<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
SEAGULL ENERGY CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[SEAGULL ENERGY CORPORATION LOGO]
SEAGULL ENERGY CORPORATION
HOUSTON, TEXAS
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, MAY 13, 1998
To the Shareholders:
The 1998 Annual Meeting of Shareholders (the "Annual Meeting") of Seagull
Energy Corporation (the "Company") will be held on Wednesday, May 13, 1998 at
10:00 a.m., local time, at the George R. Brown Convention Center, 1001
Convention Center Blvd., Houston, Texas, for the following purposes:
1. To elect four directors to serve until the 2001 Annual Meeting of
Shareholders;
2. To approve the Seagull Energy Corporation 1998 Omnibus Stock Plan;
3. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending December 31,
1998; and
4. To transact such other business as may properly come before such
meeting or any adjournment(s) or postponement(s) thereof.
The close of business on March 20, 1998, has been fixed as the record date
for the determination of shareholders entitled to receive notice of and to vote
at the Annual Meeting or any adjournment(s) or postponement(s) thereof.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, WE ASK THAT YOU SIGN AND RETURN THE ENCLOSED
PROXY AS PROMPTLY AS POSSIBLE. A SELF-ADDRESSED, POSTPAID ENVELOPE IS ENCLOSED
FOR YOUR CONVENIENCE.
By Order of the Board of Directors,
/s/ SYLVIA SANCHEZ
SYLVIA SANCHEZ
Secretary
March 31, 1998
<PAGE> 3
SEAGULL ENERGY CORPORATION
1001 FANNIN, SUITE 1700
HOUSTON, TEXAS 77002
(713) 951-4700
------------------------------
PROXY STATEMENT
------------------------------
SOLICITATION AND REVOCABILITY OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of Directors
(the "Board of Directors" or the "Board") of Seagull Energy Corporation (the
"Company") for use at the 1998 Annual Meeting of Shareholders (the "Annual
Meeting") to be held on Wednesday, May 13, 1998 at 10:00 a.m., local time, at
the George R. Brown Convention Center, 1001 Convention Center Blvd., Houston,
Texas, or at any adjournment(s) or postponement(s) thereof. The solicitation of
proxies by the Board of Directors will be conducted primarily by mail. Georgeson
& Company Inc. has been retained to assist the Company in the solicitation of
proxies in connection with the Annual Meeting for a fee of $10,000, plus
out-of-pocket expenses. In addition, officers, directors and employees of the
Company may solicit proxies personally or by telephone, telegram or other forms
of wire or facsimile communication. The Company will reimburse brokers,
custodians, nominees and fiduciaries for reasonable expenses incurred by them in
forwarding proxy material to beneficial owners of common stock of the Company
("Common Stock"). The costs of the solicitation will be borne by the Company.
This proxy statement and the form of proxy were first mailed to shareholders of
the Company on or about March 31, 1998.
The enclosed proxy, even though executed and returned, may be revoked at
any time prior to the voting of the proxy (a) by the execution and submission of
a revised proxy, (b) by written notice to the Secretary of the Company or (c) by
voting in person at the Annual Meeting. In the absence of such revocation,
shares represented by the proxies will be voted at the Annual Meeting.
At the close of business on March 20, 1998, the record date for the
determination of shareholders entitled to notice of and to vote at the Annual
Meeting, there were outstanding 63,073,734 shares of Common Stock, each share of
which is entitled to one vote. Common Stock is the only class of outstanding
securities of the Company entitled to notice of and to vote at the Annual
Meeting.
Seagull's annual report to shareholders for the year ended December 31,
1997, including financial statements, is being mailed herewith to all
shareholders entitled to vote at the Annual Meeting. The annual report does not
constitute a part of the proxy soliciting material.
ELECTION OF DIRECTORS
Four directors are to be elected at the Annual Meeting. The Company's
Bylaws provide for a classified Board of Directors. Thus, the Board of Directors
is divided into Classes I, II and III, the terms of office of which are
currently scheduled to expire, respectively, on the dates of the Company's
Annual Meetings of Shareholders in 1999, 2000 and 1998. Thomas H. Cruikshank and
R. A. Walker have been nominated to continue serving in Class III and, if
re-elected, will serve until the Company's 2001 Annual Meeting of Shareholders
and until their respective successors shall have been elected and qualified.
The Company's mandatory retirement policy for directors provides that a
director may not stand for re-election after that director reaches age 70. As a
result of this policy, the three other directors currently serving in Class
III -- William R. Grant, Dean P. Guerin and Richard M. Morrow -- are unable to
stand for re-election at the Annual Meeting. Accordingly, the Board of Directors
has adopted a resolution reducing the authorized number of directors from 15 to
12, effective as of the election of directors at the Annual Meeting.
<PAGE> 4
The Texas Business Corporation Act and the Company's Bylaws require the
size of each class to be nearly as equal as possible. In the absence of any
redesignation of directors, the size of Class I and Class II would be five
directors and the size of Class III would be two directors. The Bylaws provide
that the Board of Directors (by the affirmative vote of a majority of the total
number of the directors) may redesignate any director into a different class in
order that the balance of directors in such classes shall be nearly as equal as
possible. However, no such redesignation may have the effect of reducing the
term to which a director was elected.
In order to balance the size of the three classes, the Board has nominated
Richard J. Burgess (who currently serves in Class II) and Robert F. Vagt (who
currently serves in Class I) to stand for election into Class III, which would
have the effect of extending their terms to be coterminous with the remainder of
Class III. If either Mr. Burgess or Mr. Vagt is not elected into Class III as
proposed, he would nevertheless continue to serve as a director of the Company
in his current class. If this were to occur, the Board of Directors would then
be required under Texas law to balance the size of the three classes.
Accordingly, the Board would determine the best manner in which to accomplish
this balance, which could include using the reclassification mechanism available
to the Board pursuant to the Bylaws.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE ELECTION OF EACH OF THE
NOMINEES.
A plurality of the votes cast in person or by proxy by the holders of
Common Stock is required to elect a director. Accordingly, under the Texas
Business Corporation Act and the Company's Bylaws, abstentions and broker
non-votes would have no effect on the election of directors. A broker non-vote
occurs if a broker or other nominee does not have discretionary authority and
has not received instructions with respect to a particular item. Shareholders
may not cumulate their votes in the election of directors.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted FOR the election of the nominees listed below.
Although the Board of Directors does not contemplate that any of the nominees
will be unable to serve, if such a situation arises prior to the Annual Meeting,
the persons named in the enclosed proxy will vote for the election of such other
person(s) as may be nominated by the Board of Directors.
The following table sets forth information regarding the names, ages and
principal occupations of the nominees and directors, directorships in other
companies held by them and the length of continuous service as a director of the
Company:
<TABLE>
<CAPTION>
NOMINEES AND DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE SINCE
------------ -------------------------------------- --- --------
<S> <C> <C> <C>
CLASS III NOMINEES
Richard J. Burgess................... Retired President and Chief Executive Officer, 66 1996
CMS NOMECO Oil & Gas Co.
Thomas H. Cruikshank................. Retired Chairman and Chief Executive Officer 66 1996
of Halliburton Company; Director, The Goodyear
Tire & Rubber Company, Lehman Brothers
Holdings, Inc. and The Williams Companies,
Inc.
Robert F. Vagt....................... President, Davidson College 51 1996
R. A. Walker......................... Senior Managing Director, Prudential Capital 41 1996
Group; Director, YPF/Maxus Energy and Coca-
Cola Bottling Group (Southwest)
</TABLE>
2
<PAGE> 5
<TABLE>
<CAPTION>
NOMINEES AND DIRECTOR
DIRECTORS PRINCIPAL OCCUPATION AND DIRECTORSHIPS AGE SINCE
------------ -------------------------------------- --- --------
<S> <C> <C> <C>
CLASS I DIRECTORS
Milton Carroll....................... Chairman of the Board, President and Chief 47 1997
Executive Officer, Instrument Products,
Inc.; Director, Blue Cross Blue Shield of
Texas, Houston Industries, Inc. and Texas
Eastern Products Pipeline Co.
John W. Elias........................ Executive Vice President of the Company 57 1993
Peter J. Fluor....................... President and Chief Executive Officer, Texas 50 1980
Crude Energy, Inc. (independent oil and gas
company); Director, Fluor Corporation
Sam F. Segnar........................ Retired Chairman of the Board and Chief 70 1986
Executive Officer, Enron Corp.; Director,
MAPCO Inc. and Textron, Inc.; Advisory
Director, Gulf States Utilities Company
CLASS II DIRECTORS
J. Evans Attwell..................... Vinson & Elkins L.L.P.; Director, American 67 1974
General Corporation and Dain Rauscher
Corporation
Barry J. Galt........................ Chairman of the Board, President and Chief 64 1983
Executive Officer of the Company; Director,
Standard Insurance Company, Trinity
Industries, Inc. and Halter Marine Group,
Inc.
Dee S. Osborne....................... President, Finial Investment Corporation 67 1983
(investments); Director, EOTT Energy Corp.
(the general partner of EOTT Energy
Partners, L.P.); and Chairman and Director,
People's Choice TV of Houston, Inc.
Sidney R. Petersen................... Retired Chairman of the Board and Chief 67 1996
Executive Officer, Getty Oil Company;
Director, Avery Dennison Corporation, Group
Technologies Corporation, NICOR, Inc. and
Union Bank of California
</TABLE>
Each of the nominees and directors named above has been engaged in the
principal occupation set forth opposite his name for the past five years except
as follows:
Mr. Burgess served, until his retirement in June 1996, as a Director of CMS
NOMECO Oil & Gas Co. from 1968 and its President and Chief Executive Officer
from 1981.
Mr. Cruikshank served, until his retirement in January 1997, as a Director
of Halliburton Company from 1977, its Chief Executive Officer from 1983 and its
Chairman from 1989.
Mr. Vagt served as Chairman of the Board, President and Chief Executive
Officer of Global Natural Resources, Inc. ("Global") from 1992 to October 1996,
at which time the Company acquired Global. He served as President and Chief
Operating Officer of the Company from October 1996 to June 1997. He was elected
President of Davidson College in July 1997.
Mr. Elias served as Executive Vice President of Natural Gas for Amoco
Production from November 1988 to January 1993. Mr. Elias was elected Executive
Vice President of the Company in March 1993 and served as Chief Operating
Officer from January 1, 1995 to October 3, 1996.
3
<PAGE> 6
SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned by (i) each nonemployee director, (ii) the CEO and each of
the other four most highly compensated executive officers (the "Named Officers")
and (iii) the directors, Named Officers and other executive officers of the
Company as a group:
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED(1)
---------------------------------
NUMBER PERCENT
OF SHARES OF CLASS
--------- --------
<S> <C> <C>
NONEMPLOYEE DIRECTORS:
J. Evans Attwell.................................. 46,800(2) *
Richard J. Burgess................................ 7,400(2) *
Milton Carroll.................................... 3,400(2) *
Thomas H. Cruikshank.............................. 11,000(2) *
Peter J. Fluor.................................... 38,798(2)(3) *
William R. Grant(4)............................... 21,400(2) *
Dean P. Guerin( 4)................................ 54,550(2) *
Richard M. Morrow(4).............................. 23,300(2)(5) *
Dee S. Osborne.................................... 45,600(2) *
Sidney R. Petersen................................ 21,760(2)(6) *
Sam F. Segnar..................................... 18,200(2) *
Robert F. Vagt.................................... 431,098(2) *
R. A. Walker...................................... 2,400(2)(7) *
NAMED OFFICERS:
Barry J. Galt..................................... 866,507(2)(8)(10)(11) 1.3%
John W. Elias..................................... 135,018(2)(10)(11) *
Richard F. Barnes................................. 94,970(2) *
William L. Transier............................... 49,607(2)(9)(10)(11) *
John N. Goodpasture............................... 71,991(2)(10)(11) *
DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (25
PERSONS).......................................... 2,108,701(12) 3.3%
</TABLE>
- ---------------
* Less than 1%.
(1) Unless otherwise indicated, beneficial owners have sole voting and
investment power with respect to the shares listed. Amounts shown are as of
March 20, 1998, except for amounts held by the trustee of the Company's
Thrift Plan and Employee Stock Ownership Plan, which are as of December 31,
1997.
(2) Includes a portion of the 1,547,470 shares that the nonemployee directors
and the above Named Officers have a right to purchase within 60 days
pursuant to stock options ("Options") granted under the Company's stock
option plans. Such shares are allocated as follows: Messrs. Attwell, Fluor,
Grant, Guerin, Morrow, Osborne, and Segnar -- each 16,800, Messrs. Burgess,
Carroll, and Walker - each 2,400, Mr. Cruikshank -- 6,000, Mr.
Petersen -- 20,000, Mr. Vagt -- 416,000, Mr. Galt -- 685,000, Mr.
Elias -- 126,000, Mr. Barnes -- 82,970, Mr. Transier -- 37,500 and Mr.
Goodpasture -- 49,200. Prior to exercising these Options, the directors and
officers will have no voting or investment power with respect to said
shares.
(3) Includes 4,000 shares held by certain trusts with respect to which Mr.
Fluor is the sole trustee but for which he disclaims any beneficial
ownership.
(4) Messrs. Grant, Guerin and Morrow will not stand for re-election at the
Annual Meeting pursuant to the Company's mandatory retirement policy.
