2nd Quarter 1999
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, 1999
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 June 30,
1999: 242,385,441
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
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 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues
<S> <C> <C> <C> <C>
Sales and operating revenues .................................................. $ 1,495 $ 1,226 $ 2,684 $ 2,397
Interest, dividends and miscellaneous income .................................. 28 51 56 62
Equity in earnings of affiliated companies .................................... 21 27 48 52
Gain(loss) on sales of assets ................................................. 11 93 (2) 93
----------------------------------------------------
Total revenues .......................................................... 1,555 1,397 2,786 2,604
Costs and other deductions
Crude oil, natural gas and product purchases .................................. 838 515 1,438 931
Operating expense ............................................................. 286 356 537 680
Selling, administrative and general expense ................................... 52 15 84 39
Depreciation, depletion and amortization ...................................... 183 199 383 380
Dry hole costs ................................................................ 47 42 74 92
Exploration expense ........................................................... 35 39 73 86
Interest expense .............................................................. 48 42 93 83
Property and other operating taxes ............................................ 14 15 27 31
Distributions on convertible preferred
securities of subsidiary trust ............................................. 8 8 16 16
Minority interests ............................................................ 4 2 4 5
----------------------------------------------------
Total costs and other deductions ........................................ 1,515 1,233 2,729 2,343
----------------------------------------------------
Earnings (loss) from operations before income taxes ........................... 40 164 57 261
Income taxes .................................................................. 31 59 41 138
----------------------------------------------------
Net earnings (loss) ..................................................... $ 9 $ 105 $ 16 $ 123
====================================================
Basic earnings (loss) per share of common stock (a) ........................... $ 0.04 $ 0.43 $ 0.07 $ 0.51
Diluted earnings (loss) per share of common stock (b) ......................... $ 0.04 $ 0.43 $ 0.07 $ 0.50
Cash dividends declared per share of common stock ............................. $ 0.20 $ 0.20 $ 0.40 $ 0.40
<FN>
(a) Basic weighted average shares outstanding (in thousands) ................ 242,270 241,362 241,649 241,396
(b) Diluted weighted average shares outstanding (in thousands) ............... 244,001 242,707 242,717 242,610
See notes to the consolidated financial statements.
</FN>
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION
June 30 December 31
-------------------------------------
Millions of dollars 1999 (a) 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents .................................................. $ 168 $ 238
Accounts and notes receivable .............................................. 873 807
Inventories ................................................................ 158 179
Deferred income taxes ...................................................... 96 142
Other current assets ....................................................... 32 22
-------------------------------------
Total current assets .................................................... 1,327 1,388
Investments and long-term receivables ......................................... 1,194 1,143
Properties (b) ................................................................ 5,840 5,276
Deferred income taxes ......................................................... 71 23
Other assets .................................................................. 140 122
-------------------------------------
Total assets ............................................................ $ 8,572 $ 7,952
=====================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ........................................................... $ 738 $ 709
Taxes payable .............................................................. 92 260
Interest payable ........................................................... 59 52
Current portion of environmental liabilities ............................... 140 142
Other current liabilities .................................................. 150 213
-------------------------------------
Total current liabilities ............................................... 1,179 1,376
Long-term debt ................................................................ 2,802 2,558
Deferred income taxes ......................................................... 281 132
Accrued abandonment, restoration and environmental liabilities ................ 598 622
Other deferred credits and liabilities ........................................ 613 514
Minority interests ............................................................ 424 26
Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely parent debentures .......... 522 522
Common stock ($1 par value) ................................................... 253 252
Capital in excess of par value ................................................ 489 460
Unearned portion of restricted stock issued ................................... (23) (24)
Retained earnings ............................................................. 1,878 1,959
Accumulated other comprehensive income (loss) ................................. (33) (34)
Treasury stock - at cost (c) ................................................. (411) (411)
-------------------------------------
Total stockholders' equity .............................................. 2,153 2,202
-------------------------------------
Total liabilities and stockholders' equity ........................... $ 8,572 $ 7,952
=====================================
<FN>
(a) Unaudited
(b) Net of accumulated depreciation .......................................... $ 10,269 $ 10,193
(c) Number of shares (in thousands) .......................................... 10,623 10,623
See notes to the consolidated financial statements
</FN>
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
(UNAUDITED)
For the Six Months
Ended June 30
-------------------------------------
Millions of dollars 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
<S> <C> <C>
Net earnings (loss) ............................................................ $ 16 $ 123
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion and amortization ................................. 383 380
Dry hole costs ........................................................... 74 92
Deferred income taxes .................................................... (9) 30
(Gain) loss on sales of assets (before-tax) .............................. 2 (93)
Other .................................................................... (21) 28
Working capital and other changes related to operations
Accounts and notes receivable ......................................... (59) 61
Inventories ........................................................... 21 24
Accounts payable ...................................................... (7) (139)
Taxes payable ......................................................... (168) (37)
Other ................................................................. (62) (72)
-------------------------------------
Net cash provided by (used in) operating activities ................ 170 397
Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) .............................. (468) (766)
Acquisition of Northrock Resources Ltd. ..................................... (184) --
Proceeds from sales of assets ............................................... 154 34
-------------------------------------
Net cash provided by (used in) investing activities ................ (498) (732)
Cash Flows from Financing Activities
Long-term borrowings ........................................................ 798 657
Reduction of long-term debt ................................................. (705) (316)
Dividends paid on common stock .............................................. (97) (97)
Repurchases of common stock ................................................. -- (48)
Minority interests .......................................................... 242 (7)
Other ....................................................................... 20 1
-------------------------------------
Net cash provided by (used in) financing activities ................... 258 190
Increase (decrease) in cash and cash equivalents ............................... (70) (145)
Cash and cash equivalents at beginning of year ................................. 238 338
-------------------------------------
Cash and cash equivalents at end of period ..................................... $ 168 $ 193
=====================================
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest (net of amount capitalized) ..................................... $ 95 $ 84
Income taxes (net of refunds) ............................................ $ 259 $ 142
<FN>
See notes to the consolidated financial
statements.
</FN>
</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 1998 Annual
Report on Form 10-K.
Results for the six months ended June 30, 1999, are not necessarily
indicative of future financial results.
Certain items in the prior year financial statements have been reclassified
to conform to the 1999 presentation.
(2) For the purpose of this report, Unocal Corporation (Unocal) and its
consolidated subsidiaries, including Union Oil Company of California (Union
Oil), are referred to as the company.
The consolidated financial statements of the company include the accounts
of affiliates in which a controlling interest is held. Investments in
affiliates without a controlling interest are accounted for by the equity
method. Under the equity method, the investments are stated at cost plus
the company's equity in undistributed earnings and losses after
acquisition. Income taxes estimated to be payable when earnings are
distributed are included in deferred taxes.
(3) Other Financial Information
During the second quarter of 1999 and 1998, approximately 48 percent and 33
percent, respectively, of total sales and operating revenues were
attributed to the resale of crude oil, natural gas and natural gas liquids
purchased from others, that the company purchased in connection with its
trading and marketing activities. For the six months ended June 30, 1999
and 1998, approximately 47 percent and 32 percent, respectively, of total
sales and operating revenues were attributed to the resale of crude oil,
natural gas and natural gas liquids purchased from others. Related purchase
costs are classified as expense in the crude oil, natural gas and product
purchases category on the consolidated earnings statement.
Capitalized interest totaled $4 million and $9 million for the second
quarters of 1999 and 1998, respectively. Capitalized interest totaled $9
million and $17 million for the first six months of 1999 and 1998,
respectively.
(4) Income Taxes
Income taxes on earnings from operations for the second quarter and first
six months of 1999 were $31 million and $41 million, respectively, compared
with $59 million and $138 million for the comparable periods of 1998. The
effective income tax rate for the second quarter of 1999 was 78 percent
compared with 36 percent for the second quarter of 1998. The higher tax
rate for the second quarter of 1999 was primarily due to the mix effect of
domestic losses versus foreign earnings. The tax rate for the comparable
period in 1998 was lower primarily due to currency-related tax adjustments
in Thailand.
The effective income tax rate for the first six months of 1999 was 72
percent compared with 53 percent for the first six months of 1998. The
higher effective income tax rate for the first six months of 1999 was due
to the mix effect of domestic losses versus foreign earnings.
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(5) Comprehensive Income
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 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) ........................................................... $ 9 $ 105 $ 16 $ 123
Change in foreign currency translation adjustments (net of tax) ............... 1 (1) 1 --
----------------------------------------------------
Comprehensive earnings (loss) ........................................... $ 10 $ 104 $ 17 $ 123
====================================================
</TABLE>
(6) Earnings Per Share
The following are reconciliations of the numerators and denominators of the
basic and diluted earnings per share (EPS) computations for net earnings
for the second quarters and the six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Earnings Shares Per Share
Millions except per share amounts (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 1999
<S> <C> <C> <C>
Net Earnings ............................................................ $ 9 242.3
Basic EPS ............................................................ $0.04
=====
Effect of Dilutive Securities
Options/common stock equivalents ..................................... 1.7
-----------------------------
Diluted EPS .......................................................... 9 244.0 $0.04
=====
Distributions on preferred securities (after-tax) .................... 6 12.3
-----------------------------
Antidilutive ......................................................... $ 15 256.3 $0.06
Three Months Ended June 30, 1998
Net Earnings ........................................................... $ 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 subsidiary trust preferred securities (after-tax) .. 6 12.3
-----------------------------
Antidilutive ........................................................ $ 111 255.0 $0.44
Six Months Ended June 30, 1999
Net Earnings ........................................................... $ 16 241.6
Basic EPS ........................................................... $0.07
=====
Effect of Dilutive Securities
Options/common stock equivalents .................................... 1.1
-----------------------------
Diluted EPS ......................................................... 16 242.7 $0.07
=====
Distributions on subsidiary trust preferred securities (after-tax) .. 13 12.3
-----------------------------
Antidilutive ........................................................ $ 29 255.0 $0.11
Six Months Ended June 30, 1998
Net Earnings ........................................................... $ 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 subsidiary trust preferred securities (after-tax) .. 12 12.3
-----------------------------
Antidilutive ........................................................ $ 135 254.9 $0.53
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Not included in the computation of diluted EPS were options outstanding at
June 30, 1999 to purchase approximately 6.9 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 $35.85 for the
common shares. The exercise prices of these options range from $35.94 to
$51.01 per share and they expire in 2007 through 2009.
(7) Long Term Debt and Credit Agreements
On June 21, 1999, the company issued $350 million of 10 year, 7.35 percent
notes under its universal shelf registration statement. After issuance of
the notes, the total amount available for future issuance of medium term
notes, other debt and/or equity securities under the registration statement
was approximately $739 million. Additionally, the company, through
consolidation of a Canadian subsidiary's acquisition of a 46-percent
controlling ownership interest in Northrock Resources Ltd. (see note 12),
added approximately $150 million in long-term debt.
Proceeds from the $350 million debt issuance referred to above were used to
retire $60 million of maturing medium-term notes and to pay down $113
million in maturing commercial paper to an outstanding balance of $40
million at June 30, 1999. The company also reduced its borrowings under the
$1 billion bank credit agreement by $100 million to an outstanding balance
of $100 million at June 30, 1999.
(8) Financial Instruments
The estimated fair value of the company's long-term debt was $2,873 million
on June 30, 1999. The fair values of the debt instruments were based on the
discounted amounts of future cash outflows using rates offered to the
company for debt with similar maturities. The estimated fair value of the
mandatorily redeemable convertible preferred securities of the company's
subsidiary trust was $584 million. The fair value of the preferred
securities was based on the trading prices of the preferred securities on
June 30, 1999.
The company's financial instruments at June 30, 1999 are described below:
Foreign exchange contracts - The company and its subsidiaries have assorted
currency swap agreements outstanding that are designed to hedge the impacts
of foreign-currency exchange-rate fluctuations on US dollar- denominated
debt. One agreement requires a subsidiary to pay approximately C$146
million at maturity in exchange for US$100 million. The parent company has
a currency swap agreement that requires the company to pay US$100 million
in exchange for C$146 million at maturity which effectively offsets the
subsidiary's agreement. The combined fair values of these swap agreements
were approximately zero at the end of the period. In addition, other
agreements require a subsidiary to pay approximately C$115 million at
maturity in exchange for US$75 million. The fair values of these agreements
were US$72 million and were determined by comparing the swap rates to the
forward rates in effect at June 30, 1999. The company's share of the
estimated pre-tax deferred losses related to the US$75 million currency
swap agreements was US$1.2 million at June 30, 1999 (net of minority
interests). The combined total of US$175 million to be received by the
subsidiaries will be used to retire US dollar-denominated debt at maturity.
A subsidiary has US dollar forward contracts outstanding that are designed
to mitigate the subsidiary's exposure to the US dollar-indexed prices it
receives for the sale of its crude oil. These contracts are subject, in
some cases, to extensions at the bank's option and require the company to
sell approximately US$200 million in exchange for approximately C$285
million at maturity. At June 30, 1999, contracts of US$15 million were
scheduled to mature in 1999 with the remaining contracts scheduled to
mature periodically through the year 2005. The fair values of the contracts
were approximately US$196 million. The fair values were determined by
comparing the contract rates to the forward rates in effect at June 30,
1999. The company's share of estimated pre-tax deferred losses relating to
these US dollar forward exchange contracts were US$2.6 million at June 30,
1999 (net of minority interests).
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
During the quarter, the company closed out its Thai baht foreign-exchange
forward contracts. The fair value of the contracts at termination
approximated the notional amounts. There were no Thai baht foreign-exchange
forward contracts outstanding at June 30, 1999.
Other commodity-based contracts - The company has various fixed-price sales
contracts outstanding at June 30, 1999, related to the future sale of
natural gas production of one of its Canadian affiliates. The contracts
cover production in the amounts shown for the following years:
Remainder of 1999 18.3 million cubic feet/day Avg price of $2.36 per mcf
Average for 2000 37.5 million cubic feet/day Avg price of $2.32 per mcf
Average for 2001 65.1 million cubic feet/day Avg price of $1.99 per mcf
Average for 2002 60.5 million cubic feet/day Avg price of $1.68 per mcf
The company's share of estimated pre-tax deferred losses relating to these
contracts was approximately $8 million at June 30, 1999, (net of minority
interests). The losses primarily relate to contracts with delivery dates
scheduled for the years 2001 through 2002.
At June 30, 1999, the company had $43 million in futures contracts
outstanding related to its non-trading activities. The company purchased
crude oil futures contracts for $21 million covering 1,600 thousand barrels
of crude oil. These purchases offset the fixed price risk related to
delivery obligations under a December 1998 pre-paid forward crude oil sale.
The fair values of these crude oil futures purchase contracts based on
quoted market prices at June 30, 1999, were approximately $31 million. The
company also purchased natural gas futures contracts for $22 million
covering approximately 10 million thousand cubic feet (mcf) of natural gas,
primarily in the third quarter of 1999. These contracts were purchased as
part of the company's overall hedging strategy. The fair values of the
natural gas futures purchase contracts based on quoted market prices at
June 30, 1999 were approximately $23 million. There were no material crude
oil and natural gas futures contracts outstanding related to the company's
trading activities at June 30, 1999.
At June 30, 1999, the company had various hydrocarbon option contracts
(options) outstanding with several counterparties. Generally, options have
been used to limit the company's exposure to adverse commodity price
fluctuations. In some cases, the instruments may also limit the company's
ability to participate fully in future gains from favorable price
movements. These options are generally accounted for as hedges, with gains
and losses deferred and recognized as a component of crude oil and natural
gas revenues upon the sale of the underlying production.
At June 30, 1999, the company had options to purchase approximately 81
million mcf and sell approximately 144 million mcf of natural gas. Sold
options include call contracts that relate to the future production of one
of the company's Canadian affiliates. These call prices range from an
average of $2.45 per mcf for the remainder of 1999 to $2.50 per mcf in the
year 2004. Related subsidiary call option gross daily volumes are expected
to average approximately 86 million cubic feet (cf)for the remainder of
1999, 129 million cf in 2000, 37 million cf in 2001, 14 million cf in 2002,
22 million cf in 2003 and approximately 8 million cf in 2004.
The purchased options consist primarily of put options, which the company
acquired to establish a floor price for its 1999 natural gas production. At
June 30, 1999, the purchased options had a fair value of approximately
$(15) million and the sold options had a fair value of approximately $(17)
million. The fair values of the options were determined by dealer quotes
where available, or by financial modeling using underlying commodity
prices. Net premiums paid for the options totaled $3 million. Approximately
80 percent of the sold options and 100 percent of the purchased options
were associated with the company's non-trading activities. At June 30,
1999, the company's share (net of minority interests) of pre-tax deferred
losses related to its non-trading natural gas option activity was
approximately $24 million.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
At June 30, 1999, the company had options outstanding to purchase
approximately 5 million barrels of crude oil and sell approximately 23
million barrels of crude oil. The sold options consist of put and call
contracts that relate primarily to the company's remaining 1999 production
as well as call contracts that relate to the production of one of the
company's Canadian affiliates for the years 2000 through 2002. The
purchased options include put options that were acquired to establish a
floor price for the company's 1999 crude oil production. At June 30, 1999,
the purchased options had a fair value of approximately $(5) million and
the sold options had a fair value of approximately $(21) million. The fair
values of the options were determined by dealer quotes where available, or
by financial modeling using underlying commodity prices. Net premiums paid
for the options totaled $6 million. Approximately 70 percent of the sold
and purchased options were associated with the company's non-trading
activities. At June 30, 1999, the company's share (net of minority
interests) of pre-tax deferred losses related to its non-trading crude oil
option activity was approximately $32 million.
At June 30, 1999, the company had a ten-year natural gas price swap
agreement outstanding. The agreement effectively refloats the fixed price
the company received for a ten-year natural gas pre-paid forward sale. As
the counterparty to the swap agreement remits a current-index-price payment
amount to the company based upon volumes in the swap agreement, the company
remits a fixed-price payment amount to the counterparty. The pre-tax
deferred loss related to the swap agreement at June 30, 1999, was
approximately $4 million. This loss is offset by the fixed price physical
sales contract.
The company recorded approximately $3 million and $7 million in pre-tax
trading gains for the second quarter and first six months of 1999,
respectively.
(9) Accrued Abandonment, Restoration and Environmental Liabilities
At June 30, 1999, the company had accrued $464 million for the estimated
future costs to abandon and remove wells and production facilities. The
total costs for abandonments are predominantly accrued for on a
unit-of-production basis and are estimated to be approximately $655
million. This estimate was derived in large part from abandonment cost
studies performed by outside firms and is used to calculate the amount to
be amortized. The company's reserve for environmental remediation
obligations at June 30, 1999 totaled $274 million, of which $140 million
was included in current liabilities.
(10) 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.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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, even if liability is determined to be
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, the fact that the company
is usually just one of a number of companies identified as a PRP, or other
reasons.
As disclosed in note 9, at June 30, 1999, the company had accrued $274
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 possible additional remediation
costs aggregating approximately $190 million.
Tax matters - 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 alleged that the defendants interfered
with Bridas' exclusive right to lay a gas pipeline in Afghanistan. Bridas
sought actual damages, as well as punitive damages, plus interest. Bridas'
expert witnesses stated in pre-trial discovery that Bridas' total actual
damages for loss of future profits were approximately $1.7 billion. In the
alternative, Bridas was expected to seek an award of approximately $430
million with respect to its total expenditures in Turkmenistan. In October
1998, the court granted the defendants' motion for summary judgement and
dismissed the action. In March 1999, Bridas filed a notice of appeal of the
dismissal.
