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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Unocal Corporation
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(Name of Registrant as Specified In Its Charter)
Unocal Corporation
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
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Unocal Corporation
2141 Rosecrans Avenue, Suite 4000
El Segundo, California 90245
UNOCAL [LOGO]
April 12, 2000
Dear Stockholder:
Please accept my invitation to attend our Annual Meeting of Stockholders on
Monday, May 22, 2000. It will be held in the auditorium at the Company's
Hartley Center, 376 South Valencia Avenue in Brea, California at 10:00 A.M.
The meeting agenda is to elect four directors, ratify the appointment of
independent accountants, approve the 2000 Executive Stock Purchase Program,
approve amendments to the 1998 Management Incentive Program, and vote on one
stockholder proposal. There will be a period for questions at the end.
If you are a registered stockholder and plan to attend the Stockholders
Meeting, please mark the attendance box on your proxy card. If you are a
beneficial owner of Unocal stock held by a bank, broker or other nominee (with
your stock held in "street name"), you will need proof of ownership to be
admitted to the meeting. A recent brokerage statement or a letter from the
bank or broker are examples of proof of ownership. Stockholders will be asked
for identification for admission to the meeting.
Your vote is important. Please submit your proxy as soon as possible so that
your shares will be represented. This year, registered stockholders in the
U.S. and Canada and most "street name" holders may vote by proxy either by
mail, using the enclosed proxy card and return envelope, or by phone, using
the 800 number provided on the proxy card. Thank you very much for your
continued interest and support.
Sincerely,
/s/ R. C. Beach
Roger C. Beach
Chairman and Chief Executive Officer
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TABLE OF CONTENTS
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Page
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Invitation from the Chairman............................................ Cover
Notice of 2000 Annual Meeting of Stockholders........................... i
Proxy Statement......................................................... 1
General Information..................................................... 1
Item 1. Election of Directors........................................... 2
1999 Board Meetings..................................................... 6
Board Committee Meetings and Functions.................................. 6
Directors' Compensation................................................. 7
Security Ownership of Management........................................ 9
Section 16(a) Beneficial Ownership Reporting Compliance................. 9
Executive Compensation.................................................. 10
Report of the Management Development and Compensation Committee........ 10
Performance Graph -- Cumulative Return to Stockholders................. 14
Indebtedness of Management.............................................. 20
Security Ownership of Certain Beneficial Owners......................... 21
Item 2. Ratification of Appointment of PricewaterhouseCoopers LLP as
Independent Accountants................................................ 21
Item 3. Approval of 2000 Executive Stock Purchase Program............... 21
2000 Executive Stock Purchase Plan Program Benefits..................... 23
Item 4. Approval of Amendments to 1998 Management Incentive Program..... 25
Awards under the Management Incentive Program for 2000.................. 29
Item 5. Stockholder Proposal............................................ 32
Item 6. Other Matters................................................... 34
Stockholder Proposals for 2001 Annual Meeting........................... 34
Exhibit A: 2000 Executive Stock Purchase Program........................ A-1
Exhibit B: 1998 Management Incentive Program, as amended................ B-1
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Notice of 2000
Annual Meeting
of Stockholders
UNOCAL [LOGO]
Unocal Corporation
The Annual Meeting of Stockholders of Unocal Corporation (the "Company"), a
Delaware corporation, will be held in the auditorium at The Hartley Center,
376 South Valencia Avenue in Brea, California, on Monday, May 22, 2000, at
10:00 A.M., Pacific Daylight Time, for the following purposes:
(1) To elect four directors for three-year terms that will expire at the
annual meeting in 2003;
(2) To ratify the action of the Board of Directors in appointing
PricewaterhouseCoopers LLP as the Company's independent accountants for
2000;
(3) To approve the 2000 Executive Stock Purchase Program;
(4) To approve amendments to the 1998 Management Incentive Program;
(5) To consider and act upon the stockholder proposal described in the
accompanying Proxy Statement, if presented at the meeting; and
(6) To consider and act upon such other matters as may properly be brought
before the meeting and any adjournment thereof.
Only stockholders of record at the close of business on March 28, 2000 are
entitled to vote at the Annual Meeting and any adjournment thereof.
By Order of the Board of Directors
/s/ B. Dewez
Brigitte M. Dewez
Corporate Secretary
April 12, 2000
El Segundo, California
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Proxy Statement
[LOGO OF UNOCAL]
Unocal Corporation
2141 Rosecrans Avenue, Suite 4000
El Segundo, California 90245
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Unocal Corporation (the "Company" or
"Unocal"), a Delaware corporation, for use at the Annual Meeting of
Stockholders of the Company to be held on May 22, 2000, and any adjournment
thereof, pursuant to the notice of the meeting.
The notice of annual meeting and this proxy statement, proxy card and the
Company's 1999 Annual Report are being sent to stockholders on or about April
12, 2000.
As of February 29, 2000, the Company had 242,616,186 shares of common stock
outstanding. Only common stockholders of record on the books of the Company at
the close of business on March 28, 2000 are entitled to vote at the meeting. A
stockholder of record is entitled to one vote for each share of common stock
owned. Under Delaware law, shares voted by brokers as to discretionary matters
only and shares abstaining will be counted as present for the purpose of
determining whether there is a quorum. With regard to the election of
directors, votes that are withheld will be excluded entirely from the vote and
will have no effect. Abstentions on Item 2 (ratification of appointment of
independent accountants), Item 3 (approval of the 2000 Executive Stock
Purchase Program), Item 4 (approval of amendments to the 1998 Management
Incentive Program) and Item 5 (stockholder proposal) will have the effect of
negative votes. The New York Stock Exchange has informed the Company that only
Item 3 (approval of the 2000 Executive Stock Purchase Program) and Item 5
(stockholder proposal) are "non-discretionary." Brokers who do not receive
instructions from their clients will not have discretion to vote on Item 3 or
Item 5, and these broker "non votes" will not be counted as votes cast for
determining their outcome.
GENERAL INFORMATION
The Board of Directors is soliciting this proxy. The Company will pay the
cost of soliciting proxies. In addition to solicitation by mail, certain
directors, officers and employees of the Company and its subsidiaries may
solicit proxies by telephone, personal interview, electronic mail, facsimile
and other written communication. The Company also has retained D. F. King &
Co., Inc., New York, New York, to assist in the solicitation of proxies for a
fee estimated to be $16,000 plus reimbursement of out-of-pocket expenses. The
Board of Directors has appointed Messrs. Timothy H. Ling and Dennis P.R. Codon
as the proxy holders for the Annual Meeting.
All stockholders may vote by signing, dating and returning their proxy cards
in the enclosed pre-addressed envelope. Registered stockholders may instead
choose to vote at the meeting, or to vote by telephone, using the toll-free
number listed on the proxy card. If you are a beneficial owner of Unocal stock
held by a bank, broker or other nominee (with your stock held in "street
name"), please read your proxy card to determine whether you may vote by
telephone or electronically through the Internet, following the instructions
on the proxy card. "Street name" stockholders who wish to vote at the meeting
will need to obtain a proxy card from the institution that holds their shares.
1
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A registered stockholder who has provided a proxy may revoke it at any time
before the shares are voted at the meeting by executing a later-dated proxy,
by providing new instructions using the proxy phone system, by voting by
ballot at the meeting, or by filing an instrument of revocation with the
Inspector of Elections. The proxy tallying agent will record your vote
according to the instructions which it receives last, regardless of when you
transmitted the instructions.
The Company's general voting policy is:
Unocal's Board of Directors wishes to encourage stockholder participation
in corporate governance by ensuring the confidentiality of stockholder
votes. Therefore, the Company shall retain independent third parties to
receive and tabulate stockholder votes. The manner in which any stockholder
votes on any particular issue shall, subject to any federal or state law
requirements, be strictly confidential.
The Board of Directors considers that some registered stockholders may want
the Company to know how they have voted and the Company, where possible, may
wish to inquire as to how stockholders have voted. If you want the Company to
have access to your proxy card, you may check the box marked "OPEN BALLOT" on
the proxy card and your proxy will be made available to the Company. Your vote
will remain confidential if you do not check the "OPEN BALLOT" box.
Registered stockholders who have computer access to the World Wide Web on
the Internet and agree to receive future annual reports and proxy statements
by accessing the Company's web site should check the "Electronic Delivery" box
on the proxy card. If you check this box, we will inform you of the web
address to access these documents electronically, and we will not mail paper
copies of future annual reports and proxy statements to you unless you request
it.
ITEM 1.
ELECTION OF DIRECTORS
The Board of Directors consists of 10 directors divided into three classes.
Directors in each class are normally elected for three-year terms or until
their successors are duly elected and qualified. Four Directors have been
nominated for three-year terms expiring at the annual meeting in 2003. The
terms of the other six Directors will continue as indicated below.
If any nominee becomes unavailable or disqualified to serve as a Director,
and if the Board designates a substitute nominee, the proxy holders will vote
for the substitute nominee designated by the Board.
Information about the persons nominated for election as Directors, as well
as those Directors continuing in office, is set forth on the following pages.
Directors are elected by a plurality of the votes of the shares entitled to
vote on the election and present, in person or by proxy, at the Annual
Meeting.
The proxy holders will vote the proxies received by them FOR the four
nominees, unless authorization to vote for the election of any nominee has
been withheld.
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Nominees for Director--Terms to Expire 2003
John W. Amerman
Former Chairman of the Board & Chief Executive Officer
Mattel, Inc. (children's toys)
Age: 68
Director since 1991
Mr. Amerman served as the Chairman and Chief Executive Officer of Mattel,
Inc. from 1987 through 1996. He continued to serve as Chairman through 1997
and stepped down as a Director of Mattel in May 1998. Mr. Amerman is also a
Director of Aegis Group plc.
Roger C. Beach
Chairman and Chief Executive Officer
Unocal Corporation
Age: 63
Director since 1988
Mr. Beach has been Chairman of the Board of Unocal since 1995 and its Chief
Executive Officer since 1994. He served as President and Chief Operating
Officer of the Company from 1992 until 1994.
John W. Creighton, Jr.
Former President and Chief Executive Officer
Weyerhaeuser Company (forest products)
Age: 67
Director since 1995
Mr. Creighton was Weyerhaeuser Company's President and Chief Executive
Officer from 1991 through 1997 and a Director from 1988 through 1998. Mr.
Creighton is also a Director of UAL Corporation (United Airlines).
Kevin W. Sharer
President and Chief Operating Officer
Amgen Inc. (biotechnology)
Age: 52
Director since 1997
Mr. Sharer has been President, Chief Operating Officer and a Director of
Amgen Inc. since 1992. He will become Chief Executive Officer of Amgen in
May 2000.
