<PAGE>
The Coastal Corporation The Energy People
March 26, 1998
Dear Fellow Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders of The Coastal Corporation to be held on May 7, 1998, at the
Renaissance Houston Hotel, Greenway Plaza, Houston, Texas, at 10:00 a.m. Your
Board of Directors and executive officers look forward to personally greeting
those stockholders able to attend.
The matters to be acted on at the meeting are set forth in the
accompanying Notice of Annual Meeting and Proxy Statement.
It is important that your shares be represented at the meeting. Would
you please sign, date and mail the enclosed proxy in the envelope provided at
your earliest convenience.
DAVID A. ARLEDGE
--------------------------------
David A. Arledge
Chairman of the Board, President
and Chief Executive Officer
COASTAL TOWER
NINE GREENWAY PLAZA
HOUSTON, TEXAS 77046-0995
<PAGE>
THE COASTAL CORPORATION
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046-0995
NOTICE OF THE 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 7, 1998
To the Stockholders of The Coastal Corporation:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
The Coastal Corporation ("Coastal" or the "Company") will be held at 10:00 a.m.
on May 7, 1998, at the Renaissance Houston Hotel, Greenway Plaza, Houston,
Texas, for the following purposes:
(1) To elect five Class III directors to terms of office expiring at
the year 2001 Annual Meeting of Stockholders;
(2) To consider a proposal to adopt the 1998 Incentive Stock Plan;
(3) To consider a stockholder proposal, described in the accompanying
Proxy Statement, which is opposed by the Board of Directors; and
(4) To transact such other business as may properly come before the
meeting or any adjournments thereof.
The voting stock of the Company should be represented as fully as
possible at the Annual Meeting. Therefore, it will be appreciated if you would
sign, date and return the enclosed proxy at your earliest convenience. You may,
of course, change or withdraw your proxy at any time prior to the voting at the
meeting. However, signing and returning the proxy will assure your
representation at the Annual Meeting.
The Board of Directors has fixed the close of business on March 11,
1998 as the record date for the determination of holders of Common Stock, Class
A Common Stock, $1.19 Cumulative Convertible Preferred Stock, Series A, $1.83
Cumulative Convertible Preferred Stock, Series B, and $5.00 Cumulative
Convertible Preferred Stock, Series C, entitled to notice of, and to vote at,
the Annual Meeting.
By Order of the Board of Directors,
AUSTIN M. O'TOOLE
-----------------------------------
Austin M. O'Toole
Senior Vice President and Secretary
March 26, 1998
YOUR VOTE IS IMPORTANT
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AT THE MEETING AND SAVE THE
EXPENSE OF A SECOND MAILING, WOULD YOU PLEASE SIGN, DATE AND MAIL YOUR PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES.
<PAGE>
TABLE OF CONTENTS
Page
Stock Ownership............................................................ 2
Proposal 1 - Election of Directors......................................... 3
Information Regarding Directors............................................ 4
Committees and Meetings.............................................. 5
Compensation of Directors............................................ 6
Stock Ownership Guideline for Directors.............................. 7
Executive Compensation..................................................... 8
Summary of Cash and Certain Other Compensation....................... 8
Stock Options........................................................ 9
Option/SAR Exercises and Holdings.................................... 10
Compensation and Executive Development Committee Report on Executive
Compensation.......................................................... 10
Pension Plan Table......................................................... 13
Performance Graph - Shareholder Return on Common Stock..................... 14
Transactions with Officers and Directors................................... 14
Proposal 2 - Proposal to Adopt the 1998 Incentive Stock Plan............... 15
Proposal 3 - Stockholder Proposal.......................................... 20
Vote Required for Approval................................................. 21
Compliance with Section 16(a) of the Exchange Act.......................... 21
Independent Auditors....................................................... 21
Stockholder Proposals...................................................... 21
Other Matters.............................................................. 22
Availability of Form 10-K Annual Report ................................... 22
Appendix A - The Coastal Corporation 1998 Incentive Stock Plan
(i)
<PAGE>
THE COASTAL CORPORATION
PROXY STATEMENT
The enclosed proxy is being solicited by the Board of Directors of The
Coastal Corporation ("Coastal" or the "Company"), Coastal Tower, Nine Greenway
Plaza, Houston, Texas 77046-0995, telephone number (713) 877-1400, for use at
the 1998 Annual Meeting of Stockholders to be held at 10:00 a.m. on May 7, 1998,
at the Renaissance Houston Hotel, Greenway Plaza, Houston, Texas, or any
adjournments thereof. Certain directors, officers and employees of the Company
will solicit proxies by telephone, telegram, mail or personal contact at the
Company's expense. In addition, the Company has retained D. F. King & Co., Inc.
to assist in the solicitation of proxies and will pay such firm a fee of $6,000
plus reimbursement of expenses. Arrangements will be made with brokers, nominees
and fiduciaries to send proxies and proxy material at the Company's expense to
their principals. This proxy statement is being mailed on or about March 26,
1998 to stockholders of record on March 11, 1998.
The purpose of the Meeting is for the stockholders of the Company (1) to
elect five Class III directors to terms of office expiring at the year 2001
Annual Meeting of Stockholders; (2) to consider and act on the Company's 1998
Incentive Stock Plan; (3) to consider and act on a stockholder proposal, which
is opposed by the Board of Directors; and (4) to transact such other business as
may properly come before the Meeting or any adjournments thereof.
The total number of shares of stock of the Company outstanding and
entitled to vote at the Meeting is 106,297,156 consisting of: 57,537 shares of
$1.19 Cumulative Convertible Preferred Stock, Series A (the "Series A Preferred
Stock"), 66,744 shares of $1.83 Cumulative Convertible Preferred Stock, Series B
(the "Series B Preferred Stock"), and 29,204 shares of $5.00 Cumulative
Convertible Preferred Stock, Series C (the "Series C Preferred Stock") (the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
are referred to herein collectively as the "Preferred Stock"), 105,779,387
shares of Common Stock, and 364,284 shares of Class A Common Stock. Each share
of Common Stock or Preferred Stock entitles the holder to one vote with respect
to all matters to come before the Meeting and all of such shares will vote
together as a single class. Except with respect to the election of one of the
five Class III directors, each share of Class A Common Stock entitles the holder
to 100 votes with respect to all matters to come before the Meeting, voting with
the Common Stock and the Preferred Stock. In the election of directors, the
Class A Common Stock will vote, together as a class with the Common Stock and
Preferred Stock, for the election of three of the five Class III directors
standing for election. The Common Stock and Preferred Stock will vote together
as a class for the election of two of the Class III directors standing for
election. Only holders of voting securities of record at the close of business
on March 11, 1998 are entitled to notice of, and to vote at, the Meeting or any
adjournments thereof. Management knows of no person that owns beneficially more
than five percent (5%) of the outstanding shares of any class of voting
securities of the Company, other than as set forth below under "Stock
Ownership." The aggregate of all shares entitled to vote at the meeting have
142,361,272 votes. A quorum consists of a majority of the votes entitled to be
cast, or 71,180,637 votes.
The Annual Report of the Company for the year ended December 31, 1997,
including financial statements, is being mailed on or about March 26, 1998,
together with this Proxy Statement to all stockholders of record as of March 11,
1998, except for accounts where the stockholder has filed a written request to
eliminate duplicate reports. Additional copies of the Annual Report are
available without charge, upon request. See "Availability of Form 10-K Annual
Report."
Each properly executed proxy received at or before the Meeting on May 7,
1998 will be voted at the Meeting as specified therein. If a stockholder does
not specify otherwise, the shares represented by his or her proxy will be voted
FOR the election of all the nominees as Class III directors, FOR the proposal to
approve the 1998 Incentive Stock Plan, and AGAINST the stockholder proposal. The
shares held by each stockholder who signs and returns the enclosed proxy will be
counted for purposes of determining the presence of a quorum at the Meeting
unless such proxy is timely revoked. If the enclosed form of proxy is executed
and returned, it may nevertheless be revoked at any time before it is voted by
giving written notice to the Secretary of the Company, or by a stockholder
personally voting his or her shares at the Meeting, or by giving a later dated
proxy.
<PAGE>
STOCK OWNERSHIP
The following table sets forth information, as of March 11, 1998, with
respect to each person known or believed by the Company to be the beneficial
owner, who has or shares voting and/or investment power (other than as set forth
below), of more than five percent (5%) of any class of its voting securities.
<TABLE>
<CAPTION>
Name and Address Percent (%)
of Beneficial Owner Title of Class Number of Shares of Class <F1>
------------------- -------------- ---------------- ------------
<S> <C> <C> <C>
O. S. Wyatt, Jr. Class A Common Stock 154,577 <F2> 42.2
Eight Greenway Plaza
Houston, Texas 77046-0995
Trustee/Custodian under the Common Stock 11,522,361 <F3> 10.8
Thrift Plan, ESOP and Class A Common Stock 58,447 <F3> 15.9
Pension Plan of Coastal
and its subsidiaries
Chase Bank of Texas, N.A.
600 Travis, 10th Floor
Houston, Texas 77002
FMR Corp. Common Stock 9,846,399 9.3
82 Devonshire Street
Boston, Massachusetts 02109
Isabel H. Long Series A Preferred Stock 28,976 50.4
485 S. Parkview Ave.,
Columbus, Ohio 43209-1075
The DeZurik Family Series C Preferred Stock 29,204 <F4> 100.0
c/o David DeZurik
309F The Island Club
777 S. Federal Hwy.
Pompano Beach, Florida 33062
<FN>
- ----------
<F1>
Class includes presently exercisable stock options held by directors and
executive officers.
<F2>
Includes 7,354 shares of Class A Common Stock owned by the spouse and a son of
Mr. Wyatt, as to which shares beneficial ownership is disclaimed.
<F3>
The Trustee/Custodian is the record owner of these shares; and also is the
record owner of 423 shares of the Series B Preferred Stock, each of which is
convertible into 3.6125 shares of Common Stock and 0.1 share of Class A Common
Stock. Voting instructions are requested from each participant in the Thrift
Plan and ESOP and from the trustees under the Pension Trust. Absent timely
voting instructions, the Trustee is permitted to vote Thrift Plan and ESOP
shares on any matter, but has no authority to vote Pension Plan shares. Nor does
the Trustee/Custodian have any authority to dispose of shares except pursuant to
instructions of the administrator of the Thrift Plan and ESOP or pursuant to
instructions from the trustees under the Pension Trust.
<F4>
Members of the DeZurik family acquired the Series C Preferred Stock in
connection with a 1972 Agreement of Merger involving the acquisition of Colorado
Interstate Gas Company, a subsidiary of the Company.
</FN>
</TABLE>
2
<PAGE>
PROPOSAL 1 - ELECTION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides for a Board
of Directors to serve in three classes having staggered terms of three years
each. At present, there are thirteen directors: five directors whose terms of
office expire at the Annual Meeting; four directors whose terms of office expire
at the 1999 Annual Meeting; and four directors whose terms of office expire at
the 2000 Annual Meeting. Information regarding each of the incumbent directors
is set forth herein under the headings "Information Regarding Directors," and
"Executive Compensation." At the 1998 Annual Meeting, the stockholders will be
asked to elect five Class III directors.
The five nominees for Class III director, each of whom is presently
serving in that capacity, and whose new terms would expire at the year 2001
Annual Meeting of Stockholders, are: James F. Cordes, Roy L. Gates, Kenneth O.
Johnson, J. Carleton MacNeil, Jr. and Thomas R. McDade.
The holders of Common Stock, voting as a class with the Preferred Stock,
are entitled to elect two of the Company's directors standing for election at
the Annual Meeting. Mr. Cordes and Mr. Johnson have been nominated by the
Nominating Committee of the Board of Directors to stand for election by the
holders of Common Stock and Preferred Stock at the Annual Meeting. Each share of
Common Stock and Preferred Stock has one vote for the election of these
directors. All directors and executive officers as a group own shares
representing 2.6% of the votes entitled to be cast for the election of Mr.
Cordes and Mr. Johnson.
The holders of Common Stock, Preferred Stock and Class A Common Stock,
voting together as a class, are entitled to elect the remaining directors
standing for election. Messrs. Gates, MacNeil and McDade have been nominated by
the Nominating Committee of the Board of Directors to stand for election by the
holders of Common Stock, Preferred Stock and Class A Common Stock at the Annual
Meeting. Each share of Common Stock or Preferred Stock has one vote for the
election of these three directors. Each share of Class A Common Stock has 100
votes for the election of these three directors. Holders of Class A Common Stock
entitled to vote at the Meeting have 36,428,400 votes of a total of 142,361,272
votes, or 25.6% of the votes entitled to be cast. All directors and executive
officers as a group own shares representing 14.9% of the votes entitled to be
cast for the election of Messrs. Gates, MacNeil and McDade.
If any nominee becomes unwilling or unable to serve, which is not
expected, the proxies will be voted for a substitute person, if any, designated
by the Nominating Committee of the Board of Directors.
The enclosed form of proxy provides a means for stockholders to vote for
the election of the Class III directors listed above, to withhold authority to
vote for one or more of such directors, or to withhold authority to vote for all
of such directors. Unless a stockholder who withholds authority votes for the
election of one or more other persons at the Meeting or votes by means of
another proxy, the withholding of authority will have no effect upon the
election of directors, assuming that a quorum (a majority of the votes entitled
to be cast), is present at the Meeting.
3
<PAGE>
INFORMATION REGARDING DIRECTORS
The following table sets forth information, as of March 11, 1998,
regarding each of the current directors, including Class III directors standing
for election, and all directors and executive officers as a group. Each director
has furnished the information with respect to age, principal occupation and
ownership of shares of stock of the Company. Messrs. Cordes, Gates, Johnson,
MacNeil and McDade are Class III directors whose terms expire in 1998; Messrs.
Bissell, Burrow, Chapin and Katzin are Class I directors whose terms expire in
1999; and Messrs. Arledge, Brundrett, Wooddy and Wyatt are Class II directors
whose terms expire in 2000.