In May 1999, a Canadian subsidiary of the company acquired an approximately
46 percent controlling interest in Northrock Resources Ltd. (Northrock)
(see note 12). Northrock has the right, until December 31, 1999, to require
that the company purchase additional Northrock common shares from treasury
shares at a price of C$15 per share, up to a maximum ownership level of
49.9 percent.
In 1998, the company signed a letter agreement regarding the Transocean
Discoverer Spirit deepwater drill ship with a minimum daily rate of $210
thousand for five years. The drill ship is scheduled for delivery in the
Gulf of Mexico in 2000.
The company also has certain other contingent 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.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(11) 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 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues ............................................................... $1,555 $1,397 $2,786 $2,604
Total costs and other deductions
(including income taxes) .................................................. 1,538 1,286 2,756 2,470
----------------------------------------------------
Net Earnings.................................................................. $ 17 $ 111 $ 30 $ 134
====================================================
At June 30 At December 31 (a)
----------------------------------------------------
Millions of dollars 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Current assets ............................................................... $1,327 $1,388
Noncurrent assets ............................................................ 7,264 6,583
Current liabilities .......................................................... 1,214 1,406
Noncurrent liabilities ....................................................... 4,719 3,852
Shareholder's equity ......................................................... 2,658 2,713
<FN>
(a) Audited
</FN>
</TABLE>
(12) Acquisition of Assets
In May 1999, a Canadian subsidiary of the company acquired an approximately
46-percent controlling interest in Northrock Resources Ltd. (Northrock),
a Canadian oil and gas exploration and production company, for
approximately $184 million. The investment was effected by the acquisition
of 10 million shares of Northrock common stock at C$14 per share pursuant
to a partial tender offer to Northrock's shareholders and 7.64 million
shares of Northrock common stock at C$16 per share pursuant to a private
placement. The acquisition is part of the company's overall North American
natural gas strategy. Northrock is fully consolidated in the company's
financial results.
(13) Minority Interests
In April 1999, the company contributed fixed-price overriding royalty
interests from its working interest shares in certain oil and gas producing
properties in the Gulf of Mexico to Spirit Energy 76 Development, L.P.
(Spirit LP), a limited partnership formed under the laws of Delaware. In
exchange for its overriding royalty contributions, valued at $304 million,
the company received an initial general partnership interest of
approximately 55 percent in Spirit LP. An unaffiliated investor contributed
$250 million in cash to the partnership in exchange for an initial limited
partnership interest of approximately 45 percent. The net result of this
transaction was to increase minority interests by approximately $244
million.
The fixed-price overrides are subject to economic limitations of production
from the affected fields. The limited partner is entitled to receive a
priority allocation of profits and cash distributions. The partnership has
a maximum term of 20 years, but may terminate after six years, subject to
certain conditions.
As discussed in note 12, in May 1999, a Canadian subsidiary of the company
acquired approximately 46 percent of Northrock. The net result of this
transaction was to increase minority interests by approximately $145
million.
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(14) Restructuring Costs
The company adopted a restructuring plan during the second quarter of 1999
that resulted in the accrual of a $18 million pre-tax restructuring charge.
This amount included the costs of terminating approximately 250 employees.
The charge was included in selling, administrative and general expense on
the consolidated earnings statement. The plan involves the blending of
several International and Geothermal organizations, a manpower optimization
program in Thailand, cost cutting and efficiency initiatives in the
company's Diversified Business and Exploration and Production Technology
groups and a company-wide shared resources initiative.
Approximately 100 of the affected employees were from the company's
International operations, 95 were from the Diversified Business group and
55 were from other organizations, including corporate staff. The
restructuring charge included approximately $16 million for termination
costs to be paid to the employees over time and about $2 million related to
outplacement and other costs.
At July 15, 1999, 155 employees had been terminated or had received
termination notices as the result of the plan with additional terminations
scheduled during the remainder of 1999 and early 2000.
In the fourth quarter of 1998, the company adopted a restructuring plan
that resulted in the accrual of a $27 million pre-tax restructuring charge.
This amount included the costs of terminating approximately 475 employees.
The charge was included in selling, administrative and general expense on
the consolidated earnings statement. The plan involves the suspension of
mining and manufacturing operations at the Mountain Pass, California
lanthanide facility, a change in mining operations at the Questa, New
Mexico molybdenum facility, the withdrawal from non-strategic activities in
Central Asia and a reduction in activities of various business units.
Approximately 240 of the affected employees were from the company's mining
operations, 95 were from various exploration and production business units
and 140 were support personnel at various locations. The restructuring
charge included approximately $23 million for termination costs to be paid
to the employees over time, about $2 million in benefit plan curtailment
costs and about $2 million related to outplacement and other costs.
At July 15, 1999, 399 employees had been terminated or had received
termination notices as a result of the plan, with additional terminations
scheduled during the remainder of 1999 and early 2000.
The amount of unpaid benefits remaining on the consolidated balance sheet
at June 30, 1999 was $29 million for the two plans combined.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(15) Segment Information
The company's reportable segments are as follows:
Exploration and Production, Global Trade, Geothermal & Power Operations
and Diversified Businesses. Unallocated corporate administrative and
general expenses and other miscellaneous operations are included under the
Corporate and Unallocated heading. Effective January 1, 1999, the
Pipelines business unit was transferred from the Diversified Business
segment to the Global Trade segment. For an expanded description of the
activities conducted by the company's business segments, see pages 74 and
75 of the company's 1998 Annual Report on Form 10-K.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Segment Information Exploration & Production Geothermal
For the Three Months United States International Global Trade & Power
ended June 30, 1999 Spirit Far Operations
Millions of dollars Energy 76 Alaska East Other Global Trade Pipelines
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues ......... $ 27 $ 29 $ 180 $ 48 $ 1,022 $ 9 $ 32
Other revenue (loss) ........................ 4 -- (3) 5 -- 16 17
Inter-segment revenues ...................... 234 16 45 14 2 3 --
--------------------------------------------------------------------------------
Total revenues ............................. 265 45 222 67 1,024 28 49
Operating profit (loss) before income taxes
and minority interest in earnings ......... 25 6 88 (1) -- 18 22
Income taxes (benefit) .................. 8 2 47 (3) -- 2 8
Minority interest in earnings ........... 4 -- -- 1 -- -- --
--------------------------------------------------------------------------------
Net earnings (loss) ......................... 13 4 41 1 -- 16 14
Assets (at June 30, 1999) ................... 2,083 304 1,880 1,434 403 253 499
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Diversified Corporate & Unallocated Totals
Business
Ag Carbon & Admn & Net Int Env & New
Products Minerals General Exp Litigation Ventures Other(a)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues.......... $ 113 $ 36 $ -- $ -- $ -- $ -- $ (1) $ 1,495
Other revenue (loss) ........................ -- 7 -- 5 -- -- 9 60
Inter-segment revenues ...................... -- -- -- -- -- -- (314) --
--------------------------------------------------------------------------------
Total revenues ............................. 113 43 -- 5 -- -- (306) 1,555
Operating profit (loss) before income taxes
and minority interest in earnings ......... 1 2 (30) (44) (10) (5) (28) 44
Income taxes (benefit) .................. (2) (2) (9) (9) (3) (1) (7) 31
Minority interest in earnings ........... -- -- -- (1) -- -- -- 4
--------------------------------------------------------------------------------
Net earnings (loss) ......................... 3 4 (21) (34) (7) (4) (21) 9
Assets (at June 30, 1999) ................... 299 377 -- -- -- -- 1,040 8,572
<FN>
(a) Includes eliminations and consolidation adjustments.
</FN>
</TABLE>
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Segment Information Exploration & Production Geothermal
For the Three Months United States International Global Trade & Power
ended June 30, 1998 Spirit Far Operations
Millions of dollars Energy 76 Alaska East Other Global Trade Pipelines
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues ......... $ 22 $ 25 $ 176 $ 40 $ 730 $ 10 $ 36
Other revenue (loss) ........................ -- -- (8) 96 -- 14 28
Inter-segment revenues ...................... 248 20 59 (1) 1 2 --
--------------------------------------------------------------------------------
Total revenues ............................. 270 45 227 135 731 26 64
Operating profit (loss) before income taxes
and minority interest in earnings ......... 24 2 99 65 7 19 22
Income taxes (benefit) .................. 9 1 34 27 3 4 8
Minority interest in earnings ........... -- -- -- -- -- -- --
--------------------------------------------------------------------------------
Net earnings (loss) ......................... 15 1 65 38 4 15 14
Assets (at December 31, 1998) ............... 2,094 329 1,848 641 317 298 598
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Diversified Corporate & Unallocated Totals
Business
Ag Carbon & Admn & Net Int Env & New
Products Minerals General Exp Litigation Ventures Other(a)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues.......... $ 120 $ 57 $ -- $ -- $ -- $ -- $ 10 $ 1,226
Other revenue (loss) ........................ 1 9 -- 9 -- -- 22 171
Inter-segment revenues ...................... -- -- -- -- -- -- (329) --
--------------------------------------------------------------------------------
Total revenues ............................. 121 66 -- 9 -- -- (297) 1,397
Operating profit (loss) before income taxes
and minority interest in earnings ......... 18 9 (23) (33) (48) (8) 13 166
Income taxes (benefit) .................. 6 -- (7) (9) (18) (3) 4 59
Minority interest in earnings ........... -- 2 -- -- -- -- -- 2
--------------------------------------------------------------------------------
Net earnings (loss) ......................... 12 7 (16) (24) (30) (5) 9 105
Assets (at December 31, 1998) ............... 305 419 -- -- -- -- 1,103 7,952
<FN>
(a) Includes eliminations and consolidation adjustments.
</FN>
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Segment Information Exploration & Production Geothermal
For the Six Months United States International Global Trade & Power
ended June 30, 1999 Spirit Far Operations
Millions of dollars Energy 76 Alaska East Other Global Trade Pipelines
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues ......... $ 61 $ 53 $ 335 $ 92 $ 1,790 $ 19 $ 77
Other revenue (loss) ........................ 6 -- (2) 10 -- 31 5
Inter-segment revenues ...................... 418 33 87 14 3 5 --
--------------------------------------------------------------------------------
Total revenues ............................. 485 86 420 116 1,793 55 82
Operating profit (loss) before income taxes
and minority interest in earnings ......... 25 9 165 (25) 3 38 24
Income taxes (benefit) .................. 8 3 76 (12) 1 5 9
Minority interest in earnings ........... 3 -- -- 1 -- -- --
--------------------------------------------------------------------------------
Net earnings (loss) ......................... 14 6 89 (14) 2 33 15
Assets (at June 30, 1999) ................... 2,083 304 1,880 1,434 403 253 499
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Diversified Corporate & Unallocated Totals
Business
Ag Carbon & Admn & Net Int Env & New
Products Minerals General Exp Litigation Ventures Other(a)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues.......... $ 176 $ 79 $ -- $ -- $ -- $ -- $ 2 $ 2,684
Other revenue (loss) ........................ -- 16 -- 11 -- -- 25 102
Inter-segment revenues ...................... -- -- -- -- -- -- (560) --
--------------------------------------------------------------------------------
Total revenues ............................. 176 95 -- 11 -- -- (533) 2,786
Operating profit (loss) before income taxes
and minority interest in earnings ......... 3 14 (61) (82) (18) (7) (27) 61
Income taxes (benefit) .................. (3) -- (19) (16) (6) (2) (3) 41
Minority interest in earnings ........... -- 1 -- (1) -- -- -- 4
--------------------------------------------------------------------------------
Net earnings (loss) ......................... 6 13 (42) (65) (12) (5) (24) 16
Assets (at June 30, 1999) ................... 299 377 -- -- -- -- 1,040 8,572
</TABLE>
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Segment Information Exploration & Production Geothermal
For the Six Months United States International Global Trade & Power
ended June 30, 1998 Spirit Far Operations
Millions of dollars Energy 76 Alaska East Other Global Trade Pipelines
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues ......... $ 46 $ 57 $ 338 $ 86 $ 1,415 $ 20 $ 77
Other revenue (loss) ........................ -- -- (19) 101 -- 28 29
Inter-segment revenues ...................... 480 39 129 4 1 4 --
--------------------------------------------------------------------------------
Total revenues ............................. 526 96 448 191 1,416 52 106
Operating profit (loss) before income taxes
and minority interest in earnings ......... 40 21 212 46 16 37 44
Income taxes (benefit) .................. 15 8 126 16 6 7 16
Minority interest in earnings ........... 1 -- -- -- -- -- --
--------------------------------------------------------------------------------
Net earnings (loss) ......................... 24 13 86 30 10 30 28
Assets (at December 31, 1998) ............... 2,094 329 1,848 641 317 298 598
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Diversified Corporate & Unallocated Totals
Business
Ag Carbon & Admn & Net Int Env & New
Products Minerals General Exp Litigation Ventures Other(a)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues.......... $ 215 $119 $ -- $ -- $ -- $ -- $ 24 $ 2,397
Other revenue (loss) ........................ 1 18 -- 17 -- -- 32 207
Inter-segment revenues ...................... -- -- -- -- -- -- (657) --
--------------------------------------------------------------------------------
Total revenues ............................. 216 137 -- 17 -- -- (601) 2,604
Operating profit (loss) before income taxes
and minority interest in earnings ......... 31 27 (50) (66) (100) (19) 27 266
Income taxes (benefit) .................. 10 3 (16) (16) (37) (7) 7 138
Minority interest in earnings ........... -- 4 -- -- -- -- -- 5
--------------------------------------------------------------------------------
Net earnings (loss) ......................... 21 20 (34) (50) (63) (12) 20 123
Assets (at December 31, 1998) ............... 305 419 -- -- -- -- 1,103 7,952
<FN>
(a) Includes eliminations and consolidation adjustments.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
OPERATING HIGHLIGHTS UNOCAL CORPORATION
(UNAUDITED)
For the Three Months For the Six Months
Ended June 30 Ended June 30
-----------------------------------------
1999 1998 1999 1998
-----------------------------------------
NET DAILY PRODUCTION
Crude oil and condensate (thousand barrels daily)
United States
<S> <C> <C> <C> <C>
Spirit Energy 76 .......................................................... 40 44 40 44
Alaska .................................................................... 28 29 28 30
-----------------------------------------
Total United States 68 73 68 74
International (a)
Far East .................................................................. 72 79 71 84
Other (b) ................................................................. 35 33 33 32
-----------------------------------------
Total International ..................................................... 107 112 104 116
-----------------------------------------
Worldwide .................................................................... 175 185 172 190
=========================================
Natural gas (million cubic feet daily)
United States
Spirit Energy 76 .......................................................... 764 795 772 784
Alaska .................................................................... 131 121 137 130
-----------------------------------------
Total United States 895 916 909 914
International (a)
Far East .................................................................. 873 864 860 863
Other (b) ................................................................. 88 67 64 60
-----------------------------------------
Total International 961 931 924 923
-----------------------------------------
Worldwide .................................................................... 1,856 1,847 1,833 1,837
=========================================
Natural gas liquids (thousand barrels daily) .................................... 20 20 19 19
Geothermal (million kilowatt-hours daily) ....................................... 15 18 18 20
<FN>
(a) Includes host countries' shares of:
Crude oil and condensate ..................................................... 26 7 19 13
Natural gas .................................................................. 94 39 84 45
(b) Production includes 100% of Northrock Resources Ltd. in Canada of:
Crude oil and condensate ..................................................... 5 -- 2 --
Natural gas .................................................................. 59 -- 30 --
</FN>
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
OPERATING HIGHLIGHTS (CONTINUED) UNOCAL CORPORATION
(UNAUDITED)
For the Three Months For the Six Months
Ended June 30 Ended June 30
----------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------
AVERAGE SALES PRICES (a)
Crude oil (per barrel)
United States
<S> <C> <C> <C> <C>
Spirit Energy 76 .......................................... $ 14.98 $ 13.04 $ 13.15 $ 13.50
Alaska .................................................... 12.02 8.83 10.01 9.84
Total United States ..................................... 13.75 11.35 11.82 12.01
International
Far East .................................................. $ 14.76 $ 12.85 $ 12.59 $ 13.42
Other ..................................................... 13.41 10.31 12.19 11.34
Total International ..................................... 14.20 12.14 12.44 12.84
Worldwide .................................................... $ 13.99 $ 11.80 $ 12.16 $ 12.49
Natural gas (per thousand cubic feet)
United States
Spirit Energy 76 .......................................... $ 2.05 $ 2.15 $ 2.01 $ 2.15
Alaska .................................................... 1.20 1.48 1.20 1.47
Total United States ..................................... 1.93 2.06 1.88 2.05
International
Far East .................................................. $ 2.03 $ 2.04 $ 1.95 $ 2.03
Other ..................................................... 1.90 2.46 1.86 2.24
Total International ..................................... 2.02 2.05 1.95 2.04
Worldwide .................................................... $ 1.97 $ 2.05 $ 1.92 $ 2.05
AGRICULTURAL PRODUCTS PRODUCTION VOLUMES
(thousand tons)
Ammonia ......................................................... 364 390 745 764
Urea ............................................................ 259 245 503 505
AGRICULTURAL PRODUCTS SALES VOLUMES (thousand tons)
Ammonia ......................................................... 254 243 391 463
Urea ............................................................ 398 270 662 596
<FN>
(a) realized prices include hedging gains and losses, but exclude Global Trade
margins.
</FN>
</TABLE>
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the consolidated financial condition
and results of operations of Unocal should be read in conjunction with
Management's Discussion and Analysis in Item 7 of the company's 1998 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 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After-tax earnings (loss) ...................................................... $ 9 $ 105 $ 16 $ 123
Less: special items (net of tax)
Environmental and litigation provisions/proceeds............................ 1 (28) (2) (61)
Asset sales ................................................................ -- 53 (10) 53
Deferred tax adjustments ................................................... -- 7 -- (14)
Restructuring provision .................................................... (11) -- (11) --
Insurance settlement ....................................................... -- 11 -- 11
----------------------------------------------------
Total special items ........................................................ (10) 43 (23) (11)
----------------------------------------------------
Adjusted after-tax earnings (loss) ............................................. $ 19 $ 62 $ 39 $ 134
====================================================
</TABLE>
Adjusted after-tax earnings decreased $43 million in the second quarter of 1999
compared with the same period last year. Lower worldwide crude oil volumes,
lower agricultural products prices and higher corporate expense, including
interest expense, were the primary contributors to the decreased earnings. These
negative factors were partially offset by higher worldwide realized crude oil
prices, which increased 19 percent from the second quarter of 1998.
Adjusted after-tax earnings decreased $95 million in the first six months of
1999 compared with the first six months of 1998. The major factors contributing
to the decrease were lower worldwide crude oil and natural gas volumes, lower
worldwide realized crude oil and natural gas prices, lower agricultural products
prices and higher net interest expense. Partially offsetting these negative
factors were lower domestic dry hole costs.
In the second quarter of 1999, special items included an $11 million after-tax
charge resulting from the company's adoption of a restructuring plan. This
amount included the costs of terminating approximately 250 employees. The plan
involves the blending of several International and Geothermal organizations, a
manpower optimization program in Thailand, a cost cutting and efficiency
initiative in the company's Diversified Business and Exploration and Production
Technology groups and a company-wide shared resources initiative. The resulting
charge was recorded in aggregate in Corporate and Unallocated. Approximately $7
million and $3 million of the after-tax charge relate to the Exploration and
Production and Diversified Business segments, respectively. Approximately 100 of
the affected employees were from the company's International operations, 95 were
from the Diversified Business group and 55 were from other organizations,
including corporate staff.
