SEAGULL ENERGY CORPORATION
1986 STOCK OPTION PLAN
(RESTATED)
I. History and Purpose of the Plan
The Seagull Energy Corporation 1986 Stock Option Plan (the "Plan") was
originally adopted by Seagull Energy Corporation, a Texas corporation (the
"Company"), on February3, 1986 and was approved by the shareholders of the
Company on May 13, 1986. The Plan is intended to provide a means whereby certain
employees of the Company and its subsidiaries may develop a sense of
proprietorship and personal involvement in the development and financial success
of the Company, and to encourage them to remain with and devote their best
efforts to the business of the Company, thereby advancing the interests of the
Company and its shareholders. Accordingly, the Company may grant to certain
employees the option ("Option") to purchase shares ofthe common stock of the
Company ("Stock"), as hereinafter set forth. Options granted under the Plan may
be either incentive stock options, within the meaning ofsection 422A(b) of the
Internal Revenue Code of 1986, as amended (the "Code"),("Incentive Stock
Options") or options which do not constitute Incentive Stock Options. On
September 20, 1988, the Company restated the Plan in the form of this Seagull
Energy Corporation 1986 Stock Option Plan (Restated) for the purpose of
incorporating certain amendments previously adopted with respect to the Plan
into the text of the Plan and for purposes of amending the Plan in certain
respects. The terms and provisions of this restatement of the Plan are effective
only with respect to Options granted from and after September 20, 1988 and
Options granted prior to such date shall continue to be governed by the terms
and provisions of the Plan (and amendments thereto) as in effect on September
20, 1988.
II. Administration
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). Members of
the Committee shall not be eligible, and shall not have been eligible at any
time within one year prior to their appointment to the Committee, to participate
in the Plan or in any other stock, stock option or stock appreciation rights
plan of the Company or any of its affiliates ("Company Stock Plan"). The
Committee shall have sole authority to select the individuals who are to be
granted Options from among those eligible hereunder and to establish the number
of shares which may be issued under each Option. TheCommittee is authorized to
interpret the Plan and may from time to time adopt such rules and regulations,
consistent with the provisions of the Plan, as it may deem advisable to carry
out the Plan. All decisions made by the Committee in selecting the individuals
to whom Options shall be granted, in establishing the number of shares which may
be issued under each Option and in construing the provisions of the Plan shall
befinal.
III. Option Agreements
Each Option shall be evidenced by an Option Agreement and shall contain
such terms and conditions, and may be exercisable for such periods, as may be
approved by the Committee. The terms and conditions of the respective Option
Agreements need not be identical. Specifically, an Option Agreement may provide
for the surrender of the right to purchase shares under the Option in return for
a payment in cash or shares of Stock or a combination of cash and shares of
Stock equal in value to the excess of the fair market value of the shares with
respect to which the right to purchase is surrendered over the option price
therefor ("Stock Appreciation Rights"), on such terms and conditions as the
Committee in its sole discretion may prescribe; provided, that with respect to
Stock Appreciation Rights granted to employees who are subject to Section 16 of
the Securities Exchange Act of 1934 (the "1934 Act"), except as provided in
Subparagraph VIII(c) hereof, the Committee shall retain final authority (i) to
determine whether an optionee shall be permitted, or (ii) to approve an
electionby an optionee, to receive cash in full or partial settlement of Stock
Appreciation Rights. Moreover, an Option Agreement may provide for the payment
of the option price, in whole or in part, by the delivery of a number of shares
of Stock (plus cash ifnecessary) having a fair market value equal to such option
price. Finally, an Option Agreement may provide for cash less exercise by
permitting an Optionee to withhold from shares of Stock acquirable upon exercise
of such Option shares of Stock equal in value to all or a specified portion of
the Option Price; all on such terms and subject to such conditions as shall be
established from time to time by the Committee. For all purposes under the Plan,
the fair market value of a share of Stock on a particular date shall be equal to
the closing price of the Stock on the New York Stock Exchange Composite Tape on
that date, or if no prices are reported on that date, on the last preceding date
on which such prices of the Stock are so reported. Each Option and all rights
granted thereunder shall not be transferable other than by will or the laws of
descentand distribution, and shall be exercisable during the optionee's lifetime
only by the optionee or the optionee's guardian or legal representative.