(5) Includes 500 shares owned by Mrs. Morrow for which Mr. Morrow disclaims any
beneficial ownership.
4
<PAGE> 7
(6) Includes 1,760 shares held in a family trust in which Mr. Petersen has
shared voting and dispositive power.
(7) Does not include 5,883,861 shares held by The Prudential Insurance Company
of America ("Prudential"). Mr. Walker is a Senior Managing Director of
Prudential Capital Group, an affiliate of Prudential. See "Principal
Shareholders."
(8) Includes 30,000 shares held by certain trusts for his daughters for which
Mr. Galt disclaims beneficial ownership because he is not the trustee and
has neither voting nor dispositive power with respect to such shares.
(9) Includes 3,000 shares of Restricted Stock held by the Company for which Mr.
Transier has sole voting and no investment power.
(10) Includes a portion of the 37,919 shares held by the trustee of the
Company's Thrift Plan for which the above Named Officers have sole voting
power and no investment power. Shares held are as follows: Mr.
Galt -- 12,690, Mr. Elias -- 3,280, Mr. Transier -- 7,856 and Mr.
Goodpasture -- 14,093.
(11) Includes a portion of the 18,504 shares held by the trustee of the
Company's Employee Stock Ownership Plan for which the above Named Officers
have sole voting power and no investment power. Shares held are as follows:
Mr. Galt -- 7,817, Mr. Elias -- 2,738, Mr. Transier - 1,251 and Mr.
Goodpasture - 6,698.
(12) Includes 100,280 shares held for directors and executive officers as a
group in the Company's Thrift Plans, Employee Stock Ownership Plan and in
Restricted Stock for which such persons have sole voting power and no
investment power. Also, includes 1,667,831 shares for directors and
executive officers as a group that said persons have the right to purchase
within 60 days pursuant to Options granted under the Company's stock option
plans. Prior to exercising these Options, said persons will have no voting
or investment power with respect to said shares.
DIRECTORS' MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held thirteen meetings during 1997. Each director
attended at least 75% of the aggregate total meetings of the Board of Directors
and the committees on which such director served.
The Company has the following standing committees:
Audit Committee. The Audit Committee, which currently consists of
Messrs. Carroll, Grant, Guerin, Morrow, Petersen and Segnar, met four times
during 1997. Messrs. Grant, Guerin and Morrow will not stand for
re-election at the Annual Meeting pursuant to the Company's mandatory
retirement policy. Mr. Carroll was elected a Committee member on May 13,
1997. The Committee's principal functions are to confirm the existence of
effective accounting and internal control systems and to oversee the entire
audit function, both independent and internal.
Compensation Committee. The Compensation Committee, which currently
consists of Messrs. Fluor, Cruikshank, Osborne and Segnar, met eight times
during 1997. The Committee's principal functions are to study, advise and
consult with the Company's management respecting the compensation of
officers and other key employees of the Company.
Executive Committee. The Executive Committee, which currently consists
of Messrs. Attwell, Galt, Osborne, Segnar and Vagt, did not hold any
meetings during 1997. The Committee's principal function is to aid and
assist the Company's management in the day-to-day operation of the Company.
Nominating Committee. The Nominating Committee, which currently
consists of Messrs. Attwell, Burgess, Grant, Morrow and Walker, met one
time during 1997. Messrs. Grant and Morrow will not stand for re-election
at the Annual Meeting pursuant to the Company's mandatory retirement
policy. The Committee's principal function is to make proposals to the full
Board of Directors for candidates to be nominated by the Board to fill
vacancies or for new directorship positions, if any, which may be created
5
<PAGE> 8
from time to time. The Nominating Committee will consider suggestions from
any source, particularly shareholders, regarding possible candidates for
director. With respect to the procedures that must be followed in order for
nominations from shareholders to be considered, see "Shareholder Proposals
and Director Nominations."
COMPENSATION OF DIRECTORS
During 1997, each director of the Company who was not a full-time employee
was paid an annual director's fee of $24,000 plus $1,000 for each Board of
Directors and Committee meeting attended. A nonemployee director who attends a
meeting of a committee of which he was not a member is entitled to an attendance
fee of $1,000. Each nonemployee director who serves as a committee chairman
receives an additional $1,000 per year. During 1997, the Company paid an
aggregate of $515,000 in fees to its non-employee directors.
Stock Options. The 1993 Nonemployee Directors Stock Option Plan (the
"Directors Option Plan") provides for the grant of options to acquire Common
Stock to each director who is not and never has been an employee of the Company
(an "Eligible Director"). On the date of any Annual Meeting of Shareholders
prior to the termination of the Directors Option Plan, each Eligible Director
who is continuing in office will automatically receive an option to purchase
6,000 shares of Common Stock at an exercise price equal to the fair market value
of the Common Stock on the date of grant. In addition, each Eligible Director
who is elected or appointed to the Board of Directors for the first time will
receive on the date of such director's election or appointment an option to
purchase 6,000 shares of Common Stock at an exercise price equal to the fair
market value of the Common Stock on the date of grant. All outstanding options
have terms of ten years and vest 20% per year over the initial five years of
their terms.
Deferred Fee Plan. The Company has an Outside Directors Deferred Fee Plan
(the "Deferred Fee Plan"), a non-qualified deferred compensation plan. The
Deferred Fee Plan requires the automatic deferral of one-half of the annual
retainer fee for all directors who are not employees of the Company ("Outside
Directors"). In addition, Outside Directors may elect to defer all or a portion
of their remaining directors' fees under the Deferred Fee Plan. Amounts
automatically deferred under the Deferred Fee Plan are credited based upon
"phantom stock" units, which have the same value as Common Stock, which increase
or decrease in value to the full extent of any increase or decrease in the value
of Common Stock and which receive credit for any cash or stock dividends paid
with respect to Common Stock. With respect to fees deferred by Outside Directors
prior to January 1, 1991, or fees deferred in excess of the one-half automatic
deferral, Outside Directors are permitted to make quarterly elections regarding
the method of income crediting for these deferrals, which may be credited either
based upon "phantom stock" units or with interest equivalents based upon the
prime rate of interest as published in The Wall Street Journal on the last day
of the quarter, plus a bonus rate of interest of up to 2% depending on the
number of years the Outside Director has served on the Board. All "phantom
stock" units credited to Outside Directors' accounts must remain so credited
until distribution or, if distribution is to be in a form other than lump sum,
the effective date of a final income crediting election made after Board of
Directors membership has ceased. Distributions under the Deferred Fee Plan can
be made only in cash. As of March 20, 1998, all Outside Directors except Mr.
Vagt were participants in the Deferred Fee Plan.
6
<PAGE> 9
The following table sets forth Common Stock "phantom stock" units credited
to each participant's account during 1997 and total units credited as of March
20, 1998:
<TABLE>
<CAPTION>
PHANTOM STOCK UNITS CREDITED
----------------------------
IN FISCAL AS OF
1997 MARCH 20, 1998
--------- --------------
<S> <C> <C>
J. Evans Attwell.......................................... 2,149 33,195
Richard J. Burgess........................................ 703 1,210
Milton Carroll............................................ 2,436 2,436
Thomas H. Cruikshank...................................... 2,201 4,178
Peter J. Fluor............................................ 2,260 30,360
William R. Grant(1)....................................... 1,898 23,811
Dean P. Guerin(1)......................................... 1,996 25,272
Richard M. Morrow(1)...................................... 1,985 11,367
Dee S. Osborne............................................ 2,156 29,206
Sidney R. Petersen........................................ 703 986
Sam F. Segnar............................................. 703 4,056
R. A. Walker.............................................. 703 986
</TABLE>
- ---------------
(1) Messrs. Grant, Guerin and Morrow will not stand for re-election at the
Annual Meeting pursuant to the Company's mandatory retirement policy
CERTAIN TRANSACTIONS
During 1997, the Company retained the law firm of Vinson & Elkins L.L.P.,
of which Mr. Attwell is of counsel, to perform various legal services for the
Company. Vinson & Elkins L.L.P. has been retained to perform similar services in
1998.
During 1997, the Company retained the law firm of Moyers, Martin, Santee,
Imel & Tetrick ("Moyers, Martin"), of Tulsa, Oklahoma, with respect to matters
of Oklahoma law. Moyers, Martin has been retained to perform similar services
with respect to matters of Oklahoma law in 1998. Mr. D. Stanley Tacker, Mr.
Galt's son-in-law, is a partner in Moyers, Martin. Mr. Galt is Chairman and
Chief Executive Officer of the Company.
Robert F. Vagt resigned as an officer of the Company on June 30, 1997. In
connection with his termination of employment, Mr. Vagt entered into a
consulting agreement whereby Mr. Vagt agreed to provide consulting services to
the Company and serve as a Director of both the Company and Texneft, Inc., a
subsidiary of the Company, until June 30, 1999. As consideration for such
services, Mr. Vagt will receive an aggregate of $250,000 during the term of the
consulting agreement, subject to reduction if he ceases to be a consultant
(other than by reason of death or disability), and the terms of the stock
options granted to Mr. Vagt on July 9, 1992 and January 23, 1997 were amended so
that each option will be fully exercisable until June 30, 1999. Mr. Vagt will
not receive separate fees with respect to his services as a Director of both the
Company and Texneft, Inc. during the term of the consulting agreement.
SECTION 16 COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons who own more than 10% of the Common Stock to
file reports of ownership and changes in ownership concerning the Common Stock
with the Securities and Exchange Commission and to furnish the Company with
copies of all Section 16(a) forms they file. Based upon the Company's review of
the Section 16(a) filings that have been received by the Company, the Company
believes that all filings required to be made under Section 16(a) during 1997
were timely made, except that certain phantom stock interests held under the
Company's employee and director plans were inadvertently not reported on the
Form 5 filed in February 1997 by the following persons: John W. Elias, Barry J.
Galt, John N. Goodpasture, Thomas P. McConn, H. Alan Payne, Stephen A.
Thorington, William L. Transier, Thomas H. Cruikshank, R.A. Walker, Peter J.
Fluor, Sam F. Segnar, Robert F. Vagt, J. Evans Attwell, Dee S. Osborne, Sidney
R. Peterson, William R. Grant,
7
<PAGE> 10
Dean P. Guerin and Richard M. Morrow. The Form 5 for each of these individuals
has been amended to reflect the ownership of these phantom stock interests.
EXECUTIVE COMPENSATION
The following table sets forth annual and long-term compensation for
services in all capacities to the Company for the fiscal years ended December
31, 1995, 1996 and 1997, of those persons who were, at December 31, 1997, the
Chief Executive Officer and the other four most highly compensated executive
officers of the Company (the "Named Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL --------------------------
COMPENSATION AWARDS
-------------------------------------------- --------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME & PRINCIPAL BONUS COMPENSATION AWARD(S) OPTIONS/SARS COMPENSATION
POSITION YEAR SALARY($) ($) ($)(1) ($)(2) (#)(3) ($)(4)
---------------- ---- --------- -------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Barry J. Galt................... 1997 $550,000 $300,000 $51,573 $ 0 100,000 $ 85,592(5)
Chairman of the Board,
President 1996 $516,000 $290,440 $51,229 $ 0 100,000 $ 73,600(5)
and Chief Executive Officer 1995 $496,650 $167,000 $ 0 $111,750 100,000 $ 63,823(5)
John W. Elias................... 1997 $306,000 $140,000 $ 0 $ 0 50,000 $ 40,562
Executive Vice President 1996 $294,000 $136,000 $ 0 $ 0 40,000 $ 36,489
1995 $283,704 $ 76,000 $ 0 $ 55,875 40,000 $ 31,268
Richard F. Barnes............... 1997 $262,000 $ 36,000 $ 0 $ 0 14,000 $ 9,600
Senior Vice President, 1996 $250,000 $ 36,000 $ 0 $ 0 15,000 $ 11,000
ENSTAR Alaska 1995 $242,400 $ 22,500 $ 0 $ 37,250 15,000 $ 10,848
William L. Transier(6).......... 1997 $260,000 $120,000 $ 0 $ 0 40,000 $ 32,972
Senior Vice President 1996 $168,561 $ 72,000 $ 0 $ 71,250 90,000 $ 18,958
and Chief Financial Officer 1995 $ 0 $ 0 $ 0 $ 0 0 $ 0
John N. Goodpasture............. 1997 $231,000 $ 86,000 $ 0 $ 0 36,000 $ 28,187
Senior Vice President, 1996 $222,000 $ 92,800 $ 0 $ 0 20,000 $ 25,812
Pipelines and Marketing 1995 $213,216 $ 64,000 $ 0 $ 37,250 20,000 $ 21,737
</TABLE>
- ---------------
(1) Includes "Perquisites and Other Personal Benefits" if value is greater than
the lesser of $50,000 or 10% of reported salary and bonus. Mr. Galt's
personal use of company car amounted to $20,750 in each 1997 and 1996 and
club usage amounted to $30,823 and $30,479 in 1997 and 1996, respectively.
(2) The following is the market value of the restricted stock held by the Named
Officers at December 31, 1997: Mr. Galt -- 6,000 shares, $123,750, Mr.
Elias -- 3,000 shares, $61,875, Mr. Barnes -- 2,000 shares, $41,250, Mr.