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Continuing Directors--Terms to Expire 2001
Frank C. Herringer
Chairman of the Board of Directors
Combined AEGON--Transamerica operations (financial services)
Age: 57
Director since 1989
Mr. Herringer was Chairman of Transamerica Corporation from 1996, its
President and a Director from 1986, and its Chief Executive Officer from
1991 until it was acquired by AEGON N.V. in July 1999. He now serves as
Chairman of the Board of Directors of the combined AEGON--Transamerica
operations, and as a member of the Executive Board of AEGON N.V., with
responsibilities for activities in Asia and the non-insurance operations of
Transamerica. Mr. Herringer will resign as a member of the Executive Board
in May 2000, and will continue to serve as a board member of AEGON's U.S.
operations and as non-executive Chairman of Transamerica Corporation until
December 31, 2000. He is also a Director of Charles Schwab & Company, Inc.
Marina v.N. Whitman
Professor of Business Administration and Public Policy, University of Michigan
Age: 65
Director since 1993
Dr. Whitman has been a Professor at the University of Michigan since 1992.
She is also a Director of Alcoa, Inc., Procter & Gamble Company and Chase
Manhattan Corporation (formerly Chemical Banking Corporation). Dr. Whitman
also serves as a member, director or trustee of several educational and
professional organizations.
Charles R. Williamson
Executive Vice President, International Energy Operations
Unocal Corporation
Age: 51
Director since January 2000
The Board elected Mr. Williamson as a Director of Unocal Corporation
effective January 1, 2000. He became Executive Vice President,
International Energy Operations, of Unocal in March 1999. He was Group Vice
President, Asia Operations, in 1998, having previously served as Group Vice
President, International Operations, since 1996. Mr. Williamson was Vice
President, Planning and Economics, of Unocal, from 1995 to 1996.
Continuing Directors--Terms to Expire 2002
James W. Crownover
Chairman of the Board
Xpedior, Inc. (e-business professional services)
Age: 56
Director since 1998
Mr. Crownover completed a 30-year career with McKinsey & Company, Inc., at
the end of 1998. He headed that firm's regional practice in the Southwest
between 1984 and 1994. He also co-headed the energy practice for several
years and served on McKinsey's Shareholders Committee (its 20-person
elected board of directors) between 1990 and 1998. Currently, Mr. Crownover
is the Chairman of the Board of Xpedior, Inc., an e-business professional
services company. He also serves as a Director of Great Lakes Chemical
Corporation and Altra Energy Technologies.
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Timothy H. Ling
Executive Vice President, North American Energy Operations, and
Chief Financial Officer
Unocal Corporation
Age: 42
Director since January 2000
The Board elected Mr. Ling as a Director of Unocal Corporation effective
January 1, 2000. Mr. Ling joined Unocal in October 1997 as Chief Financial
Officer. He also has served as Executive Vice President, North American
Energy Operations, since March 1999. He was a partner of McKinsey &
Company, Inc. from 1994 to October 1997 and an employee of that firm from
1989 to 1994. From 1990 to 1997, Mr. Ling was a leader of the McKinsey
consulting team working with Unocal, focusing on development of its new
corporate strategies and the improvement of its asset and growth
portfolios.
Donald B. Rice
President and Chief Executive Officer
UroGenesys, Inc. (biotechnology)
Age: 60
Director since 1998
Dr. Rice has been President and Chief Executive Officer of UroGenesys, Inc.
since its founding in late 1996. From 1993 until 1996 Dr. Rice was
President and Chief Operating Officer and a Director of Teledyne, Inc. He
is also a Director of Wells Fargo & Company, Vulcan Materials Company, and
Scios Inc., where he also serves as Chairman of the Board.
5
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1999 BOARD MEETINGS
The Board of Directors held eight meetings in 1999.
BOARD COMMITTEE MEETINGS AND FUNCTIONS
The following table shows the standing committees of the Board of Directors
and their members, the number of committee meetings held during 1999 and the
functions performed by the committees.
<TABLE>
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Committee Committee Functions
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ACCOUNTING AND AUDITING* Assists the Board in fulfilling its oversight
Meetings: 6 responsibilities for the reliability of the
Company's financial reporting, including:
John W. Creighton, Jr.** disclosures that reasonably portray its
James W. Crownover financial condition, results of operations and
Marina v.N. Whitman plans and long term commitments, the adequacy of
internal operating policies and controls, and
quality and performance of the Internal Audit
Department, Comptroller group and independent
accountants.
</TABLE>
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BOARD GOVERNANCE* Recommends to the Board the composition, role,
Meetings: 4 structure and procedures of the Board and its
committees.
John W. Amerman**
Frank C. Herringer Makes recommendations to improve the
Donald B. Rice functionality and effectiveness of the Board and
Kevin W. Sharer its committees.
Identifies and presents candidates for election
as Directors of the Company in accordance with
the policy of considering qualified candidates.
Considers qualified candidates for Directors
recommended by stockholders, who may recommend
candidates by writing to the Corporate Secretary
of the Company.
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EXECUTIVE Has the powers and authority of the Board during
Meetings: 6 the periods between Board meetings, except for
those powers specifically reserved to the full
Roger C. Beach** Board by the Delaware General Corporation Law or
John W. Amerman the Company's Bylaws.
Frank C. Herringer
Donald B. Rice
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CORPORATE RESPONSIBILITY* Reviews the implementation of the Company's
Meetings: 7 Vision and Values Statement as it relates to
corporate responsibility.
Marina v.N. Whitman**
John W. Creighton, Jr. Reviews significant legal or other matters
James W. Crownover involving health, environment, safety, human
resources, community affairs and development, or
ethical conduct.
</TABLE>
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Committee Committee Functions
</TABLE>
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BOARD MANAGEMENT*** Generally had the powers and authority of the
Meetings: 2 Board during the periods between Board meetings,
except for those powers specifically reserved to
Roger C. Beach** the full Board by the Delaware General
John F. Imle, Jr. Corporation Law
and the Company's Bylaws, and subject to
approval limits established by the Board.
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MANAGEMENT DEVELOPMENT Establishes the base salaries of senior
AND COMPENSATION* officers.
Meetings: 6
Administers all management incentive
Frank C. Herringer** compensation programs.
John W. Amerman
Donald B. Rice Reviews the performance of the Chief Executive
Kevin W. Sharer Officer and succession plans for senior
management.
Reviews the responsibilities and performance of
senior officers.
(Retains an outside consultant to advise it on
these functions).
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RETIREMENT PLAN* Oversees the management of the assets of the
Meetings: 5 Company's Retirement Plan, which includes
setting investment objectives, establishing
John W. Creighton, Jr.** asset allocation strategy and supervising the
John W. Amerman selection and replacement of investment
James W. Crownover managers, consultants and trustees.
</TABLE>
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* Composed entirely of non-employee
directors
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**Serves as Chair of the Committee
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***Discontinued at the end of 1999
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DIRECTORS' COMPENSATION
Cash Compensation and Expenses
The annual retainer for each non-employee Director is $25,000. Non-employee
Directors receive $3,000 for each one-day Board meeting attended, $1,000 for
each Board committee meeting attended, and an annual retainer fee of $6,000
for chairing a committee. All directors are reimbursed for actual out-of-
pocket expenses incurred in attending meetings and Company business. Directors
who are also employees of the Company receive no additional compensation for
services as Directors.
Stock Compensation
The Directors' Restricted Stock Units Plan (the "Directors' Plan") for non-
employee Directors was approved by the Company's stockholders in 1991 for a
term of 10 years and authorizes the issuance of up to an aggregate of 300,000
shares of common stock. The Directors' Plan is administered by the Management
Committee. The Directors' Plan was amended such that, beginning with the
annual grant for 1996 and for elective deferred compensation after August 31,
1996, restricted stock units replaced restricted shares.
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Under the Directors' Plan each non-employee Director receives an annual
grant of restricted stock units equal in value to 20 percent of the Directors'
fees earned during the prior year.
The Directors' Plan also allows each non-employee Director to make an annual
election to defer all or a portion of cash fees for the following year into
restricted stock units which may ultimately be paid out in shares of common
stock. This gives non-employee Directors an opportunity to increase their
stockholdings, which further aligns the interests of the non-employee
Directors with those of other stockholders. In consideration for forgoing the
current cash compensation, the value of the restricted stock units is equal to
120 percent of the fees deferred. Six of the seven outside directors elected
to defer some or all of their 1999 cash fees into restricted stock units.
The restriction period for the restricted stock and restricted stock units
is generally five years, subject to the provisions of the Directors' Plan.
Each Director may elect to defer the receipt of his or her compensation for a
longer period of time. The restricted stock units accumulate in each
Director's account, and dividends are credited as additional restricted stock
units. At the end of the later of the restriction or deferral period for each
annual grant or annual elective deferral, shares of common stock are issued
equal to the number of accumulated restricted stock units.
Restricted stock and restricted stock units cannot be sold, transferred, or
pledged, and are subject to forfeiture during the restricted period if the
Director is dismissed for cause, refuses to stand for reelection or resigns
for a reason other than Good Cause as defined in the Plan.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the beneficial ownership of shares of the
Company's common stock as of February 29, 2000 by all Directors, named
executive officers, and all Directors and executive officers as a group.
<TABLE>
<CAPTION>
Sole Shared
Voting or Voting or Acquirable Total Restricted
Investment Investment Within 60 Beneficial Stock
Name Power Power Days(A) Ownership Units(B)
- ---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
John W. Amerman......... 7,229 7,229 8,957
Roger C. Beach.......... 65,035 70,191 326,894 462,120(C)
John W. Creighton,
Jr. ................... 1,000 1,000 11,466
James W. Crownover...... 5,000 5,000 2,969
Frank C. Herringer...... 400(D) 31,332 31,732 10,697
John F. Imle, Jr. ...... 86,726 188,063 274,789
Timothy H. Ling......... 29,588 41,250 70,838(C)
Donald B. Rice.......... 7,200 7,200 138
Lucius E. Scott, Jr. ... 29,461 54,454 83,915
Kevin W. Sharer......... 1,000 1,000 5,803
Marina v.N. Whitman..... 3,541 3,541 5,410
Charles R. Williamson... 16,482 11,291 44,270 72,043(C)
All directors and
executive officers as a
group (16 persons,
including those listed
above)(E).............. 299,742 127,243 747,198 1,174,183(C) 45,440
</TABLE>
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(A) Reflects the number of shares that could be purchased by exercise of
options exercisable on or within 60 days from February 29, 2000.
(B) Restricted stock units granted under the Directors' Restricted Stock Units
Plan. The units are evidenced by bookkeeping entries, and participants
have no voting or investment power. Each unit is converted into one share
of common stock at the end of the later of the restriction or deferral
period. For this disclosure, the units have been rounded to the nearest
whole number.