IV. Eligibility of Optionee
Options may be granted only to individuals who are key employees (including
officers and directors who are also key employees) of the Company or any parent
orsubsidiary corporation (as defined in section 425 of the Code) of the Company
at the time the Option is granted. Options may be granted to the same individual
on more than one occasion. No Incentive Stock Option shall be granted to an
individual if, atthe time the Option is granted, such individual owns stock
possessing more than 10%of the total combined voting power of all classes of
stock of the Company or of its parent or subsidiary corporation, within the
meaning of section 422A(b)(6) of the Code, unless (i)at the time such Option is
granted the option price is at least 110% of thefair market value of the Stock
subject to the Option and (ii)such Option by its terms is not exercisable after
the expiration of five years from the date of grant. To the extent that the
aggregate fair market value (determined at the time the respective Incentive
Stock Option is granted) of stock with respect to which Incentive Stock Options
granted after 1986 are exercisable for the first time by an individual during
any calendar year under all incentive stock option plans of the Company and its
parent andsubsidiary corporations exceeds $100,000, such Incentive Stock Options
shall be treatedas options which do not constitute Incentive Stock Options. The
Committee shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of an
optionee's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the optionee of such determination
as soon as practicable after such determination.
V. Shares Subject to the Plan
The aggregate number of shares which may be issued under Options granted
under the Plan shall not exceed 300,000 shares of Stock. Such shares may consist
of authorized but unissued shares of Stock or previously issued shares of Stock
reacquired by the Company. Any of such shares which remain unissued and which
are not subject to outstanding Options at the termination of the Plan shall
cease to be subject to the Plan, but, until termination of the Plan, the Company
shall at all times make available a sufficient number of shares to meet the
requirements of the Plan. Should any Option here under expire or terminate prior
to its exercise in full, the shares theretofore subject to such Option may again
be subject to an Option granted under the Plan. The aggregate number of shares
which may be issued under the Plan shall be subjectto adjustment in the same
manner as provided in Paragraph VIII hereof with respect to shares of Stock
subject to Options then outstanding. Exercise of an Option in any manner,
including an exercise involving a Stock Appreciation Right, shall result in a
decrease in the number of shares of Stock which may thereafter be available,
both for purposes of the Plan and for sale to any one individual, by the number
of shares as to which the Option is exercised. Separate stock certificates shall
be issued by the Company for those shares acquired pursuant to the exercise of
an Incentive Stock Option and for those shares acquired pursuant to the exercise
of any Option which does not constitute an Incentive Stock Option.
VI. Option Price
The purchase price of Stock issued under each Option shall be determined by
the Committee, but in the case of an Incentive Stock Option, such purchase price
shall not be less than the fair market value of Stock subject to the Option on
the date the Option is granted.
VII. Term of Plan
The Plan became effective upon February 3, 1986, the date of its adoption
by the Board. Except with respect to Options then outstanding, if not sooner
terminated under the provisions of Paragraph IX, the Plan shall terminate upon
and no further Options shall be granted after the expiration of ten years from
the date of its adoption by the Board.
VIII. Recapitalization or Reorganization
(a) The existence of the Plan and the Options granted hereunder shall
notaffect 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 inthe 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 othercorporate act or proceeding.
(b) The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option theretofore granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, the number of shares of Stock
with respect to which such Option may thereafter be exercised (i)in the event of
an increase in the number of outstanding shares shall be proportionately
increased, and the purchase price per shareshall 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 shareshall be
proportionately increased.