Transier -- 3,000 shares, $61,875, and Mr. Goodpasture -- 2,000 shares,
$41,250. The Company does not currently pay dividends on Common Stock;
however, it would pay dividends on the restricted stock should the Company
change its dividend policy.
(3) No grants of stock appreciation rights have been made.
(4) All amounts reported under "All Other Compensation", except for Mr. Galt,
represent contributions by the Company to defined contribution plans.
(5) Includes annual premium payments paid by the Company for Mr. Galt's Flexible
Premium Adjustable Life Insurance policy of $4,770, $4,190 and $3,760 for
the years 1997, 1996 and 1995, respectively. The remaining amounts represent
contributions by the Company to the Company's defined contribution plans.
(6) Mr. Transier was elected as Senior Vice President and Chief Financial
Officer of the Company on May 14, 1996.
COMPENSATION ARRANGEMENTS
Employment Agreement. In December 1983, Mr. Galt entered into an employment
agreement with the Company with an initial term of three years. Pursuant to the
employment agreement, the term is automatically extended for an additional year
on each anniversary of the agreement, unless terminated prior to
8
<PAGE> 11
such renewal by either Mr. Galt or the Company, so that the remaining term of
the agreement has ranged from two to three years. If, however, the Company
terminates Mr. Galt's employment because of gross negligence or willful
misconduct in the performance of his duties, the employment agreement will
terminate. Similarly, if Mr. Galt terminates his employment agreement
voluntarily other than in connection with a "change of control" of the Company
or other than because he is not re-elected to his current positions (including
as a director) or is assigned materially inconsistent duties, the employment
agreement will terminate. Mr. Galt's annual salary is subject to review and
possible increase by the Compensation Committee on an annual basis. Mr. Galt
received a 7.3% salary increase from his effective annual salary of $550,000 in
1997 to $590,000 for 1998. During the term of his employment, Mr. Galt will also
receive the use of an automobile, various club memberships and certain other
personal and business-related benefits.
Executive Severance Agreements. Messrs. Galt, Elias, Barnes, Transier and
Goodpasture entered into agreements effective March 17, 1997 with the Company
(the "Agreements") that provide certain severance benefits in the event their
employment is subject to an involuntary termination (as defined therein) within
two years following a change of control (as defined therein) of the Company. The
Agreements replace similar counterparts that expired on March 17, 1997. The
initial term of the Agreements is two years and the Company may extend the
Agreements for successive two-year terms following the initial term; however, if
a change of control occurs during the term of the Agreements, the Agreements
cannot terminate until two years after the change of control.
The Agreements generally provide for (a) the payment of 2.99 times the sum
of annual salary and targeted incentive bonus at the time of the change of
control or the involuntary termination, whichever is greater, and, where
applicable, reduced by the present value of any salary continuation or severance
payments payable under any other Company plan, policy or agreement, other than a
plan within the meaning of section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, (b) the payment of the remaining portion of
prior year's incentive bonuses and, if the involuntary termination occurs after
an incentive bonus is earned but before it is paid, targeted incentive bonus,
(c) the continuation of health and insurance benefit coverage at active employee
cost for up to thirty-six months, and (d) outplacement services up to a maximum
cost of $6,000. If the severance benefits under an Agreement, in conjunction
with any other amounts paid to the applicable executive by the Company
constitute a "parachute payment" within the meaning of section 280G of the
Internal Revenue Code of 1997, as amended (the "Code"), amounts payable under
that Agreement will either be reduced or paid in full, whichever produces the
better net after-tax position for the executive.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following is information with respect to the unexercised Options to
purchase Common Stock under the Company's stock option plans granted to the
Named Officers and held by them at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS OPTIONS/SARS
SHARES AT DECEMBER 31, 1997 AT DECEMBER 31,
ACQUIRED (#) 1997($)(1)
ON VALUE --------------------------- ---------------------------
EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Barry J. Galt.................... 0 0 665,000 375,000 $5,498,625 $506,250
John W. Elias.................... 0 0 106,000 164,000 $ 0 $220,625
Richard F. Barnes................ 0 0 79,770 56,250 $ 555,974 $ 74,125
William L. Transier.............. 0 0 22,500 107,500 $ 0 $ 72,500
John N. Goodpasture.............. 20,000 $252,500 46,000 87,000 $ 217,188 $130,250
</TABLE>
- ---------------
(1) Value based on the closing price on the NYSE Composite Tape for Common Stock
on December 31, 1997 ($20.625 per share).
9
<PAGE> 12
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following is information with respect to grants of Options in fiscal
1997 pursuant to the Company's stock option plans to the Named Officers
reflected in the Summary Compensation Table on page 9. No stock appreciation
rights were granted under those plans in fiscal 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK PRICE
UNDERLYING OPTIONS/SARS EXERCISE APPRECIATION
OPTIONS/SARS GRANTED TO OR BASE FOR OPTION TERM(2)
GRANTED EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME (#)(1) FISCAL YEAR ($/SH) DATE 5% 10%
---- ------------ ---------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Barry J. Galt....................... 100,000 10.8% $18.8125 7/15/2007 $1,183,108 $2,998,228
John W. Elias....................... 50,000 5.4% $18.8125 7/15/2007 $ 591,554 $1,499,114
Richard F. Barnes................... 14,000 1.5% $18.8125 7/15/2007 $ 165,635 $ 419,752
William L. Transier................. 40,000 4.3% $18.8125 7/15/2007 $ 473,243 $1,199,291
John N. Goodpasture................. 36,000 3.9% $18.8125 7/15/2007 $ 425,919 $1,079,362
</TABLE>
- ---------------
(1) Options were granted to the Named Officers on July 15, 1997. The exercise
price per share is equal to the closing price of Common Stock on the NYSE
Composite Tape on the date of grant. Options granted vest in four equal
annual increments beginning one year from date of grant. Upon the occurrence
of a "change of control" the vesting of all outstanding Options would be
accelerated.
(2) The dollar amounts under these columns represent the potential realizable
value of each grant of Options assuming that the market price of Common
Stock appreciates in value from the date of grant at the 5% and 10% annual
rates of return prescribed by the Securities and Exchange Commission
("SEC"). These calculations are not intended to forecast possible future
appreciation, if any, of the price of Common Stock.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is designed to help the
Company attract, motivate and retain the executive resources that the Company
needs in order to maximize its return to shareholders. The fundamental
philosophy is to relate the amount of compensation "at risk" for an executive
directly to his or her contribution to the Company's success in achieving
superior performance objectives. The Company's executive compensation program,
as structured and implemented by the Compensation Committee (the "Committee"),
consists of three main components: (1) base salary; (2) potential for an annual
bonus based on overall Company performance as well as individual performance;
and (3) the opportunity to earn long-term stock-based incentives that are
intended to encourage the achievement of superior results over time and to align
executive officer and shareholder interests. The compensation program is
structured to provide senior management with a total compensation package
that -- at expected levels of performance -- is competitive with those provided
to executives who hold comparable positions or have similar qualifications in
other similarly situated organizations. The peer companies (the "Peer Group")
named under the heading "Shareholder Return Performance Presentation" are the
only group of companies specifically utilized by the Committee in evaluating
executive compensation levels of the executive officers named in the Summary
Compensation Table; however, the Committee receives advice regarding
compensation levels from the compensation and benefits practice of KPMG Peat
Marwick LLP ("KPMG"), an outside compensation consulting firm, which utilizes a
number of other sources, including information from other companies depending
upon the job content of the executive officer whose salary is being reviewed.
Base Salary Program. The Company's base salary program is designed to
provide base salaries for senior management that approximate the 50th percentile
of those provided by other companies in the Peer Group. The base salaries for
the Company's senior management group are generally targeted by the Committee to
fall at the 50th percentile for the Peer Group, although salaries for certain
key managers may be above the 50th percentile. The Committee believes that the
Company's ability to provide salaries that are competitive with market
alternatives, which vary depending upon the nature and level of the position in
question, is critical to attracting and maintaining talented senior managers.
The Committee reviews information obtained from
10
<PAGE> 13
proxy statements, special surveys and other sources and employs the services of
KPMG to analyze the competitive level of senior management compensation. Based
upon this review, the Committee believes that the percentile target described
above has been met.
The Committee reviews and adjusts executive base salaries annually based on
each individual employee's performance over time, general competitive market
salary levels and the Company's market capitalization and cash flow generated
from operations. No specific weight or emphasis is placed on any one of these
factors.
Under the terms of Mr. Galt's employment agreement with the Company, Mr.
Galt's salary is subject to review by the Committee for possible increases each
year.
In 1997, the Committee increased Mr. Galt's salary from $550,000 for 1997
to $590,000 for 1998, which is an increase of 7.3%, in order to recognize the
Company's achievements in 1997 under Mr. Galt's leadership including the
strengthening of the Company's financial position.
Short-Term Incentive Compensation. The impact of the Committee's linking
compensation to performance can also be illustrated by the operation of the
Company's Executive Incentive Plan for 1997 (the "1997 Plan"). Under the
Company's Executive Incentive Plan, the Committee grants annual cash incentive
awards that are dependent upon the Company's achievement of previously
established objectives for the fiscal year and an evaluation of each individual
participant's contributions to those achievements. Targeted awards are intended
by the Committee to approximate the 55th to 60th percentile for the Peer Group.
The Committee utilizes data obtained from KPMG to determine the targeted annual
incentive award levels for plan eligible positions. Mr. Galt's actual award for
1997 was at the 45th percentile of the Peer Group's actual 1996 awards.
Annual incentive award targets are expressed as a percentage of total
salary earned during a given year ranging from 15% to 50%, but can increase to a
maximum of two times the targeted percentage or decrease to zero for any year,
based upon the achievement of predetermined objective and subjective performance
goals. The 1997 Plan contained both objective and subjective performance
criteria. Each of the three objective components is measured independently and
has a weighting of 20%. The objective components are: pre-tax cash flow from
operations compared to the Company's Operating Plan, reserve additions and
production replacement costs, the Company's stock performance in relation to
Peer Group companies.
The Pre-tax Cash Flow from Operations ("PCFO") calculation based on the
Company's 1997 actual earnings was 103.2% of the amount targeted in the
Operating Plan, resulting in an award of 107.8% of the PCFO Target or 21.6% of
the total Target. The reserve additions calculation was 89% of target resulting
in an award of 22.8% of the Reserve Additions Target or 2.3% of the total
Target. The production replacement cost calculation was 101% of the amount
targeted resulting in an award of 100% of the Production Replacement Costs
Target or 10% of the Total Target. The Company Stock Performance Assessment is
based on the Company's ranking with the peer group companies based on the
percentage change in the average daily stock price for the year ended December
31, 1997 over the year ended December 31, 1996. Because the Company did not meet
its stock performance assessment target, no award was paid.
As indicated above, the remaining 40% of the award is the subjective
portion which is based upon the individual employee's contribution to the
Company's annual success in his or her area of responsibility, measured by both
quantitative and qualitative factors. No specific formula is utilized for
weighing individual performance. Under the 1997 Plan, the cash awards for
individual performance averaged 142.6% of the targeted amount for this
component.
As a result of his individual performance in positioning the Company for
longer term strategic successes, the Committee awarded Mr. Galt a cash bonus
award under the 1997 Plan of $300,000, which is 109% of his 50% target.
Long-Term Incentive Compensation. The Company currently grants long-term
incentive compensation in the form of stock options. The Committee emphasizes
incentive compensation in the form of stock options because they tend to align
the interests of employees and shareholders by rewarding performance that
increases shareholder value. Option holders will only recognize value when the
stock price increases over the
11
<PAGE> 14
exercise price established on the date of grant. The Committee does not utilize
the number of options or shares held by any individual as a factor to limit
option grants to that individual in subsequent years.
The Committee establishes the overall level of stock options by considering
the stock option grant levels of companies included in the Peer Group. Stock
option awards by the Company are targeted by the Committee to fall at or above
the 65th percentile among the Peer Group. The Committee bases individual option
grants on individual performance and level of responsibility of the optionee.
All outstanding options have terms of ten years. The Committee adopted a
policy in 1996 to provide that all options granted in 1996 and thereafter would
vest in four equal annual installments beginning one year from the date of
grant. All options have been granted at 100% of the market value of the Common
Stock on the date of grant. The exercise price is payable in cash, shares of
Common Stock, or any combination thereof.
The Company's philosophy is to provide stock option awards at or above the
65th percentile. On July 15, 1997, the Committee granted non-qualified stock
options to purchase an aggregate of 100,000 shares of Common Stock to Mr. Galt
for an exercise price of $18.8125 per share, which was 100% of fair market value
on the date of grant. The option grant was based on a competitive number of
options for chief executive officers in the Peer Group based on an analysis of
information available for fiscal 1996. The options will not produce gain for Mr.
Galt unless the Company's share price rises over the exercise price established
on the date of grant and therefore emphasize pay-for-performance in the form of
enhanced shareholder value.
The Committee periodically reviews the Company's executive compensation
package to ensure that the Company provides an appropriate mix of base salary
and short-term and long-term compensation opportunities that are competitive
with market alternatives.
