-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, PBhNo0pERwmpnE0MIUvqVC8uYAAEiZrlu7OA4bIgSq1K/Ka2OwTbKAJG7szgYl/L Un5hY7VElSU1ip/QSgtDeg== 0000899243-94-000068.txt : 19940331 0000899243-94-000068.hdr.sgml : 19940331 ACCESSION NUMBER: 0000899243-94-000068 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19931203 FILED AS OF DATE: 19940330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COASTAL CORP CENTRAL INDEX KEY: 0000021267 STANDARD INDUSTRIAL CLASSIFICATION: 4922 IRS NUMBER: 741734212 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-07176 FILM NUMBER: 94518972 BUSINESS ADDRESS: STREET 1: COASTAL TWR STREET 2: NINE GREENWAY PLZ CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7138771400 FORMER COMPANY: FORMER CONFORMED NAME: COASTAL STATES GAS CORP DATE OF NAME CHANGE: 19800113 10-K 1 10-K DOCUMENT ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) /x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended DECEMBER 31, 1993 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____________________ to _____________________ Commission file number 1-7176 THE COASTAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 74-1734212 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) COASTAL TOWER NINE GREENWAY PLAZA HOUSTON, TEXAS 77046-0995 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (713) 877-1400 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange Title of each class on which registered ------------------- ----------------------- Common Stock ($.33 1/3 par value) ) $1.19 Cumulative Convertible Preferred Stock, Series A ($.33 1/3 par value) ) $1.83 Cumulative Convertible Preferred Stock, Series B ($.33 1/3 par value) ) $2.125 Cumulative Preferred Stock, Series H ($.33 1/3 par value) ) 11-3/4% Senior Debentures 10% Senior Notes ) New York Stock Exchange 11-1/8% Senior Subordinated Notes 9-3/4% Senior Debentures ) 10-1/4% Senior Debentures 8-3/4% Senior Notes ) 10-3/8% Senior Notes 9-5/8% Senior Debentures ) 10-3/4% Senior Debentures 8-1/8% Senior Notes )
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Class A Common Stock ($.33-1/3 par value) --------------------------- 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, and (2) has been subject to such filing requirements for the past 90 days. Yes _____/x/ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /x/ As of March 16, 1994, there were outstanding 104,218,335 shares of common stock, 427,408 shares of Class A common stock, 64,403 shares of $1.19 Cumulative Convertible Preferred Stock, Series A, 87,398 shares of $1.83 Cumulative Convertible Preferred Stock, Series B, 35,252 shares of $5.00 Cumulative Convertible Preferred Stock, Series C and 8,000,000 shares of $2.125 Cumulative Preferred Stock Series H, of the Registrant. The aggregate market value on such date of the voting stock of the Registrant held by non-affiliates was an estimated $2.9 billion, based on the closing prices in the daily composite list for transactions on the New York Stock Exchange and other markets. DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's Proxy Statement for the 1994 Annual Meeting of Stockholders, filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, referred to in Part III hereof. ================================================================================ TABLE OF CONTENTS
ITEM NO. PAGE - -------- ---- Glossary.................................................................. (ii) PART I 1. Business.................................................................. 1 Introduction........................................................... 1 Natural Gas Systems.................................................... 1 Operations........................................................... 1 General.............................................................. 1 Competition.......................................................... 2 ANR Pipeline......................................................... 3 Colorado............................................................. 5 ANR Storage.......................................................... 6 Gas System Reserves and Availability................................. 6 Reconciliation with FERC Form 15 Report.............................. 7 Wyoming Interstate Company, Ltd. .................................... 7 Great Lakes Gas Transmission Limited Partnership..................... 7 Coastal Gas Services Company......................................... 7 Regulations Affecting Gas Systems.................................... 8 Other Developments................................................... 10 Refining, Marketing and Distribution................................... 12 Exploration and Production............................................. 14 Coal................................................................... 17 Chemicals.............................................................. 18 Independent Power Production........................................... 19 Trucking Operations.................................................... 19 Competition............................................................ 20 Environmental.......................................................... 20 2. Properties................................................................ 21 3. Legal Proceedings......................................................... 21 4. Submission of Matters to a Vote of Security Holders....................... 22 PART II 5. Market for the Registrant's Common Equity and Related Stockholder Matters................................................................. 23 6. Selected Financial Data................................................... 24 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 24 8. Financial Statements and Supplementary Data............................... 24 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............................................................. 24 PART III 10. Directors and Executive Officers of the Registrant........................ 25 11. Executive Compensation.................................................... 26 12. Security Ownership of Certain Beneficial Owners and Management............ 26 13. Certain Relationships and Related Transactions............................ 26 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 27
(i) GLOSSARY "ANR Pipeline" means ANR Pipeline Company "ANR Storage" means ANR Storage Company "Bcf" means billion cubic feet "BTU" means British thermal unit "CGMC" means Coastal Gas Marketing Company "CGS" means Coastal Gas Services Company "CIG" or "Colorado" means Colorado Interstate Gas Company "Coastal" or "Company" means The Coastal Corporation and its subsidiaries "Empire" means Empire State Pipeline "EPA" means Environmental Protection Agency "FAS" means Statement of Financial Accounting Standards "FASB" means Financial Accounting Standards Board "FERC" means Federal Energy Regulatory Commission "Great Lakes" means Great Lakes Gas Transmission Limited Partnership "HIOS" means High Island Offshore System "Interim Settlement" means ANR Pipeline's Stipulation and Agreement submitted to the FERC which is more fully described in Item 1, Business, Regulations Affecting Gas Systems - Rate Matters "Huddleston" means Huddleston & Co., Inc., Houston, Texas "Mcf" means thousand cubic feet "MMcf" means million cubic feet "NEB" means Canadian National Energy Board "NGA" means Natural Gas Act of 1938, as amended "NGPA" means Natural Gas Policy Act of 1978 "NGWDA" means Natural Gas Wellhead Decontrol Act of 1989 "OFE" means Office of Fossil Energy of the Department of Energy "Order 636" means the FERC Order No. 636 series of orders which is more fully described in Item 1, Business, Regulations Affecting Gas Systems - General "TransCanada" means TransCanada PipeLines Limited "UTOS" means U-T Offshore System "WIC" means Wyoming Interstate Company, Ltd. NOTES: The terms "Coastal" and "Company" are used in this Annual Report for purposes of convenience and are intended to refer to The Coastal Corporation and/or its subsidiaries either individually or collectively, as the context may require. These references are not intended to suggest that the various Coastal companies referred to are not independent corporate entities having their separate corporate identities and managements. All natural gas volumes presented in this Annual Report are stated at a pressure base of 14.73 pounds per square inch absolute and 60 degrees Fahrenheit. (ii) PART I ITEM 1. BUSINESS. INTRODUCTION Coastal, acting through its subsidiaries, is a diversified energy holding company with subsidiary operations in natural gas marketing, processing, storage and transmission; petroleum refining, marketing and distribution; gas and oil exploration and production; coal mining; chemicals; independent power production; and trucking. The Company was incorporated under the laws of Delaware in 1972 to become the successor parent, through a corporate restructuring, of a corporate enterprise founded in 1955. The Company employed approximately 16,000 persons as of December 31, 1993. Annual Reports on Form 10-K for the year ended December 31, 1993, are also filed by Coastal's subsidiaries, ANR Pipeline and Colorado, and by each of the six limited partnership oil and gas drilling programs, of which Coastal's subsidiary, Coastal Limited Ventures, Inc., is the managing general partner. Such reports contain additional details concerning the reporting organizations. The operating revenues and operating profit of the Company by industry segment for the years ended December 31, 1993, 1992 and 1991, and the related identifiable assets as of December 31, 1993, 1992 and 1991, are set forth in Note 10 of the Notes to Consolidated Financial Statements included herein. Information concerning inventories is set forth in Note 2 of the Notes to Consolidated Financial Statements included herein. NATURAL GAS SYSTEMS OPERATIONS GENERAL Natural gas operations involve the production, purchase, gathering, processing, transportation, balancing, storage and sale of natural gas to and for utilities, industrial customers, distributors, other pipeline companies and end-users. ANR Pipeline is involved in the storage, transportation and balancing of natural gas. ANR Pipeline provides these services for various customers through its facilities located in Arkansas, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Nebraska, New Jersey, Ohio, Oklahoma, Tennessee, Texas, Wisconsin, Wyoming and offshore in federal waters. Prior to November 1, 1993, ANR Pipeline was also engaged in the sale for resale of natural gas. With ANR Pipeline's implementation of Order 636 effective November 1, 1993, ANR Pipeline no longer provides a merchant service. However, former gas sales customers of ANR Pipeline have largely retained their firm storage and transportation service levels previously included in their "bundled" gas sales services. ANR Pipeline will auction gas on the open market as part of its gas restructuring program designed to handle the continuation of certain gas purchase contracts pending renegotiation or expiration of such contracts. ANR Pipeline's gas sales for resale customers previously included 51 local distributors in Michigan, Wisconsin, Illinois, Indiana, Iowa, Kansas, Missouri, Ohio and Tennessee. ANR Pipeline operates two major offshore gas pipeline systems in the Gulf of Mexico which are owned by HIOS and UTOS, general partnerships composed of ANR Pipeline subsidiaries and subsidiaries of other pipeline companies. ANR Pipeline also operates Empire, a 156-mile pipeline extending from Niagara Falls to Syracuse, New York, in which an affiliate of ANR Pipeline has a 45% interest. During 1993, approximately 62% of ANR Pipeline's gas supply was purchased from gas producers and marketers in Illinois, Indiana, Kansas, Louisiana, Michigan, Mississippi, Oklahoma, Texas, Wisconsin, Wyoming and the Texas and Louisiana offshore areas; approximately 32% was obtained from three Canadian suppliers; and approximately 6% was purchased from the Dakota Gasification Company in North Dakota. 1 ANR Pipeline's two interconnected large-diameter multiple pipeline systems transport gas to the Midwest from (a) the Hugoton Field and other fields in the Anadarko Basin in Texas and Oklahoma and (b) the Louisiana onshore and Louisiana and Texas offshore areas. Gas from Wyoming and Canada is obtained by ANR Pipeline through transportation and exchange agreements with other companies. ANR Pipeline's principal pipeline facilities at December 31, 1993 consisted of 12,657 miles of pipeline and 97 compressor stations with 1,069,788 installed horsepower. At December 31, 1993, the design peak day delivery capacity of the transmission system, considering supply sources, storage, markets and transportation for others, was approximately 5.6 Bcf per day. Colorado is involved in all phases of the production, gathering, processing, transportation, storage and sale of natural gas. Colorado purchases and produces natural gas and makes sales of such gas principally to local gas distribution companies for resale. Separately, Colorado contracts to gather, process, transport and store natural gas owned by third parties. Colorado's gas transmission system extends from gas production areas in the Texas Panhandle, western Oklahoma and western Kansas, northwesterly through eastern Colorado to the Denver area, and from production areas in Montana, Wyoming and Utah, southeasterly to the Denver area. Colorado's gas gathering and processing facilities are located throughout the production areas adjacent to its transmission system. Most of Colorado's gathering facilities connect directly to its transmission system, but some gathering systems are connected to other pipelines. Colorado also has certain gathering facilities located in New Mexico. Colorado owns four underground gas storage fields; three located in Colorado, and one in Kansas. Colorado's principal pipeline facilities at December 31, 1993 consisted of 6,347 miles of pipeline and 65 compressor stations with approximately 346,000 installed horsepower. At December 31, 1993, the design peak day delivery capacity of the transmission system was approximately 2.0 Bcf per day. The underground storage facilities have a working capacity of approximately 29 Bcf per year and a peak day delivery capacity of approximately 769 MMcf. The Company formed CGS as a wholly-owned subsidiary in early 1993 to consolidate its unregulated natural gas businesses. CGS and its subsidiaries operate certain of Coastal's natural gas gathering and processing, gas supply and marketing, price risk management and producer financing activities. COMPETITION ANR Pipeline and Colorado have historically competed with interstate and intrastate pipeline companies in the sale, storage and transportation of gas and with independent producers, brokers, marketers and other pipelines in the gathering, processing and sale of gas within their service areas. On October 1, 1993 and November 1, 1993, Colorado and ANR Pipeline, respectively, implemented Order 636 on their systems. As a consequence, ANR Pipeline is no longer a seller of natural gas to resale customers. Order 636 also mandated implementation of capacity release and secondary delivery point options allowing a pipeline's firm transportation customers to compete with the pipeline for interruptible transportation, which may result in reduced interruptible transportation revenue of pipelines. Additional information on this subject is included under "Regulations Affecting Gas Systems" included herein. Natural gas competes with other forms of energy available to customers, primarily on the basis of price. These competitive forms of energy include electricity, coal, propane and fuel oils. Changes in the availability or price of natural gas or other forms of energy, as well as changes in business conditions, conservation, legislation or governmental regulations, capability to convert to alternate fuels, changes in rate structure, taxes and other factors may affect the demand for natural gas in the areas served by ANR Pipeline and Colorado. ANR Pipeline's storage, transportation and balancing services are influenced by its customers' access to alternative providers of such services. ANR Pipeline competes directly with Panhandle Eastern Pipe Line Company, Trunkline Gas Company, Northern Natural Gas Company, Natural Gas Pipeline Company of America, Michigan 2 Consolidated Gas Company and CMS Energy Company in its principal market areas of Michigan and Wisconsin for its storage, transportation and balancing business. ANR PIPELINE GAS SALES FOR RESALE AND TRANSPORTATION ANR Pipeline transports gas to markets on its system and other markets under transportation and exchange arrangements with other companies, including distributors, intrastate and interstate pipelines, producers, brokers, marketers and end-users. Typically, these arrangements call for ANR Pipeline to transport such gas to points of interconnection with local distribution companies or other interstate pipelines. Transportation service revenues provided by ANR Pipeline amounted to $533 million for 1993 compared to $463 million for 1992 and $382 million for 1991. During the period January through October of 1993, ANR Pipeline sold 228 Bcf of gas, of which approximately 71% was sold to its three largest customers: Michigan Consolidated Gas Company, Wisconsin Gas Company and Wisconsin Natural Gas Company. Michigan Consolidated Gas Company serves the City of Detroit and certain surrounding areas, the industrial cities of Grand Rapids and Muskegon, the communities of Ann Arbor and Ypsilanti and numerous other communities in Michigan. Wisconsin Gas Company serves the Milwaukee metropolitan area and numerous other communities in Wisconsin. Wisconsin Natural Gas Company serves the industrial cities of Racine, Kenosha, Appleton and their surrounding areas in Wisconsin. In 1993, ANR Pipeline provided 71% and 33% of the total gas requirements for Wisconsin and Michigan, respectively. Gas sales for resale by ANR Pipeline amounted to $604 million for 1993, compared to $635 million for 1992 and $641 million for 1991. ANR Pipeline's deliveries for the years 1993, 1992 and 1991 are as follows:
Total System Daily Average Year Deliveries System Deliveries - ---------------- -------------- ----------------- (Bcf) (MMcf) 1993 1,336 3,660 1992 1,335 3,648 1991 1,324 3,627
On November 1, 1992, as part of its Interim Settlement, ANR Pipeline implemented a restructuring of its traditional sales service by replacing existing services with a combination of competitive service alternatives. This restructuring provided a number of options for pipeline customers and was designed to enhance competition in ANR Pipeline's service areas. Under this restructuring, the sales service was "unbundled" on an interim basis into firm sales, transportation, flexible storage and flexible delivery services. Prior to the restructuring, the cost of providing transportation services for sales customers was recovered as part of ANR Pipeline's total resale rate and therefore, was classified as part of gas sales revenue. Under the restructuring, these costs were recovered through a separate rate and were included in transportation revenue. Additional information concerning the restructuring is set forth in "Regulations Affecting Gas Systems - Rate Matters" included herein. Effective November 1, 1993, ANR Pipeline implemented Order 636. This Order required significant changes in the services provided by ANR Pipeline, and resulted in the elimination of ANR Pipeline's merchant service. ANR Pipeline now offers an array of "unbundled" storage, transportation and balancing service options. Additional information concerning Order 636, including transportation and storage, is set forth in "Regulations Affecting Gas Systems - General" included herein. 3 GAS PURCHASES Effective November 1, 1993, as a result of the elimination of ANR Pipeline's merchant service, as mentioned above, ANR Pipeline's gas purchases decreased substantially. However, ANR Pipeline still purchases gas under a number of gas purchase contracts. ANR Pipeline's Order 636 restructured tariff provides mechanisms for the purpose of recovering from or refunding to its customers any pricing differential between costs incurred to purchase this gas and the amount ANR Pipeline recovers through auctioning of gas on the open market. Of ANR Pipeline's gas purchases in 1993, approximately 62% was obtained directly from producers, including 17% from affiliates. In addition, ANR Pipeline received approximately 32% of its gas supply from Canadian suppliers and 6% from a producer of synthetic fuels. The border price of gas originating in Canada has been based on policies, established in 1984 by the NEB and the OFE, allowing exporters and importers to negotiate market-responsive prices. Gas purchase contracts with producers generally provide for minimum purchase obligations based on estimated reserves under the well, the well's ability to produce or allowable gas takes set by state regulatory agencies. The prices paid depend upon, among other things, contractual requirements, market conditions, and the quality, condition of delivery and location of the gas. Under the NGWDA, effective July 26, 1989, all gas which would otherwise continue to be subject to price controls under the NGPA was deregulated over a three-year period and complete deregulation became effective January 1, 1993. Some of ANR Pipeline's remaining gas purchase contracts with independent producers contain provisions which require taking minimum volumes and/or making prepayments for volumes not taken if purchases fall below specified levels during the contract year ("take-or-pay"). Additional information on take-or-pay matters is set forth in Note 3 of the Notes to Consolidated Financial Statements included herein. GAS STORAGE ANR Pipeline owns seven and leases eight underground storage facilities in Michigan. The total working storage capacity of the system is approximately 193 Bcf, with a maximum day delivery capacity of 2 Bcf as late as the end of February. However, of the 193 Bcf, ANR Pipeline has proposed to the FERC to reclassify 62.1 Bcf of working gas to recoverable base gas. ANR Pipeline also has the contract rights for 42 Bcf of storage capacity provided by Blue Lake Gas Storage Company, 30 Bcf of storage capacity provided by ANR Storage and 10 Bcf of storage capacity provided by Michigan Consolidated Gas Company. The contract with Michigan Consolidated Gas Company expires in March 1994. Underground storage services of up to 166 Bcf of gas are provided by ANR Pipeline to customers on a firm basis. ANR Pipeline also provides interruptible storage services for customers on a short-term basis. Coastal's independent engineers, Huddleston, have estimated that ANR Pipeline's gas storage reserves as of December 31, 1993, 1992 and 1991 were 106.5 Bcf, 128 Bcf and 134 Bcf, respectively. The 1993 gas storage reserves are comprised of 19.4 Bcf of natural gas, maintained under ANR Pipeline's own account as working gas for system balancing and no-notice storage services; 25 Bcf of recoverable base gas reserves in seven owned storage fields; and 62.1 Bcf of working gas which ANR Pipeline has proposed to the FERC to reclassify as recoverable base gas. The decrease in the gas storage reserves between 1993 and 1992 reflects ANR Pipeline's elimination of its merchant service. Effective November 1, 1993, ANR Pipeline storage reserves are solely used to facilitate the overall operations of the system. 4 COLORADO GAS SALES, STORAGE AND TRANSPORTATION Beginning in October 1993, Colorado implemented Order 636 on its system and as required by the Order, Colorado's gas sales are now made at "upstream" locations (typically the wellhead). Colorado's gas sales contracts extend through September 30, 1996, but provide for reduced customer purchases to be made each year. Under Order 636, Colorado's certificate to sell gas for resale allows sales to be made at negotiated prices and not at prices established by FERC. Colorado is also authorized to abandon all sales for resale at such time as the contracts expire and without prior FERC approval. Effective October 1, 1993, Colorado formed an unincorporated Merchant Division to conduct most of Colorado's sales activity in the Order 636 environment. The gas sales volumes reported include those sales which continue to be made by Colorado together with those of its Merchant Division. Effective on October 1, 1993, Colorado assigned an undivided interest in a portion of its company-owned leases (representing approximately 20% of Colorado's owned reserves) to a new subsidiary. The subsidiary has entered into a contract to sell the production to Colorado's Merchant Division, which utilizes the gas primarily for its sales to Colorado's traditional customers. The reserve volumes reported represent those interests retained by Colorado together with those assigned to the new subsidiary. Gas sales revenues were $223 million in 1993, compared to $261 million in 1992. This decrease is due largely to the fact that prior to the mandated restructuring under Order 636 the costs of providing gathering, storage and transportation services for sales customers were recovered as part of the total resale rate and were classified as part of gas sales revenue. Subsequent to restructuring, these costs are now recovered under separate rates for each service. Colorado has engaged in "open access" transportation and storage of gas owned by third parties for several years. In addition, prior to October 1, 1993, Colorado provided storage and transportation services as part of its "bundled" sales service. As a result of Order 636, the Company has "unbundled" these services from its sales services and will continue to provide these services to third parties under individual contracts. Such services will be at negotiated rates that are within minimum and maximum levels established by the FERC. Also, pursuant to Order 636, Colorado, on September 30, 1993, sold all of its working gas except for 3.8 Bcf which it retained for operational needs. Colorado's deliveries for the years 1993, 1992 and 1991 are as follows:
Total System Daily Average Year Deliveries System Deliveries - ------------------------ -------------- ----------------- (Bcf) (MMcf) 1993 453 1,241 1992 428 1,169 1991 408 1,119
GAS GATHERING AND PROCESSING Prior to Order 636, Colorado gathered and processed gas incident to its "bundled" sales service (which also included storage and transportation activities). However, in compliance with the FERC mandated restructuring, Colorado now provides gathering and processing services on an "unbundled" or stand-alone basis. Colorado contracts for these services under terms which are negotiated. With respect to gathering, Colorado is limited to charging rates which are between minimum and maximum levels approved by the FERC. Processing terms are not subject to FERC approval, but Colorado is required to provide "open access" to its processing facilities. 5 Colorado has 2,994 miles of gathering lines and 110,500 horsepower of compression in its gathering operations. Colorado owns and operates six gas processing plants which recovered approximately 86 million gallons of liquid hydrocarbons in 1993, compared to 77 million gallons in 1992 and 61 million gallons in 1991, and 4,400 long tons of sulfur in 1993 and 3,600 long tons in both 1992 and 1991. Additionally, in 1993, Colorado processed approximately 12 million gallons of liquid hydrocarbons owned by others compared to 10 million in 1992 and 11 million in 1991. These plants, with a total operating capacity of approximately 697 MMcf daily, recover mainly propane, butanes, natural gasoline, sulfur and other by-products, which are sold to refineries, chemical plants and other customers. ANR STORAGE ANR Storage develops and operates gas storage reservoirs to store gas for customers under firm long-term contracts. ANR Storage owns four underground storage fields and related facilities in northern Michigan, the working storage capacity of which is approximately 53 Bcf, including 30 Bcf contracted to ANR Pipeline. ANR Storage also owns a 50% equity interest in 3 joint venture storage facilities located in Michigan and New York with a total working storage capacity of approximately 60 Bcf, including 42 Bcf contracted to ANR Pipeline. GAS SYSTEM RESERVES AND AVAILABILITY ANR PIPELINE With the termination of its merchant service, ANR Pipeline no longer reports on gas system reserves and availability and, therefore, this report has been replaced by a general discussion set forth in "Supply Area Deliverability", presented below. SUPPLY AREA DELIVERABILITY Shippers on ANR Pipeline have direct access to the two most prolific gas supply areas in the United States, the Gulf Coast and Midcontinent. Statistics published by the Energy Information Agency, Office of Oil and Gas, U.S. Department of Energy, indicate that approximately 82% of all natural gas in the lower 48 states is produced from these two supply areas. Interconnecting pipelines provide shippers with access to all other major gas supply areas in the United States and Canada. Gas deliverability available to shippers on ANR Pipeline's system from the Midcontinent and Gulf Coast supply areas through direct connections and interconnecting pipelines and gatherers is approximately 3,800 MMcf per day. An additional 275 MMcf per day of deliverability is accessible to shippers on ANR Pipeline owned, or partially owned, pipeline segments not directly connected to an ANR Pipeline mainline. ANR Pipeline remains active in locating and connecting new gas supply sources to facilitate transportation arrangements made by third party shippers. During 1993, field development, newly connected supply sources and pipeline interconnections contributed 515 MMcf per day to total deliverability accessible to shippers on ANR Pipeline. COLORADO Colorado has reported in its Form 10-K for the year ended December 31, 1993 the current and future availability of Colorado's gas system reserves based on information prepared by Huddleston, the Company's independent engineers. Colorado, even with the restructuring under Order 636, continues to dedicate certain of its reserves pursuant to contract. Additional information is set forth in "Reserves Dedicated to a Particular Customer," presented below. 6 RESERVES DEDICATED TO A PARTICULAR CUSTOMER Colorado is committed to provide gas to Mesa Operating Company, formerly Mesa Operating Limited Partnership ("Mesa"), a customer, from specific owned gas reserves in the West Panhandle Field of Texas. Production from this area contributed approximately 46% of Colorado's total supply in 1993. Approximately 68% of those volumes were delivered to Mesa. Under an agreement which was effective January 1, 1991, as amended, Colorado has the right to take a cumulative 23% of the total net production from such reserves for its customers other than Mesa. RECONCILIATION WITH FERC FORM 15 REPORT The FERC Form 15 Annual Report of Gas Supplies is no longer required pursuant to FERC Order No. 554 issued July 13, 1993. WYOMING INTERSTATE COMPANY, LTD. WIC, a limited partnership owned by two wholly-owned Coastal subsidiaries, owns a 269-mile, 36-inch diameter pipeline across southern Wyoming. It has a throughput capacity of approximately 500 MMcf of gas daily. The WIC pipeline connects with an 88-mile western segment in which a Coastal subsidiary has a 10% interest and is the center section of the 800-mile Trailblazer pipeline system built by a group of companies to move gas from the Overthrust Belt and other Rocky Mountain areas to supply midwestern and eastern markets. Colorado and three other pipeline companies for which the WIC line transports gas have entered into long-term contracts having demand volumes totaling 500 MMcf daily. In 1993, the WIC line transported an average of 228 MMcf daily, compared to 261 MMcf daily in 1992. On January 1, 1992, WIC became an unrestricted open access transporter. GREAT LAKES GAS TRANSMISSION LIMITED PARTNERSHIP Coastal and TransCanada, a non-affiliated company, each own 50% of Great Lakes which owns a 1,985-mile, 36-inch diameter gas pipeline system from the Manitoba-Minnesota border to an interconnection on the Michigan-Ontario border at St. Clair, Michigan. Great Lakes transported 854 Bcf in 1993 as compared to 789 Bcf in 1992. Great Lakes has contract commitments to transport a total of 1.3 Bcf per day for TransCanada. It also transports up to 800 MMcf per day primarily for United States markets, including 77 MMcf per day to ANR Pipeline. Great Lakes exchanges gas with ANR Pipeline by delivering gas in the upper peninsula of Michigan and receiving an equal amount of gas in the lower peninsula of Michigan. This arrangement reduces the distance that gas must be transported by Great Lakes and ANR Pipeline. COASTAL GAS SERVICES COMPANY The Company formed CGS, a wholly-owned subsidiary, in early 1993 to consolidate its unregulated natural gas businesses. CGS and its subsidiaries operate certain of Coastal's natural gas gathering and processing, gas supply and marketing, price risk management and producer financing activities. CGS' subsidiary, ANR Gas Supply Company, was formed to provide merchant services to former ANR Pipeline customers contracting for such service. ANR Gas Supply Company has executed 25 contracts with former ANR Pipeline customers with an aggregate service commitment of 85 MMcf per day. CGMC is the largest of CGS's subsidiaries and continues to be one of the most successful natural gas marketing companies in North America. CGMC managed the sale and delivery of 828 Bcf of natural gas in 1993 as compared to 788 Bcf in 1992. CGMC conducts business on over 60 pipelines and has over 1,000 producer and market customers in North America, including imports and exports with Canada and Mexico. 7 REGULATIONS AFFECTING GAS SYSTEMS GENERAL Under the NGA, the FERC has jurisdiction over ANR Pipeline, Colorado, WIC, ANR Storage and Great Lakes as to sales, transportation, balancing of gas, rates and charges, the construction of new facilities, extension or abandonment of service and facilities, accounts and records, depreciation and amortization policies and certain other matters. Under Order 636, the FERC has determined that it will not regulate sales rates by pipelines including these companies. Additionally FERC has asserted rate-regulation (but not certificate regulation) over gathering. Colorado is challenging the FERC's assertion of rate jurisdiction over gathering, but has agreed in a settlement that for three years beginning October 1, 1993 Colorado will post in its tariff the minimum and maximum gathering rates which will be established by FERC. ANR Pipeline, Colorado, WIC, ANR Storage and Great Lakes, where required, hold certificates of public convenience and necessity issued by the FERC covering their jurisdictional facilities, activities and services. ANR Pipeline, Colorado, WIC, ANR Storage and Great Lakes are also subject to regulation with respect to safety requirements in the design, construction, operation and maintenance of their interstate gas transmission and storage facilities by the Department of Transportation. Operations on United States government land are regulated by the Department of the Interior. On November 1, 1990, the FERC issued Order No. 528 in which it sets forth guidelines for an acceptable allocation method for a fixed direct charge to collect take-or-pay settlement costs. Pursuant to Order No. 528, ANR Pipeline has filed for and received approval to recover 75% of expenditures associated with resolving producer claims and renegotiating gas purchase contracts. The approved filings provide for recovery of 25% of such expenditures via a direct bill to ANR Pipeline's former sales for resale customers and 50% via a surcharge on all transportation volumes. Contract reformation and take-or-pay costs incurred as a result of the mandated Order 636 restructuring will be recovered under the transition costs mechanisms of Order 636 as well as through negotiated agreements with ANR Pipeline's customers. FERC Order Nos. 500 and 528 allowed regulated pipelines, including Colorado, to recover, through a fixed charge, from 25% to 50% of the cost of payments made to producers to extinguish outstanding claims under existing gas purchase contracts or to secure reformation of existing contracts. Fixed charges are paid by pipeline customers without regard to volumes of gas purchased. Under this election, however, an amount equivalent to the amount included in the fixed charge must be borne by the pipeline. Colorado has incurred costs related to contract reformation and settlements of take-or-pay claims, a portion of which have been recovered under Order Nos. 500 and 528. On April 8, 1992, the FERC issued Order Nos. 636, 636-A and 636-B (collectively "Order 636"), which required significant changes in the services provided by interstate natural gas pipelines. Subsidiaries of the Company and numerous other parties have sought judicial review of aspects of Order 636. Notwithstanding those appeals, ANR Pipeline, Colorado, WIC, ANR Storage and Great Lakes have successfully complied with the requirements of Order 636. On July 2, 1993, Colorado submitted to the FERC an unanimous offer of settlement which resolved all the Order 636 restructuring issues which had been raised in its restructuring proceedings. That settlement was ultimately approved (except for minor issues), and Colorado's restructured services became effective October 1, 1993. Under that settlement, Colorado has "unbundled" its gas sales from its other services. Separate gathering, transportation, storage, no notice transportation and storage and other services are available on a "stand alone" basis to any customers desiring them. Colorado's Order 636 transition costs are not expected to be material and are expected to be recovered through Colorado's rates. ANR Pipeline placed its restructured services under Order 636 into effect on November 1, 1993. ANR Pipeline now offers a wide range of "unbundled" transportation, storage and balancing services. Several persons, including 8 ANR Pipeline, have sought judicial review of aspects of the FERC's orders approving ANR Pipeline's restructuring filings. Order 636 also provides mechanisms for recovery of transition costs associated with compliance with that Order. These transition costs include gas supply realignment costs, the cost of stranded pipeline investment and the cost of new facilities required to implement Order 636. ANR Pipeline expects that it will incur transition costs of approximately $150 million. As a result of the recovery mechanisms provided under Order 636, ANR Pipeline anticipates that these transition costs will not have a material adverse effect on ANR Pipeline's consolidated financial position or its results of operations. RATE MATTERS ANR PIPELINE. All of ANR Pipeline's 1993 service options were subject to rate regulation by the FERC. Under the NGA, ANR Pipeline must file with the FERC to establish or adjust its service rates. The FERC may also initiate proceedings to determine whether ANR Pipeline rates are "just and reasonable." On March 10, 1992, ANR Pipeline submitted to the FERC a comprehensive Interim Settlement designed to resolve all outstanding issues resulting from its 1989 rate case and its 1990 proposed service restructuring proceeding. The Interim Settlement involved, inter alia, an array of new sales, delivery, transportation and storage service alternatives and the implementation of a gas inventory charge, designed to compensate ANR Pipeline for the costs of standing ready to serve its sales customers. The Interim Settlement reflected a decrease in cost of service of approximately $45 million, which was largely attributable to a reduction in depreciation rates from 3.4% to 1.82%. Also included was a provision which allowed ANR Pipeline to direct bill its customers for its remaining unrecovered purchased gas costs. The Interim Settlement became effective November 1, 1992 and expired with ANR Pipeline's implementation of Order 636 on November 1, 1993. Specific provisions of the Interim Settlement relating to the deferral and future recovery of certain costs remain in effect. On December 17, 1992, the FERC issued a policy statement that outlined changes on how pipelines may recover the costs of employees' postretirement benefits other than pensions. The FERC's policy will be to recognize, as a component of jurisdictional cost-based rates, allowances for FAS No. 106 costs of company employees when determined on an accrual basis, provided certain conditions are met. On November 1, 1993, ANR Pipeline filed a general rate increase with the FERC. The proposed rates reflect a $121 million increase in ANR Pipeline's cost of service from that approved in the Interim Settlement and a $218 million increase over ANR Pipeline's approved rates for its restructured services. The increase represents higher plant investment, Order 636 restructuring costs, rate of return and tax rate changes and increased costs related to the required adoption of recent accounting rule changes, i.e., FAS Nos. 106 and 112. (See Note 11 of the Notes to Consolidated Financial Statements for a discussion of FAS Nos. 106 and 112.) The FERC has permitted ANR Pipeline to place its new rates into effect on May 1, 1994, subject to refund and subject to certain required compliance changes and the outcome of an evidentiary hearing on all remaining issues. COLORADO. Under the NGA, Colorado continues to be required to file with the FERC to establish or adjust certain of its service rates. The FERC may also initiate proceedings to determine whether Colorado's rates are "just and reasonable". On March 31, 1993, Colorado filed at FERC to increase its rates by approximately $26.5 million annually. Such rates (adjusted to reflect Colorado's Order 636 program) became effective subject to refund on October 1, 1993. WIC. WIC settled a rate case with the FERC, as principal payments and associated interest of $68.1 million were paid to WIC's shippers on October 8, 1991, exclusive of amounts which are being held until the resolution of pending bankruptcy proceedings involving its customer, Columbia Gas Transmission Corporation, which is currently pending before the U.S. Bankruptcy Court for the District of Delaware. Should such refunds be required, there would be no effect on the results of operations as accruals have been previously established. 9 In 1993 the FERC initiated proceedings under Section 5 of the NGA to determine if WIC's rates approved in 1991 had become excessive. Administrative hearings were held in December of 1993, but no decision has been issued. Any decrease in rates that the FERC may ultimately require will only take effect prospectively following the issuance of a final order by the FERC that is no longer subject to rehearing by the agency. Certain regulatory issues remain unresolved among ANR Pipeline, Colorado, WIC and ANR Storage, their customers, their suppliers, and the FERC. ANR Pipeline, Colorado, WIC and ANR Storage have made provisions which represent management's assessment of the ultimate resolution of these issues. While these companies estimate the provisions to be adequate to cover potential adverse rulings on these and other issues, they cannot estimate when each of these issues will be resolved. OTHER DEVELOPMENTS The Empire State Pipeline Project, in which an affiliate of ANR Pipeline has a 45% interest and ANR Pipeline is the operator, was placed in service on November 1, 1993. The 156-mile pipeline system, extending from Niagara Falls to Syracuse, New York, will carry up to 570 MMcf per day to western and central New York and provide ANR Pipeline access to markets in the Northeastern United States. In August 1993, ANR Pipeline and Arkla, Inc. ("Arkla") announced execution of a restructured agreement under which ANR Pipeline will purchase an ownership interest in 250 MMcf per day of capacity in existing natural gas transmission facilities from Arkla. The restructured agreement resolved certain conditions imposed by the FERC in its October 1, 1992 authorization of the original purchase and sale agreement. As restructured, ANR Pipeline will own capacity interests in facilities valued at approximately $90 million, subject to receipt of all required regulatory approvals. The reduction in value of the facilities from the original purchase and sale agreement is the result of negotiations between ANR Pipeline and Arkla in light of the FERC's orders. ANR Pipeline and a subsidiary of CGS are partners in the SunShine Pipeline Project which is designed to capture a share of the growing Florida power generation market, as well as markets located in Mississippi, Alabama and the Florida Panhandle. SunShine Interstate Transmission Company ("SITCO"), the interstate pipeline segments of this project, will extend 170 miles from Pascagoula, Mississippi to Okaloosa, Florida where it will connect with Sunshine Pipeline Company, ("SunShine") the intrastate segment of this project. SunShine will be a 545-mile pipeline starting in Okaloosa and extending down Florida's west coast to the Tampa area. ANR Pipeline, through a wholly-owned subsidiary, will have a 40% interest in SITCO and a subsidiary of CGS will have a 40% interest in SunShine. Florida Power Corporation and TransCanada will both hold a 30% equity interest in each of the two projects. SITCO will have an initial capacity of 329.5 MMcf per day and SunShine will have an initial capacity of 249.5 MMcf per day. Both SITCO and SunShine have signed precedent agreements for a portion of their initial pipeline capacity. SITCO, which will be subject to FERC jurisdiction, has filed with the FERC to obtain a Certificate of Public Convenience and Necessity. FERC approval is expected in March, 1995. SunShine, which will be subject to the jurisdiction of the Florida Public Service Commission ("FPSC"), has received approval of its request for a Determination of Need from the FPSC. SunShine also expects environmental approval, in early 1995, under the procedures set forth in Florida's Natural Gas Transmission Pipeline Siting Act. Both projects are targeted to be placed into service in December 1995. The SunShine pipeline is expected to cost approximately $462 million and the SITCO pipeline is expected to cost approximately $188 million. A subsidiary of ANR Pipeline will have a 25% equity interest in the proposed Liberty Pipeline project, a 38-mile pipeline extending from New Jersey across New York Harbor to Long Island with a potential capacity of 500 MMcf per day. The pipeline is expected to serve local distribution company participants and independent power producers. A filing to obtain a Certificate of Public Convenience and Necessity has been made and is currently pending before the FERC. Subject to receiving applicable governmental approvals, an in-service date of late 1995 is possible, at an estimated cost of $160 million. ANR Pipeline (20% equity interest) and Interprovincial Pipe Line System Inc. plan to participate in the construction of the InterCoastal Pipe Line, a project designed to serve incremental markets in southern Ontario and 10 potentially Quebec and the Northeastern United States. The project will involve converting approximately 130 miles of existing oil pipeline to natural gas service, originating in Sarnia, Ontario and extending to Toronto, and the construction of approximately 25 miles of new pipeline. In connection with the project, facilities in Michigan will be constructed by ANR Pipeline to deliver gas from domestic sources. The project, which will have a maximum capacity of 175 MMcf per day, is projected to cost $37.6 million. The InterCoastal Pipe Line is subject to regulatory approval in Canada, and the ANR Pipeline facilities are subject to regulatory approvals in the United States. Filings seeking necessary authorizations from the NEB were made in the second quarter of 1993, and with the FERC on July 19, 1993. The project could be in service as early as November 1, 1994. A subsidiary of ANR Pipeline and affiliates of TransCanada and Brooklyn Union Gas Company have entered into a partnership agreement for the construction of the Mayflower Pipeline, which is expected to expand natural gas sales and storage services to markets in the Northeastern United States. ANR Pipeline will have a 45% interest in this project. The proposed 240-mile pipeline will extend east from the Iroquois Gas Transmission System at Canajoharie, New York to a location near Boston, Massachusetts and have an initial design capacity of 350 MMcf per day. The total project cost is expected to be $540 million. The pipeline is expected to be in service in late 1997. Construction of the project is subject to receipt of all federal regulatory approvals. Colorado owns approximately 20% of Natural Fuels Corporation ("NFC") which is headquartered in Denver, Colorado. NFC's business is to develop compressed natural gas ("CNG") as an alternative vehicular fuel. Major services provided by NFC include vehicle conversions to CNG, fuel sales, CNG equipment sales, maintenance services, and training. Besides operating a full service conversion center which converts vehicles to CNG, NFC has installed 44 stations in Colorado, 26 of which are open to the public. NFC, in joint partnership with Total Petroleum, installs natural gas refueling facilities at selected Total Petroleum stores along the Colorado Front Range. This project is one of the largest public fueling station development commitments in the United States. As of January 1994, seven stations were operational and one was under construction. Also, Colorado is a co-sponsor in the testing of two Colorado Springs buses that are powered by dual-fueled engines modified to run on up to 90% natural gas. On July 8, 1993, Young Gas Storage Company, Ltd. ("Young"), a limited partnership, filed an application with the FERC for a Certificate of Public Convenience and Necessity authorizing, in part, the development, construction and operation of an underground natural gas storage field. The $44.4 million storage field project, to be located in Morgan County, Colorado, will be capable of storing 5.3 Bcf of working gas with a withdrawal rate of 200 MMcf per day when fully developed in 1998. The total capacity is under long-term contracts. On March 3, 1994, the FERC issued an Order Granting Preliminary Determination which approved the non-environmental aspects of the project. The Company is reviewing this Order and intends to seek rehearing with respect to some aspects of this Order. CIG Gas Storage Company and Young Gas Storage Company, the two general partners in the Young Partnership, are affiliates of Coastal. The limited partner is the City of Colorado Springs, a municipal corporation of the State of Colorado. CGS has established a producer and market services division to provide financing services to producers. This division will arrange funding for acquisitions and development of oil and gas reserves and other producer capital requirements. As a result of these activities, CGS will obtain access to long- term oil and gas supplies enhancing CGS' marketing capabilities. Coastal States Gas Transmission Company, a subsidiary of the Company, is building a natural gas intrastate pipeline from the Bob West Field in South Texas to run initially 26 miles north to the Midcon Texas Pipeline System at a cost of approximately $8 million. This new pipeline is expected to be completed prior to June 1994 and will transport up to 200 MMcf per day of natural gas without compression and up to 350 MMcf per day with compression. Funding for certain pending and proposed natural gas pipeline projects is anticipated to be provided through non-recourse financings in which the projects' assets and contracts will be pledged as collateral. This type of financing typically requires the participants to make equity investments totaling approximately 20% to 30% of the cost of the project, with the remainder financed on a long-term basis. 11 REFINING, MARKETING AND DISTRIBUTION The Company has subsidiary operations involved in refining, marketing and distribution of petroleum products. The petroleum industry is highly competitive in the United States and throughout most of the world. This industry also competes with other industries in supplying the energy needs of various types of consumers. REFINING Subsidiaries of the Company operated their wholly-owned refineries at 87% of year 1993 average combined capacity compared to 82% in 1992. The aggregate sales volumes (millions of barrels) of Coastal's wholly-owned refineries for the three years ended December 31, 1993, were 134.9 (1993), 136.7 (1992) and 141.2 (1991). A joint venture, Pacific Refining Company, had sales of 19.9 million barrels in 1993, 21.3 million barrels in 1992 and 27.4 million barrels in 1991 which were excluded from Coastal's 1993, 1992 and 1991 sales. Of the total refinery sales in 1993, 30% was gasoline, 46% was middle distillates, such as jet fuel, diesel fuel and home heating oil, and 24% was heavy industrial fuels and other products. The average daily processing capacity of crude oil at December 31, 1993, average daily throughput and storage capacity at the Company's wholly-owned operating refineries are set forth below:
Refinery Location - ---------------- ---------------------- Average Daily Daily Throughput (Barrels) Storage Capacity ----------------------- Capacity (Barrels) 1993 1992 (Barrels) -------------- --------- -------- --------- Aruba Aruba 175,000 136,400 123,800 8,000,000 Corpus Christi Corpus Christi, Texas 95,000 79,300 78,600 7,500,000 Eagle Point Westville, New Jersey 125,000 109,300 101,500 10,400,000 Mobile Mobile, Alabama 17,500 13,500 12,400 600,000 ------- ------- ------- ---------- Total Operating 412,500 338,500 316,300 26,500,000
The Company has curtailed refining operations at its three Kansas refinery locations as part of an overall restructuring plan for refining and marketing undertaken in 1992. Two of these locations, Wichita and El Dorado, are still operating as refined products terminals. Refinery units have been mothballed and are being evaluated for utilization either by the company or by third parties. Pacific Refining at Hercules, California has a refining capacity of 55,000 barrels per day at December 31, 1993. Since January 1989, the China National Chemicals Import & Export Corporation has held a 50% interest in Coastal's west coast refining and marketing properties, including Pacific Refining Company. The Hercules refinery was operated during 1993 and processed 46,200 barrels per day of crude oil and other feedstocks. Present plans are to continue operation of the refinery through 1994 and most likely through 1995, consistent with resolution of regulatory issues and attainment of earnings objectives. The Company is evaluating several future options for the facility. These include expansion of asphalt facilities and installation of Clean Air Act of 1990 and California Air Resources Board regulations compliance upgrades and conversion of the Hercules site to alternative uses. In addition, Coastal's international operations include a minority interest, through a foreign subsidiary, in a refinery located in Hamburg, Germany which has a refining capacity of 100,000 barrels per day and a storage capacity of 1,800,000 barrels for crude oil and 5,200,000 barrels for products. The Company's refineries produce a full range of petroleum products ranging from transportation fuels to paving asphalt. The refineries are operated to produce the particular products required by customers within each refinery's geographic area. In 1993, the products emphasized included premium gasolines and products for specialty markets such as petrochemical feedstocks, aviation fuels and asphalt. 12 MARKETING AND DISTRIBUTION REFINED PRODUCTS MARKETING. Sales volumes for distribution activities of Coastal subsidiaries, including products from Company refineries and purchases from other suppliers, for the three years ended December 31, 1993, are set forth below (thousands of barrels):
Type of Sale 1993 1992 1991 - ---------------------------------------- ------- ------- ------- Company Produced Refined Products....... 134,925 136,664 141,224 Refined Products Purchased from Others.. 140,635 162,280 128,146 Natural Gas Liquids..................... 18,155 17,038 13,914 ------- ------- ------- Total.................... 293,715 315,982 283,284 ======= ======= =======
Subsidiaries of the Company market refined products and liquefied petroleum gas at wholesale in 36 states through 322 terminals. Coastal Refining & Marketing, Inc. serves customers in the Midwest, Mississippi Valley and the Southwest through 221 product and liquified petroleum gas terminals in 27 states. On the Gulf and East Coasts, Coastal Fuels Marketing, Inc., Coastal Oil New York, Inc. and Coastal Oil New England, Inc. serve home, industry, utility, defense and marine energy needs. In 1993, these subsidiaries' sales volumes were 132 million barrels, which accounted for approximately 45% of the total marketing and distribution sales. Effective January 1, 1994, the refined products marketing operations of these subsidiaries were consolidated into Coastal Refining & Marketing, Inc. International subsidiaries that acquire feedstocks for the refineries and products for the distribution system are located in Aruba, Bahrain, Bermuda, London, Madrid and Singapore. In March 1993, Coastal Petroleum N.V., a subsidiary of Coastal, and The Subic Bay Metropolitan Authority signed a long-term lease for petroleum storage facilities located at the former U.S. naval base at Subic Bay in the Philippines. Coastal is leasing 304 acres of land, with 68 individual storage tanks totalling 2.4 million barrels of storage, most of which are underground, and 40 miles of pipeline connecting the terminal with other facilities within the Subic Bay Freeport Zone. Additionally, in late 1993, another subsidiary of Coastal signed a joint venture agreement with a subsidiary of the Malaysian national oil company, Petronas, for use of the entire capacity of this storage facility for independent marketing efforts throughout the region and for joint marketing in the Subic Bay Freeport Zone. The Company, through Coastal Mart, Inc. and branded marketers, conducts retail marketing, using the C-MART(R) and/or COASTAL(R) trademarks, in 36 states through approximately 1,532 Coastal branded outlets, with 578 of those outlets operated by the Company. Fleet fueling operations include 17 outlets in Texas and 7 in Florida. Coastal Unilube, Inc., based in West Memphis, Arkansas, blends, packages and distributes lubricants and automotive products under the UNILUBE(R), DUPLEX(R), CUI(R) and UNIPRO(R) brand names. Coastal Unilube, Inc. distributes lubricants and automotive products through 14 warehouses servicing customers in 36 states. TRANSPORTATION. The Company's transportation facilities include petroleum liquids pipelines, tank cars, tankers, tank trucks and barges. Coastal has approximately 3,900 miles of pipeline for gathering and transporting an average of 334,000 barrels daily of crude oil, condensate, natural gas liquids and refined products. These lines are located principally in Texas and Kansas and include 358 miles of crude oil pipelines, 784 miles of refined products pipelines and 671 miles of natural gas liquids pipelines, all 100% owned and operated by Coastal subsidiaries, and 1,997 miles of 50% owned crude oil pipelines and 80 miles of jointly-owned products pipelines with less than a 50% interest. In 1993, throughput of crude oil pipelines averaged 148,199 barrels per day, compared to 155,386 barrels per day in 1992. In 1993, throughput of refined products and natural gas liquid pipelines averaged 186,430 barrels per day, compared to 162,696 barrels per day in 1992. Other transportation facilities for marketing operations of Coastal subsidiaries include a regional tank truck fleet which distributes refined and liquefied petroleum gas products to customers in parts of Florida, New England and 13 New York, and another fleet of trucks, which transport petroleum products and liquefied petroleum gas products for Coastal marketing subsidiaries serving the Texas area. The marine transportation total fleet at December 31, 1993 consisted of 17 tug boats, 24 oil barges, 6 owned tankers used for the transportation of refined petroleum products and crude oil and 3 time-chartered tankers. EXPLORATION AND PRODUCTION GAS AND OIL PROPERTIES Coastal subsidiaries are engaged in gas and oil exploration, development and production operations in the United States and Argentina. Argentine operations are discussed in Supplemental Information on Oil & Gas Producing Activities (Unaudited), as set forth in Item 14(a)1 hereof. United States operations are principally in Alabama, Arkansas, California, Colorado, Kansas, Louisiana, Michigan, Mississippi, Montana, New Mexico, North Dakota, Oklahoma, Texas, Utah, West Virginia, Wyoming and offshore in the Gulf of Mexico. In 1993, the Company's domestic operations sold approximately 53% of all the gas it produced to its natural gas system affiliates and a gas brokerage affiliate. The Company's domestic operations make short-term gas sales directly to industrial users and distribution companies to increase utilization of its excess current gas production capacity. Oil is sold primarily under short-term contracts at field prices posted by the principal purchasers of oil in the areas in which the producing properties are located. Acreage held under gas and oil mineral leases as of December 31, 1993 is summarized as follows:
UNDEVELOPED DEVELOPED ----------- --------- AREA GROSS NET GROSS NET - ------------------------------------- ----- ----------- --------- --- (Thousands of Acres) Domestic........................... 1,093 798 1,792 962 Federal Offshore (Gulf of Mexico).. 66 32 54 20 ----- --- ----- --- TOTAL.......................... 1,159 830 1,846 982 ===== === ===== ===
The domestic net acreage held for production is concentrated principally in Texas (37%), Utah (20%), Oklahoma (10%), West Virginia (7%), Kansas (6%) and Wyoming (6%). Approximately 21%, 22% and 23% of the Company's total undeveloped net acreage is under leases that have minimum remaining primary terms expiring in 1994, 1995 and 1996, respectively. Productive wells as of December 31, 1993 are as follows (domestic):
TYPE OF WELL GROSS NET - -------------------------- ----- ----- Oil..................... 3,860 1,016 Gas..................... 2,574 1,372 ----- ----- TOTAL............... 6,434 2,388 ===== =====
14 EXPLORATION AND DRILLING During 1993, Coastal's domestic exploration and production units participated in drilling 158 gross wells, 75.5 net wells, to the Company's interest. Coastal's participation in wells drilled in the three years ended December 31, 1993, is summarized as follows:
1993 1992 1991 ----------- ----------- ---------- EXPLORATORY WELLS GROSS NET GROSS NET GROSS NET - ---------------------------------- ----- ---- ----- ----- ----- ---- Oil........................... 1 0.5 6 1.8 7 4.6 Gas........................... - - 3 1.7 7 5.3 Dry Holes..................... 7 4.1 16 9.1 9 6.5 ---- ----- ---- ----- ---- ---- 8 4.6 25 12.6 23 16.4 ==== ===== ==== ===== ==== ==== DEVELOPMENT WELLS - --------------------------------- Oil.......................... 44 18.6 47 18.4 24 5.3 Gas.......................... 104 51.2 141 108.5 89 62.0 Dry Holes.................... 2 1.1 11 8.3 7 3.2 --- ---- ---- ----- ---- ---- 150 70.9 199 135.2 120 70.5 === ==== ==== ===== ==== ====
Wells in progress as of December 31, 1993 are as follows (domestic):
TYPE OF WELL GROSS NET ------------ ----- --- Exploratory............................. 3 1.2 Development............................. 9 2.2 --- --- Total.................................. 12 3.4 === ===
During the course of 1992 and 1991 development drilling focused on natural gas wells which qualified under a federal tax incentive program providing for future tax credits on wells producing from tight sands gas formations. To qualify, wells must have been spudded before January 1, 1993. During 1993, development drilling focused on replacing and increasing production capacity as natural gas prices stabilized at acceptable levels. Coastal Limited Ventures, Inc., a domestic subsidiary of Coastal, is the general partner in six limited partnership drilling programs which have been offered to Coastal's employees and shareholders. Information pertaining thereto can be located in the Annual Report on Form 10-K filed by each limited partnership and available from the Company. GAS AND OIL PRODUCTION Natural gas production during 1993 averaged 334 MMcf daily, compared to 277 MMcf daily in 1992. Production from non-pipeline-owned wells averaged 207 MMcf daily in 1993, compared to 147 MMcf daily in 1992. Crude oil, condensate and natural gas liquids production averaged 13,534 barrels daily in 1993, compared to 13,002 barrels daily in 1992. 15 The following table shows gas, oil, condensate and natural gas liquids production volumes attributable to Coastal's domestic interest in gas and oil properties for the three years ended December 31, 1993:
NATURAL GAS OIL CONDENSATE LIQUIDS GAS (THOUSANDS (THOUSANDS (THOUSANDS YEAR (MMCF) OF BARRELS) OF BARRELS) OF BARRELS) - --------------------- ---------- ---------- ---------- ---------- 1993 122,011 3,908 440 592 1992 101,502 3,823 496 440 1991 89,346 3,398 512 179
Many of Coastal's domestic gas wells are situated in areas near, and are connected to, its gas systems. In other areas, gas production is sold to pipeline companies and other purchasers. Generally, Coastal's domestic production of crude oil, condensate and natural gas liquids is purchased at the lease by its marketing and refinery affiliates. Some quantities are delivered via Coastal's gathering and transportation lines to its refineries, but most quantities are redelivered to Coastal through various exchange agreements. The following table summarizes sales price (net of production taxes) and production cost information for domestic exploration and production operations during the three years ended December 31, 1993:
1993 1992 1991 ----- ----- ----- Average sales price (net of production taxes): Gas - per Mcf..................................... $ 1.93 $ 1.76 $ 1.67 Oil - per barrel.................................. 16.21 18.21 19.15 Condensate - per barrel........................... 15.55 17.40 18.67 Natural Gas Liquids - per barrel.................. 8.75 9.62 13.36 Average production cost per unit (equivalent Mcf).. 0.67 0.79 0.97
NATURAL GAS PROCESSING ANR Production Company and Coastal Oil & Gas Corporation, domestic subsidiaries of the Company, are also engaged in the processing of natural gas for the extraction and sale of natural gas liquids. In 1993, total revenues of $36.7 million were generated from the extraction and sale of 136 million gallons of ethane, propane, iso-butane, normal butane and natural gasoline from natural gas processing plants. Sales prices of natural gas liquids fluctuate widely as a result of market conditions and changes in the prices of other fuels and chemical feedstocks. COMPANY-OWNED RESERVES Coastal's domestic proved reserves of crude oil, condensate and natural gas liquids at December 31, 1993, as estimated by Huddleston, its independent engineers, were 28.8 million barrels, compared to 33.1 million barrels at the end of 1992. Proved gas reserves as of December 31, 1993, net to Coastal's interest, were estimated by the engineers to be 925.5 Bcf compared to 974.8 Bcf as of December 31, 1992. For information as to Company-owned reserves of oil and gas, see "Supplemental Information On Oil and Gas Producing Activities" as set forth in Item 14(a)1 hereof. 16 COMPETITION In the United States, the Company competes with major integrated oil companies and independent oil and gas companies for suitable prospects for oil and gas drilling operations. The availability of a ready market for gas discovered and produced depends on numerous factors frequently beyond the Company's control. These factors include the extent of gas discovery and production by other producers, crude oil imports, the marketing of competitive fuels, and the proximity, availability and capacity of gas pipelines and other facilities for the transportation and marketing of gas. The production and sale of oil and gas is subject to a variety of federal and state regulations, including regulation of production levels. REGULATION In all states in the United States in which Coastal engages in oil and gas exploration and production, its activities are subject to regulation. Such regulations may extend to requiring drilling permits, the spacing of wells, the prevention of waste and pollution, the conservation of natural gas and oil, and various other matters. Such regulations may impose restrictions on the production of natural gas and crude oil by reducing the rate of flow from individual wells below their actual capacity to produce. Likewise, oil and gas operations on all federal lands are subject to regulation by the Department of the Interior and other federal agencies. COAL The Company, through ANR Coal Company and its subsidiaries ("ANR Coal") in the eastern United States and through Coastal States Energy Company and its subsidiaries ("Coastal States Energy") in the west, produces and markets high quality bituminous coal from its reserves in Kentucky, Virginia, West Virginia and Utah. In addition, subsidiaries of ANR Coal lease interests in their reserves to unaffiliated producers and market third-party coal through brokerage sales operations. At December 31, 1993, coal properties consisted of the following:
Coal Holdings (Acres) ---------------------------------------------------- Clean, Owned Leased Recoverable ---------------------------- Exchanged Total Tons Fee Mineral Surface (Net) Acres (Millions)(1) ------ ----------- ------- ----------- --------- ------------- Kentucky............... 11,351 65,107 2,271 25,746 104,475 222 Virginia............... 23,765 37,531 2,021 22,724 86,041 168 West Virginia.......... 2,165 36,772 4,156 124,352 167,445 230 Utah................... - 2,480 - 32,077 34,557 251 ------ ------- ----- ------- ------- --- TOTAL................ 37,281 141,890 8,448 204,899 392,518 871 ====== ======= ===== ======= ======= ===
- ------------------------ (1) Based on a 65% recovery rate. In September 1993, a subsidiary of the Company acquired Soldier Creek Coal Company and its parent, Sage Point Coal Company. This acquisition added approximately 86 million tons of new recoverable coal reserves to Coastal's reserve base. Substantially all of the acquired reserves satisfy the sulfur emissions requirements of the Clean Air Act of 1990. 17 At December 31, 1993, the Company controlled approximately 871 million recoverable tons of bituminous coal reserves. Production in 1993 from the Company's reserves totalled 23.6 million tons of which 18.4 million tons were produced from captive operations and 5.2 million tons were produced by lessees under royalty agreements. In its eastern captive operations, ANR Coal contracts with independent mine operators to mine and deliver coal to Company owned and operated processing and loading facilities. Captive production and processing from ANR Coal and Coastal States Energy in 1993 totalled 9.2 and 9.2 million tons, respectively. Captive sales from ANR Coal and Coastal States Energy were 7.2 million and 8.9 million tons, respectively, in 1993. Brokerage sales in which the Company receives a commission on coal sold for third parties totalled 1.3 million tons for the same period. In 1993, approximately 70% of sales were to domestic utilities, 12% of sales were to domestic industrial customers and 18% of sales were to export markets primarily in Asia and Canada. Of the total 1993 tonnage sold, 12.1 million tons (75%) were sold under long-term contracts. At December 31, 1993, the weighted average remaining life of these contracts was 63 months. The Company had approximately 21.2 million tons of annual production capacity at December 31, 1993. In the eastern United States, the Company owns and operates five coal preparation plants and nine loading facilities with a combined annual capacity of 10.6 million tons. Coastal States Energy's mines in Utah employ three longwall mining systems, diesel shuttle cars and have a combined annual capacity of 10.6 million tons. In addition to its bituminous coal operations, the Company controls overriding royalty interests in approximately 484 million tons of lignite reserves in North Dakota. Production from these reserves in 1993 totalled 16.1 million tons. The Company, through its captive operations, leasing programs and brokerage activities, participates in all aspects of the national bituminous coal industry and is a significant competitor in international coal markets. A significant portion of its eastern reserves and all of its Utah reserves are low-sulfur, compliance coal which will allow the Company to remain a major supplier of steam coal to domestic utilities under the Clean Air Act of 1990. The Company competes with a large number of coal producers and land holding companies across the United States. The principal factors affecting the Company's coal sales are price, quality (BTU, sulfur and ash content), royalty rates, employee productivity and rail freight rates. CHEMICALS Coastal Chem, Inc. ("Coastal Chem"), a Coastal subsidiary, operates a plant near Cheyenne, Wyoming, which produces anhydrous ammonia, ammonium nitrate, nitric acid, food grade liquid carbon dioxide and urea for use as agricultural fertilizers, livestock feed supplements, blasting agents and various other industrial applications. This plant has the capacity to produce 500 tons per day of anhydrous ammonia, 750 tons per day of ammonium nitrate, 275 tons per day of urea, 700 tons per day of nitric acid and 400 tons per day of food grade liquid carbon dioxide. Coastal Chem also owns a plant at Table Rock, Wyoming, which has a production capacity of 150 tons of liquid fertilizer per day. In addition, Coastal Chem operates a low density ammonium nitrate ("LoDAN/(R)/") facility in Battle Mountain, Nevada. The LoDAN/(R)/ is used primarily as a blasting agent in surface mining. This facility produces 400 tons per day of LoDAN/(R)/. Coastal Chem completed a urea expansion project in 1992 with full production commencing in mid 1993. This expanded facility increased the previous capacity of 175 tons per day to 275 tons per day. During the last six months, the facility has operated at its designed capacity. 18 Coastal Chem commenced production from its integrated methyl tertiary butyl ether ("MTBE") plant in 1993. MTBE is a gasoline additive which adds oxygen and boosts octane of the blended mixture. The plant has a production capacity of 4,000 barrels per day. Sales volumes for the three years ended December 31, 1993, are set forth below (thousands of tons):
1993 1992 1991 ---- ---- ---- Agricultural Sales....................... 222 214 238 Industrial Sales......................... 410 407 365 MTBE..................................... 119 - - ---- ---- ---- TOTAL.................................. 751 621 603 ==== ==== ====
INDEPENDENT POWER PRODUCTION Coastal Power Production Company ("Coastal Power") and certain of its affiliates develop, operate and are equity participants in cogeneration plants which produce and sell electricity and thermal products, including steam and chilled water. Affiliates of Coastal Power currently own interests in four operating cogeneration facilities in the United States. Capitol District Energy Center Cogeneration Associates ("CDECCA") owns a cogeneration facility with an approximate 56 megawatt capacity. An affiliate of Coastal Power owns a 50% interest in CDECCA and is the project manager and Coastal Technology, Inc. ("CTI"), a Coastal subsidiary, is the operator of the plant. Electricity from the facility is sold to the local utility under a long- term contract. Steam and chilled water produced from the plant help to serve the thermal requirements of the City of Hartford and the plant's co-owner. An affiliate of Coastal Power is the managing partner and 50% owner of a combined cycle cogeneration plant at Coastal's Eagle Point, New Jersey refinery. The plant has a permitted nameplate rating of approximately 260 megawatts and currently operates at approximately 225 megawatts. Power from the plant is sold to a local utility and Coastal's refinery under long-term contracts. Steam from the plant is also sold to the refinery under long-term contract. Gas supply and transmission is provided to the cogeneration plant by other Coastal affiliates. CTI is the operator of the cogeneration plant. Coastal Power and an affiliate own a gas-fired cogeneration facility in Fulton, New York with an approximate 47 megawatt capacity. Electricity from this project is sold under a long-term contract to a New York utility. Steam is sold to a neighboring plant owned by a major candy manufacturer. Approximately half of the gas supply requirements for the cogeneration plant are supplied by an affiliate of Coastal Power. CTI is the plant operator. Coastal, through a wholly-owned subsidiary, has a 10.9% equity interest in the Midland Cogeneration Venture Limited Partnership, the largest gas-fired cogeneration plant in the United States. Coastal subsidiaries supply and transport a portion of the gas to this facility. TRUCKING OPERATIONS ANR Freight System, Inc. ("ANR Freight") is a regional common and contract carrier by motor vehicle, conducting operations in both interstate and intrastate commerce. During 1993, ANR Freight transported approximately 1.4 million tons of freight, consisting of both truckload shipments (10,000 pounds or more) and less than truckload (LTL) shipments (less than 10,000 pounds) versus 19 1.3 million tons in 1992. LTL shipments comprised approximately 42% of total tonnage hauled by ANR Freight and generated approximately 82% of its operating revenues. As of December 31, 1993, ANR Freight operated 40 terminals and almost 4,000 trucks, tractors and trailers. Regulatory actions by the Interstate Commerce Commission ("ICC") allowing relatively easy entry into and expansion of the motor freight business have tended to increase competition among motor carriers and also between motor carriers and other modes of transportation. ANR Freight competes primarily with other regular route motor carriers of general freight and, to a lesser extent, with irregular route motor carriers, individual truckers and private carriers (for truckload general freight) and with surface freight forwarders, railroads, airlines and air freight forwarders. The extent of competition between various modes of transportation is largely determined by their rate structures and by the service requirements of the shippers. Over-capacity in the motor carrier industry has increased competition for freight, and discounting programs, which effectively reduce the rates filed with the ICC, have been adopted by many carriers. ANR Freight continues to participate, on a limited basis, in collective rate making within the regional rate bureaus as authorized by the Interstate Commerce Act. ANR Freight also carries freight under contract and under general and individually published tariff arrangements. ANR Freight is subject to regulation by the ICC with regard to accounting. The carriers are regulated as to rates and routes of travel by the ICC for freight transported in interstate commerce and by state regulatory agencies for freight transported in intrastate commerce. The Department of Transportation regulates certain aspects of carrier operations such as the transportation of hazardous materials, motor vehicle maintenance, motor vehicle safety devices and appliances and driver qualifications. Various states regulate the gross weight and length of vehicles which travel over the highways of such states. COMPETITION Coastal and its subsidiaries are subject to competition. In all the Company's business segments, competition is based primarily on price with factors such as reliability of supply, service and quality being considered. The coal, chemicals, independent power production and trucking subsidiaries of Coastal are engaged in highly competitive businesses against competitors, some of which have significantly larger facilities and market share. See the discussion of competition under "Natural Gas Systems," "Refining, Marketing and Distribution" and "Exploration and Production" herein. ENVIRONMENTAL The Company's operations are subject to extensive federal, state and local environmental laws and regulations. The Company anticipates annual capital expenditures of $20 to $40 million over the next several years aimed at compliance with such laws and regulations. Additionally, appropriate governmental authorities may enforce the laws and regulations with a variety of civil and criminal enforcement measures, including monetary penalties and remediation requirements. The Comprehensive Environmental Response, Compensation and Liability Act, also known as "Superfund," as reauthorized, imposes liability, without regard to fault or the legality of the original act, for disposal of a "hazardous substance." Certain subsidiaries of the Company have been named as a potentially responsible party ("PRP") in several "Superfund" waste disposal sites. At the 15 sites for which the EPA has developed sufficient information to estimate total clean-up costs of approximately $350 million, the Company estimates its pro-rata exposure to be paid over a period of several years is approximately $5 million and has made appropriate provisions. At 3 other sites, the EPA is currently unable to provide the Company with an estimate of total clean-up costs and, accordingly, the Company is unable to calculate its share of those costs. Finally, at 5 other sites, the Company has 20 paid amounts to other PRPs as its proportional share of associated clean-up costs. As to these latter sites, the Company believes that its activities were de minimis. The following administrative proceedings and suits involve subsidiaries of the Company: 1. In October 1993, the Bay Area Air Quality Management District brought an administrative action against Pacific Refining Company, in which Coastal has an indirect 50% interest. In March 1994, the parties agreed upon a structured settlement amount of $300,000 regarding certain compliance issues relating to the installation of a sulfur recovery unit at Pacific Refining Company's refinery. 2. In January 1993, the State of Texas filed suit against the Corpus Christi, Texas refinery of Coastal Refining & Marketing, Inc., a subsidiary of Coastal, alleging failure to comply in 1992 with certain administrative orders relating to groundwater contamination and seeking penalties in unspecified amounts. The Company believes that this suit could result in monetary sanctions which, while not material to the Company and its subsidiaries, could exceed $100,000. 3. In February 1993, the State of Texas filed suit against Coastal Refining & Marketing, Inc., seeking civil penalties in unspecified amounts for alleged public nuisance odor violations occurring in 1991 and 1992 at the Corpus Christi refinery. In July 1993, the proceeding was amended to include a claim for excess benzene emissions and to seek civil penalties. The Company believes that this suit could result in monetary sanctions which, while not material to the Company and its subsidiaries, could exceed $100,000. There are additional areas of environmental remediation responsibilities which may fall on the Company. Future information and developments will require the Company to continually reassess the expected impact of these environmental matters. However, the Company has evaluated its total environmental exposure based on currently available data, including its potential joint and several liability, and believes that compliance with all applicable laws and regulations will not have a material adverse impact on the Company's liquidity or financial position. ITEM 2. PROPERTIES. Information on properties of Coastal is included in Item 1, "Business" and certain encumbrances on its properties are described in Note 5 of the Notes to Consolidated Financial Statements included herein. The real property owned by the Company with regard to its subsidiary pipelines is owned in fee and consists principally of sites for compressor and metering stations and microwave and terminal facilities. With respect to the subsidiary owned storage fields, the Company holds title to gas storage rights representing ownership of, or has long-term leases on, various subsurface strata and surface rights and also holds certain additional mineral rights. Under the NGA, the Company and its pipeline subsidiaries may acquire by the exercise of the right of eminent domain, through proceedings in United States District Courts or in state courts, necessary rights-of-way to construct, operate and maintain pipelines and necessary land or other property for compressor and other stations and equipment necessary to the operation of pipelines. All of the principal properties of ANR Pipeline are subject to the lien of its Mortgage and Deed of Trust dated as of September 1, 1948, securing its First Mortgage Pipe Line Bonds, and some of such properties are subject to "permitted liens" as defined in such Mortgage and Deed of Trust. The First Mortgage Pipe Line Bonds were retired in 1993 and ANR Pipeline is in the process of terminating the associated Mortgage and Deed of Trust. ITEM 3. LEGAL PROCEEDINGS. In December 1992, certain of Colorado's natural gas lessors in the West Panhandle Field filed a complaint in the U.S. District Court for the Northern District of Texas, claiming underpayment, breach of fiduciary duty, fraud and negligent misrepresentation. Management believes that Colorado has numerous defenses to the lessors' claims, including (i) that the royalties were properly paid, (ii) that the majority of the claims were released by written agreement, and (iii) that the majority of the claims are barred by the statute of limitations. 21 A subsidiary of Coastal has initiated a suit against TransAmerican Natural Gas Corporation ("TransAmerican") in the District Court of Webb County, Texas, for breach of two gas purchase agreements. In February 1993, TransAmerican filed a Third Party Complaint and a Counterclaim in this action against Coastal and certain subsidiaries. TransAmerican alleges breach of contract, fraud, conspiracy, duress, tortious interference and violations of the Texas Free Enterprises and Anti-trust Act arising out of the gas purchase agreements. TransAmerican seeks compensatory damages, exemplary damages and attorney fees. The trial began on March 14, 1994. Numerous other lawsuits and other proceedings which have arisen in the ordinary course of business are pending or threatened against the Company or its subsidiaries. Although no assurances can be given and no determination can be made at this time as to the outcome of any particular lawsuit or proceeding, the Company believes there are meritorious defenses to substantially all of the above claims and that any liability which may finally be determined should not have a material adverse effect on the Company's consolidated financial position. Additional information regarding legal proceedings is set forth in Notes 3 and 14 of the Notes to Consolidated Financial Statements included herein. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 22 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The principal market on which Coastal Common Stock is traded is the New York Stock Exchange; Coastal Common Stock is also listed on The Stock Exchange in London, the Stock Exchanges of Dusseldorf, Frankfurt, Hamburg and Munich in Germany and on the Amsterdam Stock Exchange. The Class A Common Stock of Coastal is non-transferable; however, such stock is convertible share-for-share into Coastal Common Stock. As of March 16, 1994, the approximate number of holders of record of Common Stock was 12,550 and of the Class A Common Stock was 3,900. The following table presents the high and low sales prices for Coastal common shares based on the daily composite listing of transactions for New York Stock Exchange stocks.
