UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- -------------------
Commission file number 1-8483
UNOCAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3825062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2141 ROSECRANS AVENUE, SUITE 4000, EL SEGUNDO, CALIFORNIA 90245
(Address of principal executive offices)
(Zip Code)
(310) 726-7600
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Number of shares of Common Stock, $1 par value, outstanding as of July 31,
1998: 241,359,987
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<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED EARNINGS UNOCAL CORPORATION
(Unaudited)
For the Three Months For the Six Months
Ended June 30 Ended June 30
----------------------------------------------------
Millions of dollars except per share amounts 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues
<S> <C> <C> <C> <C>
Sales and operating revenues ............................................. $ 1,226 $ 1,494 $ 2,397 $ 2,902
Gain on sales of assets and other revenues ............................... 171 160 207 208
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues ..................................................... 1,397 1,654 2,604 3,110
Costs and other deductions
Crude oil and product purchases .......................................... 515 633 931 1,092
Operating expense ........................................................ 358 365 689 653
Selling, administrative and general expense .............................. 15 27 35 55
Depreciation, depletion and amortization ................................. 199 244 380 455
Dry hole costs ........................................................... 42 27 92 43
Exploration expense ...................................................... 39 36 86 64
Interest expense ......................................................... 42 49 83 110
Property and other operating taxes ....................................... 15 16 31 36
Distributions on convertible preferred
securities of subsidiary trust ........................................ 8 8 16 16
- ------------------------------------------------------------------------------------------------------------------------------------
Total costs and other deductions ................................... 1,233 1,405 2,343 2,524
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations
before income taxes ................................................... 164 249 261 586
Income taxes ............................................................. 59 93 138 242
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations
before discontinued operations and extraordinary item ................ $ 105 $ 156 $ 123 $ 344
Discontinued operations
Loss on disposal (net of tax) ......................................... -- -- -- (44)
Extraordinary item
Early extinguishment of debt (net of tax) ............................. -- (38) -- (38)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings applicable to common stock ............................ $ 105 $ 118 $ 123 $ 262
====================================================
Basic earnings per share of common stock (a)
Continuing operations ............................................. $ 0.43 $ 0.62 $ 0.51 $ 1.38
Discontinued operations ........................................... -- -- -- (0.18)
Extraordinary item ................................................ -- (0.15) -- (0.15)
----------------------------------------------------
Net earnings ...................................................... $ 0.43 $ 0.47 $ 0.51 $ 1.05
----------------------------------------------------
Diluted earnings per share of common stock (b)(c)
Continuing operations ............................................. $ 0.43 $ 0.61 $ 0.50 $ 1.35
Discontinued operations ........................................... -- -- -- (0.17)
Extraordinary item ................................................ -- (0.14) -- (0.14)
----------------------------------------------------
Net earnings ...................................................... $ 0.43 $ 0.47 $ 0.50 $ 1.04
----------------------------------------------------
Cash dividends declared per share of common stock .................... $ 0.20 $ 0.20 $ 0.40 $ 0.40
----------------------------------------------------
(a) Basic weighted average shares outstanding (in thousands) ....... 241,362 249,583 241,396 250,047
(b) Diluted weighted average shares outstanding (in thousands) ...... 242,707 263,673 242,610 264,076
(c) Distributions on preferred securities (net of tax) excluded in numerator. $ -- $ 6 $ -- $ 12
In 1998, the effect of assumed conversion of preferred securities on
earnings per share is antidilutive.
See notes to the consolidated financial statements.
</TABLE>
1
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<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION
June 30 December 31
---------------------
Millions of dollars 1998(a) 1997
- -------------------------------------------------------------------------------------------
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents ...................................... $ 193 $ 338
Accounts and notes receivable .................................. 839 897
Inventories .................................................... 148 172
Deferred income taxes .......................................... 54 71
Other current assets ........................................... 26 23
- ------------------------------------------------------------------------------------------
Total current assets ........................................ 1,260 1,501
Investments and long-term receivables ............................. 1,340 1,113
Properties (b) .................................................... 4,952 4,816
Deferred income taxes ............................................. 40 7
Other assets ...................................................... 158 93
- ------------------------------------------------------------------------------------------
Total assets ................................................ $ 7,750 $ 7,530
- ------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ............................................... $ 651 $ 785
Taxes payable .................................................. 89 126
Interest payable ............................................... 55 54
Current portion of environmental liabilities ................... 100 100
Other current liabilities ...................................... 79 95
- ------------------------------------------------------------------------------------------
Total current liabilities ................................... 974 1,160
Long-term debt .................................................... 2,480 2,169
Deferred income taxes ............................................. 172 137
Accrued abandonment, restoration and environmental liabilities .... 641 627
Other deferred credits and liabilities ............................ 661 601
Company-obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust holding solely 6-1/4%
convertible junior subordinated debentures of Unocal ........... 522 522
Common stock ($1 par value) ....................................... 252 252
Capital in excess of par value .................................... 456 452
Foreign currency translation adjustment ........................... (18) (18)
Unearned portion of restricted stock issued ....................... (29) (31)
Retained earnings ................................................. 2,049 2,021
Treasury stock - at cost (c) ..................................... (410) (362)
- ------------------------------------------------------------------------------------------
Total stockholders' equity .................................. 2,300 2,314
- ------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity ............... $ 7,750 $ 7,530
- ------------------------------------------------------------------------------------------
(a) Unaudited
(b) Net of accumulated depreciation: ............................. $ 10,022 $ 9,896
(c) Number of shares (in thousands): ............................. 10,623 9,262
See notes to the consolidated financial statements
</TABLE>
2
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<TABLE>
<CAPTION>
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
(Unaudited)
For the Six Months
Ended June 30
--------------------
Millions of dollars 1998 1997
- ------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
<S> <C> <C>
Net earnings ................................................................... $ 123 $ 262
Adjustments to reconcile net earnings to
net cash provided by operating activities
Loss on disposal of discontinued operations (before-tax) ................. -- 71
Depreciation, depletion and amortization ................................. 380 455
Dry hole costs ........................................................... 92 43
Deferred income taxes .................................................... 30 29
Gain on sales of assets (before-tax) ..................................... (92) (61)
Other .................................................................... 27 (158)
Working capital and other changes related to operations
Accounts and notes receivable ......................................... 61 206
Inventories ........................................................... 24 (25)
Accounts payable ...................................................... (139) (360)
Taxes payable ......................................................... (37) (134)
Other ................................................................. (72) 109
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities .......................... 397 437
Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) .............................. (766) (645)
Proceeds from sale of discontinued operations ............................... -- 1,786
Proceeds from sales of assets ............................................... 34 48
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities ................ (732) 1,189
Cash Flows from Financing Activities
Long-term borrowings ........................................................ 657 360
Reduction of long-term debt ................................................. (316) (1,078)
Dividends paid on common stock .............................................. (97) (100)
Repurchases of common stock ................................................. (48) (92)
Other ....................................................................... (6) (49)
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities ................... 190 (959)
Increase (decrease) in cash and cash equivalents ............................... (145) 667
Cash and cash equivalents at beginning of year ................................. 338 217
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period ..................................... $ 193 $ 884
- ------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest (net of amount capitalized) ..................................... $ 84 $ 176
Income taxes (net of refunds) ............................................ $ 142 $ 227
See notes to the consolidated financial statements.
</TABLE>
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The consolidated financial statements included herein are unaudited and, in
the opinion of management, include all adjustments necessary for a fair
presentation of financial position and results of operations. All
adjustments are of a normal recurring nature. Such financial statements are
presented in accordance with the Securities and Exchange Commission's
(Commission) disclosure requirements for Form 10-Q.
These interim consolidated financial statements should be read in
conjunction with the Consolidated financial statements and the Notes
thereto filed with the Commission in Unocal Corporation's 1997 Annual
Report on Form 10-K.
Results for the six months ended June 30, 1998, are not necessarily
indicative of future financial results.
Certain items in the prior year financial statements have been reclassified
to conform to the 1998 presentation.
(2) For the purpose of this report, Unocal Corporation (Unocal) and its
consolidated subsidiaries, including Union Oil Company of California (Union
Oil), will be referred to as the company.
(3) Other Financial Information
Sales and operating revenues are principally derived from the sale of crude
oil, natural gas, natural gas liquids, geothermal steam, specialty minerals
and nitrogen-based agricultural products produced by the company. During
the second quarters of 1998 and 1997, approximately 33 percent and 24
percent, respectively, of total sales and operating revenues were
attributed to the resale of purchased crude oil, natural gas and natural
gas liquids produced by others, that the company purchased in connection
with its trading and marketing activities. For the six months ended June
30, 1998 and 1997, the percentage of total sales and operating revenues
attributed to the resale of purchased crude oil, natural gas and natural
gas liquids produced by others was approximately 32 percent and 28 percent,
respectively. Related purchase costs are classified as expense in the crude
oil and product purchases category of the consolidated earnings statement.
Capitalized interest totaled $9 million and $11 million for the second
quarters of 1998 and 1997, respectively. Capitalized interest was $17
million and $16 million for the first six months of 1998 and 1997,
respectively.
(4) Income Taxes
Taxes on earnings from continuing operations for the second quarter and
first six months of 1998 were $59 million and $138 million, respectively,
compared with $93 million and $242 million for the comparable periods in
1997. The effective income tax rate for the first six months of 1998
increased to 53 percent from 41 percent in the first six months of 1997.
The increase in the effective tax rate for 1998 was primarily due to a
higher foreign-versus-domestic earnings mix and tax adjustments related to
the appreciation of the Thai baht.
(5) Comprehensive Income
Effective for the first quarter 1998, the company adopted Financial
Accounting Standard No. 130, "Reporting Comprehensive Income", which
establishes standards for reporting and displaying comprehensive income and
its components in a full set of financial statements. The company's
comprehensive earnings were as follows:
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
---------------------------------------------------
Millions of dollars 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings .................................................................. $ 105 $ 118 $ 123 $ 262
Change in equity due to foreign currency translation adjustments .............. (1) 1 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive earnings .................................................. $ 104 $ 119 $ 123 $ 262
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(6) Earnings Per Share
The following are reconciliations of the numerators and denominators of the
basic and diluted earnings per share (EPS) computations for earnings from
continuing operations for the second quarters and the six months ended June
30, 1998 and 1997:
<TABLE>
<CAPTION>
Earnings Shares Per Share
Millions except per share amounts (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months ended June 30, 1998
<S> <C> <C> <C>
Earnings from continuing operations ...................................... $105 241.4
Basic EPS ............................................................. $ 0.43
=====
Effect of Dilutive Securities
Options/common stock equivalents ...................................... 1.3
-------------------------
Diluted EPS ........................................................... 105 242.7 $ 0.43
=====
Distributions on preferred securities (after-tax) ..................... 6 12.3
-------------------------
Antidilutive .......................................................... $111 255.0 $ 0.44
Three Months ended June 30, 1997
Earnings from continuing operations ...................................... $156 249.6
Basic EPS ............................................................. $ 0.62
=====
Effect of Dilutive Securities
Options/common stock equivalents ...................................... 1.8
-------------------------
156 251.4 $ 0.62
Distributions on preferred securities (after-tax) ..................... 6 12.3
-------------------------
Diluted EPS ........................................................... $162 263.7 $ 0.61
=====
Six Months ended June 30, 1998
Earnings from continuing operations ...................................... $123 241.4
Basic EPS ............................................................. $ 0.51
=====
Effect of Dilutive Securities
Options/common stock equivalents ...................................... 1.2
-------------------------
Diluted EPS ........................................................... 123 242.6 $ 0.50
=====
Distributions on preferred securities (after-tax) ..................... 12 12.3
-------------------------
Antidilutive .......................................................... $135 254.9 $ 0.53
Six Months ended June 30, 1997
Earnings from continuing operations ...................................... $344 250.0
Basic EPS ............................................................. $ 1.38
=====
Effect of Dilutive Securities
Options/common stock equivalents ...................................... 1.8
-------------------------
344 251.8 $ 1.37
Distributions on preferred securities (after-tax) ..................... 12 12.3
-------------------------
Diluted EPS ........................................................... $356 264.1 $ 1.35
=====
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
Not included in the computation of diluted EPS were options outstanding at
June 30, 1998 to purchase approximately 5.4 million shares of common stock.
These options were not included in the computation as the exercise prices
were greater than the year to date average market price of the common
shares. The exercise prices of these options range from $37.69 to $51.01
per share. The options will expire in 2008.
(7) Long Term Debt and Credit Agreements
Financing activities during the second quarter of 1998 included the
issuance of $100 million in 6 1/2% notes due May 1, 2008 and $200 million
in 7% debentures due May 1, 2028. The proceeds of the new borrowings were
primarily used to refinance scheduled long-term debt maturities which
included $73 million in medium-term notes and $110 million in 6 1/8%
Deutsche Mark bonds including a corresponding currency swap agreement. In
addition, the company reduced outstanding commercial paper borrowings
during the second quarter by $38 million to a balance of $456 million at
June 30, 1998.
On July 2, 1998, the company filed a new $1.2 billion universal shelf
registration statement with the Securities and Exchange Commission which
was declared effective on July 15, 1998. The unissued balance of $239
million of securities under the prior shelf registration statement is being
combined with those under the new shelf registration statement. The $1.439
billion total will be dedicated initially to the company's medium-term note
program, but may be used for the issuance of other debt or equity
securities.
(8) Accrued Abandonment, Restoration and Environmental Liabilities
At June 30, 1998, the company had accrued $448 million for the estimated
future costs to abandon and remove wells and production facilities. The
total costs for abandonments are predominately accrued for on a
units-of-production basis and are estimated to be approximately $629
million. This estimate was derived in large part from abandonment cost
studies performed by an independent firm and is used to calculate the
amount to be amortized. The company's reserve for environmental remediation
obligations at June 30, 1998 totaled $293 million, of which $100 million
was included in current liabilities.
(9) Contingent Liabilities
The company has certain contingent liabilities with respect to material
existing or potential claims, lawsuits and other proceedings, including
those involving environmental, tax and other matters, certain of which are
discussed more specifically below. The company accrues liabilities when it
is probable that future costs will be incurred and such costs can be
reasonably estimated. Such accruals are based on developments to date, the
company's estimates of the outcomes of these matters and its experience in
contesting, litigating and settling other matters. As the scope of the
liabilities becomes better defined, there will be changes in the estimates
of future costs, which could have a material effect on the company's future
results of operations and financial condition or liquidity.
Environmental matters - The company is subject to loss contingencies
pursuant to federal, state and local environmental laws and regulations.
These include existing and possible future obligations to investigate the
effects of the release or disposal of certain petroleum, chemical and
mineral substances at various sites; to remediate or restore these sites;
to compensate others for damage to property and natural resources; for
remediation and restoration costs and for personal injuries; and to pay
civil penalties and, in some cases, criminal penalties and punitive
damages. These obligations relate to sites owned by the company or others
and are associated with past and present operations, including sites at
which the company has been identified as a potentially responsible party
(PRP) under the federal Superfund laws and comparable state laws.
Liabilities are accrued when it is probable that future costs will be
incurred and such costs can be reasonably estimated. However, in many
cases, investigations are not yet at a stage where the company is able to
determine whether it is liable or, if liability is probable, to quantify
the liability or estimate a range of possible exposure. In such cases, the
amounts of the company's liabilities are indeterminate due to the
potentially large number of claimants for any given site or exposure, the
unknown magnitude of possible contamination, the imprecise and conflicting
engineering evaluations and estimates of proper clean-up methods and costs,
the unknown timing and extent of the corrective actions that may be
required, the uncertainty attendant to the possible award of punitive
damages, the recent judicial recognition of new causes of action, the
present state of the law, which often imposes joint and several and
retroactive liabilities on PRPs, and the fact that the company is usually
just one of a number of companies identified as a PRP.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
As disclosed in note 8, at June 30, 1998, the company had accrued $293
million for estimated future environmental assessment and remediation costs
at various sites where liabilities for such costs are probable. At those
sites where investigations or feasibility studies have advanced to the
stage of analyzing feasible alternative remedies and/or ranges of costs,
the company estimates that it could incur additional remediation costs
aggregating approximately $220 million.
Tax matters - In December 1994, the company received a Notice of Proposed
Deficiency (Notice) from the Internal Revenue Service (IRS) related to the
years 1985 through 1987. A material amount of tax and interest would be
payable if the IRS were ultimately able to prevail on the significant
issues described in the Notice. In February 1995, the company filed a
protest of the proposed tax deficiency with the Appeals section of the IRS.
Discussions with the Appeals Officer are complete, and it now appears
unlikely that any issues raised in the Notice will proceed to either
litigation or mediation as a settlement has been reached. The proposed
settlement was received by the Joint Committee on Taxation of the U.S.
Congress in June, 1998, and requires their approval. The company expects
this matter to be concluded in 1998 and believes it is ultimately entitled
to a refund for overpayment of tax or interest for all open taxable years
preceding 1988.
The company believes it has adequately provided in its accounts for tax
items and issues not yet resolved.
Other matters - In February 1996, Bridas Corporation filed a petition
against the company and others in the District Court of Fort Bend County,
Texas, alleging that the defendants conspired to and did tortiously
interfere with Bridas' rights under agreements with the government of
Turkmenistan to develop the Yashlar Field and to transport gas from that
field to Pakistan. The petition also alleges that the defendants interfered
with Bridas' exclusive right to lay a gas pipeline in Afghanistan. Bridas
seeks actual damages as well as punitive damages, plus interest. Bridas'
expert witnesses have stated in pre-trial discovery that Bridas' total
actual damages for loss of future profits are approximately $1.7 billion.
In the alternative, Bridas is expected to seek an award of approximately
$430 million with respect to its total expenditures in Turkmenistan. The
company believes the assertions made by Bridas are without merit and is
vigorously defending the lawsuit.
The company also has certain other liabilities with respect to litigation,
claims and contractual agreements arising in the ordinary course of
business. Although these contingencies could result in expenses or
judgments that could be material to the company's results of operations for
a given reporting period, on the basis of management's best assessment of
the ultimate amount and timing of these events, such expenses or judgments
are not expected to have a material adverse effect on the company's
consolidated financial condition or liquidity.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(10) Unocal guarantees certain indebtedness of Union Oil. Summarized below is
financial information for Union Oil and its consolidated subsidiaries:
<TABLE>
<CAPTION>
Summarized Financial Data of Union Oil
For the Three Months For the Six Months
Ended June 30 Ended June 30
---------------------------------------------------------------
Millions of dollars 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues ........................................... $ 1,397 $1,655 $ 2,604 $ 3,110
Total costs and other deductions
(including income taxes) .............................. 1,286 1,493 2,470 2,755
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations ...................... 111 162 134 355
Discontinued operations
Loss on disposal (a) .................................. -- -- -- (44)
Extraordinary item
Early extinguishment of debt (b) ...................... -- (38) -- (38)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings ............................................. $ 111 $ 124 $ 134 $ 273
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Net of tax benefit of: .............................. $ -- $ -- $ -- $ (27)
(b) Net of tax benefit of: .............................. $ -- $ (14) $ -- $ (14)
</TABLE>
<TABLE>
<CAPTION>
At June 30 At December 31 (c)
--------------------------------------
Millions of dollars 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets ........................................................... $1,260 $1,576
Noncurrent assets ........................................................ 6,514 6,053
Current liabilities ...................................................... 980 1,124
Noncurrent liabilities ................................................... 3,954 3,534
Shareholder's equity ..................................................... 2,840 2,971
- ------------------------------------------------------------------------------------------------------------------------------------
(c) Audited
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
OPERATING HIGHLIGHTS UNOCAL CORPORATION
(Unaudited)
For the Three Months For the Six Months
Ended June 30 Ended June 30
-----------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
NET DAILY PRODUCTION
Crude oil and condensate (thousand barrels daily)
United States
<S> <C> <C> <C> <C>
Spirit Energy 76 .......................................... 44 46 44 47
Alaska .................................................... 29 31 30 32
-----------------------------------------------------
Total United States ..................................... 73 77 74 79
International
Far East (a) .............................................. 80 95 84 94
Other (b) ................................................. 32 27 32 27
-----------------------------------------------------
Total International ..................................... 112 122 116 121
Worldwide .................................................... 185 199 190 200
-----------------------------------------------------
Natural gas (million cubic feet daily)
United States
Spirit Energy 76 .......................................... 795 874 784 892
Alaska .................................................... 121 127 130 141
-----------------------------------------------------
Total United States ..................................... 916 1,001 914 1,033
International
Far East (a) .............................................. 830 774 828 789
Other (b) ................................................. 67 63 60 66
-----------------------------------------------------
Total International ..................................... 897 837 888 855
Worldwide .................................................... 1,813 1,838 1,802 1,888
-----------------------------------------------------
Natural gas liquids (thousand barrels daily) .................... 20 19 19 19
Geothermal (million kilowatt-hours daily) ....................... 18 17 20 17
-----------------------------------------------------
(a) Includes host country share of:
Crude oil and condensate ..................................... 8 30 13 30
Natural gas .................................................. 22 25 27 29
(b) Includes production of Canada equity affiliate
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
OPERATING HIGHLIGHTS (continued)
(Unaudited)
For the Three Months For the Six Months
Ended June 30 Ended June 30
-------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE SALES PRICES (a)
Crude oil and condensate (per barrel)
United States
<S> <C> <C> <C> <C>
Spirit Energy 76 ...................................................... $ 13.04 $ 17.77 $ 13.50 $ 19.30
Alaska ................................................................ 8.83 14.23 9.84 16.45
Total United States ................................................. 11.35 16.36 12.01 18.15
International
Far East .............................................................. $ 12.85 $ 17.97 $ 13.42 $ 19.41
Other ................................................................. 10.31 16.11 11.34 18.01
Total International ................................................. 12.14 17.44 12.84 19.01
Worldwide ................................................................ $ 11.80 $ 16.96 $ 12.49 $ 18.61
- ------------------------------------------------------------------------------------------------------------------------------------
Natural gas (per thousand cubic feet)
United States
Spirit Energy 76 ...................................................... $ 2.15 $ 1.98 $ 2.15 $ 2.39
Alaska ................................................................ 1.48 1.35 1.47 1.35
Total United States ................................................. 2.06 1.89 2.05 2.25
International
Far East .............................................................. $ 2.04 $ 2.25 $ 2.03 $ 2.33
Other ................................................................. 2.46 2.08 2.24 2.16
Total International ................................................. 2.05 2.24 2.04 2.31
Worldwide ................................................................ $ 2.05 $ 2.05 $ 2.05 $ 2.28
- ------------------------------------------------------------------------------------------------------------------------------------
AGRICULTURAL PRODUCTS PRODUCTION VOLUMES
(thousand tons)
Ammonia ..................................................................... 390 367 764 758
Urea ........................................................................ 245 233 505 508
AGRICULTURAL PRODUCTS SALES VOLUMES (thousand tons)
Ammonia ..................................................................... 243 247 463 403
Urea ........................................................................ 270 289 595 499
(a) Excludes Global Trade margins and Canada equity affiliate sales
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis of the financial condition and results of
operations of Unocal should be read in conjunction with the company's
Management, Discussion and Analysis in Item 7 of the 1997 Annual Report on Form
10-K. Unless otherwise specified, the following discussion pertains to the
company's continuing operations.