(C) Excludes shares purchased March 16 through March 23 pursuant to the 2000
Executive Stock Purchase Program. See the table on page 23 showing the
shares purchased and the description beginning on page 21 discussing the
new program. The full text of the program is attached as Exhibit A to this
proxy statement.
(D) Held by Mr. Herringer as custodian for his daughter.
(E) Shares beneficially owned by all Directors, director nominees and
executive officers as a group were less than one percent (1%) of the
common stock outstanding. No 6 1/4% Trust Convertible Preferred Securities
of Unocal Capital Trust are owned by Directors or executive officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and related Securities
and Exchange Commission rules require that Directors and executive officers
report to the Commission changes in their beneficial ownership of Unocal
stock, and that any late filings be disclosed. The Company previously filed on
behalf of Directors separate reports of their acquisition of restricted stock
units under the Directors' Restricted Stock Units Plan and of their subsequent
acquisition of shares of common stock upon vesting of the units. Although
reports were timely filed of the acquisition of units by Charles R. Weaver,
who retired from the Board in May 1999, and by Dr. Whitman, one report for
each of them showing the acquisition of shares of common stock upon vesting of
the units was filed one month late in 1999.
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EXECUTIVE COMPENSATION
REPORT OF THE MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE
This report of the Management Development and Compensation Committee of the
Board of Directors (the "Committee") describes the executive compensation
programs and policies of the Company, including its short-term and long-term
incentive compensation plans. Key elements of the compensation program are:
. Compensation Committee members are non-employees
. Salaries are based on comparisons with petroleum and energy industry
averages
. Short-term and long-term incentives are linked to stock performance
. The peer group of companies was changed for 2000 to reflect the current
business mix of the Company and changes in the petroleum industry
. Committee retains and is assisted by an outside consultant
The Committee, composed entirely of non-employee directors, is responsible
for setting and administering the annual and long-term compensation programs.
The Committee reviews and determines executive officer salaries and incentive
awards under the Management Incentive Program approved by the stockholders in
1998. The Committee is assisted by an outside consultant, and has delegated
certain administrative responsibilities with respect to salaries and incentive
awards for non-executive officers to the Chief Executive Officer ("CEO"). The
consultant and the CEO are present at Committee meetings but cannot vote. The
Committee meets outside the presence of the CEO on certain matters, including
CEO compensation and certain succession issues. The Committee met six times in
1999.
The 1998 Management Incentive Program, consisting of the Revised Incentive
Compensation Plan, the Performance Stock Option Plan and the Long-Term
Incentive Plan of 1998, was developed to reinforce the goal of creating value
for the stockholders. The Program explicitly links short-term and long-term
incentive compensation to the Company's share price and its return to
stockholders (share price appreciation plus dividends) compared to that of a
group of companies in energy and energy-related businesses (the "Peer Group").
The Peer Group is designed to have a composite business mix that is similar
to that of the Company as of the beginning of an award period. Therefore, the
effects of commodity prices and other external events should be similar for
the Company and the Peer Group. The companies comprising the Peer Group are
reviewed periodically and changed as the lines of business of these companies,
and of Unocal, change. Once the Peer Group is established for a particular
award, it is not altered. The Peer Group for 1999 Awards under the Management
Incentive Program consisted of 16 companies that as a group reflected Unocal's
lines of business following its exit from refining and marketing operations.
For 2000 Awards, three companies were added and four companies were deleted,
resulting in a Peer Group of 15 companies. These changes, in part, reflected
continuing restructuring in the petroleum industry.
It is the Committee's belief and intention that applicable executive
compensation paid or accrued in 1999 under the Management Incentive Program
will be fully deductible as performance-based compensation under the
requirements of Section 162(m) of the Internal Revenue Code.
Salary
The base salaries of the CEO and the other executive officers are reviewed
annually and when there is a significant change in the executive's
responsibilities. The Committee considers the responsibilities, experience and
performance of the executive officers and the survey data on the
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compensation paid by energy and petroleum-related companies for similar
positions. In 1999, the Committee selected a group of 12 companies to use to
compare salary and other compensation ("Compensation Peer Group"). Eleven of
these companies are also part of the Peer Group used for comparative
stockholder returns. Following such a review in 1999, the salary of the CEO
was increased to $900,000. For 2000, the Compensation Peer Group was changed
to 11 companies, as a result of acquisitions in the industry and the changing
characteristics of the Company.
The objective of the Committee is to establish base salaries that are near
the median paid by these surveyed companies in the Compensation Peer Group,
with adjustments for reporting relationships, responsibilities and job scope.
After increases to the base salary of the executive officers for 1999, the
salaries of those officers as a group and that of the CEO were at
approximately the estimated median of comparative salaries of the surveyed
companies.
Revised Incentive Compensation Plan
The Revised Incentive Compensation Plan is the Company's annual bonus plan
for senior and middle management. Each award period under the Plan is one
year. Total cash awards under the Plan are determined in part by comparing the
Company's return to stockholders with the average return to stockholders
achieved by the Peer Group.
The Committee establishes individual target awards for the CEO, the other
executive officers, and the other participants. The sum of these awards is the
target fund for the annual award period. Each target award is based on the
executive's position, responsibilities and the annual bonuses awarded by the
companies in the Compensation Peer Group.
The actual fund available for awards is established by how the Company's
return to stockholders compares to that of the Peer Group. For 1999, the
Company's return to stockholders was at the 34.2% percentile of the composite
average of the Peer Group. Based on this return, the fund available for awards
was 42% of the target fund. In order to more closely align senior management
with the stockholders, the Committee decided to grant six of the Company's
nine executive officers, including Mr. Beach, restricted stock under the Long-
Term Incentive Plan in lieu of an annual bonus. Mr. Beach received 13,950
shares.
A recipient could elect to receive up to 100 percent of the award in the
form of restricted stock. The restriction period varies between four and five
years, depending on the percentage of the award deferred. The award is
forfeited if the recipient resigns or is terminated for cause prior to the end
of the restriction period. The forfeiture provision does not apply to
participants retiring at or after age 65. Amounts deferred into restricted
stock for 1999 were augmented by up to 25 percent to compensate for the risk
of forgoing cash compensation. The Company's two executive officers receiving
an award elected to receive 100 percent of their 1999 awards as restricted
stock.
The Committee has determined that to better align senior management with
stockholders, a minimum of 50% of any awards for calendar year 2000
performance will be paid in the form of restricted stock. This portion of the
awards will be increased by 50% to compensate for forgoing cash compensation.
Any additional amounts deterred into restricted stock will be increased by
25%. Other participants will continue to be able to defer awards on an
elective basis.
The Committee reviewed the funding criteria for the Plan in 1999 and is
recommending changes that allow more flexibility in determining performance
measurements utilized for the year 2000. As noted in Item 4 beginning on page
25, the Company is recommending that the funding be based on "Net Cash
Provided by Operating Activities."
11
<PAGE>
Performance Stock Option Plan
The Performance Stock Option Plan ("PSOP") was approved by the stockholders
in 1998 as part of the 1998 Management Incentive Program. The options under
the PSOP must have an exercise price at least 25% above the fair market price
at the date of grant. No person may acquire more than 750,000 shares of common
stock out of the total of 3,500,000 shares available under the PSOP.
Initial awards of 3,000,000 shares under the PSOP were made in 1998,
including 750,000 to Mr. Beach, with an exercise price of $51.012 per share.
In order for the options to become exercisable after the three year
performance period ending March 30, 2001 either (i) the fair market value of
the shares must be greater than $51.012 for 10 consecutive trading days
(during a 20 consecutive trading day period) or (ii) the Company's Comparative
Return to Stockholders must be in the top quartile of the Peer Group for the
performance period. The term of the options is ten years. If neither condition
is met during the three-year performance period, the options are forfeited. As
of March 16, 2000 the performance conditions had not been satisfied and the
Company was near the mean of the Peer Group.
Long-Term Incentive Plan
The Long-Term Incentive Plan of 1998 (the "1998 Plan") is administered by
the Committee. Awards may be in the form of non-qualified stock options,
performance shares and restricted stock. For each type of award, compensation
is linked to the performance of the Company's common stock and increases in
stockholder value. The previous plan, The Long-Term Incentive Plan of 1991
(the "1991 Plan"), also provided for grants of non-qualified stock options,
performance shares and restricted stock.
In 1996, the Committee awarded a target number of performance share units to
the CEO and certain other of the executive officers for the 1996 through 1999
performance period under the 1991 Plan. Each unit is the equivalent of one
share of the Company's common stock. The target awards are dependent on the
executive's level of responsibility and base compensation. Mr. Beach's target
was 20,000 units.
The actual payout of awards at the end of the four-year performance period
is determined by how the Company's return to stockholders for the period
compares to that of the Peer Group. The maximum percentage of the award that
can be paid out is 200 percent. During the 1996 to 1999 performance period,
the Company's average annual return to stockholders was slightly below that of
the Peer Group. Therefore, for that performance period, 91 percent of the
target number of performance shares was paid out to the participants,
including the CEO. These payouts were made one-half in cash and one-half in
shares of Company stock.
Grants of non-qualified stock options were made to certain executive
officers. Under the terms of the PSOP, executives receiving performance stock
options are not eligible for other stock option grants in the years 1998, 1999
and 2000. Option grants are normally made in March. Prior option grants are
not considered in making these awards. Currently, the only numerical
restrictions on grants are the total number of shares available under the 1998
Plan and the limitation that no person may be granted during any 12-month
period options to acquire more then 100,000 shares. The option exercise price
under the 1998 Plan is the fair market value on the date of grant. Exercise of
the option results in compensation to the employee only if the fair market
value on the date of exercise exceeds the price on the date granted.
The number of options granted to the executive officers is determined by
reviewing option grants for similar positions by the surveyed companies. The
compensation value of the option grants to the executive officers as a group
is also compared to option grants and compensation data available from the
proxy statements of other large public companies. Since the total number of
shares available under the 1998 Plan and the PSOP is less than five percent of
the outstanding shares, individual grants
12
<PAGE>
during the term of the 1998 Plan were not of such magnitude as to warrant
review of possible dilutive effects on the Company's stock.
As described above, Unocal aligns management and stockholder interests by
linking executive incentive compensation programs directly to share price and
the creation of stockholder value. The Long-Term Incentive Plan of 1998 also
provides for grants of restricted stock to executives, managers and technical
employees whose performance and potential is exceptional. During the
restriction period, the award is forfeited if the recipient resigns or is
removed for cause prior to the end of the restriction period. In addition, the
Company has incentive programs for other employees that focus on real
contributions to the success of the Company and its stockholders, including an
Annual Incentive Plan, Chairman's Awards and Special Recognition Awards.
