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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-8094
SEAGULL ENERGY CORPORATION
(Exact name of registrant as specified in its charter
TEXAS 74-1764876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 FANNIN, SUITE 1700, HOUSTON, TEXAS 77002-6714
(Address of principal executive offices) (Zip code)
(713) 951-4700
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
As of July 31, 1998, 63,058,384 shares of Common Stock, par value $0.10 per
share, were outstanding.
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<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements
Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 1998 and 1997....................... 1
Consolidated Balance Sheets - June 30, 1998
and December 31, 1997......................................... 2
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997.................................. 3
Consolidated Statements of Comprehensive Income for
the Three and Six Months Ended June 30, 1998 and 1997......... 4
Notes to Consolidated Financial Statements.................... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders......... 15
Item 6. Exhibits and Reports on Form 8-K............................ 15
SIGNATURES ............................................................... 16
</TABLE>
(i)
<PAGE>
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas operations........................... $ 86,104 $ 105,406 $ 176,553 $ 230,410
Alaska transmission and distribution............ 17,425 16,774 49,301 51,343
-------------- -------------- -------------- -------------
103,529 122,180 225,854 281,753
Costs of Operations:
Operations and maintenance...................... 38,501 41,005 78,381 83,876
Alaska transmission and distribution
cost of gas sold.............................. 7,343 7,244 22,106 23,966
Exploration charges............................. 8,178 7,346 18,296 16,299
Depreciation, depletion and amortization........ 40,876 45,661 80,855 87,772
General and administrative...................... 3,056 3,113 6,440 5,423
-------------- -------------- -------------- -------------
97,954 104,369 206,078 217,336
-------------- -------------- -------------- -------------
Operating Profit................................... 5,575 17,811 19,776 64,417
Other (Income) Expense:
Interest expense................................ 9,305 9,585 17,852 19,995
Interest income and other....................... (1,669) (215) (2,201) (913)
-------------- -------------- -------------- -------------
7,636 9,370 15,651 19,082
-------------- -------------- -------------- -------------
Income (Loss) Before Income Taxes.................. (2,061) 8,441 4,125 45,335
Income Tax Expense (Benefit)....................... (1,010) 5,820 2,021 25,460
-------------- -------------- -------------- -------------
Net Income (Loss).................................. $ (1,051) $ 2,621 $ 2,104 $ 19,875
============== ============== ============== =============
Earnings (Loss) Per Share:
Basic........................................... $ (0.02) $ 0.04 $ 0.03 $ 0.32
============== ============== ============== =============
Diluted......................................... $ (0.02) $ 0.04 $ 0.03 $ 0.31
============== ============== ============== =============
Weighted Average Number of Common
Shares Outstanding:
Basic......................................... 63,052 63,007 63,036 62,897
============== ============== ============== =============
Diluted....................................... 63,052 63,627 63,480 63,632
============== ============== ============== =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
1
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, 1998 December 31, 1997
------------------ ---------------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents......................................... $ 15,094 $ 45,654
Accounts receivable, net.......................................... 133,948 147,442
Inventories....................................................... 17,616 13,635
Prepaid expenses and other........................................ 13,802 16,240
------------------ ---------------------
Total Current Assets............................................ 180,460 222,971
Property, Plant and Equipment - at cost............................. 2,284,310 2,053,683
Accumulated Depreciation, Depletion and Amortization................ 988,929 908,849
------------------ ---------------------
1,295,381 1,144,834
Other Assets........................................................ 43,256 43,261
------------------ ---------------------
Total Assets........................................................ $ 1,519,097 $ 1,411,066
================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts and note payable......................................... $ 161,379 $ 159,138
Accrued expenses.................................................. 32,953 47,625
Current maturities of long-term debt.............................. 7,117 7,097
------------------ ---------------------
Total Current Liabilities....................................... 201,449 213,860
Long-Term Debt...................................................... 566,914 469,017
Other Noncurrent Liabilities........................................ 51,950 51,168
Deferred Income Taxes............................................... 33,225 14,126
Redeemable Bearer Shares............................................ 15,620 15,691
Commitments and Contingencies....................................... - -
Shareholders' Equity:
Common Stock, $.10 par value; authorized 100,000,000 shares;
issued 63,915,150 shares (1998) and 63,877,442 shares (1997).... 6,392 6,388
Additional paid-in capital........................................ 494,533 493,829
Retained earnings................................................. 167,039 164,935
Less - note receivable from employee stock ownership plan......... (3,067) (2,990)
Less - 861,314 shares of Common Stock held in Treasury, at cost... (14,958) (14,958)
------------------ ---------------------
Total Shareholders' Equity...................................... 649,939 647,204
------------------ ---------------------
Total Liabilities and Shareholders' Equity......................... $ 1,519,097 $ 1,411,066
================== =====================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................... $ 2,104 $ 19,875
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization............................... 80,855 87,772
Amortization of deferred financing costs............................... 978 1,215
Deferred income taxes.................................................. (5,479) 11,336
Dry hole expense....................................................... 6,154 3,401
Other.................................................................. 229 350
------------------- -------------------
84,841 123,949
Changes in operating assets and liabilities, net of acquisitions:
Decrease in accounts receivable...................................... 16,426 44,096
Increase in inventories, prepaid expenses and other.................. (2,486) (9,685)
Decrease in accounts and notes payable............................... (19,556) (16,688)
Decrease in accrued expenses and other............................... (14,984) (15,678)
------------------- -------------------
Net Cash Provided By Operating Activities................................ 64,241 125,994
INVESTING ACTIVITIES:
Capital expenditures..................................................... (112,605) (137,348)
Acquisitions of oil and gas properties, net of cash acquired............. (101,554) (821)
Acquisitions of other assets and liabilities, net of cash acquired....... (1,337) -
Proceeds from sales of property, plant and equipment..................... 463 1,156
------------------- -------------------
Net Cash Used In Investing Activities.................................... (215,033) (137,013)
FINANCING ACTIVITIES:
Proceeds from debt....................................................... 241,555 368,003
Principal payments on debt .............................................. (122,044) (344,007)
Proceeds from sales of common stock...................................... 556 2,798
Other.................................................................... 165 (1,530)
------------------- -------------------
Net Cash Provided By Financing Activities................................ 120,232 25,264
Effect of exchange rate changes on cash.................................... - (64)
------------------- -------------------
Increase (Decrease) In Cash And Cash Equivalents......................... (30,560) 14,181
Cash And Cash Equivalents At Beginning Of Period........................... 45,654 15,284
------------------- -------------------
Cash And Cash Equivalents At End Of Period................................. $ 15,094 $ 29,465
=================== ===================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- ----------------------------
1998 1997 1998 1997
--------------- -------------- -------------- -------------
$ (1,051) $ 2,621 $ 2,104 $ 19,875
<S> <C> <C> <C> <C>
Net income (loss)....................................