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
--------------------- --------------------
Millions of dollars 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After-tax earnings from continuing operations .............................. $ 105 $ 156 $ 123 $ 344
Special items (net of tax):
Environmental and litigation provisions ................................ (28) (5) (61) (14)
Asset sales ............................................................ 53 25 53 32
Deferred tax adjustment ................................................ 7 7 (14) 7
UNO-VEN restructuring .................................................. -- 39 -- 39
Insurance settlement ................................................... 11 -- 11 --
Bangladesh well blowout ................................................ -- (7) -- (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Total special items ..................................................... 43 59 (11) 57
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings from continuing operations .................. 62 97 134 287
Net loss on disposal of discontinued operations ............................ -- -- -- (44)
Special item: discontinued operations ..................................... -- -- -- (44)
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted after-tax loss from discontinued operations .................... -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Extraordinary item - early extinguishment of debt .......................... -- (38) -- (38)
Special item: extinguishment of debt ...................................... -- (38) -- (38)
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted after-tax loss from extraordinary item ......................... -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings .......................................... $ 62 $ 97 $ 134 $ 287
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The company's second quarter 1998 adjusted earnings from continuing operations
decreased 36 percent from the same period last year. The lower earnings level
was principally attributable to lower domestic and international crude oil
prices, lower international natural gas prices, lower agricultural product
prices and higher domestic dry hole costs. Partially offsetting these negative
factors were higher domestic natural gas prices, lower worldwide depreciation
expense, increased geothermal power generation and increased natural gas
production in the Far East.
The company's adjusted earnings from continuing operations for the first six
months of 1998 decreased 53 percent from the same period last year. The major
factors contributing to the decline were lower prices for crude oil, natural gas
and agricultural products, lower domestic crude oil and natural gas production,
increased domestic dry hole costs, foreign exchange losses and increased
exploration expense in the Far East. Partially offsetting these negative factors
were increased crude oil sales and increased natural gas production in the Far
East, increased geothermal power generation, lower worldwide depreciation
expense, lower interest expense and higher earnings and dividends from a
petroleum industry mutual insurance company.
EXPLORATION AND PRODUCTION
Exploration and Production involves the exploration for and production of crude
oil and natural gas.
United States - Included in the United States category are Spirit Energy 76 and
Alaska oil and gas operations. Spirit Energy 76 is responsible for oil and gas
operations in the Lower 48 United States with emphasis on the Gulf Coast,
deepwater areas in the Gulf of Mexico and the Permian Basis in West Texas. A
substantial portion of crude oil and natural gas produced domestically is sold
to the company's Global Trade group. The remainder is sold under contract to
third parties, sold in the spot market or, in the case of Alaska natural gas
production, sold to the company's agricultural products operations.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
----------------------- ----------------------
Millions of dollars 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
After-tax earnings:
<S> <C> <C> <C> <C>
Spirit Energy 76 ........................................ $ 15 $ 33 $ 25 $128
Alaska .................................................. 1 11 13 32
- ------------------------------------------------------------------------------------------------------------------------------------
Total ................................................... 16 44 38 160
Special items:
Spirit Energy 76 asset sales ............................ -- -- -- 2
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings ................................ $ 16 $ 44 $ 38 $158
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Adjusted after-tax earnings in the second quarter of 1998 decreased by 64
percent compared to the second quarter of 1997. The primary reason for this
decrease was lower crude oil prices; average sales prices for crude oil
decreased by $5.01 per barrel, or 31 percent. Also contributing to the decrease
in after-tax adjusted earnings was a natural production decline in natural gas
of 8 percent and increased dry hole expenses as a result of increased
exploratory drilling activity in the Gulf of Mexico. However, these negative
factors were mitigated by a 9 percent increase in average natural gas sales
prices and lower depreciation expense for Spirit Energy 76.
Adjusted after-tax earnings in the first six months of 1998 decreased by 76
percent compared to the first six months of 1997, primarily due to lower
commodity prices. The average sales price for crude oil decreased by $6.14 per
barrel, or 34 percent, and the average sales price of natural gas decreased by
$.20 per thousand cubic feet (mcf), or 9 percent. Additionally, crude oil and
natural gas production declined by 6 percent and 12 percent, respectively, due
principally to natural production declines, and dry hole expenses increased by
$37 million as a result of increased exploratory drilling activity in the Gulf
of Mexico. Partially offsetting these negative factors were decreases in
depreciation and cash expenses.
International - The company's international operations include the company's
foreign exploration and production activities and exploration activities
performed by the company's New Ventures group.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
----------------------- ----------------------
Millions of dollars 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After-tax earnings ...................................... $103 $ 28 $116 $130
Special items:
Asset sales ........................................ 53 (17) 53 (16)
Deferred tax adjustment ............................ 7 -- (14) --
Bangladesh well blowout ............................ -- (7) -- (7)
- ------------------------------------------------------------------------------------------------------------------------------------
Total special items ............................ 60 (24) 39 (23)
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings ............................. $ 43 $ 52 $ 77 $ 153
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the second quarter of 1998, international adjusted after-tax earnings
decreased compared with 1997 results primarily due to substantially lower
average sales prices for crude oil and natural gas. Compared with the second
quarter of 1997, total international crude oil and condensate average sales
prices decreased 30 percent to $12.14 per barrel and natural gas average sales
prices decreased by 8 percent to $2.05 per mcf. Partially offsetting these
negative factors were higher natural gas production in Thailand, lower current
taxes in Thailand and lower dry hole expense due to an $11 million dry hole
charge in 1997 for an exploratory well located offshore Brunei.
During the first six months of 1998, international adjusted after-tax earnings
decreased compared with 1997 results primarily due to substantially lower
average sales prices for crude oil and natural gas. International crude oil and
condensate average sales prices decreased 32 percent to $12.84 per barrel while
the natural gas average sales prices decreased 12 percent to $2.04 per mcf over
the same period last year. Foreign exchange losses in Thailand and Indonesia and
increased exploration expenses also contributed to the decrease. Partially
offsetting these negative factors were increased crude oil liftings in
Indonesia, higher natural gas production in Thailand and lower dry hole costs.
In April 1998, the company received stock and debt of Tarragon Oil and Gas
Limited valued at approximately $212 million for the exchange of its Alberta,
Canada exploration and production assets (included in special items).
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
GLOBAL TRADE
The Global Trade group handles substantially all of the company's worldwide
crude oil, condensate and natural gas marketing and trading activities. Global
Trade also purchases crude oil, condensate and natural gas from the company's
joint venture partners, royalty owners and their unaffiliated oil and gas
producers for resale.
During the second quarters of 1998 and 1997 Global Trade's after-tax earnings
were $4 million and $5 million, respectively. Global Trade's after-tax earnings
for the first six months of 1998 and 1997 were $10 million and $11 million,
respectively.
GEOTHERMAL AND POWER OPERATIONS
The Geothermal and Power Operations segment explores for, produces and sells
geothermal resources, and constructs and operates electric power generation
plants.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
Millions of dollars 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After-tax earnings ................................................. $14 $13 $28 $19
Special items:
Deferred tax adjustment ........................................ -- 7 -- 7
- ------------------------------------------------------------------------------------------------------------------------------------
After-tax earnings excluding special items ......................... $14 $ 6 $28 $12
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Improved 1998 earnings for the second quarter and first six months were
primarily the result of an increase in power generation and related sale of
electricity from the Indonesian Salak field Units 3 through 6, which came on
line during the second half of 1997. Partially offsetting these positive factors
were higher dry hole provisions for the six month period.
DIVERSIFIED BUSINESS GROUP
The Agricultural Products group manufactures, transports and markets
nitrogen-based products for agricultural and industrial uses. The Carbon and
Minerals group manufactures and markets petroleum coke, graphites and specialty
minerals. The Pipelines Group holds the company's equity interests in affiliated
pipeline companies.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
Millions of dollars 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
After-tax earnings
<S> <C> <C> <C> <C>
Agricultural Products ................................................. $ 12 $ 26 $ 21 $ 46
Carbon and Minerals ................................................... 9 56 24 66
Pipelines ............................................................. 15 16 30 30
Other ................................................................. -- 36 -- 37
- ------------------------------------------------------------------------------------------------------------------------------------
Total ................................................................. 36 134 75 179
Special items:
Asset sales (Carbon and Minerals) ..................................... -- 41 -- 41
Environmental and litigation (Carbon and Minerals) .................... (1) -- (2) --
UNO-VEN restructuring (Other) ......................................... -- 39 -- 39
- ------------------------------------------------------------------------------------------------------------------------------------
Total special items ................................................... (1) 80 (2) 80
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings .............................................. $ 37 $ 54 $ 77 $ 99
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Adjusted after tax earnings for the second quarter and first six months of 1998
decreased 31 percent and 22 percent, respectively, as compared to second quarter
and first six months of 1997. The lower earnings in the current-year periods
were primarily attributable to lower sales prices for fertilizer products, for
both the export market and the domestic west coast market, and lower domestic
fertilizer sales volumes due to unfavorable weather conditions during the first
four months of the year.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Also, contributing to the lower current quarter and first six months' earnings
were losses from the company's lanthanides operation due to the temporary
shutdown of the separations plant and wastewater pipeline at its Mountain Pass,
California, mining facility. This negative impact was principally offset by
higher earnings from the company's Brazilian affiliate.
In 1997, the second quarter and first six months after-tax earnings reflected
the sale of the company's Illinois-based Unocal Hydrocarbon Sales business unit
and the restructuring of the UNO-VEN partnership. These transactions generated
gains (included in special items) of $41 million and $39 million, respectively.
CORPORATE AND UNALLOCATED
Corporate and Unallocated expense includes general corporate overhead, the
non-exploration and production related activities of the New Ventures group and
other unallocated costs. Net interest expense represents interest expense, net
of interest income and capitalized interest.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
-------------------- --------------------
Millions of dollars 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
After-tax earnings effect
<S> <C> <C> <C> <C>
Administrative and general expense ...................................... $ (12) $ (14) $ (23) $ (27)
Net interest expense .................................................... (24) (23) (50) (65)
Environmental and litigation expense .................................... (30) (10) (63) (21)
New Ventures (non-exploration and production) ........................... (5) (15) (12) (22)
Other ................................................................... 3 (6) 4 (20)
- ------------------------------------------------------------------------------------------------------------------------------------
Total ................................................................... (68) (68) (144) (155)
Special items:
Environmental and litigation provisions ............................... (27) (5) (59) (14)
Asset sales (Other) ................................................... -- 1 -- 5
Insurance settlement (Other) .......................................... 11 -- 11 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total special items ..................................................... (16) (4) (48) (9)
- ------------------------------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings effect from continuing operations .............. $ (52) $ (64) $ (96) $(146)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Adjusted after-tax earnings for the second quarter of 1998 increased 19 percent
compared to the second quarter of 1997 primarily due to lower New Ventures -
non-exploration and production expenditures. Adjusted after-tax earnings for the
first six months of 1998 increased 34 percent compared to the first six months
of 1997 due primarily to lower New Ventures - non-exploration and production
expenditures and lower interest expense as a result of the retirement of debt
with the proceeds from the 1997 sale of the company's West Coast refining and
marketing assets.
In the second quarter of 1998, the Other category includes the benefit of an $11
million insurance settlement (included in special items).
FINANCIAL CONDITION AND CAPITAL EXPENDITURES
For the first six months of 1998, cash flow from operating activities, including
working capital changes, was $397 million, compared with $437 million in 1997.
The decrease was primarily attributable to lower commodity prices, a decrease in
accounts payable due to decreased accrual levels, and the temporary extension of
payment terms for certain natural gas and fertilizer sales. Consolidated working
capital at June 30, 1998 was $286 million, a decrease of $55 million from the
year-end 1997 level of $341 million.
Proceeds from asset sales for the first six months of 1998 were $34 million and
consisted of $9 million related to the partial collection of a note
received from the sale of Unocal Hydrocarbon Sales in 1997, $11 million from the
sale of certain Canadian properties and $14 million from the sale of
miscellaneous international, domestic and real estate properties.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Capital expenditures for the first six months of 1998 totaled $766 million
compared to $645 million in the first six months of 1997. The increase was
primarily due to increased drilling activities and a property acquisition in the
Gulf of Mexico partially offset by lower levels of international development and
geothermal expenditures. In addition, the first six months of 1997 included $49
million of capital expenditures for discontinued operations.
The company estimates capital expenditures for the full year 1998 to be
approximately $1.5 billion. The increase from the previously announced level of
between $1.3 and $1.4 billion is primarily due to higher drilling expenditures
and producing property acquisitions in Spirit Energy 76. The increase is
expected to be funded principally by asset sale proceeds.
The company's long-term debt was $2,480 million at June 30, 1998, an increase of
$311 million from the year-end 1997 level of $2,169 million. The debt-to-total
capitalization ratio increased to 47 percent from 43 percent at year-end 1997.
ENVIRONMENTAL MATTERS
At June 30, 1998, the company's reserves for environmental remediation
obligations totaled $293 million, of which $100 million was included in current
liabilities. During the second quarter, cash payments of $18 million were
applied against the reserve and an additional $25 million in liabilities were
recorded to the reserve account. The additional $25 million in reserves were for
estimated cleanup costs for various company facilities where the company's
operations have been closed or shut down resulting in a total reserve for these
sites, which include Avila Beach and Guadalupe, of $150 million. The company
also estimates that it could incur additional remediation costs aggregating
approximately $220 million as discussed in note 9 to the consolidated financial
statements. The company's total environmental reserve amount is grouped into the
following five categories:
<TABLE>
<CAPTION>
June 30
Millions of dollars 1998
- --------------------------------------------------------------------------------
<S> <C>
Superfund and similar sites .................................... $ 19
Former company-operated sites .................................. 22
Company facilities sold with retained liabilities .............. 71
Inactive or closed company facilities .......................... 150
Active company facilities ...................................... 31
- --------------------------------------------------------------------------------
Total reserves .............................................. $293
- --------------------------------------------------------------------------------
</TABLE>
In June 1998, the company entered into a settlement agreement with the State of
California, the County of San Luis Obispo and several environmental groups for
the Avila Beach cleanup project. On June 25, 1998, the settlement agreement was
approved by the San Luis Obispo County Superior Court. Included in the
settlement is an agreement to perform the remediation work required under the
Cleanup and Abatement Order issued by the California Central Coast Regional
Water Quality Control Board in April 1998. The order calls for excavation of
affected areas of the town and beach. The company plans to begin work on the
project in September 1998, after the necessary permits for the planned work are
obtained from various regulatory agencies. The company anticipates that the
excavation will take approximately 18 months to complete.
In July 1998, the company entered into a settlement agreement with the State of
California concerning a civil suit filed by the State related to diluent
releases at the Guadalupe oil field. On July 22, 1998, the settlement agreement
was approved by the San Luis Obispo County Superior Court. The agreement
requires the company to comply with the Cleanup and Abatement Order issued
by the California Central Coast Regional Water Quality Control Board in April
1998. The order calls for excavation of 17 areas in the field and bioremediation
of other areas in addition to the recovery of contaminants utilizing shallow
wells. The company plans to begin the cleanup work in the fall of 1998, after
the necessary permits are obtained from various regulatory agencies.
The company has provided for the estimated probable cleanup costs and other
costs for these sites in the reserves for environmental remediation. Estimates
for possible additional costs related to these sites are included in the $220
million possible additional remediation costs disclosed in note 9 to the
consolidated financial statements. (See notes 8 and 9 to the consolidated
financial statements for related information).
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
FUTURE ACCOUNTING CHANGE
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Accounting for changes in the fair value of a derivative depends upon the
intended use of the derivative and the resulting designation. Unless designated
as a hedge, changes in the fair value of a derivative are to be accounted for as
gains or losses in the period of change. In the case of certain hedging
activities, changes in the fair value of derivative instruments are to be
deferred and reported as a separate component of other comprehensive income.
The statement applies to all entities and is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The company is planning to adopt
the statement in the first quarter of the year 2000 and is currently evaluating
the impact the statement will have on its financial statements.
OUTLOOK
Certain of the statements in this discussion, as well as other forward-looking
statements within this document, contain estimates and projections of amounts of
or increases in future revenues, earnings, cash flows, capital expenditures,
assets, liabilities and other financial items and of future levels of or
increases in reserves, production, sales including related costs and prices, and
other statistical items; plans and objectives of management regarding the
company's future operations, products and services; and certain assumptions
underlying such estimates, projection plans and objectives. While these
forward-looking statements are made in good faith, future operating, market,
competitive, legal, economic, political, environmental, and other conditions and
events could cause actual results to differ materially from those in the
foward-looking statements.
Notwithstanding the ongoing economic crisis in Indonesia and Thailand, the
company remains optimistic about Asia's long-term growth and is working closely
with host governments and business associates through these difficult times. As
of June 30, 1998, the company's geothermal operations in Indonesia had a
receivable balance of approximately $52 million, most of which was for steam
sales from the Salak field. Approximately $16 million is due by the end of
August 1998, of which $11 million represents a shortfall in payments for March
through May 1998 steam deliveries to Gunung Salak electric generating Units 1,
2 and 3. The remaining balance is payable over the next several years. Partial
payments have been received on a timely basis. The company is engaged in
discussions with Indonesian government entities to explore potential ways to
resolve the shortfall issue to the satisfaction of all parties.
Volatile energy prices continue to negatively impact 1998 financial results.
The company expects that energy prices will remain volatile due to changes in
climate conditions, worldwide demand, crude oil and natural gas inventory
levels, production quotas set by OPEC and other factors.
The company continues to focus its reserve replacement and growth efforts on
high-potential projects. Spirit Energy 76 achieved exploration success with 19
discoveries in the first six months of 1998 including the deepwater Gulf of
Mexico Leo prospect and the onshore Texas, Vanderbeek discovery. Deepwater Gulf
of Mexico exploration drilling started on the Calypso prospect and will soon
begin on the Mad Dog and Mirage prospects. In Indonesia, the company has added a
deepwater drilling rig to its offshore East Kalimantan exploration program and
has begun drilling in the Seno prospect and expects to begin drilling in several
other deepwater prospects in 1998. Recent oil and gas exploration discoveries in
the Merah Besar area, Indonesia, include the Hitam Besar-2, Hitam Besar-3 and
the Putih Besar-3 wells. The company plans to submit a development plan for the
Merah Besar area in the fourth quarter of 1998. Other exploration activities are
planned or under way in Bangladesh, Argentina, Brazil, Azerbaijan and Brunei.
The Yadana field, offshore Myanmar, is currently producing on a limited basis
and is expected to begin commercial operations in December 1998, four months
later than previously scheduled because of construction delays in a new power
plant at Ratchaburi, Thailand. Commercial production from the Pailin field,
offshore Thailand, will commence upon completion of a pipeline. Both of these
fields have firm contracts for the sale of natural gas to Thailand. Production
of natural gas is also expected to begin in late 1998 in Bangladesh.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In April 1998, the company exchanged most of its Alberta, Canada, production and
exploration assets for debentures and stock of Tarragon Oil and Gas Limited
(Tarragon) representing an approximately 29 percent interest. In May 1998,
USX-Marathon offered to acquire Tarragon for cash and stock. Terms of the offer
would allow the company to receive C$14.25 per share for its 21 million shares
of Tarragon. On August 11, 1998, following approval by the securityholders of
Tarragon, the acquisition was completed.
On June 22, 1998, Philippine Geothermal Inc. (PGI) entered into an interim
service agreement with the National Power Company of the Philippines with
similar terms to the previous provisional agreement signed in September 1996.
Unocal has announced plans to restructure portions of its Diversified
Businesses. Financial advisors have been engaged to evaluate various
restructuring options for the agricultural products business unit and the
company is evaluating options for its carbon and minerals business unit and
pipeline operations.
The company is actively addressing the Year 2000 (Y2K) issue throughout its
operating and office environments. Many existing computer programs were designed
and developed to use only two digits to identify a year in the date field. If
not addressed, these computer applications could result in system failures with
possible material adverse effects on the company's operations at the year 2000.
The company has appointed a project director and has assembled various teams of
professionals to identify, assess, correct and test these software applications
as well as its embedded systems. In addition, the company has contracted with a
systems consulting firm to assist with the assessment, correction and testing of
the company's internal systems as well as to assess its system relationships
with vendors, suppliers, customers and other outside parties.
The company's Y2K project work began in July 1996. A company-wide initial
awareness campaign was completed in June 1998. Identification and assessment
phases of the project are well underway. The company has business contingency
and recovery plans for its "mission critical" systems, applications and
processes , i.e., those that would materially adversely impact revenues,
operations, safety or the environment. The company's Y2K project work includes
the updating of these plans to address material Y2K issues.
The following schedule sets forth the company's estimated timetable for
achieving Year 2000 readiness:
Project Phases Expected Completion Dates
Worldwide inventory of systems October 1998
Worldwide assessment November 1998
Initial plan for corrections/work arounds December 1998
Remediation/renovation May 1999
Validation/testing July 1999
Contingency planning July 1999
Implementation August 1999
Control of system changes/upgrades Ongoing - through December 1999
The company currently estimates the expenditures of the preceding Y2K project
phases to approximate $25 to $30 million. These expenditures will occur
throughout 1998 and 1999. There can be no assurance, however, that there will
not be a delay in, or increased costs associated with the implementation of such
changes or that such changes will prove 100 percent effective in resolving all
Y2K related issues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk generally represents the risk that losses may occur in the value of
financial instruments as a result of movements in interest rates, foreign
currency exchange rates and commodity prices. As part of its overall risk
management strategies, the company uses derivative financial instruments to
primarily manage and reduce risks associated with these factors. The following
discussion and analysis focuses on significant changes in the company's position
regarding these risk factors since year end 1997.