Management Development
and Compensation Committee
of the Board of Directors
John W. Amerman
Frank C. Herringer
Donald B. Rice
Kevin W. Sharer
13
<PAGE>
PERFORMANCE GRAPH
CUMULATIVE RETURN TO STOCKHOLDERS*
December 31, 1994 to December 31, 1999
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG UNOCAL, S&P EXPLORATION & PRODUCTION AND S&P 500
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
S&P
Measurement Period EXPLORATION
(Fiscal Year Covered) UNOCAL & PRODUCTION S&P 500
- --------------------- ---------- ------------ -------
<S> <C> <C> <C>
Measurement Pt- 1994 $100 $100 $100
FYE 1995 $110 $117 $138
FYE 1996 $158 $157 $169
FYE 1997 $153 $144 $226
FYE 1998 $118 $ 98 $290
FYE 1999 $138 $117 $351
</TABLE>
*Share price changes plus reinvested dividends.
NOTE: The S&P Oil & Gas Exploration & Production Index consists of Unocal and
five other companies, which are also included in the Peer Group of
companies used to compare Unocal's stockholder return for incentive
compensation purposes, as explained in the Report of the Management
Development and Compensation Committee beginning on page 10.
The preceding Report of the Management Development and Compensation
Committee and Performance Graph shall not be deemed incorporated by reference
into any filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, notwithstanding any general incorporation by reference of this
Proxy Statement into any other document or its inclusion as an exhibit
thereto.
14
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
----------------------------------- ------------------------------------------
Awards Payouts
--------------------------- -------------
Other
Annual Restricted Securities
Compensation Stock Underlying All Other
Name and Salary Bonus (Dollars) Awards Options/SARs LTIP Payouts Compensation
Principal Position Year (Dollars) (Dollars) (A) (Dollars) (B) (Number) (Dollars) (C) (Dollars)
------------------ ---- --------- ---------- ------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Roger C. Beach.......... 1999 $873,336 $413,269(D) $191,591(E) None None $616,366 $ 61,288(F)
Chief Executive Officer 1998 848,339 237,450(G) 11,696 $263,513(H) 750,000(I) 564,171 57,974(J)
1997 796,672 188,442(G) 4,587 225,615(H) 54,000 548,616 49,136(K)
John F. Imle, Jr. ...... 1999 525,000 None 41,081 120,544(H) None 289,692 2,183,872(M)
Vice Chairman (L) 1998 516,668 96,650(G) 84,588 107,260(H) 400,000(I) 282,085 119,520(N)
1997 485,936 76,138(G) 66,943 91,182(H) 29,800 352,649 114,679(O)
Timothy H. Ling......... 1999 452,500 165,308(D) 5,264 522,813 None None 39,464(P)
Executive Vice
President, 1998 396,668 95,000(G) 5,937 106,573(H) 350,000(I) None 20,847(Q)
North American Energy 1997 80,607 None None 35,919(H) 55,000 None None
Operations, and Chief
Financial Officer
Charles R. Williamson... 1999 348,336 137,756(D) 5,465 None None 104,782 22,127(R)
Executive Vice
President, 1998 291,668 55,000(G) 4,943 61,697(H) 300,000(I) 87,446 18,170(S)
International Energy 1997 265,336 59,500(G) 4,833 30,537(H) 11,600 106,174 15,920(T)
Operations
Lucius E. Scott, Jr. ... 1999 313,340 66,123(D) 549 None None 154,092 20,134(U)
Group Vice President, 1998 306,672 45,000(G) 750 50,493(H) 300,000(I) 126,938 19,186(V)
Diversified Business
Group 1997 283,200 48,000(G) 618 52,439(W) 11,600 128,825 16,992(X)
</TABLE>
- -------
(A) Except for compensation reported for Mr. Beach for 1999, this column
excludes perquisites because their value did not meet the reporting
threshold of the lesser of $50,000 or 10 percent of salary plus bonus.
(B) Aggregate restricted stockholdings at year-end 1999 and value (based on
closing market price on December 31, 1999): Mr. Beach 41,711 shares,
$1,399,925; Mr. Imle 14,932 shares, $501,155; Mr. Ling 22,026 shares,
$739,248; Mr. Williamson 6,381 shares, $214,162 and Mr. Scott 6,706
shares, $225,070. Restricted stock granted on January 24, 2000: Mr. Beach
13,950 shares; Mr. Ling 5,580 shares; Mr. Williamson 4,650 shares; and Mr.
Scott 2,232 shares. The value of the restricted stock granted on January
24, 2000 is shown in the "Bonus" column of this table. See footnote D.
Dividends are paid on restricted stock.
(C) Represents payout of performance share units under the Long-Term Incentive
Plan of 1991. The dollar values listed were paid one-half in cash and one-
half in shares of Unocal common stock.
(D) Amount shown is the value of restricted stock awarded under the Long-Term
Incentive Plan of 1998 in lieu of an annual bonus. The shares were valued
for this disclosure using the closing price of Unocal common stock as
reported on the New York Stock Exchange Composite Transactions Quotations
on January 24, 2000, the date of grant.
(E) Includes $150,837 for relocation assistance and payment of taxes on the
assistance.
(F) Amount consists of Company contributions of $9,600 allocated to the Unocal
Savings Plan and $49,798 allocated to the Unocal Supplemental Savings
Plan; and $1,890 reportable accumulated interest on deferred cash bonuses.
(G) Amounts consist of cash payments and deferred cash payments made under the
Revised Incentive Compensation Plan. Amounts deferred into restricted
stock under the Revised Incentive Compensation Plan appear in the
"Restricted Stock Awards" column. See also Footnote H.
(H) Represents the value of a restricted stock award elected in lieu of all or
a portion of a cash bonus payment under the Revised Incentive Compensation
Plan. Amounts deferred into restricted stock for 1997 and 1998 were
augmented by 20%, and the amount deferred into restricted stock for 1999
was augmented by 25%, to compensate for the risk of forfeiture and to
promote management stock ownership. The number of
(Footnotes continued on following page)
15
<PAGE>
restricted shares was determined by using the average closing price of
Unocal common stock during the last 30 trading days of the year. Valuation
for purposes of this disclosure is based on the closing market price on
the date of the award.
(I) Performance stock options granted at the option price of $51.012 in tandem
with limited stock appreciation rights ("TLSARs"). Employees who received
performance stock options did not receive grants of stock options in 1999
and will not receive grants of stock options in 2000. The $51.012 exercise
price of the options is a price 33 1/3% above the average fair market
value of Unocal's common stock during the period from January 26, 1998 to
May 29, 1998. The options become exercisable on March 30, 2001 only if
either of the following vesting conditions is met: (a) the fair market
value of the Company's common stock is equal to or greater than the option
exercise price for ten trading days (occurring within any period of 20
consecutive trading days) during the period March 30, 1998 through March
30, 2001, or (b) the Comparative Return to Stockholders (as defined in the
Performance Stock Option Plan) places the Company in the top quartile
(75th percentile or above) of the peer group companies during the period
March 30, 1998 through March 30, 2001, as determined by the Management
Development and Compensation Committee. If neither of the vesting
conditions is met, the options will not become exercisable. TLSARs were
granted for a number of shares of common stock equal to .53 times the
number of shares of common stock granted under the related performance
stock option. The grant price for the TLSARs was $38.6875 (the fair market
value of the common stock on the date of grant). The TLSARs become fully
vested and payable only upon a "Conversion Date" following certain "Change
in Control Events," as defined in the Performance Stock Option Plan. Each
TLSAR will terminate on a ratable basis when the related performance stock
option is exercised, terminated or forfeited.
(J) Amount consists of Company contributions of $9,600 allocated to the Unocal
Savings Plan and $45,788 allocated to the Unocal Supplemental Savings
Plan; and $2,586 reportable accumulated interest on deferred cash bonuses.
(K) Amount consists of Company contributions of $9,500 allocated to the Unocal
Savings Plan and $38,300 allocated to the Unocal Supplemental Savings
Plan; and $1,336 reportable accumulated interest on a deferred cash bonus.
(L) Mr. Imle served as Vice Chairman until his resignation, effective December
31, 1999. He will serve as a consulting employee of the Company through
March 31, 2001.
(M) Amount consists of a severerance payment of $2,105,325 under the
Termination and Employment Agreement and Release (described under the
caption "Employment Contracts, Termination of Employment and Change of
Control Agreements" on page 19); a disruption allowance of $42,500;
Company contributions of $9,600 allocated to the Unocal Savings Plan and
$25,414 allocated to the Supplemental Savings Plan; and $1,033 reportable
accumulated interest on deferred cash bonuses.
(N) Amount consists of a disruption allowance of $85,000; Company
contributions of $9,600 allocated to the Unocal Savings Plan and $23,604
allocated to the Unocal Supplemental Savings Plan; and $1,316 reportable
accumulated interest on deferred cash bonuses.
(O) Amount consists of a disruption allowance of $85,000; Company
contributions of $9,500 allocated to the Unocal Savings Plan and $19,656
allocated to the Unocal Supplemental Savings Plan; and $523 reportable
accumulated interest on a deferred cash bonus.
(P) Amount consists of $6,075 Company contributions allocated to the Unocal
Savings Plan and $33,139 allocated to the Unocal Supplemental Savings
Plan; and $250 reportable accumulated interest on deferred cash bonuses.
(Q) Amount consists of $6,200 Company contributions allocated to the Unocal
Savings Plan and $14,552 allocated to the Unocal Supplemental Savings
Plan; and $95 reportable accumulated interest on a deferred cash bonus.
16
<PAGE>
(R) Amount consists of $9,600 Company contributions allocated to the Unocal
Savings Plan and $12,527 allocated to the Unocal Supplemental Savings
Plan.
(S) Amount consists of $9,600 Company contributions allocated to the Unocal
Savings Plan and $8,570 allocated to the Unocal Supplemental Savings Plan.
(T) Amount consists of $9,500 Company contributions to the Unocal Savings Plan
and $6,420 allocated to the Unocal Supplemental Savings Plan.
(U) Amount consists of $9,600 Company contributions allocated to the Unocal
Savings Plan and $10,534 allocated to the Unocal Supplemental Savings
Plan.
(V) Amount consists of $9,600 Company contributions allocated to the Unocal
Savings Plan and $9,586 allocated to the Unocal Supplemental Savings Plan.
(W) Represents the value of a restricted stock award elected in lieu of all or
a portion of a cash bonus payment under the Revised Incentive Compensation
Plan (see Footnote H) and the value of restricted stock received from the
exercise of stock options with restrictions under the Long-Term Incentive
Plan of 1985.
(X) Amount consists of $9,500 Company contributions allocated to the Unocal
Savings Plan and $7,492 allocated to the Unocal Supplemental Savings Plan.