EXPLORATION AND PRODUCTION
The company engages in oil and gas exploration, development, and production
worldwide.
United States - Included in the United States category are Spirit Energy 76 and
Alaska oil and gas operations. The Spirit Energy 76 business unit is responsible
for oil and gas operations in the Lower 48 United States with emphasis on the
shelf and deepwater areas in the Gulf of Mexico and the Permian Basin in West
Texas. A substantial portion of the crude oil and natural gas produced in the
United States is sold to the company's Global Trade segment. The remainder is
sold to third parties or, in the case of Alaska natural gas production, used in
the company's agricultural products operations.
17
<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 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After-tax earnings (loss)
Spirit Energy 76 ............................................................ $ 13 $ 15 $ 14 $ 24
Alaska ...................................................................... 4 1 6 13
----------------------------------------------------
Total ....................................................................... 17 16 20 37
Less: special items (net of tax)
Litigation provision (Spirit Energy 76) ..................................... 7 -- 7 --
Litigation provision (Alaska) ............................................... (2) -- (2) --
----------------------------------------------------
Total special items ......................................................... 5 -- 5 --
----------------------------------------------------
Adjusted after-tax earnings (loss) ............................................. $ 12 $ 16 $ 15 $ 37
====================================================
</TABLE>
Adjusted after-tax earnings decreased $4 million in the second quarter of 1999
compared with the same period last year. The decrease was primarily due to lower
Spirit Energy 76 crude oil and natural gas sales volumes and lower United States
realized natural gas prices. These negative factors were partially offset by
higher United States realized crude oil prices which improved by 21 percent, or
$2.40 per barrel, from the second quarter of 1998 and by lower depreciation,
depletion and amortization expense due to positive reserve adjustments.
Adjusted after-tax earnings decreased $22 million in the first six months of
1999 compared with the first six months of 1998. The decrease was primarily due
to lower United States crude oil and natural gas sales volumes, lower United
States realized natural gas prices. These negative factors were partially offset
by lower Spirit Energy 76 dry hole costs.
International - Includes the company's international exploration and production
activities and related business development activities. The company is engaged
in oil and gas production activities in nine foreign countries: Thailand,
Indonesia, Canada, The Netherlands, Azerbaijan, Yemen, Myanmar, the Democratic
Republic of Congo and Bangladesh.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
----------------------------------------------------
Millions of dollars 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After-tax earnings (loss)
Far East .................................................................. $ 41 $ 65 $ 89 $ 86
Other ..................................................................... 1 38 (14) 30
----------------------------------------------------
Total ..................................................................... 42 103 75 116
Less: special items (net of tax)
Asset sales (Other) ....................................................... -- 53 -- 53
Deferred tax adjustment (Far East) ........................................ -- 7 -- (14)
Litigation proceeds (Far East) ............................................ 2 -- 2 --
----------------------------------------------------
Total special items ....................................................... 2 60 2 39
----------------------------------------------------
Adjusted after-tax earnings (loss) ............................................. $ 40 $ 43 $ 73 $ 77
====================================================
</TABLE>
Adjusted after-tax earnings decreased $3 million during in the second quarter of
1999 compared with the same period last year. Lower crude oil volumes, primarily
in Indonesia, and higher current income taxes in Thailand were the primary
factors for the decrease. Partially offsetting these negative factors was a 17
percent increase in realized crude oil prices, or $2.06 per barrel, from the
second quarter of 1998.
Adjusted after-tax earnings decreased $4 million in the first six months of 1999
compared with the first six months of 1998. The major factors contributing to
the decrease were lower crude oil and natural gas volumes, primarily in
Indonesia and Thailand, respectively, and lower realized natural gas prices.
These negative factors were largely offset by lower exploration expense,
depreciation, depletion and amortization expense and foreign income tax expense.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
GLOBAL TRADE
The Global Trade segment conducts most of the company's worldwide crude oil,
condensate and natural gas trading and marketing activities and is responsible
for commodity-specific risk management activities on behalf of most of the
company's exploration and production segment. Global Trade also purchases crude
oil, condensate and natural gas from certain of the company's royalty owners,
joint venture partners and other unaffiliated oil and gas producers for resale.
From time to time, Global Trade takes pricing positions in hydrocarbon
derivative instruments. Global Trade also manages the company's Pipelines
business unit, which 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 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After-tax earnings (loss)
Global Trade ................................................................ $ -- $ 4 $ 2 $ 10
Pipelines ................................................................... 16 15 33 30
----------------------------------------------------
Total ..................................................................... 16 19 35 40
Less: special items (net of tax) ............................................... -- -- -- --
----------------------------------------------------
Adjusted after-tax earnings (loss) ............................................. $ 16 $ 19 $ 35 $ 40
====================================================
</TABLE>
Adjusted after-tax earnings decreased $3 million in the second quarter of 1999
compared with the same period last year. The decrease was primarily due to lower
margins on domestic crude oil trading.
Adjusted after-tax earnings decreased $5 million in the first six months of 1999
compared with the first six months of 1998. The decrease was primarily due to
lower margins on domestic crude oil trading, partially offset by higher Pipeline
affiliate earnings due to increased volumes.
GEOTHERMAL AND POWER OPERATIONS
The Geothermal and Power Operations segment supplies geothermal steam for power
generation, with operations in the Philippines and Indonesia. The segment's
current activities also include the operation of power plants in Indonesia and
an interest in a gas-fired power plant under construction in Thailand.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
----------------------------------------------------
Millions of dollars 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After-tax earnings (loss) ...................................................... $ 14 $ 14 $ 15 $ 28
Less: special items (net of tax)
Asset sales (a) ............................................................ -- -- (10) --
----------------------------------------------------
Adjusted after-tax earnings .................................................... $ 14 $ 14 $ 25 $ 28
====================================================
<FN>
(a) Represents the sale of The Geysers, a geothermal production operation in
Northern California </FN>
</TABLE>
Adjusted after-tax earnings were unchanged in the second quarter of 1999
compared with the same period last year. Lower foreign receivable provisions and
higher foreign exchange gains in Indonesia in the second quarter of 1999 fully
offset the loss of earnings attributable to the sale of The Geysers assets and
the difference in the recognition of cash received related to the construction
of the Salak power plant units 4 through 6 in Indonesia.
Adjusted after-tax earnings decreased $3 million in the first six months of 1999
compared with the first six months of 1998. This decrease was primarily due to
the above-mentioned difference in the recognition of cash received related to
the construction of the Salak power plant units 4 through 6. This difference was
partially offset by foreign exchange gains in Indonesia.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
DIVERSIFIED BUSINESS GROUP
The Agricultural Products business unit manufactures, transports and markets
nitrogen-based products for agricultural and industrial uses. The Carbon and
Minerals business unit manufactures and markets petroleum coke, graphites and
specialty minerals. <TABLE> <CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
----------------------------------------------------
Millions of dollars 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After-tax earnings (loss)
Agricultural Products ....................................................... $ 3 $ 12 $ 6 $ 21
Carbon and Minerals ......................................................... 4 7 13 20
----------------------------------------------------
Total ....................................................................... 7 19 19 41
Less: special items (net of tax)
Environmental and litigation provisions (Carbon and Minerals) ............... (3) (1) (3) (2)
----------------------------------------------------
Adjusted after-tax earnings (loss) ............................................. $ 10 $ 20 $ 22 $ 43
====================================================
</TABLE>
Adjusted after-tax earnings decreased $10 million in the second quarter of 1999
compared with the same period last year. The decrease was primarily due to lower
agricultural products prices, the effect of which was partially offset by higher
agricultural products sales volumes.
Adjusted after-tax earnings decreased $21 million in the first six months of
1999 compared with the first six months of 1998. This decrease was primarily due
to lower agricultural products prices, which declined approximately 20 percent
compared to the first six months of 1998. Carbon and Minerals earnings were
lower primarily due to decreased petroleum coke and Needle Coker Company sales
volumes.
CORPORATE AND UNALLOCATED
Corporate and Unallocated includes all unallocated corporate administrative and
general items, miscellaneous operations, including real estate, and
non-exploration and production new ventures activities, such as the new project
development of common carrier pipelines, liquefied petroleum gas plants and
electrical power generating plants. 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 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After-tax earnings (loss)
Administrative and general expense .......................................... $ (21) $ (16) $ (42) $ (34)
Net interest expense ........................................................ (34) (24) (65) (50)
Environmental and litigation expense ........................................ (7) (30) (12) (63)
New ventures ................................................................ (4) (5) (5) (12)
Other ....................................................................... (21) 9 (24) 20
----------------------------------------------------
Total ....................................................................... (87) (66) (148) (139)
Less: special items (net of tax)
Environmental and litigation provisions .................................... (3) (27) (6) (59)
Asset sales (Other) ........................................................ -- -- -- --
Deferred tax adjustment (Other) ............................................ -- -- -- --
Restructuring provision (Other) ............................................ (11) -- (11) --
Insurance settlement (Other) ............................................... -- 11 -- 11
----------------------------------------------------
Total special items ........................................................ (14) (16) (17) (48)
----------------------------------------------------
Adjusted after-tax earnings (loss) ............................................. $ (73) $ (50) $(131) $ (91)
====================================================
</TABLE>
The adjusted after-tax loss increased by $23 million in the second quarter of
1999 compared with the same period last year. The negative factors included
higher interest expense due to lower capitalized interest and increased debt
levels, lower pension income, in the Other category, and higher employee
benefit-related accruals, also in the Other category.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The adjusted after-tax loss increased by $40 million in the first six months of
1999 compared with the same period last year. The negative factors included
higher interest expense due to lower capitalized interest and increased debt
levels, lower pension income, in the Other category, and higher employee
benefit-related accruals, also in the Other category. Those factors were
partially offset by lower new ventures expenditures.
FINANCIAL CONDITION AND CAPITAL EXPENDITURES
For the first six months of 1999, net cash flow provided by operating activities
was $170 million compared with $397 million in the same period a year ago. This
decrease reflects lower worldwide crude oil and natural gas volumes and prices,
lower agricultural products prices and increased foreign income tax payments.
These factors were partially offset by the receipt of $120 million in the first
quarter of 1999 for a ten-year natural gas pre-paid forward sale.
Proceeds from asset sales for the first six months of 1999 were $154 million,
consisting primarily of $101 million from the sale of the company's interest in
The Geysers completed in the first quarter, $27 million from the sale of
Michigan oil and gas assets and $26 million from the sale of other miscellaneous
domestic and real estate properties.
Capital expenditures for the first six months of 1999 totaled $468 million
compared with $766 million in the same period a year ago. The decrease was
primarily due to lower worldwide drilling activities and lower lease
acquisitions in the Gulf of Mexico. The company also spent $184 million in the
second quarter of 1999 to acquire a 46 percent ownership interest in Northrock
Resources Ltd. (Northrock). Total capital expenditures are expected to be
approximately $1.1 billion for 1999, excluding the Northrock acquisition. The
company will continue to focus on deepwater exploration programs in Indonesia
and the Gulf of Mexico. The company may adjust its capital spending estimate
later depending on the timing of acquisitions and changes in commodity prices.
In the second quarter of 1999, the company contributed fixed-price overriding
royalty interests from its working interest shares in certain oil and gas
producing properties in the Gulf of Mexico to Spirit Energy 76 Development, L.P.
(Spirit LP), a limited partnership formed under the laws of Delaware. The
fixed-price overrides are subject to economic limitations of production from the
affected fields. In exchange for its overriding royalty contributions, valued at
$304 million, the company received an initial general partnership interest of
approximately 55 percent in Spirit LP. An unaffiliated investor contributed $250
million in cash to the partnership in exchange for an initial limited
partnership interest of approximately 45 percent. The limited partner is
entitled to receive a priority allocation of profits and cash distributions.
In the second quarter of 1999, a non-consolidated affiliate, Unocal Receivables
Corp. ("URC"), entered into a sales agreement under which it will sell up to
$204 million of interests in domestic crude oil and natural gas trade
receivables. The company began to sell interests in the receivables in the third
quarter of 1999.
The company's long-term debt was $2.80 billion at June 30, 1999, compared with
$2.56 billion at year-end 1998. Most of this increase reflects the consolidation
of the company's investment in Northrock, including its outstanding debt. The
company's debt-to-total capitalization ratio was 51 percent at June 30, 1999,
compared with 48 percent at year-end 1998.
In the third quarter of 1999, the company received a $43 million income tax
refund in Canada as a result of its reinvestment, in the stock of Northrock, of
the proceeds from the 1998 sale of its investment in the stock of Tarragon Oil
and Gas Limited.
21
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
ENVIRONMENTAL MATTERS
At June 30, 1999, the company's reserves for environmental remediation
obligations totaled $274 million, of which $140 million was included in current
liabilities. During the second quarter of 1999, cash payments of $23 million
were applied against the reserve. The company also estimates that it possibly
could incur additional remediation costs aggregating approximately $190 million,
as discussed in note 10 to the consolidated financial statements. The company's
total environmental reserve amount is grouped into the following five
categories:<TABLE> <CAPTION>
Reserve Summary
June 30,
Millions of dollars 1999
- --------------------------------------------------------------------------------
<S> <C>
Superfund and similar sites $ 12
Former company-operated sites 15
Company facilities sold with retained liabilities 56
Inactive or closed company facilities 142
Active company facilities 49
- --------------------------------------------------------------------------------
Total reserves $274
================================================================================
</TABLE>
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 / decreases in future revenues, earnings, cash flows, capital
expenditures, assets, liabilities and other financial items and of future levels
of or increases / decreases 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. See pages 40 and 41 of Management's Discussion
and Analysis in Item 7 of the company's 1998 Annual Report on Form 10-K for a
discussion of certain of such conditions and events, as well as pages 24 through
26 of this report.
Even though energy commodity prices increased in the first six months of 1999 as
compared to recent prior periods, the company expects prices to remain volatile
for the remainder of 1999.
The economic situation in Asia, where much of the company's international
activity is centered, remained largely unchanged from year-end 1998. The company
believes that the governments in the region are committed to undertaking the
reforms and restructuring necessary to enable their nations to recover from the
current downturn.
The company, at times, employs a commodity price option program that
establishes a price floor, while retaining most of the benefits of higher price
movements. This program is designed to protect the company's cash flow and
capital spending program against the effects of severe commodity price
deterioration. Derivative instruments are generally used to limit the company's
exposure to adverse commodity price movement, however these instruments may also
limit some of the future gains otherwise available from favorable commodity
price movements. The price protection program resulted in lower realizations for
crude oil and natural gas totaling about $5 million after-tax in the second
quarter of 1999 and about a $6 million after-tax gain for the first six months
of 1999. For the full-year 1999, based on six-month actual and financial
modeling using underlying commodity prices as of August 6th , the company
anticipates this program will lower earnings by approximately $28 million
after-tax. Most of the company's existing non-trading positions close out in the
fourth quarter, with the exception of certain options and fixed-price contracts
for one of the company's Canadian subsidiaries. For more information, refer to
note 8 to the consolidated financial statements.
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In July 1999, the company completed the trade of most of its Rocky Mountain oil
and gas assets to Tom Brown, Inc. The company received approximately 5.8 million
shares of Tom Brown, Inc., common stock and $5 million in cash for the
properties. The effective date of the transaction was January 1, 1999, which
resulted in a net cash payment to Tom Brown, Inc. reflecting the net operating
results of the properties since the effective date.
The company expects to complete an exchange of its interest in a subsidiary
holding a 28.57 percent stake in three producing fields in Yemen for the stock
of two Occidental Petroleum Corporation subsidiaries holding 50-percent working
interests in three blocks in northeast Bangladesh. These Bangladesh assets,
received by the company in July 1999, include two production sharing contracts
in which the company already holds 50-percent working interests. In addition,
the assets include the world-class Bibiyana gas field, discovered in 1998. The
company expects to transfer to Occidental Petroleum Corporation its working
interest in the production-sharing contract of the East Shabwa contract area in
the Republic of Yemen in the third quarter of 1999.
Following the discoveries on the Mad Dog prospect on Green Canyon block 826
and the Mirage prospect on Mississippi Canyon block 941, the company drilled
three deepwater wells in the Gulf of Mexico during the second quarter of 1999,
none of which encountered commercial quantities of oil and gas. The company
continues to be very active in the deepwater in the Gulf of Mexico. A fourth
deepwater well was spud in July in the Sumatra sub-salt prospect in Garden Banks
block 941. The company also anticipates appraisal drilling to begin late this
year on the Mad Dog and Mirage discoveries and is participating in the K-2
deepwater well currently being drilled on Green Canyon block 562.
In June 1999, the company won one of the most prospective deepwater blocks in
the Espirito Santo Basin, offshore Brazil. The company will be operator with a
40.5 percent interest. This block holds multiple prospects and covers a 593,000
acre area. In addition, the company joined another prospective block in the
Espirito Santo Basin through a farm-in with a 30-percent interest. The company
also signed a participation agreement for block BC-1009, located in the Campos
Basin. The Campos Basin currently accounts for about 75 percent of Brazil's
hydrocarbon production. The company previously joined another group to develop a
shelf area in the Camamu Basin.
In Myanmar, the company's subsidiaries and the other project participants are
awaiting completion of the Ratchaburi power plant in Thailand for commercial
production from the Yadana field to begin. Commercial production from the Yadana
field is expected to begin in the fourth quarter of 1999. The gas sales
agreement with the Petroleum Authority of Thailand (PTT) includes a
"Take-or-Pay" provision, which requires PTT to purchase an annual contract
quantity of natural gas. Due to the delay in the completion of the plant, PTT
could not meet its contract minimum obligation for 1998. Therefore, PTT was
billed for the 1998 "Take-or-Pay" obligation, of which the company's share was
approximately $13 million. In August 1999, the company's subsidiaries and the
other project participants signed a letter agreement with PTT to resolve certain
technical issues related to the gas export sales agreement. Under the letter
agreement, the company expects to receive up to $10 million for its share of the
1998 Take-or-Pay settlement in the third quarter of 1999. The gas will be
delivered later to PTT.
As of June 30, 1999, the company's geothermal operations in Indonesia had a
gross receivable balance of approximately $141 million, most of which was for
steam sales from the Salak field. Approximately $53 million is due by August 28,
1999, of which $44 million represents a shortfall in payments for March 1998
through April 1999 steam deliveries to the Salak electric generating Units 1, 2
and 3. Partial payments have been received on a timely basis. Agreements allow
for payments over the next several years. Provisions covering a portion of these
receivables were recorded in 1998 and 1999. The company is vigorously pursuing
collection of the outstanding receivables.
The company adopted two separate restructuring plans in the second quarter of
1999 and the fourth quarter of 1998 that will result in the termination of
approximately 250 and 475 employees, respectively. The company expects
implementation of the plans to reduce future annualized salaries and benefits by
an estimated $32 million after-tax. Cash expenditures related to the plans are
estimated to be $19 million and $8 million for the years 1999 and 2000,
respectively.
23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
YEAR 2000
The company is actively addressing the Year 2000 (Y2K) issue. 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 programs could result in
system failures with possible material adverse effects on the company's
operations at the beginning of the year 2000.
The company's Y2K efforts are divided into three general categories: information
technology (IT) systems and applications, non-IT embedded systems in process
controls, and its relationships with critical business partners. The company has
appointed a program manager and has assembled various teams of professionals,
principally at the business unit level, which have developed plans to implement
these efforts. The plans have established a methodology and schedule to
identify, assess, correct and test the company's IT systems, applications,
non-IT embedded systems (such as microcontrollers and other devices used for
process control), system interfaces with vendors, suppliers, customers and other
outside parties, as well as to assess the Y2K readiness of such third parties.