Other comprehensive income, net of tax:
Foreign currency translation adjustment........... - 341 - (855)
--------------- -------------- -------------- -------------
Comprehensive income (loss).......................... $ (1,051) $ 2,962 $ 2,104 $ 19,020
============== ============ ============== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRESENTATION OF FINANCIAL INFORMATION
In the opinion of management, the unaudited consolidated financial
statements presented herein contain all adjustments necessary to present fairly
the financial position of Seagull Energy Corporation and Subsidiaries (the
"Company" or "Seagull") as of June 30, 1998, and the results of its operations
and cash flows for the three and six months ended June 30, 1998 and 1997. All
adjustments made are of a normal, recurring nature. The results of operations
for the three and six months ended June 30, 1998 and 1997 are not necessarily
indicative of the results to be expected for the full year.
The financial information presented herein should be read in conjunction
with the consolidated financial statements and notes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
Comprehensive Income -- Effective January 1, 1998, the Company adopted
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standard ("SFAS") No. 130, "Reporting Comprehensive Income." This statement
established standards for reporting and display of comprehensive income and its
components in the Company's financial statements. Comprehensive income includes
all changes in the Company's equity except those resulting from investments by
and distributions to owners.
Earnings Per Share -- The following table provides a reconciliation between
basic and diluted earnings (loss) per share (stated in thousands except per
share data):
<TABLE>
<CAPTION>
Weighted Average Earnings (Loss)
Common Shares Per-Share
Net Income (Loss) Outstanding Amount
-------------------- ---------------------- -------------------
<S> <C> <C> <C>
QUARTER ENDED JUNE 30, 1998:
BASIC..................................... $ (1,051) 63,052 $ (0.02)
EFFECT OF DILUTIVE STOCK OPTIONS.......... - -
-------------------- ----------------------
DILUTED................................... $ (1,051) 63,052 $ (0.02)
==================== ======================
Quarter Ended June 30, 1997:
Basic..................................... $ 2,621 63,007 $ 0.04
Effect of dilutive stock options.......... - 620
-------------------- ----------------------
Diluted................................... $ 2,621 63,627 $ 0.04
==================== ======================
SIX MONTHS ENDED JUNE 30, 1998:
BASIC..................................... $ 2,104 63,036 $ 0.03
EFFECT OF DILUTIVE STOCK OPTIONS.......... - 444
-------------------- ----------------------
DILUTED................................... $ 2,104 63,480 $ 0.03
==================== ======================
Six Months Ended June 30, 1997:
Basic..................................... $ 19,875 62,897 $ 0.32
Effect of dilutive stock options.......... - 735
-------------------- ----------------------
Diluted................................... $ 19,875 63,632 $ 0.31
==================== ======================
</TABLE>
5
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Weighted average options to purchase 2,817,546, 1,756,099 and 1,827,369
shares of common stock at $17.38 to $26.38 per share were outstanding during the
first half of 1998, the first half of 1997 and the second quarter of 1997,
respectively, but were not included in the computation of earnings per diluted
share because the options' exercise prices were greater than the average market
price of the common shares. Outstanding options expire at various dates from
2003 to 2008. The effect of the assumed exercise of stock options as of the
beginning of the second quarter of 1998 has an anti-dilutive effect on the
computation of loss per diluted share for the period. Therefore, weighted
average options to purchase 4,476,368 shares of common stock at $5.89 to $26.38
per share have not been included in the weighted average number of common shares
outstanding for the second quarter of 1998.
Derivative Financial Instruments -- The Company enters into a variety of
commodity derivative financial instruments (futures contracts, price swaps and
options) only for non-trading purposes as a hedging strategy to manage commodity
prices associated with oil and gas sales and to reduce the impact of price
fluctuations. To qualify as hedges, these instruments must highly correlate to
anticipated future production such that the Company's exposure to the effects of
price changes is reduced. The Company uses the hedge or deferral method of
accounting for these instruments and, as a result, gains and losses on commodity
derivative financial instruments are generally offset by similar changes in the
realized prices of the commodities. Income and costs related to these hedging
activities are recognized in oil and gas revenues when the commodities are
produced. Income and costs on commodity derivative financial instruments that
are closed before the hedged production occurs are also deferred until the
production month originally hedged. In the event of a loss of correlation
between changes in oil and gas reference prices under a commodity derivative
financial instrument and actual oil and gas prices, income or costs are
recognized currently to the extent the financial instrument has not offset
changes in actual oil and gas prices. Any realized income and costs that are
deferred at the balance sheet date and any margin accounts for futures contracts
are included as net current assets. While commodity derivative financial
instruments are intended to reduce the Company's exposure to declines in the
market price of oil and natural gas, the commodity derivative financial
instruments may also limit the Company's gain from increases in those market
prices.
The Company recorded $0.5 million and $8 million for the six months ended
June 30, 1998 and 1997, respectively, in costs related to equity hedging
activities, including costs related to the monetary production payment hedges of
approximately $0.5 million and $1 million in 1998 and 1997, respectively. By the
end of the first quarter of 1997, the Company's equity hedging activities had
been substantially reduced, leaving primarily the commodity hedges of
approximately 11 MMcf per day through December 1998, which were required by the
monetary production payment (related to the 1995 sale of the Company's Section
29 tax credit-bearing properties). For the second quarter of 1998 and 1997, all
of the Company's equity hedging costs of $0.3 million and $0.2 million,
respectively, related to the monetary production payment hedges. The Company
also recorded hedging costs related to third-party marketing activities of $1.5
million and $0.2 million for the six months ended June 30, 1998 and 1997,
respectively, and $1 million and none for the second quarter of 1998 and 1997,
respectively.