AGGREGATED OPTION/SAR EXERCISES IN 1999
AND DECEMBER 31, 1999 OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised in-the-
Shares Underlying Unexercised Money Options/SARs at
Acquired on Value Options/SARs at 12/31/99 12/31/99 (Dollars) (A)
Exercise Realized ----------------------------- ----------------------------------
Name (Number) (Dollars) Exercisable Unexercisable (B) Exercisable Unexercisable
---- ----------- --------- ----------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Beach............... 21,299 $254,257 313,394 763,500 $ 1,339,155 $ 0
Mr. Imle................ 45,807 536,700 180,613 407,450 987,076 0
Mr. Ling................ None None 41,250 363,750 0 0
Mr. Williamson.......... None None 41,370 302,900 171,310 0
Mr. Scott............... None None 51,554 302,900 171,710 0
</TABLE>
- --------
(A) The price of $33.5625, which was the closing price of Unocal common stock
as reported in the New York Stock Exchange Composite Transaction
quotations for December 31, 1999, was used to value options.
(B) Tandem Limited Stock Appreciation Rights ("TSLARs") were granted with
performance stock options included in this column. The number of
securities underlying the performance stock options are: Mr. Beach,
750,000; Mr. Imle, 400,000; Mr. Ling, 350,000; Mr. Scott, 300,000; and Mr.
Williamson, 300,000. The TSLARs become fully vested and payable on a
"Conversion Date" following certain "Change in Control Events" as defined
in the Performance Stock Option Plan. See also Footnote I to the "Summary
Compensation Table" on page 16.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1999
<TABLE>
<CAPTION>
Estimated Future Payouts (A)
--------------------------------
Performance Period Threshold Target Maximum
Share Units Until Maturation Number of Number of Number of
Name (Number) (A) or Payout Shares Shares Shares
---- ------------ ---------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Mr. Beach............... 30,000 12/31/2002 0 30,000 60,000
Mr. Imle................ 9,000 12/31/2002 0 5,057 (B) 10,114 (B)
Mr. Ling................ 8,000 12/31/2002 0 8,000 16,000
Mr. Williamson.......... 5,000 12/31/2002 0 5,000 10,000
Mr. Scott............... 4,500 12/31/2002 0 4,500 9,000
</TABLE>
- --------
(A) The actual number of performance shares paid out is based on the Company's
return to stockholders for the four-year performance period compared to
that of the Peer Group selected
(footnotes continued on following page)
17
<PAGE>
by the Management Development and Compensation Committee as described in its
Report beginning on page 10. The payout percentage will be determined by
Unocal's relative ranking among the Peer Group and will range from 0% to a
maximum of 200%. Under the formula, if the Company's percentage ranking is
30% or less, the payout percentage will be 0%; if the Company's ranking is
60%, the payout percentage will be 100%; and if the Company's ranking is
100%, the payout percentage will be 200%. In the case of percentile rankings
falling between more than 30% and less than 100%, payouts will be determined
using straight-line interpolation. Awards are subject to downward adjustment
by the Management Development and Compensation Committee. Return to
stockholders is calculating using share price appreciation plus reinvested
dividends. Awards paid out through 1999 have been paid out one-half in cash
and one-half in shares of common stock.
(B) Mr. Imle's performance shares have been prorated for expected length of
employment during the four-year performance period. His employment will
terminate on March 31, 2001 pursuant to a Termination and Employment
Agreement and Release, described further under the caption "Employment
Contracts, Termination of Employment and Change of Control Arrangements" on
page 19.
PENSION PLAN TABLE
ESTIMATED ANNUAL RETIREMENT BENEFITS
<TABLE>
<CAPTION>
Covered
Compensation
(A) 10 20 25 30 35 40
- ------------ -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
200,000 $ 32,000 $ 64,000 $ 80,000 $ 96,000 $ 112,000 $ 128,000
400,000 64,000 128,000 160,000 192,000 224,000 256,000
600,000 96,000 192,000 240,000 288,000 336,000 384,000
800,000 128,000 256,000 320,000 384,000 448,000 512,000
1,000,000 160,000 320,000 400,000 480,000 560,000 640,000
1,200,000 192,000 384,000 480,000 576,000 672,000 768,000
1,400,000 224,000 448,000 560,000 672,000 784,000 896,000
1,600,000 256,000 512,000 640,000 768,000 896,000 1,024,000
1,800,000 288,000 576,000 720,000 864,000 1,008,000 1,152,000
</TABLE>
- --------
(A) Covered compensation is the annual average compensation in the three
highest-paid years out of the last ten years preceding retirement. For the
named executive officers in the Summary Compensation Table on page 15,
covered compensation equals the amounts in the Salary and Bonus columns
(except amounts shown as bonus for 1999) of the Summary Compensation Table
and the amount of bonus that the participant elected to defer in restricted
stock.
The Company has a noncontributory defined benefit retirement plan covering
substantially all U.S. employees. The plan provides participants with
retirement benefits based on a formula relating such benefits to compensation
and years of service, less up to half of the estimated old age Social Security
benefit payable. The amount of these benefits is limited by the Employee
Retirement Income Security Act of 1974 and the Internal Revenue Code. Where
that occurs, the Company has a retirement supplement designed to maintain total
retirement benefits at the retirement plan formula level. This Pension Plan
Table, which covers all persons named in the Summary Compensation Table, shows
the estimated annual benefits from the these plans, before the deduction for a
portion of the estimated old age Social Security benefit, as described above.
The benefits shown are payable in the form of a straight life annuity.
Covered compensation and credited full years of service under the retirement
plan as of year-end 1999 for the executive officers named in the Summary
Compensation Table are as follows: $1,422,377 and 38 years for Mr. Beach;
$761,368 and 33 years for Mr. Imle; $393,258 and 2 years for Mr. Ling; $416,780
and 22 years for Mr. Williamson; and $421,071 and 35 years for Mr. Scott.
18
<PAGE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
The Company has employment agreements with Messrs. Beach, Williamson and
Scott. For Mr. Beach and Mr. Williamson, the agreements are effective for
three years from the later of July 28, 1998 and March 27, 2000, respectively,
or the date that the Company gives notice that it does not wish to further
extend the term, but in no event later than the date of the Company's annual
meeting following the employee's 65th birthday. For Mr. Scott, the agreement
is effective for two years from the later of July 28, 1998, or the date that
the Company notifies him that it does not wish to further extend the term, but
in no event later than the date of the Company's annual meeting following his
65th birthday. The agreements provide for certain benefits following an
employment termination without cause or following an alteration of the
employee's employment situation, as defined in the agreements (together, a
"Termination Without Cause"). For each of Messrs. Beach and Williamson, these
benefits include payments of 3.18 times his annual salary plus three times his
target bonus applicable as of the beginning of the calendar year in which such
Termination Without Cause occurs, as well as continuation of medical, dental,
life and disability insurance coverage for three years following the
Termination Without Cause. For Mr. Scott, these benefits include payments of
2.12 times his annual salary plus two times his target bonus applicable as of
the beginning of the calendar year in which such Termination Without Cause
occurs, as well as continuation of medical, dental, life and disability
insurance coverage for two years following the Termination Without Cause. The
employment agreements with Mssrs. Beach and Williamson provide that if the
Terminaion Without Cause occurs within 36 months after a change of control,
the amounts payable under the agreements will be subject to a present value
reduction and a reduction to offset any compensation earned by them during the
three years immediately following the Termination Without Cause. Mr. Scott's
employment agreement provides that if the Termination Without Cause occurs
within 24 months after a change of control, the amounts payable under the
agreement will be subject to a present value reduction and a reduction to
offset any compensation earned by him during the two years immediately
following the Termination Without Cause. In each case, the employee is
entitled to an additional payment (a "Gross-Up Payment") if any payment under
the agreement would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code (the "Excise Tax") such that the employee retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed. If
distributions and payments to be made by the Company do not exceed 110% of the
greatest amount (the "Reduced Amount") that could be paid to the employee,
such that the receipt of payments would not give rise to any Excise tax, then
no Gross-Up Payment will be made to the employee and the payments will be
reduced to the Reduced Amount. The agreements, together with the February 28,
2000 amendments thereto, for Messrs. Beach and Scott were filed with the
Securities and Exchange Commission as exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1999 (the "1999 Form 10-K"). The
agreement for Mr. Williamson was filed as an exhibit to the the Company's
Current Report on Form 8-K dated March 16, 2000.
The Company had an employment agreement with Mr. Imle, who served as Vice
Chairman until December 31, 1999. The employment agreement was effective
starting July 28, 1998 with the same provisions as the agreement with Mr.
Beach described above prior to its amendment. The employment agreement with
Mr. Imle was filed as an exhibit to the Company's Quarterly Report on Form 10-
Q for the quarter ended June 30, 1998. Pursuant to a Termination and
Employment Agreement and Release, effective September 11, 1999, Mr. Imle
received a severance payment in the amount of $2,215,575 in full satisfaction
of all rights, benefits and payments under his employment agreement. The
Termination and Employment Agreement and Release was filed as an exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1999. Mr. Imle will continue as a consulting employee through March 31,
2001 at a salary of $525,000 for 2000, and $65,625 for the three months in
2001.
19
<PAGE>
The Company has a change in control agreement with Mr. Ling that is
effective for three years from the later of July 28, 1998 or for three years
following the day the Company gives notice that it does not wish to further
extend the term. The agreement was amended on February 28, 2000, to provide
that in the event of a Termination Without Cause within 36 months following a
Change of Control (as defined in the agreement) that occurred during the term
of the agreement, Mr. Ling will be entitled to the same benefits as provided
in the employment agreement for Mr. Beach described above, except that
payments under Mr. Ling's agreement are not subject to reduction for
compensation earned by him during the three years immediately following his
Termination Without Cause. The agreement, together with the February 28, 2000
amendment thereto, was filed as an exhibit to the 1999 Form 10-K.
The Management Development and Compensation Committee has authorized the
automatic accelerated vesting of restricted stock, the vesting of unvested
options, and the payment of performance shares to the named executive officers
in the Summary Compensation Table in the event of a change in control. Tandem
Limited Stock Appreciation Rights awarded to those executive officers in
combination with performance stock options become fully vested and payable on
a "Conversion Date" following certain "Change in Control Events" as defined in
the Performance Stock Option Plan. See footnote I to the "Summary Compensation
Table" on page 16 for more information regarding the stock appreciation
rights.
INDEBTEDNESS OF MANAGEMENT
Pursuant to agreements dated March 16, 2000, the Company has made loans to
ten officers, including four executive officers, totaling $32 million for the
purchase of Unocal common stock under the 2000 Executive Stock Purchase
Program. Item 3 of this Proxy Statement, beginning on page 21, provides
details regarding the loans.The loan agreements and related promissory notes
were filed as exhibits to the Company's Current Report on Form 8-K dated March
16, 2000.
