ KPMG PEAT MARWICK LLP
Houston, Texas
January 23, 1996
-------------------------------
Seagull Energy Corporation 65
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
The Company was incorporated in Texas in 1973. The following is a
listing of significant subsidiaries of the Company as of March 25, 1996:
<TABLE>
<CAPTION>
% Voting
Securities
Jurisdiction of or Beneficial
Incorporation Interest Owned
Name of Subsidiary or Organization by the Company
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Alaska Pipeline Company Alaska 100%
Houston Oil & Minerals Corporation Nevada 100%
Seagull Energy Canada Holding Company Wyoming 100%
Seagull Energy Canada Ltd. Alberta, Canada 100%
Seagull Energy E&P Inc. Delaware 100%
Seagull Products Pipeline Corporation Delaware 100%
Seagull Marketing Services, Inc. Texas 100%
Seagull Midcon Inc. Delaware 100%
Seagull Mid-South Inc. Delaware 100%
Wacker Oil Inc. Delaware 100%
===================================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Seagull Energy Corporation:
We consent to the incorporation by reference in the following
Registration Statements of Seagull Energy Corporation of our report dated
January 23, 1996, relating to the consolidated balance sheets of Seagull Energy
Corporation and Subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1995, which
report appears or is incorporated by reference in the December 31, 1995 Annual
Report on Form 10-K of Seagull Energy Corporation. Such report on the
consolidated financial statements refers to a change in the Company's method of
accounting for the impairment of long-lived assets and for long-lived assets to
be disposed of.
a. Form S-8, Seagull Thrift Plan (2-72014).
b. Form S-8, Seagull Energy Corporation 1981 Non-Qualified and Incentive
Stock Option Plan (2-80834).
c. Form S-8, ENSTAR Natural Gas Company Thrift Plan (33-14463).
d. Forms S-8 and S-3, Seagull Energy Corporation 1983 Stock Option Plan
(2-93087).
e. Forms S-8 and S-3, Seagull Energy Corporation 1986 Stock Option Plan
(33-22475).
f. Form S-8, Seagull Energy Corporation 1990 Stock Option Plan
(33-43483).
g. Form S-8, Seagull Energy Corporation 1993 Stock Option Plan
(33-50643).
h. Form S-8, Seagull Energy Corporation 1993 Nonemployee Directors' Stock
Option Plan (33-50645).
i. Form S-3, $350,000,000 Debt Securities of Seagull Energy Corporation
(33-65118).
j. Form S-3, ENSTAR Alaska Group of Common Stock of Seagull Energy
Corporation (33-53729).
k. Form S-8, Seagull Energy Corporation 1995 Omnibus Stock Plan
(33-64041).
l. Form S-3, $300,000,000 Debt Securities, Preferred Stock, Depositary
Shares, Common Stock or Securities Warrants
of Seagull Energy Corporation (33-64051).
/s/ KPMG Peat Marwick LLP
Houston, Texas
March 28, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the use of our name in the Annual Report on Form
10-K of Seagull Energy Corporation and Subsidiaries (the "Company") for the
year ended December 31, 1995, and the incorporation by reference thereof into
the Company's registration statements on Form S-8 (Nos. 2-72014, 2-80834,
33-14463, 33-43483, 33-50643, 33-50645 and 33-64041), Forms S-8 and S-3 (Nos.
2-93087 and 33-22475) and Form S-3 (Nos. 33-53729, 33-65118 and 33-64051).
/s/ RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
March 18, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the use of our name in the Annual Report to
Shareholders of Seagull Energy Corporation and Subsidiaries (the "Company") for
the year ended December 31, 1995 (the "Annual Report") in Note 7, Supplemental
Gas and Oil Producing Activities, of Notes to Consolidated Financial
Statements. The Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "Form 10-K") incorporates by reference the Annual
Report. We further consent to the use of our name under the heading
"Exploration and Production" of Item 1 in the Form 10-K and the incorporation
by reference of the Form 10-K into the Company's registration statements on
Form S-8 (Nos. 2-72014, 2-80834, 33-14463, 33-43483, 33-50643, 33-50645 and
33-64041), Forms S-8 and S-3 (Nos. 2-93087 and 33-22475) and Form S-3 (Nos.
33-53729, 33-65118 and 33-64051).
/s/ DeGOLYER AND MacNAUGHTON
DeGOLYER AND MacNAUGHTON
Dallas, Texas
March 19, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent to the use of our name in the Annual Report on Form
10-K of Seagull Energy Corporation and Subsidiaries (the "Company") for the
year ended December 31, 1995, and the incorporation by reference thereof into
the Company's registration statements on Form S-8 (Nos. 2-72014, 2-80834,
33-14463, 33-43483, 33-50643, 33-50645 and 33-64041), Forms S-8 and S-3 (Nos.
2-93087 and 33-22475) and Form S-3 (Nos. 33-53729, 33-65118 and 33-64051).
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ FREDERICK D. SEWELL
Frederick D. Sewell
President
Houston, Texas
March 20, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,205
<SECURITIES> 0
<RECEIVABLES> 119,898
<ALLOWANCES> 0
<INVENTORY> 4,947
<CURRENT-ASSETS> 147,381
<PP&E> 1,581,002
<DEPRECIATION> 569,587
<TOTAL-ASSETS> 1,011,415
<CURRENT-LIABILITIES> 117,405
<BONDS> 0
<COMMON> 3,656
0
0
<OTHER-SE> 444,012
<TOTAL-LIABILITY-AND-EQUITY> 1,198,796
<SALES> 336,273
<TOTAL-REVENUES> 336,273
<CGS> 46,328
<TOTAL-COSTS> 350,723
<OTHER-EXPENSES> (65,584)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,814
<INCOME-PRETAX> (1,680)
<INCOME-TAX> (2,312)
<INCOME-CONTINUING> 632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 632
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