At June 30, 1998, the Company had open natural gas futures, swaps and
option contracts related to its equity and third-party marketing hedging
activities totaling 20 Bcf related to purchases and 33 Bcf related to sales for
the period from July 1998 through July 1999. At June 30, 1998, the fair value
related to the Company's commodity hedging activities was $0.1 million of costs
related to open contracts.
6
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Accounting Pronouncements -- In June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement establishes standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments be included in interim reports issued to shareholders. In
February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement establishes
standards for disclosure for pensions and other postretirement benefits in
annual financial statements. These statements are effective for financial
statements for periods beginning after December 15, 1997. As both SFAS Nos. 131
and 132 establish standards for reporting and display, the Company does not
expect the adoption of these statements to have a material impact on its
financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes standards of
accounting for and disclosures of derivative instruments and hedging activities.
This statement is effective for fiscal years beginning after June 15, 1999. The
Company has not yet determined the impact of this statement on the Company's
financial condition or results of operations.
NOTE 2. ACQUISITIONS
On June 1, 1998, the Company completed the purchase of the stock of BRG
Petroleum, Inc. ("BRG"), a closely held private company, and the assets of BRG's
limited partnerships and programs for $103 million in cash, excluding cash
acquired of $2 million and noncash deferred tax liabilities of $25 million. The
Company funded this acquisition through existing credit facilities.
The following table presents the unaudited pro forma results of Seagull as
though the acquisition of the acquired assets had occurred on January 1, 1998:
<TABLE>
<CAPTION>
PRO FORMA INFORMATION
(Amounts in Thousands Except Per Share Data)
SIX MONTHS ENDED
JUNE 30, 1998
-----------------
<S> <C>
Revenues................................................ $234,525
Net income.............................................. 1,081
Basic earnings (loss) per share......................... 0.02
Diluted earnings (loss) per share....................... 0.02
</TABLE>
7
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma information does not purport to be indicative of
actual results, if the acquisition of the BRG assets had been in effect for the
period indicated, or of future results.
NOTE 3. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(Amounts in Thousands)
Six Months Ended June 30,
--------------------------
1998 1997
------------ ----------
<S> <C> <C>
Cash paid during the period for:
Interest, net of amount capitalized...... $16,204 $20,913
Income taxes............................. $ 8,628 $13,377
</TABLE>
NOTE 4. COMMITMENTS AND CONTINGENCIES
Year 2000 Issue -- Historically, most computer systems (including
microprocessors embedded into field equipment and other machinery) utilized
software that processed transactions using two digits to represent the year of
the transaction (i.e., 97 represents the year 1997). This software requires
modification to properly process dates beyond December 31, 1999 (the "Year 2000
Issue"). During 1997, the Company utilized both internal and external resources
to reprogram, or replace, and test software for necessary modifications
identified in its assessment of the Year 2000 Issue. By December 31, 1997, the
Company's Year 2000 remediation was substantially complete and approximately
$300,000 had been expensed related to this assessment and remediation. The
Company presently believes that, as a result of these efforts, the Year 2000
Issue will not have a material adverse effect on the Company's operations.
The Company has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' potential failure to remediate their own Year
2000 Issue. However, there can be no guarantee that the systems of other
companies, on which the Company's systems rely, will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company.
Other -- The Company is a party to ongoing litigation in the normal course
of business. Management regularly analyzes current information and, as
necessary, provides accruals for probable liabilities on the eventual
disposition of these matters. While the outcome of lawsuits or other proceedings
against the Company cannot be predicted with certainty, management believes that
the effect on its financial condition, results of operations and cash flows, if
any, will not be material.
8
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to assist in an understanding of the
Company's financial position and results of operations for each of the periods
indicated. The Company's accompanying unaudited financial statements and the
notes thereto and the consolidated financial statements and notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997
contain detailed information that should be referred to in conjunction with the
following discussion.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
CONSOLIDATED HIGHLIGHTS
(Amounts in Thousands)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -----------------------------------
1998 1997 1998 1997
-------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas operations....................... $ 86,104 $ 105,406 $ 176,553 $ 230,410
Alaska transmission and distribution......... 17,425 16,774 49,301 51,343
-------------- ------------- -------------- ---------------
$ 103,529 $ 122,180 $ 225,854 $ 281,753
-------------- ------------- -------------- ---------------
Operating Profit:
Oil and gas operations....................... $ 6,835 $ 19,681 $ 15,766 $ 58,760
Alaska transmission and distribution......... 2,749 1,971 12,290 12,437
Corporate.................................... (4,009) (3,841) (8,280) (6,780)
-------------- ------------- -------------- ---------------
$ 5,575 $ 17,811 $ 19,776 $ 64,417
============== ============= ============== ===============
Net income (loss).............................. $ (1,051) $ 2,621 $ 2,104 $ 19,875
Net cash provided by operating
activities before changes in
operating assets and liabilities............. $ 39,781 $ 50,836 $ 84,841 $ 123,949
Net cash provided by operating
activities................................... $ 31,238 $ 52,479 $ 64,241 $ 125,994
</TABLE>
Revenues decreased $19 million and $56 million, respectively, and operating
profit declined $12 million and $45 million, respectively, for the three and six
month periods ending June 30, 1998 versus the same periods of 1997 principally
due to three factors: (i) significant decreases in worldwide oil prices, (ii)
declines in domestic gas production and (iii) the sale of the Company's Canadian
oil and gas operations in October 1997. The effect of these three factors was
partially offset by higher oil production from the Company's Egyptian operations
for both the three and six months ended June 30, 1998 and an increase in
domestic oil volumes in the first half of 1998 compared to the same period in
1997. Net income (loss) decreased from $3 million for the second quarter of 1997
to $(1) million for the same period in 1998 and declined from $20 million for
the six months of 1997 compared to $2 million for the first half of 1998 due to
the lower commodity prices discussed above.