The company has contracted with systems consulting firms to assist with the
assessment, correction and testing of the company's internal systems and their
interfaces with third parties. To ensure independent review and validation of
the implementation of the company's Y2K plans, internal auditors, assisted by
contract auditors, are auditing the Y2K projects of key business units within
the company and reporting their findings to senior management.
A company-wide initial awareness campaign was completed in June 1998. The
identification, assessment, and planning phases of the internal systems portion
of the project have been completed. The company has written and tested business
contingency and recovery plans for over 90 percent of its "mission critical"
systems, applications and processes. These systems, applications and processes,
if not operable, could materially adversely impact cash flow, operations, safety
or the environment.
The company's Y2K project work includes the writing and updating of existing
contingency plans to address material Y2K issues. The company has existing
processes for managing emergency situations and intends to have its Crisis
Management Center operating at the time of the century rollover to assist with
implementing any contingency plans if required.
The company has completed the inventory and assessment of its IT and non IT
embedded systems and detailed planning to correct or work around the anticipated
problems in these systems. The remediation/renovation and validation/testing of
its IT and non IT embedded systems were approximately 90 percent complete as of
June 30, 1999.
The following schedule sets forth the company's estimated timetable for
achieving Y2K readiness of its IT and embedded systems:
Project Target Completion Dates
- -------- -----------------------
Phases
Worldwide inventory of systems Completed
Worldwide assessment Completed
Initial plan for corrections/work arounds Completed
Remediation/renovation Third quarter 1999
Contingency planning Third quarter 1999
Validation/testing Third quarter 1999
Implementation Third quarter 1999
Continuous system review Ongoing-through first quarter 2000
The company has identified approximately 400 "critical business partners" and
contacted 98 percent of these companies regarding their Y2K readiness. The
overall assessment of partner Year 2000 readiness has been positive. The company
will closely monitor a small number of "critical business partners". Work in
this area will continue and contingency plans will incorporate the possibility
of performance failures by multiple critical business partners.
24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The company estimates the total expenditures on its Y2K project will be
approximately $30 million. These expenditures are recorded at the business unit
and corporate levels and are funded from cash provided by operating activities.
Expenditures as of June 30, 1999, were approximately $20 million. Most of the
remaining expenditures are expected to be incurred in the remainder of 1999.
The company is not aware of any IT projects that have been delayed due to the
Y2K project.
The Y2K problem is real and there is a risk of Y2K related failures. These
failures could result in an interruption in, or a failure of, certain business
activities or functions. Such failures could materially and adversely affect the
company's results of operations, liquidity or financial condition. Due to the
uncertainty surrounding the Y2K problem, including the uncertainty of the Y2K
readiness of the company's customers, suppliers, and partners, the company is
unable at this time to determine the true impact of the Y2K problem to Unocal.
The principal areas of risk are thought to be oil and gas production control
systems, other embedded operations control systems and third party Y2K
readiness. The company's Y2K project is expected to reduce this uncertainty. The
company believes that with the completion of the project as planned, the
possibility of significant interruptions of normal operations should be reduced.
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.
Furthermore, there can be no assurance that critical business partners will not
experience failures, irrespective of the Y2K readiness representations they may
have made. A likely worst case scenario is that despite the company's efforts,
there could be failures of control systems, which might cause some processes to
be shut down. Such failures could have a material adverse impact on the
company's operations. The company is particularly concerned about the status of
key critical business partners' Y2K readiness in Indonesia, Thailand, and the
Gulf of Mexico. Their failure due to a Year 2000 problem could prevent Unocal
from delivering product and cause a material adverse impact to the company's
cash flows.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk that losses may occur in the values 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
manage and reduce risks associated with these factors. The company also pursues
outright pricing positions in certain hydrocarbon derivative financial
instruments, such as futures contracts.
Interest Rate Risk - From time to time the company temporarily invests its
excess cash in interest-bearing securities issued by high-quality issuers.
Company policies limit the amount of investment in securities of any one
financial institution. Due to the short time the investments are outstanding and
their general liquidity, these instruments are classified as cash equivalents in
the consolidated balance sheet and do not represent a material interest rate
risk to the company. The company's primary market-risk exposure for changes in
interest rates relates to the company's long-term debt obligations. The company
manages its exposure to changing interest rates principally through the use of a
combination of fixed and floating-rate debt. Interest-rate risk-sensitive
derivative financial instruments, such as swaps, options, floors, caps, and
collars may also be used depending upon market conditions.
The company evaluated the potential effect that near-term changes in interest
rates would have had on the fair value of its interest-rate risk-sensitive
financial instruments at June 30, 1999. Assuming a ten-percent decrease in the
company's weighted average borrowing costs at June 30, 1999, the potential
increase in the fair value of the company's debt obligations and associated
derivative instruments, including the company's net interests in the debt
obligations and associated derivative instruments of its subsidiaries, would
have been approximately $109 million.
25
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED)
Foreign Exchange Rate Risk - The company conducts business in various parts
of the world and in various foreign currencies. To limit the company's
foreign currency exchange-rate risk related to operating income, foreign
sales agreements generally contain price provisions designed to insulate
the company's sales revenues against adverse foreign-currency exchange
rates. In most countries, energy products are valued and sold in U.S.
dollars and foreign currency operating cost exposures have not been
significant. In other countries, the company is paid for product deliveries
in local currencies but at prices indexed to the U.S. dollar. These funds,
less amounts retained for operating costs, are converted to U.S. dollars as
soon as practicable. The company's Canadian subsidiary is paid in Canadian
dollars for its crude oil and natural gas sales. Excess Canadian funds
generally have been invested in other Unocal foreign operations.
From time to time the company may purchase foreign-currency options or
enter into foreign-currency exchange contracts to limit the exposure
related to its foreign-currency obligations. At June 30, 1999, the company
evaluated the effect that near term changes in foreign-exchange rates would
have had on the fair value of the company's foreign-currency position
related to its outstanding foreign-currency forward exchange contracts.
Assuming an adverse change of ten percent in foreign-currency exchange
rates at June 30, 1999, the potential decrease in fair value of the
company's foreign-currency forward exchanges contracts, including the
company's net interests in the foreign-currency exchange contracts of its
subsidiaries, would have been approximately $1 million.
Commodity Price Risk - The company is a producer, purchaser, marketer and
trader of certain hydrocarbon commodities such as crude oil and condensate,
natural gas and petroleum-based products and is subject to the associated
price risks. The company generally uses hydrocarbon derivative financial
instruments, such as futures contracts, swaps and options with maturities
of 24 months or less, to mitigate its exposure to commodity price
fluctuations. These instruments are generally used to limit the company's
exposure to adverse commodity price movements, however, these instruments
may also limit some of the future gains otherwise available from favorable
commodity price movements.
When these instruments are used to hedge the company's future production,
the impacts are reflected in the average sales prices of the associated
commodities at the time of sale. As a result, the company's reported crude
oil and natural gas revenues may be higher or lower than what would have
been reported if the company had not employed the use of these instruments.
From time to time, the company may also enter into longer-term derivative
instruments, such as swap contracts, to refloat its long term fixed-price
commitments. The company also takes pricing positions in hydrocarbon
derivative financial instruments (primarily futures and options contracts).
The company uses a variance-covariance value-at-risk model to assess the
market risk of its hydrocarbon-price-sensitive derivative instruments.
Value-at-risk represents the potential loss in fair value the company would
experience on its hydrocarbon-price-sensitive derivative instruments, using
calculated volatilities and correlations over a specified time period with
a given confidence level. The company's model is based upon historical data
and uses a three-day time interval with a 95-percent confidence level. The
model includes offsetting physical positions for
hydrocarbon-price-sensitive derivative instruments related to the company's
pre-paid crude oil and natural gas forward sales as well the company's net
interests in its subsidiaries' crude oil and natural gas derivative
instruments including offsetting physical positions of forward sales
contracts to which those instruments relate. Based upon the company's
model, the value at risk related to hydrocarbon-price-sensitive derivative
financial instruments held for purposes other than trading was
approximately $11 million at June 30, 1999 (see note 8 to the financial
statements for information on pre-tax deferred losses as of June 30, 1999,
relating to hydrocarbon-price-sensitive derivative financial instruments
held for purposes other than trading). The value at risk related to
hydrocarbon-price-sensitive derivative financial instruments held for
trading purposes was approximately $1 million at June 30, 1999.
26
<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, 1998 (1998 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, 1999
(First Quarter 1999 Form 10-Q), the information regarding environmental
remediation reserves in note 9 to the consolidated financial statements in Item
1 of Part I hereof, the discussion of such reserves 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 10 to the consolidated financial statements. Information with respect to
certain recent developments is set forth below:
1. In the lawsuit captioned Atlantic Richfield, et al. v. Unocal
Corporation, et al., described in Paragraph 1 of Item 3 of the 1998
Form 10-K, oral argument of the appeal by the other companies was heard
by the U.S. Court of Appeals for the Federal Circuit in Washington,
D.C., on July 9, 1999.
2. In the lawsuit captioned United States, ex rel. Johnson v. Shell Oil
Company, et al., described in Paragraph 4 of Item 3 of the 1998 Form
10-K, the company views the issue of whether Federal royalties have
been paid in compliance with detailed Minerals Management Service (MMS)
regulations to be essentially an administrative accounting matter. The
company does not believe bringing this proceeding pursuant to the False
Claims Act was justified and it is vigorously defending the lawsuit.
3. In connection with the Notices of Preliminary Determination of
Underpaid Royalties received from the MMS, described in Paragraph 6 of
Item 3 of the 1998 Form 10-K and in Paragraph 4 of Item 1 of Part II of
the First Quarter 1999 Form 10-Q, in July 1999, the company entered
into an agreement with the MMS and the Department of the Interior to
settle, for $7 million, substantially all royalty disputes with the
Federal government arising from the company's prior gas contract
settlements.
4. In the lawsuits captioned Aguilar, et al. v. Atlantic Richfield, et al.
and Gilley, et al. v. Atlantic Richfield, et al., described in
Paragraph 7 of Item 3 of the 1998 Form 10-K, in July 1999, the company
agreed to settle both matters, subject to court approvals, for an
aggregate amount of $3,525,000.
5. In connection with the criminal investigation and civil lawsuit brought
against the company's Molycorp, Inc., subsidiary by the Office of the
District Attorney of San Bernardino County, California, described in
Paragraph 8 of Item 3 of the 1998 Form 10-K and in Paragraph 5 of Item
1 of Part II of the First Quarter 1999 Form 10-Q, in May 1999, Molycorp
entered into a civil settlement with the District Attorney that
resulted in the payment of $1 million in June. Separately, the District
Attorney issued a letter formally declining to file criminal charges
against Molycorp or its employees.
Molycorp is continuing to negotiate with the Office of the California
Attorney General and the Lahontan Regional Water Quality Control Board
with respect to the settlement of additional alleged violations of
water quality discharge permits issued under the California Water Code.
The Settlement of these matters could result in the payment of civil
penalties exceeding $100,000.
6. In the lawsuit captioned John Doe I, et al. v. Unocal Corp., et al.,
alleging acts of mistreatment and forced labor by the government of
Myanmar allegedly in connection with the construction of the Yadana
natural gas pipeline, described in Paragraph 9 of Item 3 of the 1998
Form 10-K, in August 1999, the court denied certification of the
alleged class of plaintiffs seeking injunctive and declaratory relief
against the company.
7. In connection with the company's negotiations with the South Coast Air
Quality Management District concerning issues involving the company's
former Los Angeles Refinery, described in Paragraph 14 of Item 3 of the
1998 Form 10-K, in June 1999, the company settled the past Notices of
Violation for an aggregate of $100,000, which was paid in July.
27
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1999 Annual Meeting of Stockholders of Unocal was held on May 24, 1999. 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 two nominees proposed by the board of directors were elected as
directors by the following votes for three-year terms expiring at the
2002 Annual Meeting of Stockholders, or until their successors are duly
elected and qualified:
Name Votes For Votes Withheld
James W. Crownover 210,509,623 3,052,394
Donald B. Rice 211,163,756 2,398,261
2. A proposal to ratify the appointment of PricewaterhouseCoopers LLP as
Unocal's independent accountants for 1999 was passed by a vote of
211,953,508 for versus 795,602 against. There were 812,907 abstentions
and no broker non-votes.
3. A stockholder proposal that the Board report on the cost and benefits
of doing business in Myanmar failed to pass by a vote of 13,600,219 for
versus 169,611,492 against. There were 7,843,852 abstentions and
22,506,454 broker non-votes.
ITEM 5. OTHER INFORMATION
On July 16, 1999, the company announced that John F. Imle, Jr., Vice Chairman
and a member of the Management Committee, plans to relinquish these positions at
the end of 1999. Mr. Imle will serve as a consulting employee for a 15-month
period thereafter. The company does not plan to fill the Vice Chairman position.
28
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: The Exhibit Index on page 31 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 1999:
1. Current Report on Form 8-K dated April 12, 1999, and filed
April 14, 1999, for the purpose of reporting, under Item 5,
the company's participation in deepwater discoveries in the
Gulf of Mexico.
2. Current Report on Form 8-K dated April 15, 1999, and filed
April 16, 1999, for the purpose of reporting, under Item 5,
the company's Unocal Canada Resources subsidiary's
definitive agreement to acquire an interest in Northrock
Resources Ltd.
3. Current Report on Form 8-K dated April 28, 1999, and filed
April 30, 1999, for the purpose of reporting, under Item 5,
the company's first quarter 1999 earnings and related
information.
4. Current Report on Form 8-K dated May 14, 1999, and filed
May 18, 1999, for the purpose of reporting, under Item 5,
the company's Unocal Canada Resources subsidiary's
completion of its acquisition of an interest in Northrock
Resources Ltd.
Filed during the third quarter of 1999 to the date hereof:
1. Current Report on Form 8-K dated July 6, 1999, and filed
July 9, 1999, for the purpose of reporting, under Item 5,
the results of wells drilled by the company's Spirit Energy
76 business unit in the Gulf of Mexico.
2. Current Report on Form 8-K dated July 27, 1999, and filed
July 29, 1999, for the purpose of reporting, under Item 5,
the company's second quarter 1999 earnings and related
information.
29
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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 13, 1999 By: /s/ JOE D. CECIL
----------------------------
Joe D. Cecil
Vice President and Comptroller
(Duly Authorized Officer
Principal Accounting Officer)
30
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EXHIBIT INDEX
3.1 Certificate of Incorporation of Unocal, as amended through July 21,
1992, and currently in effect.
3.2 Bylaws of Unocal, as amended through May 24, 1999, and currently in
effect.
12.1 Statement regarding computation of ratio of earnings to fixed charges
of Unocal for the six months ended June 30, 1999 and 1998.
12.2 Statement regarding computation of ratio of earnings to fixed charges
of Union Oil Company of California for the six months ended June 30,
1999 and 1998.
27. Financial data schedule for the period ended June 30, 1999 (included
only in the copy of this report filed electronically with the
Commission).
99. Bylaws of Union Oil Company of California, as amended through April 1,
1999, and currently in effect.
31
EXHIBIT 3.1
Filed March 18, 1983 - 2:00P.M.
CERTIFICATE OF INCORPORATION OF
UNOCAL CORPORATION
FIRST: The name of this corporation is:
UNOCAL CORPORATION
SECOND: The name and address of the registered agent of the
corporation in the State of Delaware is:
The Corporation Trust Company
100 West Tenth Street
Wilmington, New Castle County, Delaware
THIRD: The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH: The total amount of capital stock which this corporation
has the authority to issue is 260,000,000 shares of common stock $1.00 par value
per share.
FIFTH: The name and mailing address of the incorporator of the
corporation is as follows:
Name Mailing Address
George C. Bond P.O. Box 7600
Los Angeles, California 90051
SIXTH: New bylaws may be adopted or the bylaws may be amended or
repealed by a vote of seventy-five percent of the outstanding stock of the
corporation entitled to vote thereon. Bylaws may also be adopted, amended or
repealed by the Board of Directors as provided or permitted by law; however, any
bylaw amendment adopted by the Board of Directors increasing or reducing the
authorized number of directors shall require a resolution adopted by the
affirmative vote of not less than seventy-five percent of the directors.
SEVENTH: The number of directors which shall constitute the whole
Board of Directors of the corporation shall be as specified in the bylaws of the
corporation, subject to the provisions of Article SIXTH hereof and this Article
SEVENTH. The board is divided into three classes, Class I, Class II and Class
III. Such classes shall be as nearly equal in number of directors as possible.
Each director shall serve for a term ending on the third annual meeting
following the annual meeting at which such director was elected; provided,
however, that the directors first elected to Class I shall serve for a term
ending on the annual meeting next following the end of the calendar year 1983,
the directors first elected to Class II shall serve for a term ending on the
second annual meeting next following the end of the calendar year 1983, and the
directors first elected to Class III shall serve for a term ending on the third
annual meeting next following the end of the calendar year 1983. The foregoing
notwithstanding, each director shall serve until his successor shall have been
duly elected and qualified, unless he shall resign, become disqualified,
disabled or shall otherwise be removed.
At each annual election, the directors chosen to succeed those
whose terms then expire shall be of the same class as the directors they
succeed, unless, by reason of any intervening changes in the authorized number
of directors, the Board shall designate one or more directorships whose term
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then expires as directorships of another class in order more nearly to achieve
equality of number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly
equal in number of directors as possible, in the event of any change in the
authorized number of directors each director then continuing to serve as such
shall nevertheless continue as a director of the class of which he is a member
until the expiration of his current term, or his prior death, resignation or
removal. If any newly created directorship may, consistent with the rule that
the three classes shall be as nearly equal in number or directors as possible,
be allocated to one or two or more classes, the Board shall allocate it to that
of the available classes whose term of office is due to expire at the earliest
date following such allocation.
EIGHTH: The affirmative vote of the holders of not less than
seventy-five percent of the outstanding stock of the corporation entitled to
vote shall be required for approval if (1) this corporation merges or
consolidates with any other corporation if such other corporation and its
affiliates singly or in the aggregate are directly or indirectly the beneficial
owners of more than ten percent (10%) of the total voting power of all
outstanding shares of the voting stock of this corporation (such other
corporation being herein referred to as a "Related Corporation"), or if (2) this
corporation sells or exchanges all or a substantial part of its assets to or
with such Related Corporation, or if (3) this corporation issues or delivers any
stock or other securities of its issue in exchange or payment for any properties
or assets of such Related Corporation or securities issued by such Related
Corporation, or in a merger of any affiliate of this corporation with or into
such Related Corporation or any of its affiliates; provided, however, that the
foregoing shall not apply to any such merger, consolidation, sale or exchange,
or issuance or delivery of stock or other securities which was (i) approved by
resolution of the Board of Directors adopted by the affirmative vote of not less
than seventy-five percent of the directors prior to the acquisition of the
beneficial ownership of more then ten percent (10%) of the total voting power of
all outstanding shares of the voting stock of the corporation by such Related
Corporation and its affiliates, nor shall it apply to any such transaction
solely between this corporation and another corporation fifty percent (50%) or
more of the voting stock of which is owned by this corporation. For the purposes
hereof, an "affiliate" is any person (including a corporation, partnership,
trust, estate or individual) who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the person specified. "Control" means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract, or
otherwise; and in computing the percentage of outstanding voting stock
beneficially owned by any person the shares outstanding and the shares owned
shall be determined as of the record date fixed to determine the stockholders
entitled to vote or express consent with respect to such proposal. The
stockholder vote, if any, required for mergers, consolidations, sales or
exchanges of assets or issuances of stock or other securities not expressly
provided for in this Article, shall be such as may be required by applicable
law. A "substantial part" of the corporation's assets shall mean assets
comprising more than ten percent of the book value of fair market value of the
total assets of the corporation and its subsidiaries taken as a whole.