Section 162(m). Section 162(m) of the Code, which was enacted in 1993,
precludes a public corporation from taking a deduction in 1994 or subsequent
taxable years for compensation in excess of $1 million paid to its chief
executive officer or any of its four other highest-paid officers. However,
compensation that qualified under Section 162(m) of the Code as
"performance-based" is specifically exempt from the deduction limit. The
Committee has been advised that the Company's ability to deduct compensation
income generated in connection with the exercise of stock options granted under
the Company's stock option plans should not be limited by Section 162(m) of the
Code. During 1998, no executive of the Company is expected to receive
compensation that is subject to the limitation of Section 162(m) in excess of $1
million.
Compensation Committee
Peter J. Fluor, Chairman
Thomas H. Cruikshank
Dee S. Osborne
Sam F. Segnar
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The performance graph shown below was prepared by using data from the
Standard and Poor's Compustat Database for use in this Proxy Statement. As
required by applicable rules of the SEC, the graph was prepared based upon the
following assumptions:
1. $100 was invested in Common Stock, Peer Group (as defined below) and
the S&P 500 on December 31, 1992.
2. Peer Group investment is weighted based on the market capitalization
of each individual company within the Peer Group at the beginning of
each year.
3. Dividends are reinvested on the ex-divided dates.
12
<PAGE> 15
The industry peer group is comprised of the following: Anadarko Petroleum
Corporation, Apache Corporation, Burlington Resources Inc., Enron Oil & Gas
Company, EEX Corporation, Equitable Resources, Inc., Noble Affiliates, Inc.,
Nuevo Energy Company, Oryx Energy Company, Pioneer Natural Resources Company,
Pogo Producing Company, Santa Fe Energy Resources, Inc., Union Pacific Resources
Group Inc., United Meridian Corporation and Vastar Resources, Inc.
SEAGULL ENERGY CORPORATION
COMPARATIVE TOTAL RETURNS
DECEMBER 1992-DECEMBER 1997
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG SEAGULL ENERGY CORPORATION, PEER GROUP AND S&P 500 INDEX
<TABLE>
<CAPTION>
SEAGULL
MEASUREMENT PERIOD ENERGY
(FISCAL YEAR COVERED) CORPORATION PEER GROUP S&P 500
<S> <C> <C> <C>
12/31/92 100.00 100.00 100.00
12/31/93 163.05 119.75 110.08
12/31/94 122.89 105.11 111.54
12/31/95 142.97 130.56 153.45
12/31/96 141.37 163.43 188.69
12/31/97 132.53 148.13 251.64
</TABLE>
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
The Company has an Executive Supplemental Retirement Plan (the "Retirement
Plan") in which Barry J. Galt is the only current participant. The Retirement
Plan was established to provide supplemental retirement benefits for those
employees who are designated by the Compensation Committee as participants and
who complete the required period of employment with the Company. Benefits under
the Retirement Plan constitute unfunded, unsecured obligations of the Company.
The Retirement Plan provides a benefit for the surviving spouse of a participant
who dies before retirement with a vested benefit.
Subject to specified vesting requirements, a participant is entitled to
receive commencing upon termination of his or her employment by the Company or
upon his or her normal retirement date, whichever is later, a pension equal to
the applicable percentage of average monthly compensation less 50% of his or her
social security benefit. Compensation covered by the Retirement Plan includes
base salary only. Mr. Galt is fully vested under the Retirement Plan.
For Mr. Galt, the applicable percentage is 50% and his average monthly
compensation (which does not include bonuses) is determined based on his last
three consecutive calendar years of employment with the Company. Based upon the
average of Mr. Galt's annual salary for 1996 ($516,000), 1997 ($550,000) and
13
<PAGE> 16
1998 ($590,000), the estimated annual benefit for Mr. Galt is $267,702 with such
payment continuing to the survivor for life upon the death of either Mr. Galt or
his spouse.
ENSTAR NATURAL GAS COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Richard F. Barnes is the only Named Officer eligible to participate in the
ENSTAR Natural Gas Company Supplemental Executive Retirement Plan (the "ENSTAR
SERP").
On November 7, 1994, the Board of Directors adopted the ENSTAR SERP to
restore retirement benefits lost by certain employees under certain ENSTAR
Natural Gas Company qualified plans, including the ENSTAR Retirement Plan, as a
result of the limits on qualified plan compensation ($160,000 for 1998) under
Section 401(a)(17) of the Code. Eligible employees become participants of the
ENSTAR SERP upon designation by the Compensation Committee. Benefits under the
ENSTAR SERP constitute unfunded, unsecured obligations of the Company. Subject
to specified vesting requirements, a participant in the ENSTAR SERP (or his
beneficiary or beneficiaries) is entitled to receive a lump sum benefit upon
termination of employment. Mr. Barnes is fully vested in his benefit under the
ENSTAR SERP.
The ENSTAR SERP provides a supplemental retirement benefit equal to the
excess, if any, of the present value of the benefit that would have been payable
under the ENSTAR Retirement Plan if such participant's average monthly
compensation was based on his "Plan Compensation" (without regard to the
limitation on compensation under Section 401(a)(17) of the Code), over the
present value of the benefit actually payable under the ENSTAR Retirement Plan.
"Plan Compensation" is defined as 5/6ths of the sum of a participant's annual
base salary as of January 1 of each year and any cash bonus paid during the
year. Each present value is determined based on the UP-1984 Mortality Table and
the Pension Benefit Guaranty Corporation interest rates in effect at the time of
the participant's termination of employment.
Based on Mr. Barnes' current compensation level of $311,000, the estimated
supplemental retirement benefit for Mr. Barnes, assuming retirement at age 65
and an interest rate of 6%, is a lump sum payment of $304,500.
ENSTAR NATURAL GAS COMPANY RETIREMENT PLAN
Richard F. Barnes is the only Named Officer eligible to participate in the
ENSTAR Natural Gas Company Retirement Plan for Salaried Employees (the "ENSTAR
Retirement Plan").
The salaried employees of ENSTAR Natural Gas Company, a division of the
Company, are eligible to participate in the ENSTAR Retirement Plan. Under the
non-contributory plan, a participant who retires at or after the age of 65 with
four years of plan participation is eligible for a monthly retirement benefit
equal to 2% of the participant's average monthly compensation multiplied by his
or her years of benefit service not to exceed ten full years, added to an amount
equal to 1% of the participant's average monthly compensation multiplied by his
or her years of benefit service exceeding ten full years. Benefits under the
ENSTAR Retirement Plan are not subject to reduction because of social security
benefits but are reduced by benefits payable under another defined benefit plan
to the extent that there is a duplication of benefits for the same period of
service.
The ENSTAR Retirement Plan provides that a participant's benefit will be
determined pursuant to the above formula as of the date of termination of
employment, but also provides that such benefit will be at least equal to (1)
the participant's accrued benefit as of December 31, 1988 or if greater, (2) the
sum of the participant's accrued benefit as of December 31, 1993 and his accrued
benefit determined under the benefit formula applicable for plan years beginning
on and after January 1, 1994 based on years of accrual service credited on and
after January 1, 1994.
A participant (or his or her beneficiary) may also be entitled to the
foregoing benefit under the ENSTAR Retirement Plan if the participant terminates
employment by reason of early retirement (i.e., after the participant has
attained the age of 55 and completed five years of vesting service), by reason
of total and permanent disability, by reason of death or if the participant
terminates employment after the participant has attained at least five years of
vesting service.
14
<PAGE> 17
The following table shows estimated annual benefits payable upon normal
retirement at age 65 based on certain salary assumptions and years of service.
PENSION PLAN TABLE*
<TABLE>
<CAPTION>
YEARS OF SERVICE
RANGE OF -----------------------------------------------------------
COMPENSATION 15 20 25 30 35
- --------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 50,000............. $12,500 $15,000 $17,500 $20,000 $22,500
$ 75,000............. $18,750 $22,500 $26,250 $30,000 $33,750
$100,000............. $25,000 $30,000 $35,000 $40,000 $45,000
$125,000............. $31,250 $37,500 $43,750 $50,000 $56,250
$150,000............. $37,500 $45,000 $52,500 $60,000 $67,500
$160,000............. $40,000 $48,000 $56,000 $64,000 $72,000
</TABLE>
- ---------------
* Effective January 1, 1994, Section 401(a)(17) of the Code limits qualified
plan compensation to $150,000, as adjusted for changes in the cost of living.
Effective January 1, 1997, the Section 401(a)(17) limitation was increased to
$160,000. For purposes of determining the benefits shown above, plan
compensation for all years of service has been limited in accordance with the
current limits on qualified plan compensation under Section 401(a)(17) of the
Code, without regard to any future adjustments to these limits that may result
from changes in the cost of living. Furthermore, benefits accrued prior to the
imposition of these limits in 1994 with respect to plan compensation in excess
of $150,000 have been disregarded.
The following table sets forth the estimated annual benefits payable under
normal retirement at age 65, assuming current remuneration levels and
participation until normal retirement at age 65, with respect to Mr. Barnes
under the provisions of the ENSTAR Retirement Plan.
<TABLE>
<CAPTION>
ESTIMATED
CURRENT CREDITED CURRENT ESTIMATED
CREDITED YEARS OF CURRENT COMPENSATION ANNUAL BENEFIT
YEARS OF SERVICE COMPENSATION ADJUSTED FOR PLAN PAYABLE UPON
SERVICE AT AGE 65 COVERED BY PLANS COMPENSATION LIMITS RETIREMENT
-------- --------- ---------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Richard F. Barnes............... 31 42 $311,000 $160,000 $77,100*
</TABLE>
- ---------------
* This benefit assumes the current limit on plan compensation, $160,000, will
remain at $160,000 (with no inflationary adjustments). Mr. Barnes' service
from 1967 through 1985 has been recognized under this plan and another
retirement plan. Accordingly, his benefit under the ENSTAR Retirement Plan
formula has been reduced by $24,657 per year, which is his accrued benefit
under the other plan.
PROPOSAL TO ADOPT THE
SEAGULL ENERGY CORPORATION 1998 OMNIBUS STOCK PLAN
There will be presented at the Annual Meeting a proposal to approve the
Company's 1998 Omnibus Stock Plan (the "1998 Stock Plan"), a copy of which is
attached as Exhibit A. The Board adopted the 1998 Stock Plan on March 20, 1998,
and directed that it be submitted for shareholder approval. The Board believes
that by providing key employees with an opportunity to acquire a proprietary
interest in the Company and additional incentive and reward opportunities based
on the profitable growth of the Company, the 1998 Stock Plan will give employees
a stronger incentive to work for the continued success of the Company. The Board
also believes that the 1998 Stock Plan will aid the Company in attracting and
retaining outstanding personnel. The principal features of the 1998 Stock Plan
are described below; provided, however, that the following summary is qualified
in its entirety by reference to the complete text of Exhibit A.
GENERAL
The 1998 Stock Plan provides for the granting of options (either incentive
stock options within the meaning of Section 422(b) of the Internal Revenue Code
of 1986, as amended (the "Code"), or options that do not constitute incentive
stock options ("nonqualified stock options")), restricted stock awards, stock
15
<PAGE> 18
appreciation rights, and long-term incentive awards, or any combination thereof
(see "Types of Awards" below). The 1998 Stock Plan covers an aggregate of
2,500,000 shares of Common Stock (subject to certain adjustments in the event of
stock dividends, stock splits and certain other events ("adjustments")). No more
than 250,000 shares of Common Stock, subject to adjustments, may be issued
pursuant to grants made under the 1998 Stock Plan to any one employee in any
calendar year. The limitation set forth in the preceding sentence will be
applied in a manner which permits compensation generated in connection with the
exercise of options, stock appreciation rights, long-term incentive awards and,
if determined by the Compensation Committee, restricted stock awards to
constitute "performance-based" compensation for purposes of Section 162(m) of
the Code. Further, no more than 300,000 shares of Common Stock, subject to
adjustments, may be issued pursuant to restricted stock awards and long-term
incentive awards under the 1998 Stock Plan.
ADMINISTRATION
The 1998 Stock Plan is administered by the Compensation Committee. The
Compensation Committee has the power to determine which employees will receive
an award, the time or times when such award will be made, the type of the award
and the number of shares of Common Stock to be issued under the Award or the
value of the award. Only persons who at the time of the grant are employees of
the Company or of any subsidiary of the Company are eligible to receive grants
under the 1998 Stock Plan. As of March 20, 1998, the Company and its
subsidiaries had approximately 877 employees.
TYPES OF AWARDS
Options. The 1998 Stock Plan provides for two types of options: incentive
stock options and nonqualified stock options (see "Federal Tax Consequences"
below). The Compensation Committee will designate the employees to receive the
options, the number of shares subject to the options, and the terms and
conditions of each option granted under the 1998 Stock Plan. The term of any
option granted under the 1998 Stock Plan shall be determined by the Compensation
Committee; provided, however, that the term of any incentive stock option cannot
exceed ten years from the date of the grant and any incentive stock option
granted to an employee who possesses more than 10% of the total combined voting
power of all classes of stock of the Company or of its subsidiary within the
meaning of Section 422(b)(6) of the Code must not be exercisable after the
expiration of five years from the date of grant. The exercise price per share of
Common Stock of options granted under the 1998 Stock Plan will be determined by
the Compensation Committee; provided, however, that such exercise price cannot
be less than the fair market value of a share of Common Stock on a date the
option is granted (subject to adjustments). Further, the exercise price of any
incentive stock option granted to an employee who possesses more than 10% of the
total combined voting power of all classes of stock of the Company or of its
subsidiary within the meaning of Section 422(b)(6) of the Code must be at least
110% of the fair market value of the share at the time such option is granted.