9
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
OIL AND GAS OPERATIONS
(Amounts in Thousands)
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- ----------------------------------
1998 1997 1998 1997
---------------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Natural gas............................... $ 57,757 $ 68,219 $ 118,317 $ 153,719
Oil and NGL............................... 22,390 32,411 46,675 63,234
Pipeline and marketing.................... 5,957 4,776 11,561 13,457
---------------- ---------------- -------------- ---------------
86,104 105,406 176,553 230,410
---------------- ---------------- -------------- ---------------
Production operating expenses............... 26,866 29,241 54,310 59,124
Pipeline and marketing expenses............. 6,429 6,289 13,415 13,980
Exploration charges......................... 8,178 7,346 18,296 16,299
Depreciation, depletion and amortization.... 37,796 42,849 74,766 82,247
---------------- ---------------- -------------- ---------------
Operating profit.......................... $ 6,835 $ 19,681 $ 15,766 $ 58,760
================ ================ =============== ===============
</TABLE>
The decline in commodity prices was the significant factor in the 65% and
73% decreases in operating profit for the Oil and Gas Operations ("O&G") segment
to $7 million and $16 million for the three and six months ended June 30, 1998,
respectively. Domestic natural gas prices realized by the Company decreased 8%
from $2.32 per Mcf in the first half of 1997 to $2.14 per Mcf for the same
period in 1998. This price decrease and a 6% decrease in domestic gas production
combined to create an $18 million decrease in domestic natural gas revenues.
Worldwide oil prices realized by the Company showed a significant decrease of
31%, from $17.77 per Bbl in 1997's first half to $12.19 per Bbl in 1998. While
declining oil prices were the primary factor for the decrease in oil revenues,
this was partially offset by a 23% increase in oil production in the U.S. and
Egypt as Seagull realized additional contributions from several new domestic
wells and two Egyptian concessions - Qarun, where additional facilities became
operational during mid-1997, and West Abu Gharadig, which was purchased in late
1997. For the second quarter of 1998, domestic gas prices realized by the
Company increased $0.10 per Mcf over the 1997 quarter's $2.04 per Mcf. However,
domestic gas production and worldwide oil prices reflected the same trends as
the first half of 1998.
In addition, 1998 reflects the absence of the Company's Canadian operations
which were sold in October 1997. These Canadian operations contributed
approximately $7 million and $18 million in revenues and $(0.2) million and $4
million in operating profit (loss) for the three and six months ended June 30,
1997, respectively.
Pipeline and marketing revenues declined $2 million for the first half of
1998 due to a decrease in third party marketing margins and revenues related to
the Company's gas gathering and processing facilities. This decrease in gas
gathering and processing revenues was substantially offset by a decrease in the
related cost of gas.
10
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
EXPLORATION AND PRODUCTION OPERATING DATA
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------------------------------------------------------------------------
Net Daily Production Unit Price Net Daily Production Unit Price
1998 1997 1998 1997 1998 1997 1998 1997
----------- ------------- ----------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gas Sales(1):
Domestic............. 281.9 310.7 $ 2.14 $ 2.04 286.8 306.7 $ 2.14 $ 2.32
Canada(2) ........... - 51.1 - 1.34 - 49.6 - 1.75
Cote d'Ivoire........ 9.5 5.7 1.64 1.78 9.9 5.3 1.57 1.83
Indonesia............ 7.7 10.3 1.92 3.58 9.7 12.0 2.46 3.53
Other................ 1.1 0.2 1.39 0.99 0.8 0.2 1.34 1.00
----------- ------------- ----------- ----------- ------------- ------------- ----------- -------------
300.2 378.0 $ 2.11 $ 1.98 307.2 373.8 $ 2.13 $ 2.28
=========== ============= =========== =========== ============= ============= =========== =============
Oil and NGL Sales(1):
Domestic............. 5,078 5,085 $ 11.29 $ 17.68 5,066 4,383 $ 12.44 $ 18.96
Canada(2)............ - 857 - 14.54 - 867 - 17.06
Egypt................ 11,081 9,241 12.75 17.37 10,794 8,555 12.95 18.46
Cote d'Ivoire........ 1,102 1,264 14.04 18.12 1,101 1,356 12.19 19.75
Tatarstan............ 3,985 5,139 7.51 13.00 3,989 4,281 9.56 14.54
Indonesia............ 128 149 15.42 22.00 201 203 17.03 20.75
Other................ 7 16 12.70 16.02 8 16 12.65 17.71
----------- ------------- ----------- ----------- ------------- ------------- ----------- -------------
21,381 21,751 $ 11.51 $ 16.37 21,159 19,661 $ 12.19 $ 17.77
=========== ============= =========== =========== ============= ============= =========== =============
</TABLE>
(1) Natural gas is stated in MMcf and $ per Mcf. Oil and NGLs are stated in Bbl
and $ per Bbl.
(2) All of the Company's Canadian oil and gas operations were sold in October
1997.
While production expenses decreased by $2 million to $27 million for the second
quarter of 1998 and by $5 million to $54 million for the first half of 1998,
production expenses per equivalent unit of production increased to $4.13 per Boe
versus $3.79 per Boe in the second quarter of 1998 and 1997, respectively, and
to $4.15 per Boe versus $3.99 per Boe for the first six months of 1998 and 1997,
respectively. While the overall amount of production expenses decreased due to
the absence of the Company's Canadian operations, production expenses per
equivalent unit of production increased slightly due to increases in lease
operating expenses in the Company's domestic operations.
Exploration charges increased $2 million for the first half of 1998 over
1997 principally due to increased dry hole costs offset by the absence of
exploration charges related to Canada.
The decrease in E&P depreciation, depletion and amortization ("DD&A")
expense to $37 million and $74 million for the three and six months ended June
30, 1998, respectively, from $42 million and $81 million for the prior year
periods is primarily due to the decrease in domestic gas production and the sale
of the Company's Canadian operations, partially offset by increased oil
production in the U.S. and Egypt. The DD&A expense per equivalent unit of
production for oil and gas producing activities increased slightly to $5.65 per
Boe from $5.49 per Boe for the first half of 1998 and 1997, respectively.
11
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
ALASKA TRANSMISSION AND DISTRIBUTION
(Amounts in Thousand Except Operating Data)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- -------------------------------------
1998 1997 1998 1997
--------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues.................................. $ 17,425 $ 16,774 $ 49,301 $ 51,343
Cost of gas sold.......................... 7,343 7,244 22,106 23,966
--------------- ------------- ---------------- ----------------
Gross margin............................ 10,082 9,530 27,195 27,377
Operations and maintenance expense ....... 5,206 5,475 10,656 10,772
Depreciation, depletion and amortization.. 2,127 2,084 4,249 4,168
--------------- ------------- ---------------- ----------------
Operating profit........................ $ 2,749 $ 1,971 $ 12,290 $ 12,437
=============== ============= ================ ================
OPERATING DATA:
Degree days (1)......................... 1,585 1,571 5,282 5,291
</TABLE>
(1) A measure of weather severity calculated by subtracting the mean
temperature for each day from 65 degrees Fahrenheit. More degree days
equate to colder weather.