NINTH: No action shall be taken by the stockholders except at
an annual or special meeting of stockholders. No action shall be taken by
stockholders by written consent.
TENTH: Special meetings of the stockholders of the corporation for
any purpose or purposes may be called at any time by the Board of Directors, or
by a majority of the members of the Board of Directors, or by a committee of the
Board of Directors which has been duly designated by the Board of Directors and
whose powers and authority, as provided in a resolution of the Board of
Directors or in the by-laws of the corporation, include the power to call such
meetings, but such special meetings may not be called by any other person or
persons; provided, however, that, if and to the extent that any special meeting
of stockholders may be called by any other person or persons specified in any
provisions of this Certificate of Incorporation or any amendment thereto, then
such special meeting may also be called by the person or persons, in the manner,
at the times and for the purposes so specified.
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<PAGE>
ELEVENTH: The corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
on stockholders herein are granted subject to this reservation. Notwithstanding
the foregoing, the provisions set forth in Articles SIXTH, SEVENTH, EIGHTH,
NINTH, TENTH and this Article ELEVENTH may not be repealed or amended in any
respect unless such repeal or amendment is approved by the affirmative vote of
the holders of not less than seventy-five percent of the total voting power of
all outstanding shares of voting stock of this corporation.
THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation to do business both within and without the
State of Delaware, and in pursuance of the Delaware General Corporation Law,
does hereby make and file this certificate.
/s/ George C. Bond
March 18, 1983
3
<PAGE>
FILED JULY 27, 1984 - 4:30 P.M.
CERTIFICATE OF CHANGE OF ADDRESS OF
REGISTERED OFFICE AND OF REGISTERED AGENT
PURSUANT TO SECTION 134 OF TITLE 8 OF THE DELAWARE CODE
To: DEPARTMENT OF STATE
Division of Corporations
Townsend Building
Federal Street
Dover, Delaware 19903
Pursuant to the provisions of Section 134 of Title 8 of the
Delaware Code, the undersigned Agent for service of process, in order to change
the address of the registered office of the corporations for which it is
registered agent, hereby certifies that:
1. The name of the agent is: The Corporation Trust Company
2. The address of the old registered office was:
100 West Tenth Street
Wilmington, Delaware 19801
3. The address to which the registered office is to be changed is:
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
The new address will be effective July 30, 1984.
4. The names of the corporations represented by said agent are
set forth on the list annexed to this certificate and made a
part hereof by reference.
IN WITNESS WHEREOF, said agent has caused this certificate to be
signed on its behalf by its Vice-President and Assistant Secretary this 25th day
of July, 1984.
THE CORPORATION TRUST COMPANY
(Name of Registered Agent)
By /s/ Virginia Colvell
(Vice President)
Attest:
/s/ Mary Murray
(Assistant Secretary)
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PAGE 1041
STATE OF DELAWARE - DIVISION OF CORPORATIONS
CHANGE OF ADDRESS FILING FOR
CORPORATION TRUST AS OF JULY 27, 1984
DOMESTIC
2005071 UNOCAL CORPORATION 03/18/1983 D DE
2
<PAGE>
FILED MAY 1, 1986 - 10:00 A.M.
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
UNOCAL CORPORATION
a Delaware Corporation
Claude S. Brinegar and R. O. Hedley certify that;
1. They are a duly elected and acting Executive Vice President and Chief
Financial Officer and the duly elected and acting Secretary respectively, of
Unocal corporation.
2. The Certificate of Incorporation of Unocal corporation shall be amended
by revising Article IV to read as follows:
IV: The total number of shares of stock which the corporation shall
have authority to issue is three hundred fifty million (350,000,000) shares,
consisting of two hundred fifty million (250,000,000) shares of Common Stock,
having a par value of $1.00 per share, and one hundred million (100,000,000)
shares of Preferred Stock, having a par value of $0.10 per share.
The board of directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in one or more series, and by filing a certificate pursuant to the applicable
law of the State of Delaware, to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders, is
required pursuant to the certificate or certificates establishing the series of
Preferred Stock.
3. The foregoing amendment has been approved by the Board of Directors and
by a vote of the Stockholders pursuant to Section 242 of the Delaware General
Corporation Law at the annual meeting of Stockholders held on April 28, 1986.
IN WITNESS WHEREOF, the undersigned have executed this Certificate on April 29,
1986.
ATTEST
/s/ Claude S. Brinegar /s/ R. O. Hedley
Claude S. Brinegar R. O. Hedley
Executive Vice President Secretary
and Chief Financial Officer
The undersigned Claude S. Brinegar and R. O. Hedley an Executive Vice
President and Chief Financial Officer and Secretary, respectively of Unocal
Corporation, each declares under penalty of perjury that the matters set out in
the foregoing Certificate are true of his own knowledge.
Executed at Los Angeles, California, on April 29, 1986.
/s/ Claude S. Brinegar /s/ R. O. Hedley
Claude S. Brinegar R. O. Hedley
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FILED MAY 22, 1986 - 10:00 A.M.
CERTIFICATE OF CORRECTION
OF CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
UNOCAL CORPORATION
a Delaware Corporation
Claude S. Brinegar and R. O. Hedley certify that:
1. They are a duly elected and acting Executive Vice President and Chief
Financial Officer and the duly elected and acting Secretary, respectively, of
Unocal Corporation.
2. That a Certificate of Amendment of Certificate of Incorporation was filed
by the Secretary of State of Delaware on May 1, 1986 and that said Certificate
requires correction as permitted by subsection (f) of Section 103 of The General
Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected is as
follows;
The authorized number of common shares was incorrectly reduced.
4. Article IV of the Certificate is corrected to read as follows;
IV: The total number of shares of stock which the corporation shall
have authority to issue is three hundred sixty million (360,000,000) shares,
consisting of two hundred sixty million (260,000,000) shares of Common Stock,
having a par value of $1.00 per share, and one hundred million (100,000,000)
shares of Preferred Stock, having a par value of $0.10 per share.
The board of directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in one or more series, and by filing a certificate pursuant to the applicable
law of the State of Delaware, to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the certificate or certificates establishing the series of
Preferred Stock.
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IN WITNESS WHEREOF, the undersigned have executed this Certificate on
May 16, 1986.
/s/ Claude S. Brinegar ATTEST:/s/ R. O. Hedley
Claude S. Brinegar R. O. Hedley
Executive Vice President and Secretary
Chief Financial Officer
The undersigned Claude S. Brinegar and R. O. Hedley, an Executive Vice
President and Chief Financial Officer and Secretary, respectively of Unocal
Corporation, each declares under penalty of perjury that the matters set out in
the foregoing Certificate are true of his own knowledge.
Executed at Los Angeles, California, on May 16, 1986.
/s/ Claude S. Brinegar /s/ R. O. Hedley
Claude S. Brinegar R. O. Hedley
2
<PAGE>
FILED MAY 5, 1987 - 10:00 A.M.
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
UNOCAL CORPORATION
a Delaware Corporation
Sam A. Snyder and R. O. Hedley certify that:
1. They are a duly elected and acting Vice President and the duly elected
and acting Secretary respectively, of Unocal Corporation.
2. The Certificate of Incorporation of Unocal Corporation shall be amended
by adding Article Twelfth to read as follows;
TWELFTH: A director of the corporation shall not be personally liable
to the corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
after approval by the shareholders of this article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
shareholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
3. The foregoing amendment has been approved by the Board of Directors and
by a vote of the Stockholders pursuant to Section 242 of the Delaware General
Corporation Law at the Annual Meeting of Stockholders held on May 4, 1987.
IN WITNESS WHEREOF, the undersigned have executed this Certificate on May 4,
1987.
ATTEST
/s/ Sam A. Snyder /s/ R. O. Hedley
Vice President Secretary
The undersigned Sam A. Snyder and R. 0. Hedley, a Vice President and
Secretary, respectively of Unocal Corporation, each declares under penalty of
perjury that the matters set out in the foregoing Certificate are true of his
own knowledge.
Executed at Los Angeles, California, on May 4, 1987.
/s/ Sam A. Snyder /s/ R. O. Hedley
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FILED FEBRUARY 6, 1990 - 12:00 P.M.
CERTIFICATE OF DESIGNATIONS
SERIES A JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK
$.10 Par Value
Of
UNOCAL CORPORATION
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, Sam A. Snyder, Vice President, and R. E. Jenkins
Assistant Secretary, Of Unocal Corporation, a corporation organized and
existing under the General Corporation of the State of Delaware, in
accordance with the provisions Law Section 103 thereof, DO HEREBY CERTIFY:
That Pursuant to the authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Corporation, the Board of
Directors on January 29, 1990 adopted the following resolution creating a series
of 2,500,000 shares of Preferred Stock, par value $.10 per share, designated as
Series A Junior Participating Cumulative Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of this Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of Preferred Stock of the Corporation be,
and it hereby is, created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof, are as follows:
Section 1. Designation and Amount. The shares of such series
shall be designated as Series A Junior Participating Cumulative Preferred Stock,
par value $.10 per share (the "Series A Preferred Stock"), and the number of
shares constituting such series shall be 2,500,000.
Section 2. Dividends and Distributions.
(a) The holders of shares of Series A Preferred Stock, in
preference to the holders of shares of Common Stock, $1.00 per share, of the
Corporation (the "Common Stock") and of any other junior stock of the
Corporation that may be outstanding, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the tenth day of January, April,
July and October in each year (each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (i) $0.25 per share ($1.00 per annum), or (ii) subject
to the provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions, other
than a dividend payable in shares of Common Stock, or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise), declared
on the Common Stock since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any share or fraction of a share of Series A Preferred Stock.
In the event that the Corporation shall at any time declare or pay any dividend
on Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise) into a greater or lesser number of shares of
Common Stock, then and in each such event, the amount to which holders of shares
of Series A Preferred Stock were entitled immediately prior to such event under
clause (ii) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event, and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
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(b) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (a) of this Section 2
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided, however,
that in the event no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of $0.25 per
share ($1.00 per annum) on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A
Preferred Stock, unless the date of issue of such shares is prior to the record
date for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which cases such dividends shall begin to
accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall cumulate but shall not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(a) Each share of Series A Preferred Stock shall entitle the
holder thereof to 100 votes (and each one one-hundredth of a share of Series A
Preferred Stock shall entitle the holder thereof to one vote) on all matters
submitted to a vote of the stockholders of the Corporation. In the event that
the Corporation shall at any time declare or pay any dividend on Common Stock
payable in shares of Common Stock or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then and in each such event,
the number of votes per share to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event, and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided in the Certificate of
Incorporation of the Corporation or herein or by law, the holders of shares of
Series A Preferred Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of stockholders of the
Corporation.
(c) In addition, the holders of shares of Series A Preferred
Stock shall have the following special voting rights:
In the event that at any time dividends on Series A Preferred
Stock, whenever accrued and whether or not consecutive, shall
not have been paid or declared and a sum sufficient for the
payment thereof set aside, in an amount equivalent to six
quarterly dividends on all shares of Series A Preferred Stock
at the time outstanding, then and in each such event, the
2
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holders of shares of Series A Preferred Stock and each other
series of preferred stock now or hereafter issued that shall
be accorded such class voting right by the Board of Directors
and that shall have the right to elect three directors as the
result of a prior or subsequent default in payment or
dividends on such series (each such other series being
hereinafter called "Other Series of Preferred Stock"), voting
separately as a class without regard to series, shall be
entitled to elect three directors at the next annual meeting
of stockholders of the Corporation, in addition to the
directors to be elected by the holders of all shares of the
Corporation entitled to vote for the election of directors,
and the holders of all shares (including the Series A
Preferred Stock) otherwise entitled to vote for directors,
voting separately as a class, shall be entitled to elect the
remaining members of the Board of Directors, provided that the
Series A Preferred Stock and each Other Series of Preferred
Stock, voting as a class, shall not have the right to elect
more than three directors. Such special voting right of the
holders of shares of Series A Preferred Stock may be exercised
until all dividends in default on the Series A Preferred Stock
shall have been paid in full or declared and funds sufficient
therefor set aside, and when so paid or provided for, such
special voting right of the holders of shares of Series A
Preferred Stock shall cease, but subject always to the same
provisions for the vesting of such special voting rights in
the event of any such future dividend default or defaults. At
any time after such special voting rights shall have so vested
in the holders of shares of Series A Preferred Stock, the
Secretary of the Corporation may, and upon the written request
of the holders of record of 10% or more in number of the
shares of Series A Preferred Stock and each Other Series of
Preferred Stock then outstanding addressed to the Secretary at
the principal executive office of the Corporation shall, call
a special meeting of the holders of shares of Preferred Stock
so entitled to vote, for the election of the directors to be
elected by them as herein provided, to be held within 60 days
after such call and at the place and upon the notice provided
by law and in the Bylaws for the holding of meetings of
stockholders; provided, however, that the Secretary shall not
be required to call such special meeting in the case of any
such request received less than 90 days before the date fixed
for any annual meeting of stockholders, and if in such case
such special meeting is not called or held, the holders of
shares of Preferred Stock so entitled to vote shall be
entitled to exercise the special voting rights provided in
this paragraph at such annual meeting. If any such special
meeting required to be called as above provided shall not be
called by the Secretary within 30 days after receipt of any
such request, then the holders of record of 10% or more in
number of the shares of Series A Preferred Stock and each
Other Series of Preferred Stock then outstanding may designate
in writing one of their number to call such meeting, and the
person so designated may, at the expense of the Corporation,
call such meeting to be held at the place and upon the notice
given by such person, and for that purpose shall have access
to the stock books of the Corporation. No such special meeting
and no adjournment thereof shall be held on a date later than
60 days before the annual meeting of stockholders. If, at any
meeting so called or at any annual meeting held while the
holders of shares of Series A Preferred Stock have the special
voting rights provided for in this paragraph, the holders of
not less than 40% of the shares of Series A Preferred Stock
and each Other Series of Preferred Stock then outstanding are
present in person or by proxy, which percentage shall be
sufficient to constitute a quorum for the election of
additional directors as herein provided, the then authorized
number of directors of the Corporation shall be increased by
three, as of the time of such special meeting or the time of
the first such annual meeting held while such holders have
special voting rights and such quorum is present, and the
holders of shares of Series A Preferred Stock and each Other
Series of Preferred Stock, voting as a class, shall be
entitled to elect the additional directors so provided for. If
the directors of the Corporation are then divided into classes
under provisions of the Certificate of Incorporation of the
Corporation or the Bylaws, the three additional directors
shall be members of those respective classes of directors in
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which a vacancy is created as a result of such increase in the
authorized number of directors. If the foregoing expansion of
the size of the Board of Directors shall not be valid under
applicable law, then the holders of shares of Series A
Preferred Stock and of each Other Series of Preferred Stock,
voting as a class, shall be entitled, at the meeting of
stockholders at which they would otherwise have voted, to
elect directors to fill any then existing vacancies on the
Board of Directors, and shall additionally be entitled, at
such meeting and each subsequent meeting of stockholders at
which directors are elected, to elect all of the directors
then being elected until by such class vote three members of
the Board of Directors have been so elected. Upon the election
at such meeting by the holders of shares of Series A Preferred
Stock and each Other Series of Preferred Stock, voting as a
class, of the directors they are entitled so to elect, the
persons so elected, together with such persons as may be
directors or as may have been elected as directors by the
holders of all shares (including Series A Preferred Stock)
otherwise entitled to vote for directors, shall constitute the
duly elected directors of the Corporation. The additional
directors so elected by holders of shares of Series A
Preferred Stock and each Other Series of Preferred Stock,
voting as a class, shall serve until the next annual meeting
or until their respective successors shall be elected and
qualified or if any such director is a member of a class of
directors under provisions dividing the directors into
classes, each such director shall serve until the annual
meeting at which the term of office of such director's class
shall expire or until such director's successor shall be
elected and shall qualify, and at each subsequent meeting of
stockholders at which the directorship of any director elected
by the vote of holders of shares of Series A Preferred Stock
and each Other Series of Preferred Stock under the special
voting rights set forth in this paragraph is up for election,
said special class voting rights shall apply in the reelection
of such director or in the election of such director's
successor; provided, however, that whenever the holders of
shares of Series A Preferred Stock and each Other Series of
Preferred Stock shall be divested of the special rights to
elect three directors as above provided, the terms of office
of all persons elected as directors by the holders of shares
of Series A Preferred Stock and each Other Series of Preferred
Stock, voting as a class, or elected to fill any vacancies
resulting from the death, resignation, or removal of directors
so elected by the holders of shares of Series A Preferred
Stock and each Other Series of Preferred Stock, shall
forthwith terminate and, if applicable, the number of
directors shall be reduced accordingly. If, at any time after
a special meeting of stockholders or an annual meeting of
stockholders at which the holders of shares of Series A
Preferred Stock and each Other Series of Preferred Stock,
voting as a class, have elected directors as provided above,
and while the holders of shares of Series A Preferred Stock
and each Other Series of Preferred Stock shall be entitled so
to elect three directors, the number of directors who have
been elected by the holders of shares of Series A Preferred
Stock and each Other Series of Preferred Stock (or who by
reason of one or more resignations, deaths or removals have
succeeded an directors so elected) shall by reason of
resignation, death or removal be less than three but at least
one, the vacancy in the directors so elected by the holders of
shares of the Series A Preferred Stock and each Other Series
of Preferred Stock may be filled by the remaining director
elected by such holders, and in the event that such election
shall not occur within 30 days after such vacancy arises, or
in the event that there shall not be incumbent at least one
director so elected by such holders, the Secretary of the
Corporation may, and upon the written request of he holders of
record of 10% or more in number of the shares of Series A
Preferred Stock and each Other Series of Preferred Stock then
outstanding addressed to the Secretary at the principal office
of the Corporation shall, call a special meeting of the
holders of shares of Series A Preferred Stock and each Other
Series of Preferred Stock so entitled to vote, for an election
to fill such vacancy or vacancies, to be held within 60 days
after such call and at the place and upon the notice provided
by law and in the Bylaws for the holding of meetings of
stockholders; provided, however, that the Secretary shall not
be required to call such special meeting in the case of any
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such request received less than 90 days before the date fixed
for any annual meeting of stockholders, and if in such case
such special meeting is not called, the holders of shares of
Preferred Stock so entitled to vote shall be entitled to fill
such vacancy or vacancies at such annual meeting. If any such
special meeting required to be called as above provided shall
not be called by the Secretary within 30 day after receipt of
any such request, then the holders of record of 10% or more in
number of the shares of Series A Preferred Stock and each
Other Series of Preferred Stock the outstanding may designate
in writing one of their number to call such meeting, and the
person so designated may, at the expense of the Corporation,
call such meeting to be held at the place and upon the notice
above provided, and for that Purpose shall have access to the
stock books of the Corporation; no such special meeting and no
adjournment thereof shall be held on a date later than 60 days
before the annual meeting of stockholders.
(d) Nothing herein shall prevent the directors or stockholders
from taking any action to increase the number of authorized shares of Series A
Preferred Stock, or increasing the number of authorized shares of Preferred
Stock of the same class as the Series A Preferred Stock or the number of
authorized shares of Common Stock, or changing the par value of the Common Stock
or Preferred Stock, or issuing options, warrants or rights to any class of stock
of the Corporation as authorized by the Certificate of Incorporation of the
Corporation, as it may hereafter be amended.