The exercise price of options granted under the 1998 Stock Plan will be paid in
full in a manner prescribed by the Compensation Committee. On March 20, 1998,
the closing price of Common Stock on the New York Stock Exchange was $18.50 per
share.
Restricted Stock Awards. Pursuant to a restricted stock award, shares of
Common Stock will be issued or delivered to the employee at any time the award
is made without any cash payment to the Company, except to the extent otherwise
provided by the Compensation Committee or required by law; provided, however,
that such shares will be subject to certain restrictions on the disposition
thereof and certain obligations to forfeit such shares to the Company as may be
determined in the discretion of the Compensation Committee. The restrictions on
disposition may lapse based upon (a) the Company's attainment of specific
performance targets established by the Committee that are based on (1) the price
of a share of Common Stock, (2) the Company's earnings per share, (3) the
Company's revenue, (4) the revenue of a business unit of the Company designated
by the Committee, (5) the return on stockholders' equity achieved by the
Company, (6) the Company's pre-tax cash flow from operations, (7) finding costs,
(8) reserve additions, (9) acquisition growth, or (10) cost containment, (b) the
number of years the grantee remains an employee of the Company, or (c) a
combination of both factors. The Company retains custody of the shares of Common
Stock issued pursuant to a restricted stock award until the disposition and
forfeiture obligations lapse. An employee may
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<PAGE> 19
not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of such
shares until the expiration of the restriction period. However, upon the
issuance to the employee of shares of Common Stock pursuant to a restricted
stock award, except for the foregoing restrictions, such employee will have all
the rights of a shareholder of the Company with respect to such shares,
including the right to vote such shares and to receive all dividends and other
distributions paid with respect to such shares.
Stock Appreciation Rights. A stock appreciation right permits the holder
thereof to receive an amount (in cash, Common Stock, or a combination thereof)
equal to the number of stock appreciation rights exercised by the holder
multiplied by the excess of the fair market value of Common Stock on the
exercise date over the stock appreciation rights' exercise price. Stock
appreciation rights may or may not be granted in connection with the grant of an
option. A stock appreciation right may be exercised in whole or in such
installments and at such times as determined by the Compensation Committee.
Long-Term Incentive Awards. The 1998 Stock Plan permits grants of long-term
incentive awards ("incentive awards"), which may be paid in cash, Common Stock,
or a combination thereof as determined by the Compensation Committee. The
maximum number of shares of Common Stock subject to incentive awards granted
under the 1998 Stock Plan shall be established by the Compensation Committee at
the time of the grant. A grantee's receipt of such amount will be contingent
upon satisfaction by the Company, or any subsidiary, division or department
thereof, of performance targets established by the Compensation Committee either
prior to the beginning of the performance period or within 90 days after the
beginning of the performance period if the outcome of the performance targets is
substantially uncertain at the time such targets are established, but not later
than the date 25% of the performance period has elapsed. The performance targets
may be absolute, relative to one or more other companies, or relative to one or
more indices. The performance targets may be based upon (1) the price of a share
of Common Stock, (2) the Company's earnings per share, (3) the Company's
revenue, (4) the revenue of a business unit of the Company designated by the
Committee, (5) the return on stockholders' equity achieved by the Company, (6)
the Company's pre-tax cash flow from operations, (7) finding costs, (8) reserve
additions, (9) acquisition growth, or (10) cost containment, or a combination of
any of the foregoing. In determining the number of shares of Common Stock
subject to incentive awards, the Compensation Committee shall take into account
the employee's responsibility level, performance, potential, other awards under
the 1998 Stock Plan, and such other consideration as it deems appropriate. The
Compensation Committee may provide for a reduction in the value of an employee's
incentive award during the performance period. Following the end of the
performance period, the Compensation Committee will determine the amount payable
to the employee, not to exceed the maximum value of the incentive award, based
on the achievement of the performance targets for such performance period. Such
payment may be made in a lump sum or in installments as prescribed by the
Compensation Committee. Any payment made in cash will be based upon the fair
market value of the Common Stock on the payment date.
Grants. As of the date of this Proxy Statement, the Company has not made
any grants of options (neither incentive stock options nor nonqualified stock
options), restricted stock awards, stock appreciation rights, or long-term
incentive awards under the 1998 Stock Plan.
CHANGE OF CONTROL
If (i) the Company is not the surviving entity in any merger, consolidation
or other reorganization (or survives only as a subsidiary of an entity other
than a previously wholly-owned subsidiary of the Company), (ii) the Company
sells, leases or exchanges all or substantially all of its assets to any other
person or entity (other than a wholly-owned subsidiary of the Company), (iii)
the Company is to be dissolved and liquidated, (iv) any person or entity,
including a "group" as contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), acquires or gains
ownership or control (including, without limitation, power to vote) of more than
40% of the outstanding shares of the Company's voting stock (based upon voting
power), or (v) as a result of or in connection with a contested election of
directors, the persons who were directors of the Company before such election
shall cease to constitute a majority of the Board, except as provided in any
agreement evidencing an Award, all outstanding Awards will immediately vest and
become exercisable or satisfiable. The Compensation Committee, in its sole
discretion, may
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<PAGE> 20
determine that upon the occurrence of a Change of Control, each outstanding
Award shall terminate and each holder shall receive cash in an amount equal to
the excess, if any, of the Change of Control value of each share of Common Stock
subject to the Award over the exercise price, if applicable, for such share.
AMENDMENT AND TERMINATION
The Board may amend or terminate the 1998 Stock Plan at any time, except
that it may not make any change to a previously granted award which would impair
the employee's rights without the employee's consent and it must obtain
shareholder approval for any amendment which would increase the maximum
aggregate number of shares of Common Stock that may be issued under the Plan
(subject to adjustments) or change the class of employees eligible to receive
awards under the Plan. The 1998 Stock Plan is effective upon the date adopted by
the Board, provided the 1998 Stock Plan is timely approved by the shareholders
of the Company, and will remain in effect until all awards granted under the
1998 Stock Plan have been satisfied or expired, unless earlier terminated;
provided, however, that no awards may be granted under the 1998 Stock Plan after
the expiration of ten years from the adoption date by the Board.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. Options that constitute incentive stock options
within the meaning of Section 422(b) of the Code are subject to special federal
income tax treatment. An employee who has been granted an incentive stock option
will not realize taxable income at the time of the grant or exercise of such
option, and the Company will not be entitled to a deduction at either such time,
if the employee makes no disposition of shares acquired pursuant to such
incentive stock option (a) within two years from the option's date of the grant
or (b) within one year after exercising such option (collectively, the "Holding
Periods"). However, the employee must include the difference between the
exercise price and the fair market value of the Common Stock on the date of
exercise in alternative minimum taxable income. If the employee exercises an
incentive stock option and disposes of the stock in the same year and the amount
realized is less than the fair market value on the exercise date, only the
difference between the amount realized and the adjusted basis of the stock will
be included in alternative minimum taxable income. Upon disposition of the
shares of Common Stock received upon exercise of an incentive stock option after
the Holding Periods, the difference between the amount realized and the exercise
price should constitute a mid-term or long-term capital gain or loss. Under such
circumstances, however, the Company will not be entitled to any deduction for
federal income tax purposes.
If an employee disposes of shares acquired pursuant to the exercise of an
incentive stock option prior to the end of the Holding Periods, the disposition
would be treated as a disqualifying disposition. The employee will be treated as
having received, at the time of disposition, compensation taxable as ordinary
income equal to the excess of the fair market value of the shares at the time of
exercise (or in the case of a sale in which a loss would be recognized, the
amount realized on the sale, if less) over the exercise price and any amount
realized in excess of the fair market value of the shares at the time of
exercise would be treated as a short-term, mid-term or long-term capital gain,
depending on the holding period of the shares of Common Stock. In the event of a
disqualifying disposition, the Company may claim a deduction for compensation
paid at the same time and in the same amount as taxable compensation is treated
as received by the employee. However, the Company will not be entitled to any
deduction in connection with any loss to the employee or a portion of any gain
that is taxable to the employee as short-term, mid-term or long-term capital
gain.
Nonqualified Stock Options. Nonqualified stock options (options that are
not incentive stock options within the meaning of Section 422(b) of the Code)
will not qualify for special federal income tax treatment. As a general rule, no
federal income tax is imposed on the employee upon the grant of a nonqualified
stock option and the Company is not entitled to a tax deduction by reason of
such grant. Upon exercise of a nonqualified stock option, the employee will
realize ordinary income in an amount equal to the excess, if any, of the fair
market value of the shares on the date of exercise over the option exercise
price, with the Company entitled to a corresponding deduction. Ordinary income
realized upon the exercise of a nonqualified stock option is not an adjustment
for alternative minimum tax purposes. In the case of an option holder subject to
Section 16(b) of the Exchange Act, subject to certain exceptions, ordinary
income will be recognized by the
18
<PAGE> 21
employee (and a deduction by the Company) upon the exercise of the nonqualified
stock option if the exercise occurs more than six months after the date of grant
of the nonqualified stock option. Upon a subsequent disposition of shares
received upon exercise of a Nonqualified Stock Option, the employee will realize
a short-term, mid-term or long-term capital gain or loss to the extent of any
intervening appreciation or depreciation. However, the Company will not be
entitled to any further deduction at that time.
Restricted Stock Awards. An employee who has been granted a restricted
stock award will not realize taxable income at the time of grant, and the
Company will not be entitled to a deduction at that time, assuming that the
restrictions constitute a substantial risk of forfeiture for federal income tax
purposes. Upon lapse of the disposition restrictions (as shares become vested)
the holder will realize ordinary income in an amount equal to the fair market
value of the shares at such time and, subject to Section 162(m) of the Code, the
Company will be entitled to a corresponding deduction. Dividends paid to the
holder during the restriction period will also be compensation income to the
employee and, subject to Section 162(m) of the Code, deductible as such by the
Company. The holder of a restricted stock award may elect to be taxed at the
time of grant of the restricted stock award on the fair market value of the
shares, in which case (a) the Company, subject to Section 162(m) of the Code,
will be entitled to a deduction at the same time and in the same amount, (b)
dividends paid to the holder during the restriction period will be taxable as
dividends to the holder and not deductible by the Company, and (c) there will be
no further federal income tax consequences when the restrictions lapse.
Stock Appreciation Rights. An employee who has been granted a stock
appreciation right will not realize taxable income at the time of the grant, and
the Company will not be entitled to a deduction at that time. However, shares or
cash delivered upon exercise of a stock appreciation right will be taxable as
ordinary income to the employee, with the Company entitled to a corresponding
deduction. Ordinary income realized on such an exercise is not an adjustment for
alternative minimum tax purposes. In the case of a holder subject to Section
16(b) of the Exchange Act who receives shares, subject to certain exceptions,
ordinary income will be recognized by the employee (and a deduction by the
Company) upon the exercise of the stock appreciation right if the exercise
occurs more than six months after the date of grant of the stock appreciation
right. Upon a subsequent disposition of shares received upon exercise of a Stock
Appreciation Right, the employee will realize a short-term, mid-term or
long-term capital gain or loss to the extent of any intervening appreciation or
depreciation. However, the Company will not be entitled to any further deduction
at that time.
Long-Term Incentive Awards. An employee who has been granted an incentive
award generally will not realize taxable income at the time of grant, and the
Company will not be entitled to a deduction at that time. Whether a incentive
award is paid in cash or shares of Common Stock, the employee will have taxable
compensation and the Company will have a corresponding deduction. The measure of
such income and deduction will be the fair market value of the shares either at
the time the incentive award is paid or at the time any restrictions (including
restrictions under Section 16(b) of the Exchange Act) subsequently lapse,
depending on the nature, if any, of the restrictions imposed on the shares and
whether the employee elects to be taxed without regard to any such restrictions.
Withholding. The Company has the right to deduct from any or all awards any
taxes required by law to be withheld and to require any payments necessary to
enable it to satisfy its withholding obligations.
REQUIRED VOTE AND BOARD RECOMMENDATION
The affirmative vote of a majority of the shares of Common Stock
represented at the Annual Meeting of Shareholders in person or by proxy and
entitled to vote is required for approval of the 1998 Stock Plan. Under the
Texas Business Corporation Act and the Company's Bylaws, an abstention would
have the same legal effect as a vote against this proposal, but a broker
non-vote would not be counted for purposes of determining whether a majority had
been achieved.
Shareholder approval of the 1998 Stock Plan is required for listing of the
shares for trading on the New York Stock Exchange and as a condition to the
effectiveness of the 1998 Stock Plan. In addition, approval of the 1998 Stock
Plan will serve to qualify certain transactions under the 1998 Stock Plan for
applicable exemptions pursuant to Rule 16b-3 under the Exchange Act. Rule 16b-3
provides an exemption from the
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<PAGE> 22
operation of the "short-swing profit" recovery provisions of Section 16(b) of
the Exchange Act with respect to acquisitions of stock options, transactions
relating to certain stock appreciation rights, restricted stock awards and the
use of already owned shares as payment for the exercise price of stock options.
Shareholder approval is also required so that certain awards under the 1998
Stock Plan will qualify as performance-based compensation under Section 162(m)
of the Code.