20
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of December 31, 1999, the following entity was known by the Company to
own beneficially more than five percent of the Company's common stock.
<TABLE>
<CAPTION>
Amount and Nature Percent of
Name and Address of Beneficial Owner of Beneficial Ownership Class
- ------------------------------------ ----------------------- ----------
<S> <C> <C>
Capital Research and Management Company..... 19,744,150 (A) 8.1
333 South Hope Street
Los Angeles, California 90071
</TABLE>
- --------
(A) Based on a Schedule 13G dated February 10, 2000, Capital Research and
Management Company beneficially owned all of the 19,744,150 shares as a
result of acting as investment advisor to various investment companies.
This number included 1,750,450 shares resulting from the assumed
conversion of 1,490,000 6 1/4% Trust Convertible Preferred Securities of
Unocal Capital Trust. Capital Research and Management Company had the sole
power to dispose of or to direct the disposition of all these shares.
Capital Research and Management Company does not have voting power over
any of the shares, which is held by the investment companies.
ITEM 2.
RATIFICATION OF APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS
The stockholders will be asked to ratify the appointment of the firm of
PricewaterhouseCoopers LLP as independent accountants for 2000. This
appointment was made by the Board of Directors on the recommendation of its
Accounting and Auditing Committee.
PricewaterhouseCoopers LLP, one of the nation's largest public accounting
firms, or one of its predecessors, has served as the Company's independent
accountants for the past 55 years. Representatives of the firm are expected to
be present at the Annual Meeting and will have the opportunity to make a
statement if so desired and will be available to respond to questions.
The affirmative vote of a majority of the shares present in person or by
proxy at the meeting, and entitled to vote on this item, is required for
ratification of the appointment.
The Board of Directors unanimously recommends a vote FOR ratification of the
appointment of PricewaterhouseCoopers LLP as independent accountants for 2000.
The proxy holders will vote all proxies received FOR ratification unless
instructed otherwise.
ITEM 3.
APPROVAL OF 2000 EXECUTIVE STOCK PURCHASE PROGRAM
The Board of Directors, with Messrs. Beach, Ling and Williamson abstaining,
upon the recommendation of the Management Development and Compensation
Committee (the "Committee"), has adopted a new 2000 Executive Stock Purchase
Program (the "Stock Purchase Program") in order to attract and retain senior
executives and other key employees of the Company and its subsidiaries, and is
submitting the Stock Purchase Program for stockholder approval. The Stock
Purchase Program is administered by the Committee, which is comprised entirely
of non-employee directors.
This proposal requests, and the Board of Directors recommends, stockholder
approval of the Stock Purchase Program. If this proposal is not approved by
the stockholders, the Company will discontinue the Stock Purchase Program (see
page 23) and will continue to make other awards under the Management Incentive
Program, and consider other compensation arrangements in order to retain its
senior executives and other key employees.
21
<PAGE>
The following summary of the material terms of the Stock Purchase Program is
qualified in its entirety by reference to the full text of the Stock Purchase
Program, which is attached to this proxy statement as Exhibit A.
Background
The Stock Purchase Program provides that the Company may loan to senior
management selected by the Committee funds to purchase shares of the Company's
common stock. In the discretion of the Committee, such purchases may be either
open market purchases or purchases directly from the Company. Each loan (a
"Loan" or "Loans") will be for 100% of the purchase price, including
commissions, if any, will be full-recourse and will be interest-bearing.
Participants who purchase common stock also will be eligible to receive
Performance Bonus Awards under the Long-Term Incentive Plan of 1998 (which is
part of the Management Incentive Program, as amended) which will be paid out
in cash upon satisfaction of certain performance and other criteria. Details
of Performance Bonus Awards are explained in Item 4 (page 28) and in Exhibit B
of this proxy statement.
Purpose of the Stock Purchase Program
The Stock Purchase Program incorporates an important element of investment
risk that generally is not found in other executive incentive plans because
participants in the Stock Purchase Program share in both the upside and
downside potential inherent in stock ownership by purchasing a substantial
amount of common stock of the Company using full-recourse loans. The Program
is thus designed to promote the long-term growth and financial success of the
Company by strengthening the financial links between the Company's senior
management and stockholders.
Awards
Participants selected by the Committee are afforded the opportunity to have
the Company loan them amounts which are to be utilized to purchase shares of
common stock of the Company ("Awards") on a specified date or dates (the
"Purchase Date") either, in the discretion of the Committee, in the open
market or directly from the Company. The purchase price of shares acquired
from the Company will be the average of the high and low sales prices for the
common stock as reported on the New York Stock Exchange Composite Transactions
on the Purchase Date if from the Company, or the actual purchase price if on
the open market. The maximum number of shares which may be purchased under the
Stock Purchase Program is 1,750,000 and the maximum number of shares which may
be purchased by any participant is 200,000, subject to proportionate
adjustment in the event of a stock split, stock dividend, or other change in
capitalization.
Company Loans
Each Loan that is part of an Award is for the entire purchase price of the
common stock, including commissions, if any, is full recourse and is interest-
bearing. A full-recourse loan requires the borrower to be personally liable
for the full amount of the loan, regardless of the ultimate value of the
shares purchased with the proceeds of the loan. Principal on the Loans is not
payable until the fifth anniversary of the Purchase Date. After five years,
there will be three equal annual payments of principal plus accrued and unpaid
interest. The Loans will accrue interest at the "applicable federal rate" (as
determined by Section 1274(d) of the Internal Revenue Code) on the Purchase
Date for loans of such maturity, compounded quarterly. Until the fifth
anniversary of the Purchase Date, interest on the Loans is payable only in an
amount equal to any cash dividends paid on the shares of common stock
purchased pursuant to an Award. Any interest unpaid is added to the principal
and becomes payable commencing on the sixth anniversary of the Purchase Date.
The Loans will not be secured by the shares of common stock purchased or any
other collateral.
22
<PAGE>
In the event a participant terminates his or her employment with the Company
voluntarily (including through early retirement) or is terminated by the
Company for cause, the Loan must be repaid within 60 days of the termination.
In the event a participant dies or is disabled, the Loan will continue to
maturity and if the outstanding balance on the Loan, increased by the amount
of any prior payments of principal on the Loan, is greater than the sum of (1)
the then fair market value of the shares of common stock purchased plus (2)
the amount of the Performance Bonus Award payout (see page 28) for the
performance period ending on December 31, 2003, plus (3) an amount equal to
the amount of interest that would have accrued on such payout had it been
invested and earned the same rate of interest as that accrued on the Loan from
December 31, 2003 until the applicable date of repayment, then the Company
will forgive the Loan to the extent of such excess.
2000 EXECUTIVE STOCK PURCHASE PROGRAM BENEFITS
As set forth in the following table, ten participants, including the Chief
Executive Officer and three other executive officers, received Loans on March
16, 2000, which were utilized to purchase 1,150,310 shares of common stock in
the open market during the period March 16 to 23, 2000, at an average cost,
including commissions, of $27.82. This leaves 599,690 shares of common stock
available for future Awards.
<TABLE>
<CAPTION>
Number of Shares
Name and Principal Positions Loan Amount Purchased
---------------------------- ----------- ----------------
<S> <C> <C>
Roger Beach....................................... $ 5,000,000 179,736
Chairman of the Board and Chief Executive Officer
Timothy H. Ling................................... $ 5,000,000 179,736
Chief Financial Officer and Executive Vice
President, North American Energy Operations
Charles R. Williamson............................. $ 5,000,000 179,736
Executive Vice President, International Energy
Operations
Dennis P.R. Codon................................. $ 2,500,000 89,868
Vice President, Chief Legal Officer and General
Counsel
Executive officers as a group..................... $17,500,000 629,076
(Total of those listed above)
All other officers (six persons).................. $14,500,000 521,234
</TABLE>
All Loans bear interest at the rate of 6.8 % per annum (the "applicable
federal rate" for March 16, 2000), mature on March 16, 2008, and have the
other terms described under "Company Loans" above.
The Company and the participants have agreed that, if the Stock Purchase
Program is not approved by the stockholders, the shares listed above will be
sold to the Company for the lesser of the purchase price or their fair market
value at the time of the resale, and the Loans will become immediately due and
payable.
Accounting Aspects
For financial accounting purposes, a charge to earnings will be made for any
excess of the market price on May 22, 2000 (assuming the Stock Purchase
Program is approved by the stockholders on that date) over the purchase price
of the shares. In addition, the accrued interest on the Loans (whether or not
payable at such time) will be credited to the Company's earnings each quarter.
General Provisions
The Stock Purchase Program will terminate on December 31, 2003, provided
that Loans outstanding on that date will not be affected or impaired by such
termination.
23
<PAGE>
The Board of Directors may at any time amend, suspend or terminate the Stock
Purchase Program prior to December 31, 2003; provided that no amendment,
suspension or termination may, without the consent of the participant,
adversely affect a participant's rights in any material respect; and provided
further that, without stockholder approval, no amendment may (1) increase the
maximum number of shares of common stock which may be purchased, (2) permit a
purchase of shares for less than fair market value, or (3) extend the
termination date of the Stock Purchase Program.
Certain Federal Income Tax Consequences
The following is a summary of the material tax consequences of the Stock
Purchase Program to the Company and to the participants, based upon the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
thereunder, administrative rulings and court decisions as of the date of this
proxy statement.
. Tax Consequences to Participants
Participants who are subject to Section 16(b) of the Securities Exchange Act
of 1934 could be taxed at ordinary income rates on the excess of the fair
market value of the shares of common stock they purchase (the "Program
Shares") six months after the purchase date (when the Section 16(b)
restrictions lapse) over the amount paid for such Program Shares. However,
within 30 days after purchasing Program Shares, participants may make an
election under Section 83(b) of the Code to be taxed on the difference between
the fair market value of the Program Shares and the purchase price on the date
of purchase. If a participant makes such an election, no tax should be due on
the purchase because the purchase price is designed to equal the fair market
value of the Program Shares on the date of purchase. The following discussion
assumes that the affected participants will each make the election under
Section 83(b) of the Code.
Any dividends or distributions on the Program Shares will be includable in
the participants' income to the extent made out of the Company's earnings and
profits, but such income will be offset by a corresponding payment on the Loan
to the extent of accrued interest. When the Program Shares are sold, the sale
will result in capital gain or loss measured by the difference between the
amount paid for the Program Shares when purchased by the participant and the
amount realized upon sale. Such capital gain or loss will be long-term if the
participant held the Program Shares for over a year. The participants will
generally be able to deduct the interest that accrues on the Loans subject to
the limitations described below.
The interest on the Loans will be "investment interest" and therefore may be
deducted only to the extent of each participant's net investment income,
including investment income relating to other investments (i.e., the excess of
investment income, including dividends and income from the disposition of
property held for investment, over expenses directly connected with the
production of such income). Investment interest that is not deducted can be
carried forward indefinitely. When the Program Shares are sold, investment
interest that has been carried forward may be used to offset any gain realized
on such sale.