<TABLE>
<CAPTION>
Number of Shares
Name, (Age), Year Offices with Coastal Beneficially Percent (%)
First Became Director and/or Principal Occupation Title of Class Owned<F1> of Class*
--------------------- --------------------------- -------------- ---------------- ---------
<S> <S> <S> <C> <C>
David A. Arledge Chairman of the Board, President Common Stock 247,792
(53), 1988 and Chief Executive Officer Class A Common Stock 2,352
Harold Burrow Retired; Vice Chairman of the Board Common Stock 134,177 <F2>
(83), 1973 of the Company Class A Common Stock 13,601 3.7
John M. Bissell Chairman of the Board Common Stock 5,096
(67), 1985 of Bissell Inc. Class A Common Stock -0-
George L. Brundrett, Jr. Attorney Common Stock 4,910
(76), 1973 Class A Common Stock 2,290
Roy D. Chapin, Jr. Former Chairman and Common Stock 3,250 <F2>
(82), 1988 Chief Executive Officer Class A Common Stock -0-
of American Motors Corporation
James F. Cordes Retired; former Executive Vice Common Stock 10,835
(57), 1985 President of the Company Class A Common Stock -0-
Roy L. Gates Ranching and Investments Common Stock 4,128
(69), 1969 Class A Common Stock 2,736
Kenneth O. Johnson Senior Vice President Common Stock 36,843
(77), 1988 Class A Common Stock 9,604 2.6
Jerome S. Katzin Retired Investment Banker Common Stock 41,803 <F2>
(79), 1983 Class A Common Stock -0-
J. Carleton MacNeil, Jr. Securities Brokerage and Investments Common Stock 1,000
(63), 1997 Class A Common Stock -0-
Thomas R. McDade Senior Partner, Law Firm of McDade, Common Stock 2,500 <F2>
(65), 1993 Fogler, Maines & Lohse L.L.P., Houston Class A Common Stock -0-
L. D. Wooddy, Jr. Former President of Exxon Common Stock 5,000
(71), 1992 Pipeline Company Class A Common Stock -0-
O. S. Wyatt, Jr. Retired; Chairman of the Executive Common Stock 2,399,505 <F2> 2.3
(73), 1955 Committee of the Company Class A Common Stock 154,577 <F2> 42.1
All directors and executive officers as a group Common Stock 3,351,390 <F3> 3.1
(34 persons, including the above) Class A Common Stock 186,394 <F3> 50.8
(See footnotes on following page)
<FN>
* Less than one percent unless otherwise indicated. Class includes
outstanding shares and presently exercisable stock options held by
directors and executive officers. Excluding presently exercisable
stock options, directors and executive officers as a group would own
184,114 shares of Class A Common Stock, which would constitute 50.5%
of the shares of such class.
4
<PAGE>
<F1>
Except for the shares referred to in Notes 2 and 3 below, and the shares
represented by presently exercisable stock options, the holders are believed by
Coastal to have sole voting and investment power as to the shares indicated.
Amounts include shares in Coastal ESOP and Thrift Plan, and presently
exercisable stock options held by Messrs. Arledge (225,873 shares of Common
Stock and 2,280 shares of Class A Common Stock) and Johnson (3,848 shares of
Common Stock).
<F2>
Includes shares owned by the spouse of Mr. Burrow (5,000 shares of Common
Stock), by the spouse of Mr. Chapin (1,000 shares of Common Stock), by the
spouse of Mr. Katzin (928 shares of Common Stock), by the spouse of Mr. McDade
(1,000 shares of Common Stock) and by the spouse and a son of Mr. Wyatt (265,995
shares of Common Stock and 7,354 shares of Class A Common Stock), as to which
shares beneficial ownership is disclaimed.
<F3>
Includes presently exercisable stock options to purchase 544,459 shares of
Common Stock and 2,280 shares of Class A Common Stock; also includes 281,112
shares of Common Stock and 7,354 shares of Class A Common Stock owned by spouses
and children, as to which shares beneficial ownership is disclaimed. In
addition, one executive officer owns 8 shares of Series B Preferred Stock, each
of which is convertible into 3.6125 shares of Common Stock and 0.1 share of
Class A Common Stock.
</FN>
</TABLE>
No incumbent director is related by blood, marriage or adoption to another
director or to any executive officer of the Company or its subsidiaries or
affiliates.
Except as hereafter indicated, the above table includes the principal
occupation of each of the directors during the past five years. The listed
executive officers have held various executive positions with Coastal during the
five-year period.
Mr. Bissell is a member of the Boards of Directors of Old Kent Financial
Corporation and Batts Inc.
Mr. Cordes is a member of the Board of Directors of Comerica Inc.
Mr. Katzin is a member of the Board of Directors of Qualcomm Incorporated.
Mr. McDade is a trial lawyer and the founding senior partner of the
Houston law firm of McDade, Fogler, Maines & Lohse L.L.P. Prior to forming
McDade, Fogler, Maines & Lohse L.L.P., he was a senior partner in the Houston
law firm of Fulbright & Jaworski. He is a member of the Board of Directors of
Equity Corporation International.
Messrs. Arledge and Burrow are directors of Colorado Interstate Gas
Company and ANR Pipeline Company. Both of these subsidiaries of the Company are
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Committees and Meetings
The Company's Board of Directors has an Executive Committee which consists
of Messrs. Wyatt (Chairman), Arledge, Burrow, Cordes and Wooddy which has
general authority to act in the management and business affairs of the Company
when the full Board of Directors is not in session, except for the review of
capital expenditures in excess of $15,000,000.
As permitted by the General Corporation Law of the State of Delaware and
the Company's By-Laws, the Board of Directors and the Executive Committee took
various corporate actions during 1997 by means of unanimous written consent.
These actions included approval or review of certain capital expenditures,
credit arrangements, corporate guarantees, elections of officers, establishment
of bank accounts and similar authorizations.
During 1997, the Board of Directors held 8 regular meetings and 3 special
meetings and also approved 2 actions by unanimous consent. The Executive
Committee held 7 meetings and approved 108 matters by consent action.
The Company also has an Audit Committee consisting of Messrs. Katzin
(Chairman), Bissell and Gates which meets periodically to review the results of
operations of the Company with members of the Company's staff who are
5
<PAGE>
responsible for accounting matters and from time to time with the Company's
independent auditors, Deloitte & Touche LLP. During 1997, the Audit Committee
met 8 times.
In addition, the Company has a Compensation and Executive Development
Committee which consists of Messrs. Bissell (Chairman), Chapin and Katzin which
meets from time to time to review compensation, stock option awards and other
matters concerning remuneration of employees of the Company. During 1997, the
Compensation and Executive Development Committee met 6 times and also approved
17 matters by consent action.
On June 6, 1997, the Board of Directors established a Nominating Committee
consisting entirely of independent directors, namely L. D. Wooddy, Jr.
(Chairman), John M. Bissell, Roy D. Chapin, Jr. and Jerome S. Katzin. The
Nominating Committee met two times in 1997, at which meetings the committee
considered the expansion of the composition of the Board of Directors and
recommended J. Carleton MacNeil, Jr. for election to the Board of Directors. The
Committee will consider nominations recommended by stockholders upon submission
in writing to the Secretary of the Company the name of any nominee, together
with the qualifications for service as a director of the Company.
Each incumbent director attended a minimum of 84% of the aggregate of (i)
the 1997 meetings of the Board of Directors and (ii) the total number of
meetings held by all committees of the Board of Directors on which he served.
Eight directors attended 100% of such meetings. Attendance of all directors at
such meetings averaged 96%.
Compensation of Directors
There is a limitation of $60,000 per annum on cash fees paid by Coastal to
any non-management director. Messrs. Arledge and Johnson, as members of
management of the Company, receive no fees for services as directors. Messrs.
Wyatt and Cordes retired as officers and employees of the Company during 1997
and began receiving fees at the rate of $48,000 per annum as members of the
Board of Directors and the Executive Committee. Each remaining director received
directors' fees at the annual rate of $24,000 for services as a director;
Messrs. Burrow and Wooddy each received fees at the annual rate of $24,000 for
services as members of the Executive Committee; Messrs. Bissell, Katzin and
Gates each received fees of $24,000 for services as members of the Audit
Committee; Messrs. Bissell and Katzin each received fees of $12,000 for services
as members of the Compensation and Executive Development Committee. Mr. Chapin
received fees of $15,000 for services as a member of the Compensation and
Executive Development Committee. Messrs. Wooddy and Chapin each received fees of
$10,000 for services as members of the Nominating Committee.
Mr. Burrow retired effective December 31, 1995 and entered into consulting
agreements with Colorado Interstate Gas Company and ANR Pipeline Company
pursuant to which he received consulting fees in the aggregate of $60,000 in
1997. He also received aggregate fees of $48,000 as a director and member of the
Executive Committee of Coastal, fees of $18,000 as a director of Colorado
Interstate Gas Company, fees of $24,000 as a director of ANR Pipeline Company
and fees of $12,000 as a director of Coastal Oil & Gas Corporation. The Company
is providing Mr. Burrow with appropriate office space and administrative
support.
Upon his retirement as an officer and employee of the Company on July 15,
1997, Mr. Wyatt entered into a five-year renewable Agreement for Consulting
Services with the Company under which he agrees to devote 50% of his time on a
consultive basis to Company matters as requested by the chief executive officer
of the Company. The agreement provides for compensation of Mr. Wyatt at the rate
of $35,500 per month. The agreement also contains standard confidentiality and
non-competition provisions. During the period of the agreement, the Company is
providing Mr. Wyatt with appropriate office space, administrative support and
the use of Company aircraft on Company business.
Under the Company's Deferred Compensation Plan approved by the Board of
Directors, directors are permitted to defer receipt of their fees with the
amount of the deferred fees converted into phantom shares of Common Stock of the
Company based on the market price of such shares on the quarterly dates on which
fees are earned. On the date of termination as a director, the phantom shares
are converted into cash based on the then-market price of the shares and
distributed in accordance with the directors election. In addition, each
director who elects to defer receipt of his fees in this manner receives a stock
option to purchase an equivalent number of shares as the phantom shares. The
options vest over a three-year period and expire at the end of five years.
Effective January 1, 1998, Messrs. Bissell, Burrow, Chapin, Cordes, Gates,
Katzin, MacNeil, McDade, Wooddy and Wyatt have elected to defer receipt of their
directors' fees in accordance with the provisions of the Plan.
6
<PAGE>
On June 5, 1997, the Board of Directors adopted the "1997 Directors Stock
Plan" pursuant to which each director who is not an employee of the Company will
receive annually a stock option to purchase the number of whole shares of Common
Stock of the Company which have an equivalent value of $25,000 on the date of
grant. Options are granted at 100% of the fair market value of the Common Stock
on the date of grant, vest over a three-year period and expire at the earliest
of five years from the date of grant, three years after retirement, or one year
after death. In accordance with the Plan, Messrs. Bissell, Brundrett, Burrow,
Chapin, Cordes, Gates, Katzin, McDade and Wooddy each received options to
purchase 1,812 shares on June 5, 1997; O. S. Wyatt, Jr. received an option to
purchase 1,779 shares on August 1, 1997; and J. Carleton MacNeil, Jr. received
an option to purchase 1,580 shares on December 4, 1997.
The Company has a Stock Grant Plan adopted by the Board of Directors in
1988 under which non-employee directors receive a one-time grant of 1,000 shares
of Common Stock of the Company. During 1997, Messrs. MacNeil, McDade, and Wooddy
each received such a grant. The grants were approved by the Board of Directors
and by the directors who are employees of the Company who are themselves
ineligible to participate. The grants vest at a rate of one-third of the shares
per annum, with credit received for prior service on the Board of Directors.
Mr. McDade's firm received fees in the amount of approximately $264,000
for legal services rendered to the Company in 1997; and is receiving a retainer
of $200,000 for legal services rendered and to be rendered in 1998.
Stock Ownership Guideline for Directors
On October 9, 1997, the Compensation and Executive Development Committee
recommended, and the Board of Directors adopted, a stock ownership guideline for
directors. Under the guideline, each director is expected to own a minimum
number of shares of Common Stock of the Company within five years, based on the
number of shares of Common Stock having a market value of $100,000 or, if
greater, three times the annual cash compensation (including deferred
compensation) the director is receiving for serving as a director.
7
<PAGE>
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table sets forth information for the fiscal years ended
December 31, 1997, 1996 and 1995 as to cash compensation paid by the Company and
its subsidiaries, as well as certain other compensation paid or accrued for
those years, to the Company's Chief Executive Officer ("CEO") and its five other
most highly compensated executive officers (the "Named Executive Officers").
<TABLE>
Summary Compensation Table
<CAPTION>
Long Term Compensation
--------------------------
Annual Compensation<F1> Awards Payouts
-------------------------------------- ---------- -------
Securities All Other
Underlying LTIP Compen-
Name and Options/ Payouts sation
Principal Position Year Salary ($) Bonus ($)<F2> SARs (#)<F3> ($)<F4> $<F5>
- ------------------ ---- ---------- ------------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
David A. Arledge, 1997 722,527 400,000 50,000 57,802
Chairman of the Board, 1996 707,194 300,000 150,000 56,576
President and CEO 1995 622,867 300,000 50,000 85,875 49,829
O. S. Wyatt, Jr.,(6) 1997 593,158 -- -0- 36,800
Director and former 1996 849,093 300,000 -0- 67,928
Chairman of the Board 1995 849,093 300,000 -0- 67,928
Coby C. Hesse, 1997 297,213 140,000 30,000 23,777
Executive V.P. - 1996 254,973 120,000 15,000 20,349
Administration 1995 243,321 90,000 15,000 19,466
James A. King, 1997 343,823 90,000 10,000 17,138
Executive V.P. - 1996 343,823 80,000 10,000 13,572
Refining 1995 343,823 80,000 10,000 10,141
Jeffrey A. Connelly 1997 300,893 120,000 20,000 24,071
Senior V.P. - Natural 1996 288,014 100,000 10,000 23,041
Gas 1995 269,807 85,000 8,000 20,610 21,584
Carl A. Corrallo 1997 297,635 100,000 20,000 23,811
Senior V.P. and 1996 281,536 90,000 10,000 22,523
General Counsel 1995 266,645 80,000 10,000 20,610 21,332
<FN>
- ------------------------
<F1>
Does not include the value of perquisites and other personal benefits because
the aggregate amount of such compensation, if any, does not exceed the lesser of
$50,000 or 10 percent of annual salary and bonus for any named individual.
<F2>
Bonuses are based on the following factors: the individual's position; the
individual's responsibility; and the individual's ability to impact the
Company's financial success. See Committee Report on page 10.