Operating profit of the Alaska transmission and distribution segment for
the second quarter of 1998 increased from the 1997 period primarily as a result
of increased gross margin due to a change in the mix of customers.
This segment's business is seasonal with approximately 65%-70% of its sales
made in the first and fourth quarters of each year.
12
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES AND ACQUISITIONS
(Amounts in Thousands)
Three Months Ended June 30, Six Months Ended June 30,
---------------------------------- --------------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Exploration and production:
Leasehold.............................. $ 2,816 $ 13,426 $ 4,424 $ 14,259
Exploration............................ 11,796 22,796 32,334 44,633
Development............................ 34,847 40,979 66,910 70,750
--------------- --------------- --------------- ----------------
49,459 77,201 103,668 129,642
Pipeline and marketing................... 661 8 1,217 45
--------------- --------------- --------------- ----------------
Oil and gas operations................. 50,120 77,209 104,885 129,687
Alaska transmission and distribution..... 2,465 2,046 4,004 3,451
Corporate................................ 1,886 2,666 3,716 4,210
--------------- --------------- --------------- ----------------
$ 54,471 $ 81,921 $ 112,605 $ 137,348
=============== =============== =============== ================
Acquisitions............................. $ 127,092 $ 720 $ 127,469 $ 821
=============== =============== =============== ================
</TABLE>
Seagull's capital expenditure program is designed to fulfill the Company's
goals of growing its reserve base and production capacity. Capital expenditures,
excluding acquisitions, decreased by nearly $25 million for the first half of
1998 over 1997 as expenditures declined domestically and because of the sale of
the Company's Canadian operations with expenditures of $8 million in the first
half of 1997, partially offset by increased expenditures related to the
Company's Egyptian operations.
The Company has a revolving credit facility (the "Credit Facility") with a
maximum commitment of $500 million. At June 30, 1998, there was $100 million
borrowed under the Credit Facility and $359 million of the unused commitment was
immediately available.
The Credit Facility contains certain covenants and restrictive provisions,
including limitations on the incurrence of additional debt or liens, the
declaration or payment of dividends and the repurchase or redemption of capital
stock and the maintenance of certain financial ratios. Under the most
restrictive of these provisions, approximately $266 million was available for
payment of cash dividends on common stock or to repurchase common stock as of
June 30, 1998.
On June 1, 1998, the Company completed the purchase of the BRG and its
related partnership interests for $103 million in cash, excluding cash acquired
of $2 million and noncash deferred tax liabilities of $25 million. The Company
funded this acquisition through its existing credit facility.
13
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The assets acquired include proved oil and gas reserves of 102 billion
cubic feet of natural gas equivalents ("Bcfe"). BRG operated approximately 70
percent of 600 currently producing oil and gas wells in approximately 140
fields. Daily production from the properties net to the combined BRG interests
averaged approximately 18 million cubic feet of gas and 400 barrels of oil and
natural gas liquids in 1997. The most significant of these assets are
concentrated in East Texas, primarily in Freestone, Upshur, Rusk and Nacogdoches
counties.
Management believes the Company's internally generated funds and bank
borrowing capabilities will be sufficient to finance current and forecasted
operations, including capital expenditures.
In March 1998, Seagull announced it may include some of its less strategic
E&P properties located away from its various core assets in a package of
properties to be liquidated later in 1998.
DEFINED TERMS
Natural gas is stated herein in billion cubic feet ("Bcf"), million cubic
feet ("MMcf") or thousand cubic feet ("Mcf"). Oil, condensate and natural gas
liquids ("NGL") are stated in barrels ("Bbl") or thousand barrels ("MBbl").
MMcfe and Mcfe represent the equivalent of one million and one thousand cubic
feet of natural gas, respectively. Oil, condensate and NGL are converted to gas
at a ratio of one barrel of liquids per six Mcf of gas, based on relative energy
content. MMBoe, MBoe and Boe represent one million barrels, one thousand barrels
and one barrel of oil equivalent, respectively, with six Mcf of gas converted to
one barrel of liquid.
FORWARD LOOKING STATEMENTS
Item 2 of this document includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, as amended. Although Seagull believes that such
forward-looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will in fact occur. Important factors that could
cause actual results to differ materially from those in the forward-looking
statements include, but are not limited to, political developments in foreign
countries, federal and state regulatory developments, the timing and extent of
changes in commodity prices, the timing and extent of success in discovering,
developing and producing or acquiring oil and gas reserves, the availability of
skilled personnel, materials and equipment, operating hazards attendant to the
industry, and conditions of the capital and equity markets during the periods
covered by the forward-looking statements, as well as the other factors
discussed in Seagull's Annual Report on Form 10-K for the year ended December
31, 1997.
14
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of the Company held on May 13, 1998,
the shareholders voted to elect four directors to serve until the 2001 Annual
Meeting of Shareholders, approve the Seagull Energy Corporation 1998 Omnibus
Stock Plan and ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ended December 31, 1998. Votes cast
were as follows:
<TABLE>
<S> <C> <C> <C> <C>
Broker
For Against Non-Votes Abstained
--------------- -------------- --------------- -------------
Election as a Director of the Company of:
Richard J. Burgess.......................... 51,267,754 - - 1,035,072
Thomas H. Cruikshank........................ 51,264,657 - - 1,038,169
Robert F. Vagt.............................. 51,305,014 - - 997,812
R.A. Walker................................. 51,271,186 - - 1,031,640
Approval of 1998 Omnibus Stock Plan............. 41,508,052 10,565,159 50,000 179,615
Ratification of Selection of KPMG Peat
Marwick LLP as Independent Auditors for
1998........................................ 51,935,016 295,366 - 72,444
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
*3.1 Articles of Incorporation of the Company, as amended, and that certain
Statement of Resolution Establishing Series of Shares of Series B Junior
Participating Preferred Stock of Seagull Energy Corporation filed
March 21, 1989 with the Secretary of State of the State of Texas.