. Tax Consequences to the Company
Assuming that the participants make a timely election under Section 83(b) of
the Code, no deduction will be available to the Company upon the purchase of
Program Shares by participants. The Company will include in its gross income
the interest on the Loans.
The Board of Directors unanimously recommends a vote FOR approval of the
2000 Executive Stock Purchase Program. The proxy holders will vote all proxies
received FOR approval unless instructed otherwise.
24
<PAGE>
The affirmative vote of a majority of the shares present in person or by
proxy at the meeting, and entitled to vote on this item, is required for
approval of the Stock Purchase Program. In the event the stockholders do not
approve the Stock Purchase Program, all shares of common stock purchased
pursuant to the Stock Purchase Program will be sold to the Company for the
lesser of the original purchase price or the fair market price of the common
stock on the date of resale, and each Loan will become immediately due and
payable.
ITEM 4.
APPROVAL OF AMENDMENTS TO
1998 MANAGEMENT INCENTIVE PROGRAM
In 1998 the Board of Directors adopted and the stockholders approved the
Company's 1998 Management Incentive Program (the "Management Incentive
Program") in order to attract and retain individuals of the highest caliber as
employees of the Company and its subsidiaries. The Management Incentive
Program consists of the Revised Incentive Compensation Plan (the "RICP"),
which provides for annual cash bonus awards, a portion of which may be
deferred or paid as restricted stock; the Long-Term Incentive Plan of 1998
(the "LTIP"), which provides for grants of non-qualified stock options,
performance shares and restricted stock; and the 1998 Performance Stock Option
Plan (the "PSOP"), which provides for grants of non-qualified performance
stock options, which have an exercise price at a premium over the fair market
value of the shares of the Company's common stock on the date of grant, and
tandem limited stock appreciation rights. The Management Incentive Program is
administered by the Management Development and Compensation Committee (the
"Committee"), which is comprised entirely of non-employee directors.
The Board of Directors, with Messrs. Beach, Ling and Williamson abstaining,
upon the recommendation of the Committee, has amended the Management Incentive
Program, subject to stockholder approval, (1) to change the funding method
used and add three additional performance criteria that may be used in
determining the amount of the incentive compensation paid under the RICP and
(2) to provide for Performance Bonus Awards under the LTIP.
This proposal requests, and the Board of Directors recommends, stockholder
approval of the amendments to the Management Incentive Program. If the
amendments are not approved by the stockholders, the Company will continue to
make awards under the Management Incentive Program as presently constituted
and consider other compensation arrangements in order to retain its senior
executives and other key employees.
The following summary of the material terms of the Management Incentive
Program and of the amendments to the Management Incentive Program is qualified
in its entirety by reference to the full text of the Management Incentive
Program, as amended, which is attached to this proxy statement as Exhibit B.
Eligibility
The Committee, in its discretion, may select as Management Incentive Program
participants any employees of the Company and its subsidiaries, except that
only senior management and other key employees may be selected to participate
in the PSOP.
While the LTIP does not limit the employees of the Company who may be
granted the Performance Bonus Awards which are provided for in the amendments,
it is currently the intention of the Committee to grant such awards only to
senior executives of the Company who are participating in the Stock Purchase
Program, with the maximum amount of the awards shown on the table on page 29.
25
<PAGE>
Awards Under the Revised Incentive Compensation Plan
The RICP provides for awards and payments to be determined on a yearly basis
(the "RICP Award Period"). The Committee establishes individual target awards
for each participant. The sum of these awards is the target fund for the
annual RICP Award Period. Under the existing RICP, this fund is adjusted based
on the Company's "Comparative Return to Stockholders" over the RICP Award
Period, which means the Company's return to stockholders compared to the
return to stockholders of a group of comparable companies selected by the
Committee in its sole discretion. The fund is subject to further adjustment
for minimum Company performance requirements as determined by the Committee.
The adjusted fund is allocated in whole or in part to participants on the
basis of: (i) comparison of actual operational results to plans or goals,
adjusted for external factors such as changes in market prices; (ii)
individual performance of employees selected to participate in the Plan; and
(iii) reasonableness of total cash compensation. The maximum cash award to a
participant for an Award Period will be $2,000,000.
Unless otherwise provided, payment of awards are made in cash from the
general funds of the Company in a manner (which may include deferral of cash
awards) prescribed by the Committee. Payment of an award may be made all or in
part as restricted stock as determined by the Committee or pursuant to an
election by the recipient under such terms as the Committee may establish. In
consideration for forgoing cash compensation, the Committee may grant
restricted stock with a total dollar value greater than the cash amount
deferred, provided that any such increase does not exceed 100% of the dollar
value of the cash amount deferred. The number of shares of restricted stock so
issued is based on the fair market value of the Company's common stock, after
any such increase described above.
If an employee elects to defer a cash payment into restricted stock, such
restricted stock must have a restriction period of not less than four years.
Employees are entitled to vote the restricted stock and receive dividends
during the restriction period. If the employee has satisfied all of the
conditions on the restricted stock established by the Committee by the end of
the restriction period, the Company will remove any restrictions on the shares
and deliver any accumulated unpaid dividends, less any amounts withheld for
taxes.
Delegation of Authority
The Committee may, in its discretion, delegate the authority to grant awards
under the RICP for employees other than executive officers to a committee of
the Board of Directors of the Company.
Amendment to Change Method of Determining Bonus Pool and Performance Criteria
under the Revised Incentive Compensation Plan
Under the existing RICP, the Committee establishes an individual target
award for each participant ("Award"). The sum of these individual target
awards is the target fund for the year. This target fund is then adjusted
based on the Company's Comparative Return to Stockholders for the year, as
described above. The amendment to the RICP provides, subject to stockholder
approval, that the bonus pool for a year will be equal to 2% of the Company's
"Net Cash Provided by Operating Activities" (as defined in the RICP) during
that year. The aggregate amount of Awards, without giving effect to any
augmentation upon deferral into restricted stock, under the RICP for a year
may not exceed this bonus pool.
The amendment also provides that, for the Chief Executive Officer and
certain other executive officers, the Committee will establish Awards, each of
which will be for a percentage of this bonus pool. The Committee will have the
sole discretion to determine whether the full amount of such an Award will be
paid and may reduce, but may not increase, the amount of the Award payable
based on any criteria that the Committee determines. The criteria may include,
but are not limited to, one or more of the following: (i) individual
performance, (ii) the Company's "Comparative Return to Stockholders," (iii)
the Company's "Return on Capital Employed" and (iv) the Company's "Future Year
Value Creation" (all as defined in the RICP).
26
<PAGE>
The amendment further provides that the Committee will establish individual
target Awards for the remaining participants based on such criteria as the
Committee shall determine, which criteria may include, but are not limited to,
one or more of the following: (i) salary grade, (ii) the Company's
"Comparative Return to Stockholders," (iii) the Company's "Return on Capital
Employed" and (iv) the Company's "Future Year Value Creation" (all as defined
in the RICP). Subject to the amount of the bonus pool available after payment
of the Awards described in the immediately preceding paragraph, the Committee
may increase or decrease the amounts payable to participants under the Awards
described in this paragraph on the basis of factors such as, but not limited
to, the following: (i) comparison of actual operational or financial results
to plans or goals, adjusted for external factors such as changes in market
prices, (ii) individual performance of employees selected to participate in
the RICP and (iii) reasonableness of total cash compensation.
Finally, the amendment provides that the maximum cash Award to a participant
for a year will be 0.25% of the Company's Net Cash Provided by Operating
Activities or, if less, $2,000,000. The portion of an Award deferred in the
form of restricted stock may still be increased up to 100%.
Awards under the Long-Term Incentive Plan
Stock Options
Non-qualified stock options may be granted by the Committee, which
determines the number of shares subject to each stock option and the manner,
conditions and time of exercise. The Committee may impose restrictions on
shares acquired through exercise. No options are exercisable more than 10
years after the date of grant. The option price per share may not be less than
the fair market value of a share of common stock on the date of grant, and is
payable in cash and/or shares of common stock as determined by the Committee.
Options are evidenced by stock option agreements in a form approved by the
Committee.
Stock options are nontransferable except in the event of the employee's
death, unless the Committee, in its sole discretion, permits transfers to the
employee's family members and entities established for or owned by family
members. The granting of an option does not entitle the employee to the rights
of a stockholder; such rights accrue only after exercise and registration of
shares. No person may be granted during any 12-month period options to acquire
more than 100,000 shares of common stock under the LTIP.
Performance Shares
Performance shares may be granted by the Committee with respect to a period
of time of not less than four years (an "LTIP Award Period"). Each performance
share shall have a value equivalent to one share of common stock of the
Company. No participant may receive more than 30% of the aggregate number of
performance shares granted or more than 25,000 performance shares in a 12-
month period.
At the end of an LTIP Award Period, the Committee establishes a percentage
by which the performance shares awarded shall be multiplied, based on the
Company's Comparative Return to Stockholders, and each holder's performance
shares shall be multiplied by that percentage. In no event shall such
percentage exceed 200%. Additionally, the value of the awards paid shall in no
event exceed more than 400% of the value of the award at the time of grant.
The payments are normally made in a combination of shares of the Company's
common stock and cash.
Restricted Stock
The Committee may grant shares of common stock which are subject to certain
restrictions. The restriction period shall be at least four years. The
employee is entitled to vote the restricted stock and receive dividends during
the restriction period. If the employee has satisfied all of the conditions of
the
27
<PAGE>
restricted stock award established by the Committee by the end of the
restriction period, the Company will remove any restrictions on the shares and
deliver any accumulated unpaid dividends, less any shares withheld for taxes.
Delegation of Authority
The Committee may, in its discretion, delegate the authority to grant awards
under the LTIP for employees other than executive officers to a committee of
the Board of Directors of the Company.
Amendment to Provide Performance Bonus Awards under the Long-Term Incentive
Plan
A new Section 10 has been added to the LTIP, subject to stockholder
approval, providing for grants of Performance Bonus Awards ("Bonus Awards")
payable in cash if and to the extent the goal or goals established by the
Committee are satisfied. At the time of granting a Bonus Award, the Committee
establishes (i) the goal or goals, based in part on the Company's "Comparative
Return to Stockholders" and changes to the price of the Company's common stock
and (ii) a matrix to be used to determine the cash amount, if any, that will
be paid based on the extent to which the goal or goals are achieved. In
determining the range of possible Bonus Award payments, the Committee may take
into account the amount of any Loan made in connection with the 2000 Executive
Stock Purchase Program, a participant's responsibility level, cash
compensation level, and the fair market value of the Company's common stock at
the time of the Bonus Award, as well as such other considerations as it deems
appropriate. Performance against established goals will be measured over an
LTIP Award Period of four years, subject to early termination as described
below. The maximum performance bonus that may be paid to any person for any
four-year LTIP Award Period is $6,500,000. The maximum performance bonus that
may be paid to any person for any LTIP Award Period that is longer than four
years is $1.625 million times the number of years in the LTIP Award Period.