1993 1992 ------------------------ ------------------------- Quarters High Low Dividends High Low Dividends - ---------------- ------ ------ --------- ------ ------ --------- First Quarter $27.38 $23.50 .10 $26.25 $22.00 .10 Second Quarter 28.50 25.63 .10 29.00 22.13 .10 Third Quarter 31.38 25.63 .10 30.00 24.00 .10 Fourth Quarter 29.50 26.13 .10 30.00 23.13 .10
Coastal expects to continue paying dividends in the future. Dividends of $.09 per share were paid on the Class A Common Stock for each quarterly period in 1993 and 1992. At December 31, 1993, under the most restrictive of its financing agreements, the Company was prohibited from paying dividends and distributions on its Common Stock, Class A Common Stock and preferred stocks in excess of approximately $409.9 million. 23 ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data (in millions of dollars except per share amounts) is derived from the Consolidated Financial Statements included herein and Item 6 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992. The Notes to Consolidated Financial Statements included herein contain other information relating to this data.
Year Ended December 31, --------------------------------------------------- 1993 1992 1991 1990 1989 --------- ---------- -------- -------- -------- Operating revenues $10,136.1 $10,062.9 $ 9,554.8 $ 9,613.8 $8,747.5 Earnings (loss) before extraordinary item 118.3 (126.8) 8.7 264.2 218.9 Net earnings (loss) 115.8 (126.8) 8.7 264.2 218.9 Earnings (loss) per common and common equivalent share before extraordinary item 1.02 (1.23) .08 2.52 2.33 Net earnings (loss) per common and common equivalent share 1.00 (1.23) .08 2.52 2.33 Cash dividends per common share* .40 .40 .40 .40 .30 Total assets 10,227.1 10,579.8 10,520.3 10,399.8 9,938.0 Debt, excluding current maturities 3,812.5 4,306.1 3,865.6 3,438.8 3,250.9 Mandatory redemption preferred stock, excluding current maturities 26.6 36.7 49.2 65.1 78.6
* In addition, cash dividends of $.36, $.36, $.36 and $.18, respectively, were paid on the Company's Class A Common Stock in 1993, 1992, 1991 and 1990. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Management's Discussion and Analysis of Financial Condition and Results of Operations is presented on pages F-1 through F-7 hereof. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Financial Statements and Supplementary Data required hereunder are included in this Annual Report as set forth in Item 14(a) hereof. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information called for by this Item with respect to the directors is set forth under "Election of Directors" and "Information Regarding Directors" in the Coastal Proxy Statement for the May 5, 1994 Annual Meeting of Stockholders filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is incorporated herein by reference. The executive officers of the Registrant as of March 16, 1994, were as follows:
NAME (AGE), YEAR FIRST ELECTED AN OFFICER POSITIONS AND OFFICES WITH THE REGISTRANT ---------------------- ----------------------------------------- O. S. Wyatt, Jr. (69), 1955 Chairman of the Board of Directors and Chief Executive Officer David A. Arledge (49), 1982 President, Chief Operating Officer, Chief Financial Officer and Director Harold Burrow (79), 1974 Vice Chairman of the Board of Directors, Chairman of the Board of Directors of Colorado James F. Cordes (53), 1985 Executive Vice President and Director James A. King (54), 1992 Executive Vice President Sam F. Willson, Jr. (64), 1974 Executive Vice President Jerry D. Bullock (64), 1992 Senior Vice President Jeffrey A. Connelly (47), 1988 Senior Vice President and Treasurer Carl A. Corrallo (50), 1993 Senior Vice President and General Counsel Donald H. Gullquist (50), 1994 Senior Vice President Coby C. Hesse (46), 1986 Senior Vice President and Controller Dan J. Hill (53), 1978 Senior Vice President Jose J. Iglesias (48), 1992 Senior Vice President Kenneth O. Johnson (73), 1978 Senior Vice President and Director Austin M. O'Toole (58), 1974 Senior Vice President and Secretary Jack C. Pester (59), 1987 Senior Vice President James L. Van Lanen (49), 1985 Senior Vice President M. Truman Arnold (65), 1993 Vice President Daniel F. Collins (52), 1989 Vice President Robert C. Hart (49), 1994 Vice President Robert G. Holsclaw (59), 1983 Vice President Charles M. Oglesby (41), 1991 Vice President M. Frank Powell (43), 1993 Vice President E. C. Simpson (58), 1990 Vice President
The above named persons bear no family relationship to each other. Their respective terms of office expire coincident with the officer elections at the Annual Board of Directors' meeting which follows Coastal's Annual Meeting of Stockholders. Each of the officers named above have been officers of Coastal, ANR Pipeline and/or Colorado for five years or more with the following exceptions: Mr. Arnold was elected Vice President of Coastal in August 1993. He has been a Vice President of Coastal States Management Corporation, a subsidiary of Coastal, since 1977. Mr. Bullock was elected Senior Vice President of Coastal in August 1992. From 1987 to 1990, he was an Executive Vice President of British Petroleum's BP Exploration Company and a director and a member of the 25 management committee of BP Exploration USA. From 1990 to 1992, he was an independent petroleum consultant for several major exploration companies. Mr. Corrallo was elected Senior Vice President and General Counsel of Coastal in March 1993. He has served as a Senior Vice President of Coastal States Management Corporation, a subsidiary of Coastal, since August 1991 and prior thereto as Vice President since December 1986. Mr. Gullquist was elected Senior Vice President of Coastal in March 1994. From 1988 to 1989 he served as Vice President, Finance at Enron Corporation; from 1989 to 1990 he served as president of Enron Finance Corporation. Mr. Hart was elected Vice President of Coastal in March 1994. From 1989 through 1994, he was president of Hart Associates, Inc., an energy development firm. Mr. Iglesias was elected a Senior Vice President of Coastal in January 1992. He was president of Mobile Bay Refining Company from 1982 to 1987 and of Mo-Bel Corporation from 1987 to 1990. Mr. King was elected Executive Vice President of Coastal in May 1992. From 1987 to 1990, he was Senior Vice President of refining, supply and transportation for Crown Central Petroleum Corporation. Mr. Oglesby was elected a Vice President of Coastal in August 1991. He served as an Executive Vice President of Colorado and ANR Pipeline from January 1988 to May 1993. He was Senior Vice President for Marketing and Transportation of Valero Transmission Company from 1985 to 1987. Mr. Powell was elected Vice President of Coastal and Senior Vice President of Coastal States Management Corporation in August 1993. From 1984 to 1993 he was in private law practice with the law firms of Powell, Popp & Ikard and Powell & Associates representing Coastal and other corporations. Prior thereto he was employed at Coastal since 1978. Mr. Simpson was elected a Vice President of Coastal in April 1990 and of Colorado in May 1990. He has been a Vice President of Coastal States Management Corporation, a subsidiary of Coastal, for the past ten years. ITEM 11. EXECUTIVE COMPENSATION. The information called for by this item is set forth under "Executive Compensation" in the Coastal Proxy Statement for the May 5, 1994 Annual Meeting of Stockholders filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information called for by this item is set forth under "Stock Ownership," "Election of Directors" and "Information Regarding Directors" in the Coastal Proxy Statement for the May 5, 1994 Annual Meeting of Stockholders filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information called for by this item is set forth under "Election of Directors," "Transactions with Management and Others" and "Certain Business Relationships" in the Coastal Proxy Statement for the May 5, 1994 Annual Meeting of Stockholders filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, and is incorporated herein by reference. 26 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this Annual Report or incorporated herein by reference: 1. Financial Statements and Supplemental Information. The following Consolidated Financial Statements of Coastal and Subsidiaries and Supplemental Information are included in response to Item 8 hereof on the attached pages as indicated:
Page ---- Independent Auditors' Report.................... F-8 Statement of Consolidated Operations for the years ended December 31, 1993, 1992 and 1991....................................... F-9 Consolidated Balance Sheet at December 31, 1993 and 1992 ...................................... F-10 Statement of Consolidated Cash Flows for the years ended December 31, 1993, 1992 and 1991 F-12 Statement of Consolidated Common Stock and ..... Other Stockholders' Equity for the years ended December 31, 1993, 1992 and 1991............... F-13 Notes to Consolidated Financial Statements...... F-14 Supplemental Information on Oil & Gas Producing Activities (Unaudited)............... F-32 Supplemental Statistics for Coal Mining Operations (Unaudited) ........................ F-36
2. Financial Statement Schedules. The following schedules of Coastal and Subsidiaries are included on the attached pages as indicated:
Page ---- Schedule III Condensed Financial Information of the Registrant.......... S-1 Schedule V Property, Plant and Equipment.............................. S-6 Schedule VI Accumulated Depreciation, Depletion and Amortization of Property, Plant and Equipment............................ S-8 Schedule VIII Valuation and Qualifying Accounts.......................... S-9 Schedule IX Short-Term Borrowings...................................... S-10 Schedule X Supplementary Income Statement Information................. S-11
Schedules other than those referred to above are omitted as not applicable or not required, or the required information is shown in the Consolidated Financial Statements or Notes thereto. 3. Exhibits. 3.1+ Restated Certificate of Incorporation of Coastal, as restated on March 22, 1994. (Filed as Module TCC-Artl-Incorp on March 28, 1994). 3.2+ By-Laws of Coastal, as amended on January 16, 1990 (Exhibit 3.4 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 4 (With respect to instruments defining the rights of holders of long- term debt, the Registrant will furnish to the Commission, on request, any such documents). 10.1+ The Coastal Corporation Stock Option Plan (Exhibit 10.1 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1980).
27 10.2+ Employment Agreement between Coastal States Gas Corporation and Sam F. Willson, Jr., dated December 1, 1979 (Exhibit 10.41 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1980). 10.3+ First Amendment of The Coastal Corporation Stock Option Plan, dated September 3, 1981 (Exhibit 10.11 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1982). 10.4+ 1984 Stock Option Plan (Appendix B to Coastal's Proxy Statement for the 1984 Annual Meeting of Stockholders, dated May 14, 1984). 10.5+ 1985 Stock Option Plan (Appendix A to Coastal's Proxy Statement for the 1986 Annual Meeting of Stockholders, dated March 27, 1986). 10.6+ The Coastal Corporation Performance Unit Plan effective as of January 1, 1987 (Exhibit 10.5 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1987). 10.7+ The Coastal Corporation Replacement Pension Plan effective as of November 1, 1987 (Exhibit 10.6 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1987). 10.8+ Description of Coastal's Key Employees Bonus Plan (Exhibit 10.7 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1987). 10.9+ The Coastal Corporation Stock Purchase Plan, as restated on January 1, 1994 (Appendix B to Coastal's Proxy Statement for the 1994 Annual Meeting of Stockholders dated March 29, 1994). 10.10+ The Coastal Corporation Stock Grant Plan, effective December 1, 1988 (Exhibit 10.12 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.11+ The Coastal Corporation Deferred Compensation Plan for Directors (Exhibit 10.13 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.12+ The Coastal Corporation 1990 Stock Option Plan (Exhibit 10.13 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 10.13+ Employment Agreement between The Coastal Corporation and James F. Cordes dated April 12, 1990 (Exhibit 10.13 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). 10.14* The Coastal Corporation Deferred Compensation Plan. 10.15+ The Coastal Corporation 1994 Incentive Stock Plan (Appendix A to Coastal's Proxy Statement for the 1994 Annual Meeting of Stockholders dated March 29, 1994). 10.16* Pension Plan for Employees of The Coastal Corporation as of January 1, 1993, includes Plan as Restated as of January 1, 1989 and First Amendment dated July 27, 1992, Second Amendment dated December 9, 1992, Third Amendment dated October 29, 1993. 11* Statement re Computation of Per Share Earnings. 21* Subsidiaries of Coastal. 23.1* Consent of Deloitte & Touche. 24* Powers of Attorney (included on signature pages herein).
28 99+ Indemnity Agreement revised and updated as of April, 1988 (Exhibit 28 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1990).
_________________________ Note: + Indicates documents incorporated by reference from the prior filing indicated. * Indicates documents filed herewith. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended December 31, 1993. 29 POWERS OF ATTORNEY Each person whose signature appears below hereby appoints David A. Arledge, Coby C. Hesse and Austin M. O'Toole and each of them, any one of whom may act without the joinder of the others, as his attorney-in-fact to sign on his behalf and in the capacity stated below and to file all amendments to this Annual Report on Form 10-K, which amendment or amendments may make such changes and additions thereto as such attorney-in-fact may deem necessary or appropriate. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE COASTAL CORPORATION (Registrant) By: DAVID A ARLEDGE -------------------- David A. Arledge President March 29, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: O. S. WYATT, JR. --------------------- O. S. Wyatt, Jr. Chairman of the Board and Chief Executive Officer March 29, 1994 By: DAVID A. ARLEDGE ---------------------- David A. Arledge Principal Financial Officer and Director March 29, 1994 By: COBY C. HESSE --------------------- Coby C. Hesse Principal Accounting Officer March 29, 1994 By: JOHN M. BISSELL --------------------- John M. Bissell Director March 29, 1994 * * * 30 By: GEORGE L. BRUNDRETT, JR. By: KENNETH O. JOHNSON ---------------------------- --------------------------- George L. Brundrett, Jr. Kenneth O. Johnson Director Director March 29, 1994 March 29, 1994 By: ERVIN O. BUCK By: JEROME S. KATZIN ---------------------------- --------------------------- Ervin O. Buck Jerome S. Katzin Director Director March 29, 1994 March 29, 1994 By: HAROLD BURROW By: THOMAS R. McDADE ---------------------------- --------------------------- Harold Burrow Thomas R. McDade Director Director March 29, 1994 March 29, 1994 By: ROY D. CHAPIN, JR. By: J. HOWARD MARSHALL, II ---------------------------- --------------------------- Roy D. Chapin, Jr. J. Howard Marshall, II Director Director March 29, 1994 March 29, 1994 By: JAMES F. CORDES By: L. D. WOODDY, JR. ---------------------------- --------------------------- James F. Cordes L. D. Wooddy, Jr. Director Director March 29, 1994 March 29, 1994 By: ROY L. GATES ---------------------------- Roy L. Gates Director March 29, 1994 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Notes to Consolidated Financial Statements contain information that is pertinent to the following analysis. LIQUIDITY AND CAPITAL RESOURCES The Company uses the following consolidated ratios to measure liquidity and ability to meet future funding needs and debt service requirements.
1993 1992 1991 ----- ------ ----- Net return on average common stockholders' equity...... 5.2% (6.0%) .4% Cash flow from operating activities to long-term debt.. 21.2% 10.1% 12.8% Total debt to total capitalization..................... 64.3% 69.3% 66.6% Times interest earned (before tax)..................... 1.4 .6 1.0
The changes in the ratio of net return on average common stockholders' equity can be attributed primarily to changes in earnings, as earnings increased in 1993 and decreased in 1992. The 1993 increase in the cash flow from operating activities to long-term debt ratio resulted from increased cash flow from operations and reduced long-term debt, while the 1992 decrease can be attributed to decreased cash flow from operations and increased long-term debt. The total debt to total capitalization ratio improved in 1993 as debt was paid down while equity was increased through retained earnings and stock issuances. The 1992 increase was due to increased debt and reduced equity. The 1993 increase in the times interest earned ratio resulted from increased earnings and reduced interest expense; while the 1992 decrease resulted from decreased earnings and increased interest expense. Cash flows provided from operating activities were $809.8 million in 1993 and $434.2 million in 1992. The 1993 increase can be attributed to increased earnings and a reduction in inventories and other working capital requirements. Capital expenditures amounted to $392.7 million in 1993 and $573.5 million in 1992. The Company, which had emphasized its capital expansion program in 1992 and 1991 in order to expand its earnings base, returned to a lower level of capital spending in 1993, as it emphasized debt reduction. Prepayments for gas supply and payments for settlement of natural gas contract disputes required investments of $11.4 million and $43.8 million in 1993 and 1992, respectively. The Company was able to reduce total debt by $471.3 million in 1993 primarily by the use of internally generated funds and $193.5 million of proceeds resulting from the issuance of preferred stock in April 1993. Dividend payments increased by $11.0 million as a result of the new preferred stock issue. Capital expenditures for 1994, including the Company's equity investments in partnerships and joint ventures, are currently budgeted at approximately $500.0 million. These expenditures are primarily for completion of projects in process, operational necessities, environmental requirements, expansion projects and increased efficiency. Other expansion opportunities will continue to be evaluated. Financing for budgeted expenditures and mandatory debt retirements in 1994 will be accomplished by the use of internally generated funds, existing credit lines and new financings. Funding for certain proposed natural gas pipeline projects is anticipated to be provided through non-recourse project financings in which the projects' assets and contracts will be pledged as collateral. Equity participation by other entities will also be considered. To the extent required, cash for equity contributions to projects will be from general corporate funds. F-1 On September 23, 1993, ANR Pipeline filed a shelf registration statement with the Securities and Exchange Commission for the public offering of up to $200 million in senior unsecured debt securities which became effective October 5, 1993. In February 1994, ANR Pipeline completed an offering of $125.0 million of 7-3/8% Debentures due in 2024. The net proceeds from the sale will be used for capital expenditures and for other general corporate purposes. Unused lines of credit at December 31, 1993, were as follows (millions of dollars):
Short-term............................ $413.0 Long-term............................. 544.6 ------ $957.6 ======
Credit agreements of certain subsidiaries contain covenants which limit the making of advances to affiliates and payment of dividends. Where applicable, restrictions are generally in the form of computed capacities with respect to advances and the payment of dividends. At December 31, 1993, net assets of consolidated subsidiaries amounted to approximately $5.1 billion, of which approximately $1.7 billion was restricted. These provisions have not and are not expected to have any meaningful impact on the ability of the Company to meet its cash obligations. In 1994, the Company adopted Statement of Financial Accounting Standards ("FAS") No. 112, "Employer's Accounting for Postemployment Benefits." This standard covers the accounting for estimated costs of benefits provided to former or inactive employees before their retirement. The implementation of this new standard is not expected to have a significant effect on the Company's results of operations or financial position. In 1993, the Company adopted changes in accounting for post-retirement benefits as required by FAS No. 106, "Employer's Accounting for Postretirement Benefits Other Than Pensions." See Note 11 in the Notes to Consolidated Financial Statements. The Company's operations are subject to extensive federal, state and local environmental laws and regulations. The Company anticipates annual capital expenditures of $20 to $40 million over the next several years aimed at compliance with such laws and regulations. Additionally, appropriate governmental authorities may enforce the laws and regulations with a variety of civil and criminal enforcement measures, including monetary penalties and remediation requirements. The Comprehensive Environmental Response, Compensation and Liability Act, also known as "Superfund," as reauthorized, imposes liability, without regard to fault or the legality of the original act, for disposal of a "hazardous substance." Certain subsidiaries of the Company have been named as a potentially responsible party ("PRP") in several "Superfund" waste disposal sites. At the 15 sites for which the Environmental Protection Agency ("EPA") has developed sufficient information to estimate total clean-up costs of approximately $350 million, the Company estimates its pro-rata exposure to be paid over a period of several years is approximately $5 million, and has made appropriate provisions. At three other sites, EPA is currently unable to provide the Company with an estimate of total clean-up costs and, accordingly, the Company is unable to calculate its share of those costs. Finally, at five other sites, the Company has paid amounts to other PRPs as its proportional share of associated clean-up costs. As to these latter sites, the Company believes that its activities were de minimis. There are additional areas of environmental remediation responsibilities which may fall on the Company. Future information and developments will require the Company to continually reassess the expected impact of these environmental matters. However, the Company has evaluated its total environmental exposure based on currently available data, including its potential joint and several liability, and believes that compliance with all applicable laws and regulations will not have a material adverse impact on the Company's liquidity or financial position. RESULTS OF OPERATIONS The Company operates principally in the following lines of business: natural gas, refining and marketing, exploration and production, and coal. F-2 NATURAL GAS. Natural gas operations involve the production, purchase, gathering, storage, transportation and sale of natural gas, principally to utilities, industrial customers and other pipelines, and include the operations of natural gas liquids extraction plants. In the fourth quarter of 1993, ANR Pipeline Company and Colorado Interstate Gas Company ("CIG") placed their Order 636 (See Note 14 in the Notes to Consolidated Financial Statements) service structures into effect and now offer an array of unbundled transportation, storage and balancing service options. Under Order 636, the interstate pipeline companies will no longer offer sales for resale services, with the exception of certain gas sales services provided by CIG, which are being phased out over a three-year period. Former gas sales customers of the interstate pipelines have largely retained their firm storage and transportation services levels. These services were previously contracted as part of bundled sales services. Consequently, while operating revenues will be reduced as a result of the implementation of Order 636, purchases and other related costs will be reduced by a similar amount.
Millions of Dollars --------------------------------------- 1993 1992 1991 --------------- -------- -------- Operating revenues........................ $3,247.9 $2,746.8 $2,405.5 Depreciation, depletion and amortization.. 145.4 187.1 177.0 Operating profit.......................... 405.2 403.1 402.2 Total throughput volume (Bcf)............. 1,908 1,885 1,878
1993 Versus 1992. The increase in operating revenues of $501 million can be attributed to increased sales volumes for the interstate pipelines and gas marketing companies, higher prices for the gas marketing companies, and increased storage and transportation revenues. Decreased gas sales prices for the interstate pipelines partially offset the increase. Total throughput volumes for the interstate pipelines increased by approximately 1%, while the volume for the gas marketing companies increased by 10%. Purchases increased $529 million over 1992, primarily due to volume increases for the interstate pipelines and gas marketing companies and cost of gas increases for the gas marketing companies, resulting in a reduction in the gross profit of $28 million. The operating profit increase of $2 million results from increased sales volumes of $7 million; higher storage and transportation revenues of $137 million; and reduced depreciation, depletion and amortization of $41 million offset by lower margins of $166 million, increased operating expenses of $11 million and other decreases of $6 million. The primary factor contributing to the increase in storage and transportation revenues and the decrease in margins is the restructuring of pipeline bundled sales services into separate service components, as required by changing regulations. The depreciation, depletion and amortization decrease of $41 million results from lower pipeline rates for ANR Pipeline due to a settlement with the FERC. 1992 Versus 1991. Operating revenues increased in 1992 as a result of increased sales volumes for the interstate pipelines and gas marketing companies, higher prices for the gas marketing companies, increased storage and transportation revenues and the benefit from resolution of outstanding rate matters and litigation. Decreased gas sales prices for the interstate pipelines partially offset the increase. Purchases increased by $267 million in 1992, primarily due to volume increases for interstate pipelines and gas marketing companies and higher costs for the gas marketing companies, resulting in a gross profit increase of $74 million. The operating profit increase of $1 million results from increased sales volumes of $14 million, improved storage and transportation revenues of $37 million and other increases of $21 million which were partially offset by lower margins of $32 million, increased operating expenses of $29 million and increased depreciation, depletion and amortization of $10 million. The other increases are primarily due to the settlement of outstanding rate matters and litigation. The sales volumes were up and the margins were down for both the interstate pipeline companies and gas marketing companies. The storage and transportation revenue increase results from increased transportation volumes F-3 and improved storage revenues. The operating expense increase results from increases for compressor fuel, gas and gas liquids handling charges and rate settlement related expenses. The depreciation, depletion and amortization increase results from a non-recurring 1991 retroactive adjustment related to Wyoming Interstate Company, Ltd. REFINING AND MARKETING. Refining and marketing operations involve the purchase, transportation and sale of refined products, crude oil, condensate and natural gas liquids; the operation of refining and chemical plants; the sale at retail of gasoline, petroleum products and convenience items; petroleum product terminaling and marketing of crude oil and refined petroleum products worldwide.
Millions of Dollars -------------------------------- 1993 1992 1991 ---------- --------- --------- Operating revenues........................ $6,200.9 $6,561.1 $6,297.6 Depreciation, depletion and amortization.. 45.6 98.1 40.3 Operating profit (loss)................... 98.0 (192.1) (99.3) Refined product sales (MM Bbls)........... 294 316 283
1993 Versus 1992. The decrease in operating revenues of $360 million results from decreased sales prices and lower volumes. Sales volumes decreased primarily due to a reduction in the sales of products purchased from others. In addition, crude processing was suspended at the Company's three refineries in Kansas during 1993. Purchases for the refining and marketing segment decreased by $550 million, a result of lower costs and volumes, and increased emphasis on hedging activities to minimize the impact of price volatility. This resulted in an increased gross profit of $190 million. Increased margins of $187 million, increased revenues from marine operations of $4 million and other increases of $8 million, which were partially offset by reduced volumes of $9 million, make up the gross profit increase. A portion of the margin increase can be attributed to the Company concentrating on marketing higher margin, value-added products and services. The Company eliminated almost 50 marginal third party locations from its distribution system in 1993. These steps also added to the volume decline in 1993. The operating profit increase of $290 million results from the improved gross profit of $190 million, reduced operating expenses of $47 million and lower depreciation, depletion and amortization of $53 million. The reduction in operating expenses results from the suspension of crude oil processing at the Company's refineries in Kansas and the nonrecurrence of the related $35 million restructuring charge in 1992. Partially offsetting these decreases were increased expenses for new foreign operations. Depreciation, depletion and amortization decreased as a result of a 1992 restructuring charge of $50 million not recurring. 1992 Versus 1991. The increase in 1992 operating revenues of $264 million can be attributed to increased volumes, primarily for the terminal and marketing operations, which were partially offset by decreased prices and reduced marine revenues. The lower prices affected all areas of the segment's operations. Purchases for the segment increased by $185 million, a result of increased volumes and lower costs, resulting in a gross profit increase of $79 million. This $79 million gross profit increase results from volume increases of $84 million and margin increases of $37 million being partially offset by lower marine revenues of $17 million, reduced gross profit from the sale, trading and exchanging of third-party products of $12 million and other decreases of $13 million. The operating profit decrease of $93 million results from increased operating expenses of $114 million and increased depreciation, depletion and amortization of $58 million more than offsetting the increased gross profit of $79 million. The increased operating expenses are attributable to charges for restructuring and increased maintenance costs. Depreciation, depletion and amortization increased primarily from a $50 million charge for the restructuring of certain refining assets. F-4 EXPLORATION AND PRODUCTION. Exploration and production operations involve the exploration, development and production of natural gas, crude oil, condensate and natural gas liquids. The segment also includes related intrastate natural gas marketing activities and gas plant processing operations.
Millions of Dollars -------------------------- 1993 1992 1991 -------- ------- ------- Operating revenues........................................ $ 357.3 $ 310.0 $ 327.6 Depreciation, depletion and amortization.................. 109.1 83.2 69.4 Operating profit.......................................... 49.9 45.8 45.2 Natural gas production (MMcf/d)........................... 207 147 119 Oil, condensate and natural gas liquids production (bpd).. 13,534 13,002 11,202 Average sales price-net of production taxes (dollars): Gas (per Mcf)............................................ $ 1.93 $ 1.76 $ 1.67 Oil, condensate and natural gas liquids (per bbl)........ 15.26 17.33 18.83
1993 Versus 1992. The increase in operating revenues of $47 million can be attributed to increased sales volumes for all products and increased natural gas prices being partially offset by lower prices for oil, condensate and natural gas liquids. Natural gas revenue increases of $51 million were partially offset by decreases for oil, condensate and natural gas liquids of $3 million and other of $1 million. The operating profit increase of $4 million results from increased volumes for all products of $48 million and natural gas price increases of $13 million being offset by reduced prices for crude oil, condensate and natural gas liquids of $13 million, increased operating expenses of $15 million, increased depreciation, depletion and amortization of $26 million and other of $3 million. The increase in operating expenses results from additional wells in operation and higher costs associated with operating natural gas plants. Depreciation, depletion and amortization increased as a result of an increase in volumes. 1992 Versus 1991. Operating revenues decreased in 1992 as reduced revenues from gas brokerage, lower prices for crude oil, condensate and plant products and decreased other income were partially offset by increased natural gas prices and increased volumes for all products. The decrease in other income is due to the sale in 1991 of two gathering systems. The operating profit increase for the segment resulted from increased volumes for all products of $31 million and increased natural gas prices of $5 million being partially offset by lower prices for oil, condensate and natural gas liquids of $10 million; increased depreciation, depletion and amortization of $14 million; reduced revenue from gas brokerage of $2 million and other decreases of $9 million. Included in the other decreases are non-recurring gains of $7 million from 1991 property sales. The increase in depreciation, depletion and amortization can be attributed to increased volumes. COAL. Coal operations include mining, processing and marketing of coal from Company-owned reserves and from other sources, and the brokering of coal for others.
Millions of Dollars ------------------------ 1993 1992 1991 -------- ------ ------ Operating revenues............................. $443.2 $447.4 $465.2 Depreciation, depletion and amortization....... 28.5 28.4 27.1 Operating profit............................... 95.1 92.8 91.8 Captive and brokered sales (millions of tons).. 17.4 16.9 16.6
F-5 1993 Versus 1992. The decrease in coal revenues results from decreased prices more than offsetting increased volumes sold and brokered. The purchase of the Soldier Creek Mine in late 1993 added 600,000 tons/year of new capacity. The operating profit increase results from increased volumes of $13 million, reduced operating expenses of $6 million and other of $1 million more than offsetting lower prices of $18 million. Operating expenses were reduced by expanding the percentage of overall production from the lower-cost Utah operations. 1992 Versus 1991. The decrease in operating revenues is a result of decreased sales volumes and lower prices. The tonnage, excluding brokerage, decreased approximately 1%. Sales prices decreased at all mines. Operating profit increased in 1992 as decreases for coal costs and operating expenses of $20 million more than offset reduced revenues of $18 million and increased depreciation, depletion and amortization of $1 million. The decrease for coal costs and operating expenses results from lower volumes sold and more efficient operations. OTHER. Other operations involve trucking, power production operations and other activities.
Millions of Dollars -------------------------- 1993 1992 1991 -------- ------- ------- Operating revenues........................ $187.0 $196.3 $169.6 Depreciation, depletion and amortization.. 7.9 7.6 7.1 Operating loss............................ (12.8) (19.7) (4.3)
1993 Versus 1992. The $9 million reduction in operating revenues results from volume decreases for the trucking operations and lower cogeneration revenues. The $7 million decrease in operating loss results from reduced operating expenses of $16 million, primarily for the trucking operations, exceeding the revenue decline; as trucking operations increased by $11 million offset by a $4 million decrease for the other operations. The decreased operating expenses result from reduced wages and lower rent expense. 1992 Versus 1991. The $27 million increase in 1992 in operating revenues can be attributed to volume increases for the trucking operations and increased cogeneration revenues. The operating loss increase of $15 million results from a $19 million increased loss for trucking partially offset by a $4 million income increase for other operations, as increased operating expenses more than offset improved revenues. The increased operating expenses of $41 million are a result of increased freight volumes and increased cogeneration activities. OTHER INCOME - NET 1993 Versus 1992. Other income-net increased by $53 million in 1993 due to increased equity income from unconsolidated subsidiaries of $8 million, nonrecurrence of the 1992 writedown of refining investments and other assets of $43 million and other increases of $2 million. 1992 Versus 1991. Other income-net decreased by $43 million in 1992 as a result of decreased gains from sales of investments of $13 million, the writedown of refining investments and other assets in 1992 of $43 million, reduced dividend and interest income of $6 million and other decreases of $18 million offset by increased equity income from unconsolidated subsidiaries of $37 million. INTEREST AND DEBT EXPENSE 1993 Versus 1992. Interest and debt expense decreased by $43 million in 1993, primarily as a result of lower average debt outstanding and lower interest rates more than offsetting reduced capitalized interest and other financial costs. At December 31, 1993, after giving effect to interest rate swaps, approximately 16% of the Company's debt was tied to money market-related rates. F-6 1992 Versus 1991. Interest and debt expense increased by $47 million in 1992, primarily as a result of higher average debt outstanding and reduced capitalized interest more than offsetting lower average interest rates and reduced interest on pipeline customer refunds. TAXES ON INCOME Income taxes fluctuated primarily as a result of changing levels of income before taxes and changes in the effective federal income tax rate. The 1993 taxes include a $29 million charge for the cumulative effect of adjusting the deferred federal income tax liability to reflect the change in the corporate federal income tax rate from 34% to 35%. EXTRAORDINARY ITEM The extraordinary loss, net of income taxes, resulted from the early retirement of debt. See Note 13 in the Notes to Consolidated Financial Statements. F-7 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders The Coastal Corporation Houston, Texas We have audited the accompanying consolidated balance sheets of The Coastal Corporation and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of operations, common stock and other stockholders' equity and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in the Index at Item 14(a)2. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Coastal Corporation and subsidiaries as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 11 to the consolidated financial statements, in 1993 the Company changed its method of accounting for postretirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106. DELOITTE & TOUCHE Houston, Texas February 3, 1994 F-8 THE COASTAL CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED OPERATIONS (Millions of Dollars Except Per Share)
Year Ended December 31, --------------------------------- 1993 1992 1991 ---------- ---------- --------- OPERATING REVENUES........................................ $10,136.1 $10,062.9 $9,554.8 --------- --------- -------- OPERATING COSTS AND EXPENSES Purchases................................................ 7,338.1 7,458.0 7,129.3 Operating expenses....................................... 1,806.9 1,851.5 1,650.0 Depreciation, depletion and amortization................. 355.7 423.5 339.9 --------- --------- -------- 9,500.7 9,733.0 9,119.2 --------- --------- -------- OPERATING PROFIT.......................................... 635.4 329.9 435.6 --------- --------- -------- OTHER INCOME-NET.......................................... 68.9 15.4 58.5 --------- --------- -------- OTHER EXPENSES (BENEFITS) General and administrative............................... 60.1 58.6 57.4 Interest and debt expense................................ 442.5 485.2 437.8 Taxes on income.......................................... 83.4 (71.7) (9.8) --------- --------- -------- 586.0 472.1 485.4 --------- --------- -------- EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM................. 118.3 (126.8) 8.7 Extraordinary item-loss on early extinguishment of debt.. (2.5) - - --------- --------- -------- NET EARNINGS (LOSS)....................................... 115.8 (126.8) 8.7 DIVIDENDS ON PREFERRED STOCK.............................. 11.3 .5 .5 --------- --------- -------- NET EARNINGS (LOSS) AVAILABLE TO COMMON STOCKHOLDERS...................................... $ 104.5 $ (127.3) $ 8.2 ========= ========= ======== EARNINGS (LOSS) PER SHARE Before extraordinary item................................ $ 1.02 $ (1.23) $ .08 Extraordinary item....................................... (.02) - - --------- --------- -------- NET EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE.................................. $ 1.00 $ (1.23) $ .08 ========= ========= ========
See Notes to Consolidated Financial Statements F-9 THE COASTAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars)
December 31, -------------------- 1993 1992 --------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents............................. $ 159.2 $ 43.5 Receivables, less allowance for doubtful accounts $16.1 million (1993) and $16.5 million (1992)........ 1,284.9 1,562.4 Inventories........................................... 992.2 1,252.7 Prepaid expenses and other............................ 137.3 169.3 --------- --------- Total Current Assets................................. 2,573.6 3,027.9 --------- --------- PROPERTY, PLANT AND EQUIPMENT-AT COST Natural gas systems................................... 5,461.6 5,393.1 Refining, crude oil and chemical facilities........... 1,821.3 1,697.2 Gas and oil properties-at full-cost................... 1,204.2 1,194.1 Other................................................. 677.0 633.1 --------- --------- 9,164.1 8,917.5 Accumulated depreciation, depletion and amortization.. 3,216.0 2,981.7 --------- --------- 5,948.1 5,935.8 --------- --------- OTHER ASSETS Goodwill.............................................. 563.3 582.2 Investments-equity method............................. 424.7 330.2 Other................................................. 717.4 703.7 --------- --------- 1,705.4 1,616.1 --------- --------- $10,227.1 $10,579.8 ========= =========
See Notes to Consolidated Financial Statements F-10 THE COASTAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Millions of Dollars)
December 31, -------------------- 1993 1992 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable and preferred stock redeemable within one year............... $ 271.7 $ 229.1 Accounts payable........................................................... 1,649.1 1,791.3 Accrued expenses........................................................... 374.0 397.2 Current maturities on long-term debt....................................... 95.1 115.4 --------- --------- Total Current Liabilities................................................. 2,389.9 2,533.0 --------- --------- DEBT Long-term debt, excluding current maturities............................... 3,612.8 4,106.5 Subordinated long-term debt, excluding current maturities.................. 199.7 199.6 --------- --------- 3,812.5 4,306.1 --------- --------- DEFERRED CREDITS AND OTHER Deferred income taxes...................................................... 1,339.9 1,339.5 Other deferred credits..................................................... 380.1 354.6 --------- --------- 1,720.0 1,694.1 --------- --------- MANDATORY REDEMPTION PREFERRED STOCK Issued by subsidiaries..................................................... 26.6 36.7 --------- --------- COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY Cumulative preferred stock (with aggregate liquidation preference of $210.1 million)................................. 2.7 .1 Class A common stock - Issued (1993-422,857 shares; 1992-444,868 shares)... .1 .1 Common stock - Issued (1993-108,512,342 shares; 1992-107,967,176 shares).. 36.2 36.0 Additional paid-in capital................................................. 1,209.3 1,006.7 Retained earnings.......................................................... 1,162.7 1,099.9 --------- --------- 2,411.0 2,142.8 Less common stock in treasury-at cost (1993 and 1992-4,415,394 shares)..... 132.9 132.9 --------- --------- 2,278.1 2,009.9 --------- --------- $10,227.1 $10,579.8 ========= =========
See Notes to Consolidated Financial Statements F-11 THE COASTAL CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (Millions of Dollars)
Year Ended December 31, --------------------------- 1993 1992 1991 ------- -------- -------- NET CASH FLOW FROM OPERATING ACTIVITIES Earnings (loss)before extraordinary item................. $ 118.3 $(126.8) $ 8.7 Add (subtract) items not requiring (providing) cash: Depreciation, depletion and amortization before restructuring charges........................... 358.8 377.1 342.3 Deferred income taxes................................... 45.8 (75.6) (53.3) Amortization of producer contract reformation costs..... 48.3 45.0 17.4 Gain on sale of securities.............................. - - (13.2) Undistributed earnings from equity investments.......... (54.4) (16.0) (7.7) Restructuring charges................................... - 125.0 - Other................................................... (21.0) 30.4 (63.3) Working capital and other changes, excluding changes relating to cash and non-operating activities: Accounts receivable.................................... 231.5 (77.5) 339.1 Inventories............................................ 260.5 104.6 (39.7) Prepaid expenses and other............................. (45.2) 13.6 49.1 Accounts payable....................................... (109.6) .5 (22.5) Accrued expenses....................................... (23.2) 33.9 (63.7) ------- ------- -------- 809.8 434.2 493.2 ------- ------- -------- CASH FLOW FROM INVESTING ACTIVITIES Purchases of property, plant and equipment............... (392.7) (573.5) (728.9) Proceeds from sale of property, plant and equipment...... 29.3 14.7 69.0 Additions to investments................................. (74.3) (69.5) (103.6) Proceeds from investments................................ 39.5 97.9 135.3 Gas supply prepayments and settlements................... (11.4) (43.8) (81.0) Recovery of gas supply prepayments....................... 31.8 9.1 28.5 ------- ------- -------- (377.8) (565.1) (680.7) ------- ------- -------- CASH FLOW FROM FINANCING ACTIVITIES Increase (decrease) in short-term notes.................. 42.6 (158.6) (148.8) Redemption of mandatory redemption preferred stock....... (10.1) (12.5) (14.9) Proceeds from issuing common stock....................... 11.9 7.1 6.0 Proceeds from issuing preferred stock.................... 193.5 - - Proceeds from long-term debt issues...................... 233.1 684.3 1,043.3 Payments to retire long-term debt........................ (734.3) (327.7) (703.0) Dividends paid........................................... (53.0) (42.0) (42.0) ------- ------- -------- (316.3) 150.6 140.6 ------- ------- -------- Net Increase (Decrease) In Cash and Cash Equivalents...... 115.7 19.7 (46.9) Cash and cash equivalents at beginning of year........... 43.5 23.8 70.7 ------- ------- -------- Cash and cash equivalents at end of year................. $ 159.2 $ 43.5 $ 23.8 ======= ======= ========
See Notes to Consolidated Financial Statements F-12 THE COASTAL CORPORATION AND SUBSIDIARIES STATEMENT OF CONSOLIDATED COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY (Millions of Dollars and Thousands of Shares)
Year Ended December 31, ------------------------------------------------------------- 1993 1992 1991 ------------------- ----------------- ------------------- Shares Amount Shares Amount Shares Amount -------- --------- ------- -------- -------- -------- Preferred Stock, Par Value 33-1/3c Per Share, Authorized 50,000,000 Shares Cumulative Convertible Preferred: $1.19, Series A: Beginning balance...................................... 69 $ - 72 $ - 76 $ - Converted to common............................ (4) - (3) - (4) - ------- ------- ------- -------- ------- -------- Ending balance............................... 65 - 69 - 72 - ======= ------- ======= -------- ======= -------- $1.83, Series B: Beginning balance........................................ 95 .1 109 .1 118 .1 Converted to common............................ (6) - (14) - (9) - ------- ------- ------- -------- ------- -------- Ending balance............................... 89 .1 95 .1 109 .1 ======= ------- ======= -------- ======= -------- $5.00, Series C: Beginning balance........................................ 36 - 36 - 37 - Converted to common............................ (1) - - - (1) - ------- ------- ------- -------- ------- -------- Ending balance............................... 35 - 36 - 36 - ======= ------- ======= -------- ======= -------- Cumulative Preferred: $2.125, Series H, Liquidation amount of $25 per share: Beginning balance.............................. - - - - - - Issuance....................................... 8,000 2.6 - - - - ------- -------- ------- -------- ------- -------- Ending balance............................... 8,000 2.6 - - - - ======= -------- ======= -------- ======= -------- Class A Common Stock, Par Value 33-1/3c Per Share, Authorized 2,700,000 Shares Beginning balance.............................. 445 .1 449 .2 481 .2 Converted to common............................ (108) - (27) (.1) (45) - Conversion of preferred stock and exercise of stock options..................... 86 - 23 - 13 - ------- -------- ------- -------- ------- -------- Ending balance............................... 423 .1 445 .1 449 .2 ====== -------- ======= -------- ======= -------- Common Stock, Par Value 33-1/3c Per Share, Authorized 250,000,000 Shares Beginning balance.............................. 107,967 36.0 107,713 35.8 107,518 35.8 Conversion of preferred stock.................. 42 - 63 - 51 - Conversion of Class A common stock............. 108 - 27 .1 45 - Exercise of stock options...................... 395 .2 164 .1 99 - ------- -------- ------- -------- ------- -------- Ending balance............................... 108,512 36.2 107,967 36.0 107,713 35.8 ======= -------- ======= -------- ======= -------- Additional Paid-In Capital Beginning balance............................... 1,006.7 999.7 993.7 Issuance of Series H preferred stock............ 190.9 - - Exercise of stock options....................... 11.7 7.0 6.0 -------- -------- -------- Ending balance............................... 1,209.3 1,006.7 999.7 -------- -------- -------- Retained Earnings Beginning balance............................... 1,099.9 1,268.7 1,302.0 Net earnings (loss) for period.................. 115.8 (126.8) 8.7 Cash dividends on preferred stock............... (11.3) (.5) (.5) Cash dividends on Class A common stock, 36c(1993), 36c(1992) and 36c(1991) per share.. (.2) (.2) (.2) Cash dividends on common stock, 40c(1993), 40c(1992) and 40c(1991) per share............. (41.5) (41.3) (41.3) -------- -------- -------- Ending balance................................ 1,162.7 1,099.9 1,268.7 -------- -------- -------- Less Treasury Stock-At Cost..................... 4,415 132.9 4,415 132.9 4,415 132.9 ======= -------- ======= -------- ======= ======== Total........................................... $2,278.1 $2,009.9 $2,171.6 ======== ======== ========
See Notes to Consolidated Financial Statements F-13 THE COASTAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include accounts of the Company and its wholly owned subsidiaries, after eliminating all significant intercompany transactions. The equity method of accounting is used for investments in which the Company has a 20% to 50% continuing interest and exercises significant influence. Investments in which the Company has less than a 20% interest are accounted for by the cost method. STATEMENT OF CASH FLOWS - For purposes of this statement, cash equivalents include time deposits, certificates of deposit and all highly liquid instruments with original maturities of three months or less. Cash flows of a hedging instrument that are accounted for as a hedge of an identifiable transaction are classified in the same category as the cash flows from the item being hedged. The Company made cash payments for interest and financing fees (net of amounts capitalized) of $447.2 million, $480.6 million and $426.6 million in 1993, 1992 and 1991, respectively. Cash payments (refunds) for income taxes amounted to $21.0 million, ($9.8) million and $81.0 million for 1993, 1992 and 1991, respectively. INVENTORIES - Inventories of refined products and crude oil are accounted for by the first-in, first-out cost method ("FIFO") or market, if lower. Natural gas inventories are accounted for on the basis used for rate making and in reporting to the Federal Energy Regulatory Commission ("FERC"). Colorado Interstate Gas Company ("CIG") uses the last-in, first-out method, while ANR Pipeline Company uses the first-in, first-out method. Inventories of coal are accounted for at average cost, or market, if lower. Inventories of materials and supplies are accounted for at average cost. HEDGES - The Company frequently enters into futures and other contracts to hedge the price risks associated with inventories, commitments and certain anticipated transactions. Coastal defers the impact of changes in the market value of these contracts until such time as the hedged transaction is completed. PROPERTY, PLANT AND EQUIPMENT - Property additions include acquisition costs, administrative costs and, where appropriate, capitalized interest allocable to construction. Capitalized interest amounted to $8.4 million, $10.7 million and $22.1 million in 1993, 1992 and 1991, respectively. All costs incurred in the acquisition, exploration and development of gas and oil properties, including unproductive wells, are capitalized under the full-cost method of accounting. Depreciation, depletion and amortization of gas and oil properties are provided on the unit-of-production basis whereby the unit rate for depreciation, depletion and amortization is determined by dividing the total unrecovered carrying value of gas and oil properties plus estimated future development costs by the estimated proved reserves included therein, as estimated by an independent engineer. The average amortization rate per equivalent unit of a thousand cubic feet of gas production for oil and gas operations was $1.00 each for 1993, 1992 and 1991. Provisions for depletion of coal properties, including exploration and development costs, are based upon estimates of recoverable reserves using the unit-of-production method. Provision for depreciation of other property is primarily on a straight-line basis over the estimated useful life of the properties. Costs of minor property units (or components thereof) retired or abandoned are charged or credited, net of salvage, to accumulated depreciation, depletion and amortization. Gain or loss on sales of major property units is credited or charged to income. GOODWILL - Goodwill, which primarily relates to the acquisitions of American Natural Resources Company and Colorado Interstate Gas Company, amounted to $563.3 million at December 31, 1993, and is being amortized on a straight-line basis over a 40-year period. Amortization expense charged to operations was approximately $19.0 F-14 million for 1993, 1992 and 1991, respectively. As warranted by facts and circumstances, the Company periodically assesses the recoverability of the cost of goodwill from future operating income. INCOME TAXES - The Company follows the liability method of accounting for deferred income taxes as required by the provisions of Statement of Financial Accounting Standards No. 109 - Accounting for Income Taxes. REVENUE RECOGNITION - The Company's subsidiaries recognize revenues for the sale of their respective products in the period of delivery. Revenues for services are recognized in the period the services are provided. CURRENCY TRANSLATION - The U.S. dollar is the functional currency for substantially all the Company's foreign operations. For those operations, all gains and losses from currency translations are included in income currently. EARNINGS PER SHARE - Earnings (loss) per common and common equivalent share amounts are based on the average number of common and Class A common shares outstanding during each period, assuming conversion of preferred stocks which are common stock equivalents and exercise of all stock options having exercise prices less than the average market price of the common stock using the treasury stock method. Average shares entering into the computations are:
1993............... 104,744,124 1992............... 103,827,362 1991............... 104,651,450
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 71 (FAS 71) - The interstate natural gas pipeline operations and certain storage subsidiaries are subject to the regulations and accounting procedures of the FERC. These subsidiaries meet the criteria and, accordingly, follow the reporting and accounting requirements of FAS 71. RECLASSIFICATION OF PRIOR PERIOD STATEMENTS - Certain minor reclassifications have been made to conform with current reporting practices. The effect of the reclassifications was not material to the Company's results of operations or financial position. NOTE 2. INVENTORIES Inventories at December 31 were (millions of dollars):
1993 1992 -------- --------- Refined products, crude oil and chemicals....................................... $ 568.8 $ 734.8 Natural gas in underground storage................... 260.4 360.0 Coal, materials and supplies......................... 163.0 157.9 -------- --------- $ 992.2 $ 1,252.7 ======== =========
Elements included in inventory cost are material, labor and manufacturing expenses. The excess of replacement cost over the carrying value of natural gas in underground storage carried by the last-in, first-out method was approximately $52.6 million and $47.8 million at December 31, 1993 and 1992, respectively. Natural gas in underground storage at December 31, 1993, includes $161.5 million, pending approval by the FERC, which is to be transferred to Property, Plant and Equipment for regulatory and accounting purposes. F-15 NOTE 3. TAKE-OR-PAY OBLIGATIONS Other assets include $134.0 million and $225.6 million at December 31, 1993 and 1992, respectively, relating to prepayments for gas under gas purchase contracts with producers and settlement payment amounts relative to the restructuring of gas purchase contracts as negotiated with producers. Currently, FERC regulations allow for the billing of a portion of the costs of take-or-pay settlements and renegotiating gas purchase contracts. Prepayments are normally recoupable through future deliveries of natural gas. As a result of the implementation of Order 636 by CIG on October 1, 1993 (See Note 14 in the Notes to Consolidated Financial Statements), CIG's future gas sales will be made at negotiated prices and will not be subject to regulatory price controls. This will not affect the recoverability or the results of pending take-or-pay litigation or any take-or-pay or contractual reformation settlements that CIG may achieve with respect to periods before October 1, 1993. A portion of the costs associated with take-or-pay incurred prior to October 1, 1993, may continue to be recovered by CIG pursuant to FERC's Order No. 528. Contract reformation and take-or-pay costs incurred as a result of the mandated Order 636 restructuring will be recovered under the transition cost mechanisms of Order 636, as well as through negotiated agreements with customers. The Company believes that these mechanisms provide adequate coverage for such costs. Several producers have instituted litigation arising out of take-or-pay claims against subsidiaries of the Company. In the Company's experience, producers' claims are generally vastly overstated and do not consider all adjustments provided for in the contract or allowed by law. The subsidiaries have resolved the majority of the exposure with their suppliers for approximately 13% of the amounts claimed. At December 31, 1993, the Company estimated that unresolved asserted and unasserted producers' claims amounted to approximately $31 million. The remaining disputes will be settled where possible and litigated if settlement is not possible. At December 31, 1993, the Company was committed to make future purchases under certain take-or-pay contracts with fixed, minimum or escalating price provisions. Based on contracts in effect at that date, and before considering reductions provided in the contracts or applicable law, such commitments are estimated to be $38 million, $30 million, $23 million, $15 million and $4 million for the years 1994-1998, respectively, and $9 million thereafter. Such commitments have also not been adjusted for all amounts which may be assigned or released, or for the results of future litigation or negotiation with producers. The Company has made provisions, which it believes are adequate, for payments to producers that may be required for settlement of take-or-pay claims and restructuring of future contractual commitments. In determining the net loss relating to such provisions, the Company has also made accruals for the estimated portion of such payments which would be recoverable pursuant to FERC- approved settlements with customers. NOTE 4. INVESTMENTS The Company has interests in corporations and partnerships which are accounted for on an equity basis. These investments, included in Other Assets, are Great Lakes Gas Transmission Limited Partnership (50% interest), which operates an interstate pipeline system; Pacific Refining Company (50% interest), which operates a refinery and terminal facilities in California; Javelina Company (40% interest), which operates a gas processing plant in Corpus Christi, Texas; Eagle Point Cogeneration Partnership (50% interest), which operates a cogeneration facility in New Jersey; corporate joint ventures (50% interest), which have developed gas and oil properties in Argentina; and several pipeline and other ventures. The Company's investment in these entities, including advances, amounted to $424.7 million and $330.2 million at December 31, 1993 and 1992, respectively. The Company's equity in income of the investments was $71.9 million, $63.8 million and $26.6 million in 1993, 1992 and 1991, respectively, while dividends and partnership distributions received amounted to $17.5 million, $47.8 million and $18.9 million in 1993, 1992 and 1991, respectively. The 1992 equity in income excludes the restructuring charges as discussed in Note 10. F-16 Summarized financial information of these entities is as follows (millions of dollars):
December 31, -------------------- 1993 1992 --------- --------- Current assets......................................................... $ 272.9 $ 375.0 Noncurrent assets...................................................... 2,208.1 1,955.2 --------- --------- $ 2,481.0 $ 2,330.2 ========= ========= Current liabilities.................................................... $ 353.2 $ 369.3 Noncurrent liabilities................................................. 1,129.7 1,139.1 Deferred credits....................................................... 155.5 113.3 Equity................................................................. 842.6 708.5 --------- --------- $ 2,481.0 $ 2,330.2 ========= =========
Year Ended December 31, -------------------------------- 1993 1992 1991 ---------- --------- --------- Revenues................................................................ $ 1,165.2 $ 1,126.4 $ 1,038.2 Operating income........................................................ 192.8 194.1 74.4 Net income.............................................................. 123.7 108.6 25.1
F-17 NOTE 5. DEBT LONG-TERM DEBT - Balances at December 31 were (millions of dollars):
1993 1992 --------- --------- The Coastal Corporation: Notes payable to banks (term credit facilities)................................... $ 100.0 $ 111.8 Notes payable to banks (revolving credit agreements).............................. 80.0 25.0 Swiss franc bonds, 5-3/4%, due 1996............................................... 68.3 119.1 Senior notes: 11-1/4%, due 1996................................................................ - 500.0 10-3/8%, due 2000................................................................ 249.8 249.8 10%, due 2001.................................................................... 298.9 298.8 8-3/4%, due 1999................................................................. 150.0 150.0 8-1/8%, due 2002................................................................. 249.2 249.1 Japanese yen notes, 6.3%, due 1995 to 1997................................................................. 199.4 199.4 Senior debentures: 11-3/4%, due 2006................................................................ 400.0 400.0 10-1/4%, due 2004................................................................ 199.8 199.8 10-3/4%, due 2010................................................................ 149.5 149.5 9-3/4%, due 2003................................................................. 298.6 298.5 9-5/8%, due 2012................................................................. 149.1 149.0 Other............................................................................. .1 .1 --------- --------- 2,592.7 3,099.9 --------- --------- Subsidiary Companies: Notes payable to banks (revolving credit agreements).............................. 473.5 340.5 Notes payable to banks (project financing), due 1995.............................. 46.5 52.6 Long-term notes, 9% to 13-1/2%, due 1994 through 2005............................. 8.2 34.0 First mortgage pipeline bonds, 8-5/8% to 10-5/8%.................................. - 56.0 Debentures, 9-5/8% to 10%, due 2005-2021.......................................... 477.5 499.1 Capitalized lease obligations, 9-3/4% to 11.99%................................... 32.3 48.5 Swiss franc bonds, 6%, due 1995................................................... 58.2 58.1 Other, due 2004-2012.............................................................. 19.0 33.2 --------- --------- 1,115.2 1,122.0 --------- --------- Total Long-Term Debt.............................................................. 3,707.9 4,221.9 Less Current Maturities........................................................... 95.1 115.4 --------- --------- $3,612.8 $4,106.5 ========= =========
At December 31, 1993, long-term credit agreements with banks totaled $1,198.1 million, including $308.0 million available to The Coastal Corporation. Loans under these agreements bear interest at money market-related rates (weighted average 4.16% at December 31, 1993). Annual commitment fees range up to 1/2% payable on the unused portion of the applicable facility. At December 31, 1993, $653.5 million was outstanding. Notes payable to banks of $400.0 million are obligations of a wholly owned subsidiary, Coastal Natural Gas Company (CNG), for which CNG has pledged the common stock of its first-tier subsidiaries as collateral. The agreements contain restrictive covenants which, among other things, limit the payment of dividends by CNG and the amount of additional indebtedness of CNG and its subsidiaries. The subsidiary project financing note bears interest at money market-related rates. F-18 Various agreements contain restrictive covenants which, among other things, limit the payment of advances or dividends by certain subsidiaries and additional indebtedness of certain subsidiaries. At December 31, 1993, net assets of consolidated subsidiaries amounted to approximately $5.1 billion, of which $1.7 billion was restricted by such provisions. In February 1994, ANR Pipeline Company sold $125.0 million of 7-3/8% Debentures due in 2024. The net proceeds from the sale will be used for capital expenditures and for other general corporate purposes. INTEREST RATE AND CURRENCY SWAPS - The Company has entered into a number of interest rate swap agreements which have effectively fixed interest rates on $563.5 million of floating rate debt. Under these agreements, Coastal will pay the counterparties interest at a fixed rate, and the counterparties will pay Coastal interest at a variable rate based on the London Interbank Offered Rate (LIBOR). At December 31, 1993, the weighted average fixed rate payable under these agreements was 9.61%. The Company has also entered into a number of offsetting interest rate swap agreements which have effectively converted $250.0 million of fixed rate debt into floating rate debt. Terms expire at various dates through the third quarter of 1996. The foreign currency exposure relating to certain of the Swiss franc denominated debt of the Company and one of its subsidiaries and Japanese yen denominated debt of the Company has been hedged to maturity, resulting in effective borrowing costs ranging from 8.2% to 11.1%. Coastal and its subsidiaries have entered into these interest rate and currency swaps with major banking institutions to reduce the impact of interest rate and exchange rate fluctuations with respect to certain floating rate and foreign currency denominated debt. In certain instances, the Company has also entered into interest rate swaps to convert a portion of its fixed rate debt into floating rates. Coastal is exposed to loss if one or more of the counterparties default. Interest rate swap transactions generally involve exchanges of fixed and floating interest payment obligations without exchanges of underlying principal amounts. Similarly, currency swaps involve exchanges of interest payments in differing currencies but provide for the exchange of principal amounts at maturity, usually through an escrow arrangement to limit credit risk. Consequently, Coastal's exposure to credit loss is significantly less than the contracted amounts. Neither the Company nor the counterparties are required to collateralize their respective obligations under these swaps. At December 31, 1993, Coastal had no exposure to credit loss on interest rate swaps and approximately $108.7 million of exposure to credit loss on currency swaps. SUBORDINATED LONG-TERM DEBT - Balances at December 31 were (millions of dollars):
1993 1992 ------ ------ Subordinated Notes, 11-1/8%, due 1998............ $199.7 $199.6 Less Current Maturities......................... - - ------ ------ $199.7 $199.6 ====== ======
MATURITIES - The aggregate amounts of long-term debt (including subordinated) maturities for the five years following 1993 are (millions of dollars):
1994 $ 95.1 1997 $ 236.0 1995 269.6 1998 234.2 1996 502.3
NOTES PAYABLE - At December 31, 1993, Coastal and its subsidiaries had $264.0 million of outstanding indebtedness to banks under short-term lines of credit, compared to $221.4 million at December 31, 1992. As of December 31, 1993, $413.0 million was available to be drawn under short-term credit lines. F-19 RESTRICTIONS ON PAYMENT OF DIVIDENDS - Under the terms of the most restrictive of the Company's financing agreements, approximately $409.9 million was available at December 31, 1993, for payment of dividends on the Company's common and preferred stocks. GUARANTEES - Coastal and certain subsidiaries have guaranteed specific obligations of several unconsolidated affiliates. Such affiliates are generally not required to collateralize their contingent liabilities to the Company. At December 31, 1993, the Company had guaranteed 50% of a construction financing entered into by a partially owned partnership, 45% of a construction financing of a second partnership and 100% of a construction financing entered into by a third partnership. The Company's proportionate share of the outstanding principal balances under these guarantees was $135.0 million at December 31, 1993. Other guarantees and indemnities related to obligations of unconsolidated affiliates amounted to approximately $224.9 million as of the same date. The Company anticipates that two of the guaranteed construction loans will be refinanced in 1994 and the third in early 1995, all on a non-recourse basis. The Company is of the opinion that its unconsolidated affiliates will be able to perform under their respective financings and other obligations and that no payments will be required and no losses will be incurred under such guarantees and indemnities. Coastal and certain subsidiaries have guaranteed approximately $16.7 million of obligations of third parties under leases and borrowing arrangements. Where possible, the Company has obtained security interests and guarantees by the principals. Cash requirements and losses under these guarantees are expected to be nominal. NOTE 6. LEASES The Company and its subsidiaries had rental expense of approximately $98.2 million, $92.6 million and $98.1 million in 1993, 1992 and 1991, respectively, excluding leases covering natural resources. Aggregate minimum lease payments under existing noncapitalized long-term leases are estimated to be $82.8 million, $80.5 million, $77.3 million, $71.0 million, and $59.5 million for the years 1994-1998, respectively, and $720.7 million thereafter. NOTE 7. MANDATORY REDEMPTION PREFERRED STOCK Shares and aggregate redemption value of mandatory redemption preferred stock outstanding, excluding shares redeemable within one year, were (thousands of shares and millions of dollars):
Subsidiaries Stock ------------------ Shares Value ------ ------ Balance, December 31, 1990................. 2,115 $ 65.1 Redemptions................................ (346) (15.9) ----- ------ Balance, December 31, 1991................. 1,769 49.2 Redemptions................................ (577) (12.5) ----- ------ Balance, December 31, 1992................. 1,192 36.7 Redemptions................................ (326) (10.1) ----- ------ Balance, December 31, 1993................. 866 $ 26.6 ===== ======
CIG has 550,000 shares of $100 par value cumulative preferred stock authorized, of which 5,560 shares were outstanding at December 31, 1993. The stock outstanding is due in 1997 with an annual dividend rate of 5.5%. The series is to be redeemed at par value through annual sinking fund payments. ANR Pipeline Company had 1,086,640 outstanding shares of $1.00 par value redeemable cumulative preferred stock at December 31, 1993. The stock consists of three series with dividends per share of $2.675, $2.12 and $12.00. The $2.675 and $2.12 series were issued at $25 per share and the $12.00 series was issued at $100 per share. The F-20 current per share redemption prices are $25.268 for the $2.675 Series (decreases to issue price by 1995), $25.318 for the $2.12 Series (decreases to issue price by 1996) and $103.790 for the $12.00 Series (decreases to issue price by 1999). All series are to be redeemed through annual sinking fund payments. The aggregate amount of share redemption requirements for the five years following 1993 are (millions of dollars): 1994 $7.7 1997 $3.7 1995 7.7 1998 2.5 1996 5.1
NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value amounts of the Company's financial instruments have been determined by the Company, using appropriate market information and valuation methodologies. Considerable judgment is required to develop the estimates of fair value, thus, the estimates provided herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.