*#10.1 1998 Omnibus Stock Plan.
*27.1 Financial Data Schedule.
(b) Reports on Form 8-K: On June 4, 1998, the Company filed a current Report
on Form 8-K dated June 1, 1998 with respect to Seagull's acquisition of
BRG. The items reported in such Current Report were Item 2 (Acquisition
or Disposition of Assets) and Item 7 (Financial Statements and
Exhibits).
* Filed herewith.
# Identifies management contracts and compensatory plans or arrangements.
15
<PAGE>
SEAGULL ENERGY CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEAGULL ENERGY CORPORATION
By: /s/ William L.Transier
William L. Transier, Senior Vice
President and Chief Financial
Officer (Principal Financial Officer)
Date: August 6,1998
By: /s/ Gordon L. McConnell
Gordon L. McConnell, Vice President
and Controller (Principal Accounting
Officer)
Date: August 6, 1998
16
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ---------------- ------------------------------------------------------------------------------ --------------
*3.1 Articles of Incorporation of the Company, as amended, and that certain
Statement of Resolution Establishing Series of Shares of Series B Junior
Participating Preferred Stock of Seagull Energy Corporation filed
March 21, 1989 with the Secretary of State of the State of Texas.
*#10.1 1998 Omnibus Stock Plan.
*27.1 Financial Data Schedule.
</TABLE>
- ----------------
* Filed herewith.
# Identifies management contracts and compensatory plans or arrangements.
EXHIBIT 3.1
TO
ANNUAL REPORT ON FORM 10-K
AMENDED ARTICLES OF INCORPORATION*
OF
SEAGULL ENERGY CORPORATION
ARTICLE ONE
The name of the corporation is Seagull Energy Corporation.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the corporation is organized are:
To engage in, carry on, conduct and operate the oil pipe line business,
the business of transporting natural gas, oil, petroleum products and
related products and the business of purchasing, selling and dealing in
petroleum, petroleum products, natural gas, oil and related products;
provided however, that the corporation shall not engage in the
petroleum oil producing business in the State of Texas;
<PAGE>
-1-
To enter into, make and perform contracts in connection with the
foregoing with any person, firm, association, corporation,
municipality, country, state, political subdivision or government or
colony or dependency thereof; and, in connection with the foregoing, to
lease, purchase, sell or subdivide real property both within and
outside of incorporated towns, cities, villages and their suburbs;
To enter into any associations, partnerships, partnerships in
commendam, limited partnerships, joint ventures and other lawful
arrangements for sharing profits, union of interest, reciprocal
concessions or co-operation whether domestic or foreign, with any
corporation, partnership, association, firm, syndicate, entity, person
or governmental, municipal or public authority, domestic or foreign, in
the carrying on of any business which the corporation is authorized to
carry on or any business or transaction deemed necessary, convenient or
incidental to carrying out any of the purposes of the corporation;
To deal in and transact business with respect to real and personal
property and services subject to the Texas Business Corporation Act and
to Part Four of the Texas Miscellaneous Corporation Laws Act; and
In general, to carry out any other business permitted by Texas law, to
have and exercise all the powers conferred by the laws of Texas upon
corporations formed under the Texas Business Corporation Act, to engage
in the transaction of any or all lawful business for which a
corporation may be incorporated under the Texas Business Corporation
Act, and to do any and all of the things hereinbefore set forth to the
same extent as natural persons might or could do.
ARTICLE FOUR
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is twenty-five million (25,000,000)
shares, divided into five million (5,000,000) shares of Preferred Stock of the
par value of one dollar ($1.00) per share, and twenty million (20,000,000)
shares of Common Stock of the par value of ten cents ($.10) per share. Each
share of Common Stock shall be entitled to one vote.
No stockholder shall have a preemptive right to acquire any shares or
securities of any class, whether now or hereafter authorized, which may at any
time be issued, sold or offered for sale by the Corporation.
The Preferred Stock may be divided into and issued from time to time in
one or more series as may be fixed and determined by the Board of Directors. The
relative rights and preferences of the Preferred Stock of each series shall be
such as shall be stated in any resolution or resolutions adopted by the Board of
Directors setting forth the designation of the series and fixing and determining
the relative rights and preferences thereof, any such resolution or resolutions
being herein called a "Directors' Resolution". The Board of Directors is hereby
authorized to fix and determine such variations in the designations,
preferences, and relative, participating, optional or other special rights
(including, without limitation, rights of conversion into Common Stock or other
securities, redemption provisions or sinking fund provisions) as between series
and as between the Preferred Stock or any series thereof and the Common Stock,
and the qualifications, limitations or restrictions of such rights, all as shall
be stated in a Directors' Resolution, and the shares of Preferred Stock or any
series thereof may have full or limited voting powers, or be without voting
powers, all as shall be stated in a Directors' Resolution.
ARTICLE FIVE
The corporation will not commence business until there is received for
the issuance of its shares consideration of the value of One Thousand Dollars
($1,000), consisting of money, labor done or property actually received.
ARTICLE SIX
The post office address of its initial registered office is 811 Dallas,
c/o CT Corporation, Houston, Texas 77002, and the name of its registered agent
at such address is CT Corporation.
ARTICLE SEVEN
The number of directors constituting the initial Board of Directors was
three (3), and the names and addresses of the persons who served as directors
until the first annual meeting of shareholders or until their successors were
elected and qualified were:
J. C. Walter, Jr. 242 The Main Building
Houston, Texas 77002
P. Fox Benton, Jr. 242 The Main Building
Houston, Texas 77002
Evangeline G. Williams 242 The Main Building
Houston, Texas 77002
Cumulative voting for the election of directors is expressly
prohibited.
ARTICLE EIGHT
The names and addresses of the incorporators were:
Robert S. Baird 2100 First City National Bank Bldg.
Houston, Texas 77002
William D. Greenhill 2100 First City National Bank Bldg.
Houston, Texas 77002
S. Tevis Grinstead 2100 First City National Bank
Houston, Texas 77002
ARTICLE NINE
Except as may be provided in the Bylaws, the Board of Directors of this
corporation is expressly authorized to alter, amend or repeal the bylaws of this
corporation or adopt new bylaws, without any action on the part of the
shareholders, but the bylaws made by the directors and the powers so conferred
may be altered or repealed by the shareholders.