(e) Except as set forth herein, holders of shares of Series A
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote as set forth in the
Certificate of Incorporation of the Corporation or herein or by law) for taking
any corporate action.
Section 4. Certain Restrictions.
(a) Whenever any dividends or other distributions payable on
the Series A Preferred Stock as provided 1 Section 2 hereof are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not and shall cause its subsidiaries
not to, directly or indirectly:
(i) declare or pay dividends on, or make any other
distributions with respect to, any shares of stock ranking
junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on, or make any other
distributions with respect to, any shares of stock ranking on
a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on shares of the series A
Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock
ranking on a parity with the Series A Preferred Stock, except
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in accordance with a Purchase offer made in writing or by
publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorize but
unissued shares of preferred stock, without designation as to series, and may be
reissued as part of any series of referred stock created by resolution or
resolutions of the Board of Directors (including Series A Preferred Stock),
subject to the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made to:
(a) the holders of shares of stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received the greater of (i) $1.00 per share ($.01 per
one one-hundredth of a share), plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, or (ii) an aggregate amount per share, subject to the provision
for adjustment hereinafter set forth, equal to 100 times the aggregate amount to
be distributed per share to holders of shares of Common Stock; or
(b) the holders of shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up) with the Series
A Preferred Stock, except distributions made ratably on the Series A Preferred
Stock and all other such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event that the Corporation shall at any time
declare or pay any dividend on Common Stack payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise) into a greater or
lesser number of shares of Common Stock, then and in each such event, the
aggregate amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under the proviso in clause (a) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event, and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
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<PAGE>
Section 7. Consolidation, Merger, etc. In the event that the
Corporation shall enter into any consolidation, merger combination or other
transaction in which the shares of Common Stock are exchanged for or changed
into other stock or securities, cash and/or any other property, or otherwise
changed, then and in each such event, the shares of Series A Preferred Stock
shall at the same time be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event that the Corporation shall at
any time declare or pay any dividend on Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise) into a
greater or lesser number of shares of Common Stock, then and in each such event,
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common stock outstanding immediately after such event, and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable. Notwithstanding the foregoing, the Corporation
may acquire shares of Series A Preferred Stock in any other manner permitted by
law, the Certificate of Incorporation of the Corporation or herein.
Section 9. Rank. Unless otherwise provided in the Certificate
of Incorporation of the Corporation or a Certificate of Designations relating to
a subsequent series of preferred stock of the Corporation, the Series A
Preferred Stock shall rank junior to all other series of the Corporation's
preferred stock as to the payment of dividends and the distribution of assets on
liquidation, dissolution or winding up, and senior to the Common Stock of the
Corporation.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner that would materially and
adversely alter or change the powers, preferences or special rights of the
Series A Preferred Stock without the affirmative vote of the holders of at least
two-thirds of the Outstanding shares of Series A Preferred Stock, voting
together as a single series.
Section 11. Fractional Shares. Series A Preferred Stock maybe
issued in fractions of a share (in one one-hundredths (1/100) of a share and
integral multiples thereof) that shall entitle the bolder thereof, in proportion
to such holder's fractional shares, to exercise voting rights, receive
dividends, participate in distributions and have the benefit of all other rights
of holders of shares of Series A Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate and do affirm the foregoing as true under the penalties of perjury
this 31st day of January, 1990.
/s/ Sam A. Snyder
Sam A. Snyder
Vice President
Attest:
/s/ R. E. Jenkins
R. E. Jenkins
Assistant Secretary
7
<PAGE>
FILED MAY 4, 1990 - 9:00 A.M.
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
UNOCAL CORPORATION
A Delaware Corporation
Sam A. Snyder and R. 0. Hedley certify that:
1. They are a duly elected and acting Vice President and the duly
elected and acting Secretary, respectively, of Unocal Corporation.
2. The Certificate of Incorporation or Unocal Corporation shall be
amended by revising Article Fourth to read as follows:
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is eight hundred fifty million (850,000,000) shares,
consisting of seven hundred fifty million (750,000,000) shares of Common Stock,
having a par value of $1.00 per share, and one hundred million (100,000,000)
shares of Preferred Stock, having a par value of $0.10 per share.
The board of directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in one or more series, and by filing a certificate pursuant to the applicable
law of the State of Delaware, to establish from time to time the number of
shares to be included in each such series, and to fix the distribution, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the certificate or certificates establishing the series of
Preferred Stock.
3. The foregoing amendment has been approved by the Board of Directors
and by a vote of the Stockholders pursuant to Section 242 of the Delaware
General Corporation Law at the Annual Meeting of Stockholders held on April 30,
1990.
IN WITNESS WHEREOF, the undersigned have executed this Certificate on April 30,
1990.
ATTEST
/s/ Sam A. Snyder /s/ R. O. Hedley
Vice President Secretary
The undersigned Sam A. Snyder and R.0. Hedley, Vice President and the Secretary,
respectively, of Unocal Corporation, each declares under penalty of perjury that
the matters set out in the foregoing Certificate are true of his own knowledge.
Executed at Los Angeles, California, on April 30, 1990.
/s/ Sam A. Snyder /s/ R. O. Hedley
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<PAGE>
State of Delaware
Secretary of State
Division of Corporations
FILED JULY 22, 1992 - 1:40 P.M.
CERTIFICATE OF CORRECTION
TO
CERTIFICATE OF DESIGNATION
OF
UNOCAL CORPORATION
UNOCAL CORPORATION, a Delaware corporation, pursuant to section 103(f) of
the General corporation Law of the State of Delaware, certifies:
FIRST: That the Certificate of Designation which vas filed with the
Secretary of State of Delaware on February 6, 1990 is an inaccurate record of
the corporate action therein referred to.
SECOND: That said Certificate of Designation was inaccurate in that Section
6(a) states:
"(a) the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
A Preferred Stock unless, prior thereto, the holders of shares of
Series A Preferred Stock shall have received the greater of (i) $1.00
per share ($.01 per one one-hundredth of a share), plus an amount equal
to accrued and unpaid dividends and distributions thereon, whether or
not declared, to the date of such payment, or (ii) an aggregate amount
per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount to be distributed per
share to holders of shares of Common Stock; or"
THIRD: That section 6(a) of said Certificate of Designation in correct form
is as follows:
"(a) the holders of shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A Preferred
Stock unless, prior thereto, the holders of shares of Series A Preferred
Stock shall have received the greater of (i) $100.00 per share ($1.00 per
one one-hundredth of a share), plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the date of
such payment, or (ii) an aggregate amount per share, subject to the
provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of shares of Common
Stock; or"
IN WITNESS WHEREOF, Unocal corporation has caused this Certificate of
Correction to be signed by its President and attested by its Secretary this
21st day of July, 1992.
ATTEST UNOCAL CORPORATION
/s/ Dennis P. Codon By /s/ Thomas B. Sleeman
Dennis P. Codon, Secretary Thomas B. Sleeman,
Senior Vice President
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STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 7/22/92 -1:41 P.M.
CERTIFICATE OF INCREASE
OF
SERIES A JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK
OF
UNOCAL CORPORATION
Pursuant to Section 151(g) of the
Delaware General Corporation Law
In accordance with the provisions of Section 151(g) of the General
Corporation Law of the State of Delaware, Unocal Corporation, a Delaware
corporation (the "Corporation") does hereby certify that the following
resolution respecting its Series A Junior Participating Cumulative Preferred
Stock was duly adopted by the Executive Committee of the Board of Directors of
the Corporation, pursuant to authority conferred on the Executive Committee by
the Board of Directors, at a meeting of the Executive Committee on July 20,
1992:
RESOLVED, that the authorized number of shares of the Corporation's
Series A Junior Participating Cumulative Preferred Stock, of which the
designations, preferences and rights were set forth in a certificate
filed with the Delaware Secretary of State on February 6, 1990, shall
be increased from 2,500,000 shares to 3,000,000 shares.
IN WITNESS WHEREOF, Unocal Corporation has caused this certificate to be
signed by its President and attested by its Secretary this 21st day of July,
1992.
/s/ Thomas B. Sleeman
Thomas B. Sleeman
Senior Vice President
ATTEST:
/s/ Dennis P. Codon
Dennis P. Codon
Secretary
1
EXIBIT 3.2
BYLAWS
OF
UNOCAL CORPORATION
a Delaware corporation
(Effective May 24, 1999)
ARTICLE I
FISCAL YEAR
Section 1. The fiscal year of Unocal Corporation (hereinafter called
the "Corporation") shall end on the thirty-first (31st) day of December of each
year.
ARTICLE II
OFFICES
Section 1. Principal Office. The principal office for the transaction
of business of the Corporation is hereby fixed and located at 2141 Rosecrans
Avenue, Suite 4000, in the City of El Segundo, County of Los Angeles, State of
California. The Board of Directors (hereinafter sometimes called the "Board") is
hereby granted full power and authority to change said principal office from one
location to another.
ARTICLE III
STOCKHOLDERS
Section 1. Annual Meetings. The annual meetings of the stockholders
shall be held at 10:00 o'clock A.M. on the fourth (4th) Monday in May of each
year if not a legal holiday, for the purpose of electing directors and for the
transaction of any other business which is within the powers of the stockholders
and properly brought before the meeting. If the fourth (4th) Monday in May is a
legal holiday, the annual meeting of the stockholders shall be held at 10:00
o'clock A.M. on the subsequent Monday.
Section 2. Notice of Meetings. Written notice of each annual or special
meeting of stockholders shall be given to each stockholder entitled to vote
thereat not less than ten (10) nor more than sixty (60) days before the meeting.
Section 3. Place of Meetings. All meetings of stockholders, whether
annual or special, shall be held at the principal office of the Corporation or
at such other place, within or without the State of Delaware, as the Board may
from time to time designate pursuant to authority hereinafter granted it. In the
absence of any such designation stockholders' meetings shall be held at the
principal office of the Corporation.
Section 4. Voting Rights. Stockholders entitled to vote at stockholder
meetings shall be entitled to one (1) vote for each full share. A fraction of a
share or a fractional interest in a share shall not be entitled to any voting
rights whatsoever.
Section 5. Conduct of Meetings. The decisions of the Chairman of the
Board or officer presiding at all stockholders'meetings shall govern in all
matters relating to the conduct of the meeting.
Section 6. Voting. Directors shall be divided into three (3) classes.
At each annual meeting, all directors of one (1) class shall be elected in
accordance with, and subject to, the provisions of ARTICLE SEVENTH of the
Corporation's Certificate of Incorporation by the holders of shares entitled to
vote in the election.
Section 7. Nominations and Other Stockholder Business. At any meeting
of the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting in accordance with the procedures set forth
herein.
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Only such business shall be conducted at an annual meeting of the
stockholders as shall have been properly brought before the meeting (a) pursuant
to the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) by or at the direction of the Board of
Directors, or (c) by a stockholder or a beneficial owner of the Corporation's
stock ("Proponent") in compliance with all of the following provisions:
(1) such business must be a proper matter for stockholder action under
the General Corporation Law of the State of Delaware;
(2) the Corporate Secretary must have timely received (as described
below) written notice by the Proponent containing (a) a brief description of
each matter desired to be brought before the meeting, (b) the Proponent's name
and address (if Proponent is a stockholder of record, as they appear on the
Corporation's books), (c) the class and the number of shares of the Corporation
which are beneficially owned by the Proponent and, if the Proponent is not a
stockholder of record, proof of beneficial ownership, (d) a description of any
material interest of the Proponent in such business, (e) a statement as to
whether the Proponent intends to deliver a proxy statement and form of proxy to
holders of a sufficient number of shares, in the case of a nomination, to elect
such nominee, and in the case of a proposal of other business, to carry such
proposal (an affirmative statement of such intent, a "Solicitation Notice"), and
(f) as to each person whom the Proponent proposes to nominate for election or
re-election as a director, (i) all information relating to such person as would
be required to be disclosed in solicitations of proxies for the election of such
person as a director pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended, and (ii) such person's written consent to serve as a
director if elected;
(3) if the Proponent has provided the Corporation with a Solicitation
Notice, the Proponent must have delivered a proxy statement and form of proxy to
holders of a sufficient number of shares, in the case of a nomination, to elect
such nominee, and in the case of a proposal of other business, to carry such
proposal; and
(4) if the Proponent has not provided the Corporation with a
Solicitation Notice, the Proponent must not have delivered a proxy statement and
a form of proxy to holders of a sufficient number of shares, in the case of a
nomination, to elect such nominee, and in the case of a proposal of other
business, to carry such proposal.
The Corporate Secretary shall be deemed to have timely received a
Proponent's notice under clause (c)(2) of the preceding paragraph if it is
delivered at the Corporation's principal office to the attention of the
Corporate Secretary at least ninety (90) days prior to the annual meeting of
stockholders; provided, however, that if there has been an amendment to the
bylaws since the last annual meeting changing the date of the annual meeting, a
Proponent's notice shall be deemed to have been timely received if it is
delivered not later than the close of business on the later of the ninetieth
(90th) day prior to the annual meeting or the tenth (10th) day following the day
on which public announcement of the date of such meeting is first made; provided
further, however, that if the number of directors to be elected to the Board of
Directors is increased and there is no public announcement naming all of the
nominees for director or specifying the size of the increased board of directors
at least one hundred (100) days prior to the annual meeting, a Proponent's
notice shall be deemed to have been timely received, but only with respect to
nominees for any new positions created by such increase, if it is delivered not
later than the close of business on the tenth (10th) day following the day on
which such public announcement is first made.
Only such business shall be conducted at a special meeting of the
stockholders as shall have been brought before the meeting pursuant to the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors. Nominations of persons for election to the Board of
Directors may be made at a special meeting of the stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board of Directors or (b) by a Proponent who
delivers the notice described in clause (c)(2) of the second paragraph of this
Section at the Corporation's principal office to the attention of the Corporate
Secretary not later than the close of business on the later of the ninetieth
(90th) day prior to such special meeting or the tenth (10th) day following the
day on which public announcement is first made of the date of the special
meeting and of the number of directors proposed by the Board of Directors to be
elected at such meeting.
Only persons nominated in accordance with the procedures set forth in
this section shall be eligible to serve as Directors and only such business
shall be conducted at a meeting of stockholders as shall have been brought
before the meeting in accordance with the procedures set forth in this section.
The chairman of the meeting shall have the power to determine whether a
nomination or any other business is in compliance with this section, and to
declare that any defective nomination or other business not be presented for
stockholder action at the meeting and be disregarded.
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For purposes of this section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News service, Associated
Press or a comparable national news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of this section, a stockholder
shall also comply with all applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to matters set forth in this
section. Nothing in this section shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth herein.
Section 8. Quorum. The holders of one-third (1/3) of all of the
outstanding shares of the stock of the Corporation entitled to vote at a meeting
of stockholders, present in person or by proxy, shall constitute a quorum for
the transaction of any business at such meeting.
ARTICLE IV
BOARD OF DIRECTORS
Section 1. Powers. Subject to the limitations of the Certificate of
Incorporation of the Corporation and of the Delaware General Corporation Law as
to action which shall be authorized or approved by the stockholders, all
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation shall be managed by, the Board of
Directors.
Section 2. Number. The exact number of directors of the Corporation
shall be nine (9) until changed in the manner provided by law.
Section 3. Chairman and Vice Chairman of the Board. The Board shall
appoint a Chairman, who shall preside at all meetings of the Board of Directors
and shall have such other powers and duties as may from time to time be assigned
by the Board of Directors or prescribed by the Bylaws. The Board may also
appoint a Vice Chairman, who shall preside at all meetings of the Board of
Directors in the absence of the Chairman and shall have such other powers and
duties as may from time to time be assigned by the Board of Directors or
prescribed by the Bylaws.
Section 4. Annual Meetings. Immediately following each annual meeting
of stockholders, the Board shall hold its annual meeting for the purpose of
organization, election of officers and the transaction of any other business.
Section 5. Regular Meetings. Regular meetings of the Board shall be
held at the times and on the dates fixed by resolution of the Board.
Section 6. Special Meetings. Special meetings of the Board for any
purpose or purposes whatsoever may be called by the Chairman of the Board or the
Chief Executive Officer or, in the absence or inability of either of them, by
the Vice Chairman, the Chief Financial Officer, or by at least two (2) of the
directors at the time in office.
Section 7. Notice of Meetings. Notice of annual meetings and of regular
meetings of the Board is hereby dispensed with. Notice of special meetings must
be given at least two (2) days in advance if given by mail, or at least
twenty-four (24) hours in advance if delivered personally or given by telephone
or telegram.
Section 8. Place of Meetings. All meetings of the Board, whether
annual, regular or special meetings, shall be held at any place within or
without the State of Delaware which has been designated from time to time by
resolution of the Board or in the notice of the meeting. In the absence of such
designation all directors' meetings shall be held at the principal office of the
Corporation.
Section 9. Quorum. A majority of the exact number of directors
specified in Section 2 of ARTICLE IV of the Bylaws shall constitute a quorum of
the Board of Directors for the transaction of business; provided, however, that
vacancies on the Board may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director, each such director
to hold office until a successor is elected at an annual or special meeting of
the stockholders.
3
<PAGE>
Section 10. Compensation of Directors. Directors and members of
committees appointed by the Board shall receive such compensation, if any, for
their services, and such reimbursement for their expenses, as may be fixed or
determined by resolution of the Board. The Board may, however, in any such
resolution provide that directors who are also employees of the Corporation or
any of its subsidiaries shall not receive additional compensation for services
as a director or member of a committee appointed by the Board.
Section 11. Indemnification of Directors, Officers, Employees and
Other Agents.
(a) Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or involved in any action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
("Proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, trustee, or fiduciary, or in a similar capacity
(collectively, "Agent") of another foreign or domestic corporation, limited
liability company, partnership, joint venture, trust, or any other enterprise or
entity whatsoever, including without limitation employee benefit plans
(collectively, "Affiliate"), whether the basis of such Proceeding is alleged
action in an official capacity, or in any other capacity while serving as a
director or officer of the Corporation or as an Agent of an Affiliate, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability, and loss, including without
limitation, attorneys' fees, judgments, fines, ERISA excise taxes, penalties,
amounts paid or to be paid in settlement, and any other amounts actually
incurred or suffered by such person in connection with any Proceeding; and such
indemnification shall continue as to a person who has ceased to be a director or
officer of the Corporation or Agent of an Affiliate and shall inure to the
benefit of his or her heirs, executors, and administrators; provided, however,
that, except as provided in paragraph (b) hereof with respect to Proceedings
seeking to enforce rights to indemnification, the Corporation shall indemnify
any such person seeking indemnification in connection with a Proceeding (or part
thereof) initiated by such person only if such Proceeding (or part thereof) was
authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such Proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including without
limitation, service to an employee benefit plan) in advance of the final
disposition of a Proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, to the extent authorized from time to time by its board of
directors, either on a general basis or as to specific employees or agents,
provide indemnification to employees and agents of the Corporation with similar
scope and effect as the foregoing indemnification of directors and officers.