(Millions of dollars) ---------------------------------------------- December 31, 1993 December 31, 1992 --------------------- --------------------- Carrying Fair Carrying Fair Amount Value Amount Value --------- --------- --------- --------- Financial assets: Cash and cash equivalents............. $ 159.2 $ 159.2 $ 43.5 $ 43.5 Notes receivable...................... 62.8 64.2 64.8 64.8 Financial liabilities: Short-term debt....................... 264.0 264.0 221.4 221.4 Long-term debt and currency swaps..... 3,875.3 4,203.5 4,373.0 4,457.2 Mandatory redemption preferred stock.. 34.3 34.9 44.4 44.5 Interest rate swaps and options....... 80.3 106.3 64.8 120.0
The estimated value of the Company's long-term debt and mandatory redemption preferred stock is based on interest rates at December 31, 1993 and 1992, respectively, for new issues with similar remaining maturities. The fair market value of the Company's interest rate and foreign currency swaps is based on the estimated termination values at December 31, 1993 and 1992, respectively. NOTE 9. COMMON AND PREFERRED STOCK Shares of common stock and Class A common stock reserved for future issuance as of December 31, 1993 were:
Class A Common Common Stock Stock ---------- ------- Employee stock options......................................... 2,294,372 44,743 Conversion of outstanding Class A common stock................. 422,857 - Conversion of Class A common stock subject to future issuance.. 67,107 - Conversion of preferred stock: $1.19, Series A, redemption value of $33 per share............ 233,945 6,476 $1.83, Series B, redemption value of $50 per share............ 322,126 8,917 $5.00, Series C, redemption value of $100 per share........... 251,854 6,971 ---------- ------- 3,592,261 67,107 ========== =======
F-21 Common stock reserved for conversion is at the rate of one share for each share of Class A common stock, 3.6125 shares for each share of Series A or Series B preferred stock and 7.1121094 shares for each share of Series C preferred stock. Each share of common stock and Series A, Series B and Series C preferred stock is entitled to one vote while each share of Class A common stock is entitled to 100 votes. However, 25% of the Company's directors standing for election at each annual meeting will be determined solely by holders of the common stock and preferred stocks mentioned above, voting as a class. In April 1993, the Company completed the public offering of 8,000,000 shares of $2.125 Cumulative Preferred Stock, Series H, at $25 per share. The net proceeds from the sale were used to retire short- and long-term debt of the Company. Under the 1980 Stock Option Plan, no options were exercisable at December 31, 1993, and 904 common shares and 25 Class A common shares were exercisable at December 31, 1992. No additional options may be granted under the 1980 Plan. Under the 1984 Plan, 4,113 Class A common shares and 13,442 common shares were available for granting of options, and options for 39,262 Class A common shares and 92,288 common shares were exercisable at December 31, 1993. At December 31, 1992, nine Class A common shares and 12 common shares were available for granting of options, and options for 124,448 Class A common shares and 185,080 common shares were exercisable. Under the 1985 Plan, 69,758 common shares were available for granting of options, and options for 953,898 common shares were exercisable at December 31, 1993. At December 31, 1992, 102,773 common shares were available for granting of options, and options for 1,194,414 common shares were exercisable. Under the 1990 Plan, 23,717 common shares were available for granting of options, and options for 181,380 common shares were exercisable at December 31, 1993. At December 31, 1992, 368,690 common shares were available for granting of options, and options for 42,002 common shares were exercisable. Options are currently granted under the plans at 100% of market value. The following table presents a summary of stock option transactions for the three years ended December 31, 1993:
Class A Option Common Common Price Stock Stock Per Share ---------- ------- --------- December 31, 1990.... 2,372,561 208,325 $ 6.26-35.94 Granted............. 446,800 - 31.50-35.94 Exercised........... (214,537) (27,566) 6.26-28.59 Revoked or expired.. (28,432) (50) 9.87-35.94 --------- -------- ------------ December 31, 1991.... 2,576,392 180,709 7.12-35.94 Granted............. 20,000 - 25.94-28.56 Exercised........... (214,867) (50,116) 7.12-28.59 Revoked or expired.. (147,500) - 17.08-35.94 --------- -------- ------------ December 31, 1992.... 2,234,025 130,593 7.91-35.94 Granted............. 639,879 - 25.50-27.00 Exercised........... (412,128) (85,859) 7.91-28.59 Revoked or expired.. (274,321) (4,104) 26.06-35.94 --------- -------- ------------ December 31, 1993.... 2,187,455 40,630 $ 7.91-35.94 ========= ========= ============
F-22 NOTE 10. SEGMENT REPORTING The Company operates principally in the following lines of business: natural gas, refining and marketing, exploration and production, and coal. Natural gas operations involve the production, purchase, gathering, storage, transportation and sale of natural gas, principally to utilities, industrial customers and other pipelines, and include the operation of natural gas liquids extraction plants. Refining and marketing operations involve the purchase, transportation and sale of refined products, crude oil, condensate and natural gas liquids; the operation of refineries and a chemical plant; the sale at retail of gasoline, petroleum products and convenience items; petroleum product terminaling; and marketing of crude oil and refined petroleum products worldwide. Exploration and production operations involve the exploration, development and production of natural gas, crude oil, condensate and natural gas liquids. The segment also includes related intrastate natural gas marketing activities and gas plant processing operations. Coal operations include the mining, processing and marketing of coal from Company-owned reserves and from other sources, and the brokering of coal for others. Other operations include regional trucking operations involving activities as common carriers in interstate and intrastate commerce and activities in power production and other projects. Operating revenues by segment include both sales to unaffiliated customers, as reported in the Company's Statement of Consolidated Operations, and intersegment sales, which are accounted for on the basis of contract, current market or internally established transfer prices. The intersegment sales are primarily sales from the exploration and production segment to the natural gas and refining and marketing segments and from the natural gas segment to the refining and marketing segment. Operating profit is total revenues less interest income from affiliates and operating costs and expenses. Operating expenses exclude income taxes, corporate general and administrative expenses and interest. Identifiable assets by segment are those assets that are used in the Company's operations in each segment. Corporate assets are those assets which are not specifically identifiable with a segment. F-23 The Company's operating revenues, operating profit, capital expenditures, and depreciation, depletion and amortization expense for the years ended December 31, 1993, 1992 and 1991, and identifiable assets as of December 31, 1993, 1992 and 1991, by segment, are shown as follows (millions of dollars):
1993 1992 1991 ---------- ---------- ---------- OPERATING REVENUES Natural gas....................................... $ 3,247.9 $ 2,746.8 $ 2,405.5 Refining and marketing............................ 6,200.9 6,561.1 6,297.6 Exploration and production........................ 357.3 310.0 327.6 Coal.............................................. 443.2 447.4 465.2 Other............................................. 187.0 196.3 169.6 Adjustments and eliminations...................... (300.2) (198.7) (110.7) --------- --------- --------- Consolidated totals.............................. $10,136.1 $10,062.9 $ 9,554.8 ========= ========= ========= OPERATING PROFIT (LOSS) Natural gas....................................... $ 405.2 $ 403.1 $ 402.2 Refining and marketing............................ 98.0 (192.1) (99.3) Exploration and production........................ 49.9 45.8 45.2 Coal.............................................. 95.1 92.8 91.8 Other............................................. (12.8) (19.7) (4.3) --------- --------- --------- Consolidated totals.............................. $ 635.4 $ 329.9 $ 435.6 ========= ========= ========= CAPITAL EXPENDITURES Natural gas....................................... $ 119.8 $ 231.7 $ 181.5 Refining and marketing............................ 130.3 173.3 391.5 Exploration and production........................ 91.8 126.8 95.4 Coal.............................................. 36.0 33.3 44.7 Other............................................. 9.5 2.6 11.8 --------- --------- --------- Segment totals................................... 387.4 567.7 724.9 Corporate assets.................................. 5.3 5.8 4.0 --------- --------- --------- Consolidated totals.............................. $ 392.7 $ 573.5 $ 728.9 ========= ========= ========= DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSE Natural gas....................................... $ 145.4 $ 187.1 $ 177.0 Refining and marketing............................ 45.6 98.1 40.3 Exploration and production........................ 109.1 83.2 69.4 Coal.............................................. 28.5 28.4 27.1 Other............................................. 7.9 7.6 7.1 --------- --------- --------- Segment totals................................... 336.5 404.4 320.9 Corporate assets.................................. 3.4 4.2 3.0 --------- --------- --------- Consolidated totals.............................. $ 339.9 $ 408.6 $ 323.9 ========= ========= ========= IDENTIFIABLE ASSETS Natural gas....................................... $ 5,562.5 $ 5,719.7 $ 5,748.5 Refining and marketing............................ 2,745.9 3,054.1 3,019.0 Exploration and production........................ 801.5 835.8 781.9 Coal.............................................. 450.3 434.6 438.9 Other............................................. 199.7 203.2 210.6 --------- --------- --------- Segment totals................................... 9,759.9 10,247.4 10,198.9 Corporate assets.................................. 467.2 332.4 321.4 --------- --------- --------- Consolidated totals.............................. $10,227.1 $10,579.8 $10,520.3 ========= ========= =========
F-24 Refining and marketing revenues include gross profit arising from the selling, trading and exchanging of third party products. Approximate amounts from these transactions included in revenues and the impact on earnings, exclusive of interest costs, were (millions of dollars):
1993 1992 1991 ---- ---- ----- Revenues............................................... $ 3.1 $ 1.1 $13.1 Impact on earnings..................................... 2.0 .7 8.5
The number and magnitude of such transactions may vary significantly from year to year, particularly in view of conditions in world petroleum markets. Results for 1992 reflect a primarily non-cash $125 million pretax charge for restructuring certain refining and marketing operations. The charge reflects numerous actions to reduce costs and working capital, limit risks and eliminate marginal activities, and primarily relates to reducing the carrying value of certain assets. Eighty-five million dollars of the charge relates to wholly owned assets and was made against operating profit. The remaining $40 million relates to partially owned investments and was included in Other Income-Net. OTHER INCOME - Net for 1991 includes gains of $13.2 million from the sale of securities. Also included are equity method earnings related to the business segments as follows (millions of dollars):
Year Ended December 31, -------------------------- 1993 1992 1991 -------- ------- ------- Natural gas.................................... $55.1 $53.6 $31.5 Refining and marketing......................... (3.4) (7.6) (8.3) Exploration and production..................... 4.7 5.1 - Power production............................... 16.4 13.7 4.9 Other.......................................... (.9) (1.0) (1.5) ----- ----- ----- $71.9 $63.8 $26.6 ===== ===== =====
Revenues from sales to any single customer during 1993, 1992 or 1991 did not amount to 10% or more of the Company's consolidated revenues for any year. NOTE 11. BENEFIT PLANS The Company has non-contributory pension plans covering substantially all U.S. employees. These plans provide benefits based on final average monthly compensation and years of service. The Company's funding policy is to contribute the amount necessary for the plan to maintain its qualified status under the Employee Retirement Income Security Act of 1974. The pension benefit for 1993, 1992 and 1991 is shown in the following table (millions of dollars):
Year Ended December 31, -------------------------- 1993 1992 1991 -------- ------- ------- Service cost - benefit earned during the period.. $ 16.3 $ 15.2 $ 13.9 Interest cost on projected benefit obligation.... 37.6 38.5 34.4 Actual return on assets.......................... (92.5) (25.3) (108.7) Net amortization and deferral.................... 18.9 (47.5) 44.1 ------ ------ ------- Net periodic pension benefit..................... $(19.7) $(19.1) $ (16.3) ====== ====== =======
The discount rate used in determining the actuarial present value of the projected benefit obligation was 7.25% in 1993 and 8.25% in 1992 and 1991. The expected increase in future compensation levels was 4% in 1993 and 6% in 1992 and 1991, and the expected long-term rate of return on assets was 11%. F-25 The following table sets forth the funded status of the plans and the amounts recognized in the Company's Consolidated Balance Sheet (millions of dollars):
December 31, ----------------- 1993 1992 ------- ------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $442.5 million and $371.5 million, respectively........................................ $(492.4) $(410.3) ======= ======= Projected benefit obligation for service rendered to date............ $(539.6) $(506.3) Plan assets, primarily equity securities, at fair value.............. 827.6 762.5 ------- ------- Plan assets in excess of projected benefit obligation................ 288.0 256.2 Unrecognized net assets at January 1, 1993 and 1992, being recognized over average remaining service lives............................................................... (76.1) (85.4) Prior service cost, not yet recognized............................... 7.1 6.1 Unrecognized net loss from past experience different from that assumed........................................................ 15.9 19.9 ------- ------- Prepaid pension cost................................................. $ 234.9 $ 196.8 ======= =======
Plan assets include common stock and Class A common stock of the Company amounting to a total of 3.75 million shares at December 31, 1993 and 1992. The Company also participates in several multi-employer pension plans for the benefit of its employees who are union members. Company contributions to these plans were $7.1 million each for 1993, 1992 and 1991. The data available from administrators of the multi-employer pension plans is not sufficient to determine the accumulated benefit obligations, nor the net assets attributable to the multi-employer plans in which Company employees participate. The Company also makes contributions to a thrift plan, which is a trusteed, voluntary and contributory plan for eligible employees of the Company. The Company's contributions, which match the contributions made by employees, amounted to $17.7 million, $16.6 million and $15.4 million in 1993, 1992 and 1991, respectively. The Company provides certain health care and life insurance benefits for retired employees. Substantially all U.S. employees are provided these benefits. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("FAS 106"). FAS 106 requires the Company to accrue the estimated cost of retiree benefit payments during the years the employee provides services. The Company previously expensed the cost of these benefits, which are principally health care, as claims were incurred. FAS 106 allows recognition of the cumulative effect of the liability in the year of the adoption or the amortization of the obligation over a period of up to 20 years. The Company has elected to recognize the initial postretirement benefit obligation of approximately $133.1 million over a period of 20 years. The Company's cash flows were not affected by implementation of FAS 106 and the incremental impact on the Company's 1993 results of operations before income taxes is approximately $13.6 million, of which $8.3 million is being deferred by the Company's rate regulated subsidiaries. The subsidiaries have filed to include such deferred costs in their rates. F-26 [CAPTION] (Millions of dollars) --------------------- Accumulated postretirement benefit obligation as of December 31, 1993: Retirees................................................................ $(105.3) Fully eligible plan participants........................................ (18.8) Other active plan participants.......................................... (25.3) ------- (149.4) Plan assets at fair value................................................ 2.1 ------- Accumulated postretirement benefit obligations in excess of plan assets.. (147.3) Unrecognized net transition obligation................................... 126.4 Unrecognized net loss from past experience different from that assumed... 9.3 ------- Postretirement benefit obligation included in balance sheet as of December 31, 1993....................................................... $ (11.6) ======= Net periodic postretirement benefit cost for the year ended December 31, 1993, consisted of the following components: Service cost - benefits earned during the period........................ $ 1.7 Interest cost on accumulated postretirement benefit obligation.......... 10.6 Amortization of transition obligation................................... 6.7 Deferred regulatory asset............................................... (8.3) ------- Net periodic postretirement benefit expense............................. $ 10.7 =======
The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 16.0% in 1993, declining gradually to 7.0% by the year 2004. A one percentage point increase in the assumed health care cost trend rate for each year would increase the accumulated postretirement benefit obligation as of December 31, 1993, and net postretirement health care cost by approximately 4.7%. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 7.25%. The Company adopted Statement of Financial Accounting Standards No. 112, "Employer's Accounting for Postemployment Benefits" ("FAS 112") effective January 1, 1994. This standard covers the accounting for estimated costs of benefits provided to former or inactive employees before their retirement. The effect of the new standard will not have a material effect on the Company's results of operations or financial position. NOTE 12. TAXES ON INCOME Pretax earnings (loss) before extraordinary item are composed of the following (millions of dollars):
Year Ended December 31, ------------------------- 1993 1992 1991 ------ -------- ------- United States................................. $171.0 $(139.9) $(25.4) Foreign....................................... 30.7 (58.6) 24.3 ------ ------- ------ $201.7 $(198.5) $ (1.1) ====== ======= ======
F-27 Provisions for income taxes (benefits) before extraordinary item are composed of the following (millions of dollars):
Year Ended December 31, ------------------------- 1993 1992 1991 ------ -------- ------- Current Income Taxes: Federal................ $34.3 $ 2.5 $ 35.7 State.................. 3.3 1.4 7.8 ----- ------ ------ 37.6 3.9 43.5 ----- ------ ------ Deferred Income Taxes: Federal................ 39.0 (84.2) (57.1) State.................. 6.8 8.6 3.8 ----- ------ ------ 45.8 (75.6) (53.3) ----- ------ ------ Taxes on Income......... $83.4 $(71.7) $ (9.8) ===== ====== ======
The Company and the Internal Revenue Service ("IRS") Appeals Office have concluded a tentative settlement of all contested adjustments to federal income tax returns filed for the years 1982 through 1984. The settlement is in the process of being finalized. The Company's federal income tax returns filed for the years 1985 through 1987 have been examined by the IRS, and the Company has received notice of proposed adjustments to the returns for each of those years. The Company currently is contesting certain of these adjustments with the IRS Appeals Office. Examinations of the Company's federal income tax returns for 1988, 1989 and 1990 are currently in progress. It is the opinion of management that adequate provisions for federal income taxes have been reflected in the consolidated financial statements. The Company increased its deferred tax liability as a result of legislation enacted in 1993 increasing the Corporate federal income tax rate from 34% to 35% commencing in 1993. Provisions for income taxes were different than the amount computed by applying the statutory U.S. federal income tax rate to earnings before tax. The reasons for these differences are (millions of dollars):
Year Ended December 31, -------------------------- 1993 1992 1991 ------- -------- ------- Tax expense (benefit) by applying the U.S. federal income tax rate of 35% (1993) and 34% (1992 and 1991)............ $ 70.6 $(67.5) $ (.3) Increases (reductions) in taxes resulting from: Tight sands gas credit.................................... (13.0) - (2.1) State income tax cost..................................... 6.6 6.6 7.7 Preferred stock dividends................................. 1.4 1.8 2.3 Goodwill.................................................. 6.4 6.4 6.4 Exclusion for dividends and equity earnings............... (3.4) (3.0) (3.4) Full normalization........................................ (5.4) (6.1) (5.5) Depletion................................................. (6.3) (5.8) (4.5) Increase in federal tax rate.............................. 29.0 - - Other..................................................... (2.5) (4.1) (10.4) ------ ------ ------ Taxes on income............................................ $ 83.4 $(71.7) $ (9.8) ====== ====== ======
F-28 Deferred tax liabilities (assets) which are recognized for the estimated future tax effects attributable to temporary differences and carryforward are (millions of dollars):
December 31, ----------------- 1993 1992 ------ ------ Excess of book basis over tax basis of property, plant and equipment.................... $1,403.1 $1,344.6 Pensions and benefit costs........................ 41.2 34.0 Purchase gas and other recoverable cost........... 52.6 41.9 -------- -------- Deferred tax liabilities.......................... 1,496.9 1,420.5 -------- -------- Provisions for rate refunds and contested claims.. (3.9) (23.3) Inventory adjustments............................. (27.4) (42.0) Alternative minimum tax credit carryforward....... (145.9) (100.4) Other............................................. (3.3) (16.1) -------- -------- Deferred tax assets............................... (180.5) (181.8) -------- -------- Deferred income taxes............................. $1,316.4 $1,238.7 ======== ========
NOTE 13. EXTRAORDINARY ITEM In June 1993, the Company retired $500.0 million of 11 1/4% Senior Notes due in 1996. The transaction resulted in an extraordinary loss of $2.5 million ($.02 per share), net of income taxes of $1.3 million. NOTE 14. LITIGATION AND REGULATORY MATTERS LITIGATION - In December 1992, certain of CIG's natural gas lessors in the West Panhandle Field filed a complaint in the U.S. District Court for the Northern District of Texas, claiming underpayment, breach of fiduciary duty, fraud and negligent misrepresentation. Management believes that CIG has numerous defenses to the lessors' claims, including (i) that the royalties were properly paid, (ii) that the majority of the claims were released by written agreement, and (iii) that the majority of the claims are barred by the statute of limitations. A subsidiary of Coastal has initiated a suit against TransAmerican Natural Gas Corporation in the District Court of Webb County, Texas for breach of two gas purchase agreements. In February 1993 TransAmerican Natural Gas Corporation filed a Third Party Complaint and a Counterclaim in this action against Coastal and certain subsidiaries. TransAmerican alleges breach of contract, fraud, conspiracy, duress, tortious interference and violations of the Texas Free Enterprises and Anti-trust Act arising out of the gas purchase agreements. TransAmerican seeks compensatory damages, exemplary damages and attorney fees. The matter is set for trial on March 14, 1994. Numerous other lawsuits and other proceedings which have arisen in the ordinary course of business are pending or threatened against the Company or its subsidiaries. Although no assurances can be given and no determination can be made at this time as to the outcome of any particular lawsuit or proceeding, the Company believes there are meritorious defenses to substantially all of the above claims and that any liability which may finally be determined should not have a material adverse effect on the Company's consolidated financial position. RATE REGULATION - On April 8, 1992, the FERC issued Order No. 636 ("Order 636"), which required significant changes in the services provided by interstate natural gas pipelines. Subsidiaries of the Company and numerous other parties have sought judicial review of aspects of Order 636. ANR Pipeline placed its restructured services under Order 636 into effect on November 1, 1993. ANR Pipeline now offers a wide range of unbundled transportation, storage and balancing services. Several persons, including ANR Pipeline, have sought judicial review of aspects of the FERC's orders approving ANR Pipeline's restructuring filings. Order 636 also provides mechanisms for recovery of transition costs associated with compliance with that Order. These transition costs include gas supply realignment costs, the cost of stranded pipeline investment and the cost of new facilities required to implement Order 636. ANR Pipeline expects that it will incur transition costs of F-29 approximately $150 million. As a result of the recovery mechanisms provided under Order 636, the Company anticipates that these transition costs will not have a material adverse effect on the Company's consolidated financial position or its results of operations. On December 17, 1992, the FERC issued a policy statement that outlined changes on how pipelines may recover the costs of employees' post-retirement benefits other than pensions. The FERC's policy will be to recognize, as a component of jurisdictional cost-based rates, allowances for FAS 106 costs of company employees when determined on an accrual basis, provided certain conditions are met. On November 1, 1993, ANR Pipeline filed a general rate increase with the FERC. The proposed rates reflect a $121 million increase in ANR Pipeline's cost of service from that approved in the settlement of ANR Pipeline's last rate case and a $218 million increase over ANR Pipeline's approved rates for its restructured services. The increase represents higher plant investment, Order 636 restructuring costs, rate of return and tax rate changes and increased costs related to the required adoption of recent accounting rule changes, i.e., FAS 106 and FAS 112. The FERC has permitted ANR Pipeline to place its new rates into effect on May 1, 1994, subject to refund, and subject to further orders. On July 2, 1993, CIG submitted to the FERC an unanimous offer of settlement which resolved all the Order 636 restructuring issues which had been raised in its restructuring proceedings. That settlement was ultimately approved (except for minor issues), and CIG's restructured services became effective October 1, 1993. CIG has "unbundled" its gas sales from its other services. Separate gathering, transportation, storage and other services are available on a "stand- alone" basis to any customers desiring them. CIG's Order 636 transition costs are not expected to be material. On March 31, 1993, CIG filed at FERC to increase its rates by approximately $26.5 million annually. Such rates (adjusted to reflect CIG's Order 636 program) became effective subject to refund on October 1, 1993. CIG, ANR Pipeline, ANR Storage Company and Wyoming Interstate Company, Ltd., subsidiaries, are regulated by the FERC. Certain regulatory issues remain unresolved among these companies, their customers, their suppliers and the FERC. The Company has made provisions which represent management's assessment of the ultimate resolution of these issues. While the Company estimates the provisions to be adequate to cover potential adverse rulings on these and other issues, it cannot estimate when each of these issues will be resolved. ENVIRONMENTAL REGULATION - The Company's operations are subject to extensive federal, state and local environmental laws and regulations. The Company anticipates annual capital expenditures of $20 to $40 million over the next several years aimed at compliance with such laws and regulations. Additionally, appropriate governmental authorities may enforce the laws and regulations with a variety of civil and criminal enforcement measures, including monetary penalties and remediation requirements. The Comprehensive Environmental Response, Compensation and Liability Act, also known as "Superfund," as reauthorized, imposes liability, without regard to fault or the legality of the original act, for disposal of a "hazardous substance." Certain subsidiaries of the Company have been named as a potentially responsible party ("PRP") in several "Superfund" waste disposal sites. At the 15 sites for which the EPA has developed sufficient information to estimate total clean-up costs of approximately $350 million, the Company estimates it pro-rata exposure to be paid over a period of several years is approximately $5 million and has made appropriate provisions. At three other sites, the EPA is currently unable to provide the Company with an estimate of total clean-up costs and, accordingly, the Company is unable to calculate its share of those costs. Finally, at five other sites, the Company has paid amounts to other PRPs as its proportional share of associated clean-up costs. As to these latter sites, the Company believes that its activities were de minimis. There are additional areas of environmental remediation responsibilities which may fall on the Company. Future information and developments will require the Company to continually reassess the expected impact of these environmental matters. However, the Company has evaluated its total environmental exposure based on currently available data, including its potential joint and several liability, and believes that compliance with all applicable laws and regulations will not have a material adverse impact on the Company's liquidity or financial position. F-30 NOTE 15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Results of operations by quarter for the years ended December 31, 1993 and 1992 were (millions of dollars except per share):
Quarter Ended ------------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, 1993 1993 1993 1993 ---------- -------------- ---------- --------- Operating revenues......................... $2,647.1 $2,631.9 $2,307.9 $2,549.2 Less purchases............................. 1,968.6 1,949.0 1,635.1 1,785.4 -------- -------- -------- -------- 678.5 682.9 672.8 763.8 Other income and expenses.................. 653.5 654.1 684.2 687.9 -------- -------- -------- -------- Earnings (loss) before extraordinary item.. 25.0 28.8 (11.4) 75.9 Extraordinary item - loss on early extinguishment of debt.................... - (2.5) - - -------- -------- -------- -------- Net earnings (loss)........................ $ 25.0 $ 26.3 $ (11.4) $ 75.9 ======== ======== ======== ======== Earnings (loss) per share: Before extraordinary item................. $ .24 $ .25 $ (.15) $ .68 Extraordinary item........................ - (.02) - - -------- -------- -------- -------- Net earnings (loss) per common and common share equivalent share............. $ .24 $ .23 $ (.15) $ .68 ======== ======== ======== ========
Quarter Ended ----------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, 1992 1992 1992 1992 -------- -------- -------- -------- Operating revenues......................... $2,536.1 $2,398.6 $2,594.0 $2,534.2 Less purchases............................. 1,908.0 1,734.1 1,912.8 1,903.1 -------- -------- -------- -------- 628.1 664.5 681.2 631.1 Other income and expenses.................. 634.1 652.4 659.5 785.7 -------- -------- -------- -------- Net earnings (loss)........................ $ (6.0) $ 12.1 $ 21.7 $ (154.6) ======== ======== ======== ======== Net earnings (loss) per common and common equivalent share.......................... $ (.06) $ .11 $ .21 $ (1.49) ======== ======== ======== ========
F-31 SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES Reserves, capitalized costs, costs incurred in oil and gas acquisition, exploration and development activities, results of operations and the standardized measure of discounted future net cash flows are presented for the exploration and production segment. Natural gas systems reserves and the related standardized measure of discounted future net cash flows are separately presented for natural gas operations. Substantially all of the Company's properties are located in the United States. In 1992, the Company acquired an equity method investment with operations in Argentina. The 1991 revisions of previous estimates of Natural Gas Systems reserves of natural gas are related to the Company's independent engineer's interpretation of an agreement, effective January 1, 1991, between the Company's subsidiary, CIG, and Mesa Operating Limited Partnership. Such revisions are not due to change in gross reserve estimates for the affected properties. ESTIMATED QUANTITIES OF PROVED RESERVES
Natural Exploration Gas and Systems Production --------- ---------------------- Natural Gas (MMcf): Developed Developed Undeveloped Total --------- --------- ----------- --------- 1993.................................................... 379,795 422,657 123,077 925,529 1992.................................................... 418,831 466,695 89,306 974,832 1991.................................................... 456,580 395,694 168,915 1,021,189 Oil, Condensate and Natural Gas Liquids (000 barrels): 1993.................................................... 7 24,851 3,935 28,793 1992.................................................... 14 26,242 6,818 33,074 1991.................................................... 13 22,937 7,485 30,435
F-32 Changes in proved reserves since the end of 1990 are shown in the following table.
Oil, Condensate and Natural Gas Natural Gas Liquids (MMcf) (000 barrels) -------------------------- ------------------------------- Natural Exploration Natural Exploration Gas and Gas and Total Proved Reserves Systems Production Systems Production ------------ ------------ --------------- -------------- Total, end of 1990.............. 302,673 592,830 11 33,054 Production during 1991.......... (45,845) (43,501) (2) (4,087) Extensions and discoveries...... - 34,252 - 1,275 Acquisitions.................... - 11,267 - 676 Sales of reserves in-place...... - (53,254) - (299) Revisions of previous quantity estimates and other............ 199,752 23,015 4 (197) ------- ------- -- ------ Total, end of 1991.............. 456,580 564,609 13 30,422 ------- ------- -- ------ Production during 1992.......... (47,754) (53,748) (2) (4,757) Extensions and discoveries...... - 59,052 - 4,167 Acquisitions.................... - 15,489 - 1,579 Sales of reserves in-place...... - (414) - (95) Revisions of previous quantity estimates and other............ 10,005 (28,987) 3 1,744 ------- ------- -- ------ Total, end of 1992.............. 418,831 556,001 14 33,060 ------- ------- -- ------ Production during 1993.......... (46,524) (75,487) (1) (4,939) Extensions and discoveries...... - 103,876 - 2,746 Acquisitions.................... - 3,706 - 345 Sales of reserves in-place...... - (8,639) - (198) Revisions of previous quantity estimates and other............ 7,488 (33,723) (6) (2,228) ------- ------- -- ------ Total, end of 1993.............. 379,795 545,734 7 28,786 ======= ======= == ======
Total proved reserves for natural gas systems exclude storage gas and liquids volumes. The natural gas systems storage gas volumes are 147,549, 183,741 and 191,351 million cubic feet and storage liquids volumes are approximately 150,000, 159,000 and 207,000 barrels at December 31, 1993, 1992 and 1991, respectively. CAPITALIZED COSTS RELATING TO EXPLORATION AND PRODUCTION ACTIVITIES
Accumulated Depreciation, Capitalized Depletion and Proved and Unproved Properties Cost Amortization - ------------------------------ ---------------- ---------------- (Millions of Dollars) December 31, 1993 ---------------------------------- Undeveloped.......................... $ 51 $ 18 Developed............................ 1,103 503 ------ ----- $1,154 $ 521 ------ ----- December 31, 1992 ---------------------------------- Undeveloped.......................... $ 67 $ 17 Developed............................ 1,070 471 ------ ----- $1,137 $ 488 ------ -----
The Company follows the full-cost method of accounting for oil and gas properties. F-33 COSTS INCURRED IN OIL AND GAS ACQUISITION, EXPLORATION AND DEVELOPMENT ACTIVITIES (Millions of dollars)
Year Ended December 31, -------------------------- 1993 1992 1991 ------ ----- ----- Property acquisition costs: Proved.......................................... $ 6 $ 6 $ 12 Unproved........................................ 11 14 20 Exploration costs................................ 6 11 12 Development costs................................ 65 93 46
RESULTS OF OPERATIONS FOR EXPLORATION AND PRODUCTION ACTIVITIES (Millions of dollars)
Year Ended December 31, -------------------------- 1993 1992 1991 ------ ----- ----- Revenues: Sales.......................................... $ 139 $ 120 $ 108 Transfers...................................... 96 79 63 ------ ----- ----- Total.......................................... 235 199 171 ------ ----- ----- Production costs................................ (71) (65) (66) Operating expenses.............................. (28) (27) (27) Depreciation, depletion and amortization........ (107) (81) (67) ------ ----- ----- 29 26 11 Income tax benefit (expense).................... 3 (9) (3) ------ ----- ----- Results of operations for producing activities (excluding corporate overhead and interest costs)....................................... $ 32 $ 17 $ 8 ====== ===== =====
The average amortization rate per equivalent Mcf was $1.00 for the years 1993, 1992 and 1991. STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVE QUANTITIES. Future cash inflows from the sale of proved reserves and estimated production and development costs as calculated by the Company's independent engineers are discounted by 10% after they are reduced by the Company's estimate for future income taxes. The calculations are based on year-end prices and costs, statutory tax rates and nonconventional fuel source tax credits that relate to existing proved oil and gas reserves in which the Company has mineral interests. F-34 The standardized measure is not intended to represent the market value of reserves and, in view of the uncertainties involved in the reserve estimation process, including the instability of energy markets, may be subject to material future revisions (millions of dollars):
Year Ended December 31, ---------------------------------------------------------------------- 1993 1992 1991 Natural Exploration Natural Exploration Natural Exploration Gas and Gas and Gas and Systems Production Systems Production Systems Production -------- ------------ -------- ------------ -------- ------------ Future cash inflows...... $ 299 $1,698 $ 331 $1,838 $335 $1,527 Future production and development costs....... (63) (647) (51) (717) (56) (709) Future income tax expenses................ (82) (237) (95) (223) (94) (122) ----- ------ ----- ------ ---- ------ Future net cash flows.... 154 814 185 898 185 696 10% annual discount for estimated timing of cash flows.............. (59) (252) (82) (289) (75) (240) ----- ------ ----- ------ ---- ------ Standardized measure of discounted future net cash flows.............. $ 95 $ 562 $ 103 $ 609 $110 $ 456 ===== ====== ===== ====== ==== ======
Principal sources of change in the standardized measure of discounted future net cash flows during each year are (millions of dollars):
Year Ended December 31, ---------------------------------------------------------------------- 1993 1992 1991 Natural Exploration Natural Exploration Natural Exploration Gas and Gas and Gas and Systems Production Systems Production Systems Production -------- ------------ -------- ------------ -------- ------------ Sales and transfers, net of production costs................... $ (35) $(164) $ (52) $(134) $(50) $(105) Net changes in prices and production costs.... (1) 7 12 147 (40) (216) Extensions and discoveries............. - 139 - 88 - 25 Acquisitions............. - 5 - 22 - 15 Sales of reserves in-place................ - (5) - - - (44) Development costs incurred during the period that reduced estimated future development costs....... - 21 8 56 - 21 Revisions of previous quantity estimates, timing and other......... 12 (87) 11 3 60 (10) Accretion of discount.... 12 56 12 36 12 58 Net change in income taxes................... 4 (19) 2 (65) 6 109 ----- ----- ----- ----- ---- ----- Net change............... $ (8) $ (47) $ (7) $ 153 $(12) $(147) ===== ===== ===== ===== ==== =====
None of the amounts include any value for natural gas systems storage gas, which was approximately 41 Bcf of gas for CIG, 107 Bcf for ANR Pipeline and 150,000 barrels of liquids for CIG at the end of 1993. Share of Equity Method Investment - At December 31, 1993, the net investment in Argentine properties amounted to $58.5 million, representing net proved reserves of 144.5 Bcf of gas and 6.51 million barrels of oil, condensate and natural gas liquids. The standardized measure of discounted future net cash flows related to these reserves is $78.6 million at December 31, 1993. The Company's share of earnings for 1993 was approximately $5 million. F-35 SUPPLEMENTAL STATISTICS FOR COAL MINING OPERATIONS The following table contains Coastal's estimated recoverable coal reserves for operating properties. Reserves estimates are prepared by independent mining consultants and by internal sources (Coastal geologists and engineers). The reliability of the estimates is a function of the amount and quality of the geological data generated to date on each property and varies considerably from property to property. The reserve amounts are subject to change depending on additional geological data generated and/or actual mining operations.
TOTAL RECOVERABLE RESERVES (Millions of tons) December 31, ------------------------------------------ 1993 1992 1991 1990 1989 ------ ------ ------ ------ ------ Total, beginning of year........... 789 806 828 818 719 Production......................... (24) (18) (18) (18) (16) Purchases (sales).................. 115 8 (5) 40 110 Changes in estimates............... (9) (7) 1 (12) 5 ------ ------ ------ ------ ------ Total, end of year................. 871 789 806 828 818 ------ ------ ------ ------ ------ Average market price sold per ton.. $25.80 $27.29 $28.07 $27.81 $26.89 ====== ====== ====== ====== ======
F-36 THE COASTAL CORPORATION AND SUBSIDIARIES SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT THE COASTAL CORPORATION BALANCE SHEET (Millions of Dollars)
December 31, ------------------ 1993 1992 -------- -------- ASSETS - ------ CURRENT ASSETS: Cash and cash equivalents....................................................... $ 114.6 $ 5.0 Receivables..................................................................... 17.5 14.2 Receivables from subsidiaries................................................... 1,360.8 1,625.8 Prepaid expenses and other...................................................... 1.4 1.3 -------- -------- Total Current Assets........................................................... 1,494.3 1,646.3 -------- -------- PROPERTY, PLANT AND EQUIPMENT - at cost, net..................................... 7.3 7.7 -------- -------- INVESTMENTS IN SUBSIDIARIES AND OTHER ASSETS: Investment in subsidiaries at cost plus equity in undistributed earnings since acquisition.................................................................... 2,766.7 2,568.4 Due from subsidiaries........................................................... 1,710.2 1,415.6 Deferred federal income taxes................................................... 85.5 139.6 Other assets.................................................................... 252.4 226.2 -------- -------- 4,814.8 4,349.8 -------- -------- $6,316.4 $6,003.8 ======== ========
See Notes to Condensed Financial Statements. S-1 THE COASTAL CORPORATION AND SUBSIDIARIES SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT THE COASTAL CORPORATION BALANCE SHEET (Millions of Dollars)
December 31, ------------------ 1993 1992 -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Notes payable............................... $ 253.5 $ 198.4 Accounts payable and accrued expenses....... 151.1 166.2 Payable to subsidiaries..................... 620.0 185.8 Current maturities on long-term debt........ 15.1 62.7 -------- -------- Total Current Liabilities.................. 1,039.7 613.1 -------- -------- DUE TO SUBSIDIARIES.......................... 61.7 - -------- -------- DEBT: Long-term debt.............................. 2,577.6 3,037.2 Subordinated long-term debt................. 199.7 199.6 -------- -------- 2,777.3 3,236.8 -------- -------- DEFERRED CREDITS AND OTHER................... 159.6 144.0 -------- -------- COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY.. 2,278.1 2,009.9 -------- -------- $6,316.4 $6,003.8 ======== ========
See Notes to Condensed Financial Statements. S-2 THE COASTAL CORPORATION AND SUBSIDIARIES SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT THE COASTAL CORPORATION STATEMENT OF OPERATIONS (Millions of Dollars)
Year Ended December 31, -------------------------- 1993 1992 1991 -------- -------- ------- OPERATING REVENUES........................................ $ 1.0 $ 1.4 $ .9 OPERATING COSTS AND EXPENSES.............................. - - - ------ ------- ------ OPERATING PROFIT.......................................... 1.0 1.4 .9 ------ ------- ------ OTHER INCOME: Equity in net earnings of subsidiaries................... 263.9 31.8 86.6 Interest income from subsidiaries - net.................. 119.6 137.4 172.3 Other income - net....................................... 20.0 20.8 40.0 ------ ------- ------ 403.5 190.0 298.9 ------ ------- ------ OTHER EXPENSES (BENEFITS): General and administrative............................... 12.1 11.3 5.8 Interest and debt expense................................ 364.6 391.1 338.1 Taxes on income.......................................... (90.5) (84.2) (52.8) ------ ------- ------ 286.2 318.2 291.1 ------ ------- ------ EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM................. 118.3 (126.8) 8.7 Extraordinary item-loss on early extinguishment of debt.. (2.5) - - ------ ------- ------ NET EARNINGS (LOSS)....................................... $115.8 $(126.8) $ 8.7 ====== ======= ======
See Notes to Condensed Financial Statements. S-3 THE COASTAL CORPORATION AND SUBSIDIARIES SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT THE COASTAL CORPORATION STATEMENT OF CASH FLOWS (Millions of Dollars)
Year Ended December 31, -------------------------- 1993 1992 1991 ------- -------- ------- Net Cash Flow From Operating Activities: Net earnings (loss) before extraordinary item..................... $ 118.3 $(126.8) $ 8.7 Items not requiring (providing) cash: Depreciation, depletion and amortization......................... .5 .5 .4 Deferred income taxes............................................ (36.2) (36.6) (72.0) Distributed (undistributed) subsidiary earnings.................. (197.3) 110.6 (18.3) Gain on sale of securities....................................... - - (13.2) Other............................................................ (9.0) (5.9) (14.6) Working capital and other changes, excluding changes relating to cash and non-operating activities: Receivables..................................................... (3.3) (7.7) 2.4 Prepaid expenses and other...................................... (.1) (.1) 1.4 Accounts payable and accrued expenses........................... (15.1) 63.7 (15.4) ------- ------- ------- (142.2) (2.3) (120.6) ------- ------- ------- Cash Flow from Investing Activities: Purchases of property, plant and equipment........................ (.9) (1.0) (.8) Net change in accounts with subsidiaries.......................... 553.3 (239.9) (145.6) Additions to investments.......................................... (1.0) (4.0) (39.9) Proceeds from investments......................................... - 84.8 133.2 ------- ------- ------- 551.4 (160.1) (53.1) ------- ------- ------- Cash Flow from Financing Activities: Increase (decrease) in short-term notes........................... 55.1 (152.6) (172.7) Proceeds from issuing common stock................................ 11.9 7.1 6.0 Proceeds from issuing preferred stock............................. 193.5 - - Proceeds from long-term debt issues............................... 80.1 543.8 670.0 Payments to retire long-term debt................................. (587.2) (190.0) (287.3) Dividends paid.................................................... (53.0) (42.0) (42.0) ------- ------- ------- (299.6) 166.3 174.0 ------- ------- ------- Net Increase in Cash and Cash Equivalents.......................... 109.6 3.9 .3 Cash and Cash Equivalents at Beginning of Year..................... 5.0 1.1 .8 ------- ------- ------- Cash and Cash Equivalents at End of Year........................... $ 114.6 $ 5.0 $ 1.1 ======= ======= =======
See Notes to Condensed Financial Statements. S-4 THE COASTAL CORPORATION AND SUBSIDIARIES SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF THE REGISTRANT THE COASTAL CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation -- The financial statements of the Company reflect the investment in wholly-owned subsidiaries using the equity method. Statement of Cash Flows -- For purposes of this statement, cash equivalents include time deposits, certificates of deposit and all highly liquid instruments with original maturities of three months or less. The Company made cash payments for interest and financing fees of $357.1 million, $375.6 million and $313.6 million in 1993, 1992 and 1991, respectively. Cash payments (refunds - primarily from subsidiaries) for income taxes amounted to $(49.8) million, $(63.9) million and $(6.9) million for 1993, 1992 and 1991, respectively. Federal Income Taxes -- The Company follows the liability method of accounting for income taxes as required by the provisions of FAS 109, "Accounting for Income Taxes." The Company files a consolidated federal income tax return with its wholly- owned subsidiaries. Members of the consolidated group with taxable incomes are charged with the amount of income taxes as if they filed separate federal income tax returns, and members providing deductions and credits which result in income tax savings are allocated credits for such savings. Reclassification of Prior Period Statements - Certain minor reclassifications of prior period statements have been made to conform with current reporting practices. The effect of the reclassifications was not material to the Company's results of operations or financial position. NOTE 2. CONSOLIDATED FINANCIAL STATEMENTS Reference is made to the Consolidated Financial Statements and related Notes of Coastal and Subsidiaries for additional information. NOTE 3. DEBT AND GUARANTEES Information on the debt of the Company is disclosed in Note 5 of the Notes to Consolidated Financial Statements included herein. The Company has guaranteed certain long-term debt of its subsidiaries (approximately $82.4 million outstanding at December 31, 1993, including current maturities) and certain other obligations arising in the ordinary course of business. The Company and certain of its subsidiaries have entered into interest rate and currency swaps with major banking institutions. The Company is exposed to loss if one or more counterparties default. In addition, the Company or certain of its subsidiaries are guarantors on certain bank loans of corporations and partnerships in which the Company or certain subsidiaries have equity interests. Information on the swaps and guarantees is disclosed in Note 5 of the Notes to Consolidated Financial Statements. The aggregate amounts of long-term debt (including subordinated debt) maturities of Coastal for the five years following 1993 are (millions of dollars): 1994.......... $ 15.1 1997.......... $231.9 1995.......... 162.6 1998.......... 230.0 1996.......... 98.3
NOTE 4. DIVIDENDS RECEIVED Cash dividends received from consolidated subsidiaries were as follows: 1993 - - $66.6 million, 1992 - $142.8 million and 1991 - $68.1 million. S-5 THE COASTAL CORPORATION AND SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (Millions of Dollars)
Balance at Other Balance Beginning Additions Retire- Changes- at End Classification of Year at Cost ments Add (Deduct) of Year - ----------------------------------------------------------------------------------------------------------- Year Ended December 31, 1993 - ---------------------------- Refining, crude oil and chemical facilities.. $1,697.2 $130.3 $ 17.7 $ 6.2 (A) $1,821.3 5.3 (B) Gas systems.................................. 5,393.1 119.8 46.7 (7.2)(A) 5,461.6 2.6 (B) Gas and oil properties....................... 1,194.1 91.8 20.2 (17.3)(A) 1,204.2 (5.3)(B) (38.9)(C) Coal......................................... 463.6 36.0 .7 4.6 (A) 511.3 7.8 (B) Trucking..................................... 46.1 4.0 5.2 - 44.9 Other........................................ 123.4 10.8 2.3 (.7)(A) 120.8 (10.4)(B) -------- ------ ------ ------ -------- $8,917.5 $392.7 $ 92.8 $(53.3) $9,164.1 ======== ====== ====== ====== ======== Year Ended December 31, 1992 - ---------------------------- Refining, crude oil and chemical facilities.. $1,536.4 $173.3 $ 9.7 $ (2.8)(A) $1,697.2 Gas systems.................................. 5,193.2 231.7 18.9 4.5 (A) 5,393.1 (17.4)(E) Gas and oil properties....................... 1,110.7 126.8 17.9 4.5 (A) 1,194.1 (30.0)(C) Coal......................................... 434.0 33.3 .4 (3.7)(A) 463.6 .4 (B) Trucking..................................... 44.9 .7 8.8 9.3 (A) 46.1 Other........................................ 121.0 7.7 .2 (1.7)(A) 123.4 (.4)(B) (3.0)(D) -------- ------ ------ ------ -------- $8,440.2 $573.5 $ 55.9 $(40.3) $8,917.5 ======== ====== ====== ====== ======== Year Ended December 31, 1991 - ---------------------------- Refining, crude oil and chemical facilities.. $1,152.5 $391.5 $ 15.1 $ 7.5 (A) $1,536.4 Gas systems.................................. 5,017.7 181.5 17.5 4.1 (A) 5,193.2 7.4 (E) Gas and oil properties....................... 1,099.4 95.4 48.9 (8.9)(A) 1,110.7 (26.3)(C) Coal......................................... 390.7 44.7 .9 (.5)(A) 434.0 Trucking..................................... 57.5 3.7 20.6 4.3 (A) 44.9 Other........................................ 84.1 12.1 .2 (10.7)(A) 121.0 35.7 (E) -------- ------ ------ ------ -------- $7,801.9 $728.9 $103.2 $ 12.6 $8,440.2 ======== ====== ====== ====== ========
- -------------------- (A) Reclassifications and other miscellaneous adjustments. (B) Intercompany transfer. (C) Amortization of exploration cost charged to income. (D) Writedown of property, plant and equipment. (E) Reclass -- Investment in partially-owned company. S-6 Depreciation, depletion and amortization of gas and oil properties costs are provided on the unit-of-production basis whereby the unit rate for depreciation, depletion and amortization is determined by dividing the total unrecovered carrying value of all gas and oil properties plus estimated future development costs by the estimated proved reserves included therein, as estimated by an independent engineer. Provisions for depletion of coal properties are based upon estimates of recoverable reserves using the unit-of-production method. Provision for depreciation of other property is made primarily on a straight-line basis over the estimated useful lives of the property. The annual rates of depreciation are as follows: Refining, crude oil and chemical facilities.. 3.0% -- 20.0% Gas systems.................................. 0.7% -- 20.0% Coal facilities.............................. 5.0% -- 33.3% Transportation equipment..................... 5.0% -- 33.3% Office and miscellaneous equipment........... 2.5% -- 20.0% Buildings and improvements................... 1.3% -- 33.3%
S-7 THE COASTAL CORPORATION AND SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT (Millions of Dollars)
Additions Balance at Charged to Other Balance Beginning Costs and Retire- Changes at End Description of Year Expenses ments Add (Deduct) of Year - ----------------------------------------------------------------------------------------------------------- Year Ended December 31, 1993 - ---------------------------- Refining, crude oil and chemical facilities.. $ 501.4 $ 45.6 $12.9 $ 6.8 (A) $ 542.0 1.1 (B) Gas systems.................................. 1,743.8 145.4 20.4 (1.8)(A) 1,867.0 Gas and oil properties....................... 502.1 70.2 20.6 (17.3)(A) 533.3 (1.1)(B) Coal......................................... 177.7 28.5 (.7) 4.6 (A) 213.9 2.4 (B) Trucking..................................... 14.9 3.3 2.6 2.2 (A) 17.8 Other........................................ 41.8 8.0 .5 (4.9)(A) 42.0 (2.4)(B) -------- ------ ----- ------ -------- $2,981.7 $301.0 $56.3 $(10.4) $3,216.0 ======== ====== ===== ====== ======== Year Ended December 31, 1992 - ---------------------------- Refining, crude oil and chemical facilities.. $ 407.6 $ 98.1 $ 5.9 $ 1.6 (A) $ 501.4 Gas systems.................................. 1,574.0 187.1 16.1 (1.2)(A) 1,743.8 Gas and oil properties....................... 461.8 53.2 17.6 4.7 (A) 502.1 Coal......................................... 150.1 28.4 .3 (.6)(A) 177.7 .1 (B) Trucking..................................... 7.2 3.6 6.0 10.1 (A) 14.9 Other........................................ 34.0 8.2 .2 (.1)(A) 41.8 (.1)(B) -------- ------ ----- ----- -------- $2,634.7 $378.6 $46.1 $14.5 $2,981.7 ======== ====== ===== ===== ======== Year Ended December 31, 1991 - ---------------------------- Refining, crude oil and chemical facilities.. $ 371.1 $ 40.3 $ .1 $ (3.7)(A) $ 407.6 Gas systems.................................. 1,414.1 177.0 15.2 (1.9)(A) 1,574.0 Gas and oil properties....................... 439.9 43.1 9.3 (11.9)(A) 461.8 Coal......................................... 125.0 27.1 (.8) (2.8)(A) 150.1 Trucking..................................... 9.5 3.8 13.8 7.7 (A) 7.2 Other........................................ 26.6 6.3 .1 1.2 (A) 34.0 -------- ------ ----- ------ -------- $2,386.2 $297.6 $37.7 $(11.4) $2,634.7 ======== ====== ===== ====== ========
- --------------- (A) Reclassifications and other miscellaneous adjustments. (B) Intercompany transfer. S-8 THE COASTAL CORPORATION AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS (Millions of Dollars)
Additions Balance at Charged to Balance Beginning Costs and at End Description of Year Expenses Other of Year - ----------------------------------------------------------------------------- Year Ended December 31, 1993 - ---------------------------- Allowance for doubtful accounts $16.5 $11.2 $(11.6)(A) $16.1 ===== ===== ====== ===== Year Ended December 31, 1992 - ---------------------------- Allowance for doubtful accounts $16.7 $9.0 $ (9.2)(A) $16.5 ===== ==== ====== ===== Year Ended December 31, 1991 - ---------------------------- Allowance for doubtful accounts $22.4 $6.8 $(12.5)(A) $16.7 ===== ==== ====== =====
- ----------------- (A) Accounts charged off net of recoveries. S-9 THE COASTAL CORPORATION AND SUBSIDIARIES SCHEDULE IX - SHORT-TERM BORROWINGS (Millions of Dollars)
Maximum Average Weighted Weighted Amount Amount Average Balance Average Outstanding Outstanding Interest Category of Aggregate at End Interest During the During the Rate During Short-Term Borrowings of Year Rate Year Year the Year - ------------------------------------------------------------------------------------ December 31, 1993 Notes payable to banks $263.5 3.93% $404.4 $216.0 3.80% ====== ==== ====== ====== ==== December 31, 1992 Notes payable to banks $221.4 4.31% $717.0 $517.1 4.43% ====== ==== ====== ====== ==== December 31, 1991 Notes payable to banks $380.0 5.79% $724.3 $454.5 6.66% ====== ==== ====== ====== ====
The average amount of borrowings were computed by averaging the daily outstanding balances. Where interest expense was affected by commitment and/or facility fees, the weighted average interest rates were computed by averaging the daily interest rates, including such fees. If there were no such fees, the weighted average interest rates were computed by dividing the total interest for the year by the average aggregate borrowings outstanding. S-10 THE COASTAL CORPORATION AND SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION (Millions of Dollars)
Charged to Costs and Expenses Year Ended December 31, ----------------------------- 1993 1992 1991 --------- -------- -------- Maintenance and repairs (1) $193.2 $188.8 $180.2 Taxes, other than payroll and income taxes (2) 140.6 130.2 126.0
- ----------- (1) Amounts are charged to operating costs and expenses with the exception of an insignificant amount which, together with other expenses, are redistributed to operating, construction and other accounts. (2) Production taxes are charged against operating revenues. S-11 EXHIBIT INDEX Exhibit Number Document - ------ -------- [C] [S] 3.1+ Restated Certificate of Incorporation of Coastal, as restated on March 22, 1994. (Filed as Module TCC-Artl-Incorp on March 28, 1994). 3.2+ By-Laws of Coastal, as amended on January 16, 1990 (Exhibit 3.4 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 4 (With respect to instruments defining the rights of holders of long-term debt, the Registrant will furnish to the Commission, on request, any such documents). 10.1+ The Coastal Corporation Stock Option Plan (Exhibit 10.1 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1980). 10.2+ Employment Agreement between Coastal States Gas Corporation and Sam F. Willson, Jr., dated December 1, 1979 (Exhibit 10.41 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1980). 10.3+ First Amendment of The Coastal Corporation Stock Option Plan, dated September 3, 1981 (Exhibit 10.11 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1982). 10.4+ 1984 Stock Option Plan (Appendix B to Coastal's Proxy Statement for the 1984 Annual Meeting of Stockholders, dated May 14, 1984). 10.5+ 1985 Stock Option Plan (Appendix A to Coastal's Proxy Statement for the 1986 Annual Meeting of Stockholders, dated March 27, 1986). 10.6+ The Coastal Corporation Performance Unit Plan effective as of January 1, 1987 (Exhibit 10.5 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1987). 10.7+ The Coastal Corporation Replacement Pension Plan effective as of November 1, 1987 (Exhibit 10.6 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1987). 10.8+ Description of Coastal's Key Employees Bonus Plan (Exhibit 10.7 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1987). 10.9+ The Coastal Corporation Stock Purchase Plan, as restated on January 1, 1994 (Appendix B to Coastal's Proxy Statement for the 1994 Annual Meeting of Stockholders dated March 29, 1994). 10.10+ The Coastal Corporation Stock Grant Plan, effective December 1, 1988 (Exhibit 10.12 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.11+ The Coastal Corporation Deferred Compensation Plan for Directors (Exhibit 10.13 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1988). 10.12+ The Coastal Corporation 1990 Stock Option Plan (Exhibit 10.13 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1989). 10.13+ Employment Agreement between The Coastal Corporation and James F. Cordes dated April 12, 1990 (Exhibit 10.13 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1990). EXHIBIT INDEX
Exhibit Number Document - ------ -------- 10.14* The Coastal Corporation Deferred Compensation Plan. 10.15+ The Coastal Corporation 1994 Incentive Stock Plan (Appendix A to Coastal's Proxy Statement for the 1994 Annual Meeting of Stockholders dated March 29, 1994). 10.16* Pension Plan for Employees of The Coastal Corporation as of January 1, 1993, includes Plan as Restated as of January 1, 1989 and First Amendment dated July 27, 1992, Second Amendment dated December 9, 1992, Third Amendment dated October 29, 1993. 11* Statement re Computation of Per Share Earnings. 21* Subsidiaries of Coastal. 23.1* Consent of Deloitte & Touche. 24* Powers of Attorney (included on signature pages herein). 99+ Indemnity Agreement revised and updated as of April, 1988 (Exhibit 28 to Coastal's Annual Report on Form 10-K for the fiscal year ended December 31, 1990).