The Board believes that such approval is essential to enable the Company to
continue to attract and retain key employees in an extremely competitive
industry.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE 1998 STOCK PLAN.
PRINCIPAL SHAREHOLDERS
To the knowledge of the management of the Company and based upon filings
with the SEC, the only persons who may be deemed to own beneficially more than
5% of the outstanding Common Stock (including any "group" as that term is used
in Section 13(d)(3) of the Exchange Act), as of March 20, 1998, are named in the
following table:
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER PERCENT
OF BENEFICIAL OWNER OF SHARES OF CLASS
------------------- --------- --------
<S> <C> <C>
Leon S. Gross(1)............................................ 3,222,389 5.1%
c/o Enterprises, Inc.
River Park House
3600 Conshohocken Avenue
Philadelphia, PA 19131
MacKay Shields Financial Corporation(2)..................... 5,589,100 8.9%
9 West 57th Street
New York, NY 10019
Neuberger & Berman, LLC(3).................................. 4,416,418 7.0%
605 Third Avenue
New York, NY 10158-3698
The Prudential Insurance Company of America(4).............. 5,883,861 9.3%
751 Broad Street
Newark, NJ 07102-3777
State Street Research & Management Company(5)............... 6,096,780 9.7%
One Financial Center
Boston, MA 02111-2690
</TABLE>
- ---------------
(1) According to information provided by Leon S. Gross, a private investor, Mr.
Gross is the beneficial owner of 3,222,389 shares (5.1%) of the Common
Stock. Mr. Gross has sole voting and shared dispositive power with respect
to all such shares.
(2) According to information provided by MacKay Shields Financial Corporation
("MacKay"), an investment adviser registered under Section 203 of the
Investment Advisers Act of 1940, MacKay is the beneficial owner of 5,589,100
shares (8.9%) of the Common Stock which are owned by numerous investment
counseling clients, none of which is known to have such interest with
respect to more than five percent of the class. MacKay has shared voting and
dispositive power with respect to all such shares.
(3) Neuberger & Berman, LLC ("N&B"), a registered investment advisor, has
furnished the Company with the following information with respect to its
beneficial ownership. In its capacity as investment advisor, N&B may have
discretionary authority to dispose of or to vote shares that are under its
management. As a result, N&B may be deemed to have beneficial ownership of
such shares. N&B does not, however, have any economic interest in the
shares. The clients are the actual owners of the shares and have the sole
right to receive and the power to direct the receipt of dividends from or
proceeds from the sale of such shares. As of March 11, 1998, of the shares
set forth above, N&B had shared dispositive power with respect to
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<PAGE> 23
4,416,418 shares (7.0%), sole voting power with respect to 2,360,068 shares
(3.7%) and shared voting power on 804,000 shares (1.3%). With regard to the
shared voting power, Neuberger & Berman Management, Inc. and Neuberger &
Berman Funds are deemed to be beneficial owners for purpose of Section 13(d)
of the Exchange Act since they have shared power to make decisions whether
to retain or dispose of the securities. N&B is the sub-advisor to the above
referenced Funds. It should be further noted that the above mentioned shares
are also included with the shared power to dispose calculation.
(4) According to information provided by The Prudential Insurance Company of
America ("Prudential"), Prudential is the beneficial owner of 5,883,861
shares (9.3%) of the Common Stock. Prudential has sole voting and
dispositive power as to 5,561,361 shares (8.8%), which are held for the
benefit of its general account, and shared voting and dispositive power as
to 322,500 shares (.5%), which are held for the benefit of its clients by
its separate accounts, externally managed accounts, registered investment
companies, subsidiaries or other affiliates.
(5) According to information provided by State Street Research Management
Company ("State Street"), State Street in its capacity as investment
adviser, may be deemed the beneficial owner of 6,096,780 shares (9.7%) of
the Common Stock which are owned by numerous investment counseling clients,
none of which is known to have such interest with respect to more than five
percent of the class. State Street has sole voting power as to 5,394,296
shares (8.6%), shared voting power as to 702,484 shares (1.1%) and sole
dispositive power to as to 6,096,780 shares (9.7%).
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of KPMG, which has served as
independent auditors of the Company since 1981, as independent auditors of the
Company for the fiscal year ending December 31, 1998, and recommends
ratification by the shareholders of such appointment. Such ratification requires
the affirmative vote of the holders of a majority of the shares of Common Stock
present or represented by proxy and entitled to vote at the Annual Meeting.
Under the Texas Business Corporation Act and the Company's Bylaws, an abstention
would have the same legal effect as a vote against this proposal, but a broker
non-vote would not be counted for purposes of determining whether a majority has
been achieved. The persons named in the accompanying proxy intend to vote for
ratification of such appointment unless instructed otherwise on the proxy. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
In the event the appointment is not ratified, the Board of Directors will
consider the appointment of other independent auditors. The Board of Directors
may terminate the appointment of KPMG as the Company's independent auditors
without the approval of the shareholders of the Company whenever the Board of
Directors deems such termination necessary or appropriate. A representative of
KPMG is expected to attend the Annual Meeting and will have the opportunity to
make a statement, if such representative desires to do so, and will be available
to respond to appropriate questions.
SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
Shareholders may propose matters to be presented at shareholders' meetings
and may also nominate persons to be directors. Formal procedures have been
established for those proposals and nominations.
PROPOSALS FOR 1999 ANNUAL MEETING
Pursuant to various rules promulgated by the SEC, any proposals of holders
of Common Stock intended to be presented to the annual meeting of shareholders
of the Company to be held in 1999 must be received by the Company, addressed to
Sylvia Sanchez, Corporate Secretary, 1001 Fannin, Suite 1700, Houston, Texas
77002, no later than December 1, 1998, to be included in the Company proxy
statement and form of proxy relating to that meeting. With respect to business
to be brought before the Annual Meeting, the Company has not received any
notices from its shareholders.
In addition to the SEC rules described in the preceding paragraph, the
Company's bylaws provide that for business to be properly brought before the
Company's annual meetings of shareholders, it must be either
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<PAGE> 24
(a) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (b) otherwise brought before the
meeting by or at the direction of the Board of Directors or (c) otherwise
properly brought before the meeting by a shareholder of the Company who is a
shareholder of record at the time of giving of notice hereinafter provided for,
who shall be entitled to vote at such meeting and who complies with the
following notice procedures. In addition to any other applicable requirements,
for business to be brought before an annual meeting by a shareholder of the
Company, the shareholder must have given timely notice in writing of the
business to be brought before an annual meeting of shareholders of the Company
to the Secretary of the Company. To be timely, a shareholder's notice must be
delivered to or mailed and received at the Company's principal executive
offices, 1001 Fannin, Suite 1700, Houston, Texas 77002, on or before February
12, 1999. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the Company's books, of the shareholder proposing
such business, (iii) the acquisition date, the class and the number of shares of
Common Stock which are owned beneficially by the shareholder, (iv) any material
interest of the shareholder in such business and (v) a representation that the
shareholder intends to appear in person or by proxy at the meeting to bring the
proposed business before the meeting. Notwithstanding the foregoing bylaw
provisions, a shareholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in the foregoing bylaw provisions. Notwithstanding anything in
the Company's bylaws to the contrary, no business shall be conducted at the
annual meeting except in accordance with the procedures outlined above.
NOMINATIONS FOR 1999 ANNUAL MEETING AND FOR ANY SPECIAL MEETINGS
Only persons who are nominated in accordance with the following procedures
will be eligible for election as directors. Nominations of persons for election
to the Company's Board of Directors may be made at a meeting of shareholders (a)
by or at the direction of the Board of Directors or (b) by any shareholder of
the Company who is a shareholder of record at the time of giving of notice
hereinafter provided for, who shall be entitled to vote for the election of
directors at the meeting and who complies with the following notice procedures.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Company. To be timely, a shareholder's notice shall be delivered to or
mailed and received at the Company's principal executive offices, 1001 Fannin,
Suite 1700, Houston, Texas 77002 (i) with respect to an election to be held at
the annual meeting of shareholders of the Company, on or before February 12,
1999, and (ii) with respect to an election to be held at a special meeting of
shareholders of the Company for the election of Directors, not later than the
close of business on the 10th day following the date on which notice of the date
of the meeting was mailed or public disclosure of the date of the meeting was
made, whichever first occurs. Such shareholder's notice to the Secretary shall
set forth (a) as to each person whom the shareholder proposes to nominate for
election or re-election as a director, all information relating to the person
that is required to be disclosed in solicitations for proxies for election of
directors, or is otherwise required, pursuant to Regulation 14A under the
Exchange Act (including the written consent of such person to be named in the
proxy statement as a nominee and to serve as a director if elected); and (b) as
to the shareholder giving the notice, (i) the name and address, as they appear
on the Company's books, of such shareholder, and (ii) the class and number of
shares of capital stock of the Company which are beneficially owned by the
shareholder. In the event a person is validly designated as a nominee to the
Board and shall thereafter become unable or unwilling to stand for election to
the Board of Directors, the Board of Directors or the shareholder who proposed
such nominee, as the case may be, may designate a substitute nominee.
Notwithstanding the foregoing bylaw provisions, a shareholder shall also comply
with all applicable requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth in the foregoing
bylaw provisions.
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<PAGE> 25
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for action at the Annual Meeting. However, if any other matters
properly come before the Annual Meeting or any adjournment(s) or postponement(s)
thereof, it is intended that the enclosed proxy will be voted in accordance with
the judgment of the persons named in the proxy.
By Order of the Board of Directors,
/s/ SYLVIA SANCHEZ
SYLVIA SANCHEZ
Secretary
March 31, 1998
23
<PAGE> 26
EXHIBIT A
SEAGULL ENERGY CORPORATION
1998 OMNIBUS STOCK PLAN
I. PURPOSE
The purpose of the SEAGULL ENERGY CORPORATION 1998 OMNIBUS STOCK PLAN (the
"Plan") is to provide a means through which SEAGULL ENERGY CORPORATION, a Texas
corporation (the "Company"), and its subsidiaries may attract able persons to
enter the employ of the Company and to provide a means whereby those key
employees upon whom the responsibilities of the successful administration and
management of the Company rest, and whose present and potential contributions to
the welfare of the Company are of importance, can acquire and maintain stock
ownership, thereby strengthening their concern for the welfare of the Company
and their desire to remain in its employ. A further purpose of the Plan is to
provide such key employees with additional incentive and reward opportunities
designed to enhance the profitable growth of the Company. Accordingly, the Plan
provides for granting Incentive Stock Options (subject to the provisions of
Paragraph VII(c)), options which do not constitute Incentive Stock Options,
Stock Appreciation Rights, Restricted Stock Awards, Long-Term Incentive Awards,
or any combination of the foregoing, as is best suited to the circumstances of
the particular employee as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:
(a) "Award" means, individually or collectively, any Option, Restricted
Stock Award, Long-Term Incentive Award or Stock Appreciation Right.
(b) "Award Agreement" means any Option Agreement, Restricted Stock
Agreement, Long-Term Incentive Award Agreement or Stock Appreciation Rights
Agreement.
(c) "Board" means the Board of Directors of the Company.
(d) "Change of Control" means the occurrence of any of the following
events: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly-owned subsidiary of the Company), (ii) the
Company sells, leases or exchanges all or substantially all of its assets to any
other person or entity (other than a wholly-owned subsidiary of the Company),
(iii) the Company is to be dissolved and liquidated, (iv) any person or entity,
including a "group" as contemplated by Section 13(d)(3) of the 1934 Act,
acquires or gains ownership or control (including, without limitation, power to
vote) of more than 40% of the outstanding shares of the Company's voting stock
(based upon voting power), or (v) as a result of or in connection with a
contested election of directors, the persons who were directors of the Company
before such election shall cease to constitute a majority of the Board.
(e) "Change of Control Value" shall mean (i) the per share price offered to
shareholders of the Company in any merger, consolidation, reorganization, 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
Change of Control takes place, or (iii) if the Change of Control occurs other
than pursuant to a tender or exchange offer, the Fair Market Value per share of
the shares into which Awards are exercisable, as determined by the Committee. In
the event that the consideration offered to shareholders of the Company in a
Change of Control 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.
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<PAGE> 27
(f) "Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to any section and any regulations under such section.
(g) "Committee" means the Compensation Committee of the Board which shall
be (i) constituted so as to permit the Plan to comply with Rule 16b-3 and (ii)
comprised solely of two or more "outside directors," within the meaning of
section 162(m) of the Code and applicable interpretive authority thereunder.
(h) "Company" means Seagull Energy Corporation.
(i) "Director" means an individual elected to the Board by the shareholders
of the Company or by the Board under applicable corporate law who is serving on
the Board on the date the Plan is adopted by the Board or is elected to the
Board after such date.
(j) An "employee" means any person (including an officer or a Director) in
an employment relationship with the Company or any parent or subsidiary
corporation (as defined in section 424 of the Code).
(k) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(l) "Fair Market Value" means, as of any specified date, the reported
closing price of the Stock on the New York Stock Exchange Composite Tape on that
date, or if no closing price is reported on that date, on the last preceding
date on which such closing price of the Stock is so reported. In the event Stock
is not publicly traded at the time a determination of its value is required to
be made hereunder, the determination of its fair market value shall be made by
the Committee in such manner as it deems appropriate.