17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED)
Interest Rate Risk - The company's primary market exposure for changes in
interest rates relates to the company's long term debt obligations. During the
first six months of 1998, the company increased its outstanding long-term debt
level (including capital leases) by approximately $311 million to $2,480 million
from its year-end 1997 level of $2,169 million, primarily through the sale of
two new debt issues. On May 6, 1998, Union Oil issued $100 million of 6 1/2 %
notes due May 1, 2008 and $200 million of 7 % debentures due May 1, 2028, in
each case guaranteed by Unocal. Proceeds from the sale were used to retire $110
million Deutsche Mark bonds and to retire various maturing medium term notes and
to reduce commercial paper borrowings. The increase in debt was principally due
to increased cash requirements resulting from lower than anticipated commodity
prices in 1998. The company expects cash generated from operations and sales of
assets to be sufficient to fund its current operations. However, a further
reduction in commodity prices may cause the company to increase its debt level
at December 31, 1998. The following table provides principal amounts and related
weighted average interest rates for the company's outstanding debt obligations
at June 30, 1998 by expected maturity dates and constitutes a forward looking
statement. Circumstances could arise which may cause the timing and amounts of
actual cash flows to differ materially from the projections.
<TABLE>
<CAPTION>
Debt Obligation Principal Amounts by Expected Maturity Dates at June 30, 1998
Fair
Millions of U.S. dollars 1998-2002 There-after Total Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed rate ....................... $ -- $1,972 $1,972 $2,114
Average Interest Rates ......... -- 7.95% 7.95%
Variable rate .................... -- 508 508 508
Average Interest Rates ......... -- 5.97% 5.97%
- --------------------------------------------------------------------------------
$ -- $2,480 $2,480 $2,622
- --------------------------------------------------------------------------------
</TABLE>
Foreign exchange rate risk - Where warranted, the company enters into various
foreign currency exchange contracts to manage its exposure to foreign currency
exchange rates. The company had no foreign currency exchange contracts
outstanding at June 30, 1998. The company will continue to monitor its exposure
to foreign exchange rate volatility as part of its strategy to mitigate foreign
currency risks.
Commodity price risk - The company generally uses hydrocarbon commodity based
derivative financial instruments, such as options or futures contracts with
maturities of 18 months or less, to mitigate its exposure to fluctuations in
petroleum commodity prices. The company also trades hydrocarbon-based derivative
financial instruments on a limited basis. The company has controls in place and
monitors its trading activities to ensure compliance.
The company uses a value at risk model to assess the market risk of its
commodity price sensitive derivative financial instruments for internal risk
management purposes. Value at risk represents the potential loss in fair value
the company would experience on its commodity price sensitive derivative
financial instruments, using calculated volatilities and correlations over a
specified time period with a given confidence level. The company's calculation
model is based on historical data and uses a one week time interval and a 95
percent confidence level. Trading and non-trading commodity derivative financial
instruments have been segregated in the model. Based upon the company's
calculations, the risk of loss in fair value associated with commodity price
sensitive derivative financial instruments at June 30, 1998 was immaterial.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is incorporated by reference the information with respect to certain legal
proceedings previously reported in Item 3 of Unocal's Annual Report on Form 10-K
for the year ended December 31, 1997 (1997 Form 10-K) and in Item 1 of Part II
of Unocal's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998
(First Quarter 1998 Form 10-Q), the information regarding environmental
remediation reserves in note 8 to the consolidated financial statements in Item
1 of Part I hereof, the discussion thereof in the Environmental Matters section
of Management's Discussion and Analysis in Item 2 of Part I, and the information
regarding certain legal proceedings and other contingent liabilities in note 9
to the consolidated financial statements.
(1) In Citizens for a Better Environment, et al. v. Union Oil Company of
California, described in Paragraph (3) of Item 3 of the 1997 Form 10-K
and in Paragraph (1) of Item 1 of Part II of the First Quarter 1998
Form 10-Q, the parties have reached a tentative resolution of the
matter and have commenced the preparation of appropriate settlement
documents for court approval.
(2) With reference to the matters involving the Guadalupe oil field,
described in Paragraph (4) of Item 3 of the 1997 Form 10-K and in
Paragraph (2) of Item 1 of Part II of the First Quarter 1998 Form 10-Q,
in July 1998, Unocal entered into an agreement with the California
Attorney General, the Central Coast Regional Water Quality Control
Board (RWQCB), the California Department of Fish and Game, the
California Department of Toxic Substances Control and the California
Coastal Conservancy to settle the civil suit filed by the Attorney
General in March 1994, regarding contamination of the field. The
settlement was approved by the Superior Court of California for San
Luis Obispo County on July 22, 1998.
Under the terms of the settlement, the company has paid $43.8 million
for damages, penalties and past agency costs related to the dune sand
aquifer contamination. The damages portion of the settlement includes
funding for restoration, replacement and rehabilitation efforts
involving natural resources at the field. The settlement requires
Unocal to comply with the cleanup and abatement order for the Guadalupe
field issued by the Central Coast RWQCB in April 1998. That order calls
for excavation of certain contaminated sites, plus pilot testing over
two five-year periods to evaluate potential cleanup technologies.
The $43.8 million payment does not include the anticipated costs for
cleanup of the contamination. Unocal has provided for certain cleanup
costs at Guadalupe in its environmental remediation reserves and has
estimated certain possible additional costs that may be incurred. These
amounts may change as additional information regarding the cleanup
becomes available.
(3) With reference to the matters involving the town of Avila Beach,
California, described in Paragraph (5) of Item 3 of the 1997 Form 10-K
and in Paragraph (3) of Item 1 of Part II of the First Quarter 1998
Form 10-Q, on June 25, 1998, the San Luis Obispo County Superior Court
approved a settlement agreement between the company and the Central
Coast RWQCB, the California Department of Fish & Game, the County of
San Luis Obispo, Avila Alliance, Environmental Law Foundation and
Communities for a Better Environment. The agreement settles all
applicable claims these parties had against Unocal concerning the
hydrocarbon contamination along Front Street in Avila Beach, in
exchange for Unocal's paying $12 million, donating certain properties
to the County and performing certain improvement projects in the town.
The agreement also incorporates performance parameters for Unocal's
remediation project.
The settlement payment does not include Unocal's anticipated costs for
cleanup of the contamination. Unocal has provided for certain cleanup
cost at Avila Beach in its environmental remediation reserves and has
estimated certain possible additional costs that may be incurred. These
amounts may change as additional information regarding the cleanup
becomes available.
On May 18, 1998, four Avila Beach residents filed a purported class
action complaint against the company in the San Luis Obispo County
Superior Court seeking a medical monitoring class and damages as a
result of the remediation project (Cucinella, et al. v. Unocal
Corporation, et al., No. CV 9804417). The settlement described above
does not encompass this or other lawsuits pending against the company
for private property, business-related and medical claims.
19
<PAGE>
ITEM 1. LEGAL PROCEEDINGS (CONTINUED)
(4) With reference to the matters involving the Mountain Pass, California,
lanthanide facility of the company's Molycorp, Inc. (Molycorp),
subsidiary, described in Paragraph (14) of Item 3 of the 1997 Form 10-K
and Paragraph (5) of Item 1 of Part II of the First Quarter 1998 Form
10-Q, on May 19, 1998, the District Attorney of San Bernardino County
filed a civil complaint against Molycorp in the San Bernardino County
Superior Court - Barstow Division for alleged violations of
California's Proposition 65 law and Hazardous Waste Control law (People
of the State of California v. Molycorp, Inc., No. BCV 03740). On July
15, 1998, an amended complaint was filed, withdrawing the Hazardous
Waste Control Law cause of action. The complaint is now limited to
alleged violations of Proposition 65. In addition, on July 9, 1998,
Molycorp and the Lahontan RWQCB settled the March 1998 Notice of
Proposed Administrative Civil Liability for failure to submit certain
reports in a timely manner for civil penalties in the aggregate amount
of $410,000, of which $290,000 was paid by Molycorp in July, and the
balance will be paid in three equal semi-annual installments.
(5) With reference to the matter involving the company's Kenai, Alaska,
fertilizer plant, described in Paragraph (17) of Item 3 of the 1997
Form 10-K, the company paid the $550,000 of civil penalties in June
1998.
(6) The South Coast Air Quality Management District (SCAQMD) has notified
the company concerning past Notices of Violation and emission fees that
remain outstanding regarding the company's former Los Angeles Refinery
Wilmington and Carson Plants (which were subsequently sold to Tosco
Corporation in March 1997). In the aggregate, penalties concerning
these matters could exceed $100,000. The company is working with the
SCAQMD towards a resolution of these matters.
(7) On August 6, 1998, a Los Angeles County Superior Court jury hearing the
Group 5 trial in Judicial Council Coordination Proceedings No. 2967,
"Lockheed Litigation Cases", awarded approximately $760 million in
punitive damages against five defendants, including Unocal. Unocal's
share of the award was $81.3 million. The defendants supplied
petrochemicals to the former Lockheed Corporation "Skunkworks" plant in
Burbank, California. The Group 5 trial involved 42 current and former
employees at Lockheed who claim personal injuries as the result of
exposure to these chemicals. In the compensatory damage phase of the
trial, Unocal was found liable to eight plaintiffs for a total of
approximately $750,000 as a consequence of its delivery of two drums of
naphtha to the plant in 1984. Unocal and the other defendants will seek
to have the punitive damage award set aside in post-trial proceedings
and, in any event, will appeal the entire result. The company is highly
confident that the punitive damage award will be substantially reduced
or completely reversed.
ITEM 2. CHANGES IN SECURITIES
During the second quarter of 1998, Unocal awarded 5,891 restricted stock units
to nonemployee directors pursuant to the terms of the company's Directors'
Restricted Stock Plan. The 5,891 units were awarded (1) as annual grants equal
to 20 percent of each nonemployee director's fees earned during the prior 12
months, (2) in consideration of the prior election by each of the nonemployee
directors to defer all or a portion of his or her cash fees and (3) upon the
credit of dividend equivalents upon units previously awarded. Additionally,
28,148 shares of restricted stock previously issued under the Directors'
Restricted Stock Plan were converted into an equal number of restricted stock
units. The units were not registered under the Securities Act of 1933 (the Act)
in reliance upon the exemption contained in Section 4(2) of the Act for
transactions by an issuer not involving any public offering. The units are paid
out in an equal number of shares of Unocal common stock at the end of a deferral
period elected by each director.
During the second quarter of 1998, Unocal issued 41 shares of its common stock
upon the conversion of 35 of the 6-1/4% trust convertible preferred securities
of Unocal Capital Trust. The common shares were not registered under the Act in
reliance upon the exemption contained in Section 3(a)(9) of the Act for
securities exchanged by the issuer with its existing security-holders
exclusively where no commission or other remuneration is paid or given directly
or indirectly for soliciting such exchange.
20
<PAGE>
ITEM 4. SUBMISSION OF A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of Unocal was held on June 1, 1998. The
following actions were taken by the stockholders at the Annual Meeting, for
which proxies were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934, as amended:
1. The three nominees proposed by the board of directors were elected as
directors by the following votes for three-year terms expiring at the
2001 Annual Meeting of Stockholders, or until their successors are duly
elected and qualified:
Name Votes For Votes Withheld
Frank C. Herringer 208,755,497 2,870,924
John F. Imle, Jr. 208,193,385 3,433,036
Marina v.N. Whitman 208,680,911 2,945,510
2. A proposal to ratify the appointment of Coopers & Lybrand L.L.P. as
Unocal's independent accountants for 1998 was passed by a vote of
209,933,249 for versus 1,095,549 against. There were 597,623
abstentions and no broker non-votes. Coopers & Lybrand L.L.P. recently
merged with Price Waterhouse L.L.P. to become PricewaterhouseCoopers
L.L.P.
3. A proposal to approve the 1998 Management Incentive Program passed by a
vote of 196,134,439 for versus 12,195,822 against. There were 1,900,135
abstentions and 1,396,025 broker non-votes.
4. A stockholder proposal that the Board review and report on executive
compensation failed to pass by a vote of 14,975,900 for versus
171,945,942 against. There were 2,548,229 abstentions and 22,156,350
broker non-votes.
5. A stockholder proposal that the Board research and report regarding the
Myanmar Oil and Gas Enterprise and drug money laundering failed to pass
by a vote of 10,291,289 for versus 174,807,930 against. There were
4,370,551 abstentions and 22,156,651 broker non-votes.
6. A stockholder proposal that the Board report on the cost and benefits
of doing business in Myanmar failed to pass by a vote of 11,395,313 for
versus 174,046,523 against. There were 4,027,934 abstentions and
22,156,651 broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The Exhibit Index on page 24 of this report lists the
exhibits that are filed as part of this report.
(b) Reports on Form 8-K:
Filed during the second quarter of 1998:
1. Current Report on Form 8-K dated April 15, 1998, and filed
April 21, 1998, for the purpose of reporting, under Item 5,
the completion of the company's Unocal Canada Limited
subsidiary's exchange of certain of its Canadian oil and gas
properties for common stock and debentures of Tarragon Oil
and Gas Limited.
2. Current Report on Form 8-K dated April 28, 1998, and filed
April 29, 1998, for the purpose of reporting, under Item 5,
Unocal's first quarter 1998 earnings and related
information.
3. Current Report on Form 8-K dated June 3, 1998, and filed
June 4, 1998, for the purpose of reporting, under Item 5,
Unocal's review of restructuring options for its
non-exploration and production operating business units.
21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
4. Current Report on Form 8-K and Amendment No. 1 thereto on
form 8-K/A dated June 17, 1998, and filed June 17, 1998 and
June 18, 1998, respectively, for the purpose of reporting,
under Item 5, a $3.4 million shortfall in payments by
Indonesian government entities for March steam deliveries.
Filed during the third quarter of 1998 to the date hereof:
1. Current Report on Form 8-K dated and filed July 14, 1998,
for the purpose of reporting, under Item 5, highlights from
Unocal's security analyst conference.
2. Current Report on Form 8-K dated and filed July 28, 1998,
for the purpose of reporting, under item 5, Unocal's second
quarter 1998 earnings and related information.
22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNOCAL CORPORATION
(Registrant)
Dated: August 11, 1998 By: /s/ Joe D. Cecil
--------------------------
Joe D. Cecil
Vice President and Comptroller
(Duly Authorized Officer and
Principal Accounting Officer)
23
<PAGE>
EXHIBIT INDEX
3.1 Bylaws of Unocal, as amended June 1, 1998, and currently in effect
(incorporated by reference to Exhibit 3.4 to the Registration Statement
on Form S-3 of Union Oil Company of California (Union Oil), Unocal and
Unocal Capital Trust II (File Nos. 333-58415, 333-58415-01 and
333-58415-02).
10.1 1998 Management Incentive Program, consisting of the Revised Incentive
Compensation Plan, the Long-Term Incentive Plan of 1998 and the 1998
Performance Stock Option Plan (incorporated by reference to Exhibit A
to Unocal's Proxy Statement dated April 20, 1998, for its 1998 Annual
Meeting of Stockholders held on June 1, 1998, at which the Program was
approved, File No. 1-8483).
10.2 Forms of Notice of Grant of Performance Stock Option and Tandem Limited
Stock Appreciation Right and Grant Agreement, effective as of March
30, 1998, between Unocal and each of Roger C. Beach, John F. Imle, Jr.,
Timothy H. Ling, Randolph L. Howard, John W. Schanck, Lucius E. (Ed)
Scott, Charles R. Williamson and Dennis P.R. Codon.
10.3 Unocal Supplemental Retirement Plan for Key Management Personnel
(effective as of January 1, 1998).
10.4 Amendments to the Directors' Restricted Stock Plan, effective June 1,
1998.
10.5 Form of Employment Agreement, to be effective as of July 28, 1998,
between Unocal and Roger C. Beach.
10.6 Form of Employment Agreement, to be effective as of July 28, 1998,
between Unocal and John F. Imle, Jr.
10.7 Form of Change of Control Agreement, to be effective as of July 28,
1998, between Unocal and Timothy H. Ling.
10.8 Form of Employment Agreement, to be effective as of July 28, 1998,
between Unocal and Randolph L. Howard.
10.9 Form of Employment Agreement, to be effective as of July 28, 1998,
between Unocal and John W. Schanck.
10.10 Form of Employment Agreement, to be effective as of July 28, 1998,
between Unocal and Lucius E. (Ed) Scott, Jr.
10.11 Form of Employment Agreement, to be effective as of July 28, 1998,
between Unocal and Charles R. Williamson.
10.12 Form of Employment Agreement, to be effective as of July 28, 1998,
between Unocal and Dennis P.R. Codon.
12.1 Statement regarding computation of ratio of earnings to fixed charges
of Unocal for the six months ended June 30, 1998 and 1997.
12.2 Statement regarding computation of ratio of earnings to fixed charges
of Union Oil for the six months ended June 30, 1998 and 1997.
27. Financial data schedule for the period ended June 30, 1998 (included
only in the copy of this report filed electronically with the
Commission).
99.1 Bylaws of Union Oil, as amended June 1, 1998, and currently in effect
(incorporated by reference to Exhibit 3.2 to the Registration Statement
on Form S-3 of Union Oil, Unocal and Unocal Capital Trust II (File Nos.
333-58415, 333-58415-01 and 333-58415-02).
24
EXHIBIT 10.2
- --------------------------------------------------------------------------------
Notice of Grant of Performance Stock UNOCAL CORPORATION
Option and TLSAR and Grant Agreement ID:
2141 Rosecrans Avenue, Suite 4000
El Segundo, California 90245
---------------------------------
[Name] ID: __________
[Address]
[Address]
You have been granted an Option to buy Unocal Corporation Common Stock as
follows:
Non-Qualified Performance Stock Option Grant No. [......]
Date of Grant 03/30/98
Management Incentive Program Component 1998 Performance Plan
Option Price per Share $51.012
Total Number of Option Shares Granted __________
Total Option Price of Option Shares Granted $__________
You have also been granted a Tandem Limited Stock Appreciation Right in
conjunction with the above Option.
Total Number of TLSAR Shares Granted __________
Grant Price per Share of TLSAR $38.6875
- --------------------------------------------------------------------------------
By signing your name below, you and Unocal Corporation agree
that (a) this Option and related TLSAR are granted under and
governed by the terms and conditions of the Grant Agreement
referenced above, which is attached hereto and made a part of
this document, and (b) both of these documents are subject to
the terms of the above referenced 1998 Performance Stock
Option Plan.
------------------------- ----------------------
Full Legal Name (print) Social Security Number
Current Address: ---------------------------------
---------------------------------
- --------------------------------------------------------------------------------
- ------------------------------------------ ------------------------------
For UNOCAL CORPORATION Date
- ------------------------------------------ ------------------------------
Optionee Date
<PAGE>
GRANT AGREEMENT
1998 PERFORMANCE STOCK OPTION PLAN
UNDER THE MANAGEMENT INCENTIVE PROGRAM
This Grant Agreement is between UNOCAL CORPORATION (the "Company") and the
individual (the "Holder") named in the Notice of Grant of Performance Stock
Option and TLSAR (the "Notice") attached hereto as the cover page of this
agreement. Capitalized terms used herein without definition shall have the
meanings assigned to such terms in the 1998 Performance Stock Option Plan (the
"Plan").
The Company, desiring to afford an opportunity to the Holder to purchase its
Stock, to provide the Holder with an incentive and a proprietary interest in the
success of the Company and its subsidiaries, and to obligate the Holder to
perform services with the Company or one or more of its subsidiaries as herein
provided, hereby grants to the Holder, and the Holder hereby accepts the Award,
subject to and in accordance with the terms and conditions of the Plan.
The Company grants to the Holder the right and option to purchase, on the terms
and conditions hereinafter set forth, all or any part of the aggregate number of
Option shares set forth in the Notice exercisable in accordance with the
provisions of this Grant during the period from March 31, 2001 through March 30,
2008 (the "Award Period"), unless terminated prior to that date pursuant to
paragraph A below. This Option is a Non-Qualified Stock Option.
The Company also grants to the Holder, in conjunction with the Option granted
hereby, a Tandem Limited Stock Appreciation Right ("TLSAR") for the number of
TLSAR shares set forth in the Notice, as described in Section 8 and 9(g) of the
Plan and paragraph B below.
A. Option
1. Exercisability (Vesting) of Option. The Holder may purchase the number
of option shares of Stock determined pursuant to paragraph A.2 below
commencing on March 31, 2001, provided that one of the following
Performance Conditions has been met between March 30, 1998 and March
30, 2001 (the "Performance Period").
a. Stock Price. The Fair Market Value of the Stock has been equal to or
greater than the option price for ten trading days (occurring within
any period of twenty consecutive trading days) during the Performance
Period.
b. Comparative Return to Stockholders. The Comparative Return to
Stockholders places the Company in the top quartile (75th percentile or
above) of the Peer Group Companies for the Performance Period, as
determined by the Committee.
If there is a Change in Control Event as defined in Section 9(f) of the
Plan and the Option has not been previously forfeited, the Holder may
exercise the Option at any time after either of the Performance
Conditions is met.
2. Number of Shares Exercisable. The Holder shall have the following
number of option shares available for exercise, provided one of the
Performance Conditions set forth in paragraph A.1 has been met:
a. If the Holder has been continuously employed at the Company or any
of its subsidiaries through the Performance Period, 100% of the option
shares granted in this Notice. For purposes of this Award, the
employment of the Holder shall be deemed to continue uninterrupted in
the event that during the Performance Period the Holder is on
authorized sick leave or such other leave as is approved by the
Committee.
b. If the employment of the Holder by the Company or any of its
subsidiaries terminates during the Performance Period because of death,
permanent and total disability, retirement at or after attaining age 65
and pursuant to the Company's retirement plan then in effect, early
retirement at the Company's request, or if the termination is at the
convenience of the Company, a portion of the option shares granted in
this Notice, prorated for service during the Performance Period, and
the balance of the option shares subject to the Award would be
forfeited.
2
<PAGE>
c. If the employment of the Holder by the Company or any of its
subsidiaries terminates within the Performance Period because of early
retirement at the Holder's request, for "cause" or for performance
inadequacy, or by resignation or any other discharge other than
pursuant to paragraph A.2(b), the Award would be completely forfeited.
d. If there is a Change of Control Event as defined in Section 9(f) of
the Plan, 100% of the option shares granted in this Notice which were
not previously forfeited.