<F3>
The options do not carry any stock appreciation rights.
<F4>
During 1995, Messrs. Arledge, Connelly and Corrallo received one-time cash
payments in the amounts indicated in connection with awards made in 1987 under
the Company's Performance Unit Plan. No further awards have been made under this
Plan.
8
<PAGE>
<F5>
All Other Compensation for 1997 consists of: (i) Company contributions to the
Coastal Thrift Plan (David A. Arledge $12,800; O. S. Wyatt, Jr. $12,800; Coby C.
Hesse $12,800; James A. King $6,400; Jeffrey A. Connelly $12,800; and Carl A.
Corrallo $12,800); (ii) certain payments in lieu of Thrift Plan contributions
(David A. Arledge $45,002; Coby C. Hesse $10,977; James A. King $10,738; Jeffrey
A. Connelly $11,271; and Carl A. Corrallo $11,011); these payments are made to
all employees of the Company and its subsidiaries who participate in the Thrift
Plan who must discontinue their Thrift Plan participation due to federal
statutory limits; and (iii) directors' fees of $24,000 paid to Mr. Wyatt.
<F6>
Mr. Wyatt retired as an officer of the Company effective July 15, 1997.
</FN>
</TABLE>
Stock Options
The following table sets forth information with respect to stock options
granted on March 5, 1997 for the fiscal year ended December 31, 1997 to the
Named Executive Officers.
<TABLE>
Option/SAR Grants in Last Fiscal Year (1997)
<CAPTION>
Number of Percent of Total
Securities Options/SARs
Underlying Granted to Exercise Grant Date
Options/SARs Employees in Price Expiration Present
Name Granted<F1> Fiscal Year<F2> ($/Sh) Date Value ($)<F3>
---- ------------- ---------------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
David A. Arledge 50,000 6.58 47.06 3/4/07 818,609
O. S. Wyatt, Jr. -0- -0- -0- -0- -0-
Coby C. Hesse 30,000 3.95 47.06 3/4/07 491,165
James A. King 10,000 1.31 47.06 3/4/07 163,722
Jeffrey A. Connelly 20,000 2.63 47.06 3/4/07 327,443
Carl A. Corrallo 20,000 2.63 47.06 3/4/07 327,443
<FN>
- ---------------------
<F1>
Options expire ten years from the date of issuance and are granted at the fair
market value of the Common Stock of the Company on the date of grant. Options
vest cumulatively at a rate of 15% of the option shares on the first anniversary
date of the date of grant, 20% on each of the second, third and fourth
anniversary dates and 25% on the fifth anniversary date.
<F2>
The options do not carry any stock appreciation rights.
<F3>
Based on the Black-Scholes option pricing model expressed as a ratio .3479 x
exercise price x number of shares. The actual value, if any, an executive may
realize will depend on the excess of the stock price over the exercise price on
the date the option is exercised, so that there is no assurance the value
realized by an executive will be at or near the value estimated by the
Black-Scholes model. The estimated values under that model are based on
assumptions that include (i) a stock price volatility of .2205, calculated using
monthly stock prices for the three years prior to the grant date, (ii) an
interest rate of 6.90%, (iii) a dividend yield of 0.85% and (iv) an expected
option holding period of eight years. The Securities and Exchange Commission
("S.E.C.") requires disclosure of the potential realizable value or present
value of each grant. The Company's use of the Black-Scholes model to indicate
the present value of each grant is not an endorsement of this valuation.
</FN>
</TABLE>
9
<PAGE>
Option/SAR Exercises and Holdings
The following table sets forth information with respect to the Named
Executive Officers, concerning the exercise of options during the last fiscal
year and unexercised options and SARs held as of the fiscal year ("FY") ended
December 31, 1997.
<TABLE>
Aggregated Option/SAR Exercises In Last Fiscal Year
And FY-End Option/SAR Values (1997)
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)<F1>
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized ($) Unexercisable Unexercisable
- ------------------ --------------- ------------------ ------------------ -----------------------
<S> <C> <C> <C> <C>
David A. Arledge 40,000 1,034,728 171,373 / 254,000 5,423,414 / 6,238,520
O. S. Wyatt, Jr. -0- -0- -0- / -0- -0- / -0-
Coby C. Hesse 6,000 167,280 42,000 / 61,000 1,360,740 / 1,335,300
James A. King -0- -0- 30,000 / 30,000 1,045,680 / 724,120
Jeffrey A. Connelly 21,000 524,610 34,600 / 40,400 1,118,264 / 884,696
Carl A. Corrallo 6,000 190,800 41,500 / 42,000 1,247,385 / 937,240
<FN>
- ------------------
<F1>
$-based on the market price of $61.34 at December 31, 1997.
</FN>
</TABLE>
COMPENSATION AND EXECUTIVE DEVELOPMENT COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The following report has been provided by The Coastal Corporation's
Compensation and Executive Development Committee (the "Committee") of the Board
of Directors in accordance with current S.E.C. proxy statement disclosure
requirements. The members of the Committee include John M. Bissell (Chairman),
Roy D. Chapin, Jr., and Jerome S. Katzin.
This material states Coastal's current overall compensation philosophy and
program objectives. Detailed descriptions of the Company's compensation programs
are provided as well as the information on the Company's 1997 pay levels for the
CEO.
Overall Objectives of the Executive Compensation Program
The Company's compensation philosophy and program objectives are directed
by two primary guiding principles. First, the program is intended to provide
fully competitive levels of compensation - at expected levels of performance -
in order to attract, motivate and retain talented executives. Second, the
program is intended to create an alignment of interests between the Company's
executives and stockholders such that a significant portion of each executive's
compensation is directly linked to maximizing stockholder value.
In support of this philosophy, the executive compensation program is
designed to reward performance that is directly relevant to the Company's
short-term and long-term success. As such, the Company attempts to provide both
short-term and long-term incentive pay that varies based on corporate and
individual performance.
To accomplish these objectives, the Committee has structured the executive
compensation program with three primary underlying components: base salary,
annual incentives, and long-term incentives (i.e., stock options). Certain
10
<PAGE>
other executive benefits are also provided. The following sections describe the
Company's plans by element of compensation and discuss how each component
relates to the Company's overall compensation philosophy.
In reviewing this information, reference is often made to the use of
competitive market data as criteria for establishing targeted compensation
levels. The Company targets the market 50th percentile for its total
compensation program and actual total compensation rates in 1997 in aggregate
were at the targeted level. (However, the Company's competitive pay posture
varies by pay element, as described below.) Several market data sources are used
by the Company, including energy industry norms for the selected publicly traded
peer companies, as reflected in these companies' proxy statements. There is no
effort made to assess how the Company's executive pay levels compare to the
levels of pay provided by the companies in Value Line's Diversified Natural Gas
Group which is used in Coastal's total shareholder return graph since these
companies vary significantly in size and scope of operations. In addition, we
utilize published survey data and data obtained from independent consultants
that are for general industry companies similar in size (i.e., revenues) to the
Company. The published surveys include data on over 50 companies of comparable
size to the Company, as measured by revenues. Greater emphasis is placed on the
published data and data obtained from consultants than on the data for proxy
peers, since the published data and consulting data are reflective of company
size.
Base Salary Program
The Company's base salary philosophy is to provide base pay levels that
fall between the market 50th and 75th percentiles. The Company periodically
reviews its executive pay levels to assure consistency with the external market.
Generally, the Company's actual base salary levels for 1997 for executives as a
group were consistent with the targeted percentiles. We believe it is crucial to
provide strongly competitive salaries over time in order to attract and retain
executives who are highly talented and capable of creating added stockholder
value.
Annual salary adjustments for the Company are based on several factors:
general levels of market salary increases, individual performance, competitive
base salary levels, and the Company's overall financial results. The Company
reviews performance qualitatively considering total shareholder returns, the
level of earnings, return on equity, return on total capital and individual
business unit performance. These criteria are assessed qualitatively and are not
weighted. All base salary increases are based on a philosophy of
pay-for-performance and perceptions of an individual's long-term value to the
Company. As a result, employees with higher levels of performance sustained over
time will be paid correspondingly higher salaries.
Annual Bonus Plan
The Company's Annual Bonus Plan is intended to (1) reward key employees
based on company/business unit and individual performance; (2) motivate key
employees; and (3) provide competitive cash compensation opportunities to plan
participants. Under the plan, target award opportunities vary by individual
position and are expressed as a percent of base salary. The individual target
award opportunities, which are slightly below market median levels, are then
aggregated into a total target pool which is adjusted as described below. The
amount a particular executive may earn is directly dependent on the individual's
position, responsibility, and ability to impact our financial success.
The actual bonus pool is established each year by modifying the target
pool based on the Company's overall performance against measures established by
the Committee. In fiscal year 1997, the key performance measure considered was
earnings before interest and taxes ("EBIT") against plan. This measure was
weighted 50% of the total bonus program. In 1997 the Company's EBIT performance
was slightly below target, resulting in the EBIT portion of the bonus paid being
slightly below target. The remaining 50% of the annual bonus opportunity in 1997
is a discretionary annual bonus pool. As a result, no formula performance
measures were used in establishing the size of awards under this portion of the
plan. However, in establishing the size of the discretionary bonus pool, the
Committee considered the Company's return on equity relative to industry peers
(using selected peers from among Value Line's Diversified Natural Gas Group
included in the shareholder return graph), return on total capital compared to
this selected group of industry peers, the EBIT performance of each business
unit, progress made toward improving the Company's operational and financial
performance, and the need to reward unique individual contributions. These
measures were not formally weighted by the Committee. The size of the
discretionary bonus pool element was established slightly below target by the
Committee, in spite of the fact that the Company's return on equity was equal to
the peer group average and that the Company's return on total capital was
actually slightly above the peer group average. The Committee established the
11
<PAGE>
pool slightly below target because certain other areas of operation performance
were not at target levels. As a result, actual bonus payments for 1997 were
slightly below target and median market levels.
Individual awards from the established bonus pool are recommended by
senior management, with advice and consent from the Committee. Individual awards
from the pool are based on business unit and individual employee performance,
future potential, and competitive considerations. All individual performance
assessments are conducted in a non-formula fashion without specific goal
weightings. The total bonus awards made may not exceed the amount of funds in
the bonus pool.
Long-Term Incentive Plan
The Company's Long-Term Incentive Plan ("LTIP") is designed to focus
executive efforts on the long-term goals of the Company and to maximize total
return to our shareholders. While the Company's LTIP allows the Committee to use
a variety of long-term incentive devices, the Committee has relied solely on
stock option awards to provide long-term incentive opportunities in recent
years.
Stock options align the interests of employees and shareholders by
providing value to the executive through stock price appreciation only. All
stock options have a ten-year term before expiration and the most recent grants
are fully exercisable within 5 years of the grant date.
Stock options were granted to certain of the Named Executive Officers in
1997 and it is anticipated that stock option awards will be made periodically at
the discretion of the Committee in the future. As in past years, the number of
shares actually granted to a particular participant is also based on the
Company's financial success, its future business plans, and the individual's
position and level of responsibility within the Company. All of these factors
are assessed subjectively and are not weighted. The number of stock options
granted by the Company in 1997 was overall, slightly below market median levels.
The Committee believes stock options are an important part of the
Company's total executive pay program, since employees only receive income from
the options if the Company's share price rises. In addition, shareholder
approval is being sought for a new 1998 employee stock option plan. The
intention of this plan is to provide enough shares for the Company to continue
making stock option awards to key employees.
1997 Chief Executive Officer Pay
As previously described, the Committee considers several factors in
developing an executive's compensation package. For the CEO, these include
competitive market practices (consistent with the philosophy described for other
executives), experience, achievement of strategic goals, and the financial
success of the Company (considering the factors described under the annual bonus
plan above).
Mr. Arledge's annual salary was not adjusted in 1997, at his request. This
leaves the CEO's base salary below the market median.
Mr. Arledge's bonus for 1997 was $400,000, payable in 1998. This award was
slightly below targeted levels (and below market median levels) since the
Company's aggregate performance on the measures described in the annual bonus
section of this report were slightly below the aggressive Company targets.
The Committee granted stock options for 50,000 shares to Mr. Arledge in
1997 in recognition of his performance and as an incentive to continue his
efforts to increase shareholder value. These awards are tied to performance in
that the executive only realizes income from stock options if the stock price
rises. The grant is well below market median level for the executive position
held by him.
Executive Benefits
In 1997, the Company approved a supplemental retirement plan for the
Company's executives. This plan (which is discussed in greater detail in the
pension section of this proxy statement) is intended to ensure that pensions
otherwise
12
<PAGE>
payable to executives under Coastal's qualified pension plan, are in fact paid
in spite of limits placed by the tax code on the tax deductibility of qualified
retirement plans for highly paid individuals.
$1 Million Pay Deductibility Cap
Under Section 162(m) of the Internal Revenue Code, public companies are
precluded from receiving a tax deduction on compensation paid to executive
officers in excess of $1 million. To address the $1 million pay deductibility
cap issue, the Company's proposed 1998 Incentive Stock Plan is structured so
that stock option awards (which are intended to be the primary long-term
incentive vehicle for the present time) qualify for an exemption from the $1
million pay deductibility limit.
Also, at the present time, the Chairman of the Board of Directors and CEO
is the only executive whose base salary plus target bonus exceeds $1 million. In
order to preserve the Company's tax deduction for base salary plus bonus for
this individual, the Company has established a nonqualified deferred
compensation program. Under this program, any annual incentive awards that bring
cash compensation to a level over $1 million may be deferred so that payments
occur after the individual is no longer a Named Executive Officer, thus
preserving the deductibility of the pay for the Company.
Compensation and Executive Development Committee
John M. Bissell, Chairman
Roy D. Chapin, Jr.
Jerome S. Katzin
Pension Plan Table
The Employee Retirement Income Security Act of 1974, as amended by
subsequent legislation, limits the retirement benefits payable under the
Company's tax-qualified Pension Plan. Where this occurs, the Company provides
additional nonqualified retirement benefits under the Company Replacement
Pension Plan. These benefits, plus payments under the Pension Plan, will not
exceed the maximum amount which the Company would have been required to provide
under the Pension Plan before application of the legislative limitations. The
following table shows for illustration purposes the estimated annual benefits
payable currently under the Pension Plan and the Company's Replacement Pension
Plan upon retirement at age 65 based on the five years final average pay and the
years of credited service indicated.