(m) "Holder" means an employee who has been granted an Award.
(n) "Incentive Stock Option" means an incentive stock option within the
meaning of section 422 of the Code.
(o) "Long-Term Incentive Award" means an Award granted under Paragraph X of
the Plan.
(p) "Long-Term Incentive Award Agreement" means a written agreement between
the Company and a Holder with respect to a Long-Term Incentive Award.
(q) "Option" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Stock and Options which do not
constitute Incentive Stock Options to purchase Stock.
(r) "Option Agreement" means a written agreement between the Company and a
Holder with respect to an Option.
(s) "Plan" means the Seagull Energy Corporation 1998 Omnibus Stock Plan, as
amended from time to time.
(t) "Restricted Stock Agreement" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
(u) "Restricted Stock Award" means an Award granted under Paragraph IX of
the Plan.
(v) "Rule 16b-3" means SEC Rule 16b-3 promulgated under the 1934 Act, as
such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(w) "Spread" means, in the case of a Stock Appreciation Right, an amount
equal to the excess, if any, of the Fair Market Value of a share of Stock on the
date such right is exercised over the exercise price of such Stock Appreciation
Right.
(x) "Stock" means the common stock, par value $0.10 per share, of the
Company.
(y) "Stock Appreciation Right" means an Award granted under Paragraph VIII
of the Plan.
(z) "Stock Appreciation Rights Agreement" means a written agreement between
the Company and a Holder with respect to an Award of Stock Appreciation Rights.
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III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective upon the date of its adoption by the Board,
provided the Plan is approved by the shareholders of the Company within twelve
months thereafter. Notwithstanding any provision in the Plan or in any Award
Agreement, no Option or Stock Appreciation Right granted on or after the
effective date of the Plan shall be exercisable and no Restricted Stock Award or
Long-Term Incentive Award shall be made prior to such shareholder approval. No
further Awards may be granted under the Plan after the expiration of ten years
from the date of its adoption by the Board. The Plan shall remain in effect
until all Awards granted under the Plan have been satisfied or expired.
IV. ADMINISTRATION
(a) Committee. The Plan shall be administered by the Committee.
(b) Powers. Subject to the provisions of the Plan, the Committee shall have
sole authority, in its discretion, to determine which employees shall receive an
Award, the time or times when such Award shall be made, the type of Award, the
number of shares of Stock which may be issued under each Option, Stock
Appreciation Right or Restricted Stock Award, and number of shares subject to or
the value of each Long-Term Incentive Award. In making such determinations the
Committee may take into account the nature of the services rendered by the
respective employees, their present and potential contribution to the Company's
success and such other factors as the Committee in its discretion shall deem
relevant.
(c) Additional Powers. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, the Committee is authorized to construe the Plan and the
respective Award Agreements executed thereunder, to prescribe such rules and
regulations relating to the Plan as it may deem advisable to carry out the Plan,
and to determine the terms, restrictions and provisions of each Award, including
such terms, restrictions and provisions as shall be requisite in the judgment of
the Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in any Award Agreement in the manner and to the
extent it shall deem expedient to carry it into effect. The determinations of
the Committee on the matters referred to in this Paragraph IV shall be
conclusive.
V. GRANT OF AWARDS;
SHARES SUBJECT TO THE PLAN
(a) Stock Grant and Award Limits. The Committee may from time to time grant
Awards to one or more employees determined by it to be eligible for
participation in the Plan in accordance with the provisions of Paragraph VI.
Subject to adjustment in the same manner as provided in Paragraph XI with
respect to shares of Stock subject to Awards then outstanding, the aggregate
number of shares of Stock that may be issued under the Plan shall not exceed
2,500,000 shares. Shares shall be deemed to have been issued under the Plan only
(i) to the extent actually issued and delivered pursuant to an Award, or (ii) to
the extent an Award is settled in cash. To the extent that an Award lapses or
the rights of its Holder terminate, any shares of Stock subject to such Award
shall again be available for the grant of an Award. Notwithstanding any
provision in the Plan to the contrary, the maximum number of shares of Stock
that may be subject to Awards granted to any one employee during any calendar
year may not exceed 250,000 shares of Stock (subject to adjustment in the same
manner as provided in Paragraph XI with respect to shares of Stock subject to
Awards then outstanding). The limitation set forth in the preceding sentence
shall be applied in a manner which will permit compensation generated under the
Plan to constitute "performance-based" compensation for purposes of section
162(m) of the Code, including, without limitation, counting against such maximum
number of shares, to the extent required under section 162(m) of the Code and
applicable interpretive authority thereunder, any shares subject to Awards that
are canceled or repriced. Further, notwithstanding any provision of the Plan to
the contrary, the aggregate number of shares of Stock that may be granted as
either Restricted Stock Awards under Paragraph IX or Long-Term Incentive Awards
under Paragraph X during the term of the Plan is
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300,000 shares of Stock (subject to adjustment in the same manner as provided in
Paragraph XI with respect to shares of Stock subject to Awards then
outstanding).
(b) Stock Offered. The stock to be offered pursuant to the grant of an
Award may, at the discretion of the Committee, be authorized but unissued Stock
or Stock previously issued and outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
employees. Awards may not be granted to any Director who is not an employee. An
Award may be granted on more than one occasion to the same person, and, subject
to the limitations set forth in the Plan, such Award may include an Incentive
Stock Option or an Option which is not an Incentive Stock Option, a Stock
Appreciation Right, a Restricted Stock Award, a Long-Term Incentive Award or any
combination thereof.
VII. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times as determined by the Committee.
(c) Special Limitations on Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by an individual during
any calendar year under all incentive stock option plans of the Company and its
parent and subsidiary corporations exceeds $100,000, such Incentive Stock
Options shall be treated as Options which do not constitute Incentive Stock
Options. The Committee shall determine, in accordance with applicable provisions
of the Code, Treasury Regulations and other administrative pronouncements, which
of a Holder's Incentive Stock Options will not constitute Incentive Stock
Options because of such limitation and shall notify the Holder of such
determination as soon as practicable after such determination. No Incentive
Stock Option shall be granted to an individual if, at the time the Option is
granted, such individual owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of its parent or
subsidiary corporation, within the meaning of section 422(b)(6) of the Code,
unless (i) at the time such Option is granted the option price is at least 110%
of the Fair Market Value of the Stock subject to the Option and (ii) such Option
by its terms is not exercisable after the expiration of five years from the date
of grant. An Incentive Stock Option shall not be transferable otherwise than by
will or the laws of descent and distribution, and shall be exercisable during
the Holder's lifetime only by such Holder or the Holder's guardian or legal
representative. Notwithstanding any provision in the Plan or in any Option
Agreement, (1) no Incentive Stock Option shall be granted after the expiration
of 12 months from the date of the adoption of the Plan by the Board unless the
Plan has been approved by the stockholders of the Company within such 12-month
period in a manner that satisfies the requirements of section 422 of the Code
and (2) any Option granted prior to the expiration of such 12-month period that
was intended to constitute an Incentive Stock Option shall constitute an Option
that is not an Incentive Stock Option if the Plan has not been approved by the
stockholders of the Company within such 12-month period in a manner that
satisfies the requirements of section 422 of the Code.
(d) Option Agreement. Each Option shall be evidenced by an Option Agreement
in such form and containing such provisions not inconsistent with the provisions
of the Plan as the Committee from time to time shall approve, including, without
limitation, provisions to qualify an Incentive Stock Option under section 422 of
the Code. An Option Agreement may provide for the payment of the option price,
in whole or in part, (i) in cash or (ii) by the delivery of a number of shares
of Stock (plus cash if necessary) having a Fair Market Value equal to such
option price. Each Option Agreement shall specify the effect of termination of
employment on the exercisability of the Option. Moreover, an Option Agreement
may provide for a "cashless exercise" of the Option pursuant to procedures
established by the Committee (as the same may be amended from time to time).
Such Option Agreement may also include, without limitation, provisions relating
to
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(1) subject to the provisions hereof accelerating such vesting on a Change of
Control, vesting of Options, (2) tax matters (including provisions (A)
permitting the delivery of additional shares of Stock or the withholding of
shares of Stock from those acquired upon exercise to satisfy federal or state
income tax withholding requirements and (B) dealing with any other applicable
employee wage withholding requirements), and (3) any other matters not
inconsistent with the terms and provisions of this Plan that the Committee shall
in its sole discretion determine. The terms and conditions of the respective
Option Agreements need not be identical.
(e) Option Price and Payment. The price at which a share of Stock may be
purchased upon exercise of an Option shall be determined by the Committee, but,
subject to adjustment as provided in Paragraph XI, such purchase price shall not
be less than the Fair Market Value of a share of Stock on the date such Option
is granted. The Option or portion thereof may be exercised by delivery of an
irrevocable notice of exercise to the Company in a manner specified by the
Committee. The purchase price of the Option or portion thereof shall be paid in
full in the manner prescribed by the Committee. 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.
(f) Shareholder Rights and Privileges. The Holder shall be entitled to all
the privileges and rights of a shareholder only with respect to such shares of
Stock as have been purchased under the Option and for which certificates of
stock have been registered in the Holder's name.
(g) Options and Rights in Substitution for Stock Options Granted by Other
Corporations. Options and Stock Appreciation Rights may be granted under the
Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees as a result of a merger or
consolidation of the employing corporation with the Company or any subsidiary,
or the acquisition by the Company or a subsidiary of the assets of the employing
corporation, or the acquisition by the Company or a subsidiary of stock of the
employing corporation with the result that such employing corporation becomes a
subsidiary.
VIII. STOCK APPRECIATION RIGHTS
(a) Stock Appreciation Rights. A Stock Appreciation Right is the right to
receive an amount equal to the Spread with respect to a share of Stock upon the
exercise of such Stock Appreciation Right. Stock Appreciation Rights may be
granted in connection with the grant of an Option, in which case the Option
Agreement will provide that exercise of Stock Appreciation Rights will result in
the surrender of the right to purchase the shares under the Option as to which
the Stock Appreciation Rights were exercised. Alternatively, Stock Appreciation
Rights may be granted independently of Options in which case each Award of Stock
Appreciation Rights shall be evidenced by a Stock Appreciation Rights Agreement
which shall contain such terms and conditions as may be approved by the
Committee. The terms and conditions of the respective Stock Appreciation Rights
Agreements need not be identical. The Spread with respect to a Stock
Appreciation Right may be payable either in cash, shares of Stock with a Fair
Market Value equal to the Spread or in a combination of cash and shares of
Stock. With respect to Stock Appreciation Rights that are subject to Section 16
of the 1934 Act, however, the Committee shall, except as provided in Paragraph
XI hereof, retain final authority (i) to determine whether a Holder shall be
permitted to receive cash in full or partial settlement of Stock Appreciation
Rights or (ii) to approve an election by a Holder to receive cash in full or
partial settlement of Stock Appreciation Rights. Each Stock Appreciation Rights
Agreement shall specify the effect of termination of employment on the
exercisability of the Stock Appreciation Rights.
(b) Exercise Price. The exercise price of each Stock Appreciation Right
shall be determined by the Committee, but such exercise price (i) shall not be
less than the Fair Market Value of a share of Stock on the date the Stock
Appreciation Right is granted (or such greater exercise price as may be required
if such Stock Appreciation Right is granted in connection with an Incentive
Stock Option that must have an exercise price equal to 110% of the Fair Market
Value of the Stock on the date of grant pursuant to Paragraph VII(c)), and (ii)
shall be subject to adjustment as provided in Paragraph XI.
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(c) Exercise Period. The term of each Stock Appreciation Right shall be as
specified by the Committee at the date of grant.
(d) Limitations on Exercise of Stock Appreciation Right. A Stock
Appreciation Right shall be exercisable in whole or in such installments and at
such times as determined by the Committee. In the case of any Stock Appreciation
Right that is granted in connection with an Incentive Stock Option, such right
shall be exercisable only when the Fair Market Value of the Common Stock exceeds
the price specified therefor in the Option or the portion thereof to be
surrendered.
IX. RESTRICTED STOCK AWARDS
(a) Forfeiture Restrictions To Be Established by the Committee. Shares of
Stock that are the subject of a Restricted Stock Award shall be subject to
restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances (the
"Forfeiture Restrictions"). The Forfeiture Restrictions shall be determined by
the Committee in its sole discretion, and the Committee may provide that the
Forfeiture Restrictions shall lapse upon (i) the attainment of one or more
performance targets established by the Committee that are based on (1) the price
of a share of Stock, (2) the Company's earnings per share, (3) the Company's
revenue, (4) the revenue of a business unit of the Company designated by the
Committee, (5) the return on stockholders' equity achieved by the Company, (6)
the Company's pre-tax cash flow from operations, (7) finding costs, (8) reserve
additions, (9) acquisitional growth, or (10) cost containment, (ii) the Holder's
continued employment with the Company for a specified period of time, (iii) the
occurrence of any event or the satisfaction of any other condition specified by
the Committee in its sole discretion, or (iv) any a combination of the
foregoing. Each Restricted Stock Award may have different Forfeiture
Restrictions, in the discretion of the Committee. The Forfeiture Restrictions
applicable to a particular Restricted Stock Award shall not be changed except as
permitted by Paragraph IX(b) or Paragraph XI.