3. Term of Option. The Option or portion of the Option under this Award
shall expire on the first to occur of the following dates:
a. The tenth anniversary of the Date of Grant, that is March 30, 2008.
b. The date of exercise of the Option or portion of the Option.
c. March 31, 2001, if the Option has not become exercisable by that
date in accordance with paragraph A.1 above.
d. If the Holder's employment with the Company and/or a subsidiary
terminates during the Performance Period because of a voluntary
resignation, early retirement at the Holder's request, termination for
"cause" or performance inadequacy, or any other discharge other than
retirement at or after attaining age 65 and pursuant to the Company's
retirement plan then in effect, early retirement at the Company's
request, or termination determined by the Committee to be at the
convenience of the Company, the Option will be completely forfeited on
the date of termination.
e. The date of (i) a dissolution of the Company, (ii) a merger,
reorganization, consolidation or similar event that the Company does
not survive, or (iii) the consummation of a merger, reorganization,
consolidation or similar event approved by the Board which the Board
determines to be a Change in Control Event. The date upon which any
such event occurs shall be referred to as a "Conversion Date." Change
of Control Events are defined in Section 9(f) of the Plan.
B. Tandem Limited Stock Appreciation Rights
1. Vesting of TLSAR. A TLSAR shall become immediately vested and payable
on a Conversion Date following a Change in Control Event, as defined in
Section 9(f) of the Plan.
2. Number of TLSAR Shares Payable. The number of TLSAR shares available
for vesting shall be calculated in the same manner as provided for
Option shares in paragraph A.2 above.
3. Term of TLSAR. The TLSAR under this Grant shall expire on the date of
expiration of the related Option, as specified on in paragraph A.3
above, unless the TLSAR is exercisable on such dates. All or a
proportionate part of the TLSAR shall also be canceled if the Holder
exercises all or a portion of the Option as provided in paragraph A of
this Grant.
4. Payment of TLSAR. Payment of the TLSAR shall be made as provided in Section
8(c) of the Plan.
C. Non-Transferability of Award
1. This Award shall not be transferable by the Holder except by will, the
laws of descent and distribution, or as provided in Section 10(e) of
the Plan. This Award shall be exercisable during the Holder's lifetime
only by the Holder, his guardian, or his legal representative.
D. Adjustments to Award Shares
1. This Option, TLSAR, and Grant Agreement shall be subject to adjustment
by the Committee as to the number and price of shares of Stock or other
considerations subject to this Award in the event of changes in the
outstanding Stock by reason of stock dividends, exchanges, or other
relevant changes in capitalization occurring after the Date of Grant of
this Award.
3
<PAGE>
E. Manner of Exercise
1. This Award may be exercised from time to time, in accordance with its
terms, by written notice thereof signed by the Holder and delivered to
the Secretary of the Company at its head office in the City of El
Segundo, State of California. Such notice shall state the number of
shares being purchased, be accompanied by payment of the full option
price for such number of shares, payment for any applicable withholding
tax (unless otherwise provided for), and the submission of this Grant
for endorsement as to the number of shares being purchased. Payment may
be in the form of cash or shares of the common stock of the Company.
Additionally, this Award may be exercised in accordance with such other
arrangements, including "cashless" exercise, as may be approved by the
Secretary of the Company.
2. The issuance of shares upon the exercise of this Award shall be subject
to all applicable laws, rules and regulations with respect to the
issuance and sale of such shares, and to such approvals by governmental
agencies as may be required.
3. The Holder shall be entitled to the privileges of stock ownership only
as to such shares as are issued or delivered to him hereunder and
subject to any limitation under paragraph E.2 above.
4. Exercise of a deceased Holder's Award shall be by his or her designated
beneficiary, legal representative or representatives, the person or
persons entitled to do so under the Holder's last will and testament,
or by the person or persons entitled to receive this Award under the
applicable laws of descent and distribution, whichever is applicable.
F. Miscellaneous
1. This Award is granted pursuant to the Company's 1998 Performance Stock
Option Plan and is subject to all the terms and provisions thereof.
2. As further consideration for the granting of this Award, the Holder
agrees to continue in the employment of the Company or one or more of
its subsidiaries at the pleasure of the Company or such subsidiary for
a continuous period of at least one (1) year from the Date of Grant at
the salary rate in effect on the date hereof or at such changed rate
as may be fixed from time to time by the Company or such subsidiary.
The Holder agrees during such employment to devote his or her entire
time, energy and skills to the service and interests of the Company or
such subsidiary, subject to vacations, sick leave, and other absences
in accordance with the regular policies of the Company and its
subsidiaries. The Holder agrees to promote the Company's interest and
to act in accord with the regular policies of the Company and its
subsidiaries. This Award shall not confer upon the Holder any right
with respect to continuance of employment by the Company or any
subsidiary, nor shall it interfere in any way with the right of the
employer to terminate his or her employment at any time for any
reason, with or without cause.
3. Notwithstanding any other provision hereof, in the event of a public
tender for all or any portion of the stock of the Company or in the
event that a proposal to merge, consolidate, or otherwise combine with
another company is submitted for shareholder approval, or any other
situation exists which the Committee determines is similar thereto, the
Committee may, in its sole discretion, declare previously granted
options for which the Performance Conditions have been or are
thereafter satisfied to be immediately exercisable.
4. The headings of the Agreement are solely for convenience and shall not
be given any effect in interpreting this Agreement.
5. This Agreement has been executed in two counterparts, each of which
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has granted this Award, at El Segundo,
California, effective on the Date of Grant of this Award.
UNOCAL CORPORATION
By___________________________
Chairman of the Board and
Chief Executive Officer
ACCEPTED:__________________
Award Holder
Date:________________________
4
EXHIBIT 10.3
UNOCAL SUPPLEMENTAL RETIREMENT PLAN FOR KEY MANAGEMENT PERSONNEL
(Effective as of January 1, 1998)
Article I - Eligibility
The Employee, or in the proper case, the Spouse of an Employee, shall be
eligible if each of the following provisions are satisfied:
A. The Employee is a Member of the Unocal Retirement Plan;
B. At the time of the Employee's separation from service with an Employer,
the Employee had at least 5 years of Benefit Service under the Unocal
Retirement Plan;
C. The Employee separates from service with an Employer on or after
January 1, 1998;
D. At the time of the Employee's separation from service with an Employer,
the Employee had received a Qualifying Incentive Plan award ("Incentive
Award") within the ten-year period used in determining "Final Average
Monthly Pay" under the Unocal Retirement Plan; and
E. The Employee's "Final Average Monthly Pay" under the Unocal Retirement
Plan is less than it would have been in the absence of the requirements
of Section 401(a)(17) of the Code.
Article II - Benefit
A. The amount of the Employee's benefit (or the Spouse's benefit, if
applicable) shall be equal to the difference, if any, between 1 and 2
below.
1. The amount of the monthly benefit that would have been payable under the
Unocal Retirement Plan if:
(a) "Final Average Monthly Pay" included the greater of (I)
one-thirty-sixth of the sum of the highest three calendar year
Incentive Awards (disregarding Employee deferral elections) made to the
Employee which are attributable to years within the ten-year period
used in determining the Employee's "Final Average Monthly Pay"
(including those received after separation from service) in lieu of the
Incentive Award component actually included in such calculation, and
(b) Any limitations imposed because of Section 415 and Section 401(a)(17)
of the Code were disregarded.
2. The amount of the monthly benefit payable to the recipient under the
Unocal Retirement Plan, using the Employee's actual "Final Average
Monthly Pay" but disregarding the limits imposed by Section 415 of the
Code.
B. For purposes of the above calculation, Incentive Awards shall include
5/6 of the value of Restricted Stock granted in 1988 under the Unocal
Corporation Long-Term Incentive Plan of 1985.
C. Notwithstanding the foregoing, in the event that more than three
Incentive Awards were included in the calculation of "Final Average
Monthly Pay" under the Unocal Retirement Plan, for purposes of the
calculation of a benefit under this Plan, the calculations under
Article II.A.2. above shall only include three annual Incentive Awards.
For this purpose, Incentive Awards pro-rated for the same calendar year
between two or more Qualifying Incentive Plans shall be deemed a single
Incentive Award.
<PAGE>
Article III - Form and Time of Payment
A. Benefits under this Plan shall commence at the same time as benefits
under the Unocal Retirement Plan, except that benefits paid under this
Plan in the Installment Payment Form shall commence on the date elected
by the Employee. Benefits under this Plan shall, in addition to any
limits imposed herein, be subject to the provisions of the Unocal
Retirement Plan, except as specifically provided otherwise by this
Plan.
B. An eligible Employee may elect to receive payments under this Plan
under any of the forms of payments available under the Unocal
Retirement Plan with respect to all or any part of his or her benefit
under this Plan. Such election shall also apply with respect to amounts
payable subsequent to retirement when a Incentive Award received
subsequent to retirement results in an increased benefit hereunder.
C. The forms of payment under this Plan shall be subject to the same
terms, conditions and actuarial adjustments as are applicable to such
forms under the Unocal Retirement Plan.
D. Notwithstanding the foregoing, an Employee may elect, subject to such
terms and conditions as the Company deems appropriate, to receive the
'Lump Sum Cash Settlement" amount, as determined above, in up to eight
annual installments. No interest shall accrue or be credited to such
payments or amounts.
E. An eligible Employee may make a timely election of the form of payment
of his or her benefits under this Plan, and may change such election
without penalty by making a subsequent timely election, at any time at
least one year prior to the Employee's retirement.
F. If an Employee does not make a timely election of the form of payment
of benefits, then benefits under this Plan will be paid as a life
annuity if the Employee is not married, or as a 100% joint and survivor
annuity for the Employee and his Spouse if the Employee is married,
unless the Employee makes an election which is subject to a reduction
of benefits under Article III.G. or III.H. below.
G. An eligible Employee may change his or her election of the form of
payment of benefits under this Plan within one year before retirement,
subject to a 6% reduction of his or her benefit which will be forfeited
to the Company or Employer, or may change such election after
retirement and before commencement of payment of benefits, subject to a
10% reduction of his or her benefit which will be forfeited to the
Company or Employer.
H. After commencement of payment of benefits, an Employee (or beneficiary
who is receiving payments) may elect to receive his or her remaining
benefits under this Plan in a lump sum payment, subject to a 10%
reduction of the lump sum payment, which will be forfeited to the
Company or Employer.
I. The lump sum payment to an Employee under Article III.H. (prior to the
10% reduction), except when the Employee was receiving payments under
the Installment Payment Form, shall be equal to the difference between
1. and 2. below, determined as of the commencement date of benefit
payments, accumulated to the date of the lump sum payment using the
interest rate specified below.
1. The lump sum value of the benefits payable to the Employee as a single
life annuity under this Plan determined as of the commencement date of
benefit payments.
2. The lump sum value of the benefits previously paid to the Employee
under this Plan (based on the actual form of payments, unless the
Employee was receiving payments under a Joint and Survivor Life Annuity
Form and the joint annuitant has died, in which case the value of
benefits previously paid shall be considered to be the benefits which
would have been paid to the Employee as a single life annuity)
discounted to the commencement date of benefit payments.
When an Employee was receiving payments under the Installment Payment
Form, the lump sum payment to the Employee under Article III.H. (prior
to the 10% reduction) shall be equal to the remaining unpaid
installment payments, without interest.
When a beneficiary of a deceased participant elects to receive a lump
sum payment, the amount of the lump sum payment shall be calculated in
a similar manner.
2
<PAGE>
Lump sum payments shall be valued using the interest rate used by the
Unocal Retirement Plan to determine lump sum payments for the month in
which the election under Section III H above is received by the
Company.
J. Within two years after a Change of Control, the reduction of benefits
under Article III.G. and III.H. shall be 5%, in lieu of the 6% or 10%
reduction which otherwise would apply. For this purpose a "Change of
Control" shall have the same meaning as a "Change in Control Event" as
such term is defined in the Unocal Management Incentive Program of
1998.
K. The Unocal Retirement Plan Committee, in its discretion, may waive
reductions in benefits for changes in elections of form of payment of
benefits or elections to receive lump sum payments which are due to a
financial hardship of the Employee (or the Employee's beneficiary if
the Employee is deceased).
L. If any provision of this Plan causes Plan benefits to be includable for
federal income tax purposes in the gross income of an Employee (or
beneficiary) prior to actual payment of such Plan benefits to the
Employee (or beneficiary), the Company shall pay such Plan benefits to
the Employee (or beneficiary) upon a final determination to such
effect, notwithstanding any other provision of this Plan to the
contrary.
Article IV - Administration and Termination
A. Union Oil Company of California shall administer the Plan. Such
responsibilities shall be carried out through its corporate officers
and employees acting in their capacities as officers and employees and
not as fiduciaries.
B. The Board of Directors may terminate or amend any or all of the
provisions of or add provisions to this Plan at any time. However, no
termination or amendment of this Plan shall reduce or adversely affect
(i) the benefit then being paid under this Plan, or (ii) the benefit
(including optional forms of benefit) that an Employee would be
eligible to receive under this Plan in the event that within ten years
of the effective date of the termination or amendment of this Plan he
or she retires with an immediate retirement benefit under the Unocal
Retirement Plan or dies. After a Change of Control, the Plan may not
be amended to eliminate or modify the right of an Employee (or
beneficiary) to receive a lump sum payment of his or her benefits
pursuant to Article III.
C. No Employee, beneficiary or joint annuitant may assign, transfer,
hypothecate, encumber, commute or anticipate his or her interest in any
benefits under this Plan. Interests and payments under this Plan are to
be free from voluntary or involuntary assignment, and judicial levy and
execution to the full extent permissible under applicable law.
D. Payments under this Plan shall be made from the general funds of the
Company or an Employer or from a grantor (rabbi) trust established by
the Company or Union Oil Company of California, unless otherwise
provided for by the Board of Directors.
E. The Unocal Retirement Plan Committee of the Board of Directors shall
have sole discretion regarding interpretation of this Plan and making
factual determinations. Unless defined below or otherwise indicated,
capitalized or quoted materials refer to the meanings and definitions
under the Unocal Retirement Plan. Any questions that arise as to the
rights to any benefits under this Plan or as to the interpretation of
any of its provisions shall be determined by said Committee.
F. Nothing in this Plan shall give any person a right to remain in the
employment of the Employer or affect the right of the Employer to
terminate the employment of an Employee at any time, with or without
cause.
G. Any controversy or claim arising out of or relating to this Plan
shall be settled by binding arbitration in Los Angeles, California, in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The parties shall seek to agree upon
appointment of the arbitrator and the arbitration procedures. If the
parties are unable to reach such agreement, a single arbitrator who is
a retired judge of a Federal or California state court shall be
appointed pursuant to the AAA Commercial Arbitration Rules, and the
arbitrator shall determine the arbitration procedures. Any award
pursuant to such arbitration shall be included in a written decision
which shall state the legal and factual reasons upon with the award
was based, including all the elements involved in the calculation of
any award. Any such award shall be deemed final and binding and may be
entered and enforced in any state or federal court of competent
jurisdiction. The arbitrator shall interpret the Plan in accordance
with the laws of California. The arbitrator shall be authorized to
award reasonable attorney's fees and other arbitration-related costs
to a Participant or his or her beneficiary if an award is made in
favor of the Participant or beneficiary. The award shall be limited to
Plan benefits at issue, reasonable attorney's fees and
arbitration-related costs.
3
<PAGE>
H. The Plan shall not be terminated by a transfer or sale of assets of the
Company or by the merger or consolidation of the Company into or with
any other corporation or other entity. The Plan shall be binding upon
and inure to the benefit of any successor of the Company.
Article V - Definitions
A. Board of Directors - The Board of Directors of Unocal Corporation.
B. Code - The Internal Revenue Code of 1986 as amended from time to time.
C. Company - Unocal Corporation.
D. Employee - A person who is in the employment of an Employer on or after
the effective date of this Plan.
E. Employer - Unocal Corporation, Union Oil Company of California and any
other subsidiary or affiliate of the Company so designated by the Board
of Directors.
F. ERISA - The Employee Retirement Income Security Act of 1974, as amended
from time to time.
G. Plan - Unocal Supplemental Retirement Plan For Key Management
Personnel.
H. Qualifying Incentive Plan means the Unocal Revised Incentive
Compensation Plan, the Unocal Global Trade Trader and Support Incentive
Plan and the New Ventures Incentive Compensation Program.
I. Qualifying Incentive Plan Award means an annual award under a
Qualifying Incentive Plan other than awards which are team, project or
special awards.
J. Law - The Plan shall be governed by and construed in accordance with
the laws of the State of California.
K. Effective Date - This Plan shall apply to Employees whose separation
from service date is on or after January 1, 1998. The Plan, as
previously in effect, shall continue to apply to Employees who
separated from service prior to January 1, 1998.
4
s EXHIBIT 10.4
AMENDMENTS TO THE DIRECTORS' RESTRICTED STOCK PLAN
A. Section 7 of the Plan (Restrictions and Forfeiture) is further amended
to read in its entirety as follows:
"7. Restrictions, Distributions and Forfeitures.
Restricted Stock Units issued under the Plan shall have a Restriction
Period beginning on the Date of Grant under Section 5 or the date of
the annual deferral election, whichever is applicable, and ending on
the date five years thereafter or the date of the Holder's death or
disability or the expiration of the term of a Holder/Director who is
not nominated by the Board of Directors of the Company (the "Board")
for reelection (other than because of a dismissal for cause) or who,
having stood for reelection is not reelected by the stockholders,
whichever first occurs. For this purpose, the date of the annual
deferral election means the first date of the period for which such
deferral is elected. Notwithstanding any other provision of the Plan,
no shares shall be delivered prior to six months from the date of grant
of Restricted Stock Units. If the Restriction Period has lapsed and the
Stock is otherwise deliverable hereunder, the Stock shall be delivered
upon the expiration of the six-month period. Restricted Stock Units
shall be subject to the following additional terms and conditions:
a. The Holder of Restricted Stock Units shall be entitled to the
delivery of a stock certificate or certificates upon the later of:
(i) the end of the Restriction Period; or
(ii) the end of the applicable deferral period selected by the
Director (the "Deferral Period")from alternatives and on forms
approved by the Board and by the Management Committee.
b. Except as otherwise provided in paragraph c of this Section 7,
Restricted Stock Units and rights associated therewith as to which
the Restriction Period has not ended shall be entirely forfeited
in the event that during the applicable Restriction Period in
respect of those Restricted Stock Units the Holder:
(i) Is dismissed for cause by the Board;
(ii) Resigns other than For Good Cause;
(iii) Refuses other than For Good Cause to stand for election to the
Board.
"For Good Cause" as used herein shall include for reasons of
personal health or health of family members, to avoid
conflicts of interest, as a result of increased family demands
or business demands of a directors' employer, as a result of
accepting government or community service, as a result of a
change in area of residence, or as a result of a material
increase in the time required or projected to be required for
service on the Board.
c. If there has been a Change in Control(as defined below), the
Holder's resignation or refusal to stand for an election to the
Board, within two years after the Change in Control, shall not
result in a forfeiture under Section 7.b. In such circumstances,
the Stock shall be distributed at the end of the Deferral Period.
For purposes of the Plan, a Change in Control means any of the
following:
(i) Consummation of a merger or consolidation, or other
reorganization, with or into one or more entities that are not
subsidiaries or other controlled affiliates, as a result of which
less than 50% of the outstanding voting securities of the
surviving or resulting entity immediately after the
reorganization are, or will be, owned, directly or indirectly,
by stockholders of the Company immediately before such
reorganization (assuming for purposes of suchdetermination that
there is no change in the record ownership of the Company's
securities from the record date for such approval until such
reorganization and that such record owners hold no securities of
the other parties to such reorganization, but including
in such determination any securities of the other parties to such
reorganization held by subsidiaries or other controlled
affiliates of the Company).
<PAGE>
(ii) Consummation of the sale of substantially all of the
Company's business and/or assets to a person or entity that is
not a subsidiary or other controlled affiliate.
(iii) The acquisition by any "person" (as such term is used in
Sections 13(d) and 14(d)of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), but excluding any person
described in and satisfying the conditions of Rule 13d-1(b)(1)
thereunder), other than a subsidiary or other controlled
affiliate and other than an employee benefit plan sponsored by
the Company or any of its subsidiaries or controlled affiliates
, of beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act, and except pursuant to customary forms of
revocable proxies used in connection with annual meetings of
shareholders), directly or indirectly, of securities of the
Company representing more than 50% of the combined voting
power of the Company's then outstanding securities entitled
to then vote generally in the election of directors of the
Company.
(iv) During any period not longer than two consecutive years,
individuals who at the beginning of such period constituted
the Board cease to constitute at least a majority thereof,
unless the election, or the nomination for election by the
Company's stockholders, of each new member of the Board was
approved by a vote of at least three-fourths of the members of
the Board then still in office who were members of the Board at
the beginning of such period (including for these purposes,
new members whose election or nomination was so approved).
d. If the Holder ceases to be a Director of the Company prior to
the end of the Restriction Period for reasons that do not result in
a forfeiture event under Section 7.b, the Holder shall be entitled
to payment in respect of Restricted Stock Units then held as
provided in Section 7.a.
e. With respect to any deferral election in respect of Restricted
Stock Units made prior to June 1, 1998 [the effective date of these
amendments], the risk of forfeiture under Section 7.b. shall expire
no later than the end of the Restriction Period as defined in the
first sentence of this Section 7.
f. The Holder may elect, provided such election is made while the
Holder continues to serve as a Director and prior to July 1, 1998,
to change a deferral election authorized hereunder to extend (but
not shorten) the Deferral Period, to the extent consistent with the
other terms of this Section 7. Such change shall be effective one
year after the change is received by the Company.
g. Restricted Stock currently outstanding under this Plan may be
exchanged pursuant to an election received by the Company on or
prior to July 1, 1998 for Restricted Stock Units under this Plan
with the terms and conditions as to the Restriction Period as if
initially granted or issued as Restricted Stock Units hereunder,
and with the same terms and conditions as to time of payment, once
vested, as would apply to Restricted Stock Units as to which a
Holder had elected a Deferral Period equal to any longer
Restriction Period applicable to the Restricted Stock immediately
prior to the exchange.
B. Section 12 of the Plan (Changes in Capital Structure) is
amended to insert in the first sentence after the phrase
"as to the number of Restricted Stock Units", the
following:
"and as to the type and amount of shares or other
securities or property deliverable in payment of rights with
respect to the Restricted Stock Units based upon the
distribution or consideration payable to holders of Stock upon
or in respect of such event,..."
and to insert at the end of the first sentence, the following:
"; or in anticipation of a dissolution of the Company so as to
enable the Holder to participate with other stockholders in
any distribution in connection with the dissolution or
liquidation of the Company. Any right in respect of cash or
any equivalent into which the Stock may be or have been
converted as a result of such event shall include a right to
monthly interest credits based upon 120% of the applicable
federal long-term rate."
and to add the words "Restricted Stock or" before each
reference to Restricted Stock Units in Section 12.
