Summary of Unocal's New Top Management Incentive
Compensation Program
See Unocal's Proxy document for full details.
At its March 28 meeting, the Board of Directors approved a
new Executive Stock Purchase Program subject to shareholder
approval. The program is designed to help attract and
retain senior executives and other key employees. This
program enables the company to loan senior executives funds
to purchase shares of Unocal common stock. These are full-
recourse, interest-bearing loans. Full recourse means that
the borrower is personally liable for the full amount of the
loan plus accrued interest.
Neither principal nor interest is payable for the first five
years the loans are held. At the end of the sixth year,
payments of principal must begin. Interest - at a rate of
6.8 percent - is charged annually and accrues on the loan
balance. It is anticipated that participants would sell some
of their shares in years 6, 7 and 8 to make the required
loan payments.
This program would strongly tie executive compensation to
shareholder returns. Participants enjoy the benefit of
share price increases during the loan period, but they are
responsible for the full amount of principal and interest,
even if the share price declines.
Ten participants received loans on March 16th which were
used to purchase 1,150,310 shares of common stock in the
open market at an average cost of $ 27.82.
The participants have agreed that, if the Stock Purchase
Program is not approved by the stockholders, the shares will
be sold to the company at the lesser of the purchase price,
or the fair market value at the time of resale, and the
loans will immediately become due and payable.
Participants in the Stock Purchase Program are also eligible
for cash payments under the Performance Bonus Award program.
These bonus payments are tied to the company's Comparative
Return to Stockholders, and changes to the price of the
Company's common stock over the four-year award period. The
TSR and price performance will be measured over a four-year
award period. The Performance Bonus Awards could amount to
between zero and approximately 100% of the amount of the
individual outstanding loan balance under the Stock Purchase
Program.
Participation in the stock purchase program demonstrates
senior management's confidence in and commitment to Unocal's
future prospects. It is a high-risk incentive compensation
program that has been adopted by only a handful of publicly
held companies. This concept has been endorsed by the
Institute of Shareholder Services, which makes independent
recommendations to the investment community on various proxy
proposals.