<TABLE>
<CAPTION>
Years of Credited Service
--------------------------------------------------------------------
5-Year Final
Average Pay 15 Years 20 Years 25 Years 30 Years 35 Years
----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 125,000................. $ 33,877 $ 45,169 $ 56,461 $ 67,753 $ 66,948
150,000................. 41,377 55,169 68,961 82,753 81,948
175,000................. 48,877 65,169 81,461 97,753 96,948
200,000................. 56,377 75,169 93,961 112,753 111,948
225,000................. 63,877 85,169 106,461 127,753 126,948
250,000................. 71,377 95,169 118,961 142,753 141,948
300,000................. 86,377 115,169 143,961 172,753 171,948
350,000................. 101,377 135,169 168,961 202,753 201,948
400,000................. 116,377 155,169 193,961 232,753 231,948
450,000................. 131,377 175,169 218,961 262,753 261,948
500,000................. 146,377 195,169 243,961 292,753 291,948
600,000................. 146,377 195,169 243,961 292,753 291,948
700,000................. 146,377 195,169 243,961 292,753 291,948
800,000................. 146,377 195,169 243,961 292,753 291,948
900,000................. 146,377 195,169 243,961 292,753 291,948
1,000,000................. 146,377 195,169 243,961 292,753 291,948
1,100,000................. 146,377 195,169 243,961 292,753 291,948
1,200,000................. 146,377 195,169 243,961 292,753 291,948
13
<PAGE>
<FN>
(A) Compensation covered under the Pension Plan and the Replacement Pension
Plan generally includes only base salary and is limited to $160,000 for
1997. During 1997 the Board of Directors amended the Company's Replacement
Pension Plan to include compensation (generally base salary only) of up to
$500,000 (indexed for inflation) on a prospective basis in the five year
average compensation used to calculate benefits
(B) At December 31, 1997 each of the individuals named in the Summary
Compensation Table who had not retired had five year average pay of
$152,000 for future benefit accrual and the following years of credited
service and pension payable at age 65: Mr. Arledge, 17 years, $61,968; Mr.
Hesse, 11 years, $36,454; Mr. King, 5 years, $17,584; Mr. Connelly, 30
years, $101,373; and Mr. Corrallo, 11 years $29,813. Mr. Wyatt reached age
70 1/2 in January, 1995 and, because of IRS requirements concerning the
Company's qualified pension plan he began receiving pension payments in
April, 1996. Mr. Wyatt retired in 1997. His payments from the plans
aggregated $377,249 in 1997.
(C) The normal form of retirement income is a straight life annuity. The
calculation of benefits payable under the Pension Plan includes an offset
of 1.5% of applicable monthly social security benefits multiplied by the
number of years of credited service (up to 33 1/3 years).
</FN>
</TABLE>
PERFORMANCE GRAPH - SHAREHOLDER RETURN ON COMMON STOCK
[GRAPH]
<TABLE>
Five-Year Cumulative Values
$100 Invested 12/31/92
Dividends Reinvested
<CAPTION>
DOLLAR VALUE OF $100 INVESTMENT AT DECEMBER 31,
-----------------------------------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Company $ 100 $ 120 $ 111 $ 160 $ 211 $ 268
S&P 500 100 110 112 153 189 252
Index<F1><F2> 100 119 110 127 184 195
<FN>
<F1>
The Index is based on Value Line's Diversified Natural Gas Group - the
Performance Graph reflects total shareholder returns weighted to reflect the
market capitalizations of the peer companies. The peer group is comprised of:
Cabot, Columbia Gas, Consolidated Nat'l. Gas, Eastern Enterprises, El Paso
Nat'l. Gas, Enron, Equitable Resources, KN Energy, Mapco, Mitchell Energy,
National Fuel Gas, Questar, Seagull Energy, Sonat, Southwestern Energy, Union
Pacific, and Williams Co's.
<F2>
Coastal is excluded from the Index.
</FN>
</TABLE>
TRANSACTIONS WITH OFFICERS AND DIRECTORS
In 1987, Coastal Mart, Inc. ("Coastal Mart"), a subsidiary of the Company,
entered into a ten-year lease/purchase agreement with Pester Marketing Company
("Pester Marketing") for 220 gasoline service stations (subsequently reduced to
182 stations through disposition of assets) located in the midwestern region of
the United States. Jack Pester, a principal stockholder and Chief Executive
Officer of Pester Marketing, subsequently became an employee, officer and
14
<PAGE>
director of Coastal Mart and was elected a Senior Vice President of the Company.
Mr. Pester is no longer active in the management of Pester Marketing, and his
stock interest in that company has been placed in trust. In 1994, the lease
transaction was terminated pursuant to an agreement under which Coastal Mart
acquired ownership of and title to 175 of the gasoline service stations and
Pester Marketing retained the seven remaining stations. During 1997, the Company
and/or its subsidiaries sold approximately 14 million gallons of gasoline to
Pester Marketing at prevailing market prices totaling approximately $9.97
million.
During 1997, Company subsidiaries sold a total of approximately 30 million
gallons of jet fuel to Laker Airways, Inc. ("Laker") and L. B. Limited, a
charter airline, at prevailing market prices totaling approximately $18.8
million. O. S. Wyatt, Jr. owned approximately 51% of the stock of Laker which he
disposed of in 1997; and he owns approximately one-third of the shares of L. B.
Limited. A balance of approximately $4.8 million of Laker indebtedness to
Coastal is guaranteed by Mr. Wyatt.
PROPOSAL 2 - A PROPOSAL TO ADOPT THE 1998 INCENTIVE STOCK PLAN
On March 19, 1998, the Board of Directors (the "Board") adopted The
Coastal Corporation 1998 Incentive Stock Plan (the "1998 Stock Plan") under
which a total of 4,000,000 shares of Common Stock are made available for the
granting of awards, a portion or all of which may qualify as incentive stock
options, non-incentive stock options, restricted stock grants and/or stock
awards. The Board believes that the shares of Common Stock made available under
the 1998 Stock Plan will aid Coastal in retaining the services of key employees
and attracting the best available personnel. Accordingly, the Board has approved
and adopted the 1998 Stock Plan, subject to approval by the stockholders.
The Board of Directors unanimously recommends a vote FOR Proposal No. 2.
The full text of the 1998 Stock Plan is set forth in Appendix A to this
Proxy Statement and reference is made thereto for a complete description. The
following is a summary of the major provisions of the 1998 Stock Plan and is
qualified by the full text thereof.
Number of Shares
A total of up to 4,000,000 shares of Common Stock are available for the
granting of options, restricted stock grants and stock awards under the 1998
Stock Plan. If an option, restricted stock grant or stock award under the 1998
Stock Plan expires or terminates before it has been exercised or earned in full,
the shares of Common Stock allocable to the unexercised portion of such option,
restricted stock grant or stock award may again be subject to an option,
restricted stock grant or stock award under the 1998 Stock Plan. The number of
shares available and subject to options, option prices and, to the extent
applicable, the number of shares subject to any restricted stock grant or stock
award will be adjusted upward or downward, as the case may be, in the event of
any subdivision or consolidation of shares or other capital readjustment, stock
dividend, merger, consolidation or similar transaction affecting the shares. The
maximum aggregate number of shares with respect to which options, restricted
stock grants or stock awards may be granted or issued to any employee under the
1998 Stock Plan during each year is 100,000 shares.
Administration
The 1998 Stock Plan is administered by the Compensation and Executive
Development Committee (the "Committee") of the Board of Directors of the
Company, which consists of directors who are not employees of the Company and
who are not eligible to receive options, restricted stock grants and stock
awards under the 1998 Stock Plan. Except as provided below, the Committee has
sole authority to determine which eligible employees of the Company receive
options, restricted stock grants and stock awards under the 1998 Stock Plan, the
times when options, restricted stock grants and stock awards are granted, the
number of shares covered by the option, restricted stock grant or stock award in
each case, the provisions of any agreement and when options may be exercised or
when restricted stock grants or stock awards become vested. The directors
currently serving on the Committee are John M. Bissell (Chairman), Roy D.
Chapin, Jr. and Jerome S. Katzin.
15
<PAGE>
Stock Options
Stock options may be granted by the Committee at prices determined in the
discretion of the Committee, provided that the option price must be at least
equal to the fair market value of the Common Stock on the date of grant. The
option price is payable in cash, Common Stock or such other form of payment as
may be determined by the Committee. On March 11, 1998 the fair market value of
Common Stock on the New York Stock Exchange was $65.19 per share.
Restricted Stock Grants
The Committee may grant to an eligible employee shares of Common Stock
subject to specified restrictions on transferability and vesting as provided in
the 1998 Stock Plan.
Stock Awards
The Committee may award and cause the Company to issue shares of Common
Stock to an eligible employee. Stock awards may be made in lieu of cash
compensation or as additional compensation. The Committee may also make stock
awards contingent on pre-established performance goals determined by the
Committee; such performance-based awards are limited to senior officers (i.e.,
Vice President, Secretary, Treasurer and above) of the Company and its
subsidiaries. Performance goals determined by the Committee may be based on
specific increases in net profits, stock price, Company or segment sales, market
share, earnings per share, and/or return on equity. The maximum number of shares
which may be issued to any one employee is 100,000 per year.
Eligibility
Subject to selection by the Committee, any full-time key employee of
Coastal or its subsidiaries is eligible to be granted one or more options,
restricted stock grants or stock awards pursuant to the 1998 Stock Plan. At
present, it is estimated that up to approximately 350 current employees will be
eligible to receive benefits under the 1998 Stock Plan.
Duration
No option, restricted stock grant or stock award granted under the 1998
Stock Plan may be made exercisable after the expiration of ten years from the
date it is granted.
Transferability of Options
The Committee may, in its discretion, permit an employee to transfer
non-incentive stock options to the children, grandchildren or spouse of the
employee ("Immediate Family Members"), to a trust established for the exclusive
benefit of one or more Immediate Family Members or to a partnership in which
Immediate Family Members are the only partners (collectively, "Permitted
Transferees"). The Plan (a) does not allow for consideration to be paid for such
transfers and (b) allows transferees to transfer options only to the original
employee/optionee or to other Permitted Transferees of the original
employee/optionee. Other than as described in this paragraph, rights under the
Plan are not generally transferable (and may not be disposed of or pledged)
other than by will or the laws of descent and distribution or pursuant to
domestic relations orders.
Following the transfer of any non-incentive stock option as described
above, such non-incentive stock option will remain subject to the same terms and
conditions as were applicable to such non-incentive stock options immediately
prior to transfer, provided that the transferee will be deemed substituted for
the transferor to the extent appropriate to enable the transferee to exercise
the transferred non-incentive stock options. Specifically and without
limitation, events occurring with respect to the original employee/optionee that
affect the term of the non-incentive stock options will have the same effect on
a non-incentive stock option held by a transferee as if the non-incentive stock
option were still held by the original employee/optionee.
16
<PAGE>
Vesting
Unless otherwise provided by the Committee, generally options vest on a
cumulative basis as to 15% of the option shares on the first anniversary of the
date the option is granted, as to 20% of the option shares on each of the
second, third and fourth anniversaries of the date the option is granted, and as
to 25% of the option shares on the fifth anniversary of the date the option is
granted.
Exercise of Options
An option generally is exercisable by the optionee only while he is an
employee of Coastal or its subsidiaries before the expiration date of the option
or one day less than three months after the termination of such employment,
whichever occurs earlier. In the event of total and permanent disability or
death while the option is still exercisable by the employee, the option
terminates on the earlier of the expiration date of such option or one day less
than one year following the date of death or termination of employment due to
total and permanent disability. Options vest as the Committee may determine, and
may not be exercised until vested. However, the Committee in its discretion may
at any time accelerate in full the vesting of any option which has not yet
vested, and the Company believes that the Committee would take such action in
the event of a tender offer for shares of the Company.
Amendments
The Board of Directors may modify, revise or terminate the 1998 Stock Plan
without the approval of stockholders, except that approval by the affirmative
vote of a majority of the votes cast attributable to shares present in person or
by proxy and entitled to vote at a meeting of stockholders of the Company's
stock, or if the provisions of the corporate charter, by-laws or applicable
state law prescribes a greater degree of stockholder approval for this action,
the degree of stockholder approval thus required, will be required for any
amendment which would (i) change the aggregate number of shares available for
options, restricted stock grants or stock awards under the 1998 Stock Plan, (ii)
reduce any option price, (iii) extend the term during which an option,
restricted stock grant or stock award may be exercised or the termination date
of the 1998 Stock Plan, or (iv) change the class of employees eligible to
receive options, restricted stock grants or stock awards pursuant to the 1998
Stock Plan.
Effective Date and Duration
The 1998 Stock Plan was effective as of March 19, 1998, subject to
approval by the stockholders. No option, restricted stock grant or stock award
shall be granted pursuant to the 1998 Stock Plan after March 18, 2008.
Federal Income Tax Consequences
The following statements concerning tax liability under the 1998 Stock
Plan are intended to summarize briefly the current federal income tax
consequences arising therefrom and are in no way meant to provide or supplement
tax advice to employees.
Incentive Stock Options. The grant of incentive stock options to an
employee does not result in any income tax consequences. The exercise of an
incentive stock option does not result in any income tax consequences to the
employee if the incentive stock option is exercised by the employee during his
employment with the Company or a subsidiary, or within a specified period after
termination of employment. However, the excess of the fair market value of the
shares of stock as of the date of exercise over the option price is a tax
preference item for purposes of determining an employee's alternative minimum
tax. An employee who sells shares acquired pursuant to the exercise of an
incentive stock option after the expiration of (i) two years from the date of
grant of the incentive stock option, and (ii) one year after the transfer of the
shares to him (the "Waiting Period") will generally recognize long-term capital
gain or loss on the sale.
An employee who disposes of his incentive stock option shares prior to the
expiration of the Waiting Period (an "Early Disposition") generally will
recognize ordinary income in the year of sale in an amount equal to the excess,
if any, of (a) the lesser of (i) the fair market value of the shares as of the
date of exercise or (ii) the amount realized on the sale, over (b) the option
price. Any additional amount realized on an Early Disposition should be treated
as capital gain to the employee, short or long term, depending on the employee's
holding period for the shares. If the shares are sold
17
<PAGE>
for less than the option price, the employee will not recognize any ordinary
income but will recognize a capital loss, short or long term, depending on the
holding period.