(b) Right to Bring Suit. If a claim under paragraph (a) of this Section
is not paid in full by the Corporation within sixty (60) days after a written
claim has been received by the Corporation, except in the case of a claim for
expenses incurred in a Proceeding in advance of its final disposition in which
case the applicable period shall be twenty (20) days, the person seeking
indemnification (the "Party to be Indemnified") may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Party to be Indemnified shall be entitled to be paid also the
expense of prosecuting or defending such claim. The Corporation's sole defense
to an action seeking indemnification (other than an action brought to enforce a
claim for expenses incurred in defending a Proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) shall be that the Party to be Indemnified has not
met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the Party to be
Indemnified for the amount claimed, and the burden of providing such defense
shall be on the Corporation. Neither the failure of the Corporation (including
its board of directors, its independent legal counsel, or its stockholders) to
have made a determination prior to the commencement of such action that
indemnification of the Party to be Indemnified is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the Corporation
(including its board of directors, its independent legal counsel, or its
stockholders) that the Party to be Indemnified has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the Party to be Indemnified has not met the applicable standard of conduct.
4
<PAGE>
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a Proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
(d) Insurance. The Corporation shall maintain in full force and effect,
at its own expense, director and officer liability insurance ("Insurance")
coverage for each director and officer in amounts and scope at least as
favorable as that maintained by the Corporation on September 30, 1996, or, to
the extent more favorable, any Insurance policy entered into or renewed by the
Corporation following such date. Notwithstanding the foregoing, if the
Corporation, after using its best efforts, cannot obtain and purchase such
coverage for an amount no more than what it paid for the most recent expiring
Insurance policy plus a reasonable additional amount, the Corporation shall only
be required to purchase such Insurance coverage for any act or omission
occurring at or prior to the time of such date.
(e) Enforceability; Amendment. The rights provided to any person by
this bylaw shall be enforceable against the Corporation by such person, who
shall be presumed to have relied upon it in serving or continuing to serve as an
Agent, as provided above. No amendment of this bylaw shall impair the rights of
any person arising at any time with respect to events occurring prior to such
amendment, including, without limitation, any right of a director or officer to
Insurance for any act or omission occurring at or prior to the time of such
amendment.
Section 12. Authority to Designate Place of Stockholders' Meetings. The
Board is hereby granted full power and authority to designate from time to time
any place within or without the State of Delaware for the holding of any
stockholders' meeting.
Section 13. Committees. The Board may, by resolution, appoint one (1)
or more committees, in addition to an Executive Committee and a Board Management
Committee, to consist of two (2) or more of the directors of the Corporation,
and prescribe their duties and powers. A majority of the members of any such
committee may determine its action and fix the time and place of its meetings
unless the Board shall otherwise provide. The Board shall have the power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee.
Section 14. Action by Written Consent. Any action required or permitted
to be taken by the Board or any committee thereof may be taken without a
meeting, if all members of the Board or such committee, as the case may be,
shall individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the proceedings
of the Board.
Section 15. Conference Calls. Members of the Board or any committee
thereof may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another.
ARTICLE V
EXECUTIVE COMMITTEE
Section 1. Number and Composition. The Board of Directors shall appoint
from its membership, annually, an Executive Committee of three (3) or more
directors. Included on the Executive Committee shall be the Chief Executive
Officer of the Corporation. Each member of the Executive Committee shall hold
membership at the pleasure of the Board, which shall have the exclusive power to
fill vacancies thereon as they may occur. The Chairman of the Executive
Committee shall be the Chief Executive Officer of the Corporation.
Section 2. Powers. The Executive Committee, during the intervals
between meetings of the Board, shall have and there is hereby granted to it all
the powers and authority of the Board of Directors in the management of the
5
<PAGE>
business and affairs of the Corporation, except that the Executive Committee
shall not be permitted to fill vacancies on the Board or on any committee,
approve any action for which stockholder approval is also required by the
Delaware General Corporation Law, amend or repeal any resolution of the Board
which by its express terms is not so amendable or repealable, or appoint other
committees of the Board or the members thereof and shall not have any powers
restricted by Section 141(c) of the Delaware General Corporation Law unless the
Board shall have specifically delegated authority to the Executive Committee to
take action with respect to a matter listed in such Section as permitted to be
so delegated.
Section 3. Procedure. Two (2) members of the Executive Committee shall
constitute a quorum of the Executive Committee for the transaction of business.
The Executive Committee, by vote of a majority of its members, shall fix its own
times and places of meetings and shall prescribe its own rules of procedure; no
change in which shall be made save by a majority vote of its members.
Section 4. Records and Reports. The Executive Committee shall keep
regular minutes of all business transacted at its meetings, and all action of
the Executive Committee shall be reported to the Board at its next ensuing
meeting.
Section 5. Compensation. Members of the Executive Committee may
receive such compensation, if any, for their services, and such reimbursement
for their expenses, as may be fixed or determined by the Board.
ARTICLE VI
BOARD MANAGEMENT COMMITTEE
Section 1. Number and Composition. The Board of Directors shall appoint
from its membership, annually, a Board Management Committee composed of the
directors who are salaried officers of the Corporation. The Chairman of the
Board Management Committee shall be the Chief Executive Officer of the
Corporation.
Section 2. Powers. The Board Management Committee, during the intervals
between meetings of the Board, shall have and there is hereby granted to it all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, subject to approval limits established
by resolution of the Board of Directors as deemed appropriate from time to time,
but the Board Management Committee shall not be permitted to fill vacancies on
the Board or on any committee, appoint the Chief Executive Officer or the Chief
Financial Officer, approve any action for which stockholder approval is also
required by the Delaware General Corporation Law, amend or repeal any resolution
of the Board or of the Executive Committee, which by its express terms is not so
amendable or repealable, or appoint other committees of the Board or the members
thereof and shall not have any powers restricted by Section 141(c) of the
Delaware General Corporation Law unless the Board shall have specifically
delegated authority to the Board Management Committee to take action with
respect to a matter listed in such Section as permitted to be so delegated.
Section 3. Procedure. Two (2) members of the Board Management Committee
shall constitute a quorum of the Board Management Committee for the transaction
of business. The Board Management Committee, by vote of a majority of its
members, shall fix its own times and places of meetings, and shall prescribe its
own rules of procedure; no change in which shall be made save by a majority vote
of its members.
Section 4. Records. The Board Management Committee shall keep regular
minutes of all business transacted at its meetings.
ARTICLE VII
OFFICERS
Section 1. Officers. The officers of the Corporation shall be a
Chairman, a Chief Executive Officer, a Chief Financial Officer, a Vice
President, a Secretary, a Comptroller, a Treasurer, and a Chief Legal Officer.
The Corporation may also have, at the discretion of the Board, one (1) Vice
Chairman, one (1) or more Vice Presidents, who may be designated as Executive
Vice Presidents, Group Vice Presidents, Senior Vice Presidents or Vice
Presidents, one (1) or more Assistant Chief Financial Officers, one (1) or more
Assistant Secretaries, one (1) or more Assistant Treasurers, and one (1) or more
Assistant Comptrollers, and the Board may appoint such other officers as it may
deem necessary or advisable, who shall have such authority and perform such
6
<PAGE>
duties as from time to time may be prescribed by the Board, the Chairman of the
Board, or the Chief Executive Officer. Any two (2) or more offices may be held
by the same person.
Section 2. Election and Removal. The officers of the Corporation shall
be chosen annually by the Board at its annual meeting and each shall hold office
until the corresponding annual meeting of the Board in the next year and until a
successor shall be elected and qualified unless such officer shall theretofore
resign or shall be removed or otherwise disqualified to serve. The Board may
remove any officer either with or without cause or under such other terms or
conditions as it may prescribe. Vacancies may be filled by the Board as they may
occur.
Section 3. Powers and Duties.
(a) Chief Executive Officer. The Chief Executive Officer shall be the
officer, reporting directly to the Board, responsible for overall management of
the Corporation and shall have general supervision, direction and control over
the business and affairs of the Corporation and its officers. The Chief
Executive Officer shall be a member of the Executive Committee and of the Board
Management Committee and in general shall perform all duties incident to the
office of Chief Executive Officer and shall have such powers and duties as may
from time to time be assigned by the Board of Directors or prescribed by the
Bylaws.
(b) Executive Vice Presidents. The Executive Vice Presidents in general
shall perform all duties incident to the office of Executive Vice President, and
shall have such powers and duties as may from time to time be assigned by the
Board of Directors, the Chief Executive Officer or prescribed by the Bylaws.
(c) Other Vice Presidents. Other Vice Presidents, who may be designated
as Group Vice Presidents, Senior Vice Presidents or Vice Presidents, shall have
such authority and shall perform such duties as shall from time to time be
assigned by the Board of Directors, the Chief Executive Officer, the Executive
Vice Presidents or prescribed by the Bylaws.
(d) Chief Financial Officer. The Chief Financial Officer shall have
such authority and shall perform such duties as shall from time to time be
assigned by the Board, the Chief Executive Officer or prescribed by the Bylaws.
(e) Assistant Chief Financial Officer. Each Assistant Chief Financial
Officer shall assist the Chief Financial Officer and shall perform such duties
as shall from time to time be assigned by the Board, the Chief Executive Officer
or the Chief Financial Officer.
(f) Secretary. The Secretary shall keep, or cause to be kept, a book of
minutes, at the principal office and/or such other place or places as the Board
may order, of all meetings of directors and stockholders, with the time and
place of holding, whether regular or special, and if special how authorized, the
notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at stockholders' meetings, and the
proceedings thereof.
The Secretary shall keep or cause to be kept at the principal office,
or at the office of the Corporation's transfer agent, a stock register, which
may be an electronic database, showing the names of the stockholders of record
and their addresses, the number and classes of shares held by each, the numbers
and dates of the certificates issued for those shares, and the numbers and dates
of cancellation of every certificate surrendered for cancellation.
The Secretary shall give or cause to be given notice of all meetings of
the stockholders and the Board required to be given by the Bylaws or by law. The
Secretary shall have charge of and be custodian of the seal of the Corporation
and the minute books and documents relating to the existence and governance of
the Corporation.
The Secretary shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board, the Chairman of the
Board, the Chief Executive Officer or the Bylaws, and shall in general, subject
to control of the Board, the Chairman of the Board and the Chief Executive
Officer, perform all the duties usually incident to the office of secretary of a
corporation.
(g) Assistant Secretaries. Each Assistant Secretary shall assist the
Secretary and, in the absence or disability of the Secretary, may perform the
duties of the Secretary unless and until the contrary is expressed by the Board,
and may perform such other duties as may be prescribed by the Board or the
Secretary.
7
<PAGE>
(h) Treasurer. The Treasurer shall have custody of and be responsible
for all the monies and funds of the Corporation. The Treasurer shall deposit or
cause to be deposited all Corporation monies, funds and other valuables in the
name and to the credit of the Corporation in such bank or banks as shall be
judged proper or as shall be directed by the Board, the Chief Executive Officer,
or the Chief Financial Officer, and shall disburse the funds of the Corporation
which have been duly approved for disbursement. The Treasurer shall enter or
cause to be entered regularly in the books of the Corporation full and accurate
accounts of all monies received and paid out on account of the Corporation.
The Treasurer shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board, the Chief Executive
Officer, the Chief Financial Officer or the Bylaws, and shall in general,
subject to control of the Board, the Chief Executive Officer, and the Chief
Financial Officer, perform all the duties usually incident to the office of
treasurer of a corporation.
(i) Assistant Treasurers. Each Assistant Treasurer shall assist the
Treasurer and, in the absence or disability of the Treasurer, may perform the
duties of the Treasurer unless and until the contrary is expressed by the Board,
and shall perform such other duties as may be prescribed by the Board or the
Treasurer.
(j) Comptroller. The Comptroller shall be the principal officer in
charge of the general accounting books, accounting records and forms of the
Corporation and shall see that all monies and obligations due the Corporation
and all properties and assets are properly accounted for. The Comptroller shall
prepare the Corporation's balance sheets, income accounts and other financial
statements and reports, and render to the Board, the Chief Executive Officer,
and the Chief Financial Officer, such periodic reports covering the results of
operations of the Corporation as may be required by them or any of them.
The Comptroller shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board, the Chief Executive
Officer, the Chief Financial Officer or the Bylaws and shall in general, subject
to control of the Board, the Chief Executive Officer, and the Chief Financial
Officer, perform all the duties usually incident to the office of comptroller of
a corporation.
(k) Assistant Comptrollers. Each Assistant Comptroller shall assist the
Comptroller and, in the absence or disability of the Comptroller, may perform
the duties of the Comptroller unless and until the contrary is expressed by the
Board, and shall perform such other duties as may be prescribed by the Board or
the Comptroller.
(l) Chief Legal Officer. The Chief Legal Officer shall be in charge of
the Corporation's legal affairs. The Chief Legal Officer shall advise the Board,
the Chairman of the Board and/or the officers of the Corporation on such legal
matters and prepare such reports as may be required by them or any of them.
ARTICLE VIII
MISCELLANEOUS
Section 1. Execution of Documents. Unless otherwise authorized by or
pursuant to a resolution of the Board of Directors, all contracts, leases,
deeds, deeds of trust, mortgages, bonds, indentures, endorsements, assignments,
powers of attorney, and other documents and instruments of whatsoever kind shall
be executed for and on behalf of the Corporation by the Chairman and Chief
Executive Officer, the Vice Chairman, the Chief Financial Officer, a Vice
President, the Treasurer, the Comptroller, or by any such officer and shall be
attested by the Secretary or an Assistant Secretary, who shall have authority to
affix the corporate seal to the same.
Section 2. Undertakings and Commitments. No undertaking, commitment,
contract, instrument or document shall be binding upon the Corporation unless
previously authorized or subsequently ratified by the Board or executed by an
officer or officers, an employee or employees or an agent or agents of the
Corporation acting under powers conferred by the Board or by these Bylaws.
Section 3. Checks, Drafts, etc. All checks, notes and other obligations
for collection, deposit or transfer, and all checks and drafts for disbursement
from Corporation funds, and all bills of exchange and promissory notes, and all
acceptances, obligations and other instruments for the payment of money, shall
be endorsed or signed by such officer or officers, employee or employees or
8
<PAGE>
agent or agents as shall be authorized from time to time to do so by or pursuant
to a resolution of the Board of Directors.
Section 4. Representation of Shares of Other Corporations. Shares
standing in the name of the Corporation may be voted or represented and all
rights incident thereto may be exercised on behalf of the Corporation by the
Chairman and Chief Executive Officer, the Vice Chairman, the Chief Financial
Officer, a Vice President, the Secretary, the Treasurer or the Comptroller, or
by such other officers upon whom the Board of Directors may from time to time
confer like powers.
ARTICLE IX
AMENDMENTS TO BYLAWS
Section 1. Power of Stockholders. New Bylaws may be adopted or these
Bylaws may be amended or repealed by the vote of seventy-five (75) percent of
the outstanding stock of the Corporation entitled to vote thereon.
Section 2. Power of Directors. Subject to the right of stockholders as
provided in Section 1 of this ARTICLE IX to adopt, amend or repeal Bylaws,
Bylaws may be adopted, amended or repealed by the Board of Directors as provided
or permitted by law; however, any Bylaw amendment adopted by the Board of
Directors increasing or reducing the authorized number of directors or amending
this Section shall require a resolution adopted by the affirmative vote of not
less than seventy-five (75) percent of the directors.
ARTICLE X
EMERGENCY
Section 1. "Emergency" as used in this Article means disorder,
disturbance or damage caused by war, enemy attack, other warlike acts or by
catastrophe, disaster or other similar emergency condition, which prevents the
conduct and management of the affairs and business of the Corporation by the
Board of Directors and officers in the manner provided for in other Articles of
these Bylaws. The powers and duties conferred and imposed by this Article, and
any resolutions adopted pursuant hereto, shall be effective only during an
emergency. This Article may be implemented from time to time by resolutions
adopted by the Board of Directors before or during an emergency, or during an
emergency by the emergency Board of Directors constituted and then acting
pursuant hereto. An emergency, once commenced, shall be deemed to continue until
terminated by resolutions adopted for that purpose by the Board of Directors.
Section 2. If, during an emergency, a majority of the Board of
Directors cannot be found or is unable to act, one-third (1/3) of the exact
number of the Board of Directors shall constitute a quorum thereof.
Section 3. During any emergency, the officers and employees of the
Corporation shall continue, so far as possible, to conduct the Corporation's
affairs and business under the guidance of the Board of Directors acting
pursuant to this Article and in accordance with known orders of governmental
authorities.
Section 4. If, during any emergency, a quorum of the Board of
Directors, as provided in Section 3 of this Article, cannot be found or is
unable to act, any three (3) available members of the Executive Committee,
including the Chief Executive Officer, shall be and constitute the Board of
Directors, with two (2) thereof constituting a quorum, and as such shall have
and exercise the fullest power of the Board of Directors for the conduct and
management of the affairs and business of the Corporation, permitted by law,
without the limitations set forth in Section 2 of ARTICLE V of these Bylaws,
provided that such emergency Board of Directors as so constituted shall comply
to the extent practicable under the circumstances with the provisions of ARTICLE
III of these Bylaws relating to annual and special meetings of stockholders. If
three (3) members of the Executive Committee, including the Chief Executive
Officer, are not able to serve, any three (3) available directors shall be and
constitute such emergency Board of Directors, with two (2) thereof constituting
a quorum, for the exercise of the powers conferred and performance of the duties
imposed by this Section 4.
Section 5. If, during any emergency, neither a quorum of the Board of
Directors, as provided in Section 3 of this Article, nor a quorum of the
emergency Board of Directors, as provided for in Section 4 of this Article is
available to serve, then the powers conferred and duties imposed by Section 4
shall vest in and devolve upon any three (3) of (in the following order of
priority) available directors, Executive Vice Presidents, the Chief Financial
Officer, and as many other Vice Presidents (or, in case of their inability, any
other officers), in order of seniority, as may be necessary from time to time to
constitute a total of three (3) emergency directors. The Chief Executive Officer
and any other one (1) emergency director shall constitute a quorum of such
emergency Board of Directors for exercise of the powers conferred and
performance of the duties imposed hereunder, but if the Chief Executive Officer
is not available, any two (2) of such emergency directors shall constitute a
quorum.
9
<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 1999 1998
- --------------------------------------------------------------------------------
<S> ........................................................ <C> <C>
Earnings (loss) from operations ............................ $ 16 $123
Provision for income taxes ................................. 41 138
- --------------------------------------------------------------------------------
Earnings (loss) subtotal .......................... 57 261
Fixed charges included in earnings:
Interest expense ........................................ $ 93 $ 83
Distribution on convertible preferred securities ........ 16 16
Interest portion of rentals ............................. 10 12
- --------------------------------------------------------------------------------
Fixed charges subtotal ............................ 119 111
Earnings from operations
available before fixed charges .......................... $176 $372
- --------------------------------------------------------------------------------
Fixed charges:
Fixed charges included in earnings ...................... $119 $111
Capitalized interest .................................... 9 17
- --------------------------------------------------------------------------------
Total fixed charges ............................... $128 $128
- --------------------------------------------------------------------------------
Ratio of earnings from operations
to fixed charges ........................................ 1.4 2.9
- --------------------------------------------------------------------------------
</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 1999 1998
- --------------------------------------------------------------------------------
<S> .................................................. <C> <C>
Earnings (loss) from operations ...................... $ 30 $134
Provision for income taxes ........................... 45 144
- --------------------------------------------------------------------------------
Earnings subtotal .............................. 75 278
Fixed charges included in earnings:
Interest expense .................................. 93 83
Interest portion of rentals ....................... 10 12
- --------------------------------------------------------------------------------
Fixed charges subtotal ......................... 103 95
Earnings (loss) from operations
available before fixed charges .................... 178 373
- --------------------------------------------------------------------------------
Fixed charges:
Fixed charges included in earnings ................ 103 95
Capitalized interest .............................. 9 17
- --------------------------------------------------------------------------------
Total fixed charges ............................ $112 $112
- --------------------------------------------------------------------------------
Ratio of earnings from operations
to fixed charges ................................. 1.6 3.3
- --------------------------------------------------------------------------------
</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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 168
<SECURITIES> 0
<RECEIVABLES> 935
<ALLOWANCES> (62)
<INVENTORY> 158
<CURRENT-ASSETS> 1,327
<PP&E> 16,109
<DEPRECIATION> (10,269)
<TOTAL-ASSETS> 8,572
<CURRENT-LIABILITIES> 1,179
<BONDS> 2,802
0
0
<COMMON> 253
<OTHER-SE> 2,367
<TOTAL-LIABILITY-AND-EQUITY> 8,572
<SALES> 2,684
<TOTAL-REVENUES> 2,786
<CGS> 1,975
<TOTAL-COSTS> 2,729
<OTHER-EXPENSES> 147
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93
<INCOME-PRETAX> 57
<INCOME-TAX> 41
<INCOME-CONTINUING> 16
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
</TABLE>
EXHIBIT 99
BYLAWS
OF
UNION OIL COMPANY OF CALIFORNIA
a California Corporation
(Effective April 1, 1999)
ARTICLE I
FISCAL YEAR
Section 1. The fiscal year of Union Oil Company of California
(hereinafter called the "Company") shall end on the thirty-first day of December
of each year.