2
EXHIBIT 10.5
UNOCAL EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is made effective as of
July 28, 1998 by and between Unocal Corporation, a Delaware corporation (the
"Company") and Roger C. Beach, Chief Executive Officer and Chairman of the Board
of Directors ("Employee").
In consideration of the mutual promises and agreements set forth
herein, the Company and Employee agree as follows:
1. Term.
1.1 The term of this Agreement (the "Term") shall commence on July 28,
1998 and shall be for three years, subject to earlier termination in accordance
with the provisions of Section 4 hereinbelow. If the Agreement has not been
subject to early termination in accordance with the provisions of Section 4
hereinbelow, beginning on July 28, 1998 and on each day thereafter, the Term
shall automatically be extended for an additional day unless the Company
notifies Employee in writing that it does not wish to further extend the Term.
Notwithstanding the foregoing, this Agreement shall end automatically and
without additional notice on the date of the Company's Annual Meeting of
Shareholders that next follows the date of Employee's sixty-fifth (65th)
birthday.
2. Position and Title.
2.1 The Company on behalf of itself and its affiliates and subsidiaries
hereby employs Employee as Chief Executive Officer and Employee hereby accepts
such employment.
2.2 Employee shall devote substantially all of his efforts on a full
time basis to the business and affairs of the Company and shall not engage in
any business or perform any services in any capacity whatsoever adverse to the
interests of the Company.
2.3 Employee shall at all times faithfully, industriously, and to the
best of his ability, experience, and talents, perform all of the duties of his
position.
3. Compensation.
3.1 As of the date of this Agreement, Employee's annual base salary is
$860,004. Employee's base salary and performance shall be reviewed periodically
at intervals approved by the Management Development and Compensation Committee
of the Board of Directors of the Company (the "Committee"), and Employee's base
salary may be increased from time to time based on merit or such other
consideration as the Committee may deem appropriate.
3.2 During the Term, Employee shall participate in all of the Company's
incentive plans, benefit plans and perquisites, and in any new or successor
incentive plans, benefit plans and perquisites, that are generally provided to
executives of the Company with a level of responsibility and stature comparable
to Employee. Performance goals, award opportunity, benefit levels, and
administrative guidelines for such plans shall be subject to review and approval
by the Committee.
4. Termination of Employment.
4.1 During the Term, the Company may terminate Employee's employment
herein at any time for Cause or as a result of a material breach by Employee of
his obligations under this Agreement, provided however that, except in the case
of conviction of a felony, the Company shall provide Employee with not less than
sixty (60) days prior written notice describing the behavior or conduct which is
alleged by the Company to constitute Cause, and Employee shall be provided with
reasonable opportunity to correct such behavior or conduct within the notice
period. For purposes of this Agreement, Cause shall be defined as any or all of
the following:
(1) Conduct or action by Employee which, in the opinion of a majority
of the Board of Directors, is materially harmful to the Company;
<PAGE>
(2) Willful failure by Employee to follow an order of the Board,
except in such case where the Employee believes in good faith
that following such order would be materially detrimental to
the interests of the Company;
(3) Employee's conviction of a felony.
4.2 In the event that Employee's employment is terminated by the
Company for any reason other than those set forth in Paragraph 4.1 hereinabove,
or, (a) Employee's annual base salary is reduced below the amount stated in
Paragraph 3.1 hereinabove (unless such reduction is part of an across the board
reduction affecting all Company executives with a comparable level of
responsibility, title or stature), or (b) Employee is removed from or denied
participation in incentive plans, benefit plans, or perquisites generally
provided by the Company to other executives with a comparable level of
responsibility, title or stature, or (c) Employee's target incentive
opportunity, benefits or perquisites are reduced relative to other executives
with comparable responsibility, title or stature, or (d) Employee is assigned
duties or obligations inconsistent with his position with the Company or (e)
There is a significant change in the nature and scope of Employee's authority or
his overall working environment, such event shall be considered a Termination
Without Cause.
4.3 In the event of Employee's Termination Without Cause at any
time during the Term of this Agreement, then:
(1) The Company shall pay Employee a lump-sum severance amount
within thirty (30) days following Termination Without Cause
equal to three (3) times the sum of (a) the higher of the
Employee's annual base salary at the time of Termination
Without Cause or the annual base salary stated in Paragraph
3.1 hereinabove, and (b) the average annual Bonus earned by
Employee (whether paid in cash or deferred) for the two
completed fiscal years immediately prior to Termination
Without Cause, reduced by the amount of any Unocal Employee
Redeployment Program and/or Unocal Termination Allowance
benefits payable to Employee.
(2) The Company shall provide for Employee to receive medical,
dental, life, and disability insurance coverage for three (3)
years following Termination Without Cause at levels and a net
cost to Employee comparable to that provided to Employee
immediately prior to Employee's Termination Without Cause.
(3) The Company shall pay Employee an additional lump-sum
severance amount within thirty (30) days following Employee's
Termination Without Cause equal to three (3) times the base
salary used to determine the lump-sum severance benefit in
paragraph 4.3(1) hereinabove, multiplied by 6% (.06).
4.4 In the event that during the Term of this Agreement Employee should
voluntarily resign from the Company, should terminate employment with the
Company due to death, permanent disability or incapacitation, or is terminated
by the Company for Cause or for a material breach by Employee of his obligations
under this Agreement, then Employee shall not be entitled to any of the
termination benefits provided for in Paragraph 4.3 hereinabove, and the Term of
the Agreement shall immediately end.
4.5 Employee shall not be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to Employee under
any provisions of this Agreement.
5. Change of Control.
5.1 In the event of a Change of Control of the Company at any
time during the Term of this Agreement, then:
2
<PAGE>
(1) In the event of Employee's Termination Without Cause within a
period of thirty-six (36) months following the date of a Change
of Control, Employee shall be entitled to the termination
benefits described in Paragraph 4.3 hereinabove; provided that
the lump-sum severance amount paid to Employee under this
Paragraph 5.1(1), which is calculated based on Paragraphs 4.3(1)
and 4.3(3) hereinabove, shall be (a) reduced to equal the present
value, determined in accordance with Section 280G(d)(4) of the
Internal Revenue Code (the "IRC"), of the lump-sum severance
amount which would otherwise be payable under Paragraphs 4.3(1)
and 4.3(3), and (b) reduced to offset compensation and other
earned income by Employee in the manner provided for in
Paragraphs 5.1(2) and 5.1(3) below.
(2) The lump-sum severance amounts payable to Employee under
Paragraphs 4.3(1) and 4.3(3) shall be reduced by one hundred
percent (100%) of any compensation and other earned income
(within the meaning of Section 911(d)(2)(A) of the IRC) which is
earned by Employee for services rendered to persons or entities
other than the Company or its affiliates during the three years
immediately following Employee's Termination Without Cause.
(3) Not less frequently than annually beginning on the first
anniversary following Employee's Termination Without Cause,
Employee shall account to the Company with respect to all
compensation and other earned income earned by Employee which is
required hereunder to be offset against the lump-sum severance
amount received by Employee from the Company under Paragraphs
5.1(1) and 5.1(2). If the Company has paid a lump-sum severance
amount in excess of the amount to which Employee is entitled
(after giving effect to the offsets provided for above), Employee
shall reimburse the Company for such excess within thirty (30)
days of the determination of such excess. The requirements
imposed under this Paragraph 5.1(3) shall terminate thirty (30)
days immediately following the second anniversary of Employee's
Termination Without Cause.
5.2 For the purpose of this Agreement, a "Change of Control" shall
mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")(a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 5.2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
3
<PAGE>
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company or
the acquisition of assets of another corporation (a "Business Combination"), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5.3 Certain Additional Payments by the Company may be due as follows:
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company or its affiliates to or for the benefit of the
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise but determined without regard to any
additional payments required under this Section 5.3), (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 5.3, if it shall be
determined that the Employee is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Employee such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Employee
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 5.3(c), all determinations
required to be made under this Section 5.3, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Ernst and Young or such other certified public accounting firm as may be
designated by the Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Employee within 15 business
days of the receipt of notice from the Employee that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Employee shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 5.3, shall be paid by the Company to the Employee within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 5.3(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee.
4
<PAGE>
(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Employee is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim, the Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 5.3(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Employee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
the such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Employee with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Employee shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 5.3(c), the Employee becomes entitled to receive any
refund with respect to such claim, the Employee shall (subject to the Company's
employing with the requirements of Section 5.3 promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 5.3(c), a determination is made that
the Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify the Employee in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
6. Covenants.
6.1 Employee agrees that any and all confidential knowledge or
information, including but not limited to customer lists, books, records, data,
formulae, specifications, inventions, processes and methods, and developments
and improvements, which have been or may be obtained or learned by Employee in
the course of his employment with the Company, will be held confidential by
Employee, and that Employee shall not disclose the same to any person outside of
the Company either during his employment with the Company or after his
employment by the Company has terminated.
6.2 Employee agrees that upon termination of his employment with the
Company he will immediately surrender and turn over to the Company all books,
records, forms, specifications, formulae, data, and all papers and writings
relating to the business of the Company and all other property belonging to the
Company, it being understood and agreed that the same are the sole property of
the Company and that Employee shall not make or retain any copies thereof.
5
<PAGE>
6.3 Employee agrees that all inventions, developments or improvements
which he has made or may make, conceive, invent, discover or otherwise acquire
during his employment with the Company in the scope of his responsibilities or
otherwise shall become the sole property of the Company.
6.4 Employee agrees to provide a release of any claims with respect to
termination of his or her employment on such form as requested by the Company
upon payment of the sums provided in Section 4.3 above.
7. Miscellaneous Provisions.
7.1 All terms and conditions of this Agreement are set forth herein,
and there are no warranties, agreements or understandings, express or implied,
except those expressly set forth herein.
7.2 Any modification to this Agreement shall be binding only if
evidenced in writing signed by all parties hereto.
7.3 Any notice or other communication required or permitted to be given
hereunder shall be deemed properly given if personally delivered or deposited in
the United States mail, registered or certified and postage prepaid, addressed
to the Company at 2141 Rosecrans Ave., Suite 4000, El Segundo, CA (Attention:
General Counsel), or to Employee at his or her most recent home address on file
with Company, or at other such addresses as may from time to time be designated
in writing by the respective parties.
7.4 The laws of the State of California shall govern the validity of
this Agreement, the construction of its terms, and the interpretation of the
rights and duties of the parties involved.
7.5 In the event that any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the same shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provisions had never been contained herein.
7.6 This Agreement shall be binding upon, and inure to the benefit of,
the successors and assigns of the Company and the personal representatives,
heirs and legatees of Employee.
7.7 "Bonus" refers to the Unocal Incentive Compensation Plan and any
replacement or successor plan thereof.
7.8 Company shall pay 90% (ninety percent) of Employee's out-of-pocket
litigation expenses, including reasonable attorney's fees, in connection with
any judicial proceeding to enforce this Agreement or construe or determine the
validity of this Agreement, whether or not the Employee is successful in such
proceeding.
7.9 The term "Company" shall include with respect to employment
hereunder, any subsidiary or affiliate of the Company as well as any successor
employer following a Change in Control.
7.10 This Agreement succeeds and replaces that Unocal Employment
Agreement which was effective December 8, 1997 between Company and Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
BY:
Chairman of the Management Development and
Compensation Committee of the Unocal
Board of Directors
BY:
EMPLOYEE
6
EXHIBIT 10.6
UNOCAL EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is made effective as of
July 28, 1998 by and between Unocal Corporation, a Delaware corporation (the
"Company") and John F. Imle, Jr., President ("Employee").
In consideration of the mutual promises and agreements set forth
herein, the Company and Employee agree as follows:
1. Term.
1.1 The term of this Agreement (the "Term") shall commence on July 28,
1998 and shall be for three years, subject to earlier termination in accordance
with the provisions of Section 4 hereinbelow. If the Agreement has not been
subject to early termination in accordance with the provisions of Section 4
hereinbelow, beginning on July 28, 1998 and on each day thereafter, the Term
shall automatically be extended for an additional day unless the Company
notifies Employee in writing that it does not wish to further extend the Term.
Notwithstanding the foregoing, this Agreement shall end automatically and
without additional notice on the date of the Company's Annual Meeting of
Shareholders that next follows the date of Employee's sixty-fifth (65th)
birthday.
2. Position and Title.
2.1 The Company on behalf of itself and its affiliates and subsidiaries
hereby employs Employee as President, and Employee hereby accepts such
employment.
2.2 Employee shall devote substantially all of his efforts on a full
time basis to the business and affairs of the Company and shall not engage in
any business or perform any services in any capacity whatsoever adverse to the
interests of the Company.
2.3 Employee shall at all times faithfully, industriously, and to the
best of his ability, experience, and talents, perform all of the duties of his
position.
3. Compensation.
3.1 As of the date of this Agreement, Employee's annual base salary is
$525,000. Employee's base salary and performance shall be reviewed periodically
at intervals approved by the Management Development and Compensation Committee
of the Board of Directors of the Company (the "Committee"), and Employee's base
salary may be increased from time to time based on merit or such other
consideration as the Committee may deem appropriate.
3.2 During the Term, Employee shall participate in all of the Company's
incentive plans, benefit plans and perquisites, and in any new or successor
incentive plans, benefit plans and perquisites, that are generally provided to
executives of the Company with a level of responsibility and stature comparable
to Employee. Performance goals, award opportunity, benefit levels, and
administrative guidelines for such plans shall be subject to review and approval
by the Committee.
4. Termination of Employment.
4.1 During the Term, the Company may terminate Employee's employment
herein at any time for Cause or as a result of a material breach by Employee of
his obligations under this Agreement, provided however that, except in the case
of conviction of a felony, the Company shall provide Employee with not less than
sixty (60) days prior written notice describing the behavior or conduct which is
alleged by the Company to constitute Cause, and Employee shall be provided with
reasonable opportunity to correct such behavior or conduct within the notice
period. For purposes of this Agreement, Cause shall be defined as any or all of
the following:
(1) Conduct or action by Employee which, in the opinion of a
majority of the Board of Directors, is materially harmful to
the Company;
<PAGE>
(2) Willful failure by Employee to follow an order of the Board,
except in such case where the Employee believes in good faith
that following such order would be materially detrimental to
the interests of the Company;
(3) Employee's conviction of a felony.
4.2 In the event that Employee's employment is terminated by the
Company for any reason other than those set forth in Paragraph 4.1 hereinabove,
or, (a) Employee's annual base salary is reduced below the amount stated in
Paragraph 3.1 hereinabove (unless such reduction is part of an across the board
reduction affecting all Company executives with a comparable level of
responsibility, title or stature), or (b) Employee is removed from or denied
participation in incentive plans, benefit plans, or perquisites generally
provided by the Company to other executives with a comparable level of
responsibility, title or stature, or (c) Employee's target incentive
opportunity, benefits or perquisites are reduced relative to other executives
with comparable responsibility, title or stature, or (d) Employee is assigned
duties or obligations inconsistent with his position with the Company or (e)
There is a significant change in the nature and scope of Employee's authority or
his overall working environment, such event shall be considered a Termination
Without Cause.
4.3 In the event of Employee's Termination Without Cause at any
time during the Term of this Agreement, then:
(1) The Company shall pay Employee a lump-sum severance amount
within thirty (30) days following Termination Without Cause
equal to three (3) times the sum of (a) the higher of the
Employee's annual base salary at the time of Termination
Without Cause or the annual base salary stated in Paragraph
3.1 hereinabove, and (b) the average annual Bonus earned by
Employee (whether paid in cash or deferred) for the two
completed fiscal years immediately prior to Termination
Without Cause, reduced by the amount of any Unocal Employee
Redeployment Program and/or Unocal Termination Allowance
benefits payable to Employee.
(2) The Company shall provide for Employee to receive medical,
dental, life, and disability insurance coverage for two (2)
years following Termination Without Cause at levels and a net
cost to Employee comparable to that provided to Employee
immediately prior to Employee's Termination Without Cause.
(3) The Company shall pay Employee an additional lump-sum
severance amount within thirty (30) days following Employee's
Termination Without Cause equal to three (3) times the base
salary used to determine the lump-sum severance benefit in
paragraph 4.3(1) hereinabove, multiplied by 6% (.06).
4.4 In the event that during the Term of this Agreement Employee should
voluntarily resign from the Company, should terminate employment with the
Company due to death, permanent disability or incapacitation, or is terminated
by the Company for Cause or for a material breach by Employee of his obligations
under this Agreement, then Employee shall not be entitled to any of the
termination benefits provided for in Paragraph 4.3 hereinabove, and the Term of
the Agreement shall immediately end.
4.5 Employee shall not be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to Employee under
any provisions of this Agreement.
5. Change of Control.
5.1 In the event of a Change of Control of the Company at any time
during the Term of this Agreement, then:
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<PAGE>
(1) In the event of Employee's Termination Without Cause within
a period of thirty-six (36) months following the date of a
Change of Control, Employee shall be entitled to the
termination benefits described in Paragraph 4.3 hereinabove;
provided that the lump-sum severance amount paid to Employee
under this Paragraph 5.1(1), which is calculated based on
Paragraphs 4.3(1) and 4.3(3) hereinabove, shall be (a) reduced
to equal the present value, determined in accordance with
Section 280G(d)(4) of the Internal Revenue Code (the "IRC"),
of the lump-sum severance amount which would otherwise be
payable under Paragraphs 4.3(1) and 4.3(3), and (b) reduced to
offset compensation and other earned income by Employee in the
manner provided for in Paragraphs 5.1(2) and 5.1(3) below.
(2) The lump-sum severance amounts payable to Employee under
Paragraphs 4.3(1) and 4.3(3) shall be reduced by one hundred
percent (100%) of any compensation and other earned income
(within the meaning of Section 911(d)(2)(A) of the IRC) which
is earned by Employee for services rendered to persons or
entities other than the Company or its affiliates during the
three years immediately following Employee's Termination
Without Cause.
(3) Not less frequently than annually beginning on the first
anniversary following Employee's Termination Without Cause,
Employee shall account to the Company with respect to all
compensation and other earned income earned by Employee which
is required hereunder to be offset against the lump-sum
severance amount received by Employee from the Company under
Paragraphs 5.1(1) and 5.1(2). If the Company has paid a
lump-sum severance amount in excess of the amount to which
Employee is entitled (after giving effect to the offsets
provided for above), Employee shall reimburse the Company for
such excess within thirty (30) days of the determination of
such excess. The requirements imposed under this Paragraph
5.1(3) shall terminate thirty (30) days immediately following
the second anniversary of Employee's Termination Without
Cause.
5.2 For the purpose of this Agreement, a "Change of Control" shall
mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")(a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 5.2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
3
<PAGE>
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company or
the acquisition of assets of another corporation (a "Business Combination"), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5.3 Certain Additional Payments by the Company may be due as follows:
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company or its affiliates to or for the benefit of the
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise but determined without regard to any
additional payments required under this Section 5.3), (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 5.3, if it shall be
determined that the Employee is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Employee such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Employee
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 5.3(c), all determinations
required to be made under this Section 5.3, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Ernst and Young or such other certified public accounting firm as may be
designated by the Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Employee within 15 business
days of the receipt of notice from the Employee that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Employee shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 5.3, shall be paid by the Company to the Employee within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 5.3(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee.
4
<PAGE>
(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Employee is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim, the Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 5.3(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Employee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
the such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Employee with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Employee shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 5.3(c), the Employee becomes entitled to receive any
refund with respect to such claim, the Employee shall (subject to the Company's
employing with the requirements of Section 5.3 promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 5.3(c), a determination is made that
the Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify the Employee in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
6. Covenants.
6.1 Employee agrees that any and all confidential knowledge or
information, including but not limited to customer lists, books, records, data,
formulae, specifications, inventions, processes and methods, and developments
and improvements, which have been or may be obtained or learned by Employee in
the course of his employment with the Company, will be held confidential by
Employee, and that Employee shall not disclose the same to any person outside of
the Company either during his employment with the Company or after his
employment by the Company has terminated.
6.2 Employee agrees that upon termination of his employment with the
Company he will immediately surrender and turn over to the Company all books,
records, forms, specifications, formulae, data, and all papers and writings
relating to the business of the Company and all other property belonging to the
Company, it being understood and agreed that the same are the sole property of
the Company and that Employee shall not make or retain any copies thereof.
5
<PAGE>
6.3 Employee agrees that all inventions, developments or improvements
which he has made or may make, conceive, invent, discover or otherwise acquire
during his employment with the Company in the scope of his responsibilities or
otherwise shall become the sole property of the Company.
6.4 Employee agrees to provide a release of any claims with respect to
termination of his or her employment on such form as requested by the Company
upon payment of the sums provided in Section 4.3 above.
7. Miscellaneous Provisions.
7.1 All terms and conditions of this Agreement are set forth herein,
and there are no warranties, agreements or understandings, express or implied,
except those expressly set forth herein.
7.2 Any modification to this Agreement shall be binding only if
evidenced in writing signed by all parties hereto.
7.3 Any notice or other communication required or permitted to be given
hereunder shall be deemed properly given if personally delivered or deposited in
the United States mail, registered or certified and postage prepaid, addressed
to the Company at 2141 Rosecrans Ave., Suite 4000, El Segundo, CA (Attention:
General Counsel), or to Employee at his or her most recent home address on file
with Company, or at other such addresses as may from time to time be designated
in writing by the respective parties.
7.4 The laws of the State of California shall govern the validity of
this Agreement, the construction of its terms, and the interpretation of the
rights and duties of the parties involved.
7.5 In the event that any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the same shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provisions had never been contained herein.
7.6 This Agreement shall be binding upon, and inure to the benefit of,
the successors and assigns of the Company and the personal representatives,
heirs and legatees of Employee.
7.7 "Bonus" refers to the Unocal Incentive ompensation Plan and any
replacement or successor plan thereof.
7.8 Company shall pay 90% (ninety percent) of Employee's out-of-pocket
litigation expenses, including reasonable attorney's fees, in connection with
any judicial proceeding to enforce this Agreement or construe or determine the
validity of this Agreement, whether or not the Employee is successful in such
proceeding.
7.9 The term "Company" shall include with respect to employment
hereunder, any subsidiary or affiliate of the Company as well as any successor
employer following a Change in Control.
7.10 This Agreement succeeds and replaces that Unocal Employment
Agreement which was effective December 8, 1997 between Company and Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
BY:
Chairman of the Management Development and
Compensation Committee of the Unocal
Board of Directors
BY:
EMPLOYEE
6
EXHIBIT 10.7
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement (the "Agreement") is made effective as
of July 28, 1998 by and between Unocal Corporation, a Delaware corporation (the
"Company") and Timothy H. Ling, Chief Financial Officer ("Employee").