(c) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise of an Option theretofore granted the
optionee shall be entitled to purchase under such Option, in lieu of the number
of shares of Stock as to which such Option shall then be exercisable, the number
and class of shares of stockand securities to which the optionee would have been
entitled pursuant to the terms of the recapitalization if, immediately prior to
such recapitalization, the optionee had been the holder of record of the number
of shares of Stock as to which such Option is then exercisable. If (i) the
Company shall not be the surviving entity in any merger or consolidation (or
survives only as a subsidiary of an entity other than a previously wholly owned
subsidiary of the Company), (ii) the Company sells, leases or exchanges or
agrees to sell, lease or exchange all or substantially all of its assets to any
other person or entity (other than a wholly-owned subsidiary of the Company),
(iii) the Company is to be dissolved and liquidated, (iv) any person or entity,
including a "group" as contemplated by Section 13(d)(3) of the 1934 Act,
acquires or gains ownership or control (including, without limitation, power to
vote) of more than 40% of the outstanding shares of Stock, or (v) as a result of
or in connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board (each such event is referred to herein as a"Corporate
Change"), then, upon the occurrence of any such Corporate Change, each Option
then outstanding shall become fully exercisable and effective as of a date
(selected by the Committee) within (a) ten days after the approval by the
shareholders of the Company of such merger, consolidation, sale, lease or
exchange of assets or dissolution or such election of directors or (b) thirty
days of such change of control, the Committee, acting in its sole discretion
without the consent or approval of any optionee, shall effect one or more of the
following alternatives, which may vary among individual optionees: (1) establish
a limited period of time on or before a specified date (beforeor after such
Corporate Change) fixed by the Committee during which such outstanding Options
may be exercised, after which specified date all unexercised Options and
allrights of optionees thereunder shall terminate, (2) require the mandatory
surrender tothe Company by selected optionees of some or all of the outstanding
Options held by such optionees as of a date, before or after such Corporate
Change, specified by the Committee, in which event the Committee shall thereupon
cancel such Options and pay to each optionee an amount of cash per share equal
to the excess of the amount calculated in Subparagraph (d) below (the "Change of
Control Value") of the shares subject to such Option over the exercise price(s)
under such Options for such shares, (3) make such adjustments to Options then
outstanding as the Committee deems appropriate to reflect such Corporate Change
(provided, however, that the Committee may determinein its sole discretion that
no adjustment is necessary to Options then outstanding) (4) provide that
thereafter upon any exercise of an Option theretofore granted the optionee shall
be entitled to purchase under such Option, in lieu of the number of shares of
Stock as to which such Option shall then be exercisable, the number and class of
shares of stock or other securities or property to which the optionee would have
been entitled pursuant to the terms of the agreement of merger, consolidation or
sale of assets and dissolution if, immediately prior to such merger,
consolidation or sale of assets and dissolution the optionee had been the holder
of record of the number of shares of Stock as to which such Option is then
exercisable.
(d) For the purposes of clause (2) in Subparagraph (c) above, the "Change
of Control Value" shall equal the amount determined in clause (i), (ii) or
(iii), whichever is applicable, as follows: (i) the per share price offered to
shareholders of the Company in any such merger, consolidation, sale of assets or
dissolution transaction, (ii) the price per share offered to shareholders of the
Company in any tender offer or exchange offer whereby a Corporate Change takes
place, or (iii) if such Corporate Change occurs other than pursuant to a tender
or exchange offer, the fair market value per shareof the shares into which such
Options being surrendered are exercisable, as determined by the Committee as of
the date determined by the Committee to be the date of cancellation and
surrender of such Options. In the event that the consideration offered to
shareholders of the Company in any transaction described in this Subparagraph
(d) or Subparagraph (c) above consists of anything other than cash, the
Committee shall determine the fair cash equivalent of the portion of the
consideration offered which is other than cash.
(e) Any adjustment provided for in Subparagraphs(b) or (c) above shall be
subject to any required shareholder action.
(f) Except as herein before expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, and in any case whether or notfor fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options theretofore granted or the purchase price per
share.
IX. Amendment or Termination of the Plan
"The Board in its discretion may terminate the Plan at any time with
respect to any shares for which Options have not theretofore been granted. The
Board shall have the right to alter or amend the Plan or any part thereof from
time to time; provided, that no change in any Option theretofore granted may be
made which would impair the rights of the optionee without the consent of such
optionee; and provided, further, that the Board may not make any alteration or
amendment which would materially increase the benefits accruing to participants
under the Plan, increase the aggregate number of shares which may be issued
pursuant to the provisions of the Plan, change the class of individuals eligible
to receive Options under the Plan or extend the term of the Plan, without the
approval of the shareholders of the Company.