(b) Other Terms and Conditions. Stock awarded pursuant to a Restricted
Stock Award shall be represented by a stock certificate registered in the name
of the Holder of such Restricted Stock Award. The Holder shall have the right to
receive dividends with respect to Stock subject to a Restricted Stock Award, to
vote Stock subject thereto and to enjoy all other shareholder rights, except
that (i) the Holder shall not be entitled to delivery of the stock certificate
until the Forfeiture Restrictions have expired, (ii) the Company shall retain
custody of the Stock until the Forfeiture Restrictions have expired, (iii) the
Holder may not sell, transfer, pledge, exchange, hypothecate or otherwise
dispose of the Stock until the Forfeiture Restrictions have expired, and (iv) a
breach of the terms and conditions established by the Committee pursuant to the
Restricted Stock Agreement shall cause a forfeiture of the Restricted Stock
Award. At the time of such Award, the Committee may, in its sole discretion,
prescribe additional terms, conditions or restrictions relating to Restricted
Stock Awards, including, but not limited to, rules pertaining to the termination
of employment (by retirement, disability, death or otherwise) of a Holder prior
to expiration of the Forfeiture Restrictions. Such additional terms, conditions
or restrictions shall be set forth in a Restricted Stock Agreement made in
conjunction with the Award. Such Restricted Stock Agreement may also include,
without limitation, provisions relating to (1) subject to the provisions hereof
accelerating vesting on a Change of Control, vesting of Awards, (2) tax matters
(including provisions (A) covering any applicable employee wage withholding
requirements and (B) prohibiting an election by the Holder under section 83(b)
of the Code), and (3) any other matters not inconsistent with the terms and
provisions of this Plan that the Committee shall in its sole discretion
determine. The terms and conditions of the respective Restricted Stock
Agreements need not be identical.
(c) Payment for Restricted Stock. The Committee shall determine the amount
and form of any payment for Stock received pursuant to a Restricted Stock Award,
provided that in the absence of such a determination, a Holder shall not be
required to make any payment for Stock received pursuant to a Restricted Stock
Award, except to the extent otherwise required by law.
(d) Agreements. At the time any Award is made under this Paragraph IX, the
Company and the Holder shall enter into a Restricted Stock Agreement setting
forth each of the matters contemplated hereby and such
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other matters as the Committee may determine to be appropriate. The terms and
provisions of the respective Restricted Stock Agreements need not be identical.
X. LONG-TERM INCENTIVE AWARDS
(a) Long-Term Incentive Awards. The Committee shall establish the maximum
number of shares of Stock subject to each Long-Term Incentive Award at the time
of such Award.
(b) Performance Period. The Committee shall establish, with respect to and
at the time of each Long-Term Incentive Award, a performance period over which
the performance targets shall be measured.
(c) Performance Targets. A Long-Term Incentive Award shall be awarded to a
Holder contingent upon future performance of the Company or any subsidiary,
division or department thereof by or in which such Holder is employed during the
performance period. The Committee shall establish the performance targets
applicable to such performance either (i) prior to the beginning of the
performance period or (ii) within 90 days after the beginning of the performance
period if the outcome of the performance targets is substantially uncertain at
the time such targets are established, but not later than the date 25% of the
performance period has elapsed. The performance targets may be absolute,
relative to one or more other companies, or relative to one or more indices. The
performance targets established by the Committee may be based upon (1) the price
of a share of Stock, (2) the Company's earnings per share, (3) the Company's
revenue, (4) the revenue of a business unit of the Company designated by the
Committee, (5) the return on stockholders' equity achieved by the Company, (6)
the Company's pre-tax cash flow from operations, (7) finding costs, (8) reserve
additions, (9) acquisitional growth, or (10) cost containment, or a combination
of any of the foregoing.
(d) Awards Criteria. In determining the number of shares of Stock subject
to Long-Term Incentive Awards, the Committee shall take into account a Holder's
responsibility level, performance, potential, other Awards and such other
considerations as it deems appropriate. The Committee, in its sole discretion,
may provide for a reduction in the value of a Holder's Long-Term Incentive Award
during the performance period.
(e) Payment. Following the end of the performance period, the Holder of a
Long-Term Incentive Award shall be entitled to receive payment of an amount, not
exceeding the maximum value of the Long-Term Incentive Award, based on the
achievement of the performance targets for such performance period, as
determined by the Committee. Payment of a Long-Term Incentive Award may be made
in cash, Stock or a combination thereof, as determined by the Committee. Payment
shall be made in a lump sum or in installments as prescribed by the Committee.
Any payment to be made in cash shall be based on the Fair Market Value of the
Stock on the payment date. If a payment of cash is to be made on a deferred
basis, the Committee shall establish whether interest shall be credited, the
rate thereof and any other terms and conditions applicable thereto.
(f) Termination of Employment. A Long-Term Incentive Award shall terminate
if the Holder does not remain continuously in the employ of the Company at all
times during the applicable performance period, except as may be determined by
the Committee.
(g) Agreements. At the time any Award is made under this Paragraph X, the
Company and the Holder shall enter into a Long-Term Incentive Award Agreement
setting forth each of the matters contemplated hereby, and, in addition such
matters as are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.
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XI. RECAPITALIZATION OR REORGANIZATION
(a) The shares with respect to which Awards may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Award theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Award may thereafter be exercised or satisfied, as
applicable, (i) in the event of an increase in the number of outstanding shares
shall be proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased. Any fractional share resulting from
such adjustment shall be rounded up to the next whole share.
(b) If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), thereafter upon
any exercise or satisfaction, as applicable, of an Award theretofore granted the
Holder shall be entitled to (or entitled to purchase, if applicable) under such
Award, in lieu of the number of shares of Stock then covered by such Award, the
number and class of shares of stock and securities to which the Holder would
have been entitled pursuant to the terms of the recapitalization if, immediately
prior to such recapitalization, the Holder had been the holder of record of the
number of shares of Stock then covered by such Award.
(c) In the event of a Change of Control, and except as provided in any
Award Agreement, outstanding Awards shall immediately vest and become
exercisable or satisfiable, as applicable. The Committee, in its discretion, may
determine that upon the occurrence of a Change of Control, each Award
outstanding hereunder shall terminate within a specified number of days after
notice to the Holder, and such Holder shall receive, with respect to each share
of Stock subject to such Award, cash in an amount equal to the excess, if any,
of the Change of Control Value over the exercise price, if applicable, under
such Award for such share. The provisions contained in this paragraph shall not
terminate any rights of the Holder to further payments pursuant to any other
agreement with the Company following a Change of Control.
(d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph XII,
any outstanding Awards and any Award Agreements shall be subject to adjustment
by the Committee at its discretion as to the number and price of shares of Stock
or other consideration subject to such Awards. In the event of any such change
in the outstanding Stock, the aggregate number of shares available under the
Plan may be appropriately adjusted by the Committee, whose determination shall
be conclusive.
(e) The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act of proceeding.
(f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d) above
shall be subject to any required shareholder action.
(g) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares of obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Awards theretofore granted or the purchase price per
share, if applicable.
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XII. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Awards have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided that no change in any Award theretofore granted may be made which
would impair the rights of the Holder without the consent of the Holder and
provided, further, that the Board may not, without approval of the shareholders,
amend the Plan (a) to increase the maximum aggregate number of shares of Stock
that may be issued under the Plan or (b) to change the class of employees
eligible to receive Awards under the Plan.
XIII. MISCELLANEOUS
(a) No Right To An Award. Neither the adoption of the Plan by the Company
nor any action of the Board or the Committee shall be deemed to give an employee
any right to be granted an Award or any of the rights hereunder except as may be
evidenced by an Award or by an Option Agreement, Stock Appreciation Rights
Agreement, Restricted Stock Agreement or Long-Term Incentive Award Agreement
duly executed on behalf of the Company, and then only to the extent and on the
terms and conditions expressly set forth therein. The Plan shall be unfunded.
The Company shall not be required to establish any special or separate fund or
to make any other segregation of funds or assets to assure the payment of any
Award.
(b) No Employment Rights Conferred. Nothing contained in the Plan shall (i)
confer upon any employee any right with respect to continuation of employment
with the Company or any subsidiary or (ii) interfere in any way with the right
of the Company or any subsidiary to terminate his or her employment at any time.
(c) Other Laws; Withholding. The Company shall not be obligated to issue
any Stock pursuant to any Award granted under the Plan at any time when the
shares covered by such Award have not been registered under the Securities Act
of 1933 and such other state and federal laws, rules or regulations as the
Company or the Committee deems applicable and, in the opinion of legal counsel
for the Company, there is no exemption from the registration requirements of
such laws, rules or regulations available for the issuance and sale of such
shares. No fractional shares of Stock shall be delivered, nor shall any cash in
lieu of fractional shares be paid. The Company shall have the right to deduct in
connection with all Awards any taxes required by law to be withheld and to
require any payments required to enable it to satisfy its withholding
obligations.
(d) No Restriction on Corporate Action. Nothing contained in the Plan shall
be construed to prevent the Company or any subsidiary from taking any corporate
action which is deemed by the Company or such subsidiary to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
the Plan or any Award made under the Plan. No employee, beneficiary or other
person shall have any claim against the Company or any subsidiary as a result of
any such action.
(e) Restrictions on Transfer. An Award (other than an Incentive Stock
Option, which shall be subject to the transfer restrictions set forth in
Paragraph VII(c)) shall not be transferable otherwise than (i) by will or the
laws of descent and distribution, (ii) pursuant to a "qualified domestic
relations order" as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder, or (iii) with
the consent of the Committee.
(f) Rule 16b-3. It is intended that the Plan and any grant of an Award made
to a person subject to Section 16 of the 1934 Act meet all of the requirements
of Rule 16b-3 so that any transaction under the Plan involving a grant, award,
or other acquisition from the Company or disposition to the Company is exempt
from Section 16(b) of the 1934 Act. If any provision of the Plan or any such
Award would result in any such transaction not being exempt from Section 16(b)
of the 1934 Act, such provision or Award shall be construed or deemed amended so
that such transaction will be exempt from Section 16(b) of the 1934 Act.
(g) Section 162(m). It is intended that the Plan comply fully with and meet
all the requirements of Section 162(m) of the Code so that Options, Stock
Appreciation Rights, Long-Term Incentive Awards hereunder and, if determined by
the Committee, Restricted Stock Awards, shall constitute "performance-
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<PAGE> 35
based" compensation within the meaning of such section. If any provision of the
Plan would disqualify the Plan or would not otherwise permit the Plan to comply
with Section 162(m) as so intended, such provision shall be construed or deemed
amended to conform to the requirements or provisions of Section 162(m); provided
that no such construction or amendment shall have an adverse effect on the
economic value to a Holder of any Award previously granted hereunder.
(h) Facsimile Signature. Any Award Agreement or related document may be
executed by facsimile signature. If any officer who shall have signed or whose
facsimile signature shall have been placed upon any such Award Agreement or
related document shall have ceased to be such officer before the related Award
is granted by the Company, such Award may nevertheless be issued by the Company
with the same effect as if such person were such officer at the date of grant.
(i) Governing Law. This Plan shall be construed in accordance with the laws
of the State of Texas.
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<PAGE> 36
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PROXY
SEAGULL ENERGY CORPORATION
ANNUAL MEETING OF SHAREHOLDERS -- MAY 13, 1998
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby appoints Barry J. Galt and Carl B. King as Proxies,
each with the power to appoint his substitute, and hereby authorizes each of
them to represent and to vote as designated below, all the shares of Common
Stock of Seagull Energy Corporation (the "Company"), held of record by the
undersigned on March 20, 1998, at the Annual Meeting of Shareholders to be held
May 13, 1998, or any adjournment(s) or postponement(s) thereof.
The undersigned hereby revokes any proxy to vote shares held by the
undersigned heretofore given. THE UNDERSIGNED ACKNOWLEDGES THAT THIS PROXY WHEN
PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
SHAREHOLDER AND THAT IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND IN FAVOR OF PROPOSALS 2 AND 3.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
I plan to attend the meeting (Please check if yes) [ ]
This proxy may be revoked at any time prior to the voting of the proxy by
the execution and submission of a revised proxy, by written notice to the
Secretary of the Company or by voting in person at the meeting.
(Continued and to be signed on the reverse side)
SEE REVERSE SIDE
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<PAGE> 37
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1. Election of four directors to serve in Class III until the 2001 Annual
Meeting of Shareholders.
Class III Nominees: Richard J. Burgess, Thomas H. Cruikshank,
Robert F. Vagt, R. A. Walker
[ ] For [ ] Withhold Authority [ ]
------------------------------------
For all nominees except as noted
above
2. Proposal to approve the Seagull Energy Corporation 1998 Omnibus Stock Plan.
[ ] For [ ] Against [ ] Abstain
3. Proposal to ratify the appointment by the Board of Directors of the firm of
KPMG Peat Marwick LLP as independent auditors of the Company for the fiscal
year ending December 31, 1998.
[ ] For [ ] Against [ ] Abstain
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting, or any adjournment(s) or
postponement(s) thereof.
[ ] Mark here for address change and
note below
If you receive more than one proxy
card, please sign and return all
cards in the accompanying envelope.
Signature:________________ Date:________________
Signature:________________ Date:________________
(If held jointly)
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