WHEREAS, if certain corporate transactions were proposed or pending,
such potential transactions could result in distractions to Employee's
performance at a critical period; and
WHEREAS, Employee and Company wish to enter into this agreement in
order to provide security to Employee as a means of maintaining performance
under such circumstances.
THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the Company and Employee agree as follows:
1. Term.
1.1 The term of this Agreement (the "Term") shall commence on July 28,
1998 and shall be for three years, subject to earlier termination in accordance
with the provisions of Section 4 hereinbelow. If the Agreement has not been
subject to early termination in accordance with the provisions of Section 4
hereinbelow, beginning on July 28, 1998 and on each day thereafter, the Term
shall automatically be extended for an additional day unless the Company
notifies Employee in writing that it does not wish to further extend the Term.
2. Position and Title.
2.1 The Company on behalf of itself and its affiliates and subsidiaries
hereby employs Employee as Chief Financial Officer, and Employee hereby accepts
such employment.
2.2 Employee shall devote substantially all of his efforts on a full
time basis to the business and affairs of the Company and shall not engage in
any business or perform any services in any capacity whatsoever adverse to the
interests of the Company.
2.3 Employee shall at all times faithfully, industriously, and to the
best of his ability, experience, and talents, perform all of the duties of his
position.
3. Compensation.
3.1 As of the date of this Agreement, Employee's annual base salary is
$405,000. Employee's base salary and performance shall be reviewed periodically
at intervals approved by the Management Development and Compensation Committee
of the Board of Directors of the Company (the "Committee"), and Employee's base
salary may be increased from time to time based on merit or such other
consideration as the Committee may deem appropriate.
4. Termination of Employment Without Cause
4.1 Employee is an at-will employee of the Company. However, for
purposes of this Agreement only, a Termination Without Cause
shall exist if Employee is terminated for any reason except:
(1) Conduct or action by Employee which, in the opinion of a
majority of the Board of Directors, is materially harmful to
the Company;
(2) Willful failure by Employee to follow an order of the Board,
except in such case where the Employee believes in good faith
that following such order would be materially detrimental to
the interests of the Company;
(3) Employee's conviction of a felony.
<PAGE>
Additionally, if, (a) Employee's annual base salary is reduced
below the amount stated in Paragraph 3.1 hereinabove (unless such reduction is
part of an across the board reduction affecting all Company executives with a
comparable level of responsibility, title or stature), or (b) Employee is
removed from or denied participation in incentive plans, benefit plans, or
perquisites generally provided by the Company to other executives with a
comparable level of responsibility, title or stature, or (c) Employee's target
incentive opportunity, benefits or perquisites are reduced relative to other
executives with comparable responsibility, title or stature, or (d) Employee is
assigned duties or obligations inconsistent with his position with the Company
or (e) There is a significant change in the nature and scope of Employee's
authority or his overall working environment, such event shall be considered a
Termination Without Cause.
5. Change of Control.
5.1 In the event of a Change of Control of the Company at any time
during the Term of Agreement, and Employee's Termination Without Cause
within a period of thirty-six (36) Months following the date of a
Change of Control, Employee shall be entitled to the following
Benefits:
(1) The Company shall pay Employee a lump-sum severance amount
within thirty (30) days following Termination Without Cause
equal to three (3) times the sum of (a) the higher of the
Employee's annual base salary at the time of Termination
Without Cause or the annual base salary stated in paragraph
3.1 hereinabove, and (b) the average annual Bonus earned by
Employee (whether paid in cash or deferred for the two
completed fiscal years immediately Prior to Termination
Without Cause, reduced by the amount of any Unocal Employee
Redeployment Program and/or Unocal Termination Allowance
benefits payable to Employee.
(2) The Company shall provide for Employee to receive medical,
dental, life, and disability insurance coverage for three (3)
years following Termination Without Cause at levels and a net
cost to Employee comparable to that provided to Employee
immediately prior to Employee's Termination Without Cause.
(3) The Company shall pay Employee an additional lump-sum severance
amount thirty (30) days following Employee's Termination
Without Cause equal to three (3) times greater of his current
base salary or that referenced in Paragraph 3.1
hereabove multiplied by 6 percent (0.06).
5.2 For purposes of this Agreement a "Change of Control" shall mean:
:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")(a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 5.2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
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<PAGE>
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company or
the acquisition of assets of another corporation (a "Business Combination"), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5.3 Certain Additional Payments by the Company may be due as follows:
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company or its affiliates to or for the benefit of the
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise but determined without regard to any
additional payments required under this Section 5.3), (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 5.3, if it shall be
determined that the Employee is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Employee such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Employee
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 5.3(c), all determinations
required to be made under this Section 5.3, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Ernst and Young or such other certified public accounting firm as may be
designated by the Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Employee within 15 business
days of the receipt of notice from the Employee that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Employee shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 5.3, shall be paid by the Company to the Employee within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 5.3(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee.
3
<PAGE>
(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Employee is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim, the Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 5.3(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Employee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
the such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Employee with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Employee shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 5.3(c), the Employee becomes entitled to receive any
refund with respect to such claim, the Employee shall (subject to the Company's
employing with the requirements of Section 5.3 promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 5.3(c), a determination is made that
the Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify the Employee in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
6. Covenants.
6.1 Employee agrees that any and all confidential knowledge or
information, including but not limited to customer lists, books, records, data,
formulae, specifications, inventions, processes and methods, and developments
and improvements, which have been or may be obtained or learned by Employee in
the course of his employment with the Company, will be held confidential by
Employee, and that Employee shall not disclose the same to any person outside of
the Company either during his employment with the Company or after his
employment by the Company has terminated.
6.2 Employee agrees that upon termination of his employment with the
Company he will immediately surrender and turn over to the Company all books,
records, forms, specifications, formulae, data, and all papers and writings
relating to the business of the Company and all other property belonging to the
Company, it being understood and agreed that the same are the sole property of
the Company and that Employee shall not make or retain any copies thereof.
4
<PAGE>
6.3 Employee agrees that all inventions, developments or improvements
which he has made or may make, conceive, invent, discover or otherwise acquire
during his employment with the Company in the scope of his responsibilities or
otherwise shall become the sole property of the Company.
6.4 Employee agrees to provide a release of any claims with respect to
termination of his or her employment on such form as requested by the Company
upon payment of the sums provided in Section 4.3 above.
7. Miscellaneous Provisions.
7.1 All terms and conditions of this Agreement are set forth herein,
and there are no warranties, agreements or understandings, express or implied,
except those expressly set forth herein.
7.2 Any modification to this Agreement shall be binding only if
evidenced in writing signed by all parties hereto.
7.3 Any notice or other communication required or permitted to be given
hereunder shall be deemed properly given if personally delivered or deposited in
the United States mail, registered or certified and postage prepaid, addressed
to the Company at 2141 Rosecrans Ave., Suite 4000, El Segundo, CA (Attention:
General Counsel), or to Employee at his or her most recent home address on file
with Company, or at other such addresses as may from time to time be designated
in writing by the respective parties.
7.4 The laws of the State of California shall govern the validity of
this Agreement, the construction of its terms, and the interpretation of the
rights and duties of the parties involved.
7.5 In the event that any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the same shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provisions had never been contained herein.
7.6 This Agreement shall be binding upon, and inure to the benefit of,
the successors and assigns of the Company and the personal representatives,
heirs and legatees of Employee.
7.7 "Bonus" refers to the Unocal Incentive Compensation Plan and any
replacement or successor plan thereof.
7.8 Company shall pay 90% (ninety percent) of Employee's out-of-pocket
litigation expenses, including reasonable attorney's fees, in connection with
any judicial proceeding to enforce this Agreement or construe or determine the
validity of this Agreement, whether or not the Employee is successful in such
proceeding.
7.9 The term "Company" shall include with respect to employment
hereunder, any subsidiary or affiliate of the Company as well as any successor
employer following a Change in Control.
7.10 This Agreement succeeds and replaces that Change in Control
Agreement which was effective December 8, 1997 between Company and Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
BY:
Chairman of the Management Development and
Compensation Committee of the Unocal
Board of Directors
BY:
EMPLOYEE
5
EXHIBIT 10.8
UNOCAL EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is made effective as of
July 28, 1998 by and between Unocal Corporation, a Delaware corporation (the
"Company") and Randolph L. Howard, Group Vice President, International
Operations & Geothermal ("Employee").
In consideration of the mutual promises and agreements set forth
herein, the Company and Employee agree as follows:
1. Term.
1.1 The term of this Agreement (the "Term") shall commence on July 28,
1998 and shall be for two years, subject to earlier termination in accordance
with the provisions of Section 4 hereinbelow. If the Agreement has not been
subject to early termination in accordance with the provisions of Section 4
hereinbelow, beginning on July 28, 1998 and on each day thereafter, the Term
shall automatically be extended for an additional day unless the Company
notifies Employee in writing that it does not wish to further extend the Term.
Notwithstanding the foregoing, this Agreement shall end automatically and
without additional notice on the date of the Company's Annual Meeting of
Shareholders that next follows the date of Employee's sixty-fifth (65th)
birthday.
2. Position and Title.
2.1 The Company on behalf of itself and its affiliates and subsidiaries
hereby employs Employee as Group Vice President, International Operations &
Geothermal, and Employee hereby accepts such employment.
2.2 Employee shall devote substantially all of his efforts on a full
time basis to the business and affairs of the Company and shall not engage in
any business or perform any services in any capacity whatsoever adverse to the
interests of the Company.
2.3 Employee shall at all times faithfully, industriously, and to the
best of his ability, experience, and talents, perform all of the duties of his
position.
3. Compensation.
3.1 As of the date of this Agreement, Employee's annual base salary is
$275,004. Employee's base salary and performance shall be reviewed periodically
at intervals approved by the Management Development and Compensation Committee
of the Board of Directors of the Company (the "Committee"), and Employee's base
salary may be increased from time to time based on merit or such other
consideration as the Committee may deem appropriate.
3.2 During the Term, Employee shall participate in all of the Company's
incentive plans, benefit plans and perquisites, and in any new or successor
incentive plans, benefit plans and perquisites, that are generally provided to
executives of the Company with a level of responsibility and stature comparable
to Employee. Performance goals, award opportunity, benefit levels, and
administrative guidelines for such plans shall be subject to review and approval
by the Committee.
4. Termination of Employment.
4.1 During the Term, the Company may terminate Employee's employment
herein at any time for Cause or as a result of a material breach by Employee of
his obligations under this Agreement, provided however that, except in the case
of conviction of a felony, the Company shall provide Employee with not less than
sixty (60) days prior written notice describing the behavior or conduct which is
alleged by the Company to constitute Cause, and Employee shall be provided with
reasonable opportunity to correct such behavior or conduct within the notice
period. For purposes of this Agreement, Cause shall be defined as any or all of
the following:
(1) Conduct or action by Employee which, in the opinion of a
majority of the Board of Directors, is materially harmful to
the Company;
<PAGE>
(2) Willful failure by Employee to follow an order of the Board,
except in such case where the Employee believes in good faith
that following such order would be materially detrimental to
the interests of the Company;
(3) Employee's conviction of a felony.
4.2 In the event that Employee's employment is terminated by the
Company for any reason other than those set forth in Paragraph 4.1 hereinabove,
or, (a) Employee's annual base salary is reduced below the amount stated in
Paragraph 3.1 hereinabove (unless such reduction is part of an across the board
reduction affecting all Company executives with a comparable level of
responsibility, title or stature), or (b) Employee is removed from or denied
participation in incentive plans, benefit plans, or perquisites generally
provided by the Company to other executives with a comparable level of
responsibility, title or stature, or (c) Employee's target incentive
opportunity, benefits or perquisites are reduced relative to other executives
with comparable responsibility, title or stature, or (d) Employee is assigned
duties or obligations inconsistent with his position with the Company or (e)
There is a significant change in the nature and scope of Employee's authority or
his overall working environment, such event shall be considered a Termination
Without Cause.
4.3 In the event of Employee's Termination Without Cause at any
time during the Term of this Agreement, then:
(1) The Company shall pay Employee a lump-sum severance amount
within thirty (30) days following Termination Without Cause
equal to two (2) times the sum of (a) the higher of the
Employee's annual base salary at the time of Termination
Without Cause or the annual base salary stated in Paragraph
3.1 hereinabove, and (b) the average annual Bonus earned by
Employee (whether paid in cash or deferred) for the two
completed fiscal years immediately prior to Termination
Without Cause, reduced by the amount of any Unocal Employee
Redeployment Program and/or Unocal Termination Allowance
benefits payable to Employee.
(2) The Company shall provide for Employee to receive medical,
dental, life, and disability insurance coverage for two (2)
years following Termination Without Cause at levels and a net
cost to Employee comparable to that provided to Employee
immediately prior to Employee's Termination Without Cause.
(3) The Company shall pay Employee an additional lump-sum
severance amount within thirty (30) days following Employee's
Termination Without Cause equal to two (2) times the base
salary used to determine the lump-sum severance benefit in
paragraph 4.3(1) hereinabove, multiplied by 6% (.06).
4.4 In the event that during the Term of this Agreement Employee should
voluntarily resign from the Company, should terminate employment with the
Company due to death, permanent disability or incapacitation, or is terminated
by the Company for Cause or for a material breach by Employee of his obligations
under this Agreement, then Employee shall not be entitled to any of the
termination benefits provided for in Paragraph 4.3 hereinabove, and the Term of
the Agreement shall immediately end.
4.5 Employee shall not be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to Employee under
any provisions of this Agreement.
5. Change of Control.
5.1 In the event of a Change of Control of the Company at any time
during the Term of this Agreement, then:
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<PAGE>
(1) In the event of Employee's Termination Without Cause within a
period of twenty-four (24) months following the date of a
Change of Control, Employee shall be entitled to the
termination benefits described in Paragraph 4.3 hereinabove;
provided that the lump-sum severance amount paid to Employee
under this Paragraph 5.1(1), which is calculated based on
Paragraphs 4.3(1) and 4.3(3) hereinabove, shall be (a)
reduced to equal the present value, determined in accordance
with Section 280G(d)(4) of the Internal Revenue Code (the
"IRC"), of the lump-sum severance amount which would
otherwise be payable under Paragraphs 4.3(1) and 4.3(3), and
(b) reduced to offset compensation and other earned income by
Employee in the manner provided for in Paragraphs 5.1(2) and
5.1(3) below.
(2) The lump-sum severance amounts payable to Employee under
Paragraphs 4.3(1) and 4.3(3) shall be reduced by one hundred
percent (100%) of any compensation and other earned income
(within the meaning of Section 911(d)(2)(A) of the IRC) which
is earned by Employee for services rendered to persons or
entities other than the Company or its affiliates during the
three years immediately following Employee's Termination
Without Cause.
(3) Not less frequently than annually beginning on the first
anniversary following Employee's Termination Without Cause,
Employee shall account to the Company with respect to all
compensation and other earned income earned by Employee which
is required hereunder to be offset against the lump-sum
severance amount received by Employee from the Company under
Paragraphs 5.1(1) and 5.1(2). If the Company has paid a
lump-sum severance amount in excess of the amount to which
Employee is entitled (after giving effect to the offsets
provided for above), Employee shall reimburse the Company for
such excess within thirty (30) days of the determination of
such excess. The requirements imposed under this Paragraph
5.1(3) shall terminate thirty (30) days immediately following
the second anniversary of Employee's Termination Without
Cause.
5.2 For the purpose of this Agreement, a "Change of Control" shall
mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")(a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 5.2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
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<PAGE>
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company or
the acquisition of assets of another corporation (a "Business Combination"), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5.3 Certain Additional Payments by the Company may be due as follows:
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company or its affiliates to or for the benefit of the
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise but determined without regard to any
additional payments required under this Section 5.3), (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 5.3, if it shall be
determined that the Employee is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Employee such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Employee
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 5.3(c), all determinations
required to be made under this Section 5.3, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Ernst and Young or such other certified public accounting firm as may be
designated by the Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Employee within 15 business
days of the receipt of notice from the Employee that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Employee shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 5.3, shall be paid by the Company to the Employee within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 5.3(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee.
4
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(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Employee is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim, the Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 5.3(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Employee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
the such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Employee with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Employee shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 5.3(c), the Employee becomes entitled to receive any
refund with respect to such claim, the Employee shall (subject to the Company's
employing with the requirements of Section 5.3 promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 5.3(c), a determination is made that
the Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify the Employee in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
6. Covenants.
6.1 Employee agrees that any and all confidential knowledge or
information, including but not limited to customer lists, books, records, data,
formulae, specifications, inventions, processes and methods, and developments
and improvements, which have been or may be obtained or learned by Employee in
the course of his employment with the Company, will be held confidential by
Employee, and that Employee shall not disclose the same to any person outside of
the Company either during his employment with the Company or after his
employment by the Company has terminated.
6.2 Employee agrees that upon termination of his employment with the
Company he will immediately surrender and turn over to the Company all books,
records, forms, specifications, formulae, data, and all papers and writings
relating to the business of the Company and all other property belonging to the
Company, it being understood and agreed that the same are the sole property of
the Company and that Employee shall not make or retain any copies thereof.
5
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6.3 Employee agrees that all inventions, developments or improvements
which he has made or may make, conceive, invent, discover or otherwise acquire
during his employment with the Company in the scope of his responsibilities or
otherwise shall become the sole property of the Company.
6.4 Employee agrees to provide a release of any claims with respect to
termination of his or her employment on such form as requested by the Company
upon payment of the sums provided in Section 4.3 above.
7. Miscellaneous Provisions.
7.1 All terms and conditions of this Agreement are set forth herein,
and there are no warranties, agreements or understandings, express or implied,
except those expressly set forth herein.
7.2 Any modification to this Agreement shall be binding only if
evidenced in writing signed by all parties hereto.
7.3 Any notice or other communication required or permitted to be given
hereunder shall be deemed properly given if personally delivered or deposited in
the United States mail, registered or certified and postage prepaid, addressed
to the Company at 2141 Rosecrans Ave., Suite 4000, El Segundo, CA (Attention:
General Counsel), or to Employee at his or her most recent home address on file
with Company, or at other such addresses as may from time to time be designated
in writing by the respective parties.
7.4 The laws of the State of California shall govern the validity of
this Agreement, the construction of its terms, and the interpretation of the
rights and duties of the parties involved.
7.5 In the event that any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the same shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provisions had never been contained herein.
7.6 This Agreement shall be binding upon, and inure to the benefit of,
the successors and assigns of the Company and the personal representatives,
heirs and legatees of Employee.
7.7 "Bonus" refers to the Unocal Incentive Compensation Plan and any
replacement or successor plan thereof.
7.8 Company shall pay 90% (ninety percent) of Employee's out-of-pocket
litigation expenses, including reasonable attorney's fees, in connection with
any judicial proceeding to enforce this Agreement or construe or determine the
validity of this Agreement, whether or not the Employee is successful in such
proceeding.
7.9 The term "Company" shall include with respect to employment
hereunder, any subsidiary or affiliate of the Company as well as any successor
employer following a Change in Control.
7.10 This Agreement succeeds and replaces that Unocal Employment
Agreement which was effective December 8, 1997 between Company and Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
BY:
Chairman of the Management Development and
Compensation Committee of the Unocal
Board of Directors
BY:
EMPLOYEE
6
EXHIBIT 10.9
UNOCAL EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is made effective as of
July 28, 1998 by and between Unocal Corporation, a Delaware corporation (the
"Company") and John W. Schanck, Group Vice President & President, Spirit Energy
76 ("Employee").
In consideration of the mutual promises and agreements set forth
herein, the Company and Employee agree as follows:
1. Term.
1.1 The term of this Agreement (the "Term") shall commence on July 28,
1998 and shall be for two years, subject to earlier termination in accordance
with the provisions of Section 4 hereinbelow. If the Agreement has not been
subject to early termination in accordance with the provisions of Section 4
hereinbelow, beginning on July 28, 1998 and on each day thereafter, the Term
shall automatically be extended for an additional day unless the Company
notifies Employee in writing that it does not wish to further extend the Term.
Notwithstanding the foregoing, this Agreement shall end automatically and
without additional notice on the date of the Company's Annual Meeting of
Shareholders that next follows the date of Employee's sixty-fifth (65th)
birthday.
2. Position and Title.
2.1 The Company on behalf of itself and its affiliates and subsidiaries
hereby employs Employee as Group Vice President & President, Spirit Energy 76,
and Employee hereby accepts such employment.
2.2 Employee shall devote substantially all of his efforts on a full
time basis to the business and affairs of the Company and shall not engage in
any business or perform any services in any capacity whatsoever adverse to the
interests of the Company.
2.3 Employee shall at all times faithfully, industriously, and to the
best of his ability, experience, and talents, perform all of the duties of his
position.
3. Compensation.
3.1 As of the date of this Agreement, Employee's annual base salary is
$365,004. Employee's base salary and performance shall be reviewed periodically
at intervals approved by the Management Development and Compensation Committee
of the Board of Directors of the Company (the "Committee"), and Employee's base
salary may be increased from time to time based on merit or such other
consideration as the Committee may deem appropriate.
3.2 During the Term, Employee shall participate in all of the Company's
incentive plans, benefit plans and perquisites, and in any new or successor
incentive plans, benefit plans and perquisites, that are generally provided to
executives of the Company with a level of responsibility and stature comparable
to Employee. Performance goals, award opportunity, benefit levels, and
administrative guidelines for such plans shall be subject to review and approval
by the Committee.
4. Termination of Employment.
4.1 During the Term, the Company may terminate Employee's employment
herein at any time for Cause or as a result of a material breach by Employee of
his obligations under this Agreement, provided however that, except in the case
of conviction of a felony, the Company shall provide Employee with not less than
sixty (60) days prior written notice describing the behavior or conduct which is
alleged by the Company to constitute Cause, and Employee shall be provided with
reasonable opportunity to correct such behavior or conduct within the notice
period. For purposes of this Agreement, Cause shall be defined as any or all of
the following:
(1) Conduct or action by Employee which, in the opinion of a
majority of the Board of Directors, is materially harmful to
the Company;
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(2) Willful failure by Employee to follow an order of the Board,
except in such case where the Employee believes in good faith
that following such order would be materially detrimental to
the interests of the Company;
(3) Employee's conviction of a felony.