The Company will not be entitled to a deduction as a result of the grant
of an incentive stock option, the exercise of an incentive stock option, or the
sale of incentive stock option shares after the Waiting Period. If an employee
disposes of his incentive stock option shares in an Early Disposition, the
Company will be entitled to deduct the amount of ordinary income recognized by
the employee.
Non-Incentive Stock Options. The grant of non-incentive stock options will
not result in the recognition of any taxable income by the employee. An employee
will recognize ordinary income on the date of exercise of the non-incentive
stock option equal to the difference between (i) the fair market value on that
date of the shares acquired, and (ii) the exercise price. The tax basis of these
shares for purpose of a subsequent sale includes the option price paid and the
ordinary income reported on exercise of the option. The income reportable on
exercise of the non-incentive stock option is subject to federal and state
income and employment tax withholding.
Generally, the Company will be entitled to a deduction in the amount
reportable as income by the employee on the exercise of a non-incentive stock
option.
Restricted Stock Grants. Restricted stock granted under the 1998 Stock
Plan generally will not be taxed to the recipient, nor deductible by the
Company, at the time of grant. Restricted stock grants involve the issuance of
stock to an employee subject to specified restrictions as to sale or
transferability of the stock and/or subject to a substantial risk of forfeiture.
On the date the restrictions lapse, and the stock becomes transferable or not
subject to a substantial risk of forfeiture, whichever is applicable, the
recipient recognizes ordinary income equal to the excess of the fair market
value of the stock on that date over the purchase price paid for the stock, if
any. The employee's tax basis for the stock includes the amount paid for the
stock, if any, and the income recognized.
Generally, the Company will be entitled to a corresponding tax deduction
in an amount equal to the income recognized by the employee.
Stock Awards. Stock awards involve the issuance of shares of stock without
any payment, as compensation for services to the Company. The employee will
recognize taxable income equal to the fair market value of the shares on the
date of the award, which becomes the recipient's tax basis in a subsequent sale.
Stock awards granted for stock to be issued only after satisfaction of specified
performance goals established by the Committee constitute compensation when
issued.
Generally, the Company will be entitled to a corresponding tax deduction
in an amount equal to and in the year income is recognized by the employee. See
following discussion of "performance-based compensation."
Compensation Deduction Limitation. In the 1993 Omnibus Budget
Reconciliation Act ("OBRA"), Congress generally limited to $1 million per year
the tax deduction available to public companies for certain compensation paid to
designated executives. These executives include the Chief Executive Officer and
the next four highest compensated officers of the Company. OBRA provides an
exception from this deduction limitation, for certain "performance-based"
compensation, if specified requirements are satisfied. The 1998 Stock Plan is
designed to satisfy these statutory requirements for stock options and for
performance-based stock awards. Thus, the Company anticipates being entitled to
deduct an amount equal to the ordinary income reportable by an optionee on
exercise of a non-incentive stock option, the Early Disposition of shares of
stock acquired by exercise of an incentive stock option, and the issuance of
performance-based stock awards.
The Company does not anticipate that the deduction limitation imposed by
OBRA will have a material impact on the deduction available for restricted stock
grants and stock awards granted under the 1998 Stock Plan.
18
<PAGE>
1998 Stock Plan Benefits
As stated above, the Committee has the sole authority to determine all
awards under the 1998 Stock Plan. If the 1998 Incentive Stock Plan had been in
effect on January 1, 1997 and options actually granted during 1997 for that
fiscal year had been awarded under the 1998 Incentive Stock Plan, the following
persons and groups would have been granted options as follows:
<TABLE>
New Plan Benefits
<CAPTION>
1998 Incentive Stock Plan
------------------------------------
Name and Position Value<F1> Number of Units
----------------- -------- ---------------
<S> <C> <C>
David A. Arledge $818,609 50,000
O. S. Wyatt, Jr. -0- -0-
Coby Hesse 491,165 30,000
James A. King 163,722 10,000
Jeffrey A. Connelly 327,443 20,000
Carl A. Corrallo 327,443 20,000
Executive Group 3,717,552 227,000
Non-Executive Director Group -0- -0-
Non-Executive Officer
Employee Group 8,712,500 532,000
<FN>
- ----------------------
<F1>
See footnote (3) to the stock option table on page 9.
</FN>
</TABLE>
19
<PAGE>
PROPOSAL 3 - STOCKHOLDER PROPOSAL
Management has been advised that a stockholder intends to submit a
resolution at the Annual Meeting of Stockholders. The name and address of, and
the information provided by such stockholder as to the number of shares of stock
of the Company it owns, will be furnished by the Company either orally or in
writing upon request. The proposal follows:
BOARD INCLUSIVENESS
We believe the employee and board composition of major corporations should
reflect the people in the workforce and marketplace of the 21st century if our
company is going to remain competitive. Employees, customers and stockholders
make up a greater diversity of backgrounds than ever before. The report of the
Department of Labor's 1995 bi-partisan Glass Ceiling Commission, "Good For
Business: Making Full Use of the Nation's Human Capital," confirms diversity and
inclusiveness in the workplace has a positive impact on the bottomline. A report
of Standard and Poor 500 companies provided by Covenant Fund revealed "...firms
that succeed in shattering their own glass ceiling racked up stock-market
records that were nearly 2 1/2 times better than otherwise - comparable
companies."
In 1994 the Investor Responsibility Research Center reported inclusiveness
at senior management and board levels was only 9% of the fortune 500 companies
in a comparable workforce of 57% diversity. The Glass Ceiling Commission
reported that companies select from only half of the talent of our workforce.
Therefore we urge our corporation to enlarge its search for the best qualified
board members by casting a wider net. If we are to be prepared for the 21st
century we must learn how to compete in a growingly diverse global market place
by promoting and selecting the best people regardless of race, gender or
physical challenge. We believe the judgements and perspectives of a diverse
board would serve to improve the quality of corporate decision-making.
Since the board is responsible for representing shareholder interests in
corporate meetings, a growing proportion of stockholders is now attaching value
to board inclusiveness. A 1994 Investor Responsibility Research Center survey
revealed 37% of respondents cited board diversity as the influencing factor for
supporting votes.
The Teachers Insurance and Annuity Association and College Retirement
Equities Fund, the largest institutional investor in the United States, issued a
set of corporate governance guidelines including a call for "diversity of
directors by experience, sex, age and race."
Robert Campbell, CEO of Sun Oil, stated in the Wall Street Journal, August
12, 1996, "Often what a woman or minority person can bring to the board is some
perspective a company hasn't had before--adding some modern day reality to the
deliberation process. Those perspectives are of great value, and often missing
from an all-white-male gathering. They can also be inspirational to the
company's diverse work force."
Be it resolved that shareholders request:
1. The nominating committee of the Board make a greater effort to find
qualified women and minority candidates for nomination to the Board.
2. The Board issue a statement publicly committing the company to a policy of
board inclusiveness with a program of steps to take and the timeline
expected to move in that direction.
3. The Company issue a report by September 1998 at a reasonable expense that
includes a description of:
a) efforts to encourage diversified representation on our board
b) criteria for board qualification
c) the process of selecting the board candidates
d) the process of selecting the board committee members
20
<PAGE>
Board of Directors Statement in Opposition to Stockholder Proposal
The Company has a firm policy requiring fair and equal treatment
regardless of race, color, religion, sex, age, national origin, physical or
mental handicap and veteran status. The Company abides by Federal and State
regulations in these regards.
The Board of Directors believes that the key qualifications in the
selection of directors should be their business background and experience. The
Board of Directors has appointed a Nominating Committee consisting of four
independent directors (see "Committees and Meetings" - page 5).
The Board of Directors also believes that the interests of the Company and
its stockholders are best served by having highly qualified and independent
directors with diverse backgrounds and that Board of Directors membership should
be based on a person's ability to contribute to the enhancement of stockholder
value. The Company and the directors believe that Coastal has such a Board of
Directors, that the factors discussed above are meaningful to stockholders, and
that the stockholder proposal is unduly restrictive.
Your Board of Directors has therefore concluded that this proposal is not
in the best interest of the Company or its stockholders, which interests are
best served by permitting the Board of Directors maximum flexibility to seek
highly qualified directors with complimentary skills and backgrounds.
Accordingly, the Board of Directors unanimously recommends a vote AGAINST the
stockholder proposal (Proposal 3).
VOTE REQUIRED FOR APPROVAL
The nominees for director receiving a majority of the votes cast at the
Meeting by stockholders present in person or by proxy and entitled to vote shall
be elected. The proposal to adopt the 1998 Incentive Stock Plan and the
stockholder proposal require the affirmative vote of a majority of the votes
cast attributable to shares present in person or by proxy at the Meeting and
entitled to vote. For purposes of counting the vote, abstentions, broker
non-votes and other votes not cast will not be counted as voted, and the number
of votes of which a majority is required will be reduced by the number of votes
not cast.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's directors and
officers to file reports of ownership and changes in ownership of shares of the
Company's stock with the S.E.C. Directors and officers are required by S.E.C.
regulations to furnish the Company with copies of all Section 16(a) reports they
file. Based on its review of the copies of such reports received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, from January 1 through
December 31, 1997, its directors and officers complied with all applicable
filing requirements, with the following exception. Jerome Katzin sold 2,600
shares of Series H Preferred Stock of the Company on July 12, 1996. These shares
were held in an IRA account and Mr. Katzin did not discover the sale until
February, 1998. A Form 4 report has been filed with the S.E.C. to reflect such
sale.
INDEPENDENT AUDITORS
The Board of Directors of Coastal has designated Deloitte & Touche LLP to
audit the books and accounts of the Company for the year ending December 31,
1998. Deloitte & Touche LLP have been auditors for the Company since 1957. It is
anticipated that representatives of such firm will be present at the Annual
Meeting for the purpose of making a statement, should they desire, and
responding to appropriate stockholder questions.
STOCKHOLDER PROPOSALS
Stockholders who desire to submit proposals to the Company for
consideration for inclusion in the Company's Proxy Statement and form of proxy
for the 1999 Annual Meeting of Stockholders of Coastal must submit such
proposals to the Secretary of the Company by November 27, 1998.
21
<PAGE>
OTHER MATTERS
Management does not intend to present any business at the Annual Meeting
other than as set forth in the Notice of Annual Meeting and knows of no other
business to be presented for action at the Meeting. If, however, any other
business should properly come before the Annual Meeting or any adjournments
thereof, it is intended that all proxies will be voted with respect thereto in
accordance with the best judgment of the persons named in the proxies.
AVAILABILITY OF FORM 10-K ANNUAL REPORT
Copies of Coastal's Annual Report to Stockholders or its Annual Report on
Form 10-K for the year ended December 31, 1997, as filed with the Securities and
Exchange Commission, are available without charge to stockholders upon request
to Mr. Austin M. O'Toole, Senior Vice President and Secretary, The Coastal
Corporation, Coastal Tower, Nine Greenway Plaza, Houston, Texas 77046-0995.
22
<PAGE>
Appendix A
THE COASTAL CORPORATION
1998 INCENTIVE STOCK PLAN
<PAGE>
THE COASTAL CORPORATION
1998 INCENTIVE STOCK PLAN
Table of Contents
1. Purpose.............................................................A-1
2. Administration......................................................A-1
3. Shares Available Under the Plan.....................................A-1
4. Authority to Grant Options, Restricted Stock Grants and
Stock Awards...................................................A-2
5. Eligibility.........................................................A-2
6. Option Price........................................................A-3
7. Duration of Options.................................................A-3
8. Maximum Value of Stock Subject to Options Which are Incentive
Stock Options..................................................A-3
9. Amount Exercisable..................................................A-3
10. Exercise of Options.................................................A-3
11. Transferability of Options to Permitted Transferees.................A-4
12. Termination of Employment or Death of Optionee......................A-5
13. Requirements of Law.................................................A-6
14. No Rights as Shareholder............................................A-6
15. Restricted Stock Grants.............................................A-6
16. Stock Awards........................................................A-7
17. Employment Obligation...............................................A-8
18. Changes in the Company's Capital Structure..........................A-8
19. Substitution Options................................................A-9
20. Amendment or Termination of Plan....................................A-9
21. Forfeitures........................................................A-10
22. Tax Withholding....................................................A-10
23. Written Agreement..................................................A-10
24. Indemnification of Committee.......................................A-10
25. Effective Date of Plan.............................................A-11
(i)
<PAGE>
THE COASTAL CORPORATION
1998 INCENTIVE STOCK PLAN
1. Purpose. This 1998 Incentive Stock Plan (the "Plan") of The Coastal
Corporation (the "Company") for key employees (including officers and employee
directors) of the Company and its subsidiaries, is intended to advance the best
interests of the Company by providing personnel who have substantial
responsibility for the management and growth of the Company and its subsidiaries
with additional incentive by increasing their proprietary interest in the
success of the Company, thereby encouraging them to remain in the employ of the
Company or any of its subsidiaries.