ARTICLE II
OFFICES
Section 1. Principal Office. The principal office for the transaction
of business of the Company is hereby fixed and located at 2141 Rosecrans Avenue,
Suite 4000, in the City of El Segundo, County of Los Angeles, State of
California. The Board of Directors (hereinafter sometimes called the "Board") is
hereby granted full power and authority to change said principal office from one
location to another in said county.
ARTICLE III
SHAREHOLDERS
Section 1. Annual Meetings. The annual meetings of the shareholders
shall be held at a time to be fixed by resolution of the Board on the fourth
Monday in May of each year if not a legal holiday, for the purpose of electing
directors and for the transaction of any other business which is within the
powers of the shareholders. If the fourth Monday in May is a legal holiday, the
annual meeting of the shareholders shall be held on the preceding or subsequent
Monday as fixed by resolution of the Board. The mailing of an annual report to
the shareholders not later than 120 days after the close of the fiscal year is
waived.
Section 2. Special Meetings. Special meetings of the shareholders for
any purpose whatsoever may be called at any time by the Chairman of the Board,
the Chief Executive Officer, the Board, or by one or more shareholders holding
not less than ten percent of the voting power of the Company upon request in
writing to the Chairman of the Board, the Chief Executive Officer, the Vice
Chairman, a Vice President or the Secretary. The business transacted at special
meetings shall be confined to the purpose or purposes stated in the notice of
such meetings.
Section 3. Notice of Meetings. Written notice of each annual or special
meeting of shareholders shall be given to each shareholder entitled to vote
thereat not less than ten nor more than sixty days before the meeting.
Section 4. Place of Meetings. All meetings of shareholders, whether
annual or special, shall be held at the principal office of the Company or at
such other place, within or without the State of California, as the Board may
from time to time designate pursuant to authority hereinafter granted it. In the
absence of any such designation, shareholders' meetings shall be held at the
principal office of the Company.
Section 5. Voting Rights. Shareholders entitled to vote at shareholder
meetings shall be entitled to one vote for each full share. A fraction of a
share or a fractional interest in a share shall not be entitled to any voting
rights whatsoever.
Section 6. Conduct of Meetings. The decisions of the Chairman of the
Board or officer presiding at all shareholders' meetings shall govern in all
matters relating to the conduct of the meeting.
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Section 7. Voting. Directors shall be elected in accordance with
the provisions of the California Corporations Code by holders of shares
entitled to vote in the election.
Section 8. Action Without a Meeting. Any action which may be taken at
any annual or special meeting may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of the outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors.
ARTICLE IV
BOARD OF DIRECTORS
Section 1. Powers. Subject to the limitations of the Restated Articles
of Incorporation of the Company and of the California General Corporation Law as
to action required or authorized to be approved by the shareholders, all
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Company shall be managed by, the Board of Directors.
Section 2. Number. The number of directors of the Company shall not be
less than four (4) nor more than seven (7). The exact number of directors of the
Company shall be fixed by resolution of the Board of Directors.
Section 3. Chairman and Vice Chairman of the Board. The Board shall
appoint a Chairman, who shall preside at all meetings of the Board of Directors
and shall have such other powers and duties as may from time to time be assigned
by the Board of Directors or prescribed by the Bylaws. The Board may also
appoint a Vice Chairman, who shall preside at all meetings of the Board of
Directors in the absence of the Chairman and shall have such other powers and
duties as may from time to time be assigned by the Board of Directors or
prescribed by the Bylaws.
Section 4. Annual Meetings. Immediately following each annual meeting
of shareholders, the Board shall hold its annual meeting for the purpose of
organization, election of officers and the transaction of any other business.
Section 5. Regular Meetings. Regular meetings of the Board shall be
held at the times and on the dates fixed by resolution of the Board.
Section 6. Special Meetings. Special meetings of the Board for any
purpose or purposes whatsoever may be called by the Chairman of the Board and
Chief Executive Officer or, in his absence or inability by the Vice Chairman,
the Chief Financial Officer, or by at least two (2) of the directors at the time
in office.
Section 7. Notice of Meetings. Notice of annual meetings and of regular
meetings of the Board is hereby dispensed with. Notice of special meetings must
be given at least two days in advance if given by mail, or at least one hour in
advance if delivered personally or given by telephone or other electronic means.
Section 8. Place of Meetings. All meetings of the Board, whether
annual, regular or special meetings, shall be held at any place within or
without the State of California which has been designated from time to time by
resolution of the Board or in the notice of the meeting. In the absence of such
designation all directors' meetings shall be held at the principal office of the
Company.
Section 9. Quorum. The higher of two (2) or one-third (1/3) of the
number of directors fixed by resolution adopted pursuant to Section 2 of this
Article of the Bylaws shall constitute a quorum of the Board of Directors for
the transaction of business; provided, however, that vacancies on the Board may
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be filled by a majority of the remaining directors or by a sole remaining
director, each such director to hold office until a successor is elected at an
annual or special meeting of the shareholders.
Section 10. Compensation of Directors. Directors and members of
committees appointed by the Board shall receive such compensation, if any, for
their services, and such reimbursement for their expenses as may be fixed or
determined by resolution of the Board. The Board may, however, in any such
resolution provide that directors who are also employees of the Company or any
of its subsidiaries shall not receive additional compensation for services as a
director or member of a committee appointed by the Board.
Section 11. Indemnification of Directors, Officers, Employees and
Other Agents.
(a) The Company shall, to the maximum extent permitted by the General
Corporation Law of California, indemnify each of its directors and officers
against all expense, liability, and loss, including without limitation,
attorneys' fees, judgments, fines, ERISA excise taxes, penalties, amounts paid
or to be paid in settlement, and any other amounts actually incurred in
connection with any proceeding arising by reason of the fact any such person is
or was a director or officer of the Company and shall advance to such director
or officer expenses incurred in defending any such proceeding to the maximum
extent permitted by such law. For purposes of this section, a "director" or
"officer" of the Company includes any person who is or was a director or officer
of the Company, or is or was serving at the request of the Company as a
director, officer, trustee, or fiduciary, or in a similar capacity, of another
foreign or domestic corporation, limited liability company, partnership, joint
venture, trust, or any other enterprise or entity whatsoever, including without
limitation service with respect to employee benefit plans.
(b) The Board of Directors may in its discretion provide by resolution,
either on a general basis or as to specific employees or agents, for similar
indemnification of, or advance of expenses to, other employees or agents of the
Company, and likewise may refuse to provide for such indemnification or advance
of expenses except to the extent such indemnification is mandatory under the
California General Corporation Law.
(c) The Company shall maintain in full force and effect, at its own
expense, director and officer liability insurance ("Insurance") coverage for
each director and officer in amounts and scope at least as favorable as that
maintained by the Corporation on September 30, 1996, or, to the extent more
favorable, any Insurance policy entered into or renewed by the Company following
such date. Notwithstanding the foregoing, if the Company, after using its best
efforts, cannot obtain and purchase such coverage for an amount no more than
what it paid for the most recent expiring Insurance policy plus a reasonable
additional amount, the Company shall only be required to purchase such Insurance
coverage for any act or omission occurring at or prior to the time of such date.
(d) The rights provided to any person by this bylaw shall be
enforceable against the Company by such person, who shall be presumed to have
relied upon it in serving or continuing to serve as a director or officer, as
provided above. No amendment of this bylaw shall impair the rights of any person
arising at any time with respect to events occurring prior to such amendment,
including, without limitation, any right of a director or officer to Insurance
for any act or omission occurring at or prior to the time of such amendment.
Section 12. Authority to Designate Place of Shareholders' Meetings. The
Board is hereby granted full power and authority to designate from time to time
any place within or without the State of California for the holding of any
shareholders' meeting, whether annual or special.
Section 13. Committees. A majority of the Board may, by resolution,
appoint one or more committees to consist of two or more of the directors of the
Company, and prescribe their duties and powers. Two of the members of any such
committee may determine its action and fix the time and place of its meetings
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unless the Board shall otherwise provide. The Board shall have the power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee.
Section 14. Action by Written Consent. Any action required or permitted
to be taken by the Board or any committee thereof may be taken without a
meeting, if all members of the Board or such committee, as the case may be,
shall individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the proceedings
of the Board.
Section 15. Conference Calls. Members of the Board or any committee
thereof may participate in a meeting through use of conference telephone or
similar communications equipment as permitted by the California General
Corporation Law.
ARTICLE V
OFFICERS
Section 1. Officers. The officers of the Company shall be a Chairman, a
Chief Executive Officer, a Chief Financial Officer, a Vice President, a
Secretary, a Comptroller, a Treasurer, and a Chief Legal Officer. The Company
may also have, at the discretion of the Board, one (1) Vice Chairman, one (1) or
more Vice Presidents, who may be designated as Executive Vice Presidents, Group
Vice Presidents, Senior Vice Presidents or Vice Presidents, one (1) or more
Assistant Chief Financial Officers, one (1) or more Assistant Secretaries, one
(1) or more Assistant Treasurers, and one (1) or more Assistant Comptrollers,
and the Board may appoint such other officers as it may deem necessary or
advisable, who shall have such authority and perform such duties as from time to
time may be prescribed by the Board, the Chairman of the Board, or the Chief
Executive Officer. Any two (2) or more offices may be held by the same person.
Section 2. Election and Removal. The officers of the Company shall be
chosen annually by the Board at its annual meeting and each shall hold office
until the corresponding annual meeting of the Board in the next year and until a
successor shall be elected and qualified unless such officer shall theretofore
resign or shall be removed or otherwise disqualified to serve. The Board may
remove any officer either with or without cause or under such other terms or
conditions as it may prescribe. Vacancies may be filled by the Board as they may
occur.
Section 3. Powers and Duties.
(a) Chief Executive Officer. The Chief Executive Officer shall be the
officer, reporting directly to the Board, responsible for overall management of
the Company and shall have general supervision, direction and control over the
business and affairs of the Company and its officers. The Chief Executive
Officer shall perform all duties incident to the office of Chief Executive
Officer and shall have such powers and duties as may from time to time be
assigned by the Board of Directors or prescribed by the Bylaws.
(b) Executive Vice Presidents. The Executive Vice Presidents in general
shall perform all duties incident to the office of Executive Vice President, and
shall have such powers and duties as may from time to time be assigned by the
Board of Directors, the Chief Executive Officer or prescribed by the Bylaws.
(c) Other Vice Presidents. Other Vice Presidents, who may be designated
as Group Vice Presidents, Senior Vice Presidents or Vice Presidents, shall have
such authority and shall perform such duties as shall from time to time be
assigned by the Board of Directors, the Chief Executive Officer, the Executive
Vice Presidents or prescribed by the Bylaws.
(d) Chief Financial Officer. The Chief Financial Officer shall have
such authority and shall perform such duties as shall from time to time be
assigned by the Board, the Chief Executive Officer or prescribed by the Bylaws.
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(e) Assistant Chief Financial Officer. Each Assistant Chief Financial
Officer shall assist the Chief Financial Officer and shall perform such duties
as shall from time to time be assigned by the Board, the Chief Executive Officer
or the Chief Financial Officer.
(f) Secretary. The Secretary shall keep, or cause to be kept, at the
Company's offices, a book of minutes of all meetings of directors and
shareholders.
The Secretary shall keep or cause to be kept at the principal office,
or at the office of the Company's transfer agent, a share register, which may be
an electronic database, showing the names of the shareholders of record and
their addresses, the number and classes of shares held by each, the numbers and
dates of the certificates issued for those shares, and the numbers and dates of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give or cause to be given notice of all meetings of
the shareholders and the Board required to be given by the Bylaws or by law. The
Secretary shall have charge of and be custodian of the seal of the Company and
the minute books and documents relating to the existence and governance of the
Company.
The Secretary shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board, the Chairman of the
Board, the Chief Executive Officer or the Bylaws, and shall in general, subject
to control of the Board, the Chairman of the Board and the Chief Executive
Officer, perform all the duties usually incident to the office of secretary of a
corporation.
(g) Assistant Secretaries. Each Assistant Secretary shall assist the
Secretary and, in the absence or disability of the Secretary, may perform the
duties of the Secretary unless and until the contrary is expressed by the Board,
and shall perform such other duties as may be prescribed by the Board or the
Secretary.
(h) Treasurer. The Treasurer shall have custody of and be responsible
for all the monies and funds of the Company. The Treasurer shall deposit or
cause to be deposited all Company monies, funds and other valuables in the name
and to the credit of the Company in such bank or banks as shall be proper or as
shall be directed by the Board, the Chief Executive Officer, or the Chief
Financial Officer, and shall disburse the funds of the Company which have been
duly approved for disbursement. The Treasurer shall enter or cause to be entered
regularly in the books of the Company full and accurate accounts of all monies
received and paid out on account of the Company.
The Treasurer shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board, the Chief Executive
Officer, the Chief Financial Officer or the Bylaws, and shall in general,
subject to control of the Board, the Chief Executive Officer, and the Chief
Financial Officer, perform all the duties usually incident to the office of
treasurer of a corporation.
(i) Assistant Treasurers. Each Assistant Treasurer shall assist the
Treasurer and, in the absence or disability of the Treasurer, may perform the
duties of Treasurer unless and until the contrary is expressed by the Board, and
shall perform such other duties as may be prescribed by the Board or the
Treasurer.
(j) Comptroller. The Comptroller shall be the principal officer in
charge of the general accounting books, accounting records and forms of the
Company and shall see that all monies and obligations due the Company and all
properties and assets are properly accounted for. The Comptroller shall prepare
the Company's balance sheets, income accounts and other financial statements and
reports, and render to the Board, the Chief Executive Officer, and the Chief
Financial Officer, such periodic reports covering the results of operations of
the Company as may be required by them or any of them.
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The Comptroller shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board, the Chief Executive
Officer, the Chief Financial Officer or the Bylaws, and shall in general,
subject to control of the Board, the Chief Executive Officer, and the Chief
Financial Officer, perform all the duties usually incident to the office of
comptroller of a corporation.
(k) Assistant Comptrollers. Each Assistant Comptroller shall assist the
Comptroller and, in the absence or disability of the Comptroller, may perform
the duties of the Comptroller unless and until the contrary is expressed by the
Board, and shall perform such other duties as may be prescribed by the Board or
the Comptroller.
(l) Chief Legal Officer. The Chief Legal Officer shall be in charge of
the Company's legal affairs. The Chief Legal Officer shall advise the Board, the
Chairman of the Board and/or the officers of the Company on such legal matters
and prepare such reports as may be required by them or any of them.
ARTICLE VI
MISCELLANEOUS
Section 1. Execution of Documents. Unless otherwise authorized by or
pursuant to a resolution of the Board of Directors, all contracts, leases,
deeds, deeds of trust, mortgages, bonds, indentures, endorsements, assignments,
powers of attorney to transfer stock or for other purposes, and other documents
and instruments of whatsoever kind shall be executed for and on behalf of the
Company by the Chairman and Chief Executive Officer, the Vice Chairman, the
Chief Financial Officer, a Vice President, the Treasurer, the Comptroller, or by
any such officer and shall be attested by the Secretary or an Assistant
Secretary, who shall have authority to affix the corporate seal to the same.
Section 2. Undertakings and Commitments. No undertaking, commitment,
contract, instrument or document shall be binding upon the Company unless
previously authorized or subsequently ratified by the Board or executed by an
officer or officers, an employee or employees or an agent or agents of the
Company acting under powers conferred by the Board or by these Bylaws.
Section 3. Checks, Drafts, etc. All checks, notes and other obligations
for collection, deposit or transfer, and all checks and drafts for disbursement
from Company funds, and all bills of exchange and promissory notes, and all
acceptances, obligations and other instruments for the payment of money, shall
be endorsed or signed by such officer or officers, employee or employees or
agent or agents as shall be authorized from time to time to do so by or pursuant
to a resolution of the Board of Directors.
Section 4. Representation of Shares of Other Corporations. Shares
standing in the name of the Company may be voted or represented and all rights
incident thereto may be exercised on behalf of the Company by the Chairman and
Chief Executive Officer, the Vice Chairman, the Chief Financial Officer, a Vice
President, the Secretary, the Treasurer or the Comptroller, or by such other
officers upon whom the Board of Directors may from time to time confer like
powers.
ARTICLE VII
AMENDMENTS
Section 1. Power of Shareholders. New Bylaws may be adopted or these
Bylaws may be amended or repealed by the vote or written assent of shareholders
entitled to exercise a majority of the voting power of the Company.
Section 2. Power of Directors. Subject to the right of shareholders as
provided in Section 1 of this Article to adopt, amend or repeal Bylaws, Bylaws
may be adopted, amended or repealed by the Board of Directors as provided or
permitted by law.
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ARTICLE VIII
EMERGENCY
Section 1. "Emergency" as used in this Article means disorder,
disturbance or damage caused by war, enemy attack, other warlike acts or by
catastrophe, disaster or other similar emergency condition, which prevents the
conduct and management of the affairs and business of the Company by the Board
of Directors and officers in the manner provided for in other Articles of these
Bylaws. The powers and duties conferred and imposed by this Article, and any
resolutions adopted pursuant hereto, shall be effective only during an
emergency. This Article may be implemented from time to time by resolutions
adopted by the Board of Directors before or during an emergency, or during an
emergency by the emergency Board of Directors constituted and then acting
pursuant hereto. An emergency, once commenced, shall be deemed to continue until
terminated by resolutions adopted for that purpose by the Board of Directors.
Section 2. If, during any emergency, a quorum of the Board of Directors
is not available to serve, then, in the following order of priority, any
available director and as many other Vice Presidents (or, in case of their
inability, any other officers), in order of seniority, as may be necessary from
time to time to constitute a total of two emergency directors, shall be and
constitute the Board of Directors, and as such shall have and exercise the
fullest power of the Board of Directors for the conduct and management of the
affairs and business of the Company permitted by law, provided that such
emergency Board of Directors as so constituted shall comply to the extent
practicable under the circumstances with the provisions of ARTICLE III of these
Bylaws relating to annual and special meetings of shareholders. Any two of such
emergency directors shall constitute a quorum.
Section 3. During any emergency, the officers and employees of the
Company shall continue, so far as possible, to conduct the Company's affairs and
business under the guidance of the Board of Directors acting pursuant to this
Article and in accordance with known orders of governmental authorities.
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