ARTICLE TEN
All persons serving, or who have served, as officers or directors of
the Corporation, or who may have served at the Corporation's request as officers
or directors of another corporation in which this Corporation owns shares of
capital stock or of which it is a creditor, shall be indemnified by this
Corporation against expenses actually and necessarily incurred by them in
connection with the defense of any action, suit, or proceeding in which they, or
any of them, are made parties, or a party, by reason of having been or being
directors or officers or a director or an officer of this Corporation, or of
such other corporation, except in relation to matters as to which any such
director or officer or former director or officer or person shall be adjudged in
such action, suit or proceeding to be liable for negligence or misconduct in the
performance of duty. Such indemnification shall not be deemed exclusive of any
other rights to which those indemnified may be entitled, under any bylaw,
agreement, vote of stockholders or otherwise.
ARTICLE ELEVEN
A director of the corporation shall not be liable to the corporation or
its shareholders for monetary damages for an act or omission in the director's
capacity as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) for any transaction from which the director
received an improper benefit, whether or not the benefit resulted from an action
taken within the scope of the director's office; (iv) for acts or omissions for
which the liability of a director is expressly provided for by statute; or (v)
for acts related to an unlawful stock repurchase or dividend payment. Any repeal
or amendment of this Article by the shareholders of the corporation shall be
prospective only, and shall not adversely affect any limitation on the liability
of a director of the corporation existing at the time of such repeal or
amendment. In addition to the circumstances in which a director of the
corporation is not liable as set forth in the preceding sentences, a director
shall not be liable to the fullest extent permitted by any provision of the
statutes of Texas hereafter enacted that further limits the liability of a
director.
- --------
* The Articles of Incorporation of the Company have not been restated
within the meaning of the Texas Business Corporation Act (the "TBCA").
This restatement has been prepared solely to comply with the
requirements of Item 600(b)(3) of Regulation S-K. Although Directors'
Resolutions (as defined below) are deemed under the TBCA to amend the
Articles of Incorporation, Directors' Resolutions for the Company's
$2.25 Convertible Exchangeable Preferred Stock, Series A and Series B
Junior Participating Preferred Stock have not been set forth herein,
but are filed separately herewith.
<PAGE>
STATEMENT OF RESOLUTION ESTABLISHING SERIES OF SHARES
of
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
of
SEAGULL ENGERY CORPORATION
(Pursuant to Article 2.13 of the
Texas Business Corporation Act)
STATEMENT OF
RESOLUTION ESTABLISHING SERIES OF SHARES
TO THE SECRETARY OF STATE
OF THE STATE OF TEXAS:
Pursuant to the provision of Article 2.13 of the Texas Business
Corporation Act, the undersigned corporation submits the following statement for
the purpose of establishing and designating a series of shares and fixing and
determining the relative rights and preferences thereof:
1. The name of the corporation is SEAGULL ENERGY CORPORATION
(the "Corporation").
2. The following resolution, establishing and designating a
series of shares and fixing and determining the relative rights and
preferences thereof, was duly adopted by the Board of Directors of the
Corporation on March 1, 1989:
RESOLVED, that the Board of Directors of the Corporation hereby
establishes and designates a series of Preferred Stock, par value $1.00
per share, of the Corporation, and hereby states the designation and
number of shares, and fixes and determines the relative rights and
preferences thereof as follows:
<PAGE>
SERIES B JUNIOR PARTICIPATING PREFERRED STOCK:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series B Junior Participating Preferred Stock" (the "Series B
Preferred Stock") and the number of shares constituting the Series B Preferred
Stock shall be 500,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series b Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series B Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and
superior to the Series B Preferred Stock with respect to dividends, the
holders f shares of Series B Preferred Stock, in preference to the
holders of Common Stock , par value $1.00 per share (the "Common
Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends
payable in cash on the last business day of march, June, September, and
December in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly
Dividend Payment Date after the first issuance of a share or fraction
of a share of Series B Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $1.00 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, if any, and 100 times
the aggregate per share amount (payable in king) of all non-cash
dividends or other distributions, if any, other than a dividend payable
in shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the Common
Stock since the immediately preceding Quarterly Dividend Payment Date
or, with respect to the first Quarterly Dividend Payment Date, since
the first issuance of any share or faction of a share of Series B
Preferred Stock. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common
Stock , or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a greater
or lesser number of shares of Common Stock, then in each such case the
amount to which holders of shares of Series B Preferred Stock were
entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series B Preferred Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.00 per share on the Series B Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series B Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issuance of such
shares, unless the date of issuance of such shares is prior to the
record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of
issuance of such shares, or unless the date of issuance is a Quarterly
Dividend Payment Date or is date after the record date for the
determination of holders of shares of Series B Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend
Payment Date, in either of which events such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series B Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares
shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record
date for the determination of holders of shares of Series B Preferred
Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60 days
prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series B Preferred
Stock shall have the following voting rights:
(A) Each share of Series B Preferred Stock shall entitle the
holder thereof to one vote on all matters submitted to a vote of the
shareholders of the Corporation.
(B) Except as otherwise provided herein, in any other
Statement of Resolution Establishing Series of Shares creating a series
of Preferred Stock or any similar stock, or by law, the holders of
shares of Series B Preferred Stock and the holders of shares of Common
Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matter submitted
to a vote of shareholders of the Corporation.
(C) Except as set forth herein or in the Articles of
Incorporation of the Corporation as in effect on the date hereof, or as
otherwise provided by law, holders of Series B Preferred Stock shall
have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series B Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series B Preferred Stock outstanding shall have been paid in full, or
declared and a sum sufficient for the payment therefor be set apart for
payment and be in the process of payment, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series B Preferred Stock.
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series B Preferred Stock, except
dividends paid ratably on the Series B Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series B Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series B
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series B Preferred Stock, or any
shares of stock ranking on a parity with the Series B
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series B Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. Al such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Articles of Incorporation, or in any other Statement of Resolution Establishing
Series of Shares creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series B
Preferred Stock unless, prior thereto, the holders of shares of Series B
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distribution thereon, whether or not declared,
to the date of such payment, provided that the holders of shares f Series B
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount, if any, to be distributed per share to holders of
shares of Common Stock, or (2) to the holders of shares of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series B Preferred Stock, except distributions made ratably on the
Series B Preferred Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each case the aggregate amount to which
holders of shares of Series B Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series B Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series B Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series B Preferred Stock shall
not be redeemable.