2. Administration. The Plan shall be administered by a committee (the
"Committee") consisting of not less than three members of the Board of Directors
of the Company (the "Board"). Until changed by the Board, the Compensation and
Executive Development Committee of the Board shall serve as the Committee. All
of the members of the Committee shall be "Non-Employee Directors" as defined in
Rule 16b-3 of the Rules and Regulations promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act") or any similar or successor rule and
"outside directors" as described in Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations issued thereunder. The Board
shall have the power to add or remove members of the Committee from time to
time, and to fill vacancies thereon arising by resignation, death, removal, or
otherwise. The Committee shall designate a chairman from among its members, who
shall preside at all of its meetings, and shall designate a secretary, without
regard to whether that person is a member of the Committee, who shall keep the
minutes of the proceedings and all records, documents, and data pertaining to
its administration of the Plan. Meetings shall be held at such times and places
as shall be determined by the Committee. A majority of the members of the
Committee shall constitute a quorum for the transaction of business, and the
vote of a majority of those members present at any meeting shall decide any
question brought before that meeting. In addition, the Committee may take any
action otherwise proper under the Plan by the affirmative vote, taken without a
meeting, of a majority of its members. Any decision or determination reduced to
writing and signed by a majority of the members shall be as effective as if it
had been made by a majority vote at a meeting properly called and held. No
member of the Committee shall be liable for any act or omission of any other
member of the Committee or for any act or omission on his own part, including
but not limited to the exercise of any power or discretion given to him under
the Plan, except those resulting from his own gross negligence or willful
misconduct. All questions of interpretation and application of the Plan,
including those involving options (the "Options"), restricted stock ("Restricted
Stock"), or awards of stock ("Stock Awards") shall be subject to the
determination of the Committee. The actions of the Committee in exercising all
of the rights, powers and authorities set out in this Plan, when performed in
good faith and in its sole judgment, shall be final, conclusive, and binding on
the parties. When appropriate, the Plan shall be administered in order to
qualify certain of the Options granted hereunder as "incentive stock options"
described in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
3. Shares Available Under the Plan. The stock subject to Options,
Restricted Stock Grants and Stock Awards shall be shares of the Company's Common
Stock, $.331/3 par value (the "Common Stock"). The total number of shares of
Common Stock available under the Plan shall not exceed in the aggregate
4,000,000 shares; provided, that the class and aggregate number of shares which
may be subject to grant hereunder shall be subject to adjustment in accordance
with the provisions of Paragraph 18 hereof. Such shares may be treasury shares
or authorized but unissued shares. The maximum aggregate number of shares with
respect to which Options, Restricted Stock, or Stock Awards may be granted or
issued to any employee under the Plan during each year is 100,000 shares.
In the event that any outstanding Option or Restricted Stock for any
reason shall expire or terminate by reason of the death or severance of
employment of the optionee or grantee, the surrender of any Option, the
forfeiture of any Restricted Stock, or any other cause, the shares of Common
Stock allocable to the unexercised portion of that Option or the forfeited
Restricted Stock may again be available under the Plan. If Common Stock is used
by an employee pursuant to Section 10 of this Plan to pay the exercise price of
an Option, only the net number of shares of Common Stock issued by the Company
shall be considered utilized under this Plan. If shares of Stock are withheld by
the Company to pay tax withholding due from the employee, the number of such
shares withheld shall not be considered utilized under this Plan.
<PAGE>
4. Authority to Grant Options, Restricted Stock Grants and Stock
Awards. The Committee in its discretion and subject to the provisions of the
Plan, may grant the following from time to time to eligible employees of the
Company or any of its subsidiaries:
(a) "Incentive" Stock Options. The Committee may grant to an
eligible employee an Option or Options to buy a stated number of shares
of Common Stock under the terms and conditions of the Plan, so that the
Option qualifies as an "incentive stock option" within the meaning of
Section 422 of the Code ("Incentive Stock Option").
(b) "Non-incentive" Stock Options. The Committee may grant to
an eligible employee an Option or Options to buy a stated number of
shares of Common Stock under the terms and conditions of the Plan,
which Option or Options do not constitute "incentive stock options"
within the meaning of Section 422 of the Code ("Non-incentive Stock
Option").
(c) Restricted Stock Grant. The Committee may grant to an
eligible employee shares of Common Stock subject to specified
restrictions on transferability and vesting as provided in the Plan
("Restricted Stock Grant").
(d) Stock Award. The Committee may award and issue shares of
Common Stock under the Plan to an eligible employee ("Stock Award").
Stock Awards may be made in lieu of cash compensation or as additional
compensation. Stock Awards may also be made pursuant to performance
based goals established by the Committee.
Each Option granted by the Committee shall specify whether the Option
constitutes an Incentive Stock Option or Non-incentive Stock Option. Subject
only to any applicable limitations set forth in the Plan, the number of shares
of Common Stock covered by any Option, Restricted Stock Grant, and Stock Award,
shall be determined by the Committee.
5. Eligibility. The individuals who shall be eligible to participate in
the Plan shall be the key employees, including officers and directors if they
are employees, of the Company, or of any parent or subsidiary corporations, as
the Committee shall determine from time to time. However, no eligible employee
who owns stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the corporation employing the employee
or of its parent or subsidiary corporation shall be eligible to receive an
Option which is an Incentive Stock Option unless at the time the Option is
granted, the Option price is at least one hundred ten percent (110%) of the fair
market value of the Common Stock, and the Option by its own terms is not
exercisable after the expiration of five years from the date of grant. No
individual shall be eligible to receive an Option under the Plan while a member
of the Committee.
For the purposes of the preceding paragraph, an employee shall be
considered as owning the stock owned, directly or indirectly, by or for his
brothers and sisters (whether by the whole or half blood), spouse, ancestors,
and lineal descendants; and stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries.
Except as otherwise provided, for all purposes of the Plan relating to
Incentive Stock Options, the term "parent corporation" shall mean any
corporation (other than the Company) in an unbroken chain of corporations ending
with the Company if, on the date of grant of the Incentive Stock Option in
question, each of the corporations other than the Company owns stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain; and the term "subsidiary
corporation" shall mean any corporation in an unbroken chain of corporations,
beginning with the Company if, on the date of grant of the Option in question,
each of the corporations, other than the last corporation in the chain, owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
For all purposes of the Plan relating to Non-incentive Stock Options,
Restricted Stock Grants, and Stock Awards, the terms "parent corporation" and
"subsidiary corporation" as defined above shall be expanded to include, in
addition to the specified entities which are corporations, any unincorporated
trade, business, or partnership in which fifty percent (50%) or more of the
ownership interest in such entity is owned directly or indirectly by the
Company.
A-2
<PAGE>
6. Option Price. The price at which shares may be purchased pursuant to
an Option, whether it is an Incentive Stock Option or a Non-incentive Stock
Option, shall not be less than the fair market value of the shares of Common
Stock on the date the Option is granted. However, the Committee in its
discretion may provide that the price at which shares may be purchased shall be
more than the fair market value of the shares of Common Stock on the date the
Option is granted. The Option price determined under this Paragraph 6 shall be
referred to herein as the "Option Price."
In the case of any eligible employee under the Plan who owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the corporation employing the employee, or of its parent or
subsidiary corporation (described in Paragraph 5), the Option Price at which
shares may be purchased pursuant to any Option which is an Incentive Stock
Option granted under this Plan shall not be less than one hundred ten percent
(110%) of the fair market value of the Common Stock on the date the Option is
granted.
For all purposes of this Plan, the "fair market value" of a share of
Common Stock as of any particular date shall mean the average of the high and
low sales price of a share of Common Stock on that date as reported by the
principal national securities exchange on which the Common Stock is then listed,
if the Common Stock is then listed on a national securities exchange, or the
average of the bid and asked price of a share of Common Stock on that date as
reported in the NASDAQ listing, if the Common Stock is not then listed on a
national securities exchange, provided that if no closing price or quotes are
reported on that date or, if in the discretion of the Committee, another means
of determining the fair market value of a share of Common Stock at that date
shall be necessary or advisable, the Committee may provide for another means of
determining fair market value.
7. Duration of Options. No Option, whether an Incentive Stock Option or
a Non-incentive Stock Option, shall be exercisable after the expiration of ten
(10) years from the date the Option is granted; and the Committee in its
discretion may provide that the Option shall be exercisable throughout the
ten-year period or during any lesser period of time commencing on or after the
date of grant and ending on or before the expiration of the ten-year period.
Provided, in the case of any eligible employee who owns stock possessing more
than ten percent of the total combined voting power of all classes of stock of
the corporation employing the employee or of its parent or subsidiary
corporation (described in Paragraph 5), no Option which is an Incentive Stock
Option shall be exercisable after the expiration of five (5) years from the date
the Option is granted.
8. Maximum Value of Stock Subject to Options Which are Incentive Stock
Options. Notwithstanding any other provisions of the Plan to the contrary, the
aggregate fair market value (determined as of the date the Option is granted) of
the Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by the optionee in any calendar year (under this Plan and any
other incentive stock option plan(s) of the Company and any parent or subsidiary
corporation thereof), shall not exceed $100,000. In making this determination,
Options shall be taken into account in the order in which they were granted.
9. Amount Exercisable. Unless otherwise provided by the Committee in an
Option Agreement, each option may be exercised, so long as it is valid and
outstanding, at a cumulative rate of 15% of the Option shares on the first
anniversary of the date the Option is granted; 20% of the Option shares on each
of the second, third and fourth anniversaries of the date the Option is granted;
and 25% of the Option shares on the fifth anniversary of the date the Option is
granted, or from time to time in part or as a whole, subject to any limitations
with respect to the number of shares for which the Option may be exercised at a
particular time and to such other conditions as the Committee in its discretion
may specify upon granting the Option. However, the Committee in its absolute
discretion may accelerate the time at which any outstanding Option may be
exercised.
10. Exercise of Options. An optionee may exercise an Option by
delivering to the Company a written notice stating (i) that the optionee wishes
to exercise the Option on the date notice is delivered, (ii) the number of
shares of Common Stock with respect to which the Option is to be exercised,
(iii) the address to which the certificate representing the shares of Common
Stock should be mailed, and (iv) the social security number of the optionee. In
order to be effective, the written notice shall be accompanied by (i) payment of
the Option Price of the shares of Common Stock and (ii) payment of an amount of
money necessary to satisfy the withholding tax liability, if any, that may
result from the exercise of the Option. Each payment shall be made by cash or by
check drawn on a national banking association and payable to the order of the
Company in United States dollars.
A-3
<PAGE>
At the time of receipt by the Company of written notice of exercise,
the optionee may deliver to the Company, to the extent permitted by law, in
payment of the Option Price of the shares of Common Stock with respect to which
the Option is exercised, (x) certificates registered in the name of the optionee
that represent a number of shares of Common Stock legally and beneficially owned
by the optionee (free of all liens, claims and encumbrances of every kind) and
having a fair market value on the date of receipt by the Company of written
notice that is not greater than the Option Price of the shares of Common Stock
with respect to which the Option is to be exercised, the certificates to be
accompanied by stock powers duly endorsed in blank by the record holder of the
shares of Common Stock represented by certificates (or in lieu of such
certificates, other arrangements for the transfer of shares to the Company which
are satisfactory to the Company), and cash or a check for the balance and (y) if
the Option Price of the shares of Common Stock with respect to which such Option
is to be exercised exceeds the fair market value, a check drawn on a national
banking association and payable to the order of the Company in an amount, in
United States dollars, equal to the amount of the excess plus (z) the amount of
money, in a form acceptable to the Committee, necessary to satisfy the
withholding tax liability, if any, that may result from the exercise of the
Option.
Notwithstanding the provisions of the immediately preceding sentence,
the Committee, in its sole discretion, may refuse to accept shares of Common
Stock in payment of the Option Price of the shares of Common Stock with respect
to which the Option is to be exercised and, in that event, any certificates
representing shares of Common Stock that were received by the Company with
written notice shall be returned to the optionee, together with notice by the
Company to the optionee of the refusal of the Committee to accept the shares of
Common Stock. The Company, upon approval of the Committee and in its sole
discretion, following the request of the optionee, may retain shares of Common
Stock which would otherwise be issued upon exercise of an Option to satisfy the
withholding tax liability that may result from the exercise of an Option. In
this case, the retained shares shall be valued at their then fair market value.
If, at the expiration of seven business days after the delivery to optionee of
written notice from the Company that it will not accept shares of Common Stock
in payment of the exercise price, the optionee shall not have delivered to the
Company a check or money order drawn on a national banking association and
payable to the order of the Company in an amount, in United States dollars,
equal to the Option Price of the shares of Common Stock with respect to which
such Option is to be exercised, the written notice from the optionee to the
Company shall be ineffective to exercise the Option.
The Committee may permit an employee to elect to pay the exercise price
upon exercise of an Option by authorizing a third party (broker) to sell all (or
a portion) of the shares of Stock acquired upon exercise of the Option and remit
to the Company a sufficient portion of the sale proceeds to pay the exercise
price and any applicable tax withholding resulting from such exercise.
As promptly as practicable after the receipt by the Company of (i) the
written notice from the optionee, (ii) payment, in the form required by the
foregoing provisions of this Paragraph of the Option Price of the shares of
Common Stock with respect to which the Option is to be exercised, and (iii)
payment, in the form required by the foregoing provisions of this Paragraph of
an amount of money necessary to satisfy any withholding tax liability that may
result from the exercise of the Option, the Company shall deliver to the
optionee a certificate representing the number of shares of Common Stock with
respect to which the Option has been exercised, reduced to the extent applicable
by the number of shares retained by the Company as provided above to pay any
required withholding tax liability, the certificate to be registered in the name
of the optionee, provided that delivery shall be considered to have been made
when the certificate shall have been mailed, postage prepaid, to the optionee at
the address specified for that purpose in written notice from the optionee to
the Company.
11. Transferability of Options to Permitted Transferees.
(a) The Committee may, in its discretion, permit an employee
to transfer all or any portion of a Non-incentive Stock Option, or
authorize all or a portion of any Non-incentive Stock Option to be
granted to an employee to be on terms which permit transfer by such
employee, to (i) his spouse, children or grandchildren ("Immediate
Family Members"), (ii) a trust or trusts for the exclusive benefit of
such Immediate Family Members, or (iii) a partnership in which such
Immediate Family Members are the only partners (collectively,
"Permitted Transferees"); provided that (x) there may be no
consideration for any such transfer and (y) subsequent transfers of
Options transferred as provided above shall be prohibited except
subsequent transfers back to the original employee-holder of the
Non-incentive Stock Option and transfers to other Permitted Transferees
of the original employee-holder. Options evidencing Non-incentive Stock
Options with respect to which such
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transferability is authorized at the time of grant must be approved by
the Committee, and must expressly provide for transferability in a
manner consistent with this Subsection 11(a)
(b) Other Transfers. Except as expressly permitted by
subsection 11(a), Options requiring exercise shall not be transferable
other than by will or the laws of descent and distribution or pursuant
to domestic relations orders.
(c) Effect of Transfer. Following the transfer of any
Non-incentive Stock Option as contemplated by Subsection 11(a) and
11(b), (i) such Option shall continue to be subject to the same terms
and conditions as were applicable immediately prior to transfer,
provided that the term "employee" shall be deemed to refer to the
Permitted Transferee or the estate or heirs of a deceased employee, as
applicable, to the extent appropriate to enable the holder to exercise
the transferred Option in accordance with the terms of the Plan and
applicable law and (ii) the provisions of the Plan shall continue to be
applied with respect to the original employee and, following the
occurrence of any such events described therein the Options shall be
exercisable by the Permitted Transferee or the estate or heirs of a
deceased holder, as applicable, only to the extent and for the periods
specified.