4.2 In the event that Employee's employment is terminated by the
Company for any reason other than those set forth in Paragraph 4.1 hereinabove,
or, (a) Employee's annual base salary is reduced below the amount stated in
Paragraph 3.1 hereinabove (unless such reduction is part of an across the board
reduction affecting all Company executives with a comparable level of
responsibility, title or stature), or (b) Employee is removed from or denied
participation in incentive plans, benefit plans, or perquisites generally
provided by the Company to other executives with a comparable level of
responsibility, title or stature, or (c) Employee's target incentive
opportunity, benefits or perquisites are reduced relative to other executives
with comparable responsibility, title or stature, or (d) Employee is assigned
duties or obligations inconsistent with his position with the Company or (e)
There is a significant change in the nature and scope of Employee's authority or
his overall working environment, such event shall be considered a Termination
Without Cause.
4.3 In the event of Employee's Termination Without Cause at any
time during the Term of this Agreement, then:
(1) The Company shall pay Employee a lump-sum severance amount
within thirty (30) days following Termination Without Cause
equal to two (2) times the sum of (a) the higher of the
Employee's annual base salary at the time of Termination
Without Cause or the annual base salary stated in Paragraph
3.1 hereinabove, and (b) the average annual Bonus earned by
Employee (whether paid in cash or deferred) for the two
completed fiscal years immediately prior to Termination
Without Cause, reduced by the amount of any Unocal Employee
Redeployment Program and/or Unocal Termination Allowance
benefits payable to Employee.
(2) The Company shall provide for Employee to receive medical,
dental, life, and disability insurance coverage for two (2)
years following Termination Without Cause at levels and a net
cost to Employee comparable to that provided to Employee
immediately prior to Employee's Termination Without Cause.
(3) The Company shall pay Employee an additional lump-sum
severance amount within thirty (30) days following Employee's
Termination Without Cause equal to two (2) times the base
salary used to determine the lump-sum severance benefit in
paragraph 4.3(1) hereinabove, multiplied by 6% (.06).
4.4 In the event that during the Term of this Agreement Employee should
voluntarily resign from the Company, should terminate employment with the
Company due to death, permanent disability or incapacitation, or is terminated
by the Company for Cause or for a material breach by Employee of his obligations
under this Agreement, then Employee shall not be entitled to any of the
termination benefits provided for in Paragraph 4.3 hereinabove, and the Term of
the Agreement shall immediately end.
4.5 Employee shall not be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to Employee under
any provisions of this Agreement.
5. Change of Control.
5.1 In the event of a Change of Control of the Company at any time
during the Term of this Agreement, then:
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(1) In the event of Employee's Termination Without Cause within
a period of twenty-four (24) months following the date of a
Change of Control, Employee shall be entitled to the
termination benefits described in Paragraph 4.3 hereinabove;
provided that the lump-sum severance amount paid to Employee
under this Paragraph 5.1(1), which is calculated based on
Paragraphs 4.3(1) and 4.3(3) hereinabove, shall be (a)
reduced to equal the present value, determined in accordance
with Section 280G(d)(4) of the Internal Revenue Code (the
"IRC"), of the lump-sum severance amount which would
otherwise be payable under Paragraphs 4.3(1) and 4.3(3), and
(b) reduced to offset compensation and other earned income
by Employee in the manner provided for in Paragraphs 5.1(2)
and 5.1(3) below.
(2) The lump-sum severance amounts payable to Employee under
Paragraphs 4.3(1) and 4.3(3) shall be reduced by one hundred
percent (100%) of any compensation and other earned income
(within the meaning of Section 911(d)(2)(A) of the IRC) which
is earned by Employee for services rendered to persons or
entities other than the Company or its affiliates during the
three years immediately following Employee's Termination
Without Cause.
(3) Not less frequently than annually beginning on the first
anniversary following Employee's Termination Without Cause,
Employee shall account to the Company with respect to all
compensation and other earned income earned by Employee which
is required hereunder to be offset against the lump-sum
severance amount received by Employee from the Company under
Paragraphs 5.1(1) and 5.1(2). If the Company has paid a
lump-sum severance amount in excess of the amount to which
Employee is entitled (after giving effect to the offsets
provided for above), Employee shall reimburse the Company for
such excess within thirty (30) days of the determination of
such excess. The requirements imposed under this Paragraph
5.1(3) shall terminate thirty (30) days immediately following
the second anniversary of Employee's Termination Without
Cause.
5.2 For the purpose of this Agreement, a "Change of Control" shall
mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")(a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 5.2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
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<PAGE>
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company or
the acquisition of assets of another corporation (a "Business Combination"), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5.3 Certain Additional Payments by the Company may be due as follows:
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company or its affiliates to or for the benefit of the
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise but determined without regard to any
additional payments required under this Section 5.3), (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 5.3, if it shall be
determined that the Employee is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Employee such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Employee
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 5.3(c), all determinations
required to be made under this Section 5.3, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Ernst and Young or such other certified public accounting firm as may be
designated by the Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Employee within 15 business
days of the receipt of notice from the Employee that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Employee shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 5.3, shall be paid by the Company to the Employee within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 5.3(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee.
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(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Employee is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim, the Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 5.3(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Employee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
the such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Employee with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Employee shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 5.3(c), the Employee becomes entitled to receive any
refund with respect to such claim, the Employee shall (subject to the Company's
employing with the requirements of Section 5.3 promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 5.3(c), a determination is made that
the Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify the Employee in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
6. Covenants.
6.1 Employee agrees that any and all confidential knowledge or
information, including but not limited to customer lists, books, records, data,
formulae, specifications, inventions, processes and methods, and developments
and improvements, which have been or may be obtained or learned by Employee in
the course of his employment with the Company, will be held confidential by
Employee, and that Employee shall not disclose the same to any person outside of
the Company either during his employment with the Company or after his
employment by the Company has terminated.
6.2 Employee agrees that upon termination of his employment with the
Company he will immediately surrender and turn over to the Company all books,
records, forms, specifications, formulae, data, and all papers and writings
relating to the business of the Company and all other property belonging to the
Company, it being understood and agreed that the same are the sole property of
the Company and that Employee shall not make or retain any copies thereof.
5
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6.3 Employee agrees that all inventions, developments or improvements
which he has made or may make, conceive, invent, discover or otherwise acquire
during his employment with the Company in the scope of his responsibilities or
otherwise shall become the sole property of the Company.
6.4 Employee agrees to provide a release of any claims with respect to
termination of his or her employment on such form as requested by the Company
upon payment of the sums provided in Section 4.3 above.
7. Miscellaneous Provisions.
7.1 All terms and conditions of this Agreement are set forth herein,
and there are no warranties, agreements or understandings, express or implied,
except those expressly set forth herein.
7.2 Any modification to this Agreement shall be binding only if
evidenced in writing signed by all parties hereto.
7.3 Any notice or other communication required or permitted to be given
hereunder shall be deemed properly given if personally delivered or deposited in
the United States mail, registered or certified and postage prepaid, addressed
to the Company at 2141 Rosecrans Ave., Suite 4000, El Segundo, CA (Attention:
General Counsel), or to Employee at his or her most recent home address on file
with Company, or at other such addresses as may from time to time be designated
in writing by the respective parties.
7.4 The laws of the State of California shall govern the validity of
this Agreement, the construction of its terms, and the interpretation of the
rights and duties of the parties involved.
7.5 In the event that any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the same shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provisions had never been contained herein.
7.6 This Agreement shall be binding upon, and inure to the benefit of,
the successors and assigns of the Company and the personal representatives,
heirs and legatees of Employee.
7.7 "Bonus" refers to the Unocal Incentive Compensation Plan and any
replacement or successor plan thereof.
7.8 Company shall pay 90% (ninety percent) of Employee's out-of-pocket
litigation expenses, including reasonable attorney's fees, in connection with
any judicial proceeding to enforce this Agreement or construe or determine the
validity of this Agreement, whether or not the Employee is successful in such
proceeding.
7.9 The term "Company" shall include with respect to employment
hereunder, any subsidiary or affiliate of the Company as well as any successor
employer following a Change in Control.
7.10 This Agreement succeeds and replaces that Unocal Employment
Agreement which was effective December 8, 1997 between Company and Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
BY:
Chairman of the Management Development and
Compensation Committee of the Unocal
Board of Directors
BY:
EMPLOYEE
6
EXHIBIT 10.10
UNOCAL EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is made effective as of
July 28, 1998 by and between Unocal Corporation, a Delaware corporation (the
"Company") and Lucius E. Scott, Jr., Group Vice President Diversified Business
("Employee").
In consideration of the mutual promises and agreements set forth
herein, the Company and Employee agree as follows:
1. Term.
1.1 The term of this Agreement (the "Term") shall commence on July 28,
1998 and shall be for two years, subject to earlier termination in accordance
with the provisions of Section 4 hereinbelow. If the Agreement has not been
subject to early termination in accordance with the provisions of Section 4
hereinbelow, beginning on July 28, 1998 and on each day thereafter, the Term
shall automatically be extended for an additional day unless the Company
notifies Employee in writing that it does not wish to further extend the Term.
Notwithstanding the foregoing, this Agreement shall end automatically and
without additional notice on the date of the Company's Annual Meeting of
Shareholders that next follows the date of Employee's sixty-fifth (65th)
birthday.
2. Position and Title.
2.1 The Company on behalf of itself and its affiliates and subsidiaries
hereby employs Employee as Group Vice President Diversified Business, and
Employee hereby accepts such employment.
2.2 Employee shall devote substantially all of his efforts on a full
time basis to the business and affairs of the Company and shall not engage in
any business or perform any services in any capacity whatsoever adverse to the
interests of the Company.
2.3 Employee shall at all times faithfully, industriously, and to the
best of his ability, experience, and talents, perform all of the duties of his
position.
3. Compensation.
3.1 As of the date of this Agreement, Employee's annual base salary is
$310,008. Employee's base salary and performance shall be reviewed periodically
at intervals approved by the Management Development and Compensation Committee
of the Board of Directors of the Company (the "Committee"), and Employee's base
salary may be increased from time to time based on merit or such other
consideration as the Committee may deem appropriate.
3.2 During the Term, Employee shall participate in all of the Company's
incentive plans, benefit plans and perquisites, and in any new or successor
incentive plans, benefit plans and perquisites, that are generally provided to
executives of the Company with a level of responsibility and stature comparable
to Employee. Performance goals, award opportunity, benefit levels, and
administrative guidelines for such plans shall be subject to review and approval
by the Committee.
4. Termination of Employment.
4.1 During the Term, the Company may terminate Employee's employment
herein at any time for Cause or as a result of a material breach by Employee of
his obligations under this Agreement, provided however that, except in the case
of conviction of a felony, the Company shall provide Employee with not less than
sixty (60) days prior written notice describing the behavior or conduct which is
alleged by the Company to constitute Cause, and Employee shall be provided with
reasonable opportunity to correct such behavior or conduct within the notice
period. For purposes of this Agreement, Cause shall be defined as any or all of
the following:
(1) Conduct or action by Employee which, in the opinion of a
majority of the Board of Directors, is materially harmful to
the Company;
<PAGE>
(2) Willful failure by Employee to follow an order of the Board,
except in such case where the Employee believes in good faith
that following such order would be materially detrimental to
the interests of the Company;
(3) Employee's conviction of a felony.
4.2 In the event that Employee's employment is terminated by the
Company for any reason other than those set forth in Paragraph 4.1 hereinabove,
or, (a) Employee's annual base salary is reduced below the amount stated in
Paragraph 3.1 hereinabove (unless such reduction is part of an across the board
reduction affecting all Company executives with a comparable level of
responsibility, title or stature), or (b) Employee is removed from or denied
participation in incentive plans, benefit plans, or perquisites generally
provided by the Company to other executives with a comparable level of
responsibility, title or stature, or (c) Employee's target incentive
opportunity, benefits or perquisites are reduced relative to other executives
with comparable responsibility, title or stature, or (d) Employee is assigned
duties or obligations inconsistent with his position with the Company or (e)
There is a significant change in the nature and scope of Employee's authority or
his overall working environment, such event shall be considered a Termination
Without Cause.
4.3 In the event of Employee's Termination Without Cause at any
time during the Term of this Agreement, then:
(1) The Company shall pay Employee a lump-sum severance amount
within thirty (30) days following Termination Without Cause
equal to two (2) times the sum of (a) the higher of the
Employee's annual base salary at the time of Termination
Without Cause or the annual base salary stated in Paragraph
3.1 hereinabove, and (b) the average annual Bonus earned by
Employee (whether paid in cash or deferred) for the two
completed fiscal years immediately prior to Termination
Without Cause, reduced by the amount of any Unocal Employee
Redeployment Program and/or Unocal Termination Allowance
benefits payable to Employee.
(2) The Company shall provide for Employee to receive medical,
dental, life, and disability insurance coverage for two (2)
years following Termination Without Cause at levels and a net
cost to Employee comparable to that provided to Employee
immediately prior to Employee's Termination Without Cause.
(3) The Company shall pay Employee an additional lump-sum
severance amount within thirty (30) days following Employee's
Termination Without Cause equal to two (2) times the base
salary used to determine the lump-sum severance benefit in
paragraph 4.3(1) hereinabove, multiplied by 6% (.06).
4.4 In the event that during the Term of this Agreement Employee should
voluntarily resign from the Company, should terminate employment with the
Company due to death, permanent disability or incapacitation, or is terminated
by the Company for Cause or for a material breach by Employee of his obligations
under this Agreement, then Employee shall not be entitled to any of the
termination benefits provided for in Paragraph 4.3 hereinabove, and the Term of
the Agreement shall immediately end.
4.5 Employee shall not be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to Employee under
any provisions of this Agreement.
5. Change of Control.
5.1 In the event of a Change of Control of the Company at any
time during the Term of this Agreement, then:
2
<PAGE>
(1) In the event of Employee's Termination Without Cause within
a period of twenty-four (24) months following the date of a
Change of Control, Employee shall be entitled to the
termination benefits described in Paragraph 4.3 hereinabove;
provided that the lump-sum severance amount paid to Employee
under this Paragraph 5.1(1), which is calculated based on
Paragraphs 4.3(1) and 4.3(3) hereinabove, shall be (a)
reduced to equal the present value, determined in accordance
with Section 280G(d)(4) of the Internal Revenue Code (the
"IRC"), of the lump-sum severance amount which would
otherwise be payable under Paragraphs 4.3(1) and 4.3(3), and
(b) reduced to offset compensation and other earned income
by Employee in the manner provided for in Paragraphs 5.1(2)
and 5.1(3) below.
(2) The lump-sum severance amounts payable to Employee under
Paragraphs 4.3(1) and 4.3(3) shall be reduced by one hundred
percent (100%) of any compensation and other earned income
(within the meaning of Section 911(d)(2)(A) of the IRC) which
is earned by Employee for services rendered to persons or
entities other than the Company or its affiliates during the
three years immediately following Employee's Termination
Without Cause.
(3) Not less frequently than annually beginning on the first
anniversary following Employee's Termination Without Cause,
Employee shall account to the Company with respect to all
compensation and other earned income earned by Employee which
is required hereunder to be offset against the lump-sum
severance amount received by Employee from the Company under
Paragraphs 5.1(1) and 5.1(2). If the Company has paid a
lump-sum severance amount in excess of the amount to which
Employee is entitled (after giving effect to the offsets
provided for above), Employee shall reimburse the Company for
such excess within thirty (30) days of the determination of
such excess. The requirements imposed under this Paragraph
5.1(3) shall terminate thirty (30) days immediately following
the second anniversary of Employee's Termination Without
Cause.
5.2 For the purpose of this Agreement, a "Change of Control" shall
mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")(a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 5.2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
3
<PAGE>
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company or
the acquisition of assets of another corporation (a "Business Combination"), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5.3 Certain Additional Payments by the Company may be due as follows:
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company or its affiliates to or for the benefit of the
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise but determined without regard to any
additional payments required under this Section 5.3), (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 5.3, if it shall be
determined that the Employee is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Employee such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Employee
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 5.3(c), all determinations
required to be made under this Section 5.3, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Ernst and Young or such other certified public accounting firm as may be
designated by the Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Employee within 15 business
days of the receipt of notice from the Employee that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Employee shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 5.3, shall be paid by the Company to the Employee within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 5.3(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee.
4
<PAGE>
(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Employee is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim, the Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 5.3(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Employee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
the such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Employee with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Employee shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 5.3(c), the Employee becomes entitled to receive any
refund with respect to such claim, the Employee shall (subject to the Company's
employing with the requirements of Section 5.3 promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 5.3(c), a determination is made that
the Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify the Employee in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
6. Covenants.
6.1 Employee agrees that any and all confidential knowledge or
information, including but not limited to customer lists, books, records, data,
formulae, specifications, inventions, processes and methods, and developments
and improvements, which have been or may be obtained or learned by Employee in
the course of his employment with the Company, will be held confidential by
Employee, and that Employee shall not disclose the same to any person outside of
the Company either during his employment with the Company or after his
employment by the Company has terminated.
6.2 Employee agrees that upon termination of his employment with the
Company he will immediately surrender and turn over to the Company all books,
records, forms, specifications, formulae, data, and all papers and writings
relating to the business of the Company and all other property belonging to the
Company, it being understood and agreed that the same are the sole property of
the Company and that Employee shall not make or retain any copies thereof.
5
<PAGE>
6.3 Employee agrees that all inventions, developments or improvements
which he has made or may make, conceive, invent, discover or otherwise acquire
during his employment with the Company in the scope of his responsibilities or
otherwise shall become the sole property of the Company.
6.4 Employee agrees to provide a release of any claims with respect to
termination of his or her employment on such form as requested by the Company
upon payment of the sums provided in Section 4.3 above.
7. Miscellaneous Provisions.
7.1 All terms and conditions of this Agreement are set forth herein,
and there are no warranties, agreements or understandings, express or implied,
except those expressly set forth herein.
7.2 Any modification to this Agreement shall be binding only if
evidenced in writing signed by all parties hereto.
7.3 Any notice or other communication required or permitted to be given
hereunder shall be deemed properly given if personally delivered or deposited in
the United States mail, registered or certified and postage prepaid, addressed
to the Company at 2141 Rosecrans Ave., Suite 4000, El Segundo, CA (Attention:
General Counsel), or to Employee at his or her most recent home address on file
with Company, or at other such addresses as may from time to time be designated
in writing by the respective parties.
7.4 The laws of the State of California shall govern the validity of
this Agreement, the construction of its terms, and the interpretation of the
rights and duties of the parties involved.
7.5 In the event that any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the same shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provisions had never been contained herein.
7.6 This Agreement shall be binding upon, and inure to the benefit of,
the successors and assigns of the Company and the personal representatives,
heirs and legatees of Employee.
7.7 "Bonus" refers to the Unocal Incentive Compensation Plan and any
replacement or successor plan thereof.
7.8 Company shall pay 90% (ninety percent) of Employee's out-of-pocket
litigation expenses, including reasonable attorney's fees, in connection with
any judicial proceeding to enforce this Agreement or construe or determine the
validity of this Agreement, whether or not the Employee is successful in such
proceeding.
7.9 The term "Company" shall include with respect to employment
hereunder, any subsidiary or affiliate of the Company as well as any successor
employer following a Change in Control.
7.10 This Agreement succeeds and replaces that Unocal Employment
Agreement which was effective December 8, 1997 between Company and Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
BY:
Chairman of the Management Development and
Compensation Committee of the Unocal
Board of Directors
BY:
EMPLOYEE
6
EXHIBIT 10.11
UNOCAL EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is made effective as of
July 28, 1998 by and between Unocal Corporation, a Delaware corporation (the
"Company") and Charles R. Williamson, Group Vice President, Asia Operations
("Employee").
In consideration of the mutual promises and agreements set forth
herein, the Company and Employee agree as follows:
1. Term.
1.1 The term of this Agreement (the "Term") shall commence on July 28,
1998 and shall be for two years, subject to earlier termination in accordance
with the provisions of Section 4 hereinbelow. If the Agreement has not been
subject to early termination in accordance with the provisions of Section 4
hereinbelow, beginning on July 28, 1998 and on each day thereafter, the Term
shall automatically be extended for an additional day unless the Company
notifies Employee in writing that it does not wish to further extend the Term.
Notwithstanding the foregoing, this Agreement shall end automatically and
without additional notice on the date of the Company's Annual Meeting of
Shareholders that next follows the date of Employee's sixty-fifth (65th)
birthday.
2. Position and Title.
2.1 The Company on behalf of itself and its affiliates and subsidiaries
hereby employs Employee as Group Vice President, Asia Operations, and Employee
hereby accepts such employment.
2.2 Employee shall devote substantially all of his efforts on a full
time basis to the business and affairs of the Company and shall not engage in
any business or perform any services in any capacity whatsoever adverse to the
interests of the Company.
2.3 Employee shall at all times faithfully, industriously, and to the
best of his ability, experience, and talents, perform all of the duties of his
position.
3. Compensation.
3.1 As of the date of this Agreement, Employee's annual base salary is
$300,000. Employee's base salary and performance shall be reviewed periodically
at intervals approved by the Management Development and Compensation Committee
of the Board of Directors of the Company (the "Committee"), and Employee's base
salary may be increased from time to time based on merit or such other
consideration as the Committee may deem appropriate.
3.2 During the Term, Employee shall participate in all of the Company's
incentive plans, benefit plans and perquisites, and in any new or successor
incentive plans, benefit plans and perquisites, that are generally provided to
executives of the Company with a level of responsibility and stature comparable
to Employee. Performance goals, award opportunity, benefit levels, and
administrative guidelines for such plans shall be subject to review and approval
by the Committee.
4. Termination of Employment.
4.1 During the Term, the Company may terminate Employee's employment
herein at any time for Cause or as a result of a material breach by Employee of
his obligations under this Agreement, provided however that, except in the case
of conviction of a felony, the Company shall provide Employee with not less than
sixty (60) days prior written notice describing the behavior or conduct which is
alleged by the Company to constitute Cause, and Employee shall be provided with
reasonable opportunity to correct such behavior or conduct within the notice
period. For purposes of this Agreement, Cause shall be defined as any or all of
the following:
(1) Conduct or action by Employee which, in the opinion of a
majority of the Board of Directors, is materially harmful to
the Company;
<PAGE>
(2) Willful failure by Employee to follow an order of the Board,
except in such case where the Employee believes in good faith
that following such order would be materially detrimental to
the interests of the Company;
(3) Employee's conviction of a felony.