_________________________ Note: + Indicates documents incorporated by reference from the prior filing indicated. * Indicates documents filed herewith. EX-3.1 2 EXH 3.1 PRE-FILED 1 RESTATED CERTIFICATE OF INCORPORATION OF THE COASTAL CORPORATION 2 RESTATED CERTIFICATE OF INCORPORATION OF THE COASTAL CORPORATION The original Certificate of Incorporation of THE COASTAL CORPORATION (hereinafter called the Corporation), was filed on September 7, 1972 under the name "Coastal States Gas Corporation". This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Certificate of Incorporation of the Corporation as heretofore amended or supplemented and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation: FIRST: The name of the corporation is: THE COASTAL CORPORATION SECOND: The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such address is The Corporation Trust Company. THIRD: The purposes of the Corporation are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 302,700,000 shares, consisting of 250,000,000 shares of Common Stock, par value $.33-1/3 per share ("Common Stock"), 50,000,000 shares of Preferred Stock, par value $.33-1/3 per share ("Preferred Stock"), and 2,700,000 shares of Class A Common Stock, par value $.33-1/3 per share ("Class A Common Stock"). The powers, preferences and rights, and the qualifications, limitations and restrictions thereof, of each class of stock, and the express grant of authority to the Board of Directors to fix by resolution the designations and the powers, preferences and rights of each share of Preferred Stock and the qualifications, limitations and restrictions thereof which are not fixed by this Certificate of Incorporation, are as follows: (A) Common Stock and Class A Common Stock. Except as provided in this Article FOURTH, the Common Stock and the Class A Common Stock shall have the same rights and privileges and shall rank equally, share ratably and be identical in all respects as to all matters. (1) Dividends, Combinations, and Subdivisions. (a) Subject to the rights of the holders of Preferred Stock, holders of Common Stock and Class A Common Stock shall be entitled to receive such dividends, payable in cash or otherwise, as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor, provided that no dividend may be declared and paid to holders of Class A Common Stock unless at the same time the Board of Directors shall also declare and pay to the holders of Common Stock a per share dividend greater than the per share dividend declared and paid to holders of Class A Common Stock. In -1- 3 addition, the Board of Directors may declare and pay dividends to the holders of Common Stock without declaring and paying dividends to the holders of Class A Common Stock. (b) In the event that the outstanding shares of either the Common Stock or the Class A Common Stock are changed into, exchanged for or reclassified into a different number, class or kind of shares of the Corporation or any other corporation or entity which does not result in the receipt by the Corporation of any new consideration (other than a transfer of surplus of the Corporation) without such action being taken on a proportionate basis with respect to the other class of common stock, whether such change, exchange or reclassification occurs through a reorganization, recapitalization, stock split or otherwise, then the requirement that a greater per share dividend be declared and paid with respect to the Common Stock shall be appropriately and equitably adjusted to reflect such action. (c) Notwithstanding the foregoing, the requirement that a greater per share dividend be declared and paid with respect to the Common Stock shall not apply (i) to a dividend paid in partial or complete liquidation of the Corporation or (ii) in the event of a dividend payable in shares of Common Stock. In the event that a dividend payable in Common Stock is declared on the Common Stock, the Board of Directors shall also declare a dividend on the Class A Common Stock payable in Common Stock equal on a per share basis to the number of shares of Common Stock which are paid to holders of Common Stock. (2) Voting. (a) Except as expressly provided herein, at every meeting of stockholders of the Corporation, every holder of Common Stock shall be entitled to one vote in person or by proxy for each share of Common Stock standing in his name on the transfer books of the Corporation and every holder of Class A Common Stock shall be entitled to one hundred votes in person or by proxy for each share of Class A Common Stock standing in his name on the transfer books of the Corporation. At every meeting of the stockholders called for the election of directors, the holders of Common Stock, voting as a class with the Preferred Stock entitled to vote, shall be entitled to elect one-quarter (1/4) of the number of directors to be elected at such meeting (excluding from such number any directors to be elected by the holders of Preferred Stock), and if one-quarter (1/4) of such number of directors is not a whole number, then the holders of Common Stock, voting as a class with the Preferred Stock entitled to vote, shall be entitled to elect the next higher whole number of directors to be elected at such meeting, and the holders of Class A Common Stock shall have no voting rights with respect to the election of such directors. The holders of Class A Common Stock, Common Stock and Preferred Stock entitled to vote, voting as a single class, shall be entitled to elect the remaining directors to be elected at such meeting (excluding from such number any directors to be elected by the holders of Preferred Stock). If, during the interval between annual meetings of stockholders for the election of directors, the number of directors who have been elected by either the holders of Common Stock voting as a -2- 4 class with the Preferred Stock entitled to vote or by the holders of Class A Common Stock, Common Stock and Preferred Stock entitled to vote, shall, by reason of resignation, death, retirement, disqualification or removal, be reduced, the vacancy or vacancies in the directors so created may be filled by a majority vote of the remaining directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected by the remaining directors then in office to fill any vacancy in the directors designated by the holders of Common Stock and Preferred Stock entitled to vote may be removed from office by vote of the holders of a majority of the shares of Common Stock voting as a class with the Preferred Stock entitled to vote. (b) Except as may otherwise be required by law or by this Article FOURTH, the holders of Common Stock and Class A Common Stock shall vote together as a single class, subject to any voting rights which may be granted to holders of Preferred Stock. (3) Conversion. (a) Each share of Class A Common Stock may at any time be converted into one fully paid and nonassessable share of Common Stock. Such right shall be exercised by the surrender of the certificate representing such share of Class A Common Stock to be converted to the Corporation at any time during normal business hours at the principal executive offices of the Corporation, or if an agent for the registration of transfer of shares of Class A Common Stock is then duly appointed and acting (said agent being hereinafter called the "Transfer Agent") then at the office of the Transfer Agent, accompanied by a written notice of the election by the holder thereof to convert and (if so required by the Corporation or the Transfer Agent) by instruments of transfer, in form satisfactory to the Corporation and to the Transfer Agent, duly executed by such holder or his duly authorized attorney, and transfer tax stamps or funds therefor, if required pursuant to subparagraph (e) below. (b) As promptly as practicable after the surrender for conversion of a certificate representing shares of Class A Common Stock in the manner provided in subparagraph (a) above and the payment in cash of any amount required by the provisions of subparagraphs (a) and (e), the Corporation will deliver or cause to be delivered at the office of the Transfer Agent to or upon the written order of the holder of such certificate, a certificate or certificates representing the number of full shares of Common Stock issuable upon such conversion, issued in such name or names as such holder may direct. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of the surrender of the certificate representing shares of Class A Common Stock, and all rights of the holder of such shares as such holder shall cease at such time and the person or persons in whose name or names the certificate or certificates representing the shares of Common Stock are to be issued shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock at such time; provided, however, that any such surrender and payment on any date when the stock transfer books of the Corporation shall be closed shall constitute the person or -3- 5 persons in whose name or names the certificate or certificates representing shares of Common Stock are to be issued as the record holder or holders thereof for all purposes immediately prior to the close of business on the next succeeding day on which such stock transfer books are open. (c) No adjustments in respect of dividends shall be made upon the conversion of any share of Class A Common Stock, provided, however, that if a share shall be converted subsequent to the record date for the payment of a dividend or other distribution on shares of Class A Common Stock but prior to such payment, the registered holder of such share at the close of business on such record date shall be entitled to receive the dividend or other distribution payable on such share on the date set for payment of such dividend or other distribution notwithstanding the conversion thereof or the Corporation's default in payment of the dividend due on such date. (d) The Corporation covenants that it will at all times reserve and keep available, solely for the purpose of issuance upon conversion of the outstanding shares of Class A Common Stock, such number of shares of Common Stock as shall be issuable upon the conversion of all such outstanding shares, provided, that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of the conversion of the outstanding shares of Class A Common Stock by delivery of purchased shares of Common Stock which are held in the treasury of the Corporation. The Corporation covenants that if any shares of Common Stock, required to be reserved for purposes of conversion hereunder require registration with or approval of any governmental authority under any federal or state law before such shares of Common Stock may be issued upon conversion, the Corporation will cause such shares to be duly registered or approved, as the case may be. The Corporation covenants that all shares of Common Stock which shall be issued upon conversion of the shares of Class A Common Stock, will, upon issue, be fully paid and nonassessable and not subject to any preemptive rights. (e) The issuance of certificates for shares of Common Stock upon conversion of shares of Class A Common Stock shall be made without charge for any stamp or other similar tax in respect of such issuance. However, if any such certificate is to be issued in a name other than that of the holder of the share or shares of Class A Common Stock converted, the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of the Corporation that such tax has been paid. (f) At any time while there are shares of Class A Common Stock issued and outstanding, the Board of Directors of the Corporation may, in its sole discretion, by a majority vote of the Directors then in office convert all outstanding shares of Class A Common Stock into Common Stock on a share for share basis. Notice of automatic conversion of Class A Common Stock specifying the date fixed for said conversion shall be mailed, postage prepaid, at least 20 days but not -4- 6 more than 30 days prior to said conversion date to the holders of record of the Class A Common Stock at their respective addresses as the same shall appear on the books of the Corporation. Following the expiration of such notice period, each outstanding share of Class A Common Stock shall be deemed to be a share of Common Stock for all purposes. (4) Transfer. (a) No person holding shares of Class A Common Stock (a "Class A Holder") may transfer, and the Corporation and the Transfer Agent shall not register the transfer of, such shares of Class A Common Stock, whether by sale, assignment, gift, devise, bequest, appointment or otherwise. Any purported transfer of shares of Class A Common Stock shall be null and void and of no effect and the purported transfer by a Class A Holder will result in the immediate and automatic conversion of the shares of Class A Common Stock held by such Class A Holder into shares of Common Stock. The purported transferee shall have no rights as a stockholder of the Corporation and no other rights against, or with respect to, the Corporation except the right to receive shares of Common Stock upon the immediate and automatic conversion of his shares of Class A Common Stock into shares of Common Stock. Upon the death of any Class A Holder which is a natural person, or the liquidation, dissolution or winding up of the business or affairs of any corporation, partnership or trust, the shares of Class A Common Stock held by such person shall immediately and automatically convert into an equal number of shares of Common Stock. (b) Shares of Class A Common Stock shall be registered in the name(s) of the beneficial owner(s) thereof (as hereafter defined) and not in "street" or "nominee" names; provided, however, certificates representing shares of Class A Common Stock issued as a stock dividend on the Corporation's then outstanding common stock may be registered in the same name and manner as the certificates representing the shares of Common Stock with respect to which the shares of Class A Common Stock are issued. For the purposes of this paragraph 4, the term "beneficial owner(s)" of any shares of Class A Common Stock shall mean the person or persons who possess the power to dispose, or to direct the disposition of, such shares. Any shares of Class A Common Stock registered in "street" or "nominee" name may be transferred to the beneficial owner of such shares on the record date for such stock dividend, upon proof satisfactory to the Corporation and the Transfer Agent that such person was in fact the beneficial owner of such shares on the record date for such stock dividend. (c) Notwithstanding anything to the contrary set forth herein, any Class A Holder may pledge such holder's shares of Class A Common Stock to a pledgee pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledgee, provided that such shares shall not be transferred to, or registered in the name of, the pledgee and shall remain subject to the provisions of this paragraph 4 of Section A. In the event of foreclosure or other similar action by the pledgee, such pledged shares of Class A Common Stock may not be transferred to the pledgee and may only be converted into shares of Common Stock. -5- 7 (d) The Corporation shall note on the certificates representing the shares of Class A Common Stock the restrictions on transfer and registration of transfer imposed by this paragraph 4. (e) For purposes of this paragraph 4: (i) Each joint owner of shares of Class A Common Stock shall be considered a Class A Holder of such shares. (ii) A minor for whom shares of Class A Common Stock are held pursuant to a Uniform Gifts to Minors Act or similar law shall be considered a Class A Holder of such shares. (iii) Unless otherwise specified, the term "person" includes a natural person, corporation, partnership, unincorporated association, firm, joint venture, trust or other entity. (iv) Persons participating in the Thrift or Employee Stock Ownership Plans of the Corporation (or any similar or successor plans) shall be deemed to be the Class A Holders of the shares of Class A Common Stock allocated to their accounts pursuant to such plans. (5) Distribution of Assets. (a) In the event the Corporation shall be liquidated, dissolved or wound up, whether voluntarily or involuntarily, after there shall have been paid to or set aside for the holders of the Preferred Stock of all series then outstanding the full preferential amounts to which they are respectively entitled under this Article FOURTH and their respective Certificates of Designation, the holders of the Class A Common Stock shall be entitled to share ratably with the holders of the Common Stock of the Corporation as a single class in the remaining net assets of the Corporation, that is, an equal amount of net assets for each share of Common Stock and Class A Common Stock. A merger or consolidation of the Corporation with or into any other corporation or a sale or conveyance of all or any part of the assets of the Corporation (which shall not in fact result in the liquidation of the Corporation and the distribution of assets to stockholders) shall not be deemed to be a voluntary or involuntary liquidation or dissolution or winding up of the Corporation within the meaning of this paragraph 5. (6) Authorized Shares; Fractional Shares. (a) The number of authorized shares of Class A Common Stock may not be increased unless approved by the holders of a majority of the then outstanding shares of Common Stock and Preferred Stock entitled to vote, voting together as a single class. (b) No fractional shares of Common Stock shall be issued upon conversion of shares of Class A Common Stock. In lieu of fractional shares, the Transfer Agent shall pay an amount in cash equal to the closing market price of the -6- 8 shares of Common Stock on the conversion date multiplied by the fraction of a share of Common Stock that would otherwise be issuable. (B) Preferred Stock. Shares of Preferred Stock may be issued from time to time in one or more series as may be determined from time to time by the Board of Directors, each such series to be distinctly designated. Except in respect of the particulars fixed by the Board of Directors for series provided for by the Board of Directors as permitted hereby, all shares of Preferred Stock shall be of equal rank and shall be identical. All shares of any one series of Preferred Stock so designated by the Board of Directors shall be alike in every particular, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative. The voting rights, if any, of each such series and the preferences and relative, participating, optional and other special rights of each such series and the qualifications, limitations and restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and the Board of Directors of the Corporation is hereby expressly granted authority to fix, by resolutions duly adopted prior to the issuance of any shares of a particular series of Preferred Stock so designated by the Board of Directors, the voting powers of stock of such series, if any, and the designations, preferences and relative, participating, optional and other special rights and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following: (a) The rate and times at which, and the terms and conditions on which, dividends on Preferred Stock of such series will be paid; (b) The right, if any, of the holders of Preferred Stock of such series to convert the same into, or exchange the same for, shares of other classes or series of stock of the Corporation and the terms and conditions of such conversion or exchange, including provision for adjustment of the conversion price or rate in such events as the Board of Directors shall determine; (c) The redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed; and (d) The rights of the holders of Preferred Stock of such series upon the voluntary or involuntary dissolution, liquidation or winding up of the Corporation. Subject to the provisions of this Article FOURTH, shares of one or more series of Preferred Stock may be authorized or issued in an aggregate amount not exceeding the total number of shares of Preferred Stock authorized by this Certificate of Incorporation, from time to time as the Board of Directors of the Corporation shall determine, and for such consideration as shall be fixed by the Board of Directors. DESIGNATION OF $1.19 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation by the provisions of the Restated Certificate of Incorporation of the Corporation, this Board of Directors hereby creates a series of the Preferred Stock, par value 33-1/3 -7- 9 cents per share, of the Corporation, to consist of 123,169 shares of such Preferred Stock, and this Board of Directors hereby fixes the designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations, or restrictions thereof (in addition to the designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Restated Certificate of Incorporation of the Corporation which are applicable to Preferred Stock of all series) as follows: I. DESIGNATION The designation of the series of Preferred Stock created by this resolution shall be "$1.19 Cumulative Convertible Preferred Stock, Series A" (hereinafter called the "Series A Preferred Stock"). II. CASH DIVIDENDS ON SERIES A PREFERRED STOCK (a) The holders of the Series A Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of the funds of the Corporation legally available therefor, cumulative cash dividends at the annual rate of $1.19 per share, payable quarterly on the 15th day of March, June, September and December in each year. If the dividend on the Series A Preferred Stock for any dividend period shall not have been paid or set apart in full for the Series A Preferred Stock, the aggregate deficiency shall be cumulative and shall be fully paid or set apart for payment before any dividends shall be paid upon or set apart for the Common Stock of the Corporation. Accumulations of dividends on the Series A Preferred Stock shall not bear interest. (b) Cash dividends on the Series A Preferred Stock shall commence to accrue and shall be cumulative from September 16, 1972, reduced by any dividends accrued on the $1.19 Cumulative Convertible Preferred Stock, Series A, without par value, of Coastal States Gas Producing Company, a Delaware corporation. (c) If dividends on the Series A Preferred Stock are not paid in full or declared in full and sums set apart for the payment thereof, then no dividends shall be declared and paid on any Preferred Stock unless declared and paid ratably on all shares of each series of the Preferred Stock then outstanding, including dividends accrued or in arrears, if any, in proportion to the respective amounts that would be payable per share if all such dividends were declared and paid in full. The term "dividends accrued or in arrears" whenever used herein with reference to the Preferred Stock shall be deemed to mean an amount which shall be equal to dividends thereon at the annual dividend rates per share for the respective series from the date or dates on which such dividends commence to accrue to the end of the then current quarterly dividend period for such stock (or, in the case of redemption, to the date of redemption), less the amount of all dividends paid upon such stock. III. REDEMPTION OF SERIES A PREFERRED STOCK (a) The Series A Preferred Stock shall be redeemable, in whole or in part, at the option of the Corporation by resolution of its Board of Directors, at any time and from time to time on or after July 1, 1973, at thirty-three dollars ($33.00) per share, plus all dividends accrued and unpaid on such Series A Preferred Stock up to the date fixed for redemption, upon giving the notice hereinafter provided. (b) If less than all of the outstanding shares of Series A Preferred Stock are to be redeemed the shares to be redeemed shall be -8- 10 determined by lot in such usual manner and subject to such regulations as the Board of Directors in its sole discretion shall prescribe. (c) At least 45 days but not more than 90 days prior to the date fixed for the redemption of shares of the Series A Preferred Stock, a written notice shall be mailed to each holder of record of shares of Series A Preferred Stock to be redeemed in a postage prepaid envelope addressed to such holder at his post office address as shown on the records of the Corporation, notifying such holder of the election of the Corporation to redeem such shares, stating the date fixed for redemption thereof (here- inafter referred to as the redemption date), and calling upon such holder to surrender to the Corporation on the redemption date at the place designated in such notice his certificate or certificates representing the number of shares specified in such notice of redemption. On or after the redemption date each holder of shares of Series A Preferred Stock to be redeemed shall present and surrender his certificate or certificates for such shares to the Corporation at the place designated in such notice and thereupon the redemption price of such shares shall be paid to or on the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled. In case less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after the redemption date (unless default shall be made by the Corporation in payment of the redemption price) all dividends on the shares of Series A Preferred Stock designated for redemption in such notice shall cease to accrue, and all rights of the holders thereof as stockholders of the Corporation, except the right to receive the redemption price thereof upon the surrender of certificates representing the same, shall cease and determine and such shares shall not thereafter be transferred (except with the consent of the Corporation) on the books of the Corporation, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election the Corporation prior to the redemption date may deposit the redemption price of the shares of Series A Preferred Stock so called for redemption in trust for the holders thereof with a bank or trust company (having a capital and surplus of not less than $5,000,000) in the Borough of Manhattan, City and State of New York, or in any other city in which the Corporation at the time shall maintain a transfer agency with respect to such stock, in which case such notice to holders of the Series A Preferred Stock to be redeemed shall state the date of such deposit, shall specify the office of such bank or trust company as the place of payment of the redemption price, and shall call upon such holders to surrender the certificates representing such shares at such price on or after the date fixed in such redemption notice (which shall not be later than the redemption date) against payment of the redemption price. From and after the making of such deposit, the shares of Series A Preferred Stock so designated for redemption shall not be deemed to be outstanding for any purpose whatsoever, and the rights of the holders of such shares shall be limited to the right to receive the redemption price of such shares, without interest, upon surrender of the certificates representing the same to the Corporation at said office of such bank or trust company, and the right of conversion (on or before the tenth day prior to the date fixed for redemption) herein provided. Any funds so deposited which shall not be required for such redemption because of the exercise of such right of conversion after the date of such deposit shall be returned to the Corporation forthwith. Any interest accrued on such funds shall be paid to the Corporation from time to time. Any moneys so deposited which shall remain unclaimed by the holders of such Series A Preferred Stock at the end of six years after the redemption date shall be returned by such bank or trust company to the Corporation, after which the holders of the Series A Preferred Stock shall have no further interest in such moneys. IV. VOTING RIGHTS -9- 11 (a) At every meeting of stockholders of the Corporation, every holder of Series A Preferred Stock shall be entitled to one vote for each share of Series A Preferred Stock standing in his name on the books of the Corporation, with the same and identical voting rights, except as expressly provided herein, as a holder of a share of Common Stock. (b) The Series A Preferred Stock and any other stock having voting rights shall vote together as one class, except as provided by law and in Article VII hereof, and except that while the holders of Preferred Stock, voting as a class, are entitled to elect two (2) directors of the Corporation as hereinafter provided, they shall not be entitled to participate with the holders of the Common Stock in the election of any other directors. (c) In case at any time the equivalent of six or more full quarterly dividends (whether consecutive or not) on any series of Preferred Stock shall be in arrears, then during the period (hereinafter in this subparagraph (c) called the Class Voting Period) commencing with such time and ending with the time when all arrears in dividends on all Preferred Stock shall have been paid and the full dividend on all Preferred Stock for the then current quarterly dividend period shall have been paid or declared and set a part for payment, at any meeting of the stockholders of the Corporation held for the election of directors during the Class Voting Period, the holders of Preferred Stock represented in person or by proxy at said meeting shall be entitled, as a class, to the exclusion of the holders of all other classes of stock of the Corporation, to elect two directors of the Corporation, each share of Preferred Stock entitling the holder thereof to one vote. Any director who shall have been elected by holders of Preferred Stock or by any director so elected as herein contemplated, may be removed at any time during a Class Voting Period, either for or without cause, by, and only by, the affirmative votes of the holders of record of a majority of the outstanding shares of Preferred Stock given at a special meeting of such stockholders called for the purpose and any vacancy thereby created may be filled during such Class Voting Period by the holders of Preferred Stock, present in person or represented by proxy at such meeting. Any director to be elected by the Board of Directors of the Corporation to replace a director elected by holders of Preferred Stock, or elected by a director as in this sentence provided, and who dies, resigns, or otherwise ceases to be a director shall except as otherwise provided in the preceding sentence be elected by the remaining director theretofore elected by the holders of Preferred Stock. At the end of the Class Voting Period the holders of Preferred Stock shall be automatically divested of all voting power vested in them under this subparagraph (c) but subject always to the subsequent vesting hereunder of voting power in the holders of Preferred Stock in the event of any similar default or defaults thereafter. The term of all directors elected pursuant to the provisions of this subparagraph (c) shall in all events expire at the end of the Class Voting Period. V. PRIORITY OF SERIES A PREFERRED STOCK IN EVENT OF DISSOLUTION In the event of any liquidation, dissolution, or winding up of the affairs of the Corporation, whether voluntary or otherwise, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of the Series A Preferred Stock shall be entitled to receive, out of the remaining net assets of the Corporation, the amount of thirty- three dollars ($33.00) in cash for each share of Series A Preferred Stock, plus an amount equal to all dividends accrued and unpaid on each such share up to the date fixed for distribution, before any distribution shall be made to the holders of the Common Stock of the Corporation. If upon any liquidation, dissolution or winding up of the Corporation, the assets -10- 12 distributable among the holders of any series of Preferred Stock shall be insufficient to permit the payment in full to the holders of all series of the Preferred Stock of all preferential amounts payable to all such holders, then the entire assets of the Corporation thus distributable shall be distributed ratably among the holders of all series of the Preferred Stock in proportion to the respective amounts that would be payable per share if such assets were sufficient to permit payment in full. VI. CONVERSION OF SERIES A PREFERRED STOCK INTO COMMON STOCK (a) Subject to the provisions of this Article VI, the holder of record of any Series A Preferred Stock shall have the right, at his option, at any time after the issuance of such share(s) to convert each share of Series A Preferred Stock into one fully-paid and non-assessable share of Common Stock of the Corporation. In case any shares of the Series A Preferred Stock shall have been called for redemption, such right of conversion in respect to the shares so called for redemption shall cease and terminate at the close of business on the tenth (10th) day prior to the date fixed for the redemption of such shares, unless default shall be made in the payment of the redemption price. (b) Any holder of a share or shares of Series A Preferred Stock desiring to convert such Series A Preferred Stock into Common Stock shall surrender the certificate or certificates representing the share or shares of Series A Preferred Stock so to be converted, duly endorsed to the Corporation or in blank, at the office of any Transfer Agent for the Series A Preferred Stock (or such other place as may be designated by the Corporation), and shall give written notice to the Corporation at said office that he elects to convert the same, and setting forth the name or names (with the address or addresses) in which the shares of Common Stock are to be issued. If the last day for the exercise of the conversion right in the city where the principal place of business of any Transfer Agent for the Series A Preferred Stock (or in the city of the principal office of such other entity as the Corporation shall have designated as the place so to surrender Series A Preferred Stock for conversion, as aforesaid) shall be a legal holiday or a day on which banking institutions are authorized by law to close, then such conversion right may be exercised in such city on the next succeeding day not in such city a legal holiday or a day on which banking institutions are authorized by law to close. (c) Conversion of Series A Preferred Stock shall be subject to the following additional terms and provisions: -11- 13 (1) As promptly as practicable after the surrender for conversion of any Series A Preferred Stock, the Corporation shall deliver or cause to be delivered at the principal office of any Transfer Agent for the Series A Preferred Stock (or such other place as may be designated by the Corporation), to or upon the written order of the holder of such Series A Preferred Stock, certificates representing the shares of Common Stock issuable upon such conversion, issued in such name or names as such holder may direct, and cash in respect to any fraction of a share as provided in sub-paragraph (3) below. Shares of the Series A Preferred Stock shall be deemed to have been converted as of the close of business on the date of the surrender of the Series A Preferred Stock for conversion, as provided above, and the rights of the holders of such Series A Preferred Stock shall cease at such time, and the person or persons in whose name or names the certificate for such shares are to be issued shall be treated for all purposes as having become the record holder or holders of such Common Stock at such time; provided, however, that any such surrender on any date when the stock transfer books of the Corporation shall be closed shall constitute the person or persons in whose name or names the certificates for such shares are to be issued as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open. (2) The Corporation shall make no payment or adjustment on account of any dividends accrued on the shares of the Series A Preferred Stock surrendered for conversion. (3) The Corporation shall not be required to issue any fractions of shares of Common Stock upon conversions of Series A Preferred Stock. If more than one share certificate of Series A Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock which shall be issuable upon conversion of such Series A Preferred Stock shall be computed on the basis of the aggregate number of shares of Series A Preferred Stock so surrendered. If any interest in a fractional share of Common Stock would otherwise be deliverable upon the conversion of any Series A Preferred Stock, the Corporation shall make adjustment for such fractional share interest by payment of an amount in cash equal to the same fraction of the market value of a full share of Common Stock of the Corporation. For such purpose, the market value of a share of Common Stock shall be the last recorded sale price of such share of Common Stock on the New York Stock Exchange on the day immediately preceding the date upon which such shares are surrendered for conversion, or, if there be no such recorded sale price on such day, the last quoted bid price per share of the Common Stock on such Exchange at the close of trading on such date. If the Common Stock shall not at the time be dealt in on the New York Stock Exchange, such market value of the Common Stock shall be the prevailing market value of the Common Stock on any other securities exchange or in the open market, as determined by the Corporation, which determination shall be conclusive. (4) In the event that the Corporation shall at any time subdivide or combine in a greater or lesser number of shares the outstanding shares of Common Stock, the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock shall be proportionately increased in the case of subdivision or decreased in the case of a combination effective in either case at the close of business on the date when such subdivision or combination shall become effective. -12- 14 (5) In the event that the Corporation shall be recapitalized, consolidated with or merged into any other corporation, or shall sell or convey to any other corporation all or substantially all of its property as an entirety, provision shall be made as part of the terms of such recapitalization, consolidation, merger, sale or conveyance so that any holder of Series A Preferred Stock may thereafter receive in lieu of the Common Stock otherwise issuable to him upon conversion of his Series A Preferred Stock, but at the conversion ratio stated in this Article VI which would otherwise be applicable at the time of conversion, the same kind and amount of securities or assets as may be distributable upon such recapitalization, consolidation, merger, sale or conveyance with respect to the Common Stock of the Corporation. (6) In the event that the Corporation shall at any time pay to the holders of Common Stock a dividend in Common Stock, the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock shall be proportionately increased, effective at the close of business on the record date for determination of the holders of Common Stock entitled to such dividend. (7) No adjustment of the conversion ratio shall be made by reason of any declaration or payment to the holders of the Common Stock of the Corporation of a dividend or distribution payable in any property or securities other than Common Stock, any redemption of the Common Stock, any issuance of any securities convertible into Common Stock, or for any other reason, except as expressly provided herein. (8) The Corporation shall at all times reserve and keep available solely for the purpose of issuance upon conversion of Series A Preferred Stock, as herein provided, such number of shares of Common Stock as shall be issuable upon the conversion of all outstanding Series A Preferred Stock. (d) The issuance of certificates for shares of Common Stock upon conversion of the Series A Preferred Stock shall be made without charge for any tax in respect of such issuance. However, if any certificate is to be issued in a name other than that of the holder of record of the Series A Preferred Stock so converted, the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance, or shall establish to the satisfaction of the Corporation that such tax has been paid or is not due and payable. VII. LIMITATIONS So long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote or the written consent as provided by law, of the holders of at least two-thirds ( ) of the outstanding shares of Series A Preferred Stock, voting as a class, (a) create, authorize or issue any class or series of stock ranking either as to payment of dividends or distribution of assets prior to the Series A Preferred Stock; or (b) change the preferences, rights or powers with respect to the Series A Preferred Stock so as to affect such stock adversely; but nothing herein contained shall require such a class vote or consent (i) in connection with any increase in the total number of authorized shares of Common Stock, or (ii) in connection with authorization or increase of any -13- 15 class of stock ranking on a parity with the Series A Preferred Stock; provided, however, that no such vote or written consent of the holders of the Series A Preferred Stock shall be required if, at or prior to the time when the issuance of any such prior stock is to be made or any such change is to take effect, as the case may be, provision is made for the redemption of all shares of Series A Preferred Stock at the time outstanding, and further provided, that the provisions of this Article VII shall not in any way limit the right and power of the Corporation to issue the presently authorized but unissued shares of stock, or bonds, notes, mortgages, debentures, and other obligations, and to incur indebtedness to banks and to other lenders. DESIGNATION OF $1.83 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES B RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation by the provisions of the Restated Certificate of Incorporation of the Corporation, this Board of Directors hereby creates a series of the Preferred Stock, par value 33-1/3 cents per share, of the Corporation, to consist of 348,015 shares of such Preferred Stock, and this Board of Directors hereby fixes the designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations, or restrictions thereof (in addition to the designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Restated Certificate of Incorporation of the Corporation which are applicable to Preferred Stock of all series) as follows: I. DESIGNATION The designation of the series of Preferred Stock created by this resolution shall be "$1.83 Cumulative Convertible Preferred Stock, Series B" (hereinafter called the "Series B Preferred Stock"). II. CASH DIVIDENDS ON SERIES B PREFERRED STOCK (a) The holders of the Series B Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of the funds of the Corporation legally available therefor, cumulative cash dividends at the annual rate of $1.83 per share, payable quarterly on the 15th day of March, June, September and December in each year. If the dividend on the Series B Preferred Stock for any dividend period shall not have been paid or set apart in full for the Series B Preferred Stock, the aggregate deficiency shall be cumulative and shall be fully paid or set apart for payment before any dividends shall be paid upon or set apart for the Common Stock of the Corporation. Accumulations of dividends on the Series B Preferred Stock shall not bear interest. (b) Cash dividends on shares of Series B Preferred Stock into which shares of the Common Stock, par value $5.00 per share, of Colorado Interstate Corporation, a Delaware corporation, are converted on January 2, 1973, shall commence to accrue and shall be cumulative from December 16, 1972. As to shares of Series B Preferred Stock issued on or after January 3, 1973, cash dividends shall accrue and be cumulative from such date as shall make the dividend rights per share of the shares of Series B Preferred Stock so issued uniform with the dividend rights per share of the shares of Series B Preferred Stock then outstanding, excluding rights to dividends declared and directed to be paid to shareholders of record as of a date preceding the date of issuance of the shares being issued. -14- 16 (c) If dividends on the Series B Preferred Stock are not paid in full or declared in full and sums set apart for the payment thereof, then no dividends shall be declared and paid on any Preferred Stock unless declared and paid ratably on all shares of each series of the Preferred Stock then outstanding, including dividends accrued or in arrears, if any, in proportion to the respective amounts that would be payable per share if all such dividends were declared and paid in full. The term "dividends accrued or in arrears" whenever used herein with reference to the Preferred Stock shall be deemed to mean an amount which shall be equal to dividends thereon at the annual dividend rates per share for the respective series from the date or dates on which such dividends commence to accrue to the end of the then current quarterly dividend period for such stock (or, in the case of redemption, to the date of redemption), less the amount of all dividends paid upon such stock. III. REDEMPTION OF SERIES B PREFERRED STOCK (a) The Series B Preferred Stock shall be redeemable, in whole or in part, at the option of the Corporation by resolution of its Board of Directors, at any time and from time to time on or after December 1, 1977, at fifty dollars ($50.00) per share, plus all dividends accrued and unpaid on such Series B Preferred Stock up to the date fixed for redemption, upon giving the notice hereinafter provided. (b) If less than all of the outstanding shares of Series B Preferred Stock are to be redeemed the shares to be redeemed shall be determined by lot in such usual manner and subject to such regulations as the Board of Directors in its sole discretion shall prescribe. (c) At least 45 days but not more than 90 days prior to the date fixed for the redemption of shares of the Series B Preferred Stock, a written notice shall be mailed to each holder of record of shares of Series B Preferred Stock to be redeemed in a postage prepaid envelope addressed to such holder at his post office address as shown on the records of the Corporation, notifying such holder of the election of the Corporation to redeem such shares, stating the date fixed for redemption thereof (here- inafter referred to as the redemption date), and calling upon such holder to surrender to the Corporation on the redemption date at the place designated in such notice his certificate or certificates representing the number of shares specified in such notice of redemption. On or after the redemption date each holder of shares of Series B Preferred Stock to be redeemed shall present and surrender his certificate or certificates for such shares to the Corporation at the place designated in such notice and thereupon the redemption price of such shares shall be paid to or on the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled. In case less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after the redemption date (unless default shall be made by the Corporation in payment of the redemption price) all dividends on the shares of Series B Preferred Stock designated for redemption in such notice shall cease to accrue, and all rights of the holders thereof as stockholders of the Corporation, except the right to receive the redemption price thereof upon the surrender of certificates representing the same, shall cease and determine and such shares shall not thereafter be transferred (except with the consent of the Corporation) on the books of the Corporation, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election the Corporation prior to the redemption date may deposit the redemption price of the shares of Series B Preferred Stock so called for redemption in trust for the holders thereof with a bank or trust company (having a capital and surplus of not less than $5,000,000) in the Borough of Manhattan, City and State of New York, or in any other city in which the -15- 17 Corporation at the time shall maintain a transfer agency with respect to such stock, in which case such notice to holders of the Series B Preferred Stock to be redeemed shall state the date of such deposit, shall specify the office of such bank or trust company as the place of payment of the redemption price, and shall call upon such holders to surrender the certificates representing such shares at such price on or after the date fixed in such redemption notice (which shall not be later than the redemption date) against payment of the redemption price. From and after the making of such deposit, the shares of Series B Preferred Stock so designated for redemption shall not be deemed to be outstanding for any purpose whatsoever, and the rights of the holders of such shares shall be limited to the right to receive the redemption price of such shares, without interest, upon surrender of the certificates representing the same to the Corporation at said office of such bank or trust company, and the right of conversion (on or before the tenth day prior to the date fixed for redemption) herein provided. Any funds so deposited which shall not be required for such redemption because of the exercise of such right of conversion after the date of such deposit shall be returned to the Corporation forthwith. Any interest accrued on such funds shall be paid to the Corporation from time to time. Any moneys so deposited which shall remain unclaimed by the holders of such Series B Preferred Stock at the end of six years after the redemption date shall be returned by such bank or trust company to the Corporation, after which the holders of the Series B Preferred Stock shall have no further interest in such moneys. IV. VOTING RIGHTS (a) At every meeting of stockholders of the Corporation, every holder of Series B Preferred Stock shall be entitled to one vote for each share of Series B Preferred Stock standing in his name on the books of the Corporation, with the same and identical voting rights, except as expressly provided herein, as a holder of a share of Common Stock. (b) The Series B Preferred Stock and any other stock having voting rights shall vote together as one class, except as provided by law and in Article VII hereof, and except that while the holders of Preferred Stock, voting as a class, are entitled to elect two (2) directors of the Corporation as hereinafter provided, they shall not be entitled to participate with the holders of the Common Stock in the election of any other directors. (c) In case at any time the equivalent of six or more full quarterly dividends (whether consecutive or not) on any series of Preferred Stock shall be in arrears, then during the period (hereinafter in this subparagraph (c) called the Class Voting Period) commencing with such time and ending with the time when all arrears in dividends on all Preferred Stock shall have been paid and the full dividend on all Preferred Stock for the then current quarterly dividend period shall have been paid or declared and set apart for payment, at any meeting of the stockholders of the Corporation held for the election of directors during the Class Voting Period, the holders of Preferred Stock represented in person or by proxy at said meeting shall be entitled, as a class, to the exclusion of the holders of all other classes of stock of the Corporation, to elect two directors of the Corporation, each share of Preferred Stock entitling the holder thereof to one vote. Any director who shall have been elected by holders of Preferred Stock or by any director so elected as herein contemplated, may be removed at any time during a Class Voting Period, either for or without cause, by, and only by, the affirmative votes of the holders of record of a majority of the outstanding shares of Preferred Stock given at a special meeting of such stockholders called for the purpose and any vacancy thereby created may be -16- 18 filled during such Class Voting Period by the holders of Preferred Stock, present in person or represented by proxy at such meeting. Any director to be elected by the Board of Directors of the Corporation to replace a director elected by holders of Preferred Stock, or elected by a director as in this sentence provided, and who dies, resigns, or otherwise ceases to be a director shall, except as otherwise provided in the preceding sentence, be elected by the remaining director theretofore elected by the holders of Preferred Stock. At the end of the Class Voting Period the holders of Preferred Stock shall be automatically divested of all voting power vested in them under this subparagraph (c) but subject always to the subsequent vesting hereunder of voting power in the holders of Preferred Stock in the event of any similar default or defaults thereafter. The term of all directors elected pursuant to the provisions of this subparagraph (c) shall in all events expire at the end of the Class Voting Period. V. PRIORITY OF SERIES B PREFERRED STOCK IN EVENT OF DISSOLUTION In the event of any liquidation, dissolution, or winding-up of the affairs of the Corporation, whether voluntary or otherwise, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of the Series B Preferred Stock shall be entitled to receive, out of the remaining net assets of the Corporation, the amount of fifty dollars ($50.00) in cash for each share of Series B Preferred Stock, plus an amount equal to all dividends accrued and unpaid on each such share up to the date fixed for distribution, before any distribution shall be made to the holders of the Common Stock of the Corporation. If upon any liquidation, dissolution or winding-up of the Corporation, the assets distributable among the holders of any series of Preferred Stock shall be insufficient to permit the payment in full to the holders of all series of the Preferred Stock of all preferential amounts payable to all such holders, then the entire assets of the Corporation thus distributable shall be distributed ratably among the holders of all series of the Preferred Stock in proportion to the respective amounts that would be payable per share if such assets were sufficient to permit payment in full. VI. CONVERSION OF SERIES B PREFERRED STOCK INTO COMMON STOCK (a) Subject to the provisions of this Article VI, the holder of record of any Series B Preferred Stock shall have the right, at his option, at any time after the issuance of such share(s) to convert each share of Series B Preferred Stock into one fully paid and nonassessable share of Common Stock of the Corporation. In case any shares of the Series B Preferred Stock shall have been called for redemption, such right of conversion in respect to the shares so called for redemption shall cease and terminate at the close of business on the tenth (10th) day prior to the date fixed for the redemption of such shares, unless default shall be made in the payment of the redemption price. (b) Any holder of a share or shares of Series B Preferred Stock desiring to convert such Series B Preferred Stock into Common Stock shall surrender the certificate or certificates representing the share or shares of Series B Preferred Stock so to be converted, duly endorsed to the Corporation or in blank, at the office of any Transfer Agent for the Series B Preferred Stock (or such other place as may be designated by the Corporation), and shall give written notice to the Corporation at said office that he elects to convert the same, and setting forth the name or names (with the address or addresses) in which the shares of Common Stock are to be issued. If the last day for the exercise of the conversion right in the city where the principal place of business of any Transfer Agent for the Series B -17- 19 Preferred Stock (or in the city of the principal office of such other entity as the Corporation shall have designated as the place so to surrender Series B Preferred Stock for conversion, as aforesaid) shall be a legal holiday or a day on which banking institutions are authorized by law to close, then such conversion right may be exercised in such city on the next succeeding day not in such city a legal holiday or a day on which banking institutions are authorized by law to close. (c) Conversion of Series B Preferred Stock shall be subject to the following additional terms and provisions: (1) As promptly as practicable after the surrender for conversion of any Series B Preferred Stock, the Corporation shall deliver or cause to be delivered at the principal office of any Transfer Agent for the Series B Preferred Stock (or such other place as may be designated by the Corporation), to or upon the written order of the holder of such Series B Preferred Stock, certificates representing the shares of Common Stock issuable upon such conversion, issued in such name or names as such holder may direct, and cash in respect to any fraction of a share as provided in sub-paragraph (3) below. Shares of the Series B Preferred Stock shall be deemed to have been converted as of the close of business on the date of the surrender of the Series B Preferred Stock for conversion, as provided above, and the rights of the holders of such Series B Preferred Stock shall cease at such time, and the person or persons in whose name or names the certificate for such shares are to be issued shall be treated for all purposes as having become the record holder or holders of such Common Stock at such time; provided, however, that any such surrender on any date when the stock transfer books of the Corporation shall be closed shall constitute the person or persons in whose name or names the certificates for such shares are to be issued as the record holder or holders thereof for all purposes at the close of business on the next succeeding day on which such stock transfer books are open. (2) The Corporation shall make no payment or adjustment on account of any dividends accrued on the shares of the Series B Preferred Stock surrendered for conversion. (3) The Corporation shall not be required to issue any fractions of shares of Common Stock upon conversions of Series B Preferred Stock. If more than one share certificate of Series B Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock which shall be issuable upon conversion of such Series B Preferred Stock shall be computed on the basis of the aggregate number of shares of Series B Preferred Stock so surrendered. If any interest in a fractional share of Common Stock would otherwise be deliverable upon the conversion of any Series B Preferred Stock, the Corporation shall make adjustment for such fractional share interest by payment of an amount in cash equal to the same fraction of the market value of a full share of Common Stock of the Corporation. For such purpose, the market value of a share of Common Stock shall be the last recorded sale price of such share of Common Stock on the New York Stock Exchange on the day immediately preceding the date upon which such shares are surrendered for conversion, or, if there be no such recorded sale price on such day, the last quoted bid price per share of the Common Stock on such Exchange at the close of trading on such date. If the Common Stock shall not at the time be dealt in on the New York Stock Exchange, such market value of the Common Stock shall be the prevailing market value of the Common Stock on any other -18- 20 securities exchange or in the open market, as determined by the Corporation, which determination shall be conclusive. (4) In the event that the Corporation shall at any time subdivide or combine in a greater or lesser number of shares the outstanding shares of Common Stock, the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock shall be proportionately increased in the case of subdivision or decreased in the case of a combination effective in either case at the close of business on the date when such subdivision or combination shall become effective. (5) In the event that the Corporation shall be recapitalized, consolidated with or merged into any other corporation, or shall sell or convey to any other corporation all or substantially all of its property as an entirety, provision shall be made as part of the terms of such recapitalization, consolidation, merger, sale or conveyance so that any holder of Series B Preferred Stock may thereafter receive in lieu of the Common Stock otherwise issuable to him upon conversion of his Series B Preferred Stock, but at the conversion ratio stated in this Article VI which would otherwise be applicable at the time of conversion, the same kind and amount of securities or assets as may be distributable upon such recapitalization, consolidation, merger, sale or conveyance with respect to the Common Stock of the Corporation. (6) In the event that the Corporation shall at any time pay to the holders of Common Stock a dividend in Common Stock, the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock shall be proportionately increased, effective at the close of business on the record date for determination of the holders of Common Stock entitled to such dividend. (7) No adjustment of the conversion ratio shall be made by reason of any declaration or payment to the holders of the Common Stock of the Corporation of a dividend or distribution payable in any property or securities other than Common Stock, any redemption of the Common Stock, any issuance of any securities convertible into Common Stock, or for any other reason, except as expressly provided herein. (8) The Corporation shall at all times reserve and keep available solely for the purpose of issuance upon conversion of Series B Preferred Stock, as herein provided, such number of shares of Common Stock as shall be issuable upon the conversion of all outstanding Series B Preferred Stock. (d) The issuance of certificates for shares of Common Stock upon conversion of the Series B Preferred Stock shall be made without charge for any tax in respect of such issuance. However, if any certificate is to be issued in a name other than that of the holder of record of the Series B Preferred Stock so converted, the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance, or shall establish to the satisfaction of the Corporation that such tax has been paid or is not due and payable. VII. LIMITATIONS So long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote or the written -19- 21 consent as provided by law, of the holders of at least two-thirds ( ) of the outstanding shares of Series B Preferred Stock, voting as a class, (a) create, authorize or issue any class or series of stock ranking either as to payment of dividends or distribution of assets prior to the Series B Preferred Stock; or (b) change the preferences, rights or powers with respect to the Series B Preferred Stock so as to affect such stock adversely; but nothing herein contained shall require such a class vote or consent (i) in connection with any increase in the total number of authorized shares of Common Stock, or (ii) in connection with authorization or increase of any class of stock ranking on a parity with the Series B Preferred Stock; provided, however, that no such vote or written consent of the holders of the Series B Preferred Stock shall be required if, at or prior to the time when the issuance of any such prior stock is to be made or any such change is to take effect, as the case may be, provision is made for the redemption of all shares of Series B Preferred Stock at the time outstanding, and further provided, that the provisions of this Article VII shall not in any way limit the right and power of the Corporation to issue the presently authorized but unissued shares of stock, or bonds, notes, mortgages, debentures, and other obligations, and to incur indebtedness to banks and to other lenders. DESIGNATION OF $5.00 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES C RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation by the provisions of the Restated Certificate of Incorporation of the Corporation, this Board of Directors hereby creates a series of the Preferred Stock, par value 33-1/3 cents per share, of the Corporation, to consist of 100,000 shares of such Preferred Stock, and this Board of Directors hereby fixes the designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations, or restrictions thereof (in addition to the designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Restated Certificate of Incorporation of the Corporation which are applicable to Preferred Stock of all series) as follows: I. DESIGNATION The designation of the series of Preferred Stock created by this resolution shall be "$5.00 Cumulative Convertible Preferred Stock, Series C" (hereinafter called the "Series C Preferred Stock"). II. CASH DIVIDENDS ON SERIES C PREFERRED STOCK (a) The holders of the Series C Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of the funds of the Corporation legally available therefor, cash dividends at the annual rate of $5.00 per share, payable quarterly on the first day of January, April, July and October in each year. If the dividend on the Series C Preferred Stock for any dividend period shall not have been paid or set apart in full for the Series C Preferred Stock, the aggregate deficiency shall be cumulative and shall be fully paid or set apart for payment before any dividends shall be paid upon or set apart for the Common Stock of the Corporation. Accumulations of dividends on the Series C Preferred Stock shall not bear interest. -20- 22 (b) Cash dividends on the Series C Preferred Stock shall commence to accrue and shall be cumulative from January 2, 1973. (c) If dividends on the Series C Preferred Stock are not paid in full or declared in full and sums set apart for the payment thereof, then no dividends shall be declared and paid on any Preferred Stock unless declared and paid ratably on all shares of each series of the Preferred Stock then outstanding, including dividends accrued or in arrears, if any, in proportion to the respective amounts that would be payable per share if all such dividends were declared and paid in full. The term "dividends accrued or in arrears" whenever used herein with reference to the Preferred Stock shall be deemed to mean an amount which shall be equal to dividends thereon at the annual dividend rates per share for the respective series from the date or dates on which such dividends commence to accrue to the end of the then current quarterly dividend period for such stock (or, in the case of redemption, to the date of redemption), less the amount of all dividends paid upon such stock. III. REDEMPTION OF SERIES C PREFERRED STOCK (a) The Series C Preferred Stock shall be redeemable, in whole or in part, at the option of the Corporation by resolution of its Board of Directors, at any time and from time to time on or after July 1, 1977, at the following optional redemption prices per share, plus in each case all dividends accrued and unpaid on such Series C Preferred Stock up to the date fixed for redemption, upon giving the notice hereinafter provided: If redeemed on or prior to June 30, 1982, $106; If Redeemed During the 12 Mouth Period Ending June 30 1983 . . . . . . . . . . . . . . . $105 1984 . . . . . . . . . . . . . . . 104 1985 . . . . . . . . . . . . . . . 103 1986 . . . . . . . . . . . . . . . 102 1987 . . . . . . . . . . . . . . . 101 and $100 after June 30, 1987. (b) If less than all of the outstanding shares of Series C Preferred Stock are to be redeemed, the shares to be redeemed shall be determined by lot in such usual manner and subject to such regulations as the Board of Directors in its sole discretion shall prescribe. (c) At least 45 days but not more than 90 days prior to the date fixed for the redemption of shares of the Series C Preferred Stock, a written notice shall be mailed to each holder of record of shares of Series C Preferred Stock to be redeemed in a postage prepaid envelope addressed to such holder at his post office address as shown on the records of the Corporation, notifying such holder of the election of the Corporation to redeem such shares, stating the date fixed for redemption thereof (hereinafter referred to as the redemption date), and calling upon such holder to surrender to the Corporation on the redemption date at the place designated in such notice his certificate or certificates representing the number of shares specified in such notice of redemption. On or after the redemption date each holder of shares of Series C Preferred Stock to be redeemed shall present and surrender his certificate or certificates for such shares to the Corporation at the place designated in such notice and thereupon the redemption price of such shares shall be paid to or on the -21- 23 order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled. In case less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after the redemption date (unless default shall be made by the Corporation in payment of the redemption price) all dividends on the shares of Series C Preferred Stock designated for redemption in such notice shall cease to accrue, and all rights of the holders thereof as stockholders of the Corporation, except the right to receive the redemption price thereof upon the surrender of certificates representing the same, shall cease and determine and such shares shall not thereafter be transferred (except with the consent of the Corporation) on the books of the Corporation, and such shares shall not be deemed to be outstanding for any purpose whatsoever. At its election the Corporation prior to the redemption date may deposit the redemption price of the shares of Series C Preferred Stock so called for redemption in trust for the holders thereof with a bank or trust company (having a capital and surplus of not less than $5,000,000) in the Borough of Manhattan, City and State of New York, or in any other city in which the Corporation at the time shall maintain a transfer agency with respect to such stock, in which case such notice to holders of the Series C Preferred Stock to be redeemed shall state the date of such deposit, shall specify the office of such bank or trust company as the place of payment of the redemption price, and shall call upon such holders to surrender the certificates representing such shares at such price on or after the date fixed in such redemption notice (which shall not be later than the redemption date) against payment of the redemption price. From and after the making of such deposit, the shares of Series C Preferred Stock so designated for redemption shall not be deemed to be outstanding for any purpose whatsoever, and the rights of the holders of such shares shall be limited to the right to receive the redemption price of such shares, without interest, upon surrender of the certificates representing the same to the Corporation at said office of such bank or trust company, and the right of conversion (on or before the tenth day prior to the date fixed for redemption) herein provided. Any funds so deposited which shall not be required for such redemption because of the exercise of such right of conversion after the date of such deposit shall be returned to the Corporation forthwith. Any interest accrued on such funds shall be paid to the Corporation from time to time. Any moneys so deposited which shall remain unclaimed by the holders of such Series C Preferred Stock at the end of six years after the redemption date shall be returned by such bank or trust company to the Corporation, after which the holders of the Series C Preferred Stock shall have no further interest in such moneys. IV. VOTING RIGHTS (a) At every meeting of stockholders of the Corporation, every holder of Series C Preferred Stock shall be entitled to one vote for each share of Series C Preferred Stock standing in his name on the books of the Corporation, with the same and identical voting rights, except as expressly provided herein, as a holder of a share of Common Stock. (b) The Series C Preferred Stock and any other stock having voting rights shall vote together as one class, except as provided by law and in Article VII hereof, and except that while the holders of Preferred Stock, voting as a class, are entitled to elect two (2) directors of the Corporation as hereinafter provided, they shall not be entitled to participate with the holders of the Common Stock in the election of any other directors. (c) In case at any time the equivalent of six or more full quarterly dividends (whether consecutive or not) on any series of Preferred Stock shall be in arrears, then during the period (hereinafter in this -22- 24 subparagraph (c) called the Class Voting Period) commencing with such time and ending with the time when all arrears in dividends on all Preferred Stock shall have been paid and the full dividend on all Preferred Stock for the then current quarterly dividend period shall have been paid or declared and set apart for payment, at any meeting of the stockholders of the Corporation held for the election of directors during the Class Voting Period, the holders of Preferred Stock represented in person or by proxy at said meeting shall be entitled, as a class, to the exclusion of the holders of all other classes of stock of the Corporation, to elect two directors of the Corporation, each share of Preferred Stock entitling the holder thereof to one vote. Any director who shall have been elected by holders of Preferred Stock or by any director so elected as herein contemplated, may be removed at any time during a Class Voting Period, either for or without cause, by, and only by, the affirmative votes of the holders of record of a majority of the outstanding shares of Preferred Stock given at a special meeting of such stockholders called for the purpose and any vacancy thereby created may be filled during such Class Voting Period by the holders of Preferred Stock, present in person or represented by proxy at such meeting. Any director to be elected by the Board of Directors of the Corporation to replace a director elected by holders of Preferred Stock, or elected by a director as in this sentence provided, and who dies, resigns, or otherwise ceases to be a director shall, except as otherwise provided in the preceding sentence, be elected by the remaining director theretofore elected by the holders of Preferred Stock. At the end of the Class Voting Period the holders of Preferred Stock shall be automatically divested of all voting power vested in them under this subparagraph (c) but subject always to the subsequent vesting hereunder of voting power in the holders of Preferred Stock in the event of any similar default or defaults thereafter. The term of all directors elected pursuant to the provisions of this subparagraph (c) shall in all events expire at the end of the Class Voting Period. V. PRIORITY OF SERIES C PREFERRED STOCK IN EVENT OF DISSOLUTION In the event of any liquidation, dissolution, or winding-up of the affairs of the Corporation, whether voluntary or otherwise, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of the Series C Preferred Stock shall be entitled to receive, out of the remaining net assets of the Corporation, an amount per share equal to the price per share set forth in Article III hereof applicable to optional redemption in cash, plus an amount equal to all dividends accrued and unpaid on each such share up to the date fixed for distribution, before any distribution shall be made to the holders of the Common Stock of the Corporation. If upon any liquidation, dissolution or winding-up of the Corporation, the assets distributable among the holders of any series of Preferred Stock shall be insufficient to permit the payment in full to the holders of all series of the Preferred Stock of all preferential amounts payable to all such holders, then the entire assets of the Corporation thus distributable shall be distributed ratably among the holders of all series of the Preferred Stock in proportion to the respective amounts that would be payable per share if such assets were sufficient to permit payment in full. VI. CONVERSION OF SERIES C PREFERRED STOCK INTO COMMON STOCK (a) Each share of the Series C Preferred Stock shall be convertible at any time at the option of the holder thereof, into shares (calculated as to each conversion to the nearest 1/100th of a share) of Common Stock (for purposes of this Article VI, the term "Common Stock" means the common stock, par value 33-1/3 cents per share, of the Corporation, as authorized at the date of adoption of this resolution, or stock of any other class or classes into which such common stock or any such other class may -23- 25 thereafter be changed or reclassified) at the rate of 1.96875 shares of Common Stock for each share of the Series C Preferred Stock, subject to adjustment as hereinafter provided; provided, however, that as to any shares of the Series C Preferred Stock called for redemption such right of conversion shall cease and terminate at the close of business on the fifth business day prior to the date fixed for redemption. (b) Any holder of shares of the Series C Preferred Stock electing to convert such shares or any portion thereof shall deliver the certificates therefor to the principal office of any transfer agent for the Common Stock, with the form of notice of election to convert endorsed on such certificates fully completed and duly executed. The conversion right with respect to any such shares of the Series C Preferred Stock shall be deemed to have been exercised at the date upon which the certificates therefor with such notice of election duly executed shall have been so delivered, and the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock upon said date. (c) No fractional shares of Common Stock or scrip representing fractional shares shall be issued upon conversion of shares of the Series C Preferred Stock. If more than one share of the Series C Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Series C Preferred Stock so surrendered. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any share or shares of the Series C Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the last sales price (or the quoted closing bid price if there were no sales) per share of Common Stock on the New York Stock Exchange on the business day next preceding the date of conversion, or, if the Common Stock is not then listed on the New York Stock Exchange, an amount equal to the same fraction of the market price per share of Common Stock (as determined in a manner prescribed by the Board of Directors of the Corporation) at the close of business on such next preceding business day. (d) The number of shares of Common Stock issuable upon conversion of each share of the Series C Preferred Stock as provided in this Article VI shall be subject to adjustment from time to time in certain instances as follows: (1) In case of any combination or subdivision of the outstanding shares of Common Stock of the Corporation, or in case any dividend or other distribution payable in Common Stock shall be declared or made upon the Common Stock, then in each such case from and after the effective date of such combination or subdivision or the record date for determining stockholders entitled to receive such dividend or distribution, as the case may be, the number of shares of Common Stock deliverable upon the conversion of a share of the Series C Preferred Stock shall be decreased or increased in proportion to the decrease or increase in the number of outstanding shares of Common Stock through such combination, subdivision or stock dividend or distribution; (2) In case of any other capital reorganization or reclassification of capital stock of the Corporation, or in case of consolidation or merger of the Corporation with another corporation, the number of shares of stock or other securities or property (including cash) which would have been delivered upon such reorganization, reclassification, merger or consolidation to a holder -24- 26 of the number of shares of Common Stock into which each share of the Series C Preferred Stock, would have been convertible immediately prior to such reorganization, reclassification, consolidation or merger shall thereafter be deliverable upon the conversion of a share of the Series C Preferred Stock, and appropriate adjustment (as determined by the Board of Directors) shall be made with respect to the rights and interest thereafter of the holders of the Series C Preferred Stock under this clause (2) to the end that the conversion rights of holders of the Series C Preferred Stock hereunder shall be applicable, as nearly as reasonably may be, in relation to any shares or other property thereafter deliverable upon conversion of the Series C Preferred Stock. Whenever the number of shares of Common Stock deliverable upon the conversion of the Series C Preferred Stock shall be adjusted pursuant to the provisions hereof, the Corporation shall forthwith mail a notice to each record holder of shares of the Series C Preferred Stock at his address appearing on the stock transfer books of the Corporation stating the adjusted number of shares of Common Stock deliverable upon the conversion of a share of the Series C Preferred Stock, and showing in reasonable detail the facts requiring such adjustment and the method of calculation thereof. No adjustment is to be made upon conversion of shares of the Series C Preferred Stock for dividends accrued thereon or for dividends upon the Common Stock issuable upon such conversion. (e) The Corporation shall at all times reserve and keep available, out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Series C Preferred Stock, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all shares of the Series C Preferred Stock from time to time outstanding. VII. LIMITATIONS So long as any shares of Series C Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote or the written consent as provided by law, of the holders of at least two-thirds ( ) of the outstanding shares of Series C Preferred Stock, voting as a class, (a) create, authorize or issue any class or series of stock ranking either as to payment of dividends or distribution of assets prior to the Series C Preferred Stock; or (b) change the preferences, rights or powers with respect to the Series C Preferred Stock so as to affect such stock adversely; but nothing herein contained shall require such a class vote or consent (i) in connection with any increase in the total number of authorized shares of Common Stock, or (ii) in connection with authorization or increase of any class of stock ranking on a parity with the Series C Preferred Stock; provided, however, that no such vote or written consent of the holders of the Series C Preferred Stock shall be required if, at or prior to the time when the issuance of any such prior stock is to be made or any such change is to take effect, as the case may be, provision is made for the redemption of all shares of Series C Preferred Stock at the time outstanding, and further provided, that the provisions of this Article VII shall not in any way limit the right and power of the Corporation to issue the presently authorized but unissued shares of stock, or bonds, notes, mortgages, debentures, and other obligations, and to incur indebtedness to banks and to other lenders. -25- 27 DESIGNATION OF $2.125 CUMULATIVE PREFERRED STOCK, SERIES H RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation by the provisions of the Certificate of Incorporation of the Corporation, this Board of Directors hereby creates a series of the preferred stock, par value 33-1/3 cents per share (the "Preferred Stock"), of the Corporation, to consist of 8,000,000 shares of such Preferred Stock, and this Board of Directors hereby fixes the designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations, or restrictions thereof (in addition to the designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, set forth in the Certificate of Incorporation of the Corporation which are applicable to Preferred Stock of all series) as follows: I. DESIGNATION The designation of the series of Preferred Stock created by this resolution shall be "$2.125 Cumulative Preferred Stock, Series H" (hereinafter called the "Series H Preferred Stock"). II. CASH DIVIDENDS ON SERIES H PREFERRED STOCK (a) The holders of the Series H Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of the funds of the Corporation legally available therefor, cumulative cash dividends on the shares of the Series H Preferred Stock at the annual rate of $2.125 per share, payable quarterly on March 15, June 15, September 15 and December 15, commencing June 15, 1993. Dividends shall be cumulative from April 26, 1993. Each such dividend shall be paid to the holders of record of shares of the Series H Preferred Stock as they appear on the stock register of the Corpo- ration on such record date, not more than 30 days nor less than 10 days preceding the dividend payment date thereof, as shall be fixed by the Board of Directors of the Corporation or a duly authorized committee thereof. Dividends in arrears on the Series H Preferred Stock shall accrue dividends at the dividend rate payable on the Preferred Stock. (b) If dividends are not paid in full or declared in full and sums set apart for the payment thereof upon the Series H Preferred Stock and any other Preferred Stock ranking on a parity as to dividends with the Series H Preferred Stock, all dividends declared upon shares of Series H Preferred Stock and any other Preferred Stock ranking on a parity as to dividends shall be declared pro rata so that in all cases the amount of dividends declared per share on the Series H Preferred Stock and any other Preferred Stock ranking on a parity as to dividends shall be in the same proportion as the amount of dividends that would be paid on all shares of Series H Pre- ferred Stock and such other parity Preferred Stock if all such dividends (including dividends accrued or in arrears) were paid in full. Except as provided in the preceding sentence, unless full cumulative dividends on the Series H Preferred Stock have been paid or declared in full and sums set aside for the payment thereof, no dividends shall be declared or paid or set aside for payment or other distribution made upon the common stock, par value 33-1/3 cents per share, of the Corporation (the "Common Stock"), or the Class A common stock, par value 33-1/3 cents per share, of the Corporation (the "Class A Common Stock") or any other capital stock of the Corporation ranking junior to or on a parity with the Series H Preferred Stock as to dividends or liquidation rights, nor shall any Common Stock, Class A Common Stock or any other capital stock of the Corporation ranking junior to or on a parity with the Series H Preferred Stock as to dividends or liquidation rights be redeemed, purchased or otherwise acquired for any consideration (or any payment made to or available for a sinking fund for -26- 28 the redemption of any shares of such stock) by the Corporation or any subsidiary of the Corporation (except by conversion into or exchange for stock of the Corporation ranking junior to the Series H Preferred Stock as to dividends and liquidation rights). The term "dividends accrued or in arrears" whenever used herein with reference to the Preferred Stock shall be deemed to mean an amount which shall be equal to dividends thereon at the annual dividend rates per share for the respective series from the date or dates on which such dividends commence to accrue to the end of the then current quarterly dividend period for such Preferred Stock (or, in the case of redemption, to the date of redemption), less the amount of all dividends paid, or declared in full and sums set aside for the payment thereof, upon such Preferred Stock. (c) Dividends payable on the Series H Preferred Stock for any period less than a full quarterly dividend period shall be computed on the basis of a 360-day year of twelve 30-day months and the actual number of days elapsed in the period for which payable. III. OPTIONAL REDEMPTION OF SERIES-H PREFERRED STOCK (a) The Series H Preferred Stock shall be redeemable, in whole or in part, at the option of the Corporation by resolution of its Board of Directors, at any time and from time to time on or after April 15, 1998 at the redemption price of $25 per share, plus in each case, all dividends accrued and unpaid on such Series H Preferred Stock up to the date fixed for redemption upon giving notice as provided below. (b) If less than all of the outstanding shares of Series H Preferred Stock are to be redeemed the shares to be redeemed shall be determined pro rata or by lot in such usual manner and subject to such regulations as the Board of Directors in its sole discretion shall prescribe. (c) At least 30 days but not more than 60 days prior to the date fixed for the redemption of shares of the Series H Preferred Stock, a written notice shall be mailed to each holder of record of shares of Series H Preferred Stock to be redeemed in a postage prepaid envelope addressed to such holder at his post office address as shown on the records of the Cor- poration, notifying such holder of the election of the Corporation to redeem such shares, stating the date fixed for redemption thereof (hereinafter referred to as the "Redemption Date"), and calling upon such holder to surrender to the Corporation on the Redemption Date at the place designated in such notice his certificate or certificates representing the number of shares specified in such notice of redemption. On or after the Redemption Date each holder of shares of Series H Preferred Stock to be redeemed shall present and surrender his certificate or certificates for such shares to the Corporation at the place designated in such notice and thereupon the redemption price of such shares shall be paid to or on the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled. In case less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after the Redemption Date (unless default shall be made by the Corporation in payment of the redemption price) all dividends on the shares of Series H Preferred Stock designated for redemption in such notice shall cease to accrue, and all rights of the holders thereof as stockholders of the Corporation, except the right to receive the redemption price thereof (including all accrued and unpaid dividends up to the Redemption Date) upon the surrender of certificates representing the same, shall cease and terminate and such shares shall not thereafter be transferred (except with the consent of the Corporation) on the books of the Corporation, and such -27- 29 shares shall not be deemed to be outstanding for any purpose whatsoever. At its election the Corporation prior to the Redemption Date may deposit the redemption price (including all accrued and unpaid dividends up to the Redemption Date) of the shares of Series H Preferred Stock so called for redemption in trust for the holders thereof with a bank or trust company (having a capital, surplus and undivided profits aggregating not less than $50,000,000) in The Borough of Manhattan, City and State of New York, the City of Houston, State of Texas, or in any other city in which the Cor- poration at the time shall maintain a transfer agency with respect to such stock, in which case such notice to holders of the Series H Preferred Stock to be redeemed shall state the date of such deposit, shall specify the office of such bank or trust company as the place of payment of the redemption price, and shall call upon such holders to surrender the certificates representing such shares at such price on or after the date fixed in such redemption notice (which shall not be later than the Redemption Date) against payment of the redemption price (including all accrued and unpaid dividends up to the Redemption Date). From and after the making of such deposit, the shares of Series H Preferred Stock so designated for redemption shall not be deemed to be outstanding for any purpose whatso- ever, and the rights of the holders of such shares shall be limited to the right to receive the redemption price of such shares (including all accrued and unpaid dividends up to the Redemption Date), without interest, upon surrender of the certificates representing the same to the Corporation at said office of such bank or trust company. Any interest accrued on such funds shall be paid to the Corporation from time to time. Any moneys so deposited which shall remain unclaimed by the holders of such Series H Preferred Stock at the end of two years after the Redemption Date shall be returned by such bank or trust company to the Corporation, after which the holders of the Series H Preferred Stock shall have no further interest in such moneys. (d) Shares of the Series H Preferred Stock retired pursuant to the provisions of this Article III shall not be reissued. IV. VOTING RIGHTS (a) The holders of the Series H Preferred Stock shall not, except as required by law or as set forth herein, have any right or power to vote on any question or in any proceeding or to be represented at, or to receive notice of, any meeting of stockholders. On any matters on which the holders of the Series H Preferred Stock shall be entitled to vote, they shall be entitled to one vote for each share held. (b) In case at any time the equivalent of six or more full quarterly dividends (whether consecutive or not) on any series of Preferred Stock shall be in arrears, then during the period (hereinafter in this paragraph (b) called the "Class Voting Period") commencing with such time and ending with the time when all arrears in dividends on all Preferred Stock shall have been paid and the full dividend on all Preferred Stock for the then current quarterly dividend period shall have been paid or declared and set apart for payment, at any meeting of the stockholders of the Corporation held for the election of directors during the Class Voting Period, the holders of a majority of the outstanding shares of Preferred Stock represented in person or by proxy at said meeting shall be entitled, as a class, to the exclusion of the holders of all other classes of stock of the Corporation, to elect two directors of the Corporation, each share of Preferred Stock entitling the holder thereof to one vote. Any director who shall have been elected by holders of Preferred Stock, or by any director so elected as herein contemplated, may be removed at any time during a Class Voting Period, either for or without cause, by, and only by, the affirmative votes of the holders of record of a majority of -28- 30 the outstanding shares of Preferred Stock given at a special meeting of such stockholders called for the purpose, and any vacancy thereby created may be filled during such Class Voting Period by the holders of Preferred Stock, present in person or represented by proxy at such meeting. Any director elected by holders of Preferred Stock, or elected by a director as in this sentence provided, who dies, resigns, or otherwise ceases to be a director shall, except as otherwise provided in the preceding sentence, be replaced by the remaining director theretofore elected by the holders of Preferred Stock. At the end of the Class Voting Period the holders of Preferred Stock shall be automatically divested of all voting power vested in them under this paragraph (b) but subject always to the subsequent vesting hereunder of voting power in the holders of Preferred Stock in the event of any similar cumulated arrearage in payment of quarterly dividends occurring thereafter. The term of all directors elected pursuant to the provisions of this paragraph (b) shall in all events expire at the end of the Class Voting Period. (c) In case at any time the equivalent of four or more full quarterly dividends (whether consecutive or not) on the Series H Preferred Stock shall be in arrears, then during the period (hereinafter in this paragraph (c) called the "Special Series Voting Period") commencing with such time and ending with the time when all arrears in dividends shall have been paid and the full dividends on the Series H Preferred Stock for the then current Quarterly Dividend Period shall have been paid or declared and set apart for payment, at any meeting of the stockholders of the Corporation held for the election of directors during the Special Series Voting Period, the holders of Series H Preferred Stock represented in person or by proxy at said meeting shall be entitled, as a class, to the exclusion of the holders of all other classes or series of capital stock of the Corporation, to elect one director of the Corporation, each share of Series H Preferred Stock entitling the holder thereof to one vote. Any director who shall have been elected by holders of Series H Preferred Stock, or by any director so elected as herein contemplated, may be removed at any time during a Special Series Voting Period, either for or without cause, by, and only by, the affirmative votes of the holders of record of a majority of the outstanding shares of Series H Preferred Stock given at a special meeting of such stockholders called for the purpose, and any vacancy thereby created may be filled during such Special Series Voting Period by the holders of Series H Preferred Stock, present in person or represented by proxy at such meeting. Any director elected by holders of Series H Preferred Stock who dies, resigns, or otherwise ceases to be a director shall be replaced by the affirmative vote of the holder of record of a majority of the outstanding shares of Series H Preferred Stock at a special meeting of holders of Series H Preferred Stock called for that purpose. At the end of the Special Series Voting Period the holders of Series H Preferred Stock shall be automatically divested of all voting power vested in them under this paragraph (c) but subject always to the subsequent vesting hereunder of voting power in the holders of Series H Preferred Stock in the event of any similar cumulated arrearage in payment of quarterly dividends occurring thereafter. The term of any director elected pursuant to the provision of this paragraph (c) shall in all events expire at the end of the Special Series Voting Period. The voting rights of holders of Series H Preferred Stock pursuant to this paragraph (c) shall be separate from and in addition to the voting rights granted to all holders of Preferred Stock pursuant to paragraph (b) of this Article IV. V. PRIORITY OF SERIES H PREFERRED STOCK IN EVENT OF DISSOLUTION -29- 31 In the event of any liquidation, dissolution, or winding up of the affairs of the Corporation, whether voluntary or otherwise, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of the Series H Preferred Stock shall be entitled to receive, out of the remaining net assets of the Corporation, the amount of twenty-five dollars ($25) in cash for each share of Series H Preferred Stock, plus an amount equal to all dividends accrued and unpaid on each such share up to the date fixed for distribution, before any distribution shall be made to the holders of the Common Stock, the Class A Common Stock or any other capital stock of the Corporation ranking junior to the Series H Pre- ferred Stock with regard to such distribution. If upon any liquidation, dissolution or winding up of the Corporation, the assets distributable among the holders of any series of Preferred Stock ranking (as to any such distribution) on a parity with the Series H Preferred Stock shall be insufficient to permit the payment in full to the holders of all such series of Preferred Stock of all preferential amounts payable to all such holders, then the entire assets of the Corporation thus distributable shall be distributed ratably among the holders of all series of the Preferred Stock ranking (as to any such distribution) on a parity with the Series H Preferred Stock in proportion to the respective amounts that would be payable per share if such assets were sufficient to permit payment in full. For purposes of this Article V, a distribution of assets in any dissolution, winding up or liquidation shall not include (i) any consolidation or merger of the Corporation with or into any other corporation, (ii) any dissolution, liquidation, winding up, or reorganization of the Corporation immediately followed by reincorporating of another corporation or (iii) a sale or other disposition of all or substantially all of the Corporation's assets to another corporation; provided that in each case, effective provision is made in the certificate of incorporation of the resulting and surviving corporation or otherwise for the protection of the rights of the holders of Series H Preferred Stock. VI. CONVERSION OF SERIES H PREFERRED STOCK The Series H Preferred Stock shall not be convertible into any other capital stock of the Corporation. VII. RANKING OF SERIES H PREFERRED STOCK With regard to rights to receive dividends and distributions upon dissolution of the Corporation, the Series H Preferred Stock shall rank pari passu with any other Preferred Stock of the Corporation, other than Preferred Stock of a series which by its terms ranks junior in right of dividends or distributions on dissolution to the Series H Preferred Stock, and shall rank prior to all other capital stock of the Corporation outstanding at the time of issuance of the Series H Preferred Stock. VIII. LIMITATIONS So long as any shares of Series H Preferred Stock are outstanding, the Corporation shall not, without the affirmative vote or the written consent as provided by law, of the holders of at least two-thirds (2/3) of the outstanding shares of Series H Preferred Stock, voting as a class, (a) create, authorize or issue any class or series of stock ranking either as to payment of dividends or distribution of assets prior to the Series H Preferred Stock; or (b) change the preferences, rights or powers with respect to the Series H Preferred Stock so as to affect such stock adversely; -30- 32 but nothing herein contained shall require such a class vote or consent (i) in connection with any increase in the total number of authorized shares of Preferred Stock, Common Stock or Class A Common Stock, or (ii) in connection with authorization or increase of any other class or series of stock ranking junior to or on a parity with the Series H Preferred Stock; provided, however, that no such vote or written consent of the holders of the Series H Preferred Stock shall be required under clause (a) or (b) above if, at or prior to the time when the issuance of any such prior stock is to be made or any such change is to take effect, as the case may be, provision is made for the redemption of all shares of Series H Preferred Stock at the time outstanding, and further provided, that the provisions of this Article VIII shall not in any way limit the right and power of the Corporation to issue the presently authorized but unissued shares of stock, or bonds, notes, mortgages, debentures, and other obligations, and to incur indebtedness to banks and to other lenders. FIFTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or pro- tection of a director of the Corporation existing at the time of such repeal or modification. SIXTH: The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not less than three nor more than eighteen directors, the exact number of directors to be determined from time to time by resolution adopted by affirmative vote of a majority of the entire Board of Directors. The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At the special meeting of stockholders at which this Article is adopted, Class I, II and III directors shall be elected to serve until the 1984, 1985 and 1986 annual meetings of stockholders, respectively. At each annual meeting of stockholders beginning with 1984, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, and any other -31- 33 vacancy occurring in the Board of Directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his predecessor. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of preferred stock issued by the Corporation shall have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article SIXTH unless expressly provided by such terms. No person (other than a person nominated by or on behalf of the Board of Directors) shall be eligible for election as a director at any annual or special meeting of stockholders unless a written request that his or her name be placed in nomination is received from a stockholder of record by the Secretary of the Corporation not less than 30 days prior to the date fixed for the meeting, together with the written consent of such person to serve as a director. The Board of Directors is expressly authorized and empowered to make, alter and repeal the By-Laws of the Corporation, subject to the power of the stockholders of the Corporation to alter or repeal any By-Law adopted by the Board of Directors. Except to the extent prohibited by law, the Board of Directors shall have the right (which, to the extent exercised, shall be exclusive) to establish the rights, powers, duties, rules and procedures that from time to time shall govern the Board of Directors and each of its members, including without limitation the vote required for any action by the Board of Directors, and that from time to time shall affect the directors' power to manage the business and affairs of the Corporation; and, notwithstanding any other provision of this Certificate of Incorporation to the contrary, no By-Law shall be adopted by stockholders which shall impair or impede the implementation of the foregoing. SEVENTH: No action shall be taken by stockholders of the Corporation except at an annual or special meeting of stockholders of the Corporation. EIGHTH: Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder of the Corporation or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or -32- 34 class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. NINTH: The names and mailing addresses of the persons who are to serve as directors of the Corporation until their successors are elected and qualify are as follows: Name Mailing Address ---- --------------- Oscar S. Wyatt, Jr. . . . . . . . Post Office Drawer 521 Corpus Christi, Texas 78403 Harry G. Fair . . . . . . . . . . Post Office Drawer 521 Corpus Christi, Texas 78403 Norman S. Davis . . . . . . . . . 1515 National Bank of Commerce Building San Antonio, Texas 78205 H. T. Capelle . . . . . . . . . . Post Office Drawer 521 Corpus Christi, Texas 78403 Tracy N. DuBose . . . . . . . . . Lincoln Liberty Life Building Houston, Texas 77002 Roy L. Gates . . . . . . . . . . Post Office Drawer 521 Corpus Christi, Texas 78403 Leon Jaworski . . . . . . . . . . Fulbright, Crooker & Jaworski Bank of the Southwest Building Houston, Texas 77002 Will E. Odom . . . . . . . . . . Post Office Box 595 Austin, Texas 78767 Harold Vance . . . . . . . . . . 1429 Bank of the Southwest Building Houston, Texas 77002 Jack Ware . . . . . . . . . . . . Post Office Drawer 1827 Uvalde, Texas 78801 TENTH: The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article. ELEVENTH: 1. The affirmative vote or consent of the holders of eighty-five per cent (85%) of the voting power of all shares of stock of the Corporation entitled to vote in elections of directors, considered for the purposes of this Article ELEVENTH as one class, shall be required for the adoption or authorization of a business combination (as hereinafter defined) with any other entity (as hereinafter defined) if, as of the record date for the determination of stockholders entitled to notice thereof and to vote thereon or consent thereto, such other entity is the beneficial owner, directly or indirectly, of more than twenty, per cent (20%) of the voting power of all shares of stock of the Corporation entitled to vote in elections of directors considered for the purposes of this Article ELEVENTH, as one class; provided that such eighty-five per cent (85%) voting requirement shall not be applicable if: (a) The cash, or fair market value of other consideration, to be received per share by holders of shares of any class of capital stock of the Corporation in such business combination bears the same or a greater -33- 35 percentage relationship to the market price of such shares of capital stock immediately prior to the announcement of such business combination as the highest per share price (including brokerage commissions and/or soliciting dealers' fees) which such other entity has theretofore paid for any of such shares of capital stock already owned by it bears to the market price of such shares of capital stock immediately prior to the commencement of acquisition of such shares of capital stock by such other entity; (b) The cash or fair market value of other consideration, to be received per share by holders of shares of any class of capital stock of the Corporation in such business combination (i) is not less than the highest per share price (including brokerage commissions and/or soliciting dealers' fees) paid by such other entity in acquiring any of its holdings of such shares of capital stock, and (ii) is not less than the earnings per share of Common Stock of the Corporation for the four full consecutive fiscal quarters immediately preceding the record date for solicitation of votes on such business combination, multiplied by the then price/earnings multiple (if any) of such other entity as customarily computed and reported in the financial community; (c) After such other entity has acquired twenty per cent (20%) voting interest and prior to the consummation of such business combination: (i) such other entity shall have taken steps to ensure that the Corporation's Board of Directors included at all times representation by continuing director(s) (as hereinafter defined) proportionate to the stockholdings of the Corporation's public capital stockholders not affiliated with such other entity (with a continuing director to occupy any resulting fractional board position); (ii) there shall have been no reduction in the rate of dividends payable on the Corporation's Capital Stock except as necessary to ensure that a quarterly dividend payment does not exceed 12.5% of the net income of the Corporation for the four full consecutive fiscal quarters immediately preceding the declaration date of such dividend, or except as may have been approved by a unanimous vote of the directors; (iii) such other entity shall not have acquired any newly issued shares of Capital Stock, directly or indirectly, from the Corporation (except upon conversion of securities acquired by it prior to obtaining twenty per cent (20%) voting interest or as a result of a pro rata stock dividend or stock split); and (iv) such other entity shall not have acquired any additional -34- 36 shares of the Corporation's outstanding Capital Stock or securities convertible into Capital Stock except as a part of the transaction which results in such other entity acquiring twenty per cent (20%) voting interest; (d) Such other entity shall not have (i) received the benefit, directly or indirectly (except proportionately as a stockholder) of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the Corporation, or (ii) made any major change in the Corporation's business or equity capital structure without the unanimous approval of the directors in either case prior to the consummation of such business combination; and (e) A proxy statement responsive to the requirements of the Securities Exchange Act of 1934 shall be mailed to public stockholders of the Corporation for the purpose of soliciting stockholder approval of such business combination and shall contain at the front thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the business combination which the continuing directors, or any of them, may choose to state and, if deemed advisable by a majority of the continuing directors, an opinion of a reputable investment banking firm as to the fairness (or not) of the terms of such business combination, from the point of view of the remaining public stockholders of the Corporation (such investment banking firm to be selected by a majority of the continuing directors and to be paid a reasonable fee for their services by the Corporation upon receipt of such opinion). The provisions of this Article ELEVENTH shall also apply to a business combination with any other entity which at any time has been the beneficial owner, directly or indirectly, of more than twenty per cent (20%) of the voting power of all shares of stock of the Corporation entitled to vote in elections of directors considered for the purpose of this Article ELEVENTH as one class, notwithstanding the fact that such other entity has reduced its voting interest to below twenty per cent (20%) of the voting power of all of the Corporation's stock if, as of the record date for the determination of stockholders entitled to notice of and to vote on or consent to the business combination, such other entity is an "affiliate" of the Corporation (as hereinafter defined). 2. As used in this Article ELEVENTH, (a) the term "other entity" shall include any corporation, person or other entity and any other entity with which it or its "affiliate" or "associate" (as defined below) has any agreement, arrangement or understanding, directly or indirectly, for the -35- 37 pure of acquiring, holding, voting or disposing of stock of the Corporation, or which is its "affiliate" or "associate" as those terms defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on May 27, 1982, together with the successors and assigns of such persons in any transaction or series of transactions not involving a public offering of the corporation's stock within the meaning of the Securities Act of 1933; (b) another entity shall be deemed to be the beneficial owner of any shares of stock of the Corporation which the other entity (as defined above) has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise; (c) the outstanding shares of any class of stock of the Corporation shall include shares deemed owned through application of clause (b) above but shall not include any other shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise; (d) the term "business combination" shall include any merger or consolidation of the Corporation with or into any other corporation, or the sale or lease of all or any substantial part of the assets of the Corporation to, or any sale or lease to the Corporation or any subsidiary thereof in exchange for securities of the Corporation of any assets (except assets having an aggregate fair market value of less than $5,000,000) of any other entity; (e) the term "continuing director" shall mean a person who was a member of the Board of Directors of the Corporation elected by the public stockholders prior to the time that such other entity acquired in excess of ten percent (10%) of the voting power of all outstanding shares of stock of the Corporation entitled to vote in the election of directors, or a person recommended to succeed a continuing director by a majority of continuing directors; (f) for the purposes of sub-paragraphs l(a) and (b) of this article ELEVENTH the term "other consideration to be received" shall mean Capital Stock of the Corporation retained by its existing public stockholders in the event of a business combination with such other entity in which the Corporation is the surviving corporation and (g) the determination of "market price" shall give effect to any stock dividend, stock split, subdivision or reclassification with respect to any shares of capital stock of the Corporation involved in such business combination. 3. A majority of the continuing directors shall have the power and duty to determine for the purposes of this Article ELEVENTH on the basis of information known to them whether (a) such other entity beneficially owns more than twenty per cent (20%) of the voting power of all shares of stock of the Corporation entitled to vote in election of directors, (b) an other entity is an "affiliate" or "associate" (as defined above) of another, (c) an other entity as an agreement, arrangement or understanding with another, or (d) the assets being acquired by the Corporation, or any subsidiary thereof, have an aggregate fair market value of less than $5,000,000. 4. No amendment to the Certificate of Incorporation shall amend, alter, change or repeal any of the provisions of this Article ELEVENTH, unless the amendment effecting such amendment, alteration, change or repeal shall receive the affirmative vote or consent of eighty-five per cent (85%) of the voting power of all shares of stock of the Corporation entitled to vote in election of directors, considered for the purposes of this Article ELEVENTH as one class; provided that this paragraph 4 shall not apply to, and such eighty-five per cent (85%) vote or consent shall not be required for, any amendment, alteration, change or repeal unanimously recommended to the stockholders by the Board of Directors of the Corporation if all of such directors are persons who would be eligible to serve as "continuing directors" within the meaning of paragraph 2 of this Article ELEVENTH. 5. Nothing contained in this Article ELEVENTH shall be construed to relieve any other entity, from any fiduciary obligation imposed by law. -36- 38 6. The provisions of this Article ELEVENTH shall not apply to any transaction described in Section I of this Article ELEVENTH: (a) If the Board of Directors of the Corporation shall have approved by resolution a memorandum of understanding with the other corporation, person or entity with whom the transaction is proposed prior to the time that such other corporation, person or entity shall have become a beneficial owner of five percent (5%) or more of the outstanding shares of any class of capital stock of the Corporation entitled to vote in elections of directors; or (b) If the transaction is approved prior to its consummation by a resolution adopted at a meeting of the Board of Directors at which at least two-thirds of such members of the Board of Directors who are not involved with and/or representing the corporation, person or entity with whom the transaction is proposed approve the same; or (c) If the transaction involves only the Corporation, or any of its subsidiaries, and a corporation of which a majority of the outstanding shares of each class of capital stock entitled to vote in elections of directors is owned of record or beneficially by the Corporation or any of its subsidiaries. This Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation in accordance with Section 245 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, THE COASTAL CORPORATION has caused this Certificate to be signed by DAVID A. ARLEDGE its President, and attested by AUSTIN M. O'TOOLE, its Senior Vice President and Secretary, this 21st day of March, 1994. THE COASTAL CORPORATION By: ---------------------------------- [CORPORATE SEAL] DAVID A. ARLEDGE President ATTEST: - ---------------------------------- AUSTIN M. O'TOOLE Senior Vice President and Secretary STATE OF TEXAS ^U ^U COUNTY OF HARRIS ^U -37- 39 On the 21st day of March, 1994, personally appeared before me, DAVID A. ARLEDGE, President of The Coastal Corporation, known to me personally to be such, and acknowledged that he signed said Restated Certificate of Incorporation and he acknowledged that said Restated Certificate of Incorporation was his act and deed and the act and deed of The Coastal Corporation and that the facts stated therein are true. ---------------------------------- MARTA I. RAMIREZ, Notary Public [NOTARIAL SEAL] Expiration Date: August 19, 1997 ---------------- -38- 40 EX-10.14 3 EXH 10.14 DEFERRED COMPENSATION EXHIBIT 10.14 THE COASTAL CORPORATION DEFERRED COMPENSATION PLAN 1. Participants. Any employee ("Employee") of The Coastal Corporation ("Corporation"), or any directly or indirectly wholly owned subsidiary of the Corporation ("Subsidiary"), who has been designated as eligible to participate under this plan ("Plan") by the Board of Directors of the Corporation ("Board"), may elect to become a participant ("Participant") under the Plan by filing a written notice ("Notice") with the Corporation or a Subsidiary of the Corporation for whom the Employee performs his services ("Employer"), in the form prescribed by the Board of Directors. 2. Deferred Compensation. Any Participant may elect, in accordance with Section 5 of this Agreement, to defer annually the receipt of a portion of the compensation (salary and/or bonus) otherwise payable to him by an Employer in any calendar year, which portion shall be designated by him. Any compensation deferred pursuant to this Section shall be recorded by the Corporation in a deferred compensation account ("Account") maintained in the name of the Participant, which Account shall be credited on each date for payment of compensation in accordance with the Employer's normal practices, (a) with respect to salary, with a dollar amount equal to (i) the total amount of salary deferred during a calendar year under the Plan, divided by (ii) the total number of such dates for payment of salary occurring during the calendar year and (b) with respect to bonus, the amount of bonus deferred. The Corporation shall furnish each Participant with an annual statement of his Account. The Corporation shall also credit interest to the Account from the date received until final distribution of the Account pursuant to the Section 4 of the Plan. The amount of compensation that a Participant elects to defer under this Section will remain constant until suspended or modified by the filing of another election with the Corporation by a Participant in accordance with Section 5 of the Plan. 3. Interest on Deferred Amounts. All amounts credited to an Account shall be credited with interest at an annual rate to be determined by the Corporation each year. Such interest rate shall be based on debt obligations issued by the U.S. Treasury with a ten year maturity plus an upward adjustment to approximate the difference between such rate and the average cost of borrowed capital of comparable maturity for the Corporation until the Account has been fully distributed to a Participant or to the beneficiary or beneficiaries designated by the Participant in a writing delivered to the Corporation. 4. Distribution. (a) A Participant may elect a method of distribution in the same manner as the Participant elects to participate in the Plan. Such election shall be made prior to the time any amount subject to the distribution election is earned. The election is irrevocable. A different election may be made with respect to different periods of deferred compensation provided such elections are made in advance of earning any portion of the compensation subject to the election. Such distribution may not begin until the Participant terminates employment for any reason, including death. Interest on the deferred amounts shall be prorated by any method selected by the Corporation to portions of the Account of the Participant which are subject to different distribution directions of the Participant and/or the distribution method selected by the Corporation, as provided herein. With respect to all or any portion of the Account of a Participant with respect to which the Participant has not submitted a valid distribution election, the Corporation shall determine the method of distribution as described in the following provisions. (b) Upon termination of employment with the Corporation and all other Employers for any reason other than death, subject to the provisions of subsection (f), the Participant will be entitled to receive all amounts credited to the Participant's Account as of the date of termination of employment. Subject to the provisions of subsection (a), the Company shall determine whether the Participant will receive distribution of all amounts payable to him under this paragraph (b) in a lump sum or in installments over a designated period of years, pursuant to the provisions of paragraph (e) of this Section. 1 (c) Upon termination of a Participant's employment with the Corporation and all other Employers by reason of his death, subject to the provisions of subsection (f) the Participant's designated beneficiary or beneficiaries will be entitled to receive all amounts credited to the Account of the Participant as of the date of his death. Subject to the provisions of subsection (a), such amounts shall be payable in a lump sum or in installments over a designated period of years, pursuant to the provisions of paragraph (e) of this Section. (d) Subject to the provisions of subsection (a), upon the death of the Participant prior to complete distribution to him of the entire balance of his Account (and after the date of termination of employment with the Corporation and all other Employers), the balance of his Account on the date of his death shall be payable to the Participant's designated beneficiary or beneficiaries pursuant to the paragraph (e) of this Section. (e) Subject to the provisions of subsections (a) and (f), the Corporation, in its discretion, shall direct distribution of the amounts credited to a Participant's Account, including interest credited thereon, to a Participant or his beneficiary or beneficiaries pursuant to the preceding paragraphs of this Section, in a lump sum, or in installments over such period of years as the Corporation shall determine. Distribution shall be made or commence on the first day of the month next following (i) the date upon which the Participant's service as an Employee terminates in the event of a distribution pursuant to subsections (b) or (c) of this Section, or (ii) the date of the Participant's death in the event of a distribution pursuant to paragraph (d) of this Section. Subsequent installments, if any, shall be made on the annual, quarterly, or monthly anniversary dates of the date of the first installment as determined by the Corporation. Each such installment, if any, shall include interest credited to the balance of the Account. (f) Notwithstanding any election of a Participant to the contrary, any portion of a Participant's Account for which no deduction is allowed due to the restrictions contained in Section 162(m) of the Internal Revenue Code of 1986, as amended, shall not be payable from such Account until after the time such restrictions cease to apply to such portion of the Participant's Account. 5. Election To Defer. The Notice by which a Participant elects to defer compensation as provided in this Plan shall be in writing, signed by the Participant, and delivered to the Corporation prior to the time any cash compensation to be deferred is earned by the Participant and prior to the time any such cash compensation to be deferred is otherwise payable to the Participant. Such election (and any subsequent election) will continue until suspended or modified in a writing delivered by the Participant to the Corporation, which new election shall only apply to compensation otherwise earned and payable to the Participant after the end of the calendar year in which such election is delivered to the Corporation. Any deferral election made by the Participant shall be irrevocable with respect to any compensation covered by such election, including the compensation payable in the calendar year in which the election suspending or modifying the prior election is delivered to the Corporation. 6. Participant's Rights Unsecured. The right of the Participant or his designated beneficiary to receive a distribution hereunder shall be an unsecured claim against the general assets of the Corporation, and neither the Participant nor his designated beneficiary shall have any rights in or against any amount credited to his Account or any other specific assets of the Corporation. All amounts credited to an Account shall constitute general assets of the Corporation and may be disposed of by the Corporation at such time and for such purposes as it may deem appropriate. An Account may not be encumbered or assigned by a Participant or any beneficiary. 7. Amendments to the Plan. The Board may amend the Plan at any time, without the consent of the Participants or their beneficiaries, provided, however, that no amendment shall divest any Participant or beneficiary of the credits to his Account, or of any rights to which he would have been entitled if the Plan had been terminated immediately prior to the effective date of such amendment. 8. Termination of the Plan. The Board may terminate the Plan at any time. Upon termination of the Plan, distribution of the credits to a Participant's Account shall be made in the manner and at the time heretofore prescribed; provided that no additional credits shall be made to the Account of a Participant following termination of the Plan other than interest thereon credited pursuant to Plan provisions. 9. Expenses. Costs of administration of the Plan will be paid by the Corporation and/or such of its Subsidiaries with Employees participating in the Plan as may be determined by the Board. 2 10. Notices. Any notice or election required or permitted to be given hereunder shall be in writing and shall be deemed to be filed (a) on the date it is personally delivered to the Secretary of the Corporation or a Subsidiary, as the case may be; or (b) three business days after it is sent by registered or certified mail, addressed to such Secretary at the principal office of the Corporation. 3 THE COASTAL CORPORATION Election To Participate in Deferred Compensation Plan and Designation of Beneficiary Pursuant to The Coastal Corporation Deferred Compensation Plan (the"Plan"), I hereby elect to defer, as provided in the Plan, the receipt of the portion indicated below of compensation earned by me in connection with the performance of my services as an Employee of The Coastal Corporation ("the Corporation") or a wholly owned subsidiary thereof (collectively, the "Employers") beginning _______________________. (Note: After initial enrollment, changes can be made only as of January 1 of a subsequent year.) The portion of my compensation for the year to be deferred is: _______ All of my compensation in excess of $1,000,000; _______ % of my performance bonus; and/or _______ % of my salary. The proceeds of my Account under the Plan are to be distributed following my termination of service as an Employee of the Corporation and all other Employers: _______ As a single sum upon termination of service; _______ As a single sum in the calendar year following the calendar year of such termination of service; _______ As installments on a monthly basis for a period of _______ months; or _______ As specified below: _________________________________________________ I hereby designate _____________________________ as my beneficiary to receive all amounts held for me under the Plan which have not been paid to me in the event of my death. - ---------------------------------- ----------------------------------------- Witness Date_____________________________________ 4 EX-10.16 4 EXH 10.16 PENSION PLAN EXHIBIT 10.16 PENSION PLAN FOR EMPLOYEES OF THE COASTAL CORPORATION As of January 1, 1993 Includes Plan as Restated as of January 1, 1989 and First Amendment dated July 27, 1992 Second Amendment dated December 9, 1992 Third Amendment dated October 29, 1993 PENSION PLAN FOR EMPLOYEES OF THE COASTAL CORPORATION TABLE OF CONTENTS
PAGE ---- INTRODUCTION......................................................... 1 I. DEFINITIONS.......................................................... 3 1.1 "Accrued Benefit".............................................. 3 1.2 "Actuarial Equivalent"......................................... 3 1.2A "Average Annual Compensation".................................. 3 1.2B "Basic Compensation"........................................... 3 1.3 "Beneficiary".................................................. 4 1.4 "Board"........................................................ 4 1.5 "Break in Service"............................................. 4 1.5A "Coastal"...................................................... 4 1.6 "Code"......................................................... 4 1.7 "Committee".................................................... 4 1.8 "Company"...................................................... 4 1.9 "Compensation"................................................. 5 1.9A "Covered Compensation"......................................... 5 1.10 "Employee"..................................................... 5 1.11 "ERISA"........................................................ 6 1.11A "Final Average Compensation"................................... 6 1.12 "Final Average Earnings"....................................... 6 1.13 "Highly Compensated Participant"............................... 7 1.14 "Hour of Service".............................................. 7 1.15 "Normal Retirement Date"....................................... 8 1.15A "Normal Retirement Age"........................................ 8 1.16 "Participant".................................................. 8 1.16A "Period of Severance".......................................... 8 1.17 "Plan"......................................................... 8 1.18 "Plan Year".................................................... 8 1.19 "Related Employer"............................................. 8 1.20 "Retirement Date".............................................. 8 1.21 "Retirement Income"............................................ 9 1.22 "Spouse"....................................................... 9 1.22A "Subsidiary"................................................... 9 1.22B "Taxable Wage Base"............................................ 9 1.23 "Trust"........................................................ 9 1.24 "Trust Fund"................................................... 9 1.25 "Trustee"...................................................... 9 1.26 None........................................................... 9 1.27 None........................................................... 9 1.28 "Years of Service"............................................. 9 II. ELIGIBILITY AND PARTICIPATION........................................ 11 2.1 Employee........................................................ 11 2.2 Prior Plans..................................................... 11
1 PAGE ---- III. COMPANY CONTRIBUTIONS................................................ 11 3.1 Company Contributions.......................................... 11 3.2 Forfeitures.................................................... 11 3.3 Irrevocability................................................. 12 3.4 Contributions Conditioned on Qualification and Deductibility... 12 IV. PARTICIPANT CONTRIBUTIONS............................................ 12 4.1 Participant Contributions...................................... 12 4.2 Participant Contributions - Prior and Merged Plans............. 12 4.3 Accrued Benefit Derived from Employee Contributions............ 13 V. BENEFITS............................................................. 13 5.1 Normal Retirement Benefit...................................... 13 5.2 Postponed Retirement Benefit................................... 16 5.3 Early Retirement Benefit....................................... 16 5.4 Termination of Vested Participant.............................. 17 5.5 Death Benefits................................................. 17 5.6 Elective Deferral.............................................. 21 5.7 Suspension of Benefits......................................... 21 5.7A Alternative to Receive Retirement Income During Reemployment... 23 5.8 Maximum Benefit................................................ 23 VI. NORMAL AND OPTIONAL FORMS OF RETIREMENT INCOME....................... 26 6.1 Normal Form of Payment......................................... 26 6.2 Election of the Form of Benefits............................... 26 6.3 Optional Forms of Payment...................................... 27 6.4 Administrative Powers Relating to Payments..................... 28 6.5 General Limitation............................................. 28 6.6 Small Amounts.................................................. 28 6.7 Commencement of Benefits....................................... 29 6.8 No Guaranty of Benefits........................................ 30 6.9 Medium of Payments............................................. 31 6.10 Assets for Benefit Payment..................................... 31 6.11 Funding Through Insurance Contracts............................ 31 VII. PLAN ADMINISTRATION.................................................. 31 7.1 Company Responsibility......................................... 31 7.2 Powers and Duties of Committee................................. 32 7.3 Organization and Operation of Committee........................ 32 7.4 Records and Reports of Committee............................... 32 7.5 Claims Procedure............................................... 32 7.6 Compensation and Expenses of Committee......................... 33 7.7 Indemnity of Committee Members................................. 33 7.8 Standard of Judicial Review.................................... 33
2 PAGE ---- VIII.THE TRUSTEE.......................................................... 33 8.1 Trustee........................................................ 33 8.2 Payment of Benefits............................................ 33 IX. PROVISION TO PREVENT DISCRIMINATION.................................. 33 9.1 Purpose........................................................ 33 9.2 Definitions.................................................... 34 9.3 Limitations.................................................... 34 9.4 Employees Whose Benefits are Restricted........................ 34 9.5 Determination Date for Assets and Liabilities.................. 35 X. ROLLOVER CONTRIBUTIONS............................................... 35 10.1 Rollovers and Transfers from Other Plans....................... 35 XI. AMENDMENT AND TERMINATION............................................ 35 11.1 Amendment...................................................... 35 11.2 Involuntary Termination of Plan................................ 35 11.3 Voluntary Termination of or Permanent Discontinuance of Contributions to the Plan...................................... 35 11.4 Effect of Termination or Discontinuance of Contributions....... 36 11.5 Distribution of Funds Upon Termination......................... 36 11.6 Method of Payment.............................................. 36 11.7 Notice of Amendment, Termination or Partial Termination........ 37 XII. MISCELLANEOUS........................................................ 37 12.1 Duty To Furnish Information and Documents...................... 37 12.2 Committee's Annual Statements and Available Information........ 37 12.3 No Enlargement of Employment Rights............................ 37 12.4 Applicable Law................................................. 37 12.5 Unclaimed Funds................................................ 37 12.6 Merger or Consolidation of Plan................................ 37 12.7 Interest Nontransferable....................................... 38 12.8 Prudent Man Rule............................................... 38 12.9 Limitations on Liability....................................... 38 12.10 Headings....................................................... 38 12.11 Gender and Number.............................................. 38 12.12 ERISA and Approval Under Code.................................. 38 12.13 Extension of Plan to Related Employers......................... 39 12.14 Amendment Procedure............................................ 39 12.15 Expenses of Administration..................................... 39
3
PAGE ---- XIII.TOP-HEAVY PROVISIONS................................................ 39 13.1 Top-Heavy Status.............................................. 39 13.2 Definitions................................................... 39 13.3 Determination of Top-Heavy Status............................. 40 13.4 Actuarial Assumptions......................................... 40 13.5 Vesting....................................................... 41 13.6 Minimum Benefit............................................... 41 13.7 Compensation.................................................. 42 13.8 Collective Bargaining Agreements.............................. 42 13.9 Maximum Allocation............................................ 42 13.10 Safe-Harbor Rule.............................................. 42 FIRST SUPPLEMENT......................................................... 43 SECOND SUPPLEMENT........................................................ 52 THIRD SUPPLEMENT......................................................... 56 FOURTH SUPPLEMENT........................................................ 85 FIFTH SUPPLEMENT......................................................... 86 SIXTH SUPPLEMENT......................................................... 86 SUFCO/UFCO SUPPLEMENT.................................................... 87
4 PENSION PLAN FOR EMPLOYEES OF THE --------------------------------- COASTAL CORPORATION ------------------- January 1, 1993 --------------- Includes Plan as Restated as of January 1, 1989, ------------------------------------------------ First Amendment dated July 27, 1992 ----------------------------------- and Second Amendment dated December 9, 1992 ------------------------------------------- INTRODUCTION ------------ COASTAL PLAN ------------ As of July 1, 1973, the Pension Plan for Salaried Employees of Coastal States Gas Corporation and the Pension Plan for Hourly-Wage Employees of Coastal States Gas Corporation were adopted in order to combine the pension plan provisions as related to salaried and hourly-wage employees, respectively, of Coastal States Gas Producing Company, Colorado Interstate Corporation, CIC Industries, Inc. and Union Petroleum Corporation. As of January 1, 1976 the pension plans for both salaried employees and hourly-wage employees were restated and retitled the Pension Plan for Exempt Employees of Coastal States Gas Corporation and the Pension Plan for Non-Exempt Employees of Coastal States Gas Corporation, respectively. The provisions of the plans as effective January 1, 1976 applied only to persons who were active employees or on an approved leave of absence as of January 1, 1976. Any former employee of Coastal States Gas Corporation and any of its subsidiaries who had retired or whose service had been terminated on or before January 1, 1976 was eligible only for those benefits, if any, which were provided by the plans that were in effect prior to January 1, 1976 and any benefits provided by subsequent Plan provisions which specifically included such former employees. Upon reemployment after January 1, 1976 such former employees may become entitled to benefits under the plans as in effect after such date, but only in accordance with provisions of those plans. As of September 1, 1977 the exempt and non-exempt plans were merged into a single plan titled "Pension Plan for Employees of Coastal States Gas Corporation" and the trusts associated with the two plans were merged into a single trust entitled "The Pension Trust For Employees of Coastal States Gas Corporation." As of December 31, 1979, the name of the plan was changed to "Pension Plan For Employees of The Coastal Corporation" (hereinafter the "Coastal Plan"). As of January 1, 1980, the name of the trust was changed to "Pension Trust For Employees of The Coastal Corporation." As of January 1, 1982, the name of the trust was changed to "The Coastal Corporation Pension Trust." As of July 19, 1983, an additional trust known as "The Coastal Corporation Second Pension Trust" was adopted. As of January 1, 1985 the Pension Plan for Employees of The Coastal Corporation was again restated to incorporate all of the various amendments and supplements which had been adopted prior to 1985 into a single document. As of January 1, 1989, the Pension Plan for Employees of The Coastal Corporation was restated to incorporate all of the various amendments and supplements which had been adopted as of such date into a single document. These supplements included two added as of January 1, 1989, with respect to the merger into the Coastal Plan of the American Natural Resources System Companies Employees' Retirement Plan (hereinafter the "ANR Plan") and The Coastal Refinery Employees' Pension Plan (hereinafter the "Refinery Plan") which are discussed in the following paragraphs. 1 ANR PLAN -------- The initial effective date of the ANR Plan is January 1, 1960. It was amended and restated as of January 1, 1975 and again as of January 1, 1986. As of January 1, 1989, the ANR Plan merged into the Coastal Plan. REFINERY PLAN ------------- As of July 1, 1969, the Retirement Plan for Employees of Caney Branch Coal Company, Inc. was adopted to provide retirement benefits to eligible employees of Caney Branch Coal Company, Inc. On October 3, 1980, certain assets of Caney Branch Coal Company, Inc. were acquired by McCoy Caney Coal Company. McCoy Caney Coal Company continued the Plan in order to provide retirement benefits for Plan Participants and for its eligible employees including former employees of Caney Branch Coal Company, Inc. who were Plan Participants and who were subsequently employed by McCoy Caney Coal Company. As of July 1, 1985, the Retirement Plan for Employees of Caney Branch Coal Company, Inc. was restated. As of July 1, 1987, the Retirement Plan for Employees of Caney Branch Coal Company, Inc. was amended to change the name of the Plan to "The Coastal Corporation Refinery Employees' Pension Plan" (hereinafter the "Refinery Plan"), to provide for adoption of the Plan by Related Companies, and to amend the Plan with respect to Service after 1985 for Related Companies who adopted the Plan and with respect to Service for McCoy Caney Coal Company after 1987. As of July 1, 1987, Derby Refining Company adopted the Plan with respect to field class, nonexempt employees at its El Dorado refining facility. The Plan provisions as of the time of adoption also apply for all Service at Derby Refining Company prior to such adoption. As of January 1, 1989, the Refinery Plan was merged into The Coastal Plan. SUFCo RETIREMENT PLAN --------------------- As of January 1, 1976, the Retirement Plan for Mining Employees of Southern Utah Fuel Company and the Retirement Trust for Mining Employees of Southern Utah Fuel Company were adopted in order to facilitate the retirement of eligible employees. As of January 1, 1979 the pension plan and the trust were renamed the "SUFCo Retirement Plan" (hereinafter the "SUFCo Plan") and the "SUFCo Retirement Trust", respectively. As of July 19, 1983 an additional trust known as "SUFCo Second Retirement Trust" was adopted. As of January 1, 1985 the SUFCo Plan was restated to incorporate all of the various amendments which had been adopted prior to 1985 into a single document. As of January 1, 1992 the SUFCo Plan was merged into the Coastal Plan and a supplement was added to the Coastal Plan which applies to participants in the SUFCo Plan prior to the merger. 2 TERMINATION OF SERVICE ---------------------- This document contains the provisions in effect as of the dates indicated and applies to former employees and participants in the various predecessor plans only to the extent specified in this Plan or required by applicable statutes, including ERISA and the Code. Any person entitled to a benefit for prior service shall have such benefit computed pursuant to the provisions of the Plan which covered such person at the time of such service unless this document specifically includes provisions to the contrary with respect to such service. The benefits due a participant upon termination of employment are established by provisions of the Plan in effect at the time of such termination unless specifically stated to the contrary in a subsequent amendment to the Plan. ARTICLE I --------- DEFINITIONS ----------- Whenever used herein the following words and phrases shall have the meanings stated below unless a different meaning is required by the context. 1.1 "Accrued Benefit" means the amount of Retirement Income payable to a Participant in the normal form described in Section 6.1 of the Plan, commencing at his Normal Retirement Date, as computed under Section 5.1 of the Plan considering the Participant's Basic Compensation and his Years of Service to the date of his termination of employment with the Company. 1.2 "Actuarial Equivalent" means any one of two or more benefits of equivalent value as determined actuarially on the basis of such rate of interest and rates of mortality as shall have been adopted by the Company for such purpose. Until and unless the Plan is amended to change such assumptions, the mortality rates used shall be those of the Unisex Pension Mortality Table Projected to 1984 and the assumed interest rate shall be eight percent, compounded annually. For purposes of determining single-sum cash settlements under the Plan including Sections 6.6, and 11.6, the interest rate used shall be (a) the interest rate that would be used (as of the date of distribution) by the Pension Benefit Guaranty Corporation for purposes of determining the present value of a lump-sum distribution on plan termination if the Participant's vested Accrued Benefit (using such rate) does not exceed $25,000, or (b) 120% of such PBGC rate if the Participant's vested Accrued Benefit exceeds $25,000 (as determined under clause (a)). In no event, however, shall the present value determined under clause (b) be less than $25,000. 1.2A "Average Annual Compensation" means the average over a period of 3 consecutive Plan Years of the Employee's Compensation plus any amounts contributed by the Company, a Related Employer or a Subsidiary pursuant to a salary reduction agreement and which is not includible in the gross income of the Employee under Section 125, 402(a)(8), 402(h) or 403(b) of the Code. The 3 consecutive Plan Year period shall be the 3 Plan Years of the 10 most recent Plan Years during which the calculation will yield the highest average. The periods of 3 consecutive Plan Years and 10 most recent Plan Years shall not include any Plan Year in which the Employee has less than 1,000 Hours of Service and the Plan Year in which the Employee terminates employment. For this purpose, the year before and the year after a year in which the Employee has less than 1,000 Hours of Service are deemed consecutive years. In no event shall Average Annual Compensation of a Participant taken into account under the Plan for any Plan Year exceed $150,000 (or such greater amount provided pursuant to Section 401(a)(17) of the Code). 1.2B "Basic Compensation" means fixed salaries and wages per hour based on an eight hour per day schedule and sales commissions earned after June 30, 1991 paid to the Employee by the Company, a Subsidiary or a Related Employer for the Plan Year excluding (a) any compensation for overtime services, commissions (except sales commissions earned after June 30, 1991), bonuses, expense allowances or other incentive compensation and (b) the Company, a Subsidiary or Related Employer cost or contribution for any employee benefit plan, including this Plan. For this purpose, an Employer contribution pursuant to a salary reduction agreement to a plan which meets the qualification requirements of Section 401(k) of the Code and any amount which is excluded from gross income 3 pursuant to Section 125 of the Code are included in Basic Compensation. In no event shall the Basic Compensation of a Participant taken into account under the Plan for any Plan Year exceed $150,000 (or such greater amount provided pursuant to Section 401(a)(17) of the Code). 1.3 "Beneficiary" means any person or persons designated as such by the Participant on a form supplied by the Administrator to receive Retirement Income payable under the provisions of Articles IV, V and VI of the Plan. If no such designation is in effect at the time of the death of the Participant, or if no person so designated shall survive the Participant, the Beneficiary shall be the Spouse of the Participant if then living, otherwise the legal representative of such deceased Participant; or if there shall be no such legal representative duly appointed and qualified within six months of the date of death of such deceased Participant, then such persons as, at the date of his death, would be entitled to share in the distribution of such deceased Participant's personal estate under the provisions of the statute governing the descent of intestate property, then in force and effect in the state, or foreign jurisdiction outside the United States, of which the Participant was a resident at the date of his death, in the proportions specified in such statute. The determination by the Administrator of the identity of such person or persons shall be final, conclusive and binding on all persons, and the Administrator shall be fully protected and shall incur no liability regardless of any error that it may make in such determination. 1.4 "Board" means the Board of Directors of Coastal. 1.5 (a) "Break in Service", means a Period of Severance of at least twelve consecutive months. A Break in Service shall be deemed to commence on the first day of the Period of Severance and shall be deemed to end on the day in which the Employee again performs an Hour of Service for the Company. (b) If any Employee who is absent from work with the Company because of (i) the Employee's pregnancy, (ii) the birth of the Employee's child, (iii) the placement of a child with the Employee in connection with the Employee's adoption of the child, or (iv) caring for such child immediately following such birth or placement, shall be absent for such reason beyond the first anniversary of the first date of absence, his Period of Severance, solely for purposes of preventing a Break in Service, shall commence on the second anniversary of the first day of such absence. The period of time between the first and second anniversaries of the first date of such absence shall not be counted as a Period of Severance or a period of employment. (c) The provisions of subsection (b) will not apply to an Employee unless the Employee furnishes to the Administrator such timely information that the Administrator may reasonably require to establish (i) that the absence from work is for one of the reasons specified in subsection (b) and (ii) the number of days for which there was such an absence. 1.5A "Coastal" means The Coastal Corporation, a Delaware corporation, or any successor corporation resulting from a merger or consolidation with Coastal or a transfer of substantially all of the assets of Coastal, if such successor or transferee shall adopt and continue the Plan by appropriate corporate action, pursuant to Section 11.2 of the Plan. 1.6 "Code" means the Internal Revenue Code of 1986, as amended from time to time. 1.7 "Committee" means the Plan Administrative Committee described in Section 7.1 of the Plan. 1.8 (a) "Company" means The Coastal Corporation, Subsidiaries and Related Companies. Provided, however, that where required by the context, statute or regulation, Company refers to Coastal, Related Companies, Subsidiaries or combinations of such entities which are in the same controlled group (as described in the definition of Related Employer) as is appropriate. (b) Notwithstanding the preceding subsection (a) of this Section 1.8, any period of employment with a Subsidiary or a Related Employer prior to the time such Subsidiary or a Related 4 Employer became a Subsidiary or a Related Employer shall be included for purposes specified in such preceding subsection (a) only if the Plan specifically provides for such inclusion. 1.9 "Compensation" means an Employee's total earnings from the Company paid during a Plan Year for Services rendered, including bonuses, overtime and commissions, but excluding any contributions or benefits under this Plan or any other pension, profit sharing, insurance, hospitalization or other plan or policy maintained by the Company for the benefit of such Employee, and all other extraordinary and unusual payments. Notwithstanding the preceding provisions of this Section 1.9, for purposes of Sections 5.8 and 13.6, compensation shall have the meaning set forth in Sections 5.8(j). In no event shall the Basic Compensation of a Participant taken into account under the Plan for any Plan Year exceed $150,000 (or such greater amount provided pursuant to Section 401(a)(17) of the Code). 1.9A "Covered Compensation" means the average (without indexing) of the taxable wage bases in effect for the Employee for each calendar year during the 35 year period ending with the last day of the calendar year in which the Employee attains (or will attain) social security retirement age. The Covered Compensation of an Employee is automatically adjusted for each Plan Year. 1.10 "Employee" means an individual employed as a Regular Employee by the Company, a Subsidiary, or a Related Employer during a period of time with respect to which the Company, such Subsidiary or a Related Employer has adopted the Plan subject to the definitions and restrictions which follow. (a) "Regular Employee" means a person employed in an established job which is normally scheduled for at least twenty hours per week. A Regular Employee who ceases to be an active employee because such person becomes disabled and eligible to receive disability income benefits under a disability plan maintained by the Company, a Subsidiary or Related Employer shall be considered a Regular Employee during the period of time such person is eligible to receive disability income under such disability plan and is credited with Hours of Service pursuant to provisions of this Plan. Persons employed for a specific period of time or for the duration of a specific project are classified as temporary employees and are not Regular Employees. Persons who are on unpaid leave of absence are not Regular Employees during such absence. (b) "Employee" does not include any individual covered by a collective bargaining agreement between employee representatives and the Company, a Subsidiary or a Related Employer if retirement benefits were the subject of good faith bargaining between such employee representatives and the Company, Subsidiary or a Related Employer and such individual is not required by such agreement to be covered by this Plan. (c) A person employed by the Company, a Subsidiary or a Related Employer during a period of time with respect to which such employer does not adopt the Plan shall not be considered an Employee due to such employment. (d) Any person who is, with respect to the United States, a nonresident alien and who does not receive earned income from sources within the United States from the Company, a Subsidiary or a Related Employer is not an Employee with respect to such periods of time. (e) Any person who is eligible to participate in any other defined benefit pension plan maintained by the Company, a Subsidiary or a Related Employer is not an Employee for purposes of this Plan with respect to employment which provides eligibility for such other plan. (f) Any United States citizen on the payroll of a foreign Subsidiary shall be considered to be employed by a domestic Subsidiary provided there is in effect an agreement between the Internal Revenue Service and such domestic Subsidiary which requires such domestic Subsidiary to pay, with respect to foreign Hours of Service, an amount equivalent to the tax under the Federal Insurance Contributions Act, and provided further that contributions under a funded plan of deferred 5 compensation are not provided by any other person with respect to the remuneration paid to such United States citizen by such foreign Subsidiary. (g) A person who is not an employee of the Company, a Subsidiary or a Related Employer and who performs services for the Company, Subsidiary or a Related Employer pursuant to an agreement between the Company, a Subsidiary or a Related Employer and a leasing organization shall be considered a "leased employee" after such person performs such services for a twelve-month period and the services are of a type historically performed by employees. A person who is considered a leased employee of the Company, a Subsidiary or a Related Employer shall not be considered an Employee for purposes of the Plan. If a leased employee subsequently became an Employee and thereafter participates in the Plan, he shall receive credit for vesting under Section 5.4 for his period of employment as a leased employee, except to the extent that Section 414(n)(5) of the Code was satisfied with respect to such Employee while he was a leased employee. (h) Prior to April 1, 1990, Employee was not limited to Regular Employee. 1.11 "ERISA" means the Employee Retirement Income Security Act of 1974, Public Law No. 93-406, as amended and in force from time to time. 1.11A "Final Average Compensation" means the Average Annual Compensation of the Employee calculated for the 3 consecutive Plan Year period ending prior to the year the Employee terminates employment. If the Employee has not received Compensation from the Company, a Related Employer or a Subsidiary for 3 Plan Years, the entire period during which such Employee received Compensation shall be used in the calculation. In determining Final Average Compensation for an Employee, Average Annual Compensation in excess of the Taxable Wage Base in effect at the beginning of that year shall not be taken into account. 1.12 (a) "Final Average Earnings" means twelve times the Employee's average monthly rate of Basic Compensation during the five consecutive calendar years within the last ten calendar years of his Years of Service affording the highest such average. The Employee's average monthly rate of Basic Compensation will be determined by dividing the total Basic Compensation received by him during such five-calendar-year period by the number of months for which he received Basic Compensation in such five-calendar-year period. (b) The number of months for which he received Basic Compensation will be computed, to the extent he was paid on other than a monthly basis, by determining the number of pay periods ending within such five- calendar-year period for which he received Basic Compensation from the Employer and converting such pay periods into months. Such conversions, for years after 1991, shall be based on factors derived using the average of 365.25 days per calendar year and, for years before 1992, by dividing the number of pay periods, if weekly, by 4-1/3, if biweekly, by 2-1/6, and, if semi-monthly, by 2. (c) In computing Final Average Earnings for an Employee who has begun to receive Basic Compensation following a full calendar year or calendar years during which he did not receive Basic Compensation because of a leave of absence granted by the employer or because of his reemployment prior to a Break in Service, such full calendar year or calendar years during which he did not receive Basic Compensation shall be ignored or excluded in determining the ten calendar years and the five successive calendar years to be used in determining the Employee's Final Average Earnings at a subsequent date. (d) An Employee who was disabled due to illness or injury and was eligible to receive disability income benefits under a disability plan maintained by the Company, a Subsidiary or a Related Employer shall have his Final Average Earnings based upon his last rate of Basic Compensation prior to such eligibility to receive such disability benefits for the period of time such Employee was eligible to receive such disability benefits and was credited with Hours of Service pursuant to provisions of this Plan. 6 1.13 "Highly Compensated Participant" means a Participant who, during the current Plan Year or the preceding Plan Year, (a) was at any time a five- percent owner of the Company, (b) received Compensation from the Company in excess of $75,000 (or such greater amount provided by the Secretary of the Treasury pursuant to Section 414(q) of the Code), (c) received Compensation from the Company in excess of $50,000 (or such greater amount provided by the Secretary of the Treasury pursuant to Section 414(q) of the Code) and was in the top-paid group of Employees for such Year, or (d) was at any time an officer of the Company and received Compensation from the Company greater than 50% of the amount in effect under Section 415(b)(1)(A) of the Code for such Plan Year. The provisions of Section 414(q) of the Code shall apply in determining whether a Participant is a Highly Compensated Participant. The Company for any Plan Year may elect to identify Highly Compensated Participants based upon the current Plan Year to the extent permitted by Section 414(q) of the Code and Regulations issued thereunder. 1.14 (a) "Hour of Service" for all purposes except vesting means (i) each Hour for which an Employee is paid or entitled to payment for the performance of duties for the Company, a Subsidiary or a Related Employer; and (ii) each Hour for which an Employee is directly or indirectly paid by the Company, a Subsidiary or a Related Employer or is entitled to payment from the Company, a Subsidiary or a Related Employer during which no duties are performed by reason of vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. Each Hour of Service for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Company, a Subsidiary or a Related Employer shall be included under either (i) or (ii) as may be appropriate. Hours of Service shall be credited: (A) in the case of Hours referred to in clause (i) of the first sentence of this subsection, for the computation period in which the duties are performed; (B) in the case of Hours referred to in clause (ii) of the first sentence of this subsection, for the computation period or periods in which the period during which no duties are performed occurs; and (C) in the case of Hours for which back pay is awarded or agreed to by the Company, a Subsidiary or a Related Employer for the computation period or periods to which the award or agreement pertains rather than to the computation period in which the award, agreement or payment is made. (b) In determining Hours of Service an Employee who is employed by the Company, a Subsidiary or a Related Employer on other than an hourly rated basis shall be credited with ten Hours of Service per day for each day the Employee would, if hourly rated, be credited with service pursuant to clause (i) of the first sentence of subsection (a). If an Employee is paid for reasons other than the performance of duties pursuant to clause (ii) of the first sentence of subsection (a): (i) in the case of a payment made or due that is calculated on the basis of units of time, an Employee shall be credited with the number of regularly scheduled working hours included in the units of time on the basis of which the payment is calculated; and (ii) an Employee without a regular work schedule shall be credited with eight Hours of Service per day (to a maximum of forty Hours of Service per week) for each day that the Employee is so paid. Hours of Service shall be calculated in accordance with Department of Labor Regulations Section 2530.200b-2 or any future legislation or regulation that amends, supplements or supersedes that section. (c) Hour of Service includes each Hour for which an Employee or a former Employee is disabled and eligible to receive disability income benefits under a disability plan maintained by the Company, a Subsidiary or a Related Employer. Hours of Service during such disability periods shall be determined pursuant to the procedure in subsection (b) for an Employee without a regular work schedule. Provided, however, that if the cause of the disability of such disabled Employee or former Employee is nonoccupational, Hours of Service credited pursuant to this provision shall not exceed the greater of the number of Hours of Service equal to three Years of Service or the number of Hours 7 of Service such Employee or former Employee had credited under the Plan prior to the time such Employee or former Employee became disabled. (d) Hour of Service for purposes of vesting only, means an hour for which an Employee is paid or entitled to payment by the Company, a Subsidiary or a Related Employer for the performance of duties for the Company, a Subsidiary or a Related Employer and an hour for which an Employee or a former Employee is disabled and eligible to receive disability income benefits under a disability plan maintained by the Company, a Subsidiary, or a Related Employer. Provided, however, that if the cause of the disability of such disabled Employee or former Employee is nonoccupational, Hours of Service credited pursuant to this provision shall not exceed the greater of the number of Hours of Service equal to three Years of Service or the number of Hours of Service such Employee or former Employee had credited under the Plan prior to the time such Employee or former Employee became disabled. Hours of Service during such disability periods shall be determined pursuant to the procedure in subsection (b) for an Employee without a regular work schedule. 1.15 "Normal Retirement Date" means the first day of the calendar month next following the date the Participant attains Normal Retirement Age. The Accrued Benefit of a Participant shall become nonforfeitable and fully vested on his attainment of Normal Retirement Age. 1.15A "Normal Retirement Age" means the date the Participant attains the age of sixty-five years except that, in the case of a Participant who commences participation in the Plan after attainment of sixty years of age, Normal Retirement Age is the fifth anniversary of the date such Participant commenced participation in the Plan. For purposes of this definition, participation shall include the Year of Service required to be eligible to become a Participant in the Plan. The Accrued Benefit of a Participant shall become nonforfeitable and fully vested upon attainment of Normal Retirement Age while employed by the Company, a Subsidiary or a Related Employer. 1.16 "Participant" means an Employee who meets the eligibility requirements of Sections 2.1 or 2.2 of the Plan. An Employee, however, who has deposited a rollover contribution pursuant to Article X shall be deemed a Participant for purposes of the Plan to the extent that the provisions of the Plan apply to the Transfer Account of such Employee. 1.16A "Period of Severance" means a continuous period of time during which an Employee is not employed by the Company. Such a period shall begin on the earlier of: (i) the day on which the Employee quits, retires, is discharged or dies; or (ii) the first anniversary of the date on which the Employee separates from service with the Company for any reason other than the reasons set forth in clause (i) above, such as vacation, holiday, sick-ness, disability, leave of absence or layoff. A Period of Severance shall end on the date on which an Employee again performs an Hour of Service for the Company. A Period of Severance does not include a period of time for which an Employee or former Employee is credited with an Hour of Service. 1.17 "Plan" means the "Pension Plan for Employees of The Coastal Corporation" as described in this instrument, including supplements and as it may be amended and in force from time to time. 1.18 "Plan Year" is the fiscal year of Coastal, which is currently designated as the twelve-month period from January 1 through December 31 of each year. 1.19 "Related Employer" means: (i) any corporation that is a member of a controlled group of corporations (as defined in Section 414(b) of the Code) that includes the Company; (ii) any trade or business (whether incorporated or unincorporated) that is under common control (as defined in Section 414(c) of the Code) with the Company; and (iii) any member of an affiliated service group (as defined in Section 414(m) of the Code) that includes the Company. 1.20 "Retirement Date" means a Participant's "Normal Retirement Date," "Postponed Retirement Date" or "Early Retirement Date," as defined in Sections 1.15, 5.2 and 5.3 of the Plan respectively. 8 1.21 "Retirement Income" means a pension or any other payment or payments payable under the terms of the Plan. 1.22 "Spouse" means the person who is legally married to a Participant throughout the one-year period ending on the earlier of the date on which Retirement Income payments to the Participant commence or the date of such Participant's death. For purposes of the preceding sentence, if a Participant marries a person within the one-year period preceding the date on which Retirement Income payments to him commence, and the Participant remains married to such person for at least a one-year period ending on or before the date of the Participant's death, then the Participant and such person will be treated as having been married throughout the one-year period ending on the date Retirement Income payments to the Participant commence. 1.22A "Subsidiary" means any corporation or unincorporated trade, business or partnership in which Coastal owns or controls, directly or indirectly, at least fifty percent of the outstanding voting securities in such corporation or at least fifty percent of the ownership interest in such unincorporated entity. 1.22B "Taxable Wage Base" means the contribution and benefit base under section 230 of the Social Security Act. 1.23 "Trust" means The Coastal Corporation Pension Trust and The Coastal Corporation Second Pension Trust as amended from time to time. 1.24 "Trust Fund" means the cash and other properties held and administered in accordance with the provisions of the Trust. 1.25 "Trustee" with respect to each Trust is defined in such Trust agreement. 1.26 NONE 1.27 NONE 1.28 "Years of Service", means a period of time consisting of an Employee's period of employment with the Company, a Subsidiary or a Related Employer determined as follows. Years of Service is defined differently for purposes of eligibility to participate, vesting and determination of Retirement Income. (a) Eligibility. (i) For purposes of eligibility to participate in the Plan, Years of Service shall be based upon the twelve- consecutive-month period commencing upon an Employee's date of employment or reemployment with the Company, a Subsidiary or a Related Employer for the initial year and thereafter shall be based upon the calendar year. (ii) For Plan Years before 1990, Years of Service for purposes of eligibility are measured based upon the Employee's employment or reemployment date and anniversaries thereof in lieu of the calendar year. The amendment adopting the calendar year provision for years after 1989 with respect to eligibility was dated February 6, 1990. With respect to the period of time beginning on January 1, 1990 and ending on February 6, 1990, an Employee shall receive the greater of the Years of Service calculated using the provisions in effect prior to 1990 and the provisions which became effective January 1, 1990 for purposes of determining eligibility to join the Plan. (b) Vesting. For purposes of determining the vesting of a Participant under the Plan, Years of Service means an aggregated period of time commencing with an Employee's first day of employment or reemployment and ending on the first day of a Period of Severance. An Employee shall also receive credit for any Period of Severance of less than twelve consecutive months. Fractional periods of less than a year shall be expressed in terms of days. Notwithstanding the foregoing provisions of this Section, if an Employee separates from the service of the Company, a Subsidiary or a Related Employer for any reason other than a quit, retirement or discharge (such as 9 vacation, holiday, sickness, disability, leave of absence or layoff) and subsequently quits, retires or is discharged, he will not receive more than one Year of Service after he first separates from service. Provided, however, that an Employee or former Employee may receive more than one Year of Service if such person is credited with Hours of Service pursuant to provisions relating to Hours of Service while a person is disabled. (c) Retirement Income. (i) For purposes of determining a Participant's Retirement Income pursuant to Article V of the Plan, Years of Service shall be measured in completed months based on Plan Years, commencing with the day of the Plan Year during which an Employee is initially employed, or is reemployed after a Break in Service, and ending on the day of the Plan Year in which a Break in Service commences. (ii) For purposes of determining a Participant's Retirement Income pursuant to Article V, a Participant's Years of Service shall only include Plan Years in which he completes at least 1,000 Hours of Service as a Participant. For this purpose, a Participant who was required to complete a Year of Service to be eligible to participate in the Plan shall receive credit for the portion of such Year of Service that such Participant was an Employee. However, no Retirement Income is due to an Employee who has not met the eligibility requirements to become a Participant. If a Participant has fewer than 1,000 Hours of Service in his first or last Year of Service, or both, his Years of Service for purposes of determining his Retirement Income shall be combined and computed to the nearest whole month to reflect the number of months in his first and last Years of Service in which he completes Hours of Service as a Participant. (iii) For purposes of determining eligibility to participate and Retirement Income under the Plan, Years of Service shall only include Plan Years, or periods commencing on his date of employment or reemployment, in which an Employee completes at least 1,000 Hours of Service with the Company, any Subsidiary and any Related Employer. (iv) Years of Service for purposes of determining a Participant's Retirement Income shall not include any complete calendar month during which the Employee was not credited with an Hour of Service. (v) Years of Service for purposes of determining a Participant's Retirement Income shall not include any period of an Employee's employment with the Company, a Subsidiary or Related Employer prior to January 1, 1976 during a period of time when his customary employment was for less than five months per year or for less than 20 hours per week. (vi) For purposes of determining a Participant's Retirement Income under this Plan, including the reemployment provisions of the Plan, Years of Service shall not include any period of a Participant's employment prior to the date as of which the accrued benefit of such Participant was transferred from this Plan to a qualified pension plan maintained by an entity which is not an Employer, a Subsidiary or a Related Employer. Provided, however, that such Years of Service shall include such period if such Participant is reemployed and such accrued benefit is transferred back to this Plan. (d) All Purposes. (i) Years of Service shall include any period in which an Employee is absent to serve in the armed forces of the United States under circumstances whereby he is entitled to reemployment rights under applicable law, if he returns or offers to return to work prior to the expiration of such reemployment rights; provided that during such period of absence, hours shall be deemed to have been worked and paid for at the usual and customary rate for the Employee preceding the absence. 10 (ii) Years of Service shall not include any period of an Employee's employment for an organization prior to the date that it became a Subsidiary or Related Employer and any period of an Employee's employment for an organization whose business and assets are acquired by the Company, a Subsidiary or Related Employer shall, unless specific provision to the contrary is included in the Plan. (iii) If an Employee who has had a Break in Service is reemployed by the Company, a Subsidiary or Related Employer, his Years of Service shall include the Years of Service to his credit at the time the Break in Service began, unless he had no vested interest in his Accrued Benefit prior to such Break in Service and the length of the Break in Service equals or exceeds the greater of five Years of Service or the Years of Service to his credit at the time such Break in Service began. Provided, however, that Years of Service for periods of time before 1976 shall be added to Years of Service after 1975 only for persons who were active employees or on approved leave of absence as of January 1, 1976. For persons with Years of Service under the ANR Plan, the preceding sentence shall be applied by substituting 1975, 1974, and January 1, 1975 for 1976, 1975 and January 1, 1976, respectively. (iv) Years of Service shall include a period of time for which an Employee or former Employee is credited with an Hour of Service. (v) Years of Service credited for a period of time during which an Employee is absent from service for any reason other than disability, jury duty or military leave may not exceed six months. This limitation applies only for purposes of determining eligibility to participate in the Plan and Retirement Income since vesting is determined based on the elapsed time method. ARTICLE II ---------- ELIGIBILITY AND PARTICIPATION ----------------------------- 2.1 Employee. An Employee shall become a Participant on the later to -------- occur of (a) January 1, 1989, or (b) the completion of one Year of Service regardless of his age as of his initial date of employment with the Company, a Subsidiary or a Related Employer. 2.2 Prior Plans. Each person who met the eligibility requirements and ----------- was considered a participant pursuant to provisions of the Coastal Plan, the ANR Plan or the Refinery Plan as of December 31, 1988, became a Participant in the Plan as of January 1, 1989. ARTICLE III ----------- COMPANY CONTRIBUTIONS --------------------- 3.1 Company Contributions. During the continuance of the Plan the --------------------- Company intends from time to time to pay to the Trustee, to be held or applied under the Trust Agreement, such sums of money that, together with earnings of the Trust Fund, will be sufficient to provide the benefits specified by the Plan. The Company shall pay to the Trustee its contribution hereunder with respect to a particular Plan Year within the period of time prescribed by law for the filing of the Company's federal income tax return for such Year, including extensions thereof duly granted. All Company contributions made under the Plan are conditioned upon the qualification of the Plan under Section 401(a) of the Code and upon deductibility of the contribution under Section 404 of the Code. 3.2 Forfeitures. Any forfeiture under the Plan shall be applied to ----------- reduce Company contributions and not to increase the benefits any Participant would otherwise receive under the Plan. 11 3.3 Irrevocability. The Company shall have no right, title, or -------------- interest in or to the contributions made to the Trustee, and no part of the Trust Fund shall ever revert or be repaid to the Company, either directly or indirectly, except for such part of the Trust Fund, if any, that remains under the Trust after the satisfaction of all liabilities to persons entitled to benefits under the Plan. However, without regard to the foregoing provisions of this Section 3.3: (a) If a contribution under the Plan is conditioned on initial qualification of the Plan under Section 401(a) of the Code, and the Plan receives an adverse determination with respect to its initial qualification, the Trustee shall, upon written request of the Company, return to the Company the amount of such contribution (increased by earnings attributable thereto and reduced by losses attributable thereto) within one calendar year after the date that qualification of the Plan is denied, provided that the application for the determination is made by the time prescribed by law for filing the Company's return for the taxable year in which the Plan is adopted, or such later date as the Secretary of Treasury may prescribe; (b) If a contribution is conditioned upon the deductibility of the contribution under Section 404 of the Code, then, to the extent the deduction is disallowed, the Trustee shall upon written request of the Company return the contribution (to the extent disallowed) to the Company within one year after the date the deduction is disallowed; (c) If a contribution or any portion thereof is made by the Company by a mistake of fact, the Trustee shall, upon written request of the Company, return the contribution or such portion to the Company within one year after the date of payment to the Trustee; and (d) Earnings attributable to amounts to be returned to the Company pursuant to subsection (b) or (c) above shall not be returned, and losses attributable to amounts to be returned pursuant to subsection (b) or (c) shall reduce the amount to be so returned. 3.4 Contributions Conditioned on Qualification and Deductibility. For ------------------------------------------------------------ purposes of the Plan, including Section 3.3 of this Article III, contributions made prior to initial qualification of the Plan under 401(a) are conditioned on such initial qualification and all other contributions under the Plan are conditioned on deductibility under Section 404 of the Code. Any such contribution under the Plan shall be returned to the Company if the Plan receives an adverse determination with respect to its initial qualification or, if a deduction under Section 404 of the Code is disallowed, to the extent of such disallowance. The Company shall request the return of such contributions. ARTICLE IV ---------- PARTICIPANT CONTRIBUTIONS ------------------------- 4.1 Participant Contributions. Participant contributions are not ------------------------- permitted under the plan. 4.2 Participant Contributions - Prior and Merged Plans. -------------------------------------------------- (a) Participant contributions made to the Plan under provisions of predecessor and merged plans shall remain in the Plan subject to withdrawal and benefit payment provisions in effect for any such contributions in effect as of December 31, 1988 under the Plan. (b) Plan assets attributable to Participant contributions shall provide additional Retirement Income to the Participant in the same form as the Retirement Income to be paid to the Participant under Article VI hereof. The additional Retirement Income shall be paid at the same time as the Retirement Income paid under Article V. However, if the provisions of the plan pursuant to which such Participant contributions were made specified the form or timing of payment of Retirement Income attributable to such Participant contributions, such payment provisions shall control to the extent that such requirements do not conflict with Plan requirements required by ERISA and the Code. 12 (c) The Accrued Benefit of a Participant with respect to Retirement Income attributable to Participant contributions shall not increase due to Hours of Service, Years of Service, Compensation, Basic Compensation, or Final Average Earnings attributable to periods of time after December 31, 1988. 4.3 Accrued Benefit Derived from Employee Contributions --------------------------------------------------- (a) The Accrued Benefit of a Participant derived from Mandatory Contributions (as defined in this Section) of such Participant as of any applicable date is the amount equal to the Participant's Accumulated Contributions (as defined in this Section) expressed as an annual benefit commencing at Normal Retirement Age, using an interest rate which would be used under the Plan under Section 417(e)(3) of the Code as of the determination date. (b) Mandatory Contributions, as used herein, means amounts contributed to the Plan by the Participant which were required as a condition of employment, as a condition of participation in the Plan or as a condition of obtaining benefits under the Plan attributable to employer contributions. The Plan includes superseded plans. (c) Accumulated Contributions, as used herein, means the total of: (i) All Mandatory Contributions made by the Participant; (ii) Interest, if any, under the Plan to the end of 1988; and (iii) Interest on the sum of the amounts determined under clauses (A) and (B) compounded annually: (A) at a rate of 120 percent of the Federal mid-term rate (as in effect under Section 1274 of the Code for the first month of a Plan Year) for the period beginning with the year 1989 and ending with the date on which the determination is being made, and (B) at the interest rate which would be used under the Plan under Section 417(e)(3) of the Code (as of the determination date) for the period beginning with the determination date and ending on the date on which the Participant attains Normal Retirement Age. (d) This Section shall supersede provisions to the contrary in Supplements to the Plan. ARTICLE V --------- BENEFITS -------- 5.1 Normal Retirement Benefit. ------------------------- (a) Basic Benefit Formula. A Participant who is 100% vested and who retires on his Normal Retirement Date shall be entitled to the Actuarial Equivalent of a Retirement Income for the life of the Participant with payments commencing on his Normal Retirement Date, in an annual amount equal to the greater of the amount computed under Formula One or Formula Two. (i) The amount computed under Formula One equals the product of the vested percentage as determined under provisions of the Plan of the Participant multiplied by the remainder of (A) minus (B), where (A) equals two percent of the Final Average Earnings of the Participant multiplied by the number of Years of Service of the Participant to a maximum 13 of thirty years and (B) equals one and one-half percent of the Primary Social Security Amount to which the Participant is entitled multiplied by the number of Years of Service of the Participant to a maximum of thirty-three and one-third years. (ii) The amount computed under Formula Two equals the product of the Vested Percentage of the Participant multiplied by the product of forty-eight dollars multiplied by the number of Years of Service of the Participant. (b) Social Security. Primary Social Security Amount means the estimated annual primary insurance amount that may be payable to a Participant commencing at the Normal Retirement Age of the Participant under provisions of the Federal Social Security Act regardless of whether the Participant applies for or actually receives such benefit. Primary Social Security Amount shall be determined as follows: (i) The estimated insurance amount shall be based on the Social Security Act as in effect on December 31 coincident with or immediately preceding the date the Participant terminates employment with the Company, Subsidiaries and Related Employers. (ii) In the case of a Participant whose employment terminates prior to his attainment of Normal Retirement Age, the estimated insurance amount will be based on the assumption that the Participant will continue to receive (for the period from his termination of employment until he attains his Normal Retirement Age) compensation that would be treated as wages for purposes of the Social Security Act at the same rate as he was receiving on the date of his termination of employment. (iii) Any change (by amendment to the Social Security Act or by application of the provisions of the Act) occurring after the termination of the Participant's employment with the Company, Subsidiaries and Related Employers, shall not be taken into account in determining the Primary Social Security Amount. (iv) In determining the Primary Social Security Amount of a Participant, the earnings history of the Participant with the Company, Subsidiaries and Related Employers shall be used for all Years of Service and it will be assumed that the Participant's wages had increased each calendar year at the same rate as the average of total wages (as specified in Section 215(b)-(3)(A)(11) of the Social Security Act) for other periods prior to the most recent termination of employment with the Company, Subsidiaries and Related Employers. (c) Benefit Adjustment for Termination of Employment Before Attainment of Normal Retirement Age. The Retirement Income of a Participant who terminates employment with the Company, Subsidiaries and Related Employers before attainment of his Normal Retirement Age shall have his Retirement Income adjusted as provided herein. Retirement Income shall be calculated by substituting Years of Service up to the maximum number of Years of Service specified in the applicable benefit formula which the Participant would have attained had he continued to earn uninterrupted Years of Service until his Normal Retirement Age in lieu of his actual Years of Service and then multiplying such Retirement Income amount by a fraction described in the next sentence. The numerator of the fraction is the actual Years of Service of the Participant at his date of termination of employment and the denominator of the fraction is the Years of Service which the Participant would have attained had he continued to earn uninterrupted Years of Service until his Normal Retirement Age. (d) Preretirement Survivor Annuity Benefit Reduction. The Retirement Income of a Participant shall be reduced pursuant to the Preretirement Survivor Annuity coverage provisions of Section 5.5. 14 (e) Benefit adjustment due to periods of employment with the Company, a Subsidiary or a Related Employer during which the Participant did not qualify as an Employee including periods of time when the Participant was eligible to participate in another pension plan maintained by the Company, a Subsidiary or a Related Employer. The Retirement Income of a Participant with Years of Service before 1993 shall be determined with respect to Years of Service before 1993 using the assumptions stated in items (i), (ii) and (iii) of this Section 5.1 (e). Years of Service after 1992 shall not be included in the calculation of Retirement Income pursuant to the assumptions stated in items (i), (ii) and (iii) of this Section 5.1 (e). (i) The Retirement Income of such Participant shall be calculated based upon the assumption that he qualified as an Employee during the entire period of employment for the Company, Subsidiaries and Related Employers and then such Retirement Income amount shall be multiplied by a fraction described in Subsection (ii) of this Section to determine the Retirement Income to which such Participant is entitled. (ii) The numerator of the fraction is the number of Years of Service which the Participant accrued while qualified as an Employee under the Plan. The denominator of the fraction is the number of Years of Service calculated based on the assumption that the Participant qualified as an Employee during the entire period of employment with the Company, Subsidiaries and Related Employers. (iii) There shall be no duplication of benefits between this Plan and any other qualified pension plans maintained by the Company, a Subsidiary or Related Employer based on the same periods of employment, and any benefit payable under this Plan shall be inclusive of or reduced by the actuarially equivalent benefit which (A) is payable on behalf of such Participant under any other qualified pension plan toward the cost of which the Company, a Subsidiary or Related Employer has contributed for persons in their employment who do not qualify as Employees as defined in this Plan and (B) is based on a period of employment that the benefit payable to such Participant under this Plan is also based. (f) Minimum Benefit as of March 31, 1990. The Retirement Income of a Participant shall not be less than the Retirement Income of such Participant calculated as of March 31, 1990, pursuant to Plan provisions as of such date but based upon the five year certain and life thereafter form in lieu of the life only form in the Basic Benefit Formula described in subsection (a) of this Section 5.1 as of March 31, 1990. (g) Years of service with two or more Controlled Groups. (i) The Retirement Income of a Participant which is attributable to Years of Service with members of two or more Controlled Groups (see Section 6.10) shall be determined with respect to each such Controlled Group using the method described in this subsection. (ii) The Accrued Benefit used to determine Retirement Income with respect to the first Controlled Group with respect to which the Participant is credited with Years of Service shall be determined pursuant to Plan provisions based on Years of Service and Final Average Earnings with respect only to members of such first Controlled Group. The Retirement Income based on such Accrued Benefit shall be payable from the assets of such first Controlled Group. (iii) The Accrued Benefit used to determine Retirement Income with respect to the second Controlled Group with respect to which the Participant is credited with Years of Service shall be determined pursuant to Plan provisions based on Years of Service and Final 15 Average Earnings with respect to members of both the first and second Controlled Groups reduced by the value of the Accrued Benefit determined with respect to the first Controlled Group. The Retirement Income based on such Accrued Benefit shall be payable from the assets of such second Controlled Group. (iv) The Retirement Income of a Participant with respect to additional Controlled Groups shall be determined using the same method as described in this subsection. There shall be no duplication of benefits with respect to the various Controlled Groups. 5.2 Postponed Retirement Benefit. A Participant who wishes to do so ---------------------------- may continue as an Employee after his Normal Retirement Date. In such event, his Postponed Retirement Date shall be the first day of the month next following the date on which he actually retires from employment. A Participant who retires on a Postponed Retirement Date shall be entitled to a Retirement Income payable as provided in Article VI of the Plan, commencing on his Postponed Retirement Date, in an amount equal to the amount determined under Section 5.1 of the Plan. A Participant who continues as an Employee after his Normal Retirement Date may defer receipt of Retirement Income upon termination of employment. Such deferral shall not extend beyond the age for required distribution of Retirement Income pursuant to Plan provisions. Such Participant shall be subject to the Plan provisions relating to vested terminated Participants including reduction in Retirement Income under the Preretirement Survivor Annuity provisions. In addition, the Retirement Income of such Participant shall be actuarially adjusted to reflect the period of such deferral of Retirement Income. 5.3 Early Retirement Benefit. ------------------------ (a) A Participant who has completed at least five Years of Service may retire or terminate at any time on or after his fifty-fifth birthday. In such event, his Early Retirement Date shall be the first day of the month next following the date on which he retires or terminates from employment with the Company provided that he has completed at least five Years of Service and has attained fifty-five years of age prior to such retirement or termination of employment. A Participant who retires or terminates on an Early Retirement Date shall be entitled to a Retirement Income determined pursuant to Section 5.1 payable as provided in Article VI of the Plan, commencing on his Normal Retirement Date. A Participant who retires on an Early Retirement Date may elect, by giving prior written notice to the Administrator, to have his Retirement Income commence prior to his Normal Retirement Date and as of his Early Retirement Date. In that event, he shall be entitled to receive a Retirement Income in an amount equal to his Retirement Income on his Normal Retirement Date reduced by one-third of one percent thereof for each full calendar month in excess of thirty-six by which the commencement of payments precedes his Normal Retirement Date. (b) A Participant who has completed five Years of Service, terminates on an Early Retirement Date, and does not elect to receive Retirement Income as of his Early Retirement Date shall be eligible to receive Retirement Income prior to his Normal Retirement Date by giving prior written notice to the Administrator. The amount of such Retirement Income shall be determined pursuant to the provisions of Section 5.4 relating to Retirement Income of a terminated vested Participant. Provided, however, that the Retirement Income of such Participant shall not be less than the amount such Participant would have received had he elected to receive Retirement Income as of his Early Retirement Date. 16 5.4 Termination of Vested Participant. --------------------------------- (a) A Participant shall be entitled to a nonforfeitable right of a percentage of his Accrued Benefits as follows:
Years Nonforfeitable of (Vested) Forfeitable Service Percentage Percentage ------------ ---------------- -------------- Fewer than five years 0% 100% Five years 100% 0%