(d) Procedures and Restrictions. Any employee desiring to
transfer a Non-incentive Stock Option as permitted under Subsection
11(a) shall make application therefor to the Committee and shall comply
with such other requirements as the Committee may require to assure
compliance with all applicable securities laws. The Committee shall not
give permission for such a transfer if (i) it would give rise to
short-swing liability under Section 16(b) of the Exchange Act, or (ii)
it may not be made in compliance with all applicable federal, state and
foreign securities laws.
(e) Registration. To the extent the issuance to any Permitted
Transferee of any shares of Stock issuable pursuant to Non-incentive
Stock Options transferred as permitted in this Section is not
registered pursuant to the effective registration statement of the
Company generally covering the shares to be issued pursuant to the Plan
to initial holders of Options, the Company shall not have any
obligation to register the issuance of any such shares of stock to any
such transferee.
12. Termination of Employment or Death of Optionee. Except as may be
otherwise expressly provided herein, each Option, to the extent it shall not
previously have been exercised, shall terminate on the earlier of the date of
the expiration of the Option or one day less than three months after the date of
the severance of the employment relationship between the Company and the
optionee, whether with or without cause, for any reason other than the death or
disability of the optionee, during which period the optionee shall be entitled
to exercise the Option in respect of the number of shares that the optionee
would have been entitled to purchase had the optionee exercised the Option on
the date of severance of employment. Whether authorized leave of absence, or
absence on military or government service, shall constitute severance of the
employment relationship between the Company and the optionee shall be determined
by the Committee at the time thereof.
In the event of severance because of the disability of the holder of
any Option while in the employ of the Company and before the date of expiration
of the Option, the Option shall terminate on the earlier of the date of
expiration or one day less than one year following the date of severance because
of disability, during which period the optionee shall be entitled to exercise
the Option in respect of the number of shares that the optionee would have been
entitled to purchase had the optionee exercised the Option on the date of
severance because of disability.
In the event of the death of the holder of any Option while in the
employ of the Company and before the date of expiration of the Option, the
Option shall terminate on the earlier of the date of expiration or one day less
than one year following the date of death. After the death of the optionee, the
executors, administrators or any person or persons to whom the Option was
transferred by will or by the laws of descent and distribution, shall have the
right, at any time prior to the expiration of an Option, to exercise the Option
in whole or in part, without regard to any limitation the optionee would have
been subject to had he exercised the Option on the day of his death while in
employment.
An employment relationship between the Company and the optionee shall
be deemed to exist during any period in which the optionee is employed by the
Company, by any parent or subsidiary corporation, by a corporation issuing or
assuming a common stock option in a transaction to which Section 424(a) of the
Code applies, or by a parent or
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subsidiary corporation of the corporation issuing or assuming a stock option
(and for this purpose, the phrase "corporation issuing or assuming a stock
option" shall be substituted for the word "Company" in the definitions of parent
and subsidiary corporations specified in Paragraph 5 of this Plan, and the
parent-subsidiary relationship shall be determined at the time of the corporate
action described in Section 424(a) of the Code).
13. Requirements of Law. The Company shall not be required to sell or
issue any shares under any Option or Stock Award if the issuance of those shares
would constitute a violation by the optionee, recipient, or the Company of any
provisions of any law or regulation of any governmental authority. Each Option
and Stock Award granted under the Plan shall be subject to the requirements
that, if at any time the Board or the Committee shall determine that the
listing, registration or qualification of the shares subject thereto upon any
securities exchange or under any state or federal law of the United States or of
any other country or governmental subdivision thereof, or the consent or
approval of any governmental regulatory body, or investment or other
representations, are necessary or desirable in connection with the issue or
purchase of shares subject thereto, no Option may be exercised in whole or in
part, or Stock Award issued, unless the listing, registration, qualification,
consent, approval or representations shall have been effected or obtained free
of any conditions not acceptable to the Board. If required at any time by the
Board or the Committee, an Option may not be exercised or a Stock Award issued
until the optionee or recipient has delivered an investment letter to the
Company. In addition, specifically in connection with the Securities Act of 1933
(as now in effect or hereafter amended) (the "1933 Act"), upon exercise of any
Option or entitlement to a Stock Award, the Company shall not be required to
issue the underlying shares unless the Committee has received evidence
satisfactory to it to the effect that the holder of the Option or Stock Award
will not transfer the shares except pursuant to a registration statement in
effect under the 1933 Act or unless an opinion of counsel satisfactory to the
Committee has been received by the Company to the effect that registration is
not required. Any determination in this connection by the Committee shall be
final, binding and conclusive. In the event the shares issuable on exercise of
an Option or pursuant to a Stock Award are not registered under the 1933 Act,
the Company may imprint on the certificate for the shares the following legend
or any other legend which counsel for the Company considers necessary or
advisable to comply with the 1933 Act:
The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any state and may not be sold or transferred except upon such
registration or upon receipt by the Corporation of an opinion of
counsel satisfactory to the Corporation, in form and substance
satisfactory to the Corporation, that registration is not required for
such sale or transfer.
The Company may, but shall not be obligated to, register any securities covered
hereby pursuant to the 1933 Act (as now in effect or as hereafter amended) and,
in the event any shares are registered, the Company may remove any legend on
certificates representing these shares. The Company shall not be obligated to
take any other affirmative action in order to cause the exercise of an Option or
the issuance of shares pursuant thereto or pursuant to a Stock Award to comply
with any law or regulation of any governmental authority.
14. No Rights as Shareholder. No optionee shall have rights as a
shareholder with respect to shares covered by an Option until the date of
issuance of a stock certificate for the shares; and, except as otherwise
provided in Paragraph 18 hereof, no adjustment for dividends, or otherwise,
shall be made if the record date therefor is prior to the date of issuance of
the certificate.
15. Restricted Stock Grants. The Committee may issue shares of Common
Stock to an eligible employee subject to the terms of a Restricted Stock Grant.
The shares may be issued for no payment by the employee or for a payment below
the fair market value on the date of grant. Restricted Stock shall be subject to
restrictions as to sale or other transfer and generally will be subject to
vesting over a period of time specified in the Restricted Stock Grant. The
Committee shall determine the number of shares and the price, if any, at which
shares of Restricted Stock will be granted.
Restricted Stock shall be subject to the following terms and conditions
as determined by the Committee, including without limitation any or all of the
following:
(a) a prohibition against the sale, transfer, pledge or other
encumbrance of the shares of Restricted Stock, such prohibition to
lapse (i) at such time or times as the Committee shall determine
(whether in annual or more frequent installments, at the time of the
death, disability or retirement of the holder of such shares, or
otherwise);
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(b) a requirement that the holder of shares of Restricted
Stock forfeit, or in the case of shares sold to a Participant, resell
back to the Company at his cost, all or a part of such shares in the
event of termination of the holder's employment during any period in
which the shares remain subject to restrictions;
(c) a prohibition against employment of the holder of
Restricted Stock by any competitor of the Company or its affiliates, or
against such holder's dissemination of any secret or confidential
information belonging to the Company or a subsidiary of the Company;
(d) unless stated otherwise in the Restricted Stock Grant, if
restrictions remain at the time of severance of employment with the
Company or a parent or subsidiary corporation, the Restricted Stock
shall be forfeited; provided however, if severance of employment is by
reason of disability or death, the restrictions on the shares shall
lapse and the grantee or his heirs or estate shall be 100% vested in
the shares subject to the Restricted Stock Grant.
No holder of Restricted Stock shall exercise the election authorized by
Section 83(b) of the Code without the express written consent of the Committee
to this election. Any grantee of Restricted Stock making this election without
the consent of the Committee shall forfeit all shares of Restricted Stock
granted to him.
Shares of Restricted Stock shall be registered in the name of the
grantee and deposited, together with a stock power endorsed in blank, with the
Company. Each such certificate shall bear a legend in substantially the
following form:
The transferability of this certificate and the shares of Common Stock
represented by it are subject to the terms and conditions (including
conditions of forfeiture) contained in The Coastal Corporation 1998
Incentive Stock Plan, and an agreement entered into between the
registered owner and the Company. A copy of the Plan and agreement is
on file in the office of the Secretary of the Company.
At the end of any time period during which the shares of Restricted
Stock are subject to forfeiture and restrictions on transfer, the shares will be
delivered free of all restrictions to the grantee or to the grantee's legal
representative, beneficiary or heir; provided the certificate shall bear such
legend, if any, as the Committee determines is reasonably required by applicable
law.
Subject to the terms and conditions of the Plan, each grantee receiving
Restricted Stock shall have all the rights of a stockholder with respect to the
shares of Common Stock during any period in which such shares are subject to
forfeiture and restrictions on transfer, including without limitation, the right
to vote such shares. By accepting a Restricted Stock Grant, the grantee agrees
to remit when due any federal and state income and employment taxes required to
be withheld. Dividends paid in cash or property other than stock with respect to
shares of Restricted Stock shall be paid to the grantee currently.
16. Stock Awards.
(a) The Committee may grant Common Stock to an eligible
employee under the Plan, without any payment by the employee, in lieu
of certain cash compensation or as additional compensation. The Stock
Award is subject to appropriate tax withholding. After compliance with
the tax withholding requirements, a stock certificate shall be issued
to the employee recipient of the Stock Award. The certificate shall
bear such legend, if any, as the Committee determines is reasonably
required by applicable law. Prior to receipt of a Stock Award, the
employee must comply with appropriate requests of the Committee to
assure compliance with all relevant laws.
(b) The Committee may award shares of Common Stock, without
any payment for such shares, to designated employees if specified
performance goals established by the Committee are satisfied. The terms
and provisions herein relating to performance based Stock Awards are
intended to satisfy Section 162(m) of the Code and regulations issued
thereunder. The designation of an employee eligible for a specific
performance based Stock Award shall be made by the Committee in writing
prior to the beginning of the 12-month period for which the performance
is measured. The Committee shall establish the number of shares to be
issued to a designated employee if the
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performance goal is met; provided the maximum number of shares which
may be issued to any one employee per year under this Paragraph 16 is
100,000 shares. The Committee must certify in writing that a
performance goal has been met prior to issuance of any certificate for
a performance based Stock Award to any employee. If the Committee
certifies the entitlement of an employee to the performance based Stock
Award, the certificate shall be issued to the employee as soon as
administratively practicable, and subject to other applicable
provisions of the Plan, including but not limited to, all legal
requirements and tax withholding.
Performance goals determined by the Committee may be based on
specified increases in net profits, stock price, Company or segment
sales, market share, earnings per share, and/or return on equity.
The employees eligible for a performance based Stock Award are
the senior officers (i.e., Vice President, Secretary, Treasurer, and
above) of the Company and its subsidiaries.
17. Employment Obligation. The granting of any Option, Restricted Stock
Grant, or Stock Award shall not impose upon the Company any obligation to employ
or continue to employ any optionee or grantee; and the right of the Company to
terminate the employment of any officer or other employee shall not be
diminished or affected by reason of the fact that an Option, Restricted Stock
Grant or Stock Award, has been granted to him.
18. Changes in the Company's Capital Structure. The existence of
outstanding Options, Restricted Stock Grants, and Stock Awards shall not affect
in any way the right or power of the Company or its shareholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or
other capital readjustment, the payment of a dividend in capital stock or other
equity securities of the Company on, its Common Stock, or other increase or
reduction of the number of shares of the Common Stock outstanding, without
receiving consideration therefor in money, services, or property, or the
reclassification of its Common Stock, in whole or in part, into other equity
securities of the Company, then (a) the number, class and per share price of
shares of Common Stock subject to outstanding Options, Restricted Stock Grants,
and Stock Awards hereunder shall be appropriately adjusted (or in the case of
the issuance of other equity securities as a dividend on, or in a
reclassification of, the Common Stock, the Options, Restricted Stock Grants, and
Stock Awards shall extend to such other securities) in a manner so as to entitle
an optionee or a grantee to receive, upon exercise of an Option, for the same
aggregate cash consideration, and for the vesting of Restricted Stock, and award
of pending performance based Stock Awards, the same total number and class or
classes of shares (or in the case of a dividend of, or reclassification into,
other equity securities, those other securities) he would have held after
adjustment if he had exercised his Option, or the Restricted Stock was vested in
full, or the Stock Award was earned, immediately prior to the event requiring
the adjustment, or, if applicable, the record date for determining shareholders
to be affected by the adjustment; and (b) the number and class of shares then
reserved for issuance under the Plan (or in the case of a dividend of, or
reclassification into, other equity securities, those other securities) shall be
adjusted by substituting for the total number and class of shares of stock then
reserved, the number and class or classes of shares of stock (or in the case of
a dividend of, or reclassification into, other equity securities, those other
securities) that would have been received by the owner of an equal number of
outstanding shares of Common Stock as a result of the event requiring the
adjustment. Comparable rights shall accrue to each optionee or employee in the
event of successive subdivisions, consolidations, capital adjustments, dividends
or reclassifications of the character described above.
After a merger of one or more corporations into the Company, after any
consolidation of the Company and any one or more corporations, or after any
other corporate transaction described in Section 424(a) of the Code in which the
Company shall be the surviving corporation, each optionee, at no additional
cost, shall be entitled to receive (subject to any required action by
stockholders), upon any exercise of his Option, in lieu of the number of shares
as to which the Option shall then be exercisable, the number and class of shares
of stock or other securities to which the holder would have been entitled
pursuant to the terms of the agreement of merger or consolidation, if,
immediately prior to such merger or consolidation, such holder had been the
holder of a number of shares of Common Stock equal to the number of shares
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as to which the Option shall then be exercised and, if as a result of the
merger, consolidation or other transaction, the holders of Common Stock are not
entitled to receive any shares of Common Stock pursuant to the terms thereof,
each optionee, at no additional cost, shall be entitled to receive, upon
exercise of his Option, other assets and property, including cash, to which he
would have been entitled if at the time of such merger, consolidation or other
transaction he had been the holder of the number of shares of Common Stock equal
to the number of shares as to which the Option shall then be exercised.
Comparable rights shall accrue to each optionee in the event of successive
mergers or consolidations of the character described above. Appropriate
adjustments shall also be made to shares of Restricted Stock and to pending
Stock Awards.