Section 9. Rank. The Series B Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, on liquidation or
otherwise, junior to all series of any class of the Corporation's Preferred
Stock , including without limitations the Corporation's $2.25 Convertible
Exchangeable Preferred Stock, Series A.
Section 10. Amendment. The Articles of Incorporation and Bylaws of the
Corporation, and this Statement of Resolution Establishing Series of Shares,
shall not be amended in any manner that would materially alter or change the
powers, preferences, privileges or special rights of the Series B Preferred
Stock so as to affect them adversely without the affirmative vote of the holders
of at least two-thirds of the outstanding shares of Series B Preferred Stock,
voting together as a single class.
<PAGE>
IN WITNESS WHEREOF, this Statement of Resolution Establishing Series of
Shares is executed on behalf of the Corporation by its Chairman of the Board.
Dated: March 20, 1989
SEAGULL ENERGY CORPORATION
By: /s/Barry J. Galt
Barry J. Galt
Chairman of the Board
STATE OF TEXAS
COUNTY OF HARRIS
Before me, a notary public, on this day personally appeared Barry J.
Galt, known to me to be the person whose name is subscribed to the foregoing
document and, being by me first duly sworn, declared that the statements therein
contained are true and correct.
Given under my hand and seal of office this 20th day of March ___,
A.D., 1989.
/s/Kari A. Hlavinka
------------------------
(Printed or stamped name)
Notary Public, State of Texas
(Notarial Seal)
My commission expires:
8-4-92
------------------------
<PAGE>
The State of Texas
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
SEAGULL ENERGY CORPORATION
- --------------------------------------------------------------------------------
The undersigned, as Secretary of State of the State of Texas, hereby
certifies that the attached Articles of Amendment, duly executed, have been
received in this Office and are found to conform to law.
ACCORDINGLY the undersigned, as such Secretary of State, and by virtue
of the authority vested in the Secretary by law, issues this Certificate and
attaches hereto a copy.
Dated May 21 , 1991
Secretary of State
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
SEAGULL ENGERY CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment of its Articles of Incorporation:
ARTICLE ONE
The name of the corporation is Seagull Energy Corporation.
ARTICLE TWO
The following amendment of the Articles of Incorporation was adopted by
the shareholders of the corporation on May 14, 1991. The amendment changes the
first paragraph of Article Four of the original or amended Articles of
Incorporation of the corporation and the full text of the provision altered is
as follows:
"ARTICLE FOUR
The total number of shares of stock that the corporation shall
have authority to issue is 45,000,000 shares, divided into
5,000,000 shares of Preferred Stock of the par value of $1.00
per share, and 40,000,000 shares of Common Stock of the par
value of $.10 per share. Each share of Common Stock shall be
entitled to one vote."
ARTICLE THREE
The number of shares of the corporation outstanding on the record date
at which the amendment was adopted by the shareholders was 11,217,750, and the
number of shares entitled to vote thereon was 11,217,750. No shares were
entitled to vote thereon as a class.
ARTICLE FOUR
The number of shares voted for such amendment was 8,161,860; and the
number of shares voted against such amendment was 1,927,557. The number of
shares abstaining was 34,193.
ARTICLE FIVE
The amendment does not effect a change in the amount of stated capital
of the corporation:
Dated: May 17, 1991.
SEAGULL ENERGY CORPORATION
By:_________________________
Joe T. Rye
Senior Vice President and
Chief Financial Officer
<PAGE>
The State of Texas
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
OF
SEAGULL ENERGY CORPORATION
- --------------------------------------------------------------------------------
The undersigned, as Secretary of State of the State of Texas, hereby certifies
that the attached Articles of Amendment for the above named entity have been
receive in this office and are found to conform law.
ACCORDINGLY the undersigned, as Secretary of State, and by virtue of the
authority vested in the Secretary by law, hereby issues this Certificate of
Amendment.
Dated May 21 , 1993
Effective May 21, 1993 at xxx a.m./p.m.
Secretary of State
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
SEAGULL ENGERY CORPORATION
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Articles of Incorporation:
ARTICLE ONE
The name of the corporation is Seagull Energy Corporation.
ARTICLE TWO
The following amendment to the Articles of Incorporation was adopted by
the shareholders of the corporation on May 11, 1993. The amendment changes the
first paragraph of Article Four of the original or amended Articles of
Incorporation of the corporation and the full text of the provision altered is
as follows:
"ARTICLE FOUR
The total number of shares of stock that the corporation shall
have authority to issue is 105,000,000 shares, divided into
5,000,000 shares of Preferred Stock of the par value of $1.00
per share, and 100,000,000 shares of Common Stock of the par
value of $.10 per share. Each share of Common Stock shall be
entitled to one vote."
ARTICLE THREE
The number of shares of the corporation outstanding on the record date
at which the amendment was adopted by the shareholders was 17,885,395; and the
number of shares entitled to vote thereon was 17,885,395. No shares were
entitled to vote thereon as a class.
ARTICLE FOUR
The number of shares voted for such amendment was 14,634,117; and the
number of shares voted against such amendment was 773,197. The number of shares
abstaining was 65,381.
ARTICLE FIVE
The amendment does not effect a change in the amount of stated capital
of the corporation:
Dated: May 20, 1993.
SEAGULL ENERGY CORPORATION
By:________________________
Sylvia Sanchez
Secretary
- --------
The Article of Incorporation of the Company have not been restated
within the meaning of the Texas Business Corporation Act (the "TBCA").
This restatement has been prepared solely to comply with the
requirements of Item 600(b)(3) of Regulation S-K. Although Directors'
Resolutions (as defined below) are deemed under the TBCA to amend the
Articles of Incorporation, Directors' Resolutions for the Company's
$2.25 Convertible Exchangeable Preferred Stock, Series A and Series B
Junior Participating Preferred Stock have not been set forth herein,
but are filed separately herewith.
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.
(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.
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 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
(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.
(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 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.
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.
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-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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