(b) A Participant who ceases to be an Employee shall be entitled to receive Retirement Income payable pursuant to provisions of the Plan equal to the nonforfeitable percentage of his Accrued Benefit on the date of his termination of employment determined as set forth in paragraph (a) next above. Any Accrued Benefit not payable to a Participant pursuant to this Section 5.4 shall be deemed a forfeiture and shall be used to reduce Company, Subsidiary or a Related Employer contributions to the Plan. (c) The Retirement Income of a terminated Participant determined pursuant to this Section shall be payable commencing as of his Normal Retirement Date, as set forth in Article VI of the Plan, in an amount equal to the nonforfeitable percentage of his Accrued Benefit. A terminated Participant may elect, by giving prior written notice to the Administrator, to have his Retirement Income commence prior to his Normal Retirement Date on the first day of any month coincident with or following his fifty-fifth birthday. In that event he shall be entitled to receive a Retirement Income in an amount equal to his Retirement Income on his Normal Retirement Date, actuarially reduced to reflect the earlier starting date thereof. (d) A vested Participant who receives credit for Years of Service under the Plan for periods of time before April 1, 1990, shall be eligible to receive Retirement Income commencing before Normal Retirement Age in an amount equal to the greater of (i) the Retirement Income calculated pursuant to provisions of subsections (a), (b) and (c) of this Section 5.4, or (ii) the Retirement Income calculated using Years of Service and Final Average Earnings as of March 31, 1990, and reduced by one-third of one percent thereof for each full calendar month in excess of thirty-six by which the commencement of payments precedes his Normal Retirement Date. 5.5 Death Benefits. -------------- (a)(i) If a Participant is vested in any portion of his Accrued Benefit and has a Spouse, then a "Preretirement Survivor Annuity" shall be provided to the surviving Spouse of the Participant if he dies while in the employment of the Company or after termination of his employment but before his Annuity Starting Date (as defined in paragraph (d) below). If the Participant dies before attaining age fifty-five, the Preretirement Survivor Annuity payable to his surviving Spouse shall be a survivor annuity payable to the Spouse under which the payments to the spouse are equal to the amount that would have been payable to the Spouse as a survivor annuity if the Participant had terminated employment with the Company on the date he died, attained age fifty- five, retired with an immediate 50% Joint and Survivor Annuity (as described in Section 6.1(a)) with the Spouse as contingent annuitant, and died the next day. In the case of a Participant who dies after terminating his employment with the Company, the preceding sentence shall be applied without regard to the requirement that the Participant be treated as though he had terminated employment with the Company on the day he died. If the Participant dies after attaining age fifty- five, then the Preretirement Survivor Annuity payable to his surviving Spouse shall be a survivor annuity for the life of the Spouse under which the payments to the Spouse are equal to the amount that would have been payable to the Spouse as a survivor annuity if the Participant had elected to begin receiving Retirement Income with an immediate 50% Joint and Survivor Annuity with the Spouse as contingent annuitant on the day 17 before his death. The Preretirement Survivor Annuity shall be reduced to reflect the early commencement of payment of Retirement income as provided in Sections 5.3 and 5.4. The Preretirement Survivor Annuity shall be payable to the surviving Spouse in equal monthly installments commencing on the later to occur of (i) the first day of the month following the date of death of the Participant and (ii) the first day of the month in which the Participant would have attained age fifty-five, and shall terminate on the first day of the month in which the surviving Spouse dies. The surviving Spouse may elect to defer the commencement of payment of the Preretirement Survivor Annuity to a date not later than the Participant's Normal Retirement Date and if such deferral is elected the amount of payments shall be increased to reflect such deferral as if the Participant had so deferred the commencement of Retirement Income payments. (ii) If a Participant who had completed twenty-five Years of Service dies prior to attainment of fifty-five years of age and a Preretirement Survivor Annuity is payable with respect to such Participant, then such payments may begin, at the option of the Spouse, as of the first day of any month following the date of death of the Participant. If such payments begin before the date such Participant would have attained fifty-five years of age, the amount of the payment shall be determined as provided in the Plan for payment beginning as of the first of the month after such Participant would have attained fifty- five years of age and then such payment amount shall be actuarially reduced to reflect the earlier date for beginning payments. Provided, however, that this subsection (a)(ii) shall apply only to the Accrued Benefit of such deceased Participant accrued as of December 31, 1992. This option is not available for Accrued Benefit attributable to periods of time after December 31, 1992. (b) A Participant may elect at any time during the Election Period (as defined in paragraph (d) below) to waive the Preretirement Survivor Annuity and to revoke any such election at any time during the Election Period. An election by a Participant to waive the Preretirement Survivor Annuity shall not take effect unless the Participant's Spouse consents in writing to such election, such consent acknowledges the effect of such an election and the consent is witnessed by a representative of the Plan or a notary public, unless the Participant establishes to the satisfaction of the Administrator that such consent may not be obtained because there is no Spouse, the Spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe. The consent by a Spouse shall be effective only with respect to that Spouse. (c) The Administrator shall provide each Participant with a written explanation with respect to the Preretirement Survivor Annuity within the period beginning with the first day of the Plan Year in which the Participant attains age 32 and ending with the close of the Plan Year preceding the Plan Year in which the Participant attains age 35. If the Participant enters the Plan after the first day of the Plan Year in which he attains age 32, the Administrator shall provide him with the explanation no later than the date 12 months after the date he enters the Plan. If the employment of a Participant with the Company terminates prior to the date he attains age 35, he must receive such written explanation during the period beginning 12 months before the date of termination of employment and ending on the date 12 months after the date of termination of employment. If the Participant thereafter returns to employment with the Company, he must again receive the explanation within the twelve month period commencing on the date he returns to employment. The explanation shall include (i) the terms and conditions of the Preretirement Survivor Annuity, (ii) the Participant's right to make, and the effect of, the revocation of an election to waive the Preretirement Survivor Annuity, (iii) the rights of the Participant's Spouse in connection therewith, and (iv) the right to make, and the effect of, the revocation of an election to waive the Preretirement Survivor Annuity. (d) For purposes of this Section, the term "Election Period" means the period that begins on the first day of the Plan Year in which the Participant attains age thirty-five and ends on the date of the Participant's death. In the case of a Participant whose employment with the Company terminates, the applicable Election Period with respect to benefits accrued before the date of termina-tion from employment shall not begin later than the date of termination. The term "Annuity Starting Date" means (i) the first day of the first period for which an amount is payable as an annuity under 18 the Plan, or (ii) in the case of a benefit not payable in the form of an annuity, the first day on which all events have occurred that entitle the Participant to that benefit under the Plan. (e) If a Participant does not elect to waive the Preretirement Survivor Annuity in accordance with this Section, then for each month during which the Preretirement Survivor Annuity is effective, the Participant's benefits under the Plan (including benefits payable to the surviving Spouse pursuant to this Section 5.5) shall be reduced for each full month of coverage during the periods of time described in the following provisions under the 50% Survivor Annuity provisions by an amount as stated: (i) For periods of coverage after 1988: (A) one-twelfth of two and one half percent for each month after the month in which the Participant attains seventy-five years of age; (B) one-twelfth of two and one-tenth percent for each month during the period beginning after the month in which the Participant attains seventy years of age and ending with the month during which the Participant attains the age of seventy- five years; (C) one-tenth of one percent for each month during the period beginning after the month in which the Participant attains sixty-five years of age and ending with the month during which the Participant attains the age of seventy years; (D) one-twenty-fourth of one percent for each month during the period beginning after the month in which the Participant attains sixty years of age and ending with the month during which the Participant attains the age of sixty-five years of age; (E) one-thirtieth of one percent for each month during the period beginning after the month in which the Participant attains fifty-five years of age and ending with the month during which the Participant attains the age of sixty years; (F) one-fortieth of one percent for each month during the period beginning after the month in which the Participant attains fifty years of age and ending with the month during which the Participant attains the age of fifty-five years; (G) one-sixtieth of one percent for each month during the period beginning after the month in which the Participant attains forty-five years of age and ending with the month during which the Participant attains the age of fifty years; (H) one-one hundred twentieth of one percent for each month during the period beginning after the month in which the Participant attains forty years of age and ending with the month during which the Participant attains the age of forty- five years; and (I) no reduction for the month during which the Participant attains the age of forty years and each month prior thereto. (ii) For periods of coverage after March, 1985 and before 1989: (A) one-twenty-fourth of one percent for each month after the month in which the Participant attains sixty years of age; 19 (B) one-thirtieth of one percent for each month during the period beginning after the month in which the Participant attains fifty-five years of age and ending with the month during which the Participant attains the age of sixty years; (C) one-fortieth of one percent for each month during the period beginning after the month in which the Participant attains fifty years of age and ending with the month during which the Participant attains the age of fifty-five years; (D) one-sixtieth of one percent for each month during the period beginning after the month in which the Participant attains forty-five years of age and ending with the month during which the Participant attains the age of fifty years; (E) one-one hundred twentieth of one percent for each month during the period beginning after the month in which the Participant attains forty years of age and ending with the month during which the Participant attains the age of forty- five years; and (F) no reduction for the month during which the Participant attains the age of forty years and each month prior thereto. (iii) For periods of coverage after July, 1984, and before April, 1985, there shall be no reduction. (iv) For periods of coverage after September, 1983 and before August, 1984: (A) one-twenty-fourth of one percent for each month after the month in which the Participant attains fifty-five years of age, and (B) one-thirtieth of one percent for each month during the period beginning after the month in which the Participant attains fifty years of age and ending with the month during which the Participant attains the age of fifty-five years, and (C) one-fortieth of one percent for the month during which the Participant attains the age of fifty years of age and for each month prior thereto. (v) For periods of coverage before October, 1983, one-twenty- fourth of one percent for each full month of coverage. (f) If a Participant shall die on or after the first to occur of his attainment of Normal Retirement Age or the date of commencement of Retirement Income to him under the Plan, then except as otherwise provided in Section 5.6, payment shall be made to his surviving Spouse or Beneficiary in accordance with the form of payment elected by the Participant pursuant to Article VI (with the consent of the surviving Spouse if applicable), or if no such election is then in effect, to his surviving Spouse, if any, in the form of the survivor portion of a 50% Joint and Survivor Annuity pursuant to the terms of Section 6.1(a). (g) The Preretirement Survivor Annuity coverage provisions are applicable to a Participant if he is credited with one Hour of Service or one hour of paid leave after August 22, 1984. A Participant who was not credited with an Hour of Service or an hour of paid leave after August 22, 1984, but who was credited with at least one Hour of Service after 1975 and before August 23, 1984, has at least ten Years of Service, had a nonforfeitable right to all or a portion of his accrued benefit derived from Company contributions, had not begun to receive Retirement Income as of August 23, 1984, and is alive, may elect Preretirement Survivor Annuity coverage at any time prior to the time he begins to receive Retirement Income. 20 A Participant who was not credited with an Hour of Service after 1975 or with one hour of paid leave after August 22, 1984 but who was credited with at least one Hour of Service after September 1, 1974 and before 1976, had not begun to receive Retirement Income as of August 23, 1984, and is alive may elect at any time prior to the time he begins to receive Retirement Income, to have the provisions of the Plan in effect on August 22, 1984 apply with respect to the Qualified Joint and Survivor Annuity and the 50% Survivor Annuity. Any other Participant is entitled to such survivor annuity coverage as provided by applicable prior provisions of the Plan. (h) As of December 31, 1985, all of the Participating Employers (as defined in the ANR Supplement to this Plan) in the Pre-1986 ANR Plan (as defined in the ANR Supplement to this Plan) provided a death benefit to the qualified surviving spouse of an active employee who died. This death benefit was provided to the qualified spouse of a Disabled Former Employee who became totally and permanently disabled after October 31, 1979 and who, on his date of death, was covered by the comprehensive benefits program maintained by the Company, a Related Employer or a Subsidiary. This death benefit was provided to the qualified spouse of a person who retired pursuant to Section 7.4 or 7.5 of the Pre-1986 ANR Plan, from the date of such retirement until such person attained sixty- five years of age. This death benefit program continued in effect after 1985 but only for employees who were continuously eligible to participate in the program and who were continuously covered under the program on and after December 31, 1985. The reduction of Retirement Income for Preretirement Survivor Annuity coverage under the Plan, including the ANR Supplement, shall only apply to the amount of Retirement Income which exceeds the benefit payable to the surviving spouse under the death benefit program described in this subsection for the period of time the coverage was provided under such death benefit program. 5.6 Elective Deferral. In lieu of the commencement date that would ----------------- otherwise apply under Sections 5.1, 5.2, 5.3 or 5.4 hereof, and subject to the limitations set forth in Section 6.7, a Participant who terminates his employment with the Company on or before a Retirement Date may defer commencement of his Retirement Income payments to a date (his Deferred Commencement Date) subsequent to his Normal Retirement Date. 5.7 Suspension of Benefits. ---------------------- (a) If a Participant received Retirement Income payments under the Plan following a termination of his employment with the Company prior to his Normal Retirement Date and later resumes his employment with the Company prior to his Normal Retirement Date, no Retirement Income payments shall be paid during such later period of employment and up to his Normal Retirement Date. Any benefits payable under the Plan to or on behalf of the Participant at the time of his subsequent date of termination of employment shall be reduced by the Actuarial Equivalent of any benefits paid to him after his earlier termination and prior to his Normal Retirement Date unless the Participant repays such benefits in full to the Trust within two years after his date of reemployment. (b) If (i) a Participant whose employment terminates is reemployed by the Company after his Normal Retirement Date, or is reemployed by the Company prior to his Normal Retirement Date and continues in employment beyond his Normal Retirement Date, or (ii) a Participant continues in employment with the Company after his Normal Retirement Date without a prior termination, the following provisions of this Section 5.7 shall become applicable to him as of his Normal Retirement Date or, if later, his date of reemployment. (c) For purposes of this Section, the following definitions shall apply: 21 (i) "Postretirement Date Service" means each calendar month of employment of a Participant after his Normal Retirement Date and subsequent to the time that: (A) payment of Retirement Income commenced to the Participant if he returned to employment with the Company, or (B) payment of Retirement Income would have commenced to him if he had not remained in employment with the Company, if in either case the Participant completes forty or more Hours of Service in such calendar month. The determination of the Administrator with respect to whether an Employee is performing Postretirement Date Service shall be based on a reasonable and good faith evaluation of the facts, and shall be conclusive and binding. (ii) "Suspendable Amount" means: (A) in the case of Retirement Income payable periodically on a monthly basis for as long as a life (or lives) continues, the monthly Retirement Income otherwise payable in a calendar month in which the Participant is engaged in Postretirement Date Service; (B) in the case of Retirement Income payable other than in the form described in clause (A) above, the lesser of (1) the amount of Retirement Income that would have been payable to the Participant if he had been receiving monthly benefits under the Plan since actual retirement based on a single life annuity commencing at his actual retirement date; or (2) the actual amount paid or scheduled to be paid to the Participant for such month. Payments that are scheduled to be paid less frequently than monthly may be converted to monthly payments for purposes of clause (2). (d) Payment shall be permanently withheld of a portion of a Participant's Retirement Income, not in excess of the Suspendable Amount, for each calendar month during which the Participant is employed in Postretirement Date Service. (e) If payments have been suspended pursuant to paragraph (d) next above, such payments shall resume no later than the first day of the third calendar month after the calendar month in which the Participant ceases to be employed in Postretirement Date Service; provided, however, that no payments shall resume until the Participant has complied with the requirements set forth in paragraph (i) below. The initial payment upon resumption shall include the payment scheduled to occur in the calendar month when payments resume and any amounts withheld during the period between the cessation of Postretirement Date Service and the resumption of payment, less any amounts that are subject to offset pursuant to paragraph (f) below. (f) Retirement Income payments made subsequent to Postretirement Date Service shall be reduced (i) by the Actuarial Equivalent of any benefits paid to the Participant prior to the time he is reemployed by the Company after his Normal Retirement Date (such reduction will occur only if such benefits are not repaid in full to the Trust within two years after his date of reemployment); and (ii) by the amount of any payments previously made during those calendar months in which the Participant was engaged in Postretirement Date Service; provided, however, that such reduction under (ii) shall not exceed, in any one month, twenty-five percent of that month's total Retirement Income payment (excluding amounts described in paragraph (d) above) that would have been due but for the offset. (g) Any Participant whose payments of Retirement Income are suspended pursuant to paragraph (d) of this Section, shall be notified (by personal delivery or certified or registered mail) during the first calendar month in which payments are withheld, that his Retirement Income is 22 suspended. Such notification shall include: (i) a description of the specific reasons for the suspension of payments; (ii) a general description of the Plan provisions relating to the suspension; (iii) a copy of the provisions; (iv) a statement to the effect that applicable Department of Labor regulations may be found at Section 2530.203-3 of Title 29 of the Code of Federal Regulations, (v) the procedure for appealing the suspension, which procedure shall be governed by Section 7.5; and (vi) the procedure for filing a benefits resumption notification pursuant to paragraph (i) below. If payments subsequent to the suspension are to be reduced by an offset pursuant to paragraph (f) above, the notification shall specifically identify the periods of employment with the Company for which the amounts to be offset were paid, the Suspendable Amounts subject to offset, and the manner in which the Plan intends to offset such Suspendable Amounts. (h) If the Summary Plan Description ("SPD") for the Plan contains information that is substantially the same as information required pursuant to paragraph (g), the notification required by paragraph (g) may refer the Participant to the relevant pages of the SPD. If the notification refers to the SPD, the notification shall also inform the Participant how to obtain a copy of the SPD, or relevant pages thereof, and any request for the referenced information shall be honored within thirty days of the receipt by the Administrator of such request. (i) Payments shall not resume as set forth in paragraph (e) above until a Participant performing Postretirement Date Service notifies the Administrator in writing of the cessation of such Service and supplies the Administrator with such proof of the cessation as the Administrator may reasonably require. (j) A Participant may request, pursuant to the procedure contained in Section 7.5, a determination whether specific contemplated employment will constitute Postretirement Date Service. 5.7A Alternative to Receive Retirement Income During Reemployment. In ------------------------------------------------------------ lieu of having his Retirement Income payments discontinued and his benefit payable upon his subsequent retirement or termination determined in accordance with the preceding provisions, any such Participant who is receiving Retirement Income payments under the Plan and who reenters the active employment of the Company may, upon such reentry, elect in writing and filed with the Administrator to continue to receive his Retirement Income payments after his reemployment in the same manner as though he had not reentered the employment of the Company and in such event he shall be treated as a new Employee with respect to such period of reemployment except that (i) he shall become a Participant in the Plan on the date of his reemployment, (ii) his Years of Service for vesting purposes shall include the Years of Service for vesting purposes which he had accrued prior to such reemployment, and (iii) the benefit which he accrued after the date of his reemployment which is payable to such Participant or his Beneficiary upon his subsequent retirement or termination of employment shall be limited to the amount which can be provided on an Actuarially Equivalent basis by the monthly Retirement Income, if any, which he accrues subsequent to such reemployment based upon his Years of Service for purposes of determining Retirement Income and Final Average Earnings determined in the same manner as though he were a new Employee; provided further, however, that such income which such a Participant accrues subsequent to his reemployment shall not cause the Actuarial Equivalent of the total income payments to the Participant or his Beneficiary under the Plan to exceed the amount which would have been payable if he had not elected to continue to receive his Retirement Income after his reemployment. 5.8 Maximum Benefit. --------------- (a) Notwithstanding any other provision of this Plan, in no event may a Participant's annual Retirement Income attributable to Company contributions exceed the equivalent, determined in accordance with paragraph (f) of this Section and with rules determined by the Commissioner of Internal Revenue pursuant to Code Section 415, of a straight life annuity payment equal to the lesser of: (i) $90,000, or such other amount as may be set forth in Section 415 of the Code or determined by Treasury regulations issued pursuant to Section 415(d) of the Code; or 23 (ii) one hundred percent of the Participant's average annual Compensation over the three consecutive calendar years of employment (or lesser if the Participant does not have three consecutive years) during which he had the greatest aggregate Compensation from the Company, increased to reflect cost of living adjustments determined by Treasury regulations issued pursuant to Section 415(d) of the Code; and (iii) if the Participant has been a Participant in the Plan for fewer than ten Plan Years, as determined pursuant to Section 1.28(b), the amount determined under paragraph (i) of this Section 5.8 multiplied by a fraction, the numerator of which is the Participant's number of Plan Years (or part thereof) of participation in the Plan, as determined pursuant to Section 1.28(b), and the denominator of which is ten, provided, however, that such product shall not be less than one-tenth of the amount determined under the foregoing provisions of this Section 5.8; and (iv) if the Participant has been employed by the Company for fewer than 10 years, the amount determined under the provisions of paragraph (ii) of this section 5.8 multiplied by a fraction, the numerator of which is the number of years (or part thereof) during which the Participant has been employed by the Company, and the denominator of which is ten (10), provided that such product shall not be less than one-tenth of the amount determined under the foregoing provisions of this section 5.8. (b) The maximum benefit permitted under paragraph (a) of this Section shall be in the form of a straight life annuity (with no ancillary benefits) under a plan to which employees do not contribute and under which no rollover contributions are made. (c) Notwithstanding the foregoing provisions of this Section 5.8, a Retirement Income payable with respect to the Plan shall not be deemed to exceed the limitation of this Section 5.8 in a Plan Year if the Retirement Income derived from Company contributions payable with respect to the Participant under this Plan and all other defined benefit plans of the Company does not in the aggregate exceed $10,000 for such Plan Year. If the Participant has fewer than ten Years of Service, the $10,000 amount referred to in the previous sentence of this subsection (c) shall be multiplied by a fraction, the numerator of which is the Participant's number of Years of Service and the denominator of which is ten, provided, however, that the resulting product shall not be less than one-tenth of the amount determined under this subsection (c). The provisions of this paragraph (c) shall not apply with respect to any Participant if the Company has at any time maintained a defined contribution plan in which the Participant participated. (d) Voluntary Contributions will be treated as a separate defined contribution plan maintained by the Company that is subject to the limitations on contributions and other additions described in Treasury Regulation Section 1.415-6. (e) If the $90,000 amount contained in paragraph (a)(i) of this Section is increased pursuant to Treasury regulations issued under Section 415(d) of the Code, such increase shall be effective as of January 1 of the calendar year for which such Treasury regulations were effective and shall apply with respect to Limitation Years ending with or within that calendar year. (f) For purposes of this Section 5.8: (i) If the Retirement Income under the Plan is payable in any form other than a straight life annuity, the determination whether the limitation described in paragraph (a) of this Section has been satisfied shall be made, in accordance with regulations prescribed by the Secretary of the Treasury, by adjusting such benefit so that it is equivalent to the benefit described in paragraph (a) of this Section. For purposes of this paragraph (f)(i), any ancillary benefit that is not directly related to Retirement Income benefits shall not be taken into account and that portion of any joint and survivor annuity that constitutes a qualified joint 24 and survivor annuity (as defined in Section 417(b) of the Code) shall not be taken into account. (ii) If the Retirement Income under the Plan begins before the Social Security Retirement Age, the determination whether the $90,000 limitation set forth in subsection (a) has been satisfied shall be made, in the case of Retirement Income commencing on or after age 62, in accordance with regulations prescribed by the Secretary of the Treasury, by adjusting such Income so that it is equivalent to a benefit beginning at the Social Security Retirement Age. In the case of a Retirement Income commencing prior to age 62, such determination shall be made (A) by reducing such Retirement Income for the period between the Social Security Retirement Age and age 62 in accordance with the procedure described in the preceding sentence and (B) by further reducing such Retirement Income to its Actuarial Equivalent for the period between age 62 and the date payment commences. Reductions under this paragraph shall be made in such manner as the Secretary of the Treasury may prescribe that is consistent with old-age insurance benefits commencing before the Social Security Retirement Age under the Social Security Act. (iii) If payment of Retirement Income under the Plan begins after the Social Security Retirement Age, the determination as to whether the $90,000 limitation set forth in subsection (a) has been satisfied shall be made, in accordance with regulations prescribed by the Secretary of the Treasury, by adjusting such benefit so that it is equivalent to such a benefit beginning at the Social Security Retirement Age. (iv) (1) For purposes of adjusting any benefit under paragraph (f)(i) of this Section, the interest rate assumption shall be the greater of five percent or the rate specified in Section 1.2 of the Plan. (2) For purposes of adjusting any benefit under paragraph (f)(ii) of this Section, the interest rate assumption shall be the greater of five percent or the rate used pursuant to Section 5.3 of the Plan. (3) For purposes of adjusting any benefit under paragraph (f)(iii) of this Section, the interest rate assumption shall be the lesser of five percent or the rate specified in Section 1.2 of the Plan. (g) If any Participant under this Plan is also a Participant in a defined contribution plan or plans (as defined in Section 415 of the Code) maintained by the Company, the sum of the defined benefit plan fraction (as defined in Code Section 415(e)(2)) and the defined contribution plan fraction (as defined in Code Section 415(e)(3)) for any Limitation Year with respect to such Participant shall not exceed one. If such sum exceeds one and the annual additions (as defined in Code Section 415(c)(2)) for such Participant to such defined contribution plan or plans are not reduced to obtain compliance with Code Section 415(e), then the Participant's Retirement Income under this Plan shall be reduced to obtain such compliance. (h) (i) The total annual benefit payable under all qualified defined benefit plans maintained by the Company shall not exceed the limits under Section 415 of the Code as set forth in paragraph (a) of this Section. (ii) For purposes of the limitations imposed by this Section 5.8, a defined benefit plan or defined contribution plan shall be treated as maintained by the Company if the plan is maintained by any employer that is, along with the Company, a member of a controlled group of corporations or under common control with the Company (as defined in Sections 414(b) and (c) of the Code, as modified by Section 415(h) thereof) or a member of an affiliated service group (as defined in Section 414(m) of the Code). 25 (i) For purposes of this Section 5.8, the term "Limitation Year" means the period to be used in determining the Plan's compliance with Code Section 415 and the regulations thereunder. The Company shall take all actions to ensure that the Limitation Year is the same period as the Plan Year. (j) For purposes of this Section and Section 13.6, "compensation" means wages, salaries, fees for professional services and other amounts received for personal services actually rendered in the course of employment with the Company (including, but not limited to commissions paid salesmen, compensation for services on the basis of a percentage of profits, tips and bonuses); shall include all compensation actually paid or made available to a Participant for an entire Limitation Year; and shall not include any other items or amounts paid to or for the benefit of a Participant. (k) For purposes of this Section, the term "Social Security Retirement Age" means the age used as the retirement age for a Participant under Section 216(l) of the Social Security Act, except that such section shall be applied (i) without regard to the age increase factor, and (ii) as if the early retirement age under Section 216(1)(2) of that Act were sixty-two. (l) Any reduction in Retirement Income made pursuant to provisions of this Section 5.8 shall not be increased in subsequent years to the extent allowed by changes in the limitation provisions of Section 415 of the Code including increases in the maximum dollar limitations permitted in such future years. ARTICLE VI ---------- NORMAL AND OPTIONAL FORMS OF RETIREMENT INCOME ---------------------------------------------- 6.1 Normal Form of Payment. ---------------------- (a) If a Participant does not make a timely election not to receive payments pursuant to this Section and to receive payments pursuant to one of the optional forms of payment described below, and has a Spouse at the time payments under the Plan commence, the Retirement Income payable to the Participant shall be payable as a "50% Joint and Survivor Annuity". A 50% Joint and Survivor Annuity means an annuity payable to the Participant for his life, with a survivor annuity payable to his Spouse for the life of such Spouse in an amount equal to fifty percent of the amount payable during the life of the Participant. A 50% Joint and Survivor Annuity is the Actuarial Equivalent of the Retirement Income determined pursuant to Section 5.1 payable as set forth therein. An election by a Participant not to receive payments pursuant to this Section shall be effective only if the Participant's Spouse has consented to such election as provided in Section 6.2(d). (b) If a Participant does not make a timely election not to receive payments pursuant to this Section and to receive payments pursuant to one of the optional forms of benefits described below and does not have a Spouse at the time payments under the Plan commence, the Retirement Income payable to the Participant shall be payable in an amount determined in Section 5.1, as an annuity for the Participant's life ending on the first day of the month during which his death occurs. 6.2 Election of the Form of Benefits. -------------------------------- (a) Within a reasonable time prior to the commencement of Retirement Income payments to a Participant, the Administrator shall give the Participant a written notice, in nontechnical terms, of his right to elect not to receive his Retirement Income pursuant to Section 6.1 and of his right to make an election of an optional form of payment of his Retirement Income pursuant to Section 6.3. Such notice shall include a description of (i) the terms and conditions of the normal form of benefit under Section 6.1, (ii) the Participant's right to make and the effect of an election to waive that form, (iii) the rights of the Participant's Spouse not to consent to such an election, (iv) the right to make, and the effect of, a revocation of such an election, (v) the optional forms of payment available under 26 Section 6.3 and the Participant's right to designate a Beneficiary in connection therewith, and (vi) the Participant's right to request additional information from the Administrator respecting the estimated financial effect upon the Participant's Retirement Income (in terms of dollars and cents per annuity payment) of electing to receive payment in one of the optional forms provided in Section 6.3. (b) The elections provided in Sections 6.1 and 6.3 may be made by the Participant by giving a written notice of election to the Administrator at any time during the Election Period consisting of the ninety day period ending on the Participant's Annuity Starting Date (as defined in Section 5.5(d)). Any election provided in Sections 6.1 and 6.3 may be modified or revoked during the Election Period and shall be automatically revoked if the Participant dies before commencement of payment of his Retirement Income to him. A Participant may elect a different option under this Section only if he meets the requirements of this paragraph and paragraph (d). The election of form of benefits and of the Beneficiary to receive benefits under a survivor annuity form of benefit may not be changed after the Election Period. However, the Participant may change the Beneficiary designated to receive period certain payments under a form of benefit containing a period certain payment after the end of the Election Period. (c) If a Participant makes a request for additional information pursuant to paragraph (a)(vi) on or before the last day of the Election Period, the Election Period shall be extended to the extent necessary to include at least the ninety calendar days immediately following the day the additional requested information is personally delivered or mailed to the Participant. (d) Any election by a Participant not to receive benefits in either (i) the normal form set forth in Section 6.1(a) or (ii) a fifty percent or greater Joint and Survivor Annuity payable to the Spouse shall not take effect unless such Participant's Spouse consents in writing to such election, such consent acknowledges the effect of such election and the identity of any non-Spouse Beneficiary, including any class of Beneficiaries and any contingent Beneficiaries, designated in connection with the election of an optional form of payment pursuant to Section 6.3, and such consent is witnessed by a representative of the Plan or a notary public, unless the Participant establishes to the satisfaction of the Administrator that such consent may not be obtained because there is no Spouse, the Spouse cannot be located, or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe. Any consent by a Spouse, or establishment that the consent of a Spouse may not be obtained, shall be effective only with respect to that Spouse. A Participant may not subsequently change the form of payment elected pursuant to Section 6.3 or the designation of his Beneficiary unless his Spouse consents to the new election or designation in accordance with the requirements set forth in the preceding sentence, or unless the Spouse's consent permits the Participant to change the form of payment elected or the designation of his Beneficiary without the Spouse's further consent. (e) If a Participant is treated as having a Spouse under the second sentence of Section 1.22, after the date that the Participant and such Spouse have been married for a continuous period of at least one year, then the Participant shall be subject to the provisions of Section 6.1(a) of the Plan and, unless a valid election pursuant to Section 6.1 was filed by the Participant (and consented to by such Spouse), the Participant's Retirement Income shall be payable thereafter in the form of a 50% Joint and Survivor Annuity in an amount based on the Participant's Accrued Benefit on the date that such Retirement Income payments commenced, reduced by the Actuarial Equivalent of the benefits paid to or with respect to such Participant between such date and the date on which Retirement Income payments commence in the form of a 50% Joint and Survivor Annuity. The provisions of this paragraph (e) shall only apply if Retirement Income commences being paid to such Participant other than in the form of a 50% or greater Joint and Survivor Annuity. 6.3 Optional Forms of Payment. Each of the optional forms of payment ------------------------- described under this Section shall be the Actuarial Equivalent of the Retirement Income otherwise payable to the Participant under the 27 provisions of Section 6.1 of the Plan. Subject to Section 6.2, in lieu of the normal form of Retirement Income set forth in Section 6.1, a Participant may elect any of the following forms of payment of benefits under the Plan: (a) Five or Ten-Year Certain Annuity. A participant may receive -------------------------------- an annuity payable monthly during his lifetime and, if he dies within a period of five or ten years, as selected by the Participant, after the commencement of payments, the same amount shall be payable monthly for the remainder of such five or ten-year period to his Beneficiary or Beneficiaries. (b) Straight Life Annuity. A Participant may receive an annuity --------------------- payable monthly during his life, ending on the first day of the month during which his death occurs. (c) Joint and Survivor Annuity. A Participant may receive an -------------------------- annuity payable to the Participant for his life with a survivor annuity payable to his Spouse or such other Beneficiary selected in the manner set forth in Section 1.3, for the life of such Spouse or Beneficiary, in an amount equal to fifty or one hundred percent, as selected by the Participant, of the amount payable during the life of the Participant. 6.4 Administrative Powers Relating to Payments. ------------------------------------------ (a) If any person eligible to receive payments under the provisions of this Plan is under a legal disability or, by reason of illness or mental or physical disability, is, in the opinion of the Administrator, unable to properly administer payments made pursuant to the Plan, the Trustee shall make such payments in such of the following ways as the Administrator shall direct: (i) Directly to the person eligible to receive the payments; (ii) To the legal representative of such person eligible to receive payments; or (iii) To some relative by blood or marriage, or friend, for the benefit of such person eligible to receive payments. (b) Any payment made pursuant to this Section shall be in complete discharge of the obligation therefore under the Plan. 6.5 General Limitation. Except as set forth in Section 6.1(a) and ------------------ anything else in this Article to the contrary notwithstanding, no method of distribution (other than a 50% to 100% Joint and Survivor Annuity payable to the Spouse) may be made under this Article which would result in the Actuarial Equivalent of a Spouse's or Beneficiary's interest exceeding fifty percent of the Actuarial Equivalent of the Participant's full Retirement Income, both equivalents being determined as of the Participant's Retirement Date. 6.6 Small Amounts. ------------- (a) If the lump-sum Actuarial Equivalent of the monthly Retirement Income attributable to Company contributions and Participant contributions payable under the Plan to any Participant who has incurred a Break in Service, or to the Spouse or Beneficiary of a deceased Participant, is less than $3,500 the Company shall direct that the Actuarial Equivalent of that monthly Retirement Income otherwise payable be paid in a lump sum, in full satisfaction of all rights of the Participant, his Spouse and his Beneficiary to receive any benefits under the Plan. Such lump sum payment shall be paid within a reasonable time after the end of the Plan Year in which the Participant incurs a Break in Service or dies, whichever is applicable. No distribution may be made under this Section after payment of a Participant's Retirement Income has commenced unless the Participant and his Spouse, if any (or where the Participant has died, his Spouse), consent in writing to the distribution. (b) If the distributee of any eligible rollover distribution (as defined in Code Section 402(f)(2)(A)) elects to have such distribution paid directly to an eligible retirement plan (as defined 28 in Code Section 402(c)(8)(B) except that a qualified trust shall be considered an eligible retirement plan only if it is a defined contribution plan, the terms of which permit the acceptance of rollover contributions) and specifies the eligible retirement plan (as defined herein) to which such distribution is to be paid (in such form and at such time as the Administrator may prescribe), such distribution shall be made in the form of a direct transfer to the eligible retirement plan (as defined herein) so specified. The distribution shall be eligible for the direct transfer described herein only to the extent that the eligible rollover distribution (as defined herein) would be includible in gross income if not transferred in a direct transfer described herein (determined without regard to Code Sections 402(c) and 403(a)(4)). The Administrator shall determine whether or not to make a requested direct transfer based upon applicable provisions of the Code including Section 401(a)(31) of the Code and Treasury Regulations issued pursuant thereto. In addition, the Administrator may establish guidelines consistent with the Code and Treasury Regulations for use in determination as to whether or not to make a requested direct transfer to another plan. (c) A Participant who is not vested in a Retirement Income benefit under the Plan upon termination of employment has no benefit under the Plan. However, such Participant is deemed to receive a distribution from the Plan equal to the value of his Retirement Income (which is zero dollars) upon such termination of employment. If such Participant subsequently becomes eligible for additional vesting under the Plan, the value of the Retirement Income (which is zero dollars) deemed previously distributed to such person shall be deemed to have been repaid with interest at the rate determined for purposes of Code Section 411(c)(2)(C) to the Plan by such person. Such deemed repayment must occur prior to the time such person incurs five one year Breaks in Service periods. 6.7 Commencement of Benefits. ------------------------ (a) The payment of benefits under the Plan to, or with respect to, a Participant shall, subject to the provisions of Section 5.6, be made or commenced not later than sixty days after the last day of the Plan Year in which the last of the following occurs: (i) the Participant's sixty-fifth birthday; (ii) the date on which the employment of the Participant terminates; or (iii) the tenth anniversary of the commencement of the Participant's employment with the Company. Notwithstanding the foregoing, no distribution of a Retirement Income with an Actuarial Equivalent in excess of $3,500 shall be made or commenced to the Participant prior to the date Participant attains age 65 without the Participant's written consent. No such consent shall be valid unless the Participant receives a general description of the material features, and an explanation of the relative values, of the optional forms of benefit available under the Plan. In addition, the Participant must be informed of his right to defer receipt of the distribution. The Administrator shall deliver the aforementioned written notice to the Participant during a period commencing no less than 30 days and no more than 90 days before the Participant's date of commencement of benefits. The written consent of the participant to the distribution shall not be made before the participant receives the notice and shall not be made more than 90 days before his date of commencement of benefits. (b) Notwithstanding anything to the contrary contained elsewhere in the Plan: (i) The payment of benefits under the Plan to any Participant will: (A) be distributed to him not later than the Required Distribution Date (as defined in paragraph (b)(iii)), or (B) be distributed to him commencing not later than the Required Distribution Date in accordance with regulations prescribed by the Secretary of the Treasury (I) over the life of the Participant or over the lives of the Participant and his Beneficiary, or (II) over a period not extending beyond the life expectancy of the Participant or the life expectancy of the Participant and his Beneficiary. 29 (ii) (A) If the Participant dies after distribution to him has commenced pursuant to paragraph (b)(i)(B), but before his entire interest in the Plan has been distributed to him, then the remaining portion of that interest will be distributed at least as rapidly as under the method of distribution being used under paragraph (b)(i)(B) at the date of his death. (B) If the Participant dies before distribution to him has commenced pursuant to paragraph (b)(i)(B), then, except as provided in paragraphs (b)(ii)(C) and (b)(ii)(D), his entire interest in the Plan will be distributed within five years after his death. (C) Notwithstanding the provisions of paragraph (b)(ii)(B), if the Participant dies before distribution to him has commenced pursuant to paragraph (b)(i)(B) and if any portion of his interest in the Plan is payable (I) to or for the benefit of a Beneficiary, (II) in accordance with regulations prescribed by the Secretary of the Treasury over the life of the Beneficiary or over a period not extending beyond the life expectancy of the Beneficiary, and (III) beginning not later than one year after the date of the Participant's death or such later date as the Secretary of the Treasury may prescribe by regulations, then the portion of his interest referred to in this paragraph (b)(ii)(C) shall be treated as distributed on the date on which such distributions begin. (D) Notwithstanding the provisions of paragraphs (b)(ii)(B) and (b)(ii)(C), if the Beneficiary referred to in paragraph (b)(ii)(C) is the Spouse of the Participant, then: (I) the date on which the distributions are required to begin under paragraph (b)(ii)(C)(III) shall not be earlier than the date on which the Participant would have attained age 70-1/2, and (II) if the Spouse dies before the distributions to that Spouse begin, then this paragraph (b)(ii)(D) shall be applied as if the Spouse were the Participant. (iii) For purposes of this subsection (b), the Required Distribution Date means April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2 provided, however, that if the Participant attains age 70 1/2 in calendar year 1988, the Required Distribution Date means April 1, 1990, and further provided that if the Participant attains age 70 1/2 prior to January 1, 1988, the Required Distribution Date means the April 1 following the later of the calendar year in which the Participant: (A) attains age 70 1/2, or (B) terminates service with the Company, unless he is a 5% owner (as defined in Section 416 of the Code) of the Company with respect to the Plan Year ending in the calendar year in which he attains age 70 1/2, in which case clause (B) shall not apply. (iv) For purposes of this subsection (b), the life expectancy of a Participant and his Spouse may be redetermined, but not more frequently than annually. This paragraph (iv) shall not apply in the case of a life annuity. 6.8 No Guaranty of Benefits. The benefits provided under the Plan ----------------------- shall be paid solely from the assets of the Trust Fund including Insurance contracts. Except to the extent provided by ERISA, nothing contained in the Plan or the Trust Agreement shall constitute a guaranty by the Company or the Trustee that the assets of the Trust Fund will be sufficient to pay any benefit to any person. 30 6.9 Medium of Payments. Any payment made to any person pursuant to the ------------------ terms of the Plan may be made by check or in cash. If acceptable to the Administrator and the payee, payment may be made by other means. 6.10 Assets for Benefit Payment. -------------------------- (a) All assets of the Plan, except insurance contracts, may be commingled for investment. However, beginning with Plan Year 1990, the Administrator shall maintain separate accounting of assets, including insurance contracts, with respect to each Controlled Group which includes entities which have adopted the Plan. A "Controlled Group" is a controlled group of corporations and/or trades or businesses as defined in Sections 414(b) and (c) of the Code. A Controlled Group shall also include any Subsidiary to the extent so provided in a Supplement included in the Plan. (b) Retirement Income accrued by a Participant while employed by a member of a Controlled Group shall be paid from the assets of such Controlled Group except as provided in Section 8.2. (c) All assets of each Controlled Group are available to pay Retirement Income with respect only to Participants of such Controlled Group. This subsection (c) is effective as of January 1, 1991. (d) All amounts held in the Plan allocable to a particular member of a Controlled Group are available to pay Retirement Income with respect to all Participant benefits accrued with respect to any member of such Controlled Group. 6.11 Funding Through Insurance Contracts. Upon direction of the ----------------------------------- Administrator with specific prior authorization in writing from the Company, the Trustee shall purchase from a legal reserve life insurance company a retirement annuity or other form of life insurance contract which, as far as possible, provided benefits equal to (or actuarially equivalent to) those provided in the Plan for such Participant or Beneficiary, but provides no optional form of Retirement Income which would not be permitted under the Plan. Such contract shall thereafter govern the payment of the amount of benefit, if any, represented by such contract, which is payable under the Plan upon the Participant's retirement or termination of employment, and the liability of the Trust Fund and of the Plan will cease and terminate with respect to such benefits. Any such policy or contract issued prior to the termination of the Plan shall provide that the Trustee shall retain all rights of ownership at all times except the right, unless such policy or contract provides otherwise, to designate the Beneficiary to receive any benefits payable upon the death of the Participant and shall further provide that all dividends or experience rating credits shall be paid to the Trustee and applied to reduce future Company contributions to the Plan. Any annuity contract distributed by the Trustee to a Participant or Beneficiary hereunder shall contain a provision to the effect that the contract may not be sold, assigned, discounted or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose, to any person other than the issuer thereof. ARTICLE VII ----------- PLAN ADMINISTRATION ------------------- 7.1 Company Responsibility. Coastal shall be responsible for and shall ---------------------- control and manage the operation and administration of the Plan. It shall be the "Plan Administrator" and "Named Fiduciary" for purposes of ERISA and shall be subject to service of process on behalf of the Plan. The Board may, in its discretion, appoint a Committee of one or more persons, to be known as the "Plan Administrative Committee" to act as the agent of the Company in performing some or all of these duties. If the Board chooses not to appoint such a Committee, all 31 references in the Plan to the "Committee" (except for such references in this Section 7.1) shall mean the Board. The members of the Committee shall serve at the pleasure of the Board; they may be officers, directors, or Employees of the Company or any other individuals. Any member may resign by delivering his written resignation to the Board and to the Committee. Vacancies in the Committee arising by resignation, death, removal or otherwise, shall be filled by the Board. The Company shall advise the Trustee in writing of the names of the members of the Committee and of changes in membership from time to time. 7.2 Powers and Duties of Committee. The Committee shall perform the ------------------------------ duties, if any, assigned to it by the Board of Directors. The regularly kept records of the Company shall be conclusive and binding upon all persons with respect to an Employee's Hours of Service, date and length of employment, time and amount of Compensation and the manner of payment thereof, type and length of any absence from work and all other matters contained therein relating to Employees. All rules and determinations of the Committee shall be uniformly and consistently applied to all persons in similar circumstances. 7.3 Organization and Operation of Committee. --------------------------------------- (a) The Committee shall act by majority vote of its members at the time in office, and such action may be taken either by a vote at a meeting or in writing without a meeting. The signatures of a majority of the members will be sufficient to authorize Committee action. A Committee member shall not participate in discussions of or vote upon matters pertaining to his own participation in the Plan. (b) The Committee may authorize any of its members or any other person to execute any document or documents on behalf of the Committee, in which event the Committee shall notify the Trustee in writing of such action and the name or names of such member or person. The Trustee thereafter shall accept and rely upon any document executed by such members or persons as representing action by the Committee, until the Committee shall file with the Trustee a written revocation of such designation. (c) The Committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs and, with the consent of the President of the Company, may appoint such accountants, counsel, specialists, and other persons as it deems necessary or desirable in connection with the administration of this Plan. The Committee shall be entitled to rely conclusively upon, and shall be fully protected in any action taken by it in good faith in relying upon, any opinions or reports that shall be furnished to it by any such accountant, counsel, specialist or other person. 7.4 Records and Reports of Committee. The Committee shall keep a -------------------------------- record of all its proceedings and acts and shall keep all such books of account, records, and other information as may be necessary for proper administration of the Plan. The Committee shall notify the Company of any action taken by the Committee and, when required, shall notify the Trustee and any other interested person or persons. 7.5 Claims Procedure. Claims for benefits under the Plan shall be made ---------------- in writing to the Administrator. If the Administrator wholly or partially denies a claim for benefits, the Administrator shall, within a reasonable period of time, but no later than ninety days after receiving the claim, notify the claimant in writing of the denial of the claim. If the Administrator fails to notify the claimant in writing of a decision with respect to the claim within ninety days after the Administrator receives it, the claim shall be deemed denied. A notice of denial shall be written in a manner calculated to be understood by the claimant, and shall contain (a) the specific reason or reasons for denial of the claim, (b) a specific reference to the pertinent Plan provisions upon which the denial is based, (c) a description of any additional material or information necessary for the claimant to perfect the claim, together with an explanation of why such material or information is necessary, and (d) an explanation of the Plan's review procedure. Within sixty days of the receipt by the claimant of the written notice of denial of the claim, or within sixty (60) days after the claim is deemed denied as set forth above, if applicable, the claimant may file a written request with the Administrator that it conduct a full and fair review of the denial of the claimant's claim for benefits, including the conducting of a hearing, if the Administrator deems one necessary. In connection with the claimant's appeal of the denial of his benefit, the claimant may review pertinent documents and may submit issues 32 and comments in writing. The Administrator shall render a decision on the claim appeal promptly, but not later than sixty days after receiving the claimant's request for review, unless special circumstances (such as the need to hold a hearing) require an extension of time for processing, in which case the sixty- day period may be extended to 120 days. The Administrator shall notify the claimant in writing of any such extension. The decision upon review shall (i) include specific reasons for the decision, (ii) be written in a manner calculated to be understood by the claimant and (iii) contain specific references to the pertinent Plan provisions upon which the decision is based. 7.6 Compensation and Expenses of Committee. The members of the -------------------------------------- Committee shall serve without compensation for services as such, but all reasonable expenses incurred by the Committee incident to the administration for the Plan (including reasonable expenses of litigation involving the Plan and reasonable fees and expenses of its attorneys and agents) shall be borne by, and paid out of the Plan assets, except to the extent the Administrator elects to have such expenses paid directly by the Company. 7.7 Indemnity of Committee Members. The Company shall indemnify and ------------------------------ defend each member of the Committee and each of its other employees against any and all claims, loss, damages, expenses (including reasonable attorney's fees), and liability arising in connection with the administration of the Plan, except when the same is judicially determined to be due to the gross negligence or willful misconduct of such member or other employee. 7.8 Standard of Judicial Review. The Administrator has full and --------------------------- absolute discretion in the exercise of each and every aspect of its authority under the Plan, including without limitation, the authority to determine any person's right to benefits under the Plan, the correct amount and form of any such benefits, the authority to decide any appeal, the authority to review and correct any prior actions and all of the rights, powers, and authorities specified in the Plan. Notwithstanding any provision of law or any explicit or implicit provision of this document, any action taken, or ruling or decision made, by the Administrator in the exercise of any of its powers and authorities under the Plan shall be final and conclusive as to all parties including without limitation all Participants and Beneficiaries, regardless of whether the Administrator may have an actual or potential conflict of interest with respect to the subject matter of such action, ruling, or decision. No such final action, ruling, or decision of the Administrator shall be subject to de novo review in any judicial proceeding; and no such final action, ruling, or decision of the Administrator may be set aside unless it is held to have been an abuse of discretion or arbitrary and capricious by a final judgement of a court having jurisdiction with respect to the issue." ARTICLE VIII ------------ THE TRUSTEE ----------- 8.1 Trustee. The duties and responsibilities of the Trustee are ------- contained in the Trust. 8.2 Payment of Benefits. In lieu of the payment of Retirement Income ------------------- or other benefits with respect to a Participant from the Trust Fund of more than one Controlled Group (as defined in Section 6.10) or from the trust fund of more than one qualified pension Plan of the Company, Subsidiaries and Related Companies, the Administrator or other administrators of the plans, may, by mutual agreement, provide for payment of the entire monthly income or other benefit from one trust fund with appropriate reimbursement to the trustee of the trust fund from which the benefits are to be paid by transfer of funds equal to the single-sum value of the benefits payable under the other plan (or plans) to the trust fund from which benefits actually will be paid. ARTICLE IX ---------- PROVISION TO PREVENT DISCRIMINATION ----------------------------------- 9.1 Purpose. To prevent discrimination in favor of Highly Compensated ------- Participants, the provisions of this Article IX shall be applicable notwithstanding anything elsewhere contained in the Plan to the contrary. 33 9.2 Definitions. In this Article, the following terms shall have the ----------- meaning stated below: (a) "Accrued Benefit" shall have the meaning set forth in Section 1.1. (b) "Actuarial Equivalent" shall have the meaning set forth in Section 1.2. (c) "Benefit" shall include among other benefits under the Plan, loans in excess of the amounts set forth in Section 72(p)(2)(A) of the Code, any periodic income, any withdrawal values payable to a living Employee, and any death benefits under the Plan not provided for by insurance on the Employee's life. (d) "Current Liabilities" shall have the meaning set forth in Section 412(l)(7) of the Code. (e) "Compensation" shall have the meaning set forth in Section 1.9. (f) "Highly Compensated Participant" shall have the meaning set forth in Section 1.13. (g) "Social Security Supplement" shall have the meaning set forth in Internal Revenue Service Regulation (S) 1.411(a)-7(c)(4)(ii). 9.3 Limitations. ----------- (a) In the event of termination of the Plan, the Benefit of any Highly Compensated Participant (and any former Highly Compensated Participant) is limited to a Benefit that is nondiscriminatory under Section 401(a)(4) of the Code. (b) The annual payments under the Plan to any Employee described in Section 9.4 are restricted to an amount in each taxable year of the Employee equal to the payments that would be made on behalf of the Employee under: (1) A straight life annuity that is the Actuarial Equivalent of the Accrued Benefit and other Benefits to which the Employee is entitled under the Plan (other than a Social Security Supplement), and (2) The amount of the payments that the Employee is entitled to receive under a Social Security Supplement. (c) The restrictions in paragraph (b) above do not apply, if any of the following requirements is satisfied: (1) After payment to an Employee described in Section 9.4 of all Benefits payable to the Employee, the value of Plan assets equals or exceeds 110% of the value of Current Liabilities, (2) The value of Benefits payable to an Employee described in Section 9.4 is less than 1% of the value of the Current Liabilities before distribution, or (3) The value of the Benefits payable to an Employee described in Section 9.4 does not exceed the amount described in Section 411(a)(11)(A) of the Code. 9.4 Employees Whose Benefits are Restricted. The Employees whose --------------------------------------- Benefits are restricted on distribution include all Highly Compensated Participants and former Highly Compensated Participants. In any one year, the total number of Employees whose Benefits are subject to restriction under this Article is limited to a group of not less than 25 Highly Compensated Participants and former Highly Compensated Participants. If the group of 34 affected Employees is so limited, the group must consist of those Highly Compensated Participants and former Highly Compensated Participants with the greatest Compensation in the current or in any prior year. 9.5 Determination Date for Assets and Liabilities. For purposes of this --------------------------------------------- Article, the value of Plan assets and the value of Current Liabilities must be determined as of the same date." ARTICLE X --------- ROLLOVER CONTRIBUTIONS ---------------------- 10.1 Rollovers and Transfers from Other Plans. An Employee who has ---------------------------------------- received a distribution of his interest in a retirement plan of a former employer under circumstances meeting the definitions of Section 402(a)(5)(E)(i) of the Code relating to qualified total distributions from qualified retirement plans may not deposit all or any portion (as directed by the Employee) of such distribution as a "rollover contribution" to this Plan. This Plan does not provide for such transfers. ARTICLE XI ---------- AMENDMENT AND TERMINATION ------------------------- 11.1 Amendment. Coastal shall have the right to amend the Plan at any --------- time and from time to time by resolution of the Board and all Employees and persons claiming any interest hereunder shall be bound thereby; provided, however, that no amendment shall have the effect of: (a) directly or indirectly divesting the interest of any Participant in any amount that he would have been entitled to receive had he terminated his employment with the Company immediately prior to the effective date of such amendment or the interest of any Beneficiary as such interest existed immediately prior to the effective date of such amendment; (b) directly or indirectly affecting the schedule set forth in Section 5.4 used to determine the vested interest of a Participant on the effective date of the amendment unless the conditions of Section 411(a)(10) of the Code are satisfied; (c) vesting in the Company any right, title or interest in or to any Plan assets; (d) causing or effecting discrimination in favor of officers, shareholders, or highly compensated Employees; or (e) causing any part of the assets of the Trust Fund to be used for any purpose other than for the exclusive benefit of the Participants and their Beneficiaries. Section 12.14 contains additional requirements with respect to Plan amendments. 11.2 Involuntary Termination of Plan. The Plan shall automatically ------------------------------- terminate if Coastal is legally adjudicated a bankrupt, makes a general assignment for the benefit of creditors, or is dissolved. In the event of the merger or consolidation of Coastal with or into any other corporation, or if substantially all of the assets of Coastal shall be transferred to another corporation, the successor corporation resulting from the consolidation or merger, or transfer of such assets, as the case may be, shall have the right to adopt and continue the Plan and succeed to the position of Coastal hereunder. If, however, the Plan is not so adopted within ninety days after the effective date of such consolidation, merger or sale, the Plan shall automatically be deemed terminated as of the effective day of such transaction. Nothing in this Plan shall prevent the dissolution, liquidation, consolidation or merger of Coastal, or the sale or transfer of all or substantially all of its assets. 11.3 Voluntary Termination of or Permanent Discontinuance of ------------------------------------------------------- Contributions to the Plan. The Company expects the Plan to be permanent, but - ------------------------- because future conditions affecting the Company cannot be anticipated, the Company shall have the right to terminate the Plan in whole or in part, or permanently to discontinue contributions to the Plan, at any time by resolution of the Board and by giving written notice of such termination or permanent discontinuance to the Trustee. Such resolution shall specify the effective date of termination or permanent discontinuance, which shall not be earlier than the first day of the Plan Year that includes the date of the resolution. 35 11.4 Effect of Termination or Discontinuance of Contributions. If the -------------------------------------------------------- Plan shall terminate or partially terminate (as determined by the Secretary of the Treasury) the benefits then accrued for each Participant affected by such termination will be fully vested in him, provided, however, such benefits will be payable only out of the Trust Fund or by the Pension Benefit Guaranty Corporation, in accordance with ERISA, and no Participant or other person shall have any recourse against the Employer if the Trust Fund and the amounts paid by the Pension Benefit Guaranty Corporation shall not be sufficient to provide such benefits in full. No further contributions will be made by the Company with respect to each such Participant under the Plan except to the extent that additional contributions may be required under ERISA. The Company shall give due notice to the Pension Benefit Guaranty Corporation, if applicable, and shall comply with its procedures and lawful orders. As soon as it may do so, the Company thereupon shall cause all amounts held in the Trust Fund to be allocated and distributed in the manner and order set forth in Section 11.5 below. 11.5 Distribution of Funds Upon Termination. -------------------------------------- (a) If the Plan shall be terminated or partially terminated, the then present value of benefits vested in each affected Participant in accordance with Article IV shall be determined as of the Plan termination date and the assets of the Trust Fund shall be allocated to the extent that they shall be sufficient, after providing for expenses of administration, in the order of precedence set forth below: (i) There shall first be set aside each Participant's and former Participant's Voluntary Contribution Account and Transfer Account. (ii) There shall next be set aside an amount that will provide Retirement Income for Participants and their respective Spouses or Beneficiaries who were receiving benefits or who were eligible to receive benefits at least three years prior to termination of the Plan, which Retirement Income shall be based on Plan provisions in effect during the five-year period prior to the date of the Plan's termination under which such benefits would have been least. (iii) There shall next be set aside an amount that will provide all other insured benefits as provided for under Title IV, Section 4044 of ERISA. (iv) There shall next be set aside an amount that will provide all other nonforfeitable benefits, as determined under Article IV, under the provisions of the Plan on the termination date, but that are not insured under ERISA. (v) Finally, there shall be set aside an amount that will provide all other Accrued Benefits for Participants who did not have nonforfeitable interests in accordance with Article IV as of the date of Plan termination. (b) If the assets of the Trust Fund as of the date the Plan is terminated are not sufficient to provide in whole the amounts required within the classes described in paragraph (a), such assets shall be allocated pro rata within the class in which the amounts first cannot be provided in full. (c) Allocation in any of the categories listed in paragraph (a) shall be adjusted for any allocation already made to the same Participant under a prior category. Allocation of assets may be modified by the Internal Revenue Service to meet nondiscrimination requirements. After all expenses of administration have been provided for, and all liabilities of the Plan to Participants employed by the Company, former Participants and their respective Spouses and Beneficiaries have been satisfied, the Company shall be entitled to any remaining balance of such assets. 11.6 Method of Payment. Provided no discrimination in value results, ----------------- the Company may direct that the amounts allocated to any or all persons under the foregoing provisions of this Article XI to be paid in the form of annuity contracts. Subject to the provisions of Section 6.6 and final and temporary Pension Benefit Guaranty 36 Corporation Regulations Section 2617.4(b), payment shall be made in the form of an annuity purchased by the Trustee. In no event shall the Company receive at any time amounts from the funds held under the Trust except such amounts that may remain after satisfaction of all liabilities under the Plan and that arise out of variations in actual experience from expected actuarial experience. 11.7 Notice of Amendment, Termination or Partial Termination. Affected ------------------------------------------------------- Participants will be notified of an amendment, termination or partial termination of the Plan as required by the applicable provisions of ERISA. ARTICLE XII ----------- MISCELLANEOUS ------------- 12.1 Duty To Furnish Information and Documents. Participants, surviving ----------------------------------------- Spouses and Beneficiaries must furnish to the Administrator and the Trustee such evidence or information as the Administrator considers necessary or desirable for the purpose of administering the Plan, and the provisions of the Plan for each person are upon the condition that he will furnish promptly full, true, and complete evidence and information requested by the Administrator. All parties to, or claiming any interest under, the Plan hereby agree to perform any and all acts, and to execute any and all documents and papers, necessary or desirable for carrying out the Plan and the Trust. 12.2 Committee's Annual Statements and Available Information. The ------------------------------------------------------- Company shall advise Employees of the eligibility requirements and benefits under the Plan. As soon as feasible after making the annual valuations and allocations provided for in the Plan, and at such other times as the Administrator may determine, the Administrator may provide each Participant, and each former Participant, Spouse and Beneficiary entitled to a benefit under the Plan, with a statement reflecting the current status of his benefits. No Participant, except as necessary to administer the Plan, shall have the right to inspect the records relating to any other Participant. The Administrator shall make available for inspection at reasonable times by Participants, Spouses and Beneficiaries copies of the Plan, any amendments thereto, the Plan summary, and all reports of Plan and Trust operations required by law. 12.3 No Enlargement of Employment Rights. Nothing contained in the Plan ----------------------------------- shall be construed as a contract of employment between the Company and any person, nor shall the Plan be deemed to give any person the right to be retained in the employ of the Company or to limit the right of the Company to employ or discharge any person with or without cause, or to discipline any Employee. 12.4 Applicable Law. All questions pertaining to the validity, -------------- construction and administration of the Plan shall be determined in conformity with the laws of Texas to the extent that such laws are not preempted by ERISA and valid regulations published thereunder. 12.5 Unclaimed Funds. Each Participant shall keep the Administrator --------------- informed of his current address and the current address of his Spouse, or Beneficiaries. Neither the Company, the Administrator, the Committee nor the Trustee shall be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Administrator within three years after the date on which distribution of the Participant's benefits may first be made, distribution may be made as though the Participant had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed, or, within three years after the actual death of a Participant, the Administrator is unable to locate any individual who would receive a distribution under the Plan upon the death of the Participant pursuant to Article V of the Plan, any benefit payable under the Plan to such individual shall be held by the Trust or paid from the Trust in accordance with applicable state law. 12.6 Merger or Consolidation of Plan. Any merger or consolidation of ------------------------------- the Plan with another plan, or transfer of Plan assets or liabilities to any other plan, shall be effected in accordance with such regulations, if any, as may be issued pursuant to Section 208 of ERISA and Section 401(a)(12) of the Code, in such a manner that each Participant in the Plan would receive, if the merged, consolidated or transferee plan were terminated immediately 37 following such event, a benefit that is equal to or greater than the benefit he would have been entitled to receive if the Plan had terminated immediately before such event. 12.7 Interest Nontransferable. ------------------------ (a) Except as provided in this Section, no interest of any person or entity in, or right to receive distributions from, the Trust Fund shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive distributions be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings. Notwithstanding the preceding provisions of this Section, all or any part of the Accrued Benefit of a Participant shall be subject to and payable in accordance with the applicable requirements of any Qualified Domestic Relations Order, as that term is defined in Section 414(p) of the Code, and the Administrator shall direct the Trustee to provide for payment in accordance with such Order and Section and any regulations promulgated under such Section. All such payments pursuant to Qualified Domestic Relations Orders shall be subject to reasonable rules and regulations promulgated by the Administrator; provided that such rules and regulations are consistent with Section 414(p) of the Code. If prior to the commencement of payment to a Participant of his Retirement Income, any amount of his Accrued Benefit is paid to an alternate payee or payees pursuant to a Qualified Domestic Relations Order, the amount of his Accrued Benefit shall be reduced by the Actuarial Equivalent of any such payment. (b) Notwithstanding any Plan provision to the contrary, an alternate payee pursuant to a Qualified Domestic Relations Order shall not receive any portion of an increase in benefits due to early retirement to which the Participant is or may be entitled. Any benefit received by such an alternate payee shall be Actuarial Equivalent of the portion of the benefit to which such alternate payee is entitled at Normal Retirement Age of the Participant reduced on an actuarial basis to reflect the payment at an earlier date should such alternate payee elect to receive benefits before the Normal Retirement Date of the Participant. 12.8 Prudent Man Rule. Notwithstanding any other provision of the Plan ---------------- and Trust, the Trustee, the Committee, the Administrator and the Company shall exercise their powers and discharge their duties under the Plan and Trust for the exclusive purpose of providing benefits to Employees and their Spouses and Beneficiaries, and shall act with the care, skill, prudence and diligence under the circumstances that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. Subject to the terms of the preceding sentence, the Trustee shall diversify investments of the Trust Fund so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. 12.9 Limitations on Liability. Notwithstanding any of the preceding ------------------------ provisions of the Plan, none of the Trustee, the Administrator, the Company, the Committee and each individual acting as an employee or agent of any of them shall be liable to any Participant, former Participant, Spouse or Beneficiary for any claim, loss, liability or expense incurred in connection with the Plan, except when the same shall have been judicially determined to be due to the gross negligence or willful misconduct of such person. 12.10 Headings. The headings in this Plan are inserted for convenience -------- of reference only and are not to be considered in construction of the provisions hereof. 12.11 Gender and Number. Except when otherwise required by the ----------------- context, any masculine terminology in this document shall include the feminine, and any singular terminology shall include the plural. 12.12 ERISA and Approval Under Code. The Plan and Trust are intended ----------------------------- to qualify as a Plan and Trust meeting the requirements of Sections 401(a) and 501(a) of the Code, as now in effect or hereafter amended, so that the income of the Trust Fund may be exempt from taxation under Section 501(a) of the Code and contributions of the Company under the Plan may be deductible for federal income tax purposes under Section 404 38 of the Code. Any modification or amendment of the Plan or Trust may be made retroactively, as necessary or appropriate, to establish and maintain such qualification and to meet any requirement of the Code or ERISA. 12.13 Extension of Plan to Related Employers. -------------------------------------- (a) With the approval of Coastal, any Related Employer or Subsidiary may adopt the Plan and qualify its employees to become Participants hereunder by taking action to adopt the Plan. (b) The Plan will terminate with respect to any Related Employer or Subsidiary that has adopted the Plan pursuant to this Section if the Related Employer or Subsidiary ceases to be a Related Employer or Subsidiary, revokes its adoption of the Plan by appropriate action, permanently discontinues its contributions for its Employees, or if the Plan terminates with respect to such Related Employer or Subsidiary pursuant to Section 11.2 or 11.4. If the Plan is terminated or contributions are discontinued with respect to any Related Employer or Subsidiary, the provisions of Section 11.6 shall apply to the interest in the Plan of the Employees of such Related Employer or Subsidiary, and their Beneficiaries and Spouses. (c) Coastal shall act as the agent for each Related Employer and Subsidiary that adopts the Plan for all purposes of administration thereof. 12.14 Amendment Procedure. Amendments and supplements to the Plan by ------------------- Coastal shall be binding on each Related Employer and Subsidiary to the extent that each such Related Employer or Subsidiary does not reject such amendment or supplement within ninety days after adoption by the Company. Each Related Employer and Subsidiary may modify the provisions of the Plan as it pertains only to its own employees by the adoption, by formal action on its part, of a supplement to the Plan specifying such modifications which shall pertain only to its employees. The Board of Directors of Coastal may in its absolute discretion terminate any participation of a Related Employer or Subsidiary at any time. Any supplement adopted by a Related Employer or a Subsidiary which modifies provisions of the Plan with respect to employees of such Related Employer or Subsidiary shall be effective only if approved by the Board of Directors of Coastal. 12.15 Expenses of Administration. The Company, Related Employers and -------------------------- Subsidiaries may pay all expenses incurred in the establishment and administrations of the Plan, including expenses and fees of the Trustee, but they shall not be obligated to do so. Any such expenses not so paid shall be paid from the Trust Fund to the extent permitted by applicable laws including ERISA. ARTICLE XIII ------------ TOP-HEAVY PROVISIONS -------------------- 13.1 Top-Heavy Status. Except as provided in Sections 13.5(b) and (c), ---------------- the provisions of this Article shall not apply to the Plan with respect to any Plan Year for which the Plan is not Top Heavy. If the Plan is or becomes Top Heavy in any Plan Year, the provisions of this Article XIII will supersede any conflicting provisions elsewhere in the Plan. 13.2 Definitions. For purposes of this Article XIII, the following ----------- words and phrases shall have the meanings stated below unless a different meaning is plainly required by the context: (a) "Determination Date" means, with respect to any Plan Year: (i) the last day of the preceding Plan Year, or (ii) in the case of the first Plan Year of the Plan, the last day of such Plan Year. (b) "Key Employee" means an Employee meeting the definition of "key employee" contained in Section 416(i)(1) of the Code and the Treasury Regulations interpreting that Section. For 39 purposes of determining whether an Employee is a Key Employee, the definition of compensation set forth in Section 5.8(j) shall apply. (c) "Non-Key Employee" means any Employee who is not a Key Employee. (d) "Valuation Date" means, with respect to a particular Determination Date, the most recent valuation date occurring within a twelve-month period ending on the applicable Determination Date and used for computing Plan costs for purposes of the minimum funding requirements of the Code. 13.3 Determination of Top-Heavy Status. --------------------------------- (a) The Plan will be "Top Heavy" with respect to any Plan Year if, as of the Determination Date applicable to such Year, the ratio of the present value of the Accrued Benefits under the Plan for Key Employees (determined as of the Valuation Date applicable to such Determination Date) to the present value of the Accrued Benefits under the Plan for all Employees (determined as of such Valuation Date) exceeds 60%. For purposes of computing such ratio, and for all other purposes of applying and interpreting this paragraph (a): (i) the present value of the cumulative accrued benefits for any Employee shall be increased by the aggregate distributions made with respect to such Employee under the Plan during the five-year period ending on any Determination Date; (ii) benefits provided under all plans that are aggregated pursuant to (b) of this Section must be considered; and (iii) the provisions of Section 416 of the Code and all Treasury Regulations interpreting said Section shall be applied. If any Employee has not performed services for the Company or any Related Employer at any time during the five-year period ending on any Determination Date, the Accrued Benefit of such Employee shall not be taken into consideration for purposes of determining whether the Plan is Top-Heavy with respect to the Plan Year to which the Determination Date applies. (b) For purposes of determining whether the Plan is Top Heavy, all qualified retirement plans maintained by the Company and each Related Employer shall be aggregated to the extent that such aggregation is required under the applicable provisions of Section 416 of the Code and the Treasury Regulations interpreting that Section. All other qualified retirement plans maintained by the Company and each Related Employer shall be aggregated only to the extent permitted by Section 416 of the Code and such Treasury Regulations and elected by the Company. (c) For purposes of determining whether the Plan is Top Heavy the Accrued Benefit of a Participant shall not include (i) the amount of a rollover contribution (or similar transfer) initiated by the Participant and derived from a plan not maintained by the Company or any Related Employer, or (ii) a distribution made with respect to an Employee that is a tax-free rollover contribution (or similar transfer) that is either not initiated by the Employee or that is made to a plan maintained by the Company or any Related Employer. (d) Solely for purposes of determining whether the Plan is Top Heavy, the Accrued Benefit of any Non-Key Employee shall be determined (i) under the method, if any, that uniformly applies for accrual purposes under all plans of the Company or any Related Employer, or (ii) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional accrual rule of Section 411(b)(1)(C) of the Code. 13.4 Actuarial Assumptions. For purposes of determining whether the --------------------- Plan is Top Heavy, the actuarial assumptions provided in Section 1.2 of the Plan shall be used. 40 13.5 Vesting. -------- (a) If the Plan becomes Top Heavy, the vested interest of a Participant in the portion of his Accrued Benefit referred to in paragraph (b) below shall not be less than the amount determined in accordance with the following formula in lieu of the formula set forth in Section 5.4
Years of Vested Forfeitable Service Percentage Percentage - ------------------------- ----------------- ---------------- Fewer than 2 years 0% 100% 2 years 20% 80% 3 years 40% 60% 4 years 60% 40% 5 years 80% 20% 6 or more years 100% 0%
For purposes of the above schedule, Years of Service shall include all Years of Service required to be counted under Section 411(a) of the Code, disregarding all Years of Service permitted to be disregarded under Section 411(a)(4) of the Code. (b) The vesting schedule set forth in paragraph (a) next above shall apply to all Accrued Benefits that have accrued while the Plan is Top Heavy and during the period of time before the Plan becomes Top Heavy. This vesting schedule shall not apply to the Accrued Benefit of any Employee who does not have an Hour of Service after the Plan becomes Top Heavy. (c) If the Plan becomes Top Heavy and subsequently ceases to be Top Heavy, the vesting schedule set forth in paragraph (a) of this Section shall automatically cease to apply and the vesting schedule set forth in Section 5.4 shall automatically apply with respect to all Accrued Benefits that accrue to a Participant for all Plan Years after the Plan Year with respect to which the Plan was last Top Heavy. For purposes of this paragraph (c), this change in vesting schedules shall only be valid to the extent that the conditions of Section 11.1 of the Plan and Section 411(a)(10) of the Code are satisfied. 13.6 Minimum Benefit. --------------- (a) If the Plan shall be Top Heavy the Accrued Benefit at any time for each Non-Key Employee described in paragraph (c) of this Section shall be the actuarial equivalent (based on the assumptions set forth in Section 13.4) of a single life annuity payable over the life of the Non- Key Employee, commencing on his sixty-fifth birthday, equal to a percentage of such Employee's average compensation (as defined in Section 5.8(j)) for the five consecutive Plan Years when the Employee had the highest aggregate amount of such compensation from the Company and all Related Employers. Such percentage shall equal the lesser of (i) two percent multiplied by such Employee's Years of Service (as computed pursuant to paragraph (b) of this Section), or (ii) twenty percent. The minimum benefit payable pursuant to this Section 13.6 will be determined without regard to any contributions for any Employee under the Federal Social Security Act. Notwithstanding the provisions of Section 5.7, if the Retirement Income of a Non-Key Employee does not commence until after his sixty-fifth birthday, or is suspended for any period after his sixty-fifth birthday pursuant to Section 5.7, the amount of the Retirement Income required under this Section upon commencement or recommence-ment of Retirement Income payments to such Non-Key Employee after his sixty-fifth birthday shall be adjusted so that it is equal to the Actuarial Equivalent of the Retirement Income required by this Section at his sixty-fifth birthday less the Actuarial Equivalent of any Retirement Income payments previously made to the Employee. 41 (b) For purposes of this Section 13.6, any Year of Service may be disregarded (i) if the Plan was not Top Heavy for any Plan Year ending during such Year of Service, and (ii) if the Year of Service was completed in a Plan Year beginning before January 1, 1984. (c) Each Non-Key Employee who completes at least 1,000 Hours of Service in a Plan Year shall accrue the minimum Accrued Benefit described in paragraph (a) of this Section for such Year. A Non-Key Employee shall not fail to accrue such benefit merely because the Employee was not employed on a specific date or because he failed to earn a minimum amount of compensation for that Plan Year. Compensation, for purposes of this Article, is defined in Section 13.7. (d) For purposes of paragraph (c) of this Section, compensation in Plan Years ending before January 1, 1984 and compensation in Plan Years after the close of the last Plan Year in which the Plan is Top Heavy shall be disregarded. 13.7 Compensation. For any Plan Year in which the Plan is Top Heavy, ------------ annual Compensation for purposes of this Article shall have the meaning set forth in Section 414(q)(7) of the Code. 13.8 Collective Bargaining Agreements. The requirements of Sections -------------------------------- 13.5 and 13.6 shall not apply with respect to any Employee included in a unit of employees covered by a collective bargaining agreement between employee representatives and the Company, Subsidiary or a Related Employer if retirement benefits were the subject of good faith bargaining between employee representatives and the Company, a Subsidiary or a Related Employer. 