4.2 In the event that Employee's employment is terminated by the
Company for any reason other than those set forth in Paragraph 4.1 hereinabove,
or, (a) Employee's annual base salary is reduced below the amount stated in
Paragraph 3.1 hereinabove (unless such reduction is part of an across the board
reduction affecting all Company executives with a comparable level of
responsibility, title or stature), or (b) Employee is removed from or denied
participation in incentive plans, benefit plans, or perquisites generally
provided by the Company to other executives with a comparable level of
responsibility, title or stature, or (c) Employee's target incentive
opportunity, benefits or perquisites are reduced relative to other executives
with comparable responsibility, title or stature, or (d) Employee is assigned
duties or obligations inconsistent with his position with the Company or (e)
There is a significant change in the nature and scope of Employee's authority or
his overall working environment, such event shall be considered a Termination
Without Cause.
4.3 In the event of Employee's Termination Without Cause at any
time during the Term of this Agreement, then:
(1) The Company shall pay Employee a lump-sum severance amount
within thirty (30) days following Termination Without Cause
equal to two (2) times the sum of (a) the higher of the
Employee's annual base salary at the time of Termination
Without Cause or the annual base salary stated in Paragraph
3.1 hereinabove, and (b) the average annual Bonus earned by
Employee (whether paid in cash or deferred) for the two
completed fiscal years immediately prior to Termination
Without Cause, reduced by the amount of any Unocal Employee
Redeployment Program and/or Unocal Termination Allowance
benefits payable to Employee.
(2) The Company shall provide for Employee to receive medical,
dental, life, and disability insurance coverage for two (2)
years following Termination Without Cause at levels and a net
cost to Employee comparable to that provided to Employee
immediately prior to Employee's Termination Without Cause.
(3) The Company shall pay Employee an additional lump-sum
severance amount within thirty (30) days following Employee's
Termination Without Cause equal to two (2) times the base
salary used to determine the lump-sum severance benefit in
paragraph 4.3(1) hereinabove, multiplied by 6% (.06).
4.4 In the event that during the Term of this Agreement Employee should
voluntarily resign from the Company, should terminate employment with the
Company due to death, permanent disability or incapacitation, or is terminated
by the Company for Cause or for a material breach by Employee of his obligations
under this Agreement, then Employee shall not be entitled to any of the
termination benefits provided for in Paragraph 4.3 hereinabove, and the Term of
the Agreement shall immediately end.
4.5 Employee shall not be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to Employee under
any provisions of this Agreement.
5. Change of Control.
5.1 In the event of a Change of Control of the Company at any time
during the Term of this Agreement, then:
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(1) In the event of Employee's Termination Without Cause within a
period of twenty-four (24) months following the date of a
Change of Control, Employee shall be entitled to the
termination benefits described in Paragraph 4.3 hereinabove;
provided that the lump-sum severance amount paid to Employee
under this Paragraph 5.1(1), which is calculated based on
Paragraphs 4.3(1) and 4.3(3) hereinabove, shall be (a) reduced
to equal the present value, determined in accordance with
Section 280G(d)(4) of the Internal Revenue Code (the "IRC"),
of the lump-sum severance amount which would otherwise be
payable under Paragraphs 4.3(1) and 4.3(3), and (b) reduced to
offset compensation and other earned income by Employee in the
manner provided for in Paragraphs 5.1(2) and 5.1(3) below.
(2) The lump-sum severance amounts payable to Employee under
Paragraphs 4.3(1) and 4.3(3) shall be reduced by one hundred
percent (100%) of any compensation and other earned income
(within the meaning of Section 911(d)(2)(A) of the IRC) which
is earned by Employee for services rendered to persons or
entities other than the Company or its affiliates during the
three years immediately following Employee's Termination
Without Cause.
(3) Not less frequently than annually beginning on the first
anniversary following Employee's Termination Without Cause,
Employee shall account to the Company with respect to all
compensation and other earned income earned by Employee which
is required hereunder to be offset against the lump-sum
severance amount received by Employee from the Company under
Paragraphs 5.1(1) and 5.1(2). If the Company has paid a
lump-sum severance amount in excess of the amount to which
Employee is entitled (after giving effect to the offsets
provided for above), Employee shall reimburse the Company for
such excess within thirty (30) days of the determination of
such excess. The requirements imposed under this Paragraph
5.1(3) shall terminate thirty (30) days immediately following
the second anniversary of Employee's Termination Without
Cause.
5.2 For the purpose of this Agreement, a "Change of Control" shall
mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")(a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 5.2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
3
<PAGE>
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company or
the acquisition of assets of another corporation (a "Business Combination"), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5.3 Certain Additional Payments by the Company may be due as follows:
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company or its affiliates to or for the benefit of the
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise but determined without regard to any
additional payments required under this Section 5.3), (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 5.3, if it shall be
determined that the Employee is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Employee such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Employee
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 5.3(c), all determinations
required to be made under this Section 5.3, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Ernst and Young or such other certified public accounting firm as may be
designated by the Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Employee within 15 business
days of the receipt of notice from the Employee that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Employee shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 5.3, shall be paid by the Company to the Employee within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 5.3(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee.
4
<PAGE>
(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Employee is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim, the Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 5.3(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Employee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
the such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Employee with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Employee shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 5.3(c), the Employee becomes entitled to receive any
refund with respect to such claim, the Employee shall (subject to the Company's
employing with the requirements of Section 5.3 promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 5.3(c), a determination is made that
the Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify the Employee in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
6. Covenants.
6.1 Employee agrees that any and all confidential knowledge or
information, including but not limited to customer lists, books, records, data,
formulae, specifications, inventions, processes and methods, and developments
and improvements, which have been or may be obtained or learned by Employee in
the course of his employment with the Company, will be held confidential by
Employee, and that Employee shall not disclose the same to any person outside of
the Company either during his employment with the Company or after his
employment by the Company has terminated.
6.2 Employee agrees that upon termination of his employment with the
Company he will immediately surrender and turn over to the Company all books,
records, forms, specifications, formulae, data, and all papers and writings
relating to the business of the Company and all other property belonging to the
Company, it being understood and agreed that the same are the sole property of
the Company and that Employee shall not make or retain any copies thereof.
5
<PAGE>
6.3 Employee agrees that all inventions, developments or improvements
which he has made or may make, conceive, invent, discover or otherwise acquire
during his employment with the Company in the scope of his responsibilities or
otherwise shall become the sole property of the Company.
6.4 Employee agrees to provide a release of any claims with respect to
termination of his or her employment on such form as requested by the Company
upon payment of the sums provided in Section 4.3 above.
7. Miscellaneous Provisions.
7.1 All terms and conditions of this Agreement are set forth herein,
and there are no warranties, agreements or understandings, express or implied,
except those expressly set forth herein.
7.2 Any modification to this Agreement shall be binding only if
evidenced in writing signed by all parties hereto.
7.3 Any notice or other communication required or permitted to be given
hereunder shall be deemed properly given if personally delivered or deposited in
the United States mail, registered or certified and postage prepaid, addressed
to the Company at 2141 Rosecrans Ave., Suite 4000, El Segundo, CA (Attention:
General Counsel), or to Employee at his or her most recent home address on file
with Company, or at other such addresses as may from time to time be designated
in writing by the respective parties.
7.4 The laws of the State of California shall govern the validity of
this Agreement, the construction of its terms, and the interpretation of the
rights and duties of the parties involved.
7.5 In the event that any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the same shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provisions had never been contained herein.
7.6 This Agreement shall be binding upon, and inure to the benefit of,
the successors and assigns of the Company and the personal representatives,
heirs and legatees of Employee.
7.7 "Bonus" refers to the Unocal Incentive Compensation Plan and any
replacement or successor plan thereof.
7.8 Company shall pay 90% (ninety percent) of Employee's out-of-pocket
litigation expenses, including reasonable attorney's fees, in connection with
any judicial proceeding to enforce this Agreement or construe or determine the
validity of this Agreement, whether or not the Employee is successful in such
proceeding.
7.9 The term "Company" shall include with respect to employment
hereunder, any subsidiary or affiliate of the Company as well as any successor
employer following a Change in Control.
7.10 This Agreement succeeds and replaces that Unocal Employment
Agreement which was effective December 8, 1997 between Company and Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
BY:
Chairman of the Management Development and
Compensation Committee of the Unocal
Board of Directors
BY:
EMPLOYEE
6
EXHIBIT 10.12
UNOCAL EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is made effective as of
July 28, 1998 by and between Unocal Corporation, a Delaware corporation (the
"Company") and Dennis P.R. Codon, Vice President, Chief Legal Officer and
General Counsel ("Employee").
In consideration of the mutual promises and agreements set forth
herein, the Company and Employee agree as follows:
1. Term.
1.1 The term of this Agreement (the "Term") shall commence on July 28,
1998 and shall be for two years, subject to earlier termination in accordance
with the provisions of Section 4 hereinbelow. If the Agreement has not been
subject to early termination in accordance with the provisions of Section 4
hereinbelow, beginning on July 28, 1998 and on each day thereafter, the Term
shall automatically be extended for an additional day unless the Company
notifies Employee in writing that it does not wish to further extend the Term.
Notwithstanding the foregoing, this Agreement shall end automatically and
without additional notice on the date of the Company's Annual Meeting of
Shareholders that next follows the date of Employee's sixty-fifth (65th)
birthday.
2. Position and Title.
2.1 The Company on behalf of itself and its affiliates and subsidiaries
hereby employs Employee as Vice President, Chief Legal Officer and General
Counsel, and Employee hereby accepts such employment.
2.2 Employee shall devote substantially all of his efforts on a full
time basis to the business and affairs of the Company and shall not engage in
any business or perform any services in any capacity whatsoever adverse to the
interests of the Company.
2.3 Employee shall at all times faithfully, industriously, and to the
best of his ability, experience, and talents, perform all of the duties of his
position.
3. Compensation.
3.1 As of the date of this Agreement, Employee's annual base salary is
$290,004. Employee's base salary and performance shall be reviewed periodically
at intervals approved by the Management Development and Compensation Committee
of the Board of Directors of the Company (the "Committee"), and Employee's base
salary may be increased from time to time based on merit or such other
consideration as the Committee may deem appropriate.
3.2 During the Term, Employee shall participate in all of the Company's
incentive plans, benefit plans and perquisites, and in any new or successor
incentive plans, benefit plans and perquisites, that are generally provided to
executives of the Company with a level of responsibility and stature comparable
to Employee. Performance goals, award opportunity, benefit levels, and
administrative guidelines for such plans shall be subject to review and approval
by the Committee.
4. Termination of Employment.
4.1 During the Term, the Company may terminate Employee's employment
herein at any time for Cause or as a result of a material breach by Employee of
his obligations under this Agreement, provided however that, except in the case
of conviction of a felony, the Company shall provide Employee with not less than
sixty (60) days prior written notice describing the behavior or conduct which is
alleged by the Company to constitute Cause, and Employee shall be provided with
reasonable opportunity to correct such behavior or conduct within the notice
period. For purposes of this Agreement, Cause shall be defined as any or all of
the following:
(1) Conduct or action by Employee which, in the opinion of a
majority of the Board of Directors, is materially harmful to
the Company;
<PAGE>
(2) Willful failure by Employee to follow an order of the Board,
except in such case where the Employee believes in good faith
that following such order would be materially detrimental to
the interests of the Company;
(3) Employee's conviction of a felony.
4.2 In the event that Employee's employment is terminated by the
Company for any reason other than those set forth in Paragraph 4.1 hereinabove,
or, (a) Employee's annual base salary is reduced below the amount stated in
Paragraph 3.1 hereinabove (unless such reduction is part of an across the board
reduction affecting all Company executives with a comparable level of
responsibility, title or stature), or (b) Employee is removed from or denied
participation in incentive plans, benefit plans, or perquisites generally
provided by the Company to other executives with a comparable level of
responsibility, title or stature, or (c) Employee's target incentive
opportunity, benefits or perquisites are reduced relative to other executives
with comparable responsibility, title or stature, or (d) Employee is assigned
duties or obligations inconsistent with his position with the Company or (e)
There is a significant change in the nature and scope of Employee's authority or
his overall working environment, such event shall be considered a Termination
Without Cause.
4.3 In the event of Employee's Termination Without Cause at any
time during the Term of this Agreement, then:
(1) The Company shall pay Employee a lump-sum severance amount
within thirty (30) days following Termination Without Cause
equal to two (2) times the sum of (a) the higher of the
Employee's annual base salary at the time of Termination
Without Cause or the annual base salary stated in Paragraph
3.1 hereinabove, and (b) the average annual Bonus earned by
Employee (whether paid in cash or deferred) for the two
completed fiscal years immediately prior to Termination
Without Cause, reduced by the amount of any Unocal Employee
Redeployment Program and/or Unocal Termination Allowance
benefits payable to Employee.
(2) The Company shall provide for Employee to receive medical,
dental, life, and disability insurance coverage for two (2)
years following Termination Without Cause at levels and a net
cost to Employee comparable to that provided to Employee
immediately prior to Employee's Termination Without Cause.
(3) The Company shall pay Employee an additional lump-sum
severance amount within thirty (30) days following Employee's
Termination Without Cause equal to two (2) times the base
salary used to determine the lump-sum severance benefit in
paragraph 4.3(1) hereinabove, multiplied by 6% (.06).
4.4 In the event that during the Term of this Agreement Employee should
voluntarily resign from the Company, should terminate employment with the
Company due to death, permanent disability or incapacitation, or is terminated
by the Company for Cause or for a material breach by Employee of his obligations
under this Agreement, then Employee shall not be entitled to any of the
termination benefits provided for in Paragraph 4.3 hereinabove, and the Term of
the Agreement shall immediately end.
4.5 Employee shall not be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to Employee under
any provisions of this Agreement.
5. Change of Control.
5.1 In the event of a Change of Control of the Company at any
time during the Term of this Agreement, then:
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(1) In the event of Employee's Termination Without Cause within a
period of twenty-four (24) months following the date of a
Change of Control, Employee shall be entitled to the
termination benefits described in Paragraph 4.3 hereinabove;
provided that the lump-sum severance amount paid to Employee
under this Paragraph 5.1(1), which is calculated based on
Paragraphs 4.3(1) and 4.3(3) hereinabove, shall be (a) reduced
to equal the present value, determined in accordance with
Section 280G(d)(4) of the Internal Revenue Code (the "IRC"),
of the lump-sum severance amount which would otherwise be
payable under Paragraphs 4.3(1) and 4.3(3), and (b) reduced to
offset compensation and other earned income by Employee in the
manner provided for in Paragraphs 5.1(2) and 5.1(3) below.
(2) The lump-sum severance amounts payable to Employee under
Paragraphs 4.3(1) and 4.3(3) shall be reduced by one hundred
percent (100%) of any compensation and other earned income
(within the meaning of Section 911(d)(2)(A) of the IRC) which
is earned by Employee for services rendered to persons or
entities other than the Company or its affiliates during the
three years immediately following Employee's Termination
Without Cause.
(3) Not less frequently than annually beginning on the first
anniversary following Employee's Termination Without Cause,
Employee shall account to the Company with respect to all
compensation and other earned income earned by Employee which
is required hereunder to be offset against the lump-sum
severance amount received by Employee from the Company under
Paragraphs 5.1(1) and 5.1(2). If the Company has paid a
lump-sum severance amount in excess of the amount to which
Employee is entitled (after giving effect to the offsets
provided for above), Employee shall reimburse the Company for
such excess within thirty (30) days of the determination of
such excess. The requirements imposed under this Paragraph
5.1(3) shall terminate thirty (30) days immediately following
the second anniversary of Employee's Termination Without
Cause.
5.2 For the purpose of this Agreement, a "Change of Control" shall
mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")(a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 5.2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
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<PAGE>
(c) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company or
the acquisition of assets of another corporation (a "Business Combination"), in
each case, unless, following such Business Combination, (i) all or substantially
all of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (ii) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
5.3 Certain Additional Payments by the Company may be due as follows:
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company or its affiliates to or for the benefit of the
Employee (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise but determined without regard to any
additional payments required under this Section 5.3), (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Employee with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Employee shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Employee of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 5.3, if it shall be
determined that the Employee is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Employee such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Employee
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 5.3(c), all determinations
required to be made under this Section 5.3, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Ernst and Young or such other certified public accounting firm as may be
designated by the Employee (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Employee within 15 business
days of the receipt of notice from the Employee that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Employee shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 5.3, shall be paid by the Company to the Employee within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Employee. As a result
of the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 5.3(c) and the Employee thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Employee.
4
<PAGE>
(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Employee is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Employee
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim, the Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Employee harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 5.3(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Employee to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Employee agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Employee to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Employee, on an interest-free basis and shall indemnify and hold
the Employee harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
the such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Employee with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Employee shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by the
Company pursuant to Section 5.3(c), the Employee becomes entitled to receive any
refund with respect to such claim, the Employee shall (subject to the Company's
employing with the requirements of Section 5.3 promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Company pursuant to Section 5.3(c), a determination is made that
the Employee shall not be entitled to any refund with respect to such claim and
the Company does not notify the Employee in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
6. Covenants.
6.1 Employee agrees that any and all confidential knowledge or
information, including but not limited to customer lists, books, records, data,
formulae, specifications, inventions, processes and methods, and developments
and improvements, which have been or may be obtained or learned by Employee in
the course of his employment with the Company, will be held confidential by
Employee, and that Employee shall not disclose the same to any person outside of
the Company either during his employment with the Company or after his
employment by the Company has terminated.
6.2 Employee agrees that upon termination of his employment with the
Company he will immediately surrender and turn over to the Company all books,
records, forms, specifications, formulae, data, and all papers and writings
relating to the business of the Company and all other property belonging to the
Company, it being understood and agreed that the same are the sole property of
the Company and that Employee shall not make or retain any copies thereof.
5
<PAGE>
6.3 Employee agrees that all inventions, developments or improvements
which he has made or may make, conceive, invent, discover or otherwise acquire
during his employment with the Company in the scope of his responsibilities or
otherwise shall become the sole property of the Company.
6.4 Employee agrees to provide a release of any claims with respect to
termination of his or her employment on such form as requested by the Company
upon payment of the sums provided in Section 4.3 above.
7. Miscellaneous Provisions.
7.1 All terms and conditions of this Agreement are set forth herein,
and there are no warranties, agreements or understandings, express or implied,
except those expressly set forth herein.
7.2 Any modification to this Agreement shall be binding only if
evidenced in writing signed by all parties hereto.
7.3 Any notice or other communication required or permitted to be given
hereunder shall be deemed properly given if personally delivered or deposited in
the United States mail, registered or certified and postage prepaid, addressed
to the Company at 2141 Rosecrans Ave., Suite 4000, El Segundo, CA (Attention:
General Counsel), or to Employee at his or her most recent home address on file
with Company, or at other such addresses as may from time to time be designated
in writing by the respective parties.
7.4 The laws of the State of California shall govern the validity of
this Agreement, the construction of its terms, and the interpretation of the
rights and duties of the parties involved.
7.5 In the event that any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable, the same shall not affect any other provision of this Agreement,
but this Agreement shall be construed as if such invalid, illegal or
unenforceable provisions had never been contained herein.
7.6 This Agreement shall be binding upon, and inure to the benefit of,
the successors and assigns of the Company and the personal representatives,
heirs and legatees of Employee.
7.7 "Bonus" refers to the Unocal Incentive Compensation Plan and any
replacement or successor plan thereof.
7.8 Company shall pay 90% (ninety percent) of Employee's out-of-pocket
litigation expenses, including reasonable attorney's fees, in connection with
any judicial proceeding to enforce this Agreement or construe or determine the
validity of this Agreement, whether or not the Employee is successful in such
proceeding.
7.9 The term "Company" shall include with respect to employment
hereunder, any subsidiary or affiliate of the Company as well as any successor
employer following a Change in Control.
7.10 This Agreement succeeds and replaces that Unocal Employment
Agreement which was effective December 8, 1997 between Company and Employee.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
BY:
Chairman of the Management Development and
Compensation Committee of the Unocal
Board of Directors
BY:
EMPLOYEE
6
<TABLE>
<CAPTION>
EXHIBIT 12.1
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Six Months
Ended June 30
-----------------
Millions of dollars 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
Earnings from continuing operations .......................... $123 $344
Provision for income taxes ................................... 138 242
- ----------------------------------------------------------------------------------
Earnings subtotal ................................... 261 586
Fixed charges included in earnings:
Interest expense .......................................... $ 83 $110
Distribution on convertible preferred securities .......... 16 16
Interest portion of rentals ............................... 12 14
- ----------------------------------------------------------------------------------
Fixed charges subtotal .............................. 111 140
Earnings from continuing operations
available before fixed charges ............................ $372 $726
- ----------------------------------------------------------------------------------
Fixed charges:
Fixed charges included in earnings ........................ $111 $140
Capitalized interest ...................................... 17 16
- ----------------------------------------------------------------------------------
Total fixed charges ................................. $128 $156
- ----------------------------------------------------------------------------------
Ratio of earnings from continuing operations
to fixed charges .......................................... 2.9 4.7
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12.2
UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Six Months
Ended June 30
-------------------
Millions of dollars 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
Earnings from continuing operations ...................... $134 $362
Provision for income taxes ............................... 144 242
- ----------------------------------------------------------------------------------
Earnings subtotal .................................. 278 604
Fixed charges included in earnings:
Interest expense ...................................... 83 110
Interest portion of rentals ........................... 12 14
- ----------------------------------------------------------------------------------
Fixed charges subtotal ............................. 95 124
Earnings from continuing operations
available before fixed charges ........................ 373 728
- ----------------------------------------------------------------------------------
Fixed charges:
Fixed charges included in earnings .................... 95 124
Capitalized interest .................................. 17 16
- ----------------------------------------------------------------------------------
Total fixed charges ................................ $112 $140
- ----------------------------------------------------------------------------------
Ratio of earnings from continuing operations
to fixed charges ..................................... 3.3 5.2
- ----------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Unocal Corporation FDS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 193
<SECURITIES> 0
<RECEIVABLES> 888
<ALLOWANCES> (49)
<INVENTORY> 148
<CURRENT-ASSETS> 1,260
<PP&E> 14,974
<DEPRECIATION> (10,022)
<TOTAL-ASSETS> 7,750
<CURRENT-LIABILITIES> 974
<BONDS> 2,480
0
0
<COMMON> 252
<OTHER-SE> 2,505
<TOTAL-LIABILITY-AND-EQUITY> 7,750
<SALES> 2,397
<TOTAL-REVENUES> 2,604
<CGS> 1,620
<TOTAL-COSTS> 2,343
<OTHER-EXPENSES> 178
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83
<INCOME-PRETAX> 261
<INCOME-TAX> 138
<INCOME-CONTINUING> 123
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.50
</TABLE>