If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation, or if
the Company is liquidated, or sells or otherwise disposes of substantially all
its assets to another corporation while unexercised Options remain outstanding
under the Plan, (i) subject to the provisions of clause (iii) below, after the
effective date of such merger, consolidation or sale, as the case may be, each
holder of an outstanding Option shall be entitled, upon exercise of such Option,
to receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of the merger, consolidation or sale; (ii) the Board may waive any
limitations set forth in or imposed pursuant to Paragraph 9 hereof so that all
Options from and after a date prior to the effective date of such merger,
consolidation, liquidation or sale, as the case may be, specified by the Board
shall be exercisable in full; and (iii) all outstanding Options may be canceled
by the Board as of the effective date of any such merger, consolidation,
liquidation or sale provided that (x) notice of such cancellation shall be given
to each holder of an Option and (y) each holder of an Option shall have the
right to exercise such Option in full (without regard to any limitations set
forth in or imposed pursuant to Paragraph 9 hereof) during a 30-day period
preceding the effective date of such merger, consolidation, liquidation, sale or
acquisition.
Except as hereinbefore expressly provided, the issue by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, for cash or property, or for labor or services either upon direct
sale or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to outstanding Options, Restricted Stock Grants, or Stock Awards.
19. Substitution Options. Options may be granted under the Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become employees of the Company, or whose employer
is about to become a parent or subsidiary corporation of the Company, as a
result of the merger or consolidation of the Company with another corporation,
or the acquisition by the Company of substantially all the assets of another
corporation, or the acquisition by the Company of at least 50% of the issued and
outstanding stock of another corporation as the result of which it becomes a
subsidiary of the Company, conditioned in the case of an Incentive Stock Option
upon the employee being an employee of the Company or a parent or subsidiary
corporation of the Company. The terms and conditions of the substitute Options
granted may vary from the terms and conditions set forth in the Plan to the
extent the Board at the time of grant may deem appropriate to conform, in whole
or in part, to the provisions of the stock options in substitution for which
they are granted, but with respect to stock options which are incentive stock
options, no variation shall be such as to affect the status of any substitute
option as an incentive stock option under Section 422 of the Code.
20. Amendment or Termination of Plan. The Board may modify, revise or
terminate the Plan at any time and from time to time; provided, however, that
without the further approval by the affirmative vote of a majority of the votes
cast attributable to shares present in person or by proxy and entitled to vote
at a meeting of shareholders or by written consent, or if the provisions of the
corporate charter, bylaws or applicable state law prescribes a greater degree of
shareholder approval for this action, without the degree of shareholder approval
thus required, the Board may not (a) change the aggregate number of shares which
may be issued under Options, Restricted Stock Grants, and Stock Awards pursuant
to the provisions of the Plan, (b) extend the term during which an Option,
Restricted Stock Grant, or Stock Award may be exercised or granted or the
termination date of the Plan, (c) change the class of employees eligible to
receive Options, Restricted Stock Grants, or Stock Awards under the Plan, or (d)
reduce the Option Price; unless, in each such case, the Board shall obtain an
opinion of legal counsel to the effect that shareholder approval of the
amendment is not required (i) by law, (ii) by the applicable rules and
regulations of, or any agreement with, any national securities exchange on which
the Common Stock is then listed or if the Common Stock is not so listed, the
rules and regulations,
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or any agreement with, the National Association of Securities Dealers, Inc., and
(iii) in order to make available to the optionee with respect to any option
granted under the Plan, the benefits of Rule 16b-3 of the Rules and Regulations
under the Exchange Act, or any similar or successor rule. In addition, the Board
shall have the power to make changes in the Plan and in the regulations and
administrative provisions hereunder or in any outstanding Option as in the
opinion of counsel for the Company may be necessary or appropriate from time to
time to enable any Option granted pursuant to the Plan to qualify as an
Incentive Stock Option under Section 422 of the Code, and the regulations which
may be issued thereunder as in existence from time to time.
21. Forfeitures. Notwithstanding any other provisions of this Plan, if
the Committee finds by a majority vote after full consideration of the facts
that the employee, before or after termination of his employment with the
Company or its subsidiaries for any reason (a) committed or engaged in fraud,
embezzlement, theft, commission of a felony, or proven dishonesty in the course
of his employment by the Company or its subsidiaries, which conduct damaged the
Company or its subsidiaries, or disclosed trade secrets of the Company or its
subsidiaries, or (b) participated, engaged in or had a financial or other
interest, whether as an employee, officer, director, consultant, contractor,
shareholder, owner, or otherwise, in any commercial endeavor in the United
States which is competitive with the business of the Company or its subsidiaries
without the written consent of the Company or its subsidiaries, the employee
shall forfeit all outstanding Options and Restricted Stock which is not fully
vested, including all rights related to such matters, and including all
unexercised Options, exercised Options, and any performance based Stock Awards
to which he may be entitled, and other elections pursuant to which the Company
has not yet delivered a stock certificate. Clause (b) shall not be deemed to
have been violated solely by reason of the employee's ownership of stock or
securities of any publicly owned corporation, if that ownership does not result
in effective control of the corporation.
The decision of the Committee as to the cause of the employee's
discharge, the damage done to the Company or its subsidiaries, and the extent of
the employee's competitive activity shall be final. No decision of the
Committee, however, shall affect the finality of the discharge of the employee
by the Company or its subsidiaries in any manner. To provide the Company with an
opportunity to enforce this Section, no certificate for Stock may be issued
under this Plan without the certification by the Committee that no action
forbidden by this provision has been raised for their determination.
22. Tax Withholding. The Company or any parent or subsidiary shall be
entitled to deduct from other compensation payable to each employee any sums
required by federal, state, or local tax law to be withheld with respect to the
grant, exercise, or vesting, as appropriate, of an Option, Restricted Stock
Grant, or Stock Award. In the alternative, the Company may require the employee
(or other person exercising the Option, or receiving the Restricted Stock or
Stock Award) to pay the sum directly to the employer corporation. If the
employee (or other person) is required to pay the sum directly, payment in cash
or by check of such sums for taxes shall be delivered within five (5) days after
the date of exercise. The Company shall have no obligation upon exercise of any
Option, vesting of Restricted Stock or issuance of a Stock Award until payment
has been received, unless withholding (or offset against a cash payment) as of
or prior to the date of exercise is sufficient to cover all sums due with
respect to that exercise or vesting. The Company shall not be obligated to
advise an employee of the existence of the tax or the amount which the employer
corporation will be required to withhold.
23. Written Agreement. Each Option, Restricted Stock Grant, and Stock
Award granted hereunder shall be embodied in a written agreement, which shall be
subject to the terms and conditions prescribed herein, and shall be signed by
the optionee or grantee and by an appropriate officer of the Company for and in
the name and on behalf of the Company. Each agreement shall contain other
provisions which the Committee in its discretion shall deem advisable.
24. Indemnification of Committee. The Company shall, to the fullest
extent provided by law, indemnify each present and future member of the
Committee against, and each member of the Committee shall be entitled without
further act on his part to indemnity from the Company for all expenses
(including the amount of judgments and the amount of approved settlements made
with a view to the curtailment of costs of litigation, other than amounts paid
to the Company itself) reasonably incurred by him in connection with or arising
out of any action, suit or proceeding in which he may be involved by reason of
his being or having been a member of the Committee, whether or not he continues
to be a member of the Committee at the time of incurring such expenses;
provided, however, that such indemnity shall not include any expenses incurred
by any such member of the Committee (a) in respect of matters as to which he
shall be finally adjudged in any such action, suit or proceeding to have been
guilty of gross negligence or willful misconduct in the performance of his duty
as such member of the Committee, or (b) in respect of any matter in
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which any settlement is effected, to an amount in excess of the amount approved
by the Company on the advice of its legal counsel; and provided further, that no
right of indemnification under the provisions set forth herein shall be
available to or enforceable by any such member of the Committee unless, within
sixty (60) days after institution of any such action, suit or proceeding, he
shall have offered the Company, in writing, the opportunity to handle and defend
same at its own expense. The foregoing right of indemnification shall inure to
the benefit of the heirs, executors or administrators of each member of the
Committee and shall be in addition to all other rights to which the member of
the Committee may be entitled as a matter of law, contract, or otherwise.
25. Effective Date of Plan. The Plan shall become effective and shall
be deemed to have been adopted on March 19, 1998, if within one year of that
date it shall have been approved by the affirmative vote of a majority of the
votes cast attributable to shares present in person or by proxy and entitled to
vote at a meeting of shareholders, or if the provisions of the corporate
charter, bylaws or applicable state law prescribes a greater degree of
shareholder approval for this action, the approval by the holders of that
percentage, at a meeting of shareholders. No Option, Restricted Stock Grant, or
Stock Award shall be granted pursuant to the Plan after March 18, 2008.
A-11
<PAGE>
PROXY
THE COASTAL CORPORATION
Proxy solicited by the Board of Directors for the May 7, 1998 Annual Meeting
The undersigned hereby appoints O. S. WYATT, JR., HAROLD BURROW and DAVID A.
ARLEDGE, and each of them, proxies, with power of substitution, to vote all
stock owned by the undersigned of THE COASTAL CORPORATION at the Annual Meeting
of its Stockholders to be held on May 7, 1998, and at any and all adjournments
thereof, hereby revoking any proxy heretofore given.
Please sign, date and return your Proxy
promptly in the enclosed envelope. Sign
exactly as name(s) appear(s) hereon.
Joint owners should each sign. When
signing in a fiduciary capacity, please
give full title.
-----------------------------
Date
--------------------------------------------
Signature(s)
- CONTINUED ON REVERSE SIDE -
- -------------------------------------------------------------------------------
PLEASE DETACH, SIGN, DATE AND MAIL YOUR PROXY
YOUR VOTE IS IMPORTANT
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AT THE
ANNUAL MEETING OF STOCKHOLDERS AND SAVE THE EXPENSE
OF A SECOND MAILING, WOULD YOU PLEASE RETURN YOUR
PROXY PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
PROXY
This Proxy will be voted as directed, but if not otherwise directed, it will be
voted FOR all nominees named below, FOR Proposal 2 and AGAINST Proposal 3. The
class of stock voted by this proxy is shown on the reverse side, and the shares
will be voted (Common Stock and Preferred Stock - one vote per share, and Class
A Common Stock - one hundred votes per share) as follows:
Directors (1) Elect five Class III directors to terms of office expiring at the
Recommend 2001 Annual Meeting of Stockholders as follows:
Election of two directors by holders of Common and Preferred
Stock voting together as a class:
James F. Cordes and Kenneth O. Johnson
Election of three directors by holders of Common, Class A Common
and Preferred Stock voting together as a class:
Roy L. Gates, J. Carleton MacNeil, Jr. and Thomas R. McDade
FOR - FOR [ ] all persons named above WITHHOLD [ ] authority to
except, authority withheld as to vote for all persons named
the following person(s), if any. above.
---------------------------------
FOR - (2) FOR [ ] AGAINST [ ] ABSTAIN [ ] Proposal to adopt the 1998
Incentive Stock Plan
AGAINST - (3) FOR [ ] AGAINST [ ] ABSTAIN [ ] stockholder proposal described
in the accompanying Proxy
Statement.
(4) In their discretion on such other matters as may properly come
before the meeting.
- -------------------------------------------------------------------------------
PLEASE DETACH, SIGN AND DATE (ON REVERSE) AND MAIL YOUR PROXY
YOUR VOTE IS IMPORTANT
TO SECURE THE LARGEST POSSIBLE REPRESENTATION AT THE
ANNUAL MEETING OF STOCKHOLDERS AND SAVE THE EXPENSE
OF A SECOND MAILING, WOULD YOU PLEASE RETURN YOUR
PROXY PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
THE COASTAL CORPORATION
Voting Instructions for the May 7, 1998 Annual Meeting
The undersigned hereby instructs Chase Bank of Texas, N. A., the Plan Trustee of
the securities identified below, to vote all stock beneficially owned by the
undersigned in such plan of THE COASTAL CORPORATION at the Annual Meeting of
Stockholders to be held on May 7, 1998, and at any and all adjournments thereof,
hereby revoking any instructions heretofore given.
Please sign, date and return your INSTRUCTIONS
promptly in the enclosed envelope. Sign exactly
as name appears hereon. When signing in a
fiduciary capacity, please give full title.
-----------------------------
Date
--------------------------------------------
Signature(s)
- CONTINUED ON REVERSE SIDE -
- -------------------------------------------------------------------------------
PLEASE DETACH, SIGN, DATE AND MAIL YOUR INSTRUCTIONS
YOUR INSTRUCTIONS ARE IMPORTANT
To secure the largest possible representation at the
Annual Meeting of Stockholders and save the expense
of a second mailing, would you please return your
Instructions promptly in the enclosed envelope which
requires no postage if mailed in the United States.
<PAGE>
These INSTRUCTIONS will be followed as directed, but if not otherwise directed,
the shares will be voted FOR all nominees named below, FOR Proposal 2 and
AGAINST Proposal 3.
Directors (1) Elect five Class III directors to terms of office expiring at the
Recommend 2001 Annual Meeting of Stockholders as follows:
Election of two directors by holders of Common and Preferred
Stock voting together as a class:
James F. Cordes and Kenneth O. Johnson
Election of three directors by holders of Common, Class A Common
and Preferred Stock voting together as a class:
Roy L. Gates, J. Carleton MacNeil and Thomas R. McDade
FOR - FOR [ ] all persons named above WITHHOLD [ ] authority to
except, authority withheld as to vote for all persons named
the following person(s), if any. above.
---------------------------------
FOR - (2) FOR [ ] AGAINST [ ] ABSTAIN [ ] Proposal to adopt the 1998
Incentive Stock Plan
AGAINST - (3) FOR [ ] AGAINST [ ] ABSTAIN [ ] stockholder proposal described
in the accompanying Proxy
Statement.
(4) In their discretion on such other matters as may properly
come before the meeting.
- -------------------------------------------------------------------------------
PLEASE DETACH, SIGN AND DATE (ON REVERSE) AND MAIL YOUR INSTRUCTIONS
YOUR INSTRUCTIONS ARE IMPORTANT
To secure the largest possible representation at the
Annual Meeting of Stockholders and save the expense
of a second mailing, would you please return your
Instructions promptly in the enclosed envelope which
requires no postage if mailed in the United States.