13.9 Maximum Allocation. For purposes of determining whether the Plan ------------------ would be Top Heavy if "90%" were substituted for "60%" each place it appears in paragraphs (1)(A) and (2)(B) of Section 416(g) of the Code, as required by Section 416(h) of the Code, all of the preceding provisions of this Article XIII shall be applicable except that the phrase "90%" shall be substituted for the phrase "60%" where it appears in paragraph (a) of Section 13.3. If, pursuant to the preceding sentence, it is determined that the Plan would be Top Heavy if "90%" were so substituted for "60%", then for purposes of applying Sections 415(e) and 416(h) of the Code and Section 5.8 of the Plan to the maximum benefit permitted for any Participant, "1.0" shall be substituted for "1.25" in each applicable place in paragraphs (2)(B) and (3)(B) of Section 415(e) of the Code. 13.10 Safe-Harbor Rule. Each Non-Key Employee covered under both a ---------------- Top-Heavy defined benefit plan and a Top-Heavy defined contribution plan maintained by the Company or any Related Employer must receive the defined benefit minimum (as defined in Section 416(c)(1) of the Code) under the provisions of the defined benefit plan. 42 IS-a FIRST SUPPLEMENT ---------------- COASTAL PLAN - July, 1986 ------------------------- This provision applies to persons who were Participants in the Pension Plan for Employees of The Coastal Corporation for periods of time before July 1, 1986. The term "Actuarially Equivalent" is modified to provide that an equivalent benefit computed as of any date after June 30, 1986, using an eight percent rate of interest shall not be less than the equivalent of such benefit computed (1) using an interest rate of five and one-half percent and (2) based upon the benefit of such Participant accrued prior to July 1, 1986. COASTAL STATES PLAN - December, 1975 ------------------------------------ These Provisions Apply to Participants in the Pension Plan for Hourly- Wage or Salaried Employees of Coastal States Gas Corporation as of December 31, ----------------------------------------------------------------------- 1975. - ---- (A) APPLICABILITY OF FIRST SUPPLEMENT --------------------------------- (1) This First Supplement to Pension Plan for Employees of Coastal States Gas Corporation (herein referred to as the `First Supplement') forms a part of the Pension Plan for Employees of Coastal States Gas Corporation (herein referred to as the `Plan') as in effect on and after January 1, 1976. The provisions of this First Supplement shall apply only to those Participants who became Participants in the Plan as of January 1, 1976, whose last employment commencement dates are prior to January 1, 1976 and who were Participants in the Pension Plan for Hourly-Wage Employees of Coastal States Gas Corporation or the Pension Plan for Salaried Employees of Coastal States Gas Corporation as of December 31, 1975 (such retirement plans as in effect on December 31, 1975, insofar as they applied to Employees who became Participants in the Plan as of January 1, 1976, are herein referred to collectively as the `Superseded Plan'). (2) All terms used in this First Supplement shall have the meanings assigned to them in the provisions of the Plan unless otherwise qualified by the context. As between the Plan and this First Supplement there shall be no duplication of benefits, and the benefits payable under the Plan shall be inclusive of the Actuarially Equivalent benefits, if any, which are payable to the same Employee under this First Supplement, as hereinafter described, unless otherwise qualified by the context. (3) With respect to former employees of Rio Grande Valley Gas Company and with respect to Employees of Coastal States Gas Producing Company, Colorado Interstate Gas Company, CIC Industries, Inc., and Union Petroleum Corporation, and their subsidiaries, the following will apply with respect to the period of their service as defined herein prior to the date that the Company acquired the majority voting interest in said companies: (a) the total period of such Service will be included as Credited Service if they were participants in the qualified pension plans of the respective companies from the dates that they first became eligible to participate thereunder; (b) only that portion of such Service which they accrued while participants in the qualified pension plans of the respective companies will be included as Credited Service if they did not participate in such plans when they first became eligible; (c) none of the period of such Service will be included as Credited Service if they were not participants in the qualified pension plans of the respective companies; and (d) notwithstanding the above, none of the period of such Service will be included as Credited Service if they have the right to, and they withdraw, their own contributions and credited interest prior to their retirement or termination of Service. However, see Section (H) of the 43 First Supplement and Section (D) of the Second Supplement with respect to rules regarding forfeiture of employer-derived benefits resulting from withdrawals of participant's contributions. (B) MINIMUM BENEFITS FOR FORMER PARTICIPANTS IN THE PENSION PLAN AND TRUST FOR -------------------------------------------------------------------------- HOURLY-WAGE EMPLOYEES OF COASTAL STATES GAS PRODUCING COMPANY OR THE PENSION ---------------------------------------------------------------------------- PLAN AND TRUST FOR SALARIED EMPLOYEES OF COASTAL STATES GAS PRODUCING --------------------------------------------------------------------- COMPANY AS OF JUNE 30, 1973 --------------------------- The following provisions of this Section (B) of the First Supplement shall apply only to those Participants to whom the provisions of this First Supplement apply whose last dates of commencement of employment are prior to July 1, 1973 and who were covered under the terms of the Pension Plan and Trust for Hourly-Wage Employees of Coastal States Gas Producing Company or the Pension Plan and Trust for Salaried Employees of Coastal States Gas Producing Company as of June 30, 1973. (1) Minimum Normal Retirement Income: Subject to the provisions of the -------------------------------- Plan, the monthly amount of Retirement Income, determined under the Plan and payable in the manner described in the Plan, which is payable to a Participant with respect to whom the provisions of this Section (B) of the First Supplement are applicable, upon his normal retirement at any time on or after the effective date of the Plan, shall not be less than the Actuarial Equivalent of that amount of income which he would have received under the terms of the Pension Plan and Trust for Hourly-Wage Employees of Coastal States Gas Producing Company as in effect on June 30, 1973 or the Pension Plan and Trust for Salaried Employees of Coastal States Gas Producing Company as in effect on June 30, 1973, whichever plan is applicable, if such applicable plan had been continued without change. Such monthly Retirement Income shall also be applied under the Plan to determine the minimum deferred Retirement Income commencing at Normal Retirement Date which such a Participant has accrued under the Plan as of any given date. (2) Minimum Early Retirement Income. In the event of the early retirement, ------------------------------- in accordance with the provisions of the Plan, of a Participant who has both attained the age of 55 years and completed 15 years of Credited Service as of his early retirement date, and with respect to whom the provisions of this Section (B) of the First Supplement are applicable, the monthly amount of Retirement Income, determined under the Plan and payable in the manner described in the Plan, shall not be less than the Actuarial Equivalent of the monthly amount which he would have received under the terms of the Pension Plan and Trust for Hourly-Wage Employees of Coastal States Gas Producing Company as in effect on June 30, 1973 or the Pension Plan and Trust for Salaried Employees of Coastal States Gas Producing Company as in effect on June 30, 1973, whichever plan is applicable, if such applicable plan had been continued without change. (C) SPECIAL PROVISIONS APPLICABLE TO FORMER EMPLOYEES OF RIO GRANDE VALLEY GAS -------------------------------------------------------------------------- COMPANY ------- The following provisions of this Section (C) of the First Supplement shall apply only to Participants, to whom the provisions of Section (B) of this First Supplement are applicable, who were former employees of Rio Grande Valley Gas Company. Said participants are herein referred to as "Rio Employees", said Rio Grande Valley Company is herein referred to as "Rio", and the retirement plan maintained by Rio on behalf of its employees is herein referred to as the "Rio Plan". (1) Credited Service: Credited Service with respect to the Rio Employees, ---------------- who were Participants in the Rio Plan from the date they first became eligible, shall include the period of continuous prior service from their dates of employment with Rio. However, with respect to those Rio employees who were participants in the Rio Plan as of December 31, 1968, but who did not participate in the Rio Plan when they first became eligible, Credit Service prior to July 1, 1968 shall include only their period of prior participation in the Rio Plan. With respect to the Rio employees, who were not participants in the Rio Plan or participants who withdraw their contributions and credited interest prior to 44 retirement, their Credit Service shall commence on July 1, 1968, when they became Employees of the Employer, and shall not include any prior service with Rio. (2) Minimum Retirement Benefits under Rio Plan: The Rio employees, who were ------------------------------------------ Participants in the Rio Plan as of December 31, 1968, shall be entitled to the retirement benefits provided under the Plan and Section (B) of this First Supplement, but, subject to the provisions of the Plan, such benefits shall not be less than the Actuarially Equivalent monthly Retirement Income which they would have received under the provisions of the Rio Plan, as of their respective dates of retirement, reduced by the monthly Retirement Income which would have been provided on an Actuarially Equivalent basis by the Participant's future contributions after December 31, 1968 with credited interest at the rate of 3% per annum, compounded annually, as if the Rio Plan had been continued with out change. If a Rio employee has attained the age of 55 years but has not completed 10 years of Credited Service, he may retire early from the service of the Employer, and he will be entitled to a benefit payable in accordance with the provisions of the Plan in an amount equal to the Actuarial Equivalent of the monthly Retirement Income which he would have received under the provisions of the Rio Plan as of the date of his retirement, reduced by the monthly Retirement Income which would have been provided on an Actuarially Equivalent basis by the Participant's future contributions after December 31, 1968 with credited interest at the rate of 3% per annum, compounded annually, if the Rio Plan had been continued without change. (3) Minimum Termination Benefits under Rio Plan: A Rio employee, who was a ------------------------------------------- participant in the Rio Plan, shall be entitled to terminate from said Rio Plan at any time prior to retirement and withdraw an amount equal to his contributions to said Rio Plan through December 31, 1968 with interest thereon at the rate of 3% per annum, compounded annually, to the date of withdrawal, but in such an event his Credited Service shall be reduced as provided in Section (C)(1) above. If a Rio employee, who was a Participant in the Rio Plan, has completed 15 years of Credited Service and should terminate his service with the Employer for any reason after having attained the age of 50 years, he may elect to have his contributions remain under the Plan and become entitled to the monthly Retirement Income which he would have received on normal or early retirement under the provisions of the Rio Plan, as the case may be, reduced by the monthly Retirement Income which would have been provided on an Actuarially Equivalent basis by the Participant's future contributions after December 31, 1968 with credited interest at the rate of 3% per annum, compounded annually, if the Rio Plan had been continued without change. (4) Death Benefits under Rio Plan: In the event that a Rio employee, who ----------------------------- was a Participant in the Rio Plan, should die prior to retirement and no payments are due to a joint annuitant or provisional payee, his Beneficiaries shall be entitled to receive the total amount of his contributions plus credited interest at the rate of 3% per annum, compounded annually, to his date of death or Normal Retirement Date, whichever is earlier. In the event that a Rio Employee, who was a Participant in the Rio Plan, should die after retirement but before he and his joint annuitants or provisional payees, if applicable, have received total retirement benefits at least equal to the total amount of his contributions to the Rio Plan plus credited interest at the rate of 3% per annum, compounded annually, to the date of commencement of his Retirement Income payments, his Beneficiaries shall be entitled to receive the balance of such contributions and credited interest. (D) MINIMUM BENEFITS FOR FORMER PARTICIPANTS IN THE COLORADO INTERSTATE ------------------------------------------------------------------- CORPORATION RETIREMENT INCOME PLAN AS OF JUNE 30, 1973 ------------------------------------------------------ The following provisions of this Section (D) of the First Supplement shall apply only to those Participants to whom the provisions of this First Supplement are applicable whose last dates of commencement of employment are prior to July 1, 1973 and who were covered under the terms of the Colorado Interstate Corporation Retirement Income Plan as of June 30, 1973. The amount of Retirement Income, if any, payable under the plan on behalf of any Participant with respect to whom the provisions of this Section (D) of the First Supplement are applicable shall be reduced by the Actuarial Equivalent of the "Affiliated Plan Accrued 45 Retirement Income Credit" (as defined in the Colorado Interstate Corporation Retirement Income Plan), if any, which is payable on behalf of such Participant. (1) Minimum Normal Retirement Income: Subject to the provisions of the -------------------------------- Plan, the monthly amount of Retirement Income, determined under the Plan and payable in the manner described in the plan, which is payable to a Participant with respect to whom the provisions of this Section (D) for the First Supplement are applicable, upon his normal retirement any time on or after the effective date of the Plan, shall not be less than the Actuarial Equivalent of that amount which he would have received under the terms of the Colorado Interstate Corporation Retirement Income Plan as in effect on June 30, 1973, if such Plan had been continued without change. Such monthly Retirement Income shall also be applied under the Plan to determine the minimum deferred Retirement Income at Normal Retirement Date which such a Participant has accrued under the Plan as of any given date. If a Participant, who is classified as a Pilot Employee, should retire from the service of the Employer when he attains the age of 60 years and before his initial vesting date, he shall, subject to the provisions of the Plan, be entitled to the normal retirement benefit which would have been payable on his behalf under the terms of the Colorado Interstate Corporation Retirement Income Plan as in effect on June 30, 1973, if such plan had been continued without change. If a Participant, who is classified as a Pilot Employee, should retire from the service of the Employer when he attains the age of 60 years and on or after this initial vesting date, he shall be entitled, subject to the provisions of the Plan, to a benefit payable in accordance with the provisions of the Plan which shall not be less than the Actuarial Equivalent of the normal retirement benefit which would have been payable under the terms of the Colorado Interstate Corporation Income Plan as in effect on June 30, 1973, if such plan had been continued without change. (2) Minimum Early Retirement Income: In the event of the early retirement, ------------------------------- in accordance with the provisions of the Plan, of a Participant, who has both attained the age of 55 years and completed 10 years of Credited Service as of his early retirement date and with respect to whom the provisions of this Section (D) of the First Supplement are applicable, such Participant shall be entitled to the monthly Retirement Income computed and payable in accordance with the provisions of the Plan; provided, however, that, subject to the provisions of the Plan, such monthly amount of Retirement Income, which is payable under the Plan shall not be less than the Actuarial Equivalent of the monthly amount which he would have received under the terms of the Colorado Interstate Corporation Retirement Income Plan as in effect on June 30, 1973 if such plan had been continued without change. A Participant, with respect to whom the provisions of this Section (D) of the First Supplement are applicable, who has attained the age of 55 years but who has not completed 10 years of Credited Service may elect early retirement and, subject to the provisions of the Plan, will be entitled to a benefit payable in accordance with the provisions of the Plan which is the Actuarial Equivalent of the monthly Retirement Income which would have been payable on his behalf under the provisions of the Colorado Interstate Corporation Retirement Income Plan as in effect on June 30, 1973, if such Plan had continued without change. A Participant who has been classified as a Pilot Employee under such Plan, and with respect to whom the provisions of this Section (D) of the First Supplement are applicable, may elect to retire after attaining the age of 50 years and will be entitled to a benefit payable in accordance with the provisions of the Plan which is the Actuarial Equivalent of the monthly Retirement Income which would have been payable under the provisions of such Plan as in effect on June 30, 1973, if such Plan had been continued without change. (3) Vested Benefits Upon Termination of Service: In the event of the ------------------------------------------- termination of service, in accordance with the provisions of the Plan, of a Participant with respect to whom the provisions of this Section (D) of the First Supplement are applicable, on or after the date as of which he has both attained the age of 40 years and completed 10 years of Credited Service, he shall be entitled to a benefit, payable in accordance with the provisions of the Plan, which is at least equal to the Actuarially Equivalent benefit which he would have received under the terms of the Colorado Interstate Corporation Retirement Income Plan as in effect on June 30, 1973 if such Plan had been continued without change. A participant with respect to whom the provisions of this Section (D) of the First Supplement are applicable, who had completed at least 5 years of credited service as of 46 June 30, 1973 (as defined in the Colorado Interstate Corporation Retirement Income Plan), but whose date of termination of service under the provisions of the Plan is prior to his initial vesting date, will be entitled to only such benefits as he would have received under the provisions of the Colorado Interstate Corporation Retirement Income Plan as in effect on June 30, 1973, if such Plan had been continued without change. (4) Spouse's Benefit: ---------------- (a) In the event of the termination of service of a Participant, with respect to whom the provisions of this Section (D) of the First Supplement are applicable, by reason of his death prior to his Normal Retirement Date and on or after the date as of which he has completed 10 years of Credited Service, and provided that all other requirements specified in the Colorado Interstate Corporation Retirement Income Plan as in effect on June 30, 1973 to qualify for a Spouse's Benefit have been met on the date of the Participant's death, the widow or widower of such participant shall be entitled to the Spouse's Benefit which would be payable upon the Participant's death in accordance with the terms of the Colorado Interstate Corporation Retirement Income Plan as in effect on June 30, 1973, but the amount of Retirement Income payable to such widow or widower shall be equal to that amount which would have been payable on behalf of the Participant under the terms of the Colorado Interstate Corporation Retirement Income Plan as in effect on June 30, 1973 if his death had occurred on June 30, 1973 and assuming that all requirements to qualify for such benefits had been met on June 30, 1973. (b) A participant with respect to whom the provisions of this Section (D) of the First Supplement are applicable may elect the Qualified Joint and Survivor Annuity (With Preretirement Death Benefits), but the benefit payable thereunder shall be inclusive of the benefit provided under Section (D)(4)(a) above. Notwithstanding the provisions of the Plan, the reduction applicable under the qualified joint and survivor annuity for each complete month prior to the Participant's Normal Retirement Date that the preretirement death benefit coverage specified under the Plan has been in effect for a participant with respect to whom the provisions of this Section (D) of the First Supplement are applicable shall be (a) determined in accordance with Plan provisions and the result shall be multiplied by (b) the fraction in which the numerator is the excess of the largest benefit provided the Participant's spouse under the qualified joint and survivor annuity over the benefit provided under Section (D)(4)(a) above and the denominator is the largest benefit provided the Participant's spouse under the qualified joint and survivor annuity. (E) MINIMUM BENEFITS FOR FORMER PARTICIPANTS IN THE CIC INDUSTRIES, INC. -------------------------------------------------------------------- RETIREMENT PLAN AS OF JUNE 30, 1973 ----------------------------------- The following provisions of this Section (E) of the First Supplement shall apply only to those Participants to whom the provisions of this First Supplement are applicable whose last dates of commencement of employment are prior to July 1, 1973 and who were covered under the terms of the CIC Industries, Inc. Retirement Plan as of June 30, 1973. (1) Minimum Normal Retirement Income: Subject to the provisions of the -------------------------------- Plan, the monthly amount of Retirement Income, determined under the Plan and payable in the manner described in the Plan, which is payable to a Participant, with respect to whom the provisions of this Section (E) of the First Supplement are applicable, upon his normal retirement at any time on or after the effective date of the Plan shall not be less than the Actuarial Equivalent of that amount which he would have received under the terms of the CIC Industries, Inc. Retirement Plan as in effect on June 30, 1973, if such Plan had been continued without change. Such monthly retirement income shall also be applied under the Plan to determine the minimum deferred Retirement Income at Normal Retirement Date which such a Participant has accrued under the Plan as of any given date. 47 (2) Minimum Early Retirement Income: In the event of early retirement, in ------------------------------- accordance with the provisions of the Plan, of a Participant, who has both attained the age of 55 years and completed 10 years of Credited Service as of his early retirement date and with respect to whom the provisions of this Section (E) of the First Supplement are applicable, such Participant shall be entitled to the monthly Retirement Income computed and payable in accordance with the provisions of the Plan; provided, however, that, subject to the provisions of the Plan, such monthly amount of Retirement Income which is payable under the Plan to such a Participant shall not be less than the Actuarial Equivalent of the monthly amount which he would have received under the terms of the CIC Industries, Inc. Retirement Plan as in effect on June 30, 1973, if such plan had been continued without change. A Participant, with respect to whom the provisions of this Section (E) of the First Supplement are applicable, who has attained the age of 55 years but who has not completed 10 years of Credited Service may elect early retirement and, subject to the provisions of the Plan, will be entitled to a benefit payable in accordance with the provisions of the Plan which is the Actuarial Equivalent of the monthly Retirement Income which would have been payable under the provisions of the CIC Industries, Inc. Retirement Plan as in effect on June 30, 1973, if such Plan had been continued without change. (3) Vested Benefits Upon Termination of Service: In the event of the ------------------------------------------- termination of service, in accordance with the provisions of the Plan, of a Participant, with respect to whom the provisions of this Section (E) of the First Supplement are applicable, on or after the date as of which he has both attained the age of 40 years and completed 10 years of Credited Service, he shall be entitled to a benefit, payable in accordance with the provisions of the Plan, which is at least equal to the Actuarially Equivalent benefit which he would have received under the terms of the CIC Industries, Inc. Retirement Plan as in effect on June 30, 1973, if such Plan had been continued without change. A Participant, with respect to whom the provisions of this Section (E) of the First Supplement are applicable, who had completed at least 10 years of Credited Service as of June 30, 1973 (as defined in the CIC Industries, Inc. Retirement Plan), but whose date of termination is prior to his initial vesting date will be entitled to only such benefits as he would have received under the provisions of the CIC Industries, Inc. Retirement Plan as in effect on June 30, 1973, if such Plan had been continued without change. (4) Participant's Contributions: Anything in the Plan or this First --------------------------- Supplement to the contrary notwithstanding, the total benefits payable under the Plan or this First Supplement to, or on behalf of, a Participant, with respect to whom the provisions of this Section (E) of the First Supplement are applicable, shall not be less than an amount which is the Actuarial Equivalent of the Participant's contributions with interest as determined under the provisions of the CIC Industries, Inc. Retirement Plan as in effect on June 30, 1973. Any Participant, with respect to whom the provisions of this Section (E) of the First Supplement are applicable, may elect upon his retirement or termination of service to withdraw his contributions with interest in a lump sum as provided under the terms of the CIC Industries, Inc. Retirement Plan as in effect on June 30, 1973. In such event, he shall be entitled to the greater of (a) the benefits provided under the provisions of the Plan based on his Credited Service accrued after December 31, 1970 and (b) those reduced benefits which would have been payable on his behalf under the terms of the CIC Industries Inc. Retirement Plan as in effect on June 30, 1973, if such Plan had been continued without change. (5) Benefits to be Reduced by Value of Previously Purchased Annuity or ------------------------------------------------------------------ Annuities: --------- (a) At the time of commencement of payment of any benefit under the Plan on behalf of a Participant with respect to whom the provisions of this Section (E) of the First Supplement are applicable, the benefit payable under the Plan shall be reduced on an Actuarially Equivalent basis by any paid-up annuity or annuities purchased on behalf of the Participant under Group Annuity Contract No. GA-412, effective July 1, 1954, entered into by Colorado Oil and Gas Corporation and The Prudential Insurance Company of America as said group annuity contract has been and may be amended or under the terms of Deposit Administration Contract No. A-532841-G, effective April 1, 1949, entered into by the trustees of the Derby Retirement Plan 48 and Minnesota Mutual Life Insurance Company as said deposit administration contract has been and may be amended, which such Participant has received and/or is entitled to receive under the provisions of such group annuity contract or such deposit administration contract. Such reduction will be made irrespective of whether or not the Participant, by his action, has reduced in any way the benefits accrued to him under said annuity contract or said deposit administration contract. (b) The provisions of the aforementioned group annuity contract or deposit administration contract, as the case may be, and not the provisions of the Plan, will govern any question dealing with conditions under which benefits provided under such applicable contract are to be paid. (F) MINIMUM BENEFITS FOR FORMER PARTICIPANTS IN THE RETIREMENT PLAN FOR ------------------------------------------------------------------- EMPLOYEES OF UNION PETROLEUM CORPORATION AS OF JUNE 30, 1973 ------------------------------------------------------------ The following provisions of this Section (F) of the First Supplement shall apply only to those Participants to whom the provisions of this First Supplement are applicable whose last dates of commencement of employment are prior to July 1, 1973 and who were covered under the terms of the Retirement Plan for Employees of Union Petroleum Corporation as of June 30, 1973. (1) Credited Service: For the purposes of the Plan and this Section (F) of ---------------- the First Supplement, Credited Service with respect to Participants, with respect to whom the provisions of this Section (F) of the First Supplement are applicable, who were Participants in the Retirement Plan of Union Petroleum Corporation from the date they first became eligible, shall include the period of continuous prior service from their dates of employment with Union Petroleum Corporation. However, with respect to those Participants with respect to whom provisions of this Section (F) of the First Supplement are applicable, who were Participants in the Retirement Plan of Union Petroleum Corporation as of June 30, 1973, but who did not participate in such Retirement Plan when they first became eligible, Credited Service prior to July 1, 1973 shall include only their period of prior participation in the Retirement Plan of Union Petroleum Corporation. With respect to the Participants with respect to whom the provisions of this Section (F) of the First Supplement are applicable, who were not Participants in the Retirement Plan of Union Petroleum Corporation or Participants who withdraw their contributions and credited interest prior to retirement, Credited Service shall commence on April 19, 1973, when the Employer became a Subsidiary. (2) Minimum Early Retirement Benefits: If a Participant, with respect to --------------------------------- whom the provisions of this Section (F) of the First Supplement are applicable, who participated in the Retirement Plan of Union Petroleum Corporation as of June 30, 1973, has attained the age of 55 years but has not completed 10 years of Credited Service, he may retire early from the service of the Employer, and he will be entitled, subject to the provisions of the Plan, to the benefit payable in accordance with the provisions of the Plan which is the Actuarial Equivalent of the monthly Retirement Income which he would have received under the provisions of the Retirement Plan of Union Petroleum Corporation of the date of his retirement, reduced by the monthly Retirement Income which would have been provided on an Actuarially Equivalent basis by the Participant's future contributions after June 30, 1973 with credited interest at the rate of 3-1/2% per annum, compounded annually, if the Retirement Plan of Union Petroleum Corporation had been continued without change. (3) Minimum Termination Benefits: A Participant, with respect to whom the ---------------------------- provisions of this Section (F) of the First Supplement are applicable, who was a Participant in the Retirement Plan of Union Petroleum Corporation, shall be entitled, at any time prior to retirement, to withdraw an amount equal to his contributions to said Retirement Plan through June 30, 1973 with interest thereon at the rate of 3-1/2% per annum, compounded annually, to date of withdrawal, but in such an event his Credited Service shall be reduced as provided in Section (F)(1) above. (4) Minimum Death Benefits: In the event that a Participant, with respect ---------------------- to whom the provisions of this Section (F) of the First Supplement are applicable, who was a Participant in the Retirement Plan of 49 Union Petroleum Corporation, should die prior to retirement and no payments are due to a joint annuitant or provisional payee, his Beneficiaries shall be entitled to receive the total amount of his contributions plus credited interest at the rate of 3-1/2% per annum, compounded annually, to his date of death or Normal Retirement Date, whichever is earlier. In the event that a Participant, with respect to whom the provisions of this Section (F) of the First Supplement are applicable, who was a Participant in the Retirement Plan of Union Petroleum Corporation, should die after retirement but before he and his joint annuitants or provisional payees, if applicable, have received total retirement benefits at least equal to the total amount of his contributions to the Retirement Plan of Union Petroleum Corporation plus credited interest at the rate of 3-1/2% per annum, compounded annually, to the date of commencement of his Retirement Income payments, his Beneficiaries shall be entitled to receive the balance of such contributions and credited interest. (G) SPECIAL PROVISIONS APPLICABLE TO PARTICIPANT'S CONTRIBUTIONS, IF ANY, TO THE ---------------------------------------------------------------------------- SUPERSEDED PLAN WITH INTEREST ----------------------------- The following provisions will apply with respect to benefits payable under the Plan and this First Supplement to those participants to whom the provisions of this First Supplement are applicable who made Participant contributions prior to the effective date of the Plan under the provisions of any superseded plan and who have not withdrawn such contributions or received benefits equal thereto: (1) the Actuarially Equivalent single-sum value of the benefits payable under the Plan and this First Supplement to, or on behalf of, such Participant shall not be less than an amount equal to the Participant's contributions, if any to the superseded plan with interest; (2) the monthly amount of Retirement Income, which is payable for five years certain and life thereafter commencing at Normal Retirement Date, to a Participant who retires on or after his Normal Retirement Date or the amount of the deferred Retirement Income commencing at Normal Retirement Date, which is payable for five years certain and life thereafter commencing at Normal Retirement Date, which is used to compute the benefits, if any, payable to a Participant who retires or whose service is terminated prior to his Normal Retirement Date, whichever is applicable, shall not be less than an amount equal to 9.8% of the Participant's contributions if any, to the superseded plan with interest to this Normal Retirement Date divided by 12; (3) in the event of termination of the Plan, before any assets are allocated under the Plan, each such Participant shall be entitled to an allocation equal to (a) his Participant's contributions, if any, under the superseded plan with interest to the date of termination of the Plan or, if earlier, to the date that the Participant's payments under the Plan commenced over (b) the amount, if any, of any benefits previously received by or on behalf of such Participant; provided, however, that if the asset value as defined in the Plan be less than the aggregate of such amounts, such amounts to which such Participants are entitled under this section shall be proportionately reduced so that the aggregate of such reduced amounts be equal to the asset value; and provided, further, that any allocations on behalf of any such Participant under the Plan shall be inclusive of any allocations on his behalf under this subsection; (4) in the event of the death of the last person otherwise entitled to benefits payable on behalf of a Participant under the Plan and this First Supplement, after all payments otherwise due have been made, there shall be payable to his Beneficiary (determined in accordance with the provisions of the Plan) an amount equal to the excess, if any, of the Participant's contributions, if any, to the superseded plan with interest over the aggregate of payments which have been made to the Participant and his Beneficiaries and joint pensioners; (5) for the purposes of this Section (G), a "Participant's Contributions, if any, under the superseded plan with interest" shall be equal to the sum of; 50 (a) the Participant's contributions, if any, under the superseded plan prior to the effective date of the Plan and credited to this account on the effective date of the Plan, together with the interest, if any, accrued thereto to the effective date of the Plan, where such accrued interest, if any, to the effective date of the Plan shall be determined under the provisions of the superseded plan as in effect immediately preceding the effective date of the Plan; and (b) the amount of interest after the effective date of the Plan on such value in (a) above, where such interest shall be compounded annually from the effective date of the Plan to the date as of which the Participant's payments under the Plan actually commence or, if earlier, to the date of termination of the Plan and shall be at the rate of 5% per annum. (H) SPECIAL PROVISION APPLICABLE TO THE WITHDRAWAL OF CERTAIN EMPLOYEE ------------------------------------------------------------------ CONTRIBUTIONS TO SUPERSEDED PLANS --------------------------------- (1) This provision applies to any eligible Employee who, prior to his retirement or other termination from service, withdraws from any superseded plan all or any part of the Participant's contributions made prior to September 2, 1974 plus interest thereon. Notwithstanding any other provision to the contrary, forfeiture of such Participant's rights to the employer-derived benefits which accrued prior to September 2, 1974 shall not exceed an amount which bears the same ratio to the accrued benefit (determined as of September 1, 1974) attributable to the employer's contributions as the amounts withdrawn bear to the total amount of Employee contributions made to the Plan as of September 1, 1974, plus interest attributable to such contributions. (2) With respect to those Employees referred to in (1), above, no part of a Participant's accrued benefit derived from employer contributions which are accrued after September 1, 1974 shall be forfeitable solely because such Participant voluntarily withdraws his contributions after becoming a 50 percent vested Participant. (3) Any Employee referred to in (1), above, who withdraws his contributions to a superseded plan at a time after September 1, 1974 when he is less than 50 percent vested in his employer-derived accrued benefits shall be entitled to restoration of any such employer-derived benefits which were forfeited because of the withdrawal, provided the Employee must repay the full amount of the withdrawal plus interest computed on the amount of the withdrawal from the date of withdrawal to the date of repayment, compounded annually, at the rate of 5 percent. This restoration provision shall not apply to an Employee who has no vested interest in his employer-derived accrued benefits, and whose accrued benefit is disregarded due to a Break in Service. (I) ELECTION OF OPTIONS AND DESIGNATION OF BENEFICIARIES ---------------------------------------------------- If a Participant has elected an optional form of payment and/or has designated a Beneficiary (or Beneficiaries) prior to the effective date of the Plan and such election and/or designation is in force immediately prior to the effective date of the Plan under the terms of the superseded plan, such election and/or designation shall continue in effect with respect to benefits payable under the Plan until a new election of an optional form of payment is made in accordance with the provisions of the Plan and/or a new designation of Beneficiary (or Beneficiaries) is made in accordance with the provisions of the Plan. (J) RIGHT TO AMEND OR TERMINATE FIRST SUPPLEMENT -------------------------------------------- The provisions of the Plan with respect to amendment and termination of the Plan shall apply with equal force to this First Supplement. 51 SECOND SUPPLEMENT ----------------- COASTAL PLAN - July, 1986 ------------------------- This provision applies to persons who were Participants in the Pension Plan for Employees of The Coastal Corporation for periods of time before July 1, 1986. The term "Actuarially Equivalent" is modified to provide that an equivalent benefit computed as of any date after June 30, 1986, using an eight percent rate of interest shall not be less than the equivalent of such benefits computed (1) using an interest rate of five and one-half percent and (2) based upon the benefit of such Participant accrued prior to July 1, 1986. COASTAL STATES PLAN - July, 1977 -------------------------------- These Provisions Apply to Participants in the Retirement Plan for Employees of Belcher Oil Company as of June 30, 1977 -------------------------------------------------------- (A) APPLICABILITY OF SECOND SUPPLEMENT ---------------------------------- (1) This Second Supplement to the Pension Plan for Exempt Employees of Coastal States Gas Corporation (hereinafter referred to as the "Second Supplement") forms a part of the Pension Plan for Exempt Employees of Coastal States Gas Corporation (hereinafter referred to as the "Plan") as in effect on and after July 1, 1977. The provisions of this Second Supplement shall apply only to those Employees of Belcher Oil Company and its subsidiaries, who became Participants in the plan as of July 1, 1977 and who were Participants in the Retirement Plan for Employees of Belcher Oil Company as of June 30, 1977 (hereinafter referred to as the "Superseded Plan"). (2) All terms used in this Second Supplement shall have the meanings assigned to them in the provisions of the Plan, unless otherwise qualified by the context. As between the Plan and this Second Supplement, there shall be no duplication of benefits, the benefits payable under the Plan shall be inclusive of the Actuarially Equivalent benefits, if any, which are payable to the same Employee under this Second Supplement, as hereinafter described, unless otherwise qualified by the context. (3) With respect to Employees of Belcher Oil Company and its subsidiaries, the following will apply with respect to the period of their service as defined herein prior to the date that the Company acquired the majority voting interest in said companies: (a) the total period of such Service will be included as Credited Service if they were Participants in the qualified pension plans of the respective companies from the dates that they first became eligible to participate thereunder; (b) only that portion of such Service which they accrued while participants in the qualified pension plans of the respective companies will be included as Credited Service if they did not participate in such plans when they first became eligible; (c) none of the period of such Service will be included as Credited Service if they were not participants in the qualified pension plans of the respective companies; and (d) notwithstanding the above, none of the period of such Service will be included as Credited Service if they have the right to, and they withdraw, their own contributions and credited interest prior to their retirement or termination of Service. However, see Section (H) of the First Supplement and Section (D) of the Second Supplement with respect to rules regarding forfeiture of employer-derived benefits resulting from withdrawals of Participant's contributions. 52 (B) MINIMUM BENEFITS ---------------- (1) Credited Service. For the purposes of the Plan and this Second ---------------- Supplement, the Credited Service of the participants in the Superseded Plan, with respect to whom the provisions of this Second Supplement are applicable, shall include the period of service which they had accrued under the provisions of the Superseded Plan as of June 30, 1977. (2) Minimum Normal Retirement Income. Subject to the provisions of the -------------------------------- Plan, the monthly amount of Retirement Income determined under the Plan and payable in the manner described in the Plan, which is payable to a Participant, with respect to whom the provisions of this Second Supplement are applicable, on his normal retirement at any time on or after the effective date of this Second Supplement, shall not be less than the Actuarial Equivalent of that amount of income which he would have received under the terms of the Superseded Plan, as if such Superseded Plan had been continued without change and assuming that the Basic Compensation of the Participant (excluding any overtime compensation) had remained at the same amount to which he was entitled as of June 30, 1977. Such monthly Retirement Income shall also be applied under the Plan to determine the minimum deferred monthly Retirement Income commencing at Normal Retirement Date, which such a Participant has accrued under the Plan as of any given date. (3) Minimum Early Retirement Income. In the event of the early retirement, ------------------------------- in accordance with the provisions of the Plan, of a Participant, who has both attained the age 55 years and completed ten (10) years of Credited Service as of his early retirement date and with respect to whom the provisions of this Second Supplement are applicable, such Participant shall be entitled to the monthly Retirement Income computed and payable in accordance with the provisions of the Plan; provided, however, that subject to the provisions of the Plan, such monthly amount of Retirement Income, which is payable under the Plan to such a Participant, shall not be less than the Actuarial Equivalent of the monthly amount which he would have received under the terms of the Superseded Plan, as if such Superseded Plan had been continued without change and assuming that the Basic Compensation of the participant (excluding any overtime compensation) had remained at the same amount to which he was entitled as of June 30, 1977. (4) Vested Benefits on Termination of Service. In the event of the ----------------------------------------- termination of service, in accordance with the provisions of the Plan, of a Participant, with respect to whom the provisions of this Second Supplement are applicable, on or after the date as of which he has completed ten (10) years of Credited Service, he shall be entitled to a benefit, payable in accordance with the provisions of the Plan, which is at least equal to the Actuarially Equivalent benefit which he would have received under the terms of the Superseded Plan, as if such Superseded Plan had been continued without change and assuming that the Basic Compensation of the Participant (excluding any overtime compensation) had remained at the same amount to which he was entitled as of June 30, 1977. A Participant, with respect to whom the provisions of this Second Supplement are applicable, who terminates his employment prior to his initial vesting date, as defined in the Plan, shall be entitled to only such benefits as he would have received under the provisions of the Superseded Plan, as if such Superseded Plan had been continued without change and assuming that the Basic Compensation of the Participant (excluding any overtime compensation) had remained at the same amount to which he was entitled as of June 30, 1977. (5) Participant's Contributions. The total amount of benefits payable under --------------------------- the Plan or this Second Supplement to, or on behalf of, a Participant, with respect to whom the provisions of this Second Supplement are applicable, shall not be less than an amount which is the Actuarial Equivalent of the Participant's contributions with interest as determined under the provisions of the Superseded Plan. In the event such Participant should die prior to his retirement and no payments are due to a joint annuitant or provisional payee, his Beneficiaries shall be entitled to receive the total amount of his contributions, if any, under the Superseded Plan with interest. In the event that such Participant should die after his retirement, but before he and his joint annuitants or provisional payees, if applicable, have received total retirement benefits at least equal to the total amount of his contributions 53 under the Superseded Plan with interest, his Beneficiaries shall be entitled to receive the balance of such contributions and interest. (C) SPECIAL PROVISIONS ------------------ The following provisions will apply with respect to benefits payable under the Plan and this Second Supplement to those Participants, to whom the provisions of this Second Supplement are applicable, who made contributions prior to the effective date of this Second Supplement under the provisions of the Superseded Plan and who have not withdrawn such contributions or received benefits equal thereto: (1) the Actuarially Equivalent single-sum value of the benefits payable under the Plan and this Second Supplement to, or on behalf of, such Participant shall not be less than an amount equal to the Participant's contributions, if any, to the Superseded Plan with interest; (2) the monthly amount of Retirement Income, which is payable for five years certain and life thereafter commencing at Normal Retirement Date, to a Participant who retires on or after his Normal Retirement Date or the amount of the deferred monthly Retirement Income commencing at Normal Retirement Date, which is payable for five years certain and life thereafter commencing at Normal Retirement Date, which is used to compute the benefits, if any, payable to a Participant who retires or whose service is terminated prior to his Normal Retirement Date, whichever is applicable, shall not be less than an amount equal to 9.8% of the Participant's contributions, if any, to the Superseded Plan with interest to his Normal Retirement Date divided by 12; (3) in the event of termination of the Plan, before any assets are allocated under the Plan, each such Participant shall be entitled to an allocation equal to (a) this Participant's contributions, if any, under the Superseded Plan with interest to the date of termination of the Plan or, if earlier, to the date that the Participant's payments under the Plan commenced over (b) the amount, if any, of any benefits previously received by or on behalf of such Participant; provided, however, that if the asset value as defined in the Plan be less than the aggregate of such amounts, such amounts to which such Participants are entitled under this section shall be proportionately reduced so that the aggregate of such reduced amounts be equal to the asset value; and provided, further, that any allocations on behalf of any such Participant under the Plan shall be inclusive of any allocations on his behalf under this subsection; (4) for the purposes of Sections (B) and (C) of this Second Supplement, a "Participant's Contributions, if any, under the Superseded Plan with interest" shall be equal to the sum of: (i) the Participant's contributions, if any, under the Superseded Plan prior to the effective date of this Second Supplement and credited to his account on the effective date of this Second Supplement; and (ii) the amount of interest on the contributions, at the rate of five percent (5%) per annum, compounded annually, from the effective date of the Superseded Plan (June 30, 1975) to the date as of which the Participant's payments under the Plan actually commenced, or if earlier, to the date of termination of the Plan. (5) for purposes of the Plan and this Second Supplement, the Benefit Service of the Participants after June 30, 1977 will be determined in the same manner as Credited Service under the Plan. (D) SPECIAL PROVISION APPLICABLE TO THE WITHDRAWAL OF CERTAIN EMPLOYEE ------------------------------------------------------------------ CONTRIBUTIONS TO SUPERSEDED PLANS --------------------------------- (1) This provision applies to any eligible Employee who, prior to his retirement or other termination from service, withdraws from any superseded Plan all or any part of the Participant's contributions made prior to September 2, 1974 plus interest thereon. Forfeiture of such Participant's rights to the 54 employer-derived benefits which accrued prior to September 2, 1974 shall not exceed an amount which bears the same ratio to the accrued benefit (determined as of September 1, 1974) attributable to the employer's contributions as the amounts withdrawn bear to the total amount of Employee contributions made to the Plan as of September 1, 1974 plus interest attributable to such contributions. (2) With respect to those Employees referred to in (1), above, no part of a Participant's accrued benefit derived from employer contributions which are accrued after September 1, 1974 shall be forfeitable solely because such Participant voluntarily withdraws his contributions after becoming a 50 percent vested participant. (3) Any Employee referred to in (1), above, who withdraws his contributions to a superseded plan at a time after September 1, 1974, when he is less than 50 percent vested in his employer-derived accrued benefits shall be entitled to restoration of any such employer-derived benefits which were forfeited because of such withdrawal, provided the Employee must repay the full amount of the withdrawal plus interest computed on the amount of the withdrawal from the date of withdrawal to the date of repayment, compounded annually, at the rate of 5 percent. This restoration provision shall not apply to an Employee who has no vested interest in his employer-derived accrued benefits, and whose accrued benefit is disregarded due to a Break in Service. (E) ELECTION OF OPTIONS AND DESIGNATION OF BENEFICIARIES ---------------------------------------------------- If a Participant has elected an optional form of payment and/or has designated a Beneficiary (or Beneficiaries) prior to the effective date of the Second Amendment to the Plan and such election and/or designation is in force immediately prior to the effective date of said amendment under the terms of the Superseded Plan, such election and/or designation shall continue in effect with respect to benefits payable under the Plan until a new election of an optional form of payment is made in accordance with the provisions of the Plan and/or a new designation of Beneficiary (or Beneficiaries) is made in accordance with the provisions of the Plan. (F) RIGHT TO AMEND OR TERMINATE SECOND SUPPLEMENT --------------------------------------------- The provisions of the Plan, with respect to the amendment or termination of the Plan shall apply with equal force and effect to this Second Supplement. 55 THIRD SUPPLEMENT ---------------- ANR SUPPLEMENT -------------- TABLE OF CONTENTS -----------------
Page ---- ARTICLE 1 - Introduction.................................. 59 ARTICLE 2 - Definitions 59 Section 2.1 Accumulated Contributions..................... 59 Section 2.2 Accrued Benefit............................... 59 Section 2.3 Active Participant............................ 60 Section 2.4 Actuarial Equivalent.......................... 60 Section 2.5 Anniversary Date.............................. 60 Section 2.6 Annuity....................................... 60 Section 2.7 Annuity Starting Date......................... 60 Section 2.8 Base Monthly Earnings......................... 60 Section 2.9 Break in Service Year......................... 60 Section 2.10 Contributing Participant...................... 60 Section 2.11 Contributory Service.......................... 60 Section 2.12 Eligible Employee............................. 61 Section 2.13 Excess Monthly Earnings....................... 61 Section 2.14 Final Average Monthly Earnings................ 61 Section 2.15 Hour of Employment............................ 61 Section 2.16 Military Service.............................. 61 Section 2.17 Normal Retirement Age......................... 61 Section 2.18 Normal Retirement Date........................ 61 Section 2.19 Participant................................... 61 Section 2.20 Participating Employer........................ 61 Section 2.21 Pre-1986 ANR Plan............................. 61 Section 2.22 Primary Monthly Earnings...................... 61 Section 2.23 Primary Monthly Earnings Rate at June 30, 1962 61 Section 2.24 Regulations................................... 62 Section 2.25 Retired Participant........................... 62 Section 2.26 Social Security Disability Benefit............ 62 Section 2.27 Social Security Monthly Benefit............... 62 Section 2.28 Superseded Base Plans......................... 62 Section 2.29 Superseded Insured Plans...................... 62 Section 2.30 Superseded Supplemental Plans................. 62 Section 2.31 System Company................................ 62 Section 2.32 Total Monthly Earnings........................ 63 Section 2.33 Transferred Participant....................... 63 Section 2.34 Vested Former Participant..................... 63 Section 2.35 Years of Credited Service..................... 63 Section 2.36 Years of Prior Service........................ 63 Section 2.37 Years of Service.............................. 63 ARTICLE 3 - Effective Date..................................... 64 ARTICLE 4 - [None]............................................. 64
56 TABLE OF CONTENTS (Continued)
Page ---- ARTICLE 5 - Participation......................................... 64 Section 5.1 Participation Requirements....................... 64 Section 5.2 Termination of Participation..................... 65 ARTICLE 6 - Contributions......................................... 65 Section 6.1 Contributions by Participants.................... 65 ARTICLE 7 - Retirement............................................ 65 Section 7.1 Normal Retirement................................ 65 Section 7.2 [None]........................................... 65 Section 7.3 Early Retirement................................. 65 Section 7.4 Non-occupational Disability Retirement........... 66 Section 7.5 Occupational Disability Retirement............... 66 ARTICLE 8 - Retirement Annuities.................................. 67 Section 8.1 Retirement after 1985............................ 67 Section 8.2 Retirement Prior to January 1, 1980.............. 68 Section 8.3 Retirement after 1979 and before 1986............ 68 Section 8.4 Cost-of-Living Adjustments....................... 71 Section 8.5 Optional Forms of Benefit........................ 72 Section 8.6 Automatic Joint and Survivor Election............ 77 Section 8.7 [None]........................................... 78 Section 8.8 [None]........................................... 78 Section 8.9 [None]........................................... 78 Section 8.10 Reduction in Benefits for Prior Payments......... 78 Section 8.11 Limitation on Payments to Contributing Participants..................................... 78 Section 8.12 Special Rules Applicable to the Benefits of Participants who Become Employed by, or who have Been Employed by, a System Company which is not a Participating Employer........................... 78 ARTICLE 9 - None.................................................. 79 ARTICLE 10 - Surviving Spouse Annuities............................ 79 Section 10.1 Benefits for Surviving Spouse and Dependent Children.......................................... 79
57 TABLE OF CONTENTS (Continued)
Page ---- ARTICLE 11 - Payments on Termination of Employment or Death of a Participant or Withdrawal of a Participating Employer from the Plan 81 Section 11.1 Termination of Participation other than by Death or Retirement 81 Section 11.2 Distribution Upon Death of Contributing Participant........... 82 Section 11.3 [None]........................................................ 82 Section 11.4 Benefits in Event Participant's Employer Withdraws from Pan... 82 ARTICLE 12 - Payment of Benefits................................................ 82 Section 12.1 Time and Manner of Payment of Annuities....................... 82 Section 12.2 Payment of Participant's Contributions........................ 82 ARTICLE 13 - 50% Survivor Annuity............................................... 83 Section 13.1 Coverage...................................................... 83 Section 13.2 Time Period................................................... 83 Section 13.3 50% Survivor Annuity.......................................... 83
58 ANR SUPPLEMENT -------------- ARTICLE 1 --------- INTRODUCTION ------------ This Supplement is referred to as the "ANR Supplement". This Supplement includes provisions applicable to persons who were Participants or Employees with respect to the American Natural Resources System Companies Employees' Retirement Plan prior to December 1, 1986. Persons who became Participants or Employees with respect to the American Natural Resources System Companies Employees' Retirement Plan after November 30, 1986, are subject to the general provisions of the Plan and are not subject to the provisions of this ANR Supplement. The provisions of Plan Section 1.2B relating to maximum compensation shall apply to this Supplement notwithstanding anything to the contrary in this Supplement. For purposes of Plan Section 1.28(d), this is a specific provision in the Plan which provides that the determination of Years of Service shall include any period of an Employee's employment with American Natural Resources Company, with any other organization during the period such other organization was a member of the same Controlled Group (as defined in Plan Section 6.10) as American Natural Resources Company and with any other organization during the period of time with respect to which such other organization had properly adopted and participated in the American Natural Resources System Companies Employees' Retirement Income Plan (the "ANR Plan"). In addition, Years of Service pursuant to provisions of the ANR Plan for periods of time before January 1, 1989, shall be included in Years of Service under Plan Section 1.28. With respect to a Participant, as defined in this Supplement, the nonforfeitable percentage of the Accrued Benefit as defined in and for purposes of the Pension Plan for Employees of The Coastal Corporation or the American Natural Resources System Companies Employees' Retirement Plan with respect to periods of time after December 31, 1985, and before January 1, 1989, shall not be less than the nonforfeitable percentage of such Accrued Benefit determined pursuant to provisions of the Pre-1986 ANR Plan (as defined in Section 2.21 of this ANR Supplement) applied to periods of time through December 31, 1988. ARTICLE 2 --------- DEFINITIONS ----------- Terms used in this Supplement which are defined in the Plan of which this Supplement is a part are used with the same meaning in this Supplement unless such terms are defined differently for purposes of this Supplement. Terms defined in this Supplement apply only to the Supplement and not to the Plan. References in this ANR Supplement to article numbers and section numbers mean such article or section in this ANR Supplement unless otherwise stated. 2.1 Accumulated Contributions. The sum of (a) a Participant's contributions ------------------------- during his Years of Prior Service which were paid to the Trustee subsequent to January 1, 1960, plus interest compounded annually at the rate of two and one- half percent (2-1/2%) from the first day of January following payment thereof through December 31, 1975, (b) his contributions which were paid under the Superseded Base Plans for any period constituting Years of Prior Service under the Plan, plus interest at the rate provided in the Superseded Base Plans through December 31, 1975 and (c) interest on the sum of (a) and (b) compounded annually at the rate specified by the Administrator, in accordance with regulations, from January 1, 1976 to the date of reference. 2.2 Accrued Benefit. A Participant's accrued benefit at a time of reference --------------- is the annuity computed under Section 8.3(a) which would be payable to such Participant at his Normal Retirement Date if he continued to be a 59 Participant until such date (determined under the terms of the Pre-1986 ANR Plan at such time of reference but assuming that his Final Average Monthly Earnings at his Normal Retirement Date will be equal to his Final Average Monthly Earnings at such time of reference) multiplied by a fraction, the numerator of which is his Years of Credited Service at such time of reference and the denominator of which is the Years of Credited Service which he would have if he continued to be a Participant until his Normal Retirement Date. In determining a Participant's Accrued Benefit, his Social Security monthly benefit shall be determined under the law as in effect at such time of reference but with the assumption that his Total Monthly Earnings remain unchanged until his Normal Retirement Date. The Accrued Benefit computed with respect to a person with Service after 1985 shall be reduced in accordance with Plan provisions relating to persons with Service before 1986 and after 1985. 2.3 Active Participant. A Participant who currently qualifies as an ------------------ Eligible Employee and who is currently employed by a Participating Employer. 2.4 Actuarial Equivalent. A payment or series of payments having the same -------------------- value as the payment or series of payments replaced, when computed using the UP 1984 mortality table with a 6% interest assumption. 2.5 Anniversary Date. With respect to each Employee the anniversary each ---------------- year of the Employee's date of employment. 2.6 Annuity. A series of equal monthly payments continuing for the lifetime ------- of the payee, except that, in the case of a Supplement payable pursuant to Section 8.3(b) or an Annuity payable pursuant to Section 8.3(c) or Section 8.3(d), such payments shall be subject to adjustment, reduction or termination in accordance with such sections. 2.7 Annuity Starting Date. The first day on which an Annuity is payable. --------------------- 2.8 Base Monthly Earnings. A Participant's Total Monthly Earnings not in --------------------- excess of four hundred dollars ($400). 2.9 Break in Service Year. A 12-month period beginning on an Employee's --------------------- Anniversary Date during which the Employee has not completed more than 500 Hours of Employment. Notwithstanding the foregoing, the following periods shall be deemed not to be Break in Service Years: (a) If a Participant shall retire pursuant to Section 7.4 or 7.5, shall thereafter cease to be totally and permanently disabled and shall return to the employ of a Participating Employer, the period between his disability retirement date and the date as of which he ceases to be totally and permanently disabled. (b) If after October 31, 1979 a Participant shall commence receiving benefits under a long-term disability benefit program maintained by a Participating Employer and shall thereafter cease to receive benefits under such program, the period during which he was receiving benefits under such program. If a non-vested Employee incurs a Break in Service Year, his Years of Credited Service and Years of Service completed prior to such Break in Service Year shall be disregarded unless the total number of Break in Service Years does not equal or exceed the greater of 5, and the aggregate number of Years of Service completed by the Employee prior to such Break in Service Year. 2.10 Contributing Participant. A Participant or Retired Participant who ------------------------ made contributions to the Pre-1986 ANR Plan or to either of the Superseded Base Plans. 2.11 Contributory Service. A Participant's Years of Prior Service -------------------- subsequent to January 1, 1960, and prior to July 1, 1963 minus (a) any period included therein during which he was not an Eligible Employee, as defined in subdivision (5) of Article II of the Plan as in effect on December 31, 1974, and (b) any period included therein solely by reason of his employment by a System Company which was not a Participating Employer or by an associate company. 60 2.12 Eligible Employee. A person currently employed by or receiving ----------------- severance allowance from a System company but excluding; (i) any person who is participating in a retirement plan which has been established by a System Company pursuant to an agreement with a labor union; (ii) and any person employed in the Road Equipment Division of American Natural Resources Company; and (iii) any person who is deemed to be an employee of System Company solely by reason of the provisions of Section 414 (n) of the Code. 2.13 Excess Monthly Earnings. A Participant's Total Monthly Earnings in ----------------------- excess of four hundred dollars ($400). 2.14 Final Average Monthly Earnings. A Participant's average Primary ------------------------------ Monthly Earnings for the period of sixty (60) successive calendar months which ends prior to his Normal Retirement Date, which is included within his last ten Years of Credited Service (as defined in this Article but determined by (a) excluding, for persons not credited with an Hour of Employment after 1987, Years of Credited Service completed in any 12-month period which begins after the Employee's Normal Retirement Date and (b) including Years of Credited Service completed prior to attaining age 22), and which affords the highest such average, or, if for his total Years of Credited Service (as defined in this Article but determined by (a) excluding, for persons not credited with an Hour of Employment after 1987, Years of Credited Service completed in any 12-month period which begins after the Employee's Normal Retirement Date and (b) including Years of Credited Service completed prior to attaining age 22) are less than five (5) years, for his total such Years of Credited Service. 2.15 "Hour of Employment" Means Hour of Service as defined in the Plan. ------------------ 2.16 Military Service. Service (a) on active duty, in time of national or ---------------- local emergency, in the armed forces of the United States or of any State thereof, or (b) in the armed forces of the United States or of any State thereof, under any compulsory service law, or (c) in the armed forces of the United States or any of its allies in time of war in which the United States is engaged. 2.17 Normal Retirement Age. A Participant's sixty-fifth birthday. --------------------- 2.18 Normal Retirement Date. The first day of a month coincident with or ---------------------- next following a Participant's attainment of Normal Retirement age. 2.19 Participant. An Eligible Employee or former Eligible Employee who has ----------- satisfied the requirements set forth in Article 5. 2.20 Participating Employer. A System Company which has adopted the Pre- ---------------------- 1986 ANR Plan. 2.21 "Pre-1986 ANR Plan" mean the American Natural Resources System ----------------- Companies Employees' Retirement Plan as in effect at the end of 1985 unless otherwise stated or required by the context. 2.22 Primary Monthly Earnings. A Participant's earnings from a ------------------------ Participating Employer or a System Company for any month computed at his basic hourly, weekly, monthly or annual rate, excluding payments for overtime or other premium pay but including shift differential and sales commission earned during such month; provided that the Primary Monthly Earnings of a Participant for any period of time included in his Years of Credited Service during which he was not at work or was at work only on a part time basis shall be computed on a full time basis at his basic hourly, weekly, monthly or annual rate in effect immediately prior to the date when he ceased working on a full time basis, plus, in the case of a Participant compensated partly on a commission or shift differential basis, his average monthly commissions or shift differential for the preceding twelve months. Premium pay, as included herein, includes bonus pay. 2.23 Primary Monthly Earnings Rate at June 30, 1962. A Participant's ---------------------------------------------- monthly earnings computed at his basic hourly, weekly, monthly or annual rate in effect at June 30, 1962, plus one-twelfth (1/12) of his total shift differential and/or sales commissions, if any, earned during the twelve months ended June 30, 1962. 61 2.24 Regulations. Regulations issued by the Department of Labor construing ----------- Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") or by the Internal Revenue Service construing the Internal Revenue Code of 1986, as amended (the "Code"). 2.25 Retired Participant. A former Participant who has retired pursuant to ------------------- Article 7. 2.26 Social Security Disability Benefit. The monthly amount available for ---------------------------------- the benefit of a Participant under the disability benefit provisions of the Federal Social Security Act, or under any similar future Federal Act or Acts, as in effect at the retirement date of the Participant, determined as if he is entitled to such benefits and disregarding non-entitlement for failure to apply, noneligibility in the case of nonresident alien Participants, or for any other reason. The Social Security Disability Benefit shall be deemed not to exceed one-hundred twenty-four dollars ($124.00) in any case. 2.27 Social Security Monthly Benefit. ------------------------------- (a) Forty percent (40%) of the monthly amount estimated to be available for the benefit of a participant at age sixty-five (65) (excluding payments for a spouse and dependents) under the old age benefit provisions of the Federal Social Security Act, or under any similar future Federal act or acts multiplied by a fraction the numerator of which is the number of his years of Credited Service, determined at his early retirement or termination of employment as the case may be, not in excess of 22-1/2 years and the denominator of which is 22-1/2. (b) In the case of a participant who retires under Section 7.1 on or after his normal retirement date, the amount of the Social Security monthly benefit required for the purpose of calculating the amount of his annuity shall be determined based on the law as in effect at his normal retirement date. (c) In the case of a participant who retires under Section 7.3 or who is eligible for an annuity pursuant to the provisions of Article 11, the amount of the Social Security monthly benefit required for the purpose of calculating the amount of his annuity shall be determined based on the law as in effect at his early retirement date or termination of employment, as the case may be, assuming that the participant will have no wages after such early retirement date or termination of employment as the case may be. The amount of a Participant's Social Security monthly benefit shall not be adjusted for any difference between the amount determined pursuant to the preceding sentences of this subdivision and the actual amount of Social Security benefit to which he ultimately becomes entitled because of failure to apply, continuance at work, ineligibility in the case of nonresident alien participants, or for any other reason. (d) The amount of a Participant's Social Security monthly benefit shall be determined pursuant to the above on the basis of estimated earnings history, assuming annual wage increases equal to the actual change in average wages from year to year as determined by the Social Security Administration. A participant may elect to have the Social Security monthly benefit determined using actual salary history. Such an election must be made on or before the Participant's date of termination of employment. Salary history for years during which the participant was not employed by a System company is to be furnished to the Committee by the participant. This information can be obtained from the Social Security Administration. 2.28 Superseded Base Plans. The retirement plans evidenced by Sun Life --------------------- Assurance Company of Canada Group Annuity Contracts 3028-G and 4638-G, as amended. 2.29 Superseded Insured Plans. The retirement plans evidenced by Sun Life ------------------------ Assurance Company of Canada Group Annuity Contracts 3028-G, 4638-G, 5233-G and 5491-G, as amended. 2.30 Superseded Supplemental Plans. The retirement plans evidenced by Sun ----------------------------- Life Assurance Company of Canada Group Annuity Contracts 5233-G and 5491-G, as amended. 2.31 System Company. American Natural Resources Company and any other -------------- corporation at least fifty percent (50%) of the shares of which at the time outstanding having ordinary voting power for the election of 62 directors is owned or controlled directly or indirectly by American Natural Resources Company, and any other employing entity which is a Participating Employer. The term System Company also includes Coastal and Sub-sidiaries for periods after the date in 1985 on which American Natural Resources became a Subsidiary. 2.32 Total Monthly Earnings. A Participant's total earnings from a ---------------------- Participating Employer for any month. 2.33 Transferred Participant. A former Active Participant who is currently ----------------------- employed by a System Company other than a Participating Employer, or who is currently employed by a Participating Employer but does not currently qualify as an Eligible Employee. 2.34 Vested Former Participant. A former Participant who, upon termination ------------------------- of his employment, has become entitled to and has elected to receive a deferred Annuity under the provisions of Article 11. 2.35 Years of Credited Service. Subject to the Break in Service definition ------------------------- of this Article, the sum of: (a) An Employee's Years of Prior Service. (b) Each 12-month period, beginning after December 31, 1974 on an Employee's Anniversary Date and, for persons not credited with an Hour of Employment after 1987, ending on or prior to the Employee's Normal Retirement Date, during which the Employee shall have completed 2,080 or more Hours of Employment with one or more Participating Employers. (c) A proportional Year of Credited Service for (i) any such 12-month period in which an Employee completes 1,000 or more Hours of Employment, but less than 2,080 Hours of Employment, (ii) any period of less than 12 months between December 31, 1974 and an Employee's first Anniversary Date thereafter, (iii) any period of less than 12 months between an Employee's Anniversary Date which imme-diately precedes his Normal Retirement Date and his Normal Retirement Date, or (iv) any period of employment which is prior to an Employee's Normal Retirement Date and is less than 12 months for which the Employee is not credited with a proportional fraction of a Year of Credited Service pursuant to (i), (ii) or (iii) above, such proportional Year of Credited Service to be determined under uniform rules adopted by the Committee in accordance with regulations. The initial calendar month of employment of a Participant shall be counted as a full month if such Participant began employment before the sixteenth day of such month. The final calendar month of employment of a Participant shall be counted as a full month if such Participant is credited with an Hour of Employment during such month. 2.36 Years of Prior Service. The number of years, computed to the nearest ---------------------- one-twelfth (1/12) of a year, of the last period of continuous employment prior to January 1, 1975, of any Employee who was an Employee on such date which would have been included, if such Employee had been a Participant on such date, in such Employee's continuous service as of December 31, 1974 as defined in subdivision (15) of Article II of the Plan as in effect on December 31, 1974. With respect to any Participant who was a Participant in the Plan on January 1, 1975, had attained his Normal Retirement Date prior to January 1, 1975, and pursuant to Section 2 of Article VII of the Plan as in effect on December 31, 1974 had continued in service beyond such Normal Retirement Date, such Participant's Years of Prior Service shall include the period beginning on such Participant's Normal Retirement Date and ending on December 31, 1974. 2.37 Years of Service. Subject to the Break in Service rules of this ---------------- Article, the sum of: (a) An Employee's Years of Prior Service. (b) Each 12-month period, beginning after December 31, 1974 on an Employee's Anniversary Date, during which the Employee shall have completed 1,000 or more Hours of Employment with one or more Participating Employers or System Companies. For purposes of this Section 2.37 only, Hours of 63 Employment shall be computed as if Great Plains Gasification Associates were a Participating Employer or a System Company. (c) A proportional Year of Service for any period of less than 12 months between December 31, 1974 and an employee's first Anniversary Date thereafter, such proportional Year of Service to be determined under uniform rules adopted by the Administrator in accordance with regulations, but excluding any Years of Service completed before an Employee attains age 18. Such proportional Year of Service shall be computed using the method described in Section 2.35(c) for computation of a proportional Year of Credited Service. (d) For purposes of vesting only, a Participant shall receive credit for Years of Service equal to the greater of (i) the period of service that would be credited to such Participant under the elapsed time method for Service during the entire computation period in which January 1, 1986, occurred, or (ii) the Service taken into account under the computation method in effect under the American Natural Resources System Companies Employees' Retirement Plan prior to 1986. The Years of Service for vesting as provided in this subsection (e) shall be in lieu of, and not in addition to, Years of Service otherwise calculated under the Plan. ARTICLE 3 --------- EFFECTIVE DATE -------------- The effective date of the Pre-1986 ANR Plan shall be January 1, 1960 or such other date as was established by resolution of the Board of Directors of a particular Participating Employer at the time of adoption of the Plan by such Participating Employer. ARTICLE 4 --------- [None] ARTICLE 5 --------- PARTICIPATION ------------- Section 5.1 Participation Requirements. ----------- -------------------------- (a) General. Each Eligible Employee who was employed by a ------- Participating Employer became a Participant as of the first day of the month coincident with or next following the later of his 18th birthday or satisfaction of the eligibility Service requirement. An Eligible Employee has satisfied the eligibility Service requirement if, on his Anniversary Date, he had completed, in the preceding 12-month period, 1,000 or more Hours of Employment. (b) Change of Employment Status; Reemployment of Terminated Employees. ----------------------------------------------------------------- If an Employee became an Eligible Employee because of a change in his employment status, he became a Participant as of the date of such change if he had attained age 18 and had satisfied the eligibility service requirement; otherwise he became a Participant as of the first day of the month coincident with or next following his satisfaction of such age and service requirements. If a former Participant who was not eligible to receive an annuity or a person who was previously an Eligible Employee, but whose employment was terminated after he had satisfied the eligibility service requirement and prior to his becoming a Participant, was employed by an employer and pursuant to the Break in Service of the Pre-1986 ANR Plan in effect at such time his Years of Credited Service are disregarded, then such former Participant or person became a Participant as of the 64 first day of the month coincident with or next following the latest of his 18th birthday, his satisfaction of the eligibility service requirement or his becoming an Eligible Employee. If such former Participant's or person's Years of Credited Service were not disregarded and such former Participant or person had attained age 18 and was an Eligible Employee, he was deemed to have become a Participant as of his date of employment; otherwise he became a Participant as of the later of his becoming an Eligible Employee or the first day of the month coincident with or next following his attainment of age 18. Section 5.2 Termination of Participation. No Participant shall be ----------- ---------------------------- permitted to terminate his participation in the Plan or to withdraw any of his contributions thereunder so long as he continues in the employ of a System Company. ARTICLE 6 --------- CONTRIBUTIONS ------------- Section 6.1 Contributions by Participants. Contributions by Participants ----------- are not required or permitted. ARTICLE 7 --------- RETIREMENT ---------- Section 7.1 Normal Retirement. ----------- ----------------- (a) Except as otherwise provided in the second paragraph of this section and in Section 7.2, a Participant who had attained Normal Retirement Age, may have, by giving 120 days written notice to the Administrator, retire on his Normal Retirement Date or on the first day of any month subsequent to his Normal Retirement Date. (b) A Participant who became totally and permanently disabled after October 31, 1979 and prior to his Normal Retirement Date and who received benefits under a long-term disability benefit program maintained by a Participating Employer, other than a disability pension pursuant to Section 7.4 or Section 7.5 of the Pre-1986 ANR Plan, shall be deemed to retire on the later of (i) his Normal Retirement Date unless he shall elect to be deemed retired on an earlier date pursuant to Section 7.3, and (ii) the date he is no longer eligible to receive or waives his rights to receive such long-term disability benefits. Section 7.2 [None] ----------- Section 7.3 Early Retirement. A Participant who has attained age fifty- ----------- ---------------- five (55) may, by giving 120 days written notice to the Administrator, retire as of the first day of any month preceding his Normal Retirement Date if, at the time of such retirement, the Participant has a nonforfeitable right to a benefit from the Plan and sum of his attained age (determined by reference to his last birthday) and the number of his full Years of Credited Service is at least seventy (70). The requirement that attained age and Years of Service must equal at least seventy is deleted as of January 1, 1986. However, the Participant must have earned a nonforfeitable benefit under the Plan before any benefit is payable under the Plan. The amount of Retirement Income payable to such person shall be determined under the early retirement provisions and not provisions applicable to Vested Former Participants. A Participant who becomes totally and permanently disabled after October 31, 1979 and prior to his Normal Retirement Date, who is receiving benefits under a long-term disability benefit program maintained by a Participating Employer, other than a disability pension pursuant to Section 7.4 or Section 7.5 of the Pre-1986 ANR Plan, and who has attained age fifty-five (55) may, by giving 120 days written notice to the Administrator, elect to cease being credited with Years of Credited Service and to be deemed to have retired as of the first day of any month preceding his Normal Retirement Date if, at the time of such retirement, the sum of his attained age (determined by reference 65 to his last birthday) and the number of his full Years of Credited Service is at least seventy (70) and he is no longer eligible to receive or waives his rights to receive such long-term disability benefits. The requirement that attained age and Years of Service must equal at least seventy is deleted as of January 1, 1986. The amount of Retirement Income payable to such person shall be determined under the early retirement provisions and not provisions applicable to Vested Former Participants. Section 7.4 Non-occupational Disability Retirement. A Participant who ----------- -------------------------------------- has completed ten Years of Service, who has not attained age sixty-five and who is totally and permanently disabled due to a non-occupationally caused accident or illness, other than a Participant who (a) becomes totally and permanently disabled after October 31, 1979, and (b) is covered by the comprehensive benefits program maintained by his employer (whether or not he is covered under the long-term disability benefit portion of such program), shall be retired under this section. The determination of whether or not a Participant is totally and permanently disabled shall be made by the Administrator, provided that in the event the Administrator determines the Participant is not totally and permanently disabled, the Participant may, within five (5) days after receipt of notice of such determination, give the Administrator written notice of his disagreement with such determination, and in such event the Participant shall be examined by a hospital mutually acceptable to the Participant and the Administrator, and the findings and determination of such hospital shall be binding on the Participant and the Administrator. If a Participant is determined to be totally and permanently disabled under this section, he shall be retired as of the later of (a) the first day of the month following the month in which such determination is made, and (b) the first day of the sixth month following the last day the Participant performed services for his Participating Employer prior to his non-occupationally caused accident or illness, provided that such Participant may retire at any earlier date under other Plan provisions. Section 7.5 Occupational Disability Retirement. A Participant who has ----------- ---------------------------------- not attained age sixty-five and who is totally and permanently disabled due to an occupational injury or a disease arising out of and in the course of employment with a Participating Employer, compensable under any Worker's Compensation Act or similar act, other than a Participant who (a) becomes totally and permanently disabled after October 31, 1979, and (b) is covered by the comprehensive benefits program maintained by his employer (whether or not he is covered under the long-term disability benefit portion of such program), shall be retired under this section. The determination of whether or not a Participant is totally and permanently disabled shall be made by the Administrator, provided that in the event the Administrator determines the Participant is not totally and permanently disabled, the Participant may, within five (5) days after receipt of notice of such determination, give the Administrator written notice of his disagreement with such determination, and in such event the Participant shall be examined by a hospital mutually acceptable to the Participant and the Administrator, and the findings and determination of such hospital shall be binding on the Participant and the Administrator. If a Participant is determined to be totally and permanently disabled under this section, he shall be retired as of the later of (a) the first day of the month following the month in which such determination is made, and (b) the first day of the month following the last month for which he receives a payment from his Participating Employer as a supplement to payments made under such Worker's Compensation Act or similar act; provided that such Participant may retire at any earlier time. ARTICLE 8 --------- RETIREMENT ANNUITIES -------------------- Section 8.1 Retirement after 1985. ----------- --------------------- (a) The amount of benefit payable under the provisions of the Plan for a Participant with Service under the Plan both before 1986 and after 1985 shall be computed in accordance with the method described in this Section. (b) The benefit shall be computed using the formulas and other provisions applicable to (i) Participants who retired between 1979 and 1986 and (ii) Participants with Credited Service after 1985. Computations shall be made as if each formula applied to the full period of Service using the respective definitions applicable to each formula in performing the computations. 66 (c) In computing the amount of benefit, variances related to benefit option, time of payment, and other provisions which affect the amount due the Participant, each of the formulas shall be computed as if such formula and other provisions were the only formula and other provisions to be applied to the Participant. However, the amount of benefit payable to the participant shall be a percentage of the benefit computed under each formula. The percentage with respect to the formula applicable to Participants retiring between 1979 and 1986 shall be the percentage derived by dividing the Years of Credited Service (as defined for the formula) of the Participant before 1986 by the total Years of Credited Service for periods both before 1986 and after 1985 used in such formula. The percentage with respect to the formula relating to Participants with Credited Service after 1985 shall be the percentage derived by dividing the years of Credited Service (as defined for the formula) after 1985 by the total years of Credited Service for periods both before 1986 and after 1985 used in such formula. (d) The total amount of benefit payable to the Participant based upon the use of both formulas may not exceed the benefit payable if the Participant had received a benefit based on the formula which provides the greatest benefit. (e) The total benefit with respect to a Participant with Credited Service prior to December 1, 1986 shall not be less than the amount of such benefit computed based only upon the Credited Service of such Participant through December 1, 1986, using only the formula and other provisions applicable to Participants who retired between 1979 and 1986. (f) Any cost of living adjustment provided with respect to a Participant shall be computed with respect to the Accrued Benefit computed as of December 31, 1985, using the formula applicable to Participants who retired between 1979 and 1986. No cost of living adjustment shall be provided with respect to the portion of a benefit computed using the formula applicable to a Participant for Credited Service after 1985. (g) The formulas and other provisions used to determine the benefit payable under the Plan for Service after 1985 are contained in the Plan and not in this Supplement. Except as specified in this ANR Supplement, the provisions of the Plan applicable to Participants not subject to provisions of this or other Supplements shall apply and shall be modified as specified in this ANR Supplement for Participants to whom this Supplement applies. Section 8.2 Retirement Prior to January 1, 1980. Each Retired ----------- ----------------------------------- Participant whose retirement date occurred prior to January 1, 1980 shall, after such date, continue to be entitled to receive an Annuity in the amount computed at the date of his retirement. Each contingent annuitant of a Retired Participant whose retirement date occurred prior to January 1, 1975 and who elected an optional form of Annuity pursuant to rules prescribed by the Administrator in accordance with Section 10 of Article VIII of the Plan as in effect on December 31, 1974 shall, after January 1, 1975, continue to be entitled to receive an Annuity, commencing after the death of such Retired Participant, in the amount determined under such rules in effect on the date of such election. The Annuities referred to in this section may be increased from time to time to the extent provided in Section 8.4. Section 8.3 Retirement after 1979 and before 1986. Subject to the ----------- ------------------------------------- provisions of Section 8.6, each Participant whose retirement date shall occur after 1979 and before 1986 shall be entitled to receive an Annuity, commencing on his retirement date, in an amount determined as provided in the following subsections of this section. (a) Normal Retirement. Each Participant who has earned a ----------------- nonforfeitable right to a benefit from the Plan and who shall retire on or after his sixty-fifth (65th) birthday shall be entitled to receive an Annuity, commencing on his retirement date, in an amount equal to the excess of the sum of the amounts specified in clauses (i) and (ii) below over the sum of amounts specified in clauses (iii) and (iv) below: (i) two percent (2%) of his Final Average Monthly Earnings multiplied by his Years of Credited Service up to but not exceeding a total of 22-1/2 years; 67 (ii) three-tenths of one percent (.3%) of his Final Average Monthly Earnings multiplied by his Years of Credited Service; (iii) his Social Security Monthly Benefit; (iv) the amount of monthly Annuity, if any, payable in the normal form, which he is entitled to receive under any other retirement plan of a Participating Employer, a System Company or Michigan Consolidated Gas Company or an affiliate of the latter (other than American Natural Resources System Deferred Salary Supplemental Retirement Plan) if the Participant's period of employment with respect to which such monthly Annuity is payable is included in, and ended prior to, such Participant's Years of Credited Service under this Pre-1986 ANR Plan. Notwithstanding any provision of the Pre-1986 ANR Plan to the contrary, the annuity payable with respect to any such Participant who was an Active Participant on October 31, 1979, or who became a Transferred Participant on or before such date, shall be not less than the Annuity which would have been payable to such Participant at his Normal Retirement Date determined under the terms of the Plan as in effect on October 31, 1979 by (i) determining his Social Security monthly benefit on the basis of the law as in effect on October 31, 1979 upon the assumption that his wages for purposes of such determination will continue at the same rate as in effect prior to such date and (ii) assuming that: (A) he continues to be an Active Participant or a Transferred Participant, as the case may be, until his Normal Retirement Date, (B) his Final Average Monthly Earnings at his Normal Retirement Date will be equal to the greater of (1) his Final Average Monthly Earnings at his Normal Retirement Date assuming his highest Primary Monthly Earnings during the period beginning October 31, 1979 and ending January 1, 1980 remain the same until his Normal Retirement Date and (2) his Final Average Monthly Earnings determined as if the earlier of January 1, 1980 and his actual retirement date were his Normal Retirement Date, and (C) his Total Monthly Earnings as at the earlier of January 1, 1980 and his actual retirement date remain unchanged until his Normal Retirement Date. (b) Early Retirement. Each Participant who shall retire prior to his ---------------- Normal Retirement Date pursuant to Section 7.3 shall be entitled to receive a deferred Annuity, commencing on his Normal Retirement Date, in an amount equal to the greater of the amount computed under subsection (a) of this section or the Participant's Accrued Benefit, or, if such Participant shall be giving 120 days written notice to the Administrator, elect an Annuity commencing on an earlier date, an Annuity equal to the product of (i) the greater of the amount computed under subsection (a) or the Participant's Accrued Benefit and (ii) a percentage determined under the following table on the basis of the number of months by which such commencement date precedes his Normal Retirement Date:
Months by Which Commencement Date Precedes Normal Retirement Date Percentage --------------------------------- ---------- 12 100% 24 100% 36 100% 48 94% 60 88% 72 82% 84 76% 96 70% 108 64% 120 58%
68 The percentage for a number of months in excess of 36 not shown shall be determined by interpolation at the rate of five-tenths of one percent (.5%) per month. Notwithstanding the foregoing, if at the time of a Participant's retirement (i) he shall have completed thirty (30) Years of Credited Service, and (ii) he shall have attained age fifty-five (55) the Annuity payable under this section to a Participant for any month prior to the month in which he shall have attained age sixty-two (62) shall be increased by an amount (hereinafter called a "Supplement") which, when added to the amount otherwise payable under this section (determined without any reduction by reason of such Participant's election of an optional form of Annuity under Section 8.5) will equal: (i) $750 in the case of a Participant who retires after December 31, 1980 and prior to January 1, 1982; and (ii) $800 in the case of a Participant who retires after December 31, 1981. (c) Disability Retirement; Active Participants. Each Active ------------------------------------------ Participant who shall be retired pursuant to Section 7.4 or 7.5, shall be entitled to receive an Annuity, commencing on his retirement date, in an amount equal to the greater of the amounts provided in the following paragraphs (i) and (ii): (i) the total of: (A) 3-1/2% of the sum of (1) his aggregate contributions under the Plan for his Years of Prior Service subsequent to the effective date and prior to July 1, 1962 and (2) his aggregate contributions under the Superseded Base Plans for any period prior to the effective date constituting Years of Prior Service under the Plan; (B) .09625% of his aggregate Base Monthly Earnings for his Years of Credited Service subsequent to June 30, 1962 and prior to his retirement date during which he was an Active Participant; (C) .14% of his aggregate Excess Monthly Earnings for his Years of Credited Service subsequent to June 30, 1962 and prior to his retirement date during which he was an Active Participant; (D) $2.10 multiplied by the number of his Years of Credited Service subsequent to the effective date of the applicable Superseded Base Plan; and (E) seventy dollars ($70) for each month for which he does not qualify for a Social Security benefit. (ii) the excess of the sum of the amounts specified in clauses (A) and (B) below over the sum of the amounts specified in clauses (C) and (D) below: (A) two percent (2%) of his Final Average Monthly Earnings multiplied by his Years of Credited Service up to but not exceeding a total of 22-1/2 years; 69 (B) three-tenths of one percent (.3%) of his Final Average Monthly Earnings multiplied by his Years of Credited Service; (C) sixty-four percent (64%) of his Social Security disability benefit if he qualifies therefor, with no deduction made under this clause for any month during which he does not qualify for a Social Security disability benefit; (D) the amount of monthly Annuity, if any, payable in the normal form, which he is entitled to receive under any other retirement plan of a Participating Employer, a System Company or Michigan Consolidated Gas Company or an affiliate of the latter if the period of the Participant's employment with respect to which such monthly amount is payable is included in, and ended prior to, such Participant's Years of Credited Service under this Pre-1986 ANR Plan. In the case of an Active Participant who shall be retired under Section 7.5, the Annuity payable under this section shall in no event be less than the lesser of 20% of his average Total Monthly Earnings during (i) the five years immediately preceding the date of his disability, or, (ii) the five year period ending December 31, 1985. If such period is less than five years, the average Total Monthly Earnings for the total of such period. Annuities payable under this section shall terminate with the payment for the first to occur of the following months: (i) the month in which the Retired Participant shall cease to be totally and permanently disabled, (ii) the month of the Retired Participant's death, or (iii) the month preceding the Retired Participant's Normal Retirement Date. When a Retired Participant receiving an Annuity under this section attains his Normal Retirement Date, he shall be entitled to receive, in lieu of such Annuity, an annuity computed under subsection (a). If a Retired Participant receiving an Annuity under this section shall cease to be totally and permanently disabled prior to his Normal Retirement Date and shall not return to the employ of a System Company, his right to receive an Annuity under subsection (b) shall be determined as if he had retired as of the first day of the month following the month in which he ceases to be totally and permanently disabled, but no period subsequent to the date of his retirement because of total and permanent disability shall be treated as part of his Years of Service and Years of Credited Service for purposes of determining the amount of any such Annuity. A Participant who has been retired pursuant to Section 7.4 or 7.5 who ceases to be totally and permanently disabled shall so notify the Administrator. A Participant who has been retired pursuant to such sections shall be required to submit proof of his continuing total and permanent disability as requested by the Administrator not more frequently than annually, and, in the event of his failure to comply with any such request within sixty (60) days after the date of mailing of such request to his address on file with the Administrator, the Administrator may cause any further payments to be suspended until the requested proof shall have been furnished. If any disagreement shall arise as to whether the Retired Participant continues to be totally and permanently disabled, such disagreement shall be resolved in the manner provided in Sections 7.4 and 7.5 in case of disagreement on the initial determination of disability. (d) Disability Retirement; Transferred Participants. Each Transferred ----------------------------------------------- Participant who is retired under Section 7.4 or 7.5, regardless of whether or not he qualifies for a Social Security disability benefit, shall be entitled to receive an Annuity, commencing on his retirement date, in an amount computed under paragraph (i) of subsection (c) of this section except that clauses (D) and (E) thereof shall not apply. Such Annuity shall be subject to the same conditions and limitations as an Annuity payable under subsection (c) of this section. (e) Disability Retirement; Application for Social Security Benefits. --------------------------------------------------------------- Any Participant retiring under Section 7.4 or 7.5 shall make application for a Social Security disability benefit prior to or coincident with his retirement date, and it shall be assumed for purposes of determining the amount of annuity initially payable under subsection (c) that such Participant qualifies for a Social Security disability benefit. If his application is rejected, appropriate adjustments shall be made retroactively in the amount of such Annuity. A Participant whose application for a Social Security disability benefit is rejected shall, if requested by the Administrator, again make application for such a benefit. The Administrator shall request such a reapplication 70 no more often than once during each twelve-month period following the Participant's retirement date. If the Participant qualifies retroactively for a Social Security disability benefit, appropriate adjustments shall be made retroactively in the amount of his Annuity. The Participant shall furnish to the Administrator proof of filing of application or reapplication for a Social Security disability benefit as required hereunder and shall submit to the Administrator the findings and determination with respect to his application or reapplication. Failure to supply such proof of filing within ninety (90) days of the Participant's date of retirement or, if the Administrator requests a reapplication, within ninety (90) days of such request shall result in a reduction in the amount of the Retired Participant's Annuity, as of the first day of the month following the end of such ninety (90) day period, to that to which he would be entitled under subsection (c) of this section if he, in fact, were receiving the Social Security disability benefit to which he would be entitled if he qualified therefor. Any Participant receiving an annuity under subsection (c) who applies for and receives a Social Security benefit other than a disability benefit prior to age sixty-five (65) shall be deemed, for purposes of determining the amount of his Annuity under subsection (c) to be receiving the Social Security disability benefit for which he might otherwise have qualified. (f) Minimum Normal, Deferred and Early Retirement Benefits. The ------------------------------------------------------ Annuity to which a Participant is entitled under Section 8.3(a) or Section 8.3(b) shall in no event be less than the hypothetical Annuity which he would have been entitled to receive had he retired under Section 7.3 at any time prior to his actual date of retirement and elected to have such hypothetical Annuity commence on his hypothetical early retirement date. Section 8.4 Cost-of-Living Adjustments. Wherever used in this section, the ----------- -------------------------- following terms shall have the meanings stated below: (a) Index. The Consumer Price Index of the United States Department of ----- Labor, Bureau of Labor Statistics, U.S. Average, All Items, 1967 = 100, adjusted in such manner as shall be statistically appropriate to reflect any change in the base period of the Index or other change requiring such adjustment occurring after June 1, 1971. (b) Adjustment Date. September 1, 1971 and each succeeding September --------------- 1. (c) Current Index. The Index for the month of June immediately ------------- preceding any Adjustment Date subsequent to September 1, 1971. (d) Eligible Person. A Retired Participant or the surviving spouse of --------------- such Retired Participant if such spouse was a contingent annuitant under any optional form of Annuity elected by the Retired Participant. Effective January 1, 1976, the term Eligible Employee shall include a Vested Former Participant who terminates employment after December 31, 1975 or the surviving spouse of such a Vested Former Participant if such spouse was a contingent annuitant under any optional form of Annuity elected by the vested Participant. The term Eligible Person shall not include any Retired Participant or Vested Former Participant whose date of employment by a Participating Employer is after December 31, 1983 or the surviving spouse of any such Retired Participant or Vested Former Participant. (e) Initial Benefit Amount. The amount of Annuity, including any ---------------------- Supplement under Section 8.3(b), to which an Eligible Person is entitled under the Plan without regard to any adjustment made by reason of this section. (f) Retirement Index. For a Participant who retired prior to September ---------------- 1, 1971, the Index for June, 1972; for a Participant who retired subsequent to August 31, 1971, the Index for the third month immediately preceding his retirement date. 71 (g) Index Adjustment Amount. The amount determined by ----------------------- (i) dividing the excess, if any, of the Current Index over the Retired Participant's or Vested Former Participant's Retirement Index by such Retirement Index, (ii) multiplying the percentage determined in (i) by the Retired Participant's or Vested Former Participant's initial benefit amount, and (iii) subtracting from the amount determined in (ii) the total of all amounts applied after September 1, 1971 to increase the benefit amount payable to an Eligible Person with respect to such Retired Participant or Vested Former Participant under this section; provided, however, that such remaining amount shall not be more than 3% of the Retired Participant's or Vested Former Participant's initial benefit amount or less than zero. (h) Retirement Date. A Retired Participant's Normal Retirement Date, --------------- earlier retirement date (including disability retirement) if he retired prior to his Normal Retirement Date, his actual date of retirement if he retired subsequent to his Normal Retirement Date, or the first day of the month coincident with or next following a Vested Former Participant's fifty- fifth (55th) birthday if such Participant's employment was terminated after he completed (i) ten (10) Years of Service if employment terminated before 1989 or (ii) five Years of Service if such Participant is credited with one Hour of Employment after 1988, but (iii) prior to attaining age fifty-five (55). As of September 1, 1974 the Annuity payable to an Eligible Person with respect to a Participant who retired prior to June 1, 1974 (determined without regard to this paragraph and the next succeeding paragraph but taking into account all prior increases under this section) shall be increased by .3% for each full month by which such Participant's Retirement Date precedes June 1, 1974, provided that such increase shall not exceed a maximum of 7.2%. As of September 1, 1974 and as of each subsequent Adjustment Date the Annuity of each Eligible Person whose Index Adjustment Amount of such date shall exceed 3/4 of 1% of the Participant's initial benefit amount shall be increased by his Index Adjustment Amount, provided, however, that if the Retirement Date of the Participant with respect to which such Annuity is payable occurred subsequent to the previous Adjustment Date, such increase shall be reduced by multiplying such increase by the nearest number of full months from such Retirement Date to the subsequent Adjustment Date and dividing the product by 12. The minimum monthly Annuity payable commencing with the first adjustment date to each Eligible Person shall be, after application of the foregoing cost-of-living adjustments, equal to $3.00 times his number of full years of Participation in the Plan and the Superseded Base Plans. Such minimum Annuity is subject to the reductions as provided in the Plan for early retirement and as provided under the rules adopted by the Administrator for election of an optional form of Annuity. Notwithstanding the foregoing, if the Plan is terminated by any Participating Employer, the Annuities to be paid to Participants or Retired Participants employed by such employer, or to their surviving spouses, shall not, after the date of such termination, be increased pursuant to this section. (i) The Cost-of-Living Adjustments provided by this Section shall apply only to the Accrued Benefit as of December 31, 1985, and shall not apply to any portion of the Accrued Benefit under the Plan with respect to Service after 1985. Section 8.5 Optional Forms of Benefit. (a) A Participant may elect any ----------- ------------------------- one of the optional forms of Annuity set forth below; provided, however, that no optional form of Annuity may be elected with respect to any Supplement payable pursuant to Section 8.3(b). Such election shall be subject to such exceptions as the Administrator may determine to be reasonably required to conform to restrictions contained in the Super- 72 seded Insured Plans and such election shall be is made prior to commencement of Retirement Income payments, except that no such election shall be effective as to a Participant who is retired pursuant to Section 7.4 or 7.5 because of total and permanent disability until such Participant attains his Normal Retirement Date. Unless a Participant elects, prior to January 1, 1984, the contingent annuitant described in items iii, iv and v below shall be the Participant's spouse. A Vested Former Participant whose employment terminated prior to January 1, 1976, may not elect an optional form of Annuity. Optional Annuity Forms ---------------------- (i) The monthly Annuity set forth in Section 8.3. (ii) A reduced monthly Annuity payable to the Participant during the Participant's lifetime and, thereafter, in the event of the Participant's death within the 10-year period which begins on the Participant's Annuity starting date, in the same reduced monthly amount to the Beneficiary designated by the Participant for the balance of such 10-year period. The amount of the reduced monthly Annuity shall be determined under the following table on the basis of the Participant's age at his Annuity starting date.
Percentage Reduced Participant's Age Monthly Annuity ----------------- ------------------ 55 96.9% 56 96.5 57 96.2 58 95.8 59 95.3 60 94.7 61 94.1 62 93.4 63 92.6 64 91.7 65 90.7 66 89.5 67 88.3 68 87.0 69 or over 85.6
(iii) A reduced monthly Annuity payable to the Participant during the Participant's lifetime and, thereafter, to a contingent annuitant designated by the Participant during the remaining lifetime of such contingent annuitant in an amount which is either (A) 100%, (B) 66-2/3% or (C) 50%, as designated by the Participant, of such reduced monthly Annuity. If both the Participant and the Participant's contingent annuitant die within the 10-year period which begins on the Participant's Annuity starting date, then payments on the basis of the above percentage designated by the Participant shall be made to the beneficiary designated by the Participant for the balance of such 10- year period. The amount of the reduced monthly Annuity shall be determined under the following tables on the basis of (A) the Participant's age at the annuity starting date, (B) the number of years difference between the Participant's age and the contingent annuitant's age and (C) the percentage continuation to the contingent annuitant; provided, however, that the Annuity payable in respect of any Participant under the provisions of this paragraph shall not be less than the Annuity payable in respect of such Participant had such Participant retired on December 31, 1974 after having elected the same optional form of Annuity with the same contingent annuitant. 73 Percentage Reduced Monthly Annuity Payable to a Participant (other than an optional form payable under the provisions of Section 8.6 or payable to a Vested Former Participant eligible to receive an Annuity pursuant to the provisions of Article 11) -----------------------------------------
Percentage Continuation to Contingent Annuitant ------------------------------ Participant's age is within five (5) years of the 100% 66-2/3% 50% --- ------ --- contingent annuitant's age and Participant's age is: 55 69% 77% 82% 56 69 77 82 57 69 77 82 58 69 77 82 59 69 77 82 60 69 77 82 61 69 77 82 62 69 77 82 63 71 79 84 64 74 82 87 65 or later 77 85 90 For each year in excess of 5 years that Participant is older than the contingent annuitant, the above factors will be decreased by: 1.0% 0.9% 0.8% Subject to the limitation that the above factors may not exceed 100%, for each year in excess of 5 years that Participant is younger than the contingent annuitant, the above factors will be increased by: 1.0% 0.9% 0.8%
74 Percentage Reduced Monthly Annuity Payable Under the Provisions of Section 8.6 or Payable to a Vested Former Participant Eligible to Receive an Annuity Pursuant to the Provisions of Article 11
Percentage Continuation to Contingent Annuitant -------------------------- Participant's age is within five (5) years of the 100% 66-2/3% 50% --- ------ --- contingent annuitant's age: 69% 77% 82% For each year in excess of 5 years that Participant is older than the contingent annuitant, the above factors will be decreased by: 1.0% 0.9% 0.8% Subject to the limitation that the above factors may not exceed 100%, for each year in excess of 5 years that Participant is younger than the contingent annuitant, the above factors will be increased by: 1.0% 0.9% 0.8%
(iv) A reduced monthly Annuity payable to the Participant during the Participant's lifetime and, thereafter, to a contingent annuitant designated by the Participant in an amount which is (A) if the Participant dies within the 10-year period which begins on the Participant's Annuity starting date, equal to the reduced monthly Annuity being paid to the Participant immediately preceding the Participant's death adjusted in accordance with Section 8.4 of the Plan for the balance of such 10-year period and, after the end of such 10- year period, during the remaining lifetime of such contingent annuitant equal to (1) 100%, (2) 66 2/3% or (3) 50%, as designated by the Participant, of such reduced monthly Annuity or, (B) if the Participant dies after the end of the 10-year period which begins on the Participant's Annuity starting date, during the remaining lifetime of such contingent annuitant, equal to whichever of the above percentages of such reduced monthly Annuity has been designated by the Participant for the remaining lifetime of such contingent annuitant. If during the 10-year period, which begins on the Participant's Annuity starting date, both the Participant and the contingent annuitant die, a monthly Annuity with payments equal to those being made to the Participant or the Participant's contingent annuitant immediately preceding the death of the survivor adjusted in accordance with Section 8.4 of the Plan shall be made for the balance of such 10-year period to the Beneficiary designated by the Participant. The amount of the reduced monthly Annuity shall be determined under the following tables on the basis of (A) the Participant's age at the Annuity starting date, (B) the number of years difference between the Participant's age and the contingent annuitant's age, and (C) the percentage contribution to the contingent annuitant; provided, however, that the Annuity payable in respect of any Participant under the provisions of this paragraph shall not be less than the Annuity payable in respect of such Participant had such Participant retired on December 31, 1974 after having elected the same optional form of Annuity with the same contingent annuitant. 75 Percentage Reduced Monthly Annuity Payable to a Participant (other than an optional form payable under the provisions of Section 8.6 or payable to a vested former Participant eligible to receive an Annuity pursuant to the provisions of Article 11) -----------------------------------------
Percentage Continuation to Contingent Annuitant ----------------------------- Participant's age is within five (5) years of the contingent 100% 66-2/3% 50% --- ------ --- annuitant's age and Participant's age is: 55 69% 76% 80% 56 69 76 80 57 69 76 80 58 69 76 80 59 69 76 80 60 69 76 80 61 69 76 80 62 69 76 80 63 71 79 82 64 74 81 84 65 or later 77 83 86 For each year in excess of 5 years that Participant is older than the contingent annuitant, the above factors will be decreased by: 1.0% 0.9% 0.8% Subject to the limitation that the above factors may not exceed 100%, for each year in excess of 5 years that Participant is younger than the contingent annuitant, the above factors will be increased by: 1.0% 0.9% 0.8%
76 Percentage Reduced Monthly Annuity Payable under the Provisions of Section 8.6 or Payable to a Vested Former Participant Eligible to Receive an Annuity Pursuant to the Provisions of Article 11 ---------------------------------------------------
Percentage Continuation to Contingent Annuitant --------------------------- Participant's age is within five (5) 100% 66-2/3% 50% --- ------ --- years of the contingent annuitant's age: 69% 76% 80% For each year in excess of 5 years that Participant is older than the contingent annuitant, the above factors will be decreased by: 1.0% 0.9% 0.8% Subject to the limitation that the above factors may not exceed 100%, for each year in excess of 5 years that Participant is younger than the contingent annuitant, the above factors will be increased by: 1.0% 0.9% 0.8%
(v) Any combination of the above optional Annuity forms. For purposes of using the above tables the Participant's age and the Participant's contingent annuitant's age shall be determined by reference to their nearest birthday as of the Participant's Annuity starting date. Notwithstanding any provisions hereof to the contrary, if a Participant elects Option ii, iii and iv, the Participant's contingent annuitant is other than the Participant's spouse and the value of the Participant's Annuity under any such option is not more than 50% of the value of the Annuity he would have been entitled to receive had he elected Option i, the Annuity payable to the Participant shall be increased and the Annuity payable to the contingent annuitant shall be decreased in order that the value of the Participant's Annuity under the option shall be more than 50% of the value of the Annuity which would have been payable to the Participant had he elected Option i. If a Vested Former Participant who has attained age fifty-five (55), or a Participant who retired prior to his Normal Retirement Date, and who has not elected to have his benefits commence prior to his Normal Retirement Date dies before payment of such benefits has commenced and prior to his death he either had not rejected the automatic joint and survivor election set forth in Section 8.6 or had elected Option ii, iii and iv, payments shall commence under such option to the Participant's contingent annuitant as of the first day of the month in which the deceased Participant would have commenced to receive benefits if he had lived. Only those benefits set forth in Section 11.2 shall be paid upon the death of a Vested Former Participant prior to attaining age fifty-five (55). Section 8.6. Automatic Joint and Survivor Election. Notwithstanding the ----------- ------------------------------------- provisions of Section 8.5, a Participant who retires on or after January 1, 1976 pursuant to Section 7.1 or Section 7.3, a Participant who retires at any time pursuant to Section 7.4 or Section 7.5 and attains his Normal Retirement Date after January 1, 1976, or a Participant whose employment terminates on or after January 1, 1976 and who is eligible for an Annuity pursuant to the provisions of Article 11 shall automatically be deemed to have elected Option iii(C) set forth in Section 8.5 with the Participant's spouse as contingent annuitant unless such Participant shall specifically reject such automatic election pursuant to the provisions of the Plan except that such an automatic election shall not be effective as to a Participant who is retired pursuant to Section 7.4 or 7.5 because of total and permanent disability until such Participant attains his Normal Retirement Date. An election by Participant at any time of any optional form of Annuity set forth in Section 8.5 shall be deemed to be a specific written rejection of the automatic election provided in this section. 77 If, pursuant to Section 7.1, a Participant retires after his Normal Retirement Date, the automatic election provided by this section, unless specifically rejected, shall be operative during the period between his Normal Retirement Date and his actual date of retirement so that, if the Participant predeceases his spouse, the latter shall receive, commencing with the first day of the month next following the Participant's death, the survivorship benefits which would have been payable had the Participant retired immediately prior to his death, provided, however, that such benefits shall be offset by the amount payable in such event under Article 10. Sections 8.7, 8.8 and 8.9 [None] ------------------------- Section 8.10 Reduction in Benefits for Prior Payments. Any Annuity or ------------ ---------------------------------------- other benefit otherwise payable under this Article or Article 11 shall be reduced by the Actuarial Equivalent of any benefit previously paid to the Participant, or to which the Participant previously became entitled, under any plan of any predecessor company with respect to a period of employment which is taken into account in measuring such Annuity or other benefit otherwise payable. Section 8.11 Limitation on Payments to Contributing Participants. ------------ --------------------------------------------------- Anything herein to the contrary notwithstanding, any Annuity payable under this Article or under Section 11.1 to a Contributing Participant who made contributions to either of the Superseded Base Plans shall be limited to the portion of such Annuity payable as a paid-up Annuity under one or more of the Superseded Insured Plans until such contributing Participant shall by written instrument delivered to the Administrator in form approved by it have irrevocably designated the Trustee as the beneficiary to receive any benefits which shall become payable under the Superseded Base Plans on account of the death of such Participant after commencement of Annuity payments to him. This section shall not apply to Contributing Participants who shall have commenced to receive an Annuity before this section shall have become effective. Section 8.12 Special Rules Applicable to the Benefits of Participants who ------------ ------------------------------------------------------------ Become Employed by, or who have Been Employed by, a System Company which is not - ------------------------------------------------------------------------------- a Participating Employer. If, before 1986, an Employee shall be transferred - ------------------------ from a Participating Employer to a corporation which is a System Company but is not a Participating Employer, becomes a participant in a retirement plan established by such corporation, other than a plan established pursuant to an agreement with a labor union, and the terms of such retirement plan provide, with respect to a person who has participated in, or upon satisfying the requirements set forth in Article 5 would have become a Participant in, this Plan, (i) that such person's service for purposes of determining the amount of his benefit under such retirement plan and determining whether, and when, he will be entitled to receive a benefit from such retirement plan shall include any period of employment with a Participating Employer to the same extent such period would have been included had it been employment by such corporation, (ii) that such person's accrued benefit under such retirement plan immediately after such transfer shall be not less than his Accrued Benefit under this Plan at the time of the transfer, less the portion, if any, of such Accrued Benefit which is attributable to his contributions to this Plan, and (iii) that, if such person's employment with such corporation is terminated, other than by a transfer to another System Company, before he is fully vested in his Accrued Benefit under such retirement plan, such person shall be entitled to receive from such retirement plan an amount at least equal to his Accrued Benefit under this Plan at the time of his transfer to such corporation, less the portion, if any, of such Accrued Benefit which is attributable to his contributions to this Plan, if his Years of Service under this Plan plus any period of employment with such corporation which would have been Years of Service under this Plan had it been employment with a Participating Employer would equal ten years, then, notwithstanding any provision of this Supplement to the contrary, such Employee shall not be entitled to receive an Annuity or any other distribution or payment from this Supplement except the amount to which he would have been entitled under subdivision (b) of Section 11.1 had his employment terminated under the circumstances therein described. 78 If, before 1986, an Eligible Employee has been transferred from a System Company other than a Participating Employer to a Participating Employer and immediately prior to such transfer he participated in, or upon satisfying any age and service requirements would have become a Participant in, a retirement plan established by such System Company, other than a plan established pursuant to an agreement with a labor union, then, notwithstanding any provision of this Supplement to the contrary, (1) upon becoming an Eligible Employee any period of employment with such System Company, including any period of employment prior to the date such company became a System Company, shall be taken into account for purposes of determining such Employee's Years of Service and Years of Credited Service to the same extent it would have been had such period of employment been employment by a Participating Employer, (2) such Employee's annuity determined under Section 8.3(a) immediately after such transfer shall be not less than his Accrued Benefit under such retirement plan at the time of the transfer, less the portion, if any, of such Accrued Benefit which under the terms of such plan must be paid from such plan, and (3) if such Employee's employment is terminated, other than by a transfer to another System Company, before he has completed ten Years of Service, such Employee will be entitled to receive from this Plan, at the time and in the manner set forth in the retirement plan of his prior employer, an amount equal to the vested portion of his accrued benefit under such plan immediately prior to his transfer to a Participating Employer, taking into account in determining such vested portion any period of employment with any System Company to the same extent it would have been had such period of employment been employment by his prior employer. ARTICLE 9 --------- [None] ARTICLE 10 ---------- SURVIVING SPOUSE ANNUITIES -------------------------- Section 10.1 Benefits for Surviving Spouse and Dependent Children. ------------ ---------------------------------------------------- (a) As of December 31, 1985, all of the Participating Employers in the Pre-1986 ANR Plan were parties to group insurance contracts under which annuities are paid to the surviving spouses of deceased employees, the surviving spouses of deceased former employees who became totally and permanently disabled after October 31, 1979 and on the date of their death were receiving benefits under a long-term disability program maintained by a Participating Employer, and the surviving spouses of deceased former employees who retired pursuant to Section 7.4 or 7.5 because of total and permanent disability, covered under such contracts in the amounts and subject to the terms and conditions stated in such contracts. (b) The Annuities payable pursuant to this Section 10 are provided under the terms of Group Contract GA 81776 effective March 1, 1986, issued by the Principal Mutual Life Insurance Company. Such Group Contract replaced Group Contract GA 2979 effective January 15, 1959, issued by Bankers Life Company. Annuities provided by this Section 10 are payable only in accordance with the terms of previously referenced Group Contracts. In general, such Annuities are payable to the surviving spouses of persons who die while actively employed by an adopting employer and who were Eligible Employees as of December 31, 1985, and who had attained the age of fifty years prior to April 1, 1986. In addition, spouses of certain disabled persons described in the first paragraph of this Section 10 may receive Annuities. 79 (c) The amount of the Annuity is determined by the terms of the previously referenced Group Contracts, provided, however, that such benefit shall be calculated using the compensation of such Eligible Employee which would have been used if such Eligible Employee would have died on December 31, 1985. Changes in compensation after 1985 shall not be used in calculation of the Annuities payable pursuant to this Section 10. (d) In general, subject to the provisions of the previously referenced Group Contract and other provisions of this Section 10, the amount of each monthly Annuity payment shall be equal to which ever of the following applies. (i) If the Eligible Employee did not make a proper irrevocable rejection of this option, the amount shall be the sum of (A) and (B) where (A) is twenty percent of the Eligible Employees' Base Monthly Earnings, plus (B) five percent of the Eligible Employees' Base Monthly Earnings to each dependent child, to a maximum of four children, payable to the attainment of age twenty-one for each dependent child. (ii) If the Eligible Employee did make a proper irrevocable rejection of the option described in preceding item (i), the amount shall be forty percent of the total amount of the normal monthly income payment on a single life Annuity basis such Eligible Employee would have been entitled to receive under the Pre - 1986 ANR Plan as in effect on December 31, 1985, upon attainment of age sixty-five by such Eligible Employee assuming that his employment and salary as of December 31, 1985, were to continue until his attainment of age sixty-five. (e) Base Monthly Earnings as defined in the Pre - 1986 ANR Plan and used for purposes of determining benefits under this Section 10 means an Eligible Employees' Total Monthly Earnings not in excess of four hundred dollars. (f) The previously referenced Group Contracts also provide that, in general, if an Eligible Employee and his eligible spouse die simultaneously, the twenty percent payable to dependent children under preceding item (1) shall be doubled. (g) Dependent children as used in this Section 10 are defined in the previously referenced Group Contracts. (h) The Annuities payable under this Section 10 are minimum benefits which are in lieu of, and not in addition to, benefits otherwise payable under the provisions of the Pension Plan for Employees of The Coastal Corporation including Supplements ("Coastal Plan"). There shall be no duplication of benefits under this Section 10 and other provisions of the Coastal Plan including this ANR Supplement. (i) The benefits provided by this Article 10 are ancillary death benefits and are payable only if death of a Participant occurs while the Participant is a disabled former employee described in Section 10.1(a) or an Active Participant with respect to a Participating Employer or is an employee of a Related Employer or Subsidiary. Termination of employment or retirement so that an Active Participant is not actively employed by a Participating Employer, Related Employer or Subsidiary ends eligibility for benefits under this Article 10 except as specified for disabled persons in Section 10.1(a). 80 ARTICLE 11 ---------- PAYMENTS ON TERMINATION OF EMPLOYMENT OR DEATH OF A PARTICIPANT --------------------------------------------------------------- OR WITHDRAWAL OF A PARTICIPATING EMPLOYER FROM THE PLAN ------------------------------------------------------- Section 11.1 Termination of Participation other than by Death or ------------ --------------------------------------------------- Retirement. A Participant who ceases to be a Participant upon termination of - ---------- his employment for any reason other than death or retirement pursuant to Article 7 shall have the following rights: (a) If such Participant shall have completed (i) ten Years of Service at the date of such termination of employment if employment terminated before 1989, or (ii) five Years of Service if such Participant is credited with one Hour of Employment after 1988, he shall be entitled to receive either, (i) a deferred Annuity commencing at his Normal Retirement Date in an amount equal to the greater of the amount computed under subsection (a) of Section 8.3 of this Supplement or the Participant's Accrued Benefit as of the date of his termination of employment, or (ii) an Annuity commencing at such earlier date following attainment of age fifty-five as such terminated Participant may elect by filing written notice with the Administrator at least 120 days prior to such date in an amount equal to the greater of the amount computed under Subsection (a) of Section 8.3(a) of this Supplement or the Participant's Accrued Benefit as of the date of his termination of employment actuarially reduced to reflect the earlier commencement date, provided, however, that if such Participant was a Contributing Participant, he may elect at any time prior to the commencement of such deferred Annuity to receive a lump sum cash distribution, payable from the sources specified in Article 12, in an amount equal to his Accumulated Contributions as of the first day of the month preceding the date on which such distribution is made. If a Participant elects to receive such a lump sum cash distribution, the Annuity otherwise payable under subparagraph (i) or (ii) of this paragraph shall be reduced by the Actuarial Equivalent of such lump sum cash distribution. (b) If such Participant shall not have completed (i) ten Years of Service at the date of such termination of employment if employment terminated before 1989, or (ii) five Years of Service if such Participant is credited with one Hour of Employment after 1988, he shall not be entitled to receive any Annuity or any other distribution or payment under the Plan unless he is a Contributing Participant, in which case he may elect to receive either: (A) a lump sum cash distribution, payable from the sources specified in Article 12, in an amount equal to his Accumulated Contributions as of the first day of the month preceding the date on which such distribution is made, or (B) a deferred Annuity, commencing at his Normal Retirement Date in an amount Actuarially Equivalent to his Accumulated Contributions as of the first day of the month preceding the date of his termination of employment. In the event a Participant who shall have retired pursuant to Section 7.4 or 7.5 shall have subsequently ceased to be totally and permanently disabled prior to his Normal Retirement Date and shall not have returned to the employ of a System Company, he shall be entitled to receive an amount, if any, determined under paragraph (a) or (b) of this section as though his employment had terminated on the date of his retirement; provided, however, that no such Participant shall be entitled to receive an amount under this section and under Section 8.3(b). In the event a Participant who shall have become totally and permanently disabled after October 31, 1979 and commenced receiving benefits under a long-term disability benefit program maintained by a Participating Employer shall thereafter cease to receive benefits under such program and shall not have returned to the employ of a System Company, he shall be entitled to receive an amount, if any, determined under paragraph (a) or (b) of this section as though his employment had terminated on the date he ceased receiving benefits under such program; provided, however, that no such Participant shall be entitled to receive an amount under this section and under Section 8.3(b). 81 Section 11.2 Distribution Upon Death of Contributing Participant. Upon ------------ --------------------------------------------------- the death of a Contributing Participant prior to receipt by him of an Annuity or other payment under Section 8.3, Section 8.12 or Section 11.1, his Beneficiary (or in the absence of such designation, the person or persons specified in the Plan), shall be entitled to receive a lump sum cash distribution, payable from the sources specified in Article 12, in an amount equal to the "refundable sum" computed as hereinafter provided. Upon the death of a Contributing Participant after receipt by him of one or more Annuity or other payments under Section 8.3 or Section 11.1 but prior to receipt of such payments equal in the aggregate to the "refundable sum," his Beneficiary (or in the absence of such designation, the person or persons specified in the Plan) shall be entitled to receive a lump sum distribution, payable from the sources specified in Article 12, in an amount equal to the excess of the "refundable sum" over the aggregate of the Annuity or other payments received pursuant to Section 8.3 or Section 11.1 to the date of his death, provided that the foregoing provisions of this sentence shall not apply in the case of a Retired Participant who had been receiving, with respect both to the portion of his Annuity, if any, which is payable under the Superseded Base Plans and the portion of his Annuity which is payable from the Trust Fund, an optional form of Annuity under which Annuity payments are to be made to a contingent annuitant after his death; and further provided that, in the event the Retired Participant had been receiving an optional form of Annuity with respect to his total amount of Annuity as determined under Section 8.3(a) under which payments are to be continued to a contingent annuitant, with the portion thereof to be paid under the Superseded Base Plans to be payable in the normal form of Annuity provided for thereunder, any lump sum settlement paid under the Superseded Base Plans shall be deducted from future payments to the contingent annuitant from the Trust Fund, such aggregate reduction so effected equals the amount of such lump sum settlement, at which time future annuity payments from the Trust Fund shall be in the amount payable to the contingent annuitant prior to giving effect to such reduction. The "refundable sum" shall be an amount equal to the Participant's Accumulated Contributions as of the first day of the month preceding the date of the Participant's death. Section 11.3 [None] ------------ Section 11.4 Benefits in Event Participant's Employer Withdraws from ------------ ------------------------------------------------------- Plan. In the event of the withdrawal from the Plan by any Participating Employer, the provisions of Section 11.1 shall not apply to any Participant in the employment of such Participating Employer on the date of such withdrawal, and each such Participant, other than those in the employment of Michigan Consolidated Gas Company at the time of its withdrawal, or in the employment of ANG Coal Gasification Company at the time of its sale, shall, be entitled to receive a deferred Annuity, commencing at his Normal Retirement Date, in an amount computed under the formula prescribed in Section 8.3(a) but giving effect only to the Years of Service of such Participant to the date of such withdrawal. ARTICLE 12 ---------- PAYMENT OF BENEFITS ------------------- Section 12.1 Time and Manner of Payment of Annuities. Payment of all ------------ --------------------------------------- Annuities provided for in Section 8.3 shall be made by the Trustee from the Trust Fund, at the direction of the Administrator, except that, in the case of an Active Participant who retires and becomes entitled to receive a paid-up Annuity under one or more of the Superseded Insured Plans, the amount of the payment from the Trust Fund shall be reduced, so that the aggregate of such payment and the Annuity payment or payments which such Retired Participant shall be entitled to receive under such Superseded Insured Plans shall be equal to the total Annuity he shall be entitled to receive under Section 8.3. No such reduction shall be made in the case of a Transferred Participant except to the extent, if any, that the amount of such paid-up Annuity or Annuities shall exceed the amount of the total Annuity to which such Transferred Participant shall be entitled under the plan in which he is an active participant immediately prior to retirement. Section 12.2 Payment of Participant's Contributions. Payment of that ------------ -------------------------------------- portion of any lump sum cash distribution provided for in Section 11.1 which represents the amount of a Participant's contributions to the Plan during his period of Contributory Service which were paid to the Trustee subsequent to the effective date, plus interest, shall be made by the Trustee, at the direction of the Administrator, from the Trust Fund and payment of the balance of such lump sum cash distribution which represents such Participant's contributions paid under the 82 Superseded Base Plans for any period constituting Years of Prior Service under the Plan shall be made in accordance with the provisions of such Superseded Base Plans. Payment of any lump sum cash distributions provided for in Section 11.2 shall be made by the Trustee at the direction of the Administrator from the Trust Fund, except to the extent of any portion of such lump sum cash distribution which shall be made under the Superseded Base Plan in respect of a Contributing Participant who shall not have designated the Trustee his irrevocable Beneficiary under the Superseded Base Plan pursuant to Section 8.11. ARTICLE 13 ---------- 50% SURVIVOR ANNUITY -------------------- Section 13.1 Coverage. The provisions of this Article 13 apply to each ------------ -------- person who was a Participant in the American Natural Resources System Companies Employees' Retirement Plan before January 1, 1989, with respect to periods of time such person was a Participant in such Plan. The reduction in Retirement Income for coverage under the 50% Survivor Annuity provisions of this Article 13 shall apply only to the amount of Retirement Income which exceeds the benefit payable under the program for surviving spouses described in Section 5.5(h) of the Plan. Section 13.2 Time Period. The provisions of this Article 13 apply to ------------ ----------- periods of 50% Survivor Annuity coverage before April 1, 1990. Section 13.3 50% Survivor Annuity ------------ -------------------- (a) The 50% Survivor Annuity provides Retirement Income to the surviving spouse of a Participant who dies while covered by this provision. The Retirement Income amount payable to the surviving spouse is the fifty percent survivor benefit provided by the Qualified Joint and Survivor Annuity which is the Actuarial Equivalent of the benefit computed pursuant to the provisions of the Plan, including any reduction due to the 50% Survivor Annuity coverage. Such Retirement Income shall be computed as of the date of death of the Participant. This benefit form is also referred to in the Plan as the Qualified Joint and Survivor Annuity (With Preretirement Death Benefits). (b) At such time as a Participant who has reached his Initial Vesting Date has been married to his spouse throughout the preceding one year period, 50% Survivor Annuity coverage shall automatically be provided for such spouse unless the Participant and such spouse reject the coverage pursuant to Plan provisions; (c) Retirement Income is payable pursuant to the 50% Survivor Annuity provision only to a spouse who has been married to the Participant throughout the twelve month period immediately preceding the date of death of the Participant. (d) The Retirement Income amount computed under the Plan which exceeds the benefit payable under the program for surviving spouse described in Section 5.5(h) of the Plan, shall be reduced for each full month of coverage during the periods of time described in the following provisions under the 50% Survivor Annuity provisions by an amount equal to: (i) For periods of coverage after April, 1986 and before 1989: (A) one-twenty fourth of one percent for each month after the month in which the Participant attains sixty years of age; 83 (B) one-thirtieth of one percent for each month during the period beginning after the month in which the Participant attains fifty-five years of age and ending with the month during which the Participant attains the age of sixty years; (C) one-fortieth of one percent for each month during the period beginning after the month in which the Participant attains fifty years of age and ending with the month during which the Participant attains the age of fifty-five years; (D) one-sixtieth of one percent for each month during the period beginning after the month in which the Participant attains forty- five years of age and ending with the month during which the Participant attains the age of fifty years; (E) one-one hundred twentieth of one percent for each month during the period beginning after the month in which the Participant attains forty years of age and ending with the month during which the Participant attains the age of forty-five years; and (F) no reduction for the month during which the Participant attains the age of forty years and each month prior thereto. (ii) For periods of coverage after 1988: (A) one-twelfth of two and one-half percent for each month after the month in which the Participant attains seventy-five years of age; (B) one-twelfth of two and one-half percent for each month during the period beginning after the month in which the Participant attains seventy years of age and ending with the month during which the Participant attains the age of seventy-five years; (C) one-tenth of one percent for each month during the period beginning after the month in which the Participant attains sixty- five years of age and ending with the month during which the Participant attains the age of seventy years; (D) one-twenty-fourth of one percent for each month during the period beginning after the month in which the Participant attains sixty years of age and ending with the month during which the Participant attains sixty-five years of age; (E) one-thirtieth of one percent for each month during the period beginning after the month in which the Participant attains fifty-five years of age and ending with the month during which the Participant attains the age of sixty years; (F) one-fortieth of one percent for each month during the period beginning after the month in which the Participant attains fifty years of age and ending with the month during which the Participant attains the age of fifty-five years; (G) one-sixtieth of one percent for each month during the period beginning after the month in which the Participant attains forty- five years of age and ending with the month during which the Participant attains the age of fifty years; (H) one-one hundred twentieth of one percent for each month during the period beginning after the month in which the Participant attains forty years of age and ending with the month during which the Participant attains the age of forty-five years; and (I) no reduction for the month during which the Participant attains the age of forty years and each month prior thereto. 84 (e) The Retirement Income amount computed under the Plan shall not be reduced for periods of coverage before May, 1986 under the 50% Survivor Annuity provisions. (f) The 50% Survivor Annuity coverage is automatically cancelled as of the date of death of the spouse of the Participant. (g) If a Participant who has attained twenty-five years of Credited Service dies prior to attainment of fifty-five years of age, the 50% Survivor Annuity benefit payable on the first day of the month following the death of the Participant shall be computed as a Qualified Joint and Survivor Annuity reduced to age fifty-five and then such amount shall be reduced further on an actuarial basis to the date of death. Provided, however, that this subsection (g) shall apply only to the Accrued Benefit of such deceased Participant accrued as of December 31, 1992. This option is not available for Accrued Benefit attributable to periods of time after December 31, 1992. If a Participant who has not attained twenty-five years of Credited Service dies prior to attainment of age fifty-five years, the 50% Survivor Annuity benefit is not payable until the Participant would have attained the age of fifty-five years. (h) The 50% Survivor Annuity coverage provisions are applicable to a Participant if he is credited with one Hour of Service or one hour of paid leave after August 22, 1984. Any other Participant is entitled to such survivor annuity coverage as provided by applicable prior provisions of the Plan. FOURTH SUPPLEMENT ----------------- REFINERY EMPLOYEES PLAN PARTICIPATION BEFORE JULY 1, 1988 --------------------------------- ARTICLE I --------- INTRODUCTION ------------ The benefit provisions of this Supplement shall apply in lieu of other Plan provisions with respect to participation in The Coastal Corporation Refinery Employees' Pension Plan (hereinafter the "Refinery Plan") for periods of time before July 1, 1988. ARTICLE II ---------- DERBY REFINING COMPANY EL DORADO FACILITY ------------------ 2.1 El Dorado. The provisions of this Article II apply only to --------- Participants in the Refinery Plan who were Employees of Derby Refining Company with Credited Service under the Refinery Plan after March 31, 1986 and before July 1, 1988. 2.2 Benefits Preserved. Except as stated in this Article II, ------------------ notwithstanding any other provision of the Plan (Including Supplements) to the contrary, the Retirement Income for a Participant with respect to Credited Service (as defined in the Refinery Plan) for periods of time from April 1, 1986 through June 30, 1988 shall be calculated pursuant to the benefit formula and calculation provisions of the Refinery Plan as in effect on June 30, 1988. 85 Generally, the Refinery Plan formula provided a vested Participant with Retirement Income at Normal Retirement Date in the amount of twenty dollars per month for each year of Credited Service to a maximum of thirty years. The benefit is payable in the five year certain and life form. 2.3 Change of Status. The Refinery Plan provided a method for ---------------- calculating benefits for persons who had a change in status with respect to the Refinery Plan, but remained employed by a Related Employer. This provision applies to Participants with Credited Service during the period from April 1, 1986 through June 30, 1988 and benefits of such Participants shall be calculated using the prorata method described therein. Such method of calculating benefits for persons who have a change of status is subject to future amendment in accordance with Plan provisions relating to such amendments and any such amendment shall apply to Participant described herein unless such amendment is not applicable to such Participants. 2.4 Other Amendments. The Refinery Plan provisions may be amended in ---------------- any manner necessary to maintain the qualified status of the Plan and in any other respect consistent with preservation of the benefit formula as described in preceding Sections 2.2 and 2.3. ARTICLE III ----------- CANEY BRANCH ------------ 3.1 Caney Branch. The provisions of this Article III apply only to ------------ Participants under the provisions of the Caney Branch Supplement to the Refinery Plan as of June 30, 1987. 3.2 Benefit Preserved. Except as stated in this Article III, ----------------- notwithstanding any other provision of the Plan (including Supplements) to the contrary, the Retirement Income with respect to Credited Service under the provisions of the Caney Branch Supplement to the Refinery Plan for periods of time before June 30, 1987 shall be calculated pursuant to provisions of such Caney Branch Supplement. 3.3 Change in Status. The Caney Branch Supplement to the Refinery Plan ---------------- provided a method for calculating benefits for persons who had a change of status with respect to the Refinery Plan but remained employed by a Related Employer. Such method of calculating benefits for persons who have a change of status is subject to future amendment in accordance with Plan provisions relating to such amendments and any such amendment shall apply to the Participants described herein unless such amendment is not applicable to such Participants. 3.4 Other Amendments. The Refinery Plan provisions may be amended in ---------------- any manner necessary to maintain the qualified status of the Plan and in any other respect consistent with preservation of the benefit formula as described in preceding Sections 3.2 and 3.3. FIFTH SUPPLEMENT ---------------- JAYHAWK PIPELINE CORPORATION ---------------------------- Jayhawk Pipeline Corporation is a member of the same Controlled Group as The Coastal Corporation for purposes of the Plan, including Section 6.10 of Article VI, entitled "Assets for Benefit Payment". SIXTH SUPPLEMENT ---------------- Great Lakes Gas Transmission Company is a member of the same Controlled Group as The Coastal Corporation for purposes of the Plan, including Section 6.10 of Article VI, entitled "assets for Benefit Payment". 86 SUFCO/UFCO SUPPLEMENT --------------------- ARTICLE I --------- INTRODUCTION ------------ This Supplement is referred to as the `SUFCo/UFCo Supplement' or the `SUFCo Supplement'. This Supplement includes provisions applicable to persons who were Participants with respect to the SUFCo Retirement Plan (hereinafter the "SUFCo Plan") prior to January 1, 1992. In addition, this Supplement applies to Employees (as defined in this Supplement) of Southern Utah Fuel Company and Utah Fuel Company. The purpose of this Supplement is to provide a separate benefit structure within the Plan for Participants to whom this Supplement applies. The separate benefit structure is generally a continuation of the provisions of the SUFCo Plan as in effect before the merger of the SUFCo Plan into this Plan. The provisions of the SUFCo/UFCo Supplement apply in lieu of inconsistent or contrary provisions contained in the Plan (excluding this Supplement) with respect to persons to whom this Supplement applies. Each participant in the SUFCo Plan is entitled to a benefit under the Plan which is at least equal to a benefit such participant would have been entitled to as of December 31, 1992 if the SUFCo Plan had continued without change through December 31, 1992. ARTICLE II ---------- DEFINITIONS ----------- Terms used in this Supplement which are defined in the Plan have the same meaning in the Supplement unless such terms are defined differently for purposes of this supplement. The definition of terms defined in this Supplement apply only to this Supplement and not to other parts of the Plan. 2.1 `Actuarially Equivalent' is defined in the Plan and modified for this Supplement to provide that an equivalent benefit computed using an eight percent rate of interest shall not be less than the equivalent of such benefit computed (1) using an interest rate of five and one-half percent and (2) based upon the benefit of such Participant accrued prior to 1993. 2.2 `Employee' is defined in the Plan and is modified to apply only to persons employed by SUFCo or UFCo except that the provisions of this Supplement do not apply to a person employed by SUFCo or UFCo with respect to periods of time during which such person is designated by the Board of Directors of SUFCo or UFCo as ineligible to participate in the SUFCo Retirement Plan or under the provisions of this Supplement. 2.3 `SUFCo' means Southern Utah Fuel Company, a Delaware company or any successor corporation resulting from a merger or consolidation with SUFCo or a transfer of substantially all of the assets of SUFCo if such successor or transferee shall adopt and continue the Plan by appropriate corporate action pursuant to provisions of the Plan. 2.4 `UFCo' means Utah Fuel Company, a Delaware company or any successor corporation resulting from a merger or consolidation with UFCo or a transfer of substantially all of the assets of UFCo if such successor or transferee shall adopt and continue the Plan by appropriate corporate action pursuant to provisions of the Plan. 87 ARTICLE III ----------- BENEFITS -------- 3.1 Normal Retirement Benefit. -------------------------- (a) Basic Benefit Formula. A Participant who is 100% vested and who retires on his Normal Retirement Date shall be entitled to the Actuarial Equivalent of a Retirement Income payable for five years certain and life thereafter with payments commencing on his Normal Retirement Date in a monthly amount equal to the sum of: (i) twenty dollars multiplied by the Participant's Years of Service for years before 1989; (ii) thirty dollars multiplied by the Participant's Years of Service during 1989; and (iii) thirty-five dollars multiplied by the Participant's Years of Service after 1989. A maximum of thirty Years of Service shall be used in the calculation of the monthly Retirement Income of a Participant. For a Participant who is credited with more than thirty Years of Service, the last thirty of such Years of Service shall be used in the calculation of the monthly Retirement Income of such Participant. 3.2 Benefit Adjustment. ------------------- (a) The Retirement Income of a Participant who is credited with Years of Service under the Plan for periods of time during which such Participant was not credited with Years of Service under this Supplement shall be adjusted using the proration method described in this Section. Credited Service under the SUFCo Plan is included in Years of Service under this Supplement. (b) The Retirement Income of the Participant shall be calculated using the benefit formula described in this Supplement modified to assume that all Years of Service under the Plan including this Supplement were Years of Service under this Supplement in lieu of using only Years of Service to which the benefit formula under this Supplement would otherwise apply. The Retirement Income amount so calculated shall then be multiplied by a fraction, the numerator of which is the Years of Service of the Participant to which this Supplement would apply in the absence of this Section relating to Benefit Adjustment and the denominator of which is the total number of Years of Service under the Plan including this Supplement. (c) The Retirement Income of the Participant shall be calculated using the benefit formula under the Plan (other than the benefit formula described in this Supplement) modified to assume that all Years of Service under the Plan including this Supplement were Years of Service under the Plan without regard to this Supplement in lieu of using only Years of Service to which such other benefit formula under the Plan would otherwise apply. The Retirement Income so calculated shall be multiplied by a fraction, the numerator of which is the Years of Service of the Participant to which this Supplement would not apply in the absence of this Section relating to Benefit Adjustment and the denominator of which is the total number of Years of Service under the Plan including this Supplement. (d) The Retirement Income of the Participant shall be the total of the amounts determined pursuant to subsections (b) and (c) of this Section. There shall be no duplication of benefits from the Plan with respect to Years of Service taken into account in the Retirement Income calculations described in this Section. The Retirement Income calculated pursuant to this section shall be reduced by the Actuarial Equivalent of any Retirement Income or other benefit which is paid or distributed pursuant to other provisions of the Plan. 88 ARTICLE IV ---------- TERMINATION ----------- In the event of termination of the Coastal Plan within a period of five years from the date of merger of the SUFCo Plan into the Coastal Plan, the requirements of Section 414 (e) of the Code shall be satisfied pursuant to the condition set forth in Treasury Regulations interpreting that Section, specifically Regulation 1.414(e) - 1(h) in such a manner that all benefits that would be provided by the SUFCo Plan on a termination basis just prior to the merger of the SUFCo Plan into the Coastal Plan are payable in a priority category higher than the highest priority category in Section 4044 of ERISA. This provision shall not apply to a termination which occurs more than five years after the merger of the SUFCo Plan into the Coastal Plan. 89 EX-11 5 EXH 11 COMPUT EARNINGS EXHIBIT 11 THE COASTAL CORPORATION AND SUBSIDIARIES STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (Millions of Dollars, Except Per Share Amounts, and Thousands of Shares)
Year Ended December 31, --------------------------- 1993 1992 1991 -------- -------- ------- COMMON STOCK AND EQUIVALENTS: - ----------------------------- Net earnings (loss) applicable to common stock and common stock equivalents................................................. $ 104.5 $ (127.3) $ 8.2 ======== ======== ======== Average number of common shares outstanding........................ 103,762 103,385 103,198 Class A common shares.............................................. 435 442 477 Common share equivalent: $1.19 Cumulative Convertible Preferred, Series A*................. 241 - 259 Dilutive effect of outstanding stock options after application of treasury stock method*............................................ 306 - 717 -------- -------- -------- Average common and common equivalent shares........................ 104,744 103,827 104,651 ======== ======== ======== Net earnings (loss) per average common and common equivalent shares outstanding: Earnings (loss) before extraordinary item......................... $ 1.02 $ (1.23) $ .08 Extraordinary item................................................ (.02) - - -------- -------- -------- Net earnings (loss)............................................... $ 1.00 $ (1.23) $ .08 ======== ======== ======== ASSUMING FULL DILUTION: - ----------------------- Net earnings (loss) applicable to common stock and common stock equivalents................................................. $ 104.5 $ (127.3) $ 8.2 Dividends applicable to dilutive preferred stock: Series B.......................................................... .2 - - Series C.......................................................... .2 - - -------- -------- -------- Adjusted net earnings (loss) assuming full dilution................ $ 104.9 $ (127.3) $ 8.2 ======== ======== ======== Average number of common shares outstanding........................ 103,762 103,385 103,198 Class A common shares.............................................. 435 442 477 Common share equivalents: Series A Preferred Stock*......................................... 241 - 259 Equivalent common shares from: Series B and C Preferred Stock*................................... 590 - - Dilutive effect of outstanding stock options after application of treasury stock method*............................................ 326 - 734 -------- -------- -------- Fully diluted shares............................................... 105,354 103,827 104,668 ======== ======== ======== Fully diluted earnings (loss) per share**: Earnings (loss) before extraordinary item......................... $ 1.02 $ (1.23) $ .08 Extraordinary item................................................ (.02) - - -------- -------- -------- Net earnings (loss)............................................... $ 1.00 $ (1.23) $ .08 ======== ======== ========
- ----------------- * Convertible securities and options are not considered in the calculations if the effect of the conversion is anti-dilutive. ** Reporting not required by generally accepted accounting principles because of small variance from earnings on average common and common equivalent shares. EX-21 6 EXH 21 SUBSIDIARIES Exhibit 21 SUBSIDIARIES OF THE COASTAL CORPORATION
State or Other Jurisdiction of Incorporation or Organization ---------------- ABCO Aviation, Inc................................. Delaware ABCO Leasing, Inc.................................. Delaware Coastal Capital Corporation........................ Delaware Subsidiaries: Coastal Finance Corporation...................... Delaware Coastal Financial B.V............................ The Netherlands Subsidiary: Coastal Financial Antilles N.V................. Netherlands Antilles Coastal Netherlands Financial B.V................ The Netherlands Coastal Offshore Insurance Ltd................... Bermuda Coastal Gas Services Company....................... Delaware Subsidiaries: ANR Gas Supply Company........................... Delaware Coastal Gas Gathering and Processing Company..... Delaware Coastal Gas Marketing Company.................... Delaware Coastal Southern Pipeline Company................ Delaware Coastal Holding Corporation........................ Delaware Subsidiaries: CIC Industries, Inc.............................. Delaware Subsidiaries: Coastal Chem, Inc.............................. Delaware Coastal Crude Pipeline Corporation............. Delaware Coastal Pipeline Company....................... Delaware Coastal Refining & Marketing, Inc.............. Delaware Subsidiaries: Coastal Refined Products Corporation...... Delaware Coastal States Crude Gathering Company.... Texas Subsidiary: Coastal Crude Transportation Corporation.......................... Delaware Jayhawk Pipeline Corporation (50%)........ Delaware Coastal Transport Corporation.................. Delaware Coastal Catalyst Technology, Inc................. Delaware Coastal Cat Process Marketing, Inc............... Delaware Coastal Eagle Point Oil Company.................. Delaware Coastal Energy Corporation....................... Delaware Coastal Mobile Refining Company.................. Delaware Coastal West Ventures, Inc....................... Delaware Coastal Limited Ventures, Inc...................... Texas Coastal Mart, Inc.................................. Delaware Coastal Midland, Inc............................... Delaware Coastal Multi-Fuels, Inc........................... Delaware Coastal Natural Gas Company........................ Delaware Subsidiaries: American Natural Resources Company............... Delaware Subsidiaries: ANR Coal Company............................... Delaware Subsidiaries: ANR Western Coal Development Company...... Delaware Birmingham Coal Company................... West Virginia Brooks Run Coal Company................... Delaware Cat Run Coal Company...................... Delaware Coastal Coal Sales, Inc................... Delaware Enterprise Coal Company................... Kentucky Greenbrier Coal Company................... Delaware
1 SUBSIDIARIES OF THE COASTAL CORPORATION
State or Other Jurisdiction of Incorporation or Organization ---------------- Kingwood Coal Company..................... Delaware Virginia City Coal Company................ Delaware Virginia Iron, Coal and Coke Company...... Delaware ANR Credit Corporation......................... Delaware ANR Development Corporation.................... Delaware ANR Erie Pipeline Company...................... Delaware ANR Finance B.V................................ The Netherlands Subsidiary: ANR Finance N.V........................... Netherlands Antilles ANRFS Holdings, Inc............................ Delaware Subsidiaries: ANR Freight System, Inc................... Delaware Transport USA, Inc........................ Pennsylvania ANR Gasification Properties Company............ Delaware ANR Intrastate Gas Company, Inc................ Delaware ANR One Woodward Corp.......................... Delaware ANR Pipeline Company........................... Delaware Subsidiaries: ANR Atlantic Pipeline Company............. Delaware ANR Eastern Pipeline Company.............. Delaware ANR Energy Conversion Company............. Michigan ANR Iroquois, Inc......................... Delaware ANR Mayflower Company..................... Delaware ANR Southern Pipeline Company............. Delaware American Natural Offshore Company......... Delaware Subsidiaries: Texas Offshore Pipeline System, Inc... Delaware Unitex Offshore Transmission Company.. Delaware ANR Production Company......................... Delaware Subsidiary: Coastal Shuttle Corporation............... Delaware ANR Ren-Cen, Inc............................... Connecticut ANR Storage Company............................ Michigan Subsidiaries: ANR Blue Lake Company..................... Delaware ANR Cold Springs Company.................. Delaware ANR Eaton Company......................... Michigan ANR Jackson Company....................... Delaware ANR Northeastern Gas Storage Company...... Delaware ANR Western Storage Company............... Delaware ANR Venture Eagle Point Company................ Delaware ANR Venture Fulton Company..................... Delaware ANR Venture Management Company................. Delaware ANR Venture Springfield Company................ Delaware Coastal Great Lakes, Inc....................... Delaware Empire State Pipeline Company, Inc............. New York CIC Stock Corporation............................ Delaware Subsidiaries: CIG Gas Storage Company........................ Delaware CIG Western Pipeline Company................... Delaware Coastal Western Pipeline Company............... Delaware
2 SUBSIDIARIES OF THE COASTAL CORPORATION
State or Other Jurisdiction of Incorporation or Organization ---------------- Colorado Solar-Tech, Inc....................... Delaware Interstate Resource Management Company......... Delaware Subsidiary: Keyes Helium Company LLC (75%)............ Colorado Young Gas Storage Company...................... Delaware CIG-Canyon Compression Company................... Delaware CIG Gas Supply Company........................... Delaware CIG Overthrust, Inc.............................. Delaware Colorado Interstate Gas Company.................. Delaware Subsidiaries: CIG Exploration, Inc........................... Delaware Colorado Water Supply Company.................. Delaware Subsidiary: Colorado Interstate Production Company.... Delaware Great Lakes Gas Transmission Company (50%)....... Delaware Wyoming Gas Supply, Inc.......................... Delaware Coastal Oil Chelsea, Inc........................... Texas Coastal Oil & Gas Corporation...................... Delaware Subsidiaries: COGC Resale Company.............................. Delaware CoastalDril, Inc................................. Delaware Coastal Javelina, Inc............................ Delaware Coastal Pan American Corporation................... Delaware Subsidiaries: Coastal Cape Horn Ltd............................ Cayman Islands Subsidiary: Coastal Austral Ltd. (50%)..................... Cayman Islands Coastal Oil & Gas Argentina, S.A................. Argentina Coastal Power Production Company................... Delaware Subsidiary: CP (TAMCO) Company............................... Delaware Coastal Power Revere Company....................... Delaware Coastal States Energy Company...................... Texas Subsidiaries: Coastal Development Company...................... Delaware Cravat Coal Export Company, Inc.................. Virgin Islands Sage Point Coal Company.......................... Delaware Subsidiary: Soldier Creek Coal Company..................... Delaware Skyline Coal Company............................. Delaware Southern Utah Fuel Company....................... Delaware Unique Mining Systems, Inc....................... Delaware Utah Fuel Company................................ Delaware Coastal States Gas Transmission Company............ Delaware Coastal States Management Corporation.............. Colorado Subsidiaries: ANR Media Company................................ Michigan Coastal Travel Mart, Inc......................... Delaware Coastal States Trading, Inc........................ Delaware Coastal Technology, Inc............................ Delaware Coastal Unilube, Inc............................... Tennessee
3 SUBSIDIARIES OF THE COASTAL CORPORATION
State or Other Jurisdiction of Incorporation or Organization ---------------- Coastal Unilube of Iowa L.C....................... Iowa Cosbel Petroleum Corporation...................... Delaware Subsidiaries: Coastal Canada Energy Ltd....................... Ontario, Canada Coastal Fuels Marketing, Inc.................... Florida Subsidiaries: Coastal Fuels of Puerto Rico, Inc............. Delaware Coastal Offshore Fuels, Inc................... Liberia Coastal Terminals, Inc........................ Florida Coastal Tug and Barge, Inc.................... Florida Coastal Oil New England, Inc.................... Massachusetts Coastal Oil New York, Inc....................... Delaware Coscol Petroleum Corporation...................... Delaware Subsidiaries: Coastal Securities Company Limited.............. Bermuda Subsidiaries: Andros Ltd.................................... Cayman Islands Coastal Aruba Holding Company N.V............. Aruba Subsidiaries: Coastal Aruba Maintenance/Operations Company N.V..................................... Aruba Coastal Aruba Refining Company N.V....... Aruba Subsidiaries: Aruba Refinery Rehabilitation Company N.V................................ Aruba Subsidiary: Local Aruba Refinery Rehabilitation Company N.V.................... Aruba Coastal Energy of Panama, Inc........ Panama Coastal Petroleum N.V................ Aruba Subsidiary: Coastal Petroleum Argentina, S.A. Argentina Subic Bay Petroleum Products Ltd. (50%).. Cayman Islands Coastal Belcher Petroleum Pte. Ltd............ Singapore Coastal (Bermuda) Petroleum Limited........... Bermuda Subsidiary: Same as Coastal Stock Company Limited Coastal Management Services (Singapore) Pte. Ltd......................................... Singapore Coastal Petroleum (Far East) Pte Ltd.......... Singapore Coastal (Rotterdam) B.V....................... The Netherlands Subsidiary: Coastal States Petroleum (Espana) S.A.... Spain Coastal (Subic Bay) Petroleum, Inc............ Texas Subsidiary: Coastal Subic Bay Terminal, Inc.......... Philippines Holborn Oil Trading Limited................... Bermuda Coastal Stock Company Limited................... Bermuda Subsidiary: Coastal Europe Limited........................ England Subsidiaries: Coastal States Petroleum (U.K.) Limited.. England Coastal States Tankers (U.K.) Limited.... England Colbourne Insurance Company Limited...... England Coastal Tankships U.S.A., Inc................... Delaware
4 SUBSIDIARIES OF THE COASTAL CORPORATION
State or Other Jurisdiction of Incorporation or Organization ---------------- Coscol Marine Corporation........................ Texas Golden Carriers Corporation...................... Liberia Jade Carriers Corporation........................ Liberia Texas Tank Ship Agency, Inc...................... Delaware
The above subsidiaries, with the exception of Jayhawk Pipeline Corporation, Coastal Austral Ltd. and Great Lakes Gas Transmission Company are included in the Consolidated Financial Statements of The Coastal Corporation. The names of certain subsidiaries have been omitted from the above listing because such subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. The voting stock of each corporation is owned 100% by its immediate parent, unless otherwise indicated above, except that Coastal Europe Limited is 49% owned by Coastal (Bermuda) Petroleum Limited; Colbourne Insurance Company Limited is 23% owned by Coastal Capital Corporation and Coastal Unilube of Iowa, L.C. is 50% owned by Coastal Natural Gas Company. 5 EX-23.1 7 EXH 23.1 CONSENT Exhibit 23.1 CONSENT OF DELOITTE & TOUCHE We consent to the incorporation by reference in Registration Statements No. 33-21095, 33-40263, 33-53952, 33-5214, 2-97766, 33-5218 and 33-42696 of The Coastal Corporation on Forms S-8 and Registration Statement No. 33-48435 of The Coastal Corporation on Form S-3 of our report dated February 3, 1994, appearing in this Annual Report on Form 10-K of The Coastal Corporation for the year ended December 31, 1993. DELOITTE & TOUCHE Houston, Texas March 25, 1994 -----END PRIVACY-ENHANCED MESSAGE-----