In the event of a "Change in Control" (as defined in the LTIP) of the
Company, the Committee will declare any Award Period ended as of the date of
the Change in Control and accelerate the payment of the Bonus Award; provided,
that in no event will the participant's Bonus Award payout be less than 50% of
the target amount under such circumstances. If a participant terminates
employment during an Award Period for any reason other than voluntary
termination or termination for cause, the Bonus Award will remain outstanding
and the participant will receive the same Bonus Award payout at the end of the
LTIP Award Period, based on the Company's Comparative Return to Stockholders,
as if the participant had remained employed during the full LTIP Award Period.
If a participant terminates employment during an Award Period voluntarily or
is terminated for cause, then the Bonus Award will be forfeited and no payout
will be made.
Awards under the Performance Stock Option Plan
Performance Stock Options
Non-qualified performance stock options may be granted by the Committee,
which determines the number of shares subject to each performance stock option
and the manner, conditions and time of exercise. No performance stock options
are exercisable more than 10 years after the date of grant. The option price
per share must be at a premium of at least 25% over the fair market value of a
share of common stock on the date of grant, as determined by the Committee,
and is payable in cash and/or shares of common stock acceptable to the
Committee. Performance stock options must satisfy performance and vesting
conditions established by the Committee in order to become subject to
exercise. If the performance and vesting conditions are satisfied, performance
stock options will normally remain outstanding following an employee's
termination of employment for the remaining term of the option. Performance
stock options are evidenced by grant agreements in a form approved by the
Committee.
28
<PAGE>
Performance stock options are nontransferable except in the event of the
employee's death, unless the Committee, in its sole discretion, permits
transfers to the employee's family members and entities established for or
owned by family members. The granting of an option does not entitle the
employee to the rights of a stockholder; such rights accrue only after
exercise and registration of shares. No person may be granted during any 36-
month period performance stock options to acquire more than 750,000 shares of
Common Stock under the PSOP.
Tandem Limited Stock Appreciation Rights
The Committee may grant tandem limited stock appreciation rights (TLSARs) in
combination with an underlying performance stock option. A TLSAR is a right to
receive a payment in cash, or in shares of common stock in certain events,
with respect to a specified number of shares of common stock, equal to the
excess of the fair market value of the common stock on the date the TLSAR
becomes payable over the grant price for the TLSAR established by the
Committee, which may not be less than the fair market value of the common
stock on the date the TLSAR was granted. A TLSAR will become payable only on a
Conversion Date after the occurrence of a Change in Control Event (as defined
in the PSOP) and generally expires upon expiration or exercise of the
underlying performance stock option. The performance and vesting conditions
for a performance stock option do not have to be satisfied in order for the
related TLSAR to become payable on a Conversion Date.
Awards Under the Management Incentive Program for 2000
The table below summarizes the awards for 2000 made through March 28 under
the existing Management Incentive Program and, subject to stockholder
approval, the maximum Bonus Awards and the maximum cash awards that would be
awarded under the Management Incentive Program as amended. Non-routine awards
and awards to future employees may be made after March 28, but are not
presently determinable.
<TABLE>
<CAPTION>
Performance
Target Bonus
Maximum Awards--
Cash Performance LTIP Restricted Stock Performance
Awards-- Stock Option Shares-- Maximum Awards LTIP(E) Stock Option
RICP Shares--LTIP LTIP Cash Award ----------------- Shares--PSOP
Name and Position (Value)(A) (Number)(B) (Number)(C) (Value)(D) (Number) (Value) (Number)
----------------- ---------- ------------ ----------- ----------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Roger Beach............. $2,000,000 None 25,000 $6,500,000 13,950 $413,269 None
Chairman of the Board
and Chief Executive
Officer
John F. Imle, Jr........ None None None None None None None
Vice Chairman (F)
Timothy H. Ling......... 1,000,000 None 8,500 6,500,000 None None None
Chief Financial Officer
and Executive Vice
President, North
American Energy
Operations
Charles R. Williamson... 1,000,000 None 8,500 6,500,000 None None None
Executive Vice
President,
International Energy
Operations
Lucius E. Scott, Jr..... 500,000 None 4,724 None None None None
Group Vice President,
Diversified Business
Group
Executive officers as a
group (8 persons,
including those listed
above)................. 5,800,000 17,685 56,852 29,250,000 None None None
All other employees..... 12,200,000 192,312 190,501 12,350,000 25,767 763,347 None
</TABLE>
(footnotes on following page)
29
<PAGE>
- --------
(A) The amounts shown are the maximum amounts payable based on projected "Net
Cash Provided by Operating Activities" for the year 2000. One half of the
payment to executive officers will be made in shares of restricted stock,
increased by 50% of the dollar amount of the cash award deferred into
stock; these shares will have a five-year restriction period. Executive
officers may also elect to defer all or part of the remaining 50% of their
cash payment into shares of restricted stock; if they so elect, the amount
deferred into stock will be increased by 25% and the shares will have a
four-year restriction period. Other recipients may elect to have all or
part of their cash awards paid out in shares of restricted stock on the
same basis. Restricted shares receive dividends during the restricted
period.
(B) Represents the options granted on February 24, 2000 at an exercise price
of $28.3438 under the LTIP. The options become exercisable in four equal
installments on six months, twelve months, 24 months and 36 months from
the date of grant.
(C) The closing market price as reported in the New York Stock Exchange
Composite Transactions quotations on January 3, 2000, which was the
commencement of the award period, was $33.00. The provisions governing
these performance shares are the same as described in footnote (A) to the
"Long-Term Incentive Plan Awards in 1999" table on page 17.
(D) Represents the maximum cash Performance Bonus Awards payable under the
LTIP if the performance goals are fully satisfied. These Awards are
subject to stockholder approval of the amendments to the Management
Incentive Program.
(E) The shares have a minimum four-year restriction period. Recipients are
entitled to vote the shares and receive dividends during the restriction
period. The value shown is based on the closing market price as reported
in the New York Stock Exchange Composite Transactions quotations on the
dates of the grants.
(F) Mr. Imle served as Vice Chairman until his resignation, effective December
31, 1999. He will serve as a consulting employee through March 31, 2001.
Federal Income Tax Consequences
Under current law, cash awards will be taxed as ordinary income to the
employee in the year in which they are received. When the employee is taxed,
the Company receives a tax deduction at the same time and for the same amount.
Upon exercise of a non-qualified stock option (including performance stock
options), the employee will realize ordinary income in an amount measured by
the excess, if any, of the fair market value of unrestricted shares on the
date of exercise over the option price, and the Company will be entitled to a
corresponding deduction. Restricted stock, if any, acquired through the
exercise of stock options will be subject to the tax treatment described below
for restricted stock.
An employee who has been granted a performance share award will not realize
taxable income at the time of grant, and the Company will not be entitled to a
deduction at such time. Whether a performance share award is paid in cash or
shares of common stock, the employee will have ordinary income and the Company
will have a corresponding deduction when payout is made. The measure of such
income and deduction for any shares of Common Stock will be their fair market
value at the time the performance share award is paid out. There will be a
charge against corporate earnings each year for a portion of the payment
expected to be made.
An employee receiving restricted stock may be taxed in one of two ways: (i)
the employee pays tax when the restrictions lapse, or (ii) the employee makes
a special election to pay tax in the year the grant is made. The value of the
award for tax purposes is the fair market value of the shares of Common Stock
at the applicable time. This value is taxed as ordinary income and is subject
to income tax withholding. When the employee is taxed, the Company receives a
tax deduction at the same time and for the same amount. If an employee elects
to be taxed at grant, when the restrictions lapse there
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will be no further tax consequences attributable to the awarded stock until
sale or other disposition of the stock. However, dividends in cash and stock
will be treated as follows: (i) if the above special tax election has been
made, cash dividends paid to the employee will be taxable dividend income to
the employee when paid, but the Company will not be entitled to any
corresponding deduction; and (ii) if such election has not been made, the
employee will have taxable compensation income and the Company a corresponding
deduction when the dividends are paid.
When a restricted stock award is made, the value of the stock at the date of
grant will be charged against corporate earnings pro-rata over the restriction
period. If the employee does not elect to be taxed on the grant of his
restricted stock award, a tax deduction by the Company at the expiration of
the restriction period would be greater than the amount charged to earnings if
the price of common stock has increased or less if the price of common stock
has declined.
Section 162(m) of the Internal Revenue Code of 1986, as amended, may impose
limitations on the ability of the Company to obtain tax deductions for
compensation of more than $1 million per year to its chief executive officer
or any of its other four most highly-compensated officers. The Company
believes that the Management Incentive Program meets all of the requirements
of Section 162(m), except for restricted stock awards under the LTIP and cash
dividends.
Amendment and Termination
The Board (without participation by any employee directors) may terminate
the Management Incentive Program at any time and, with the consent of an
individual participant, the Board or Committee may cancel, reduce, or alter
the number of outstanding awards thereunder. The Board (without participation
by any employee directors) may amend or suspend or, if suspended, reinstate,
the Management Incentive Program in whole or in part, provided, however, that
without stockholder approval, the Board may not (i) increase the maximum
number of shares authorized for awards or as restricted stock or performance
shares under the Incentive Program, (ii) change the minimum exercise price for
stock options or minimum grant price for TLSARs, or (iii) extend the
termination dates of the LTIP or PSOP.
Under the amendments, Section 13 of the LTIP is amended to provide that the
Board of Directors may not, without stockholder approval, increase the maximum
cash bonus payable to any person under a Bonus Award.
The Board of Directors unanimously recommends a vote FOR approval of the
amendments to the 1998 Management Incentive Program. The proxy holders will
vote all proxies received FOR approval unless instructed otherwise.
The affirmative vote of a majority of the shares present in person or by
proxy at the meeting, and entitled to vote on this item, is required for
approval of the amendments to the 1998 Management Incentive Program.
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ITEM 5.
STOCKHOLDER PROPOSAL
A stockholder has given notice that the following proposal will be presented
at the meeting:
"WHEREAS: Unocal has had historic and on-going environmental violations,
especially at a number of California's pristine locations (e.g. Guadalupe
spill, the largest in California, costing $43.8M), Avila Beach spill (killing
a town economically--costing up to $200 million), San Francisco Bay spill
(costing $83 million with a possible $50 million more), and Molycorp Mountain
Pass Mine (failed to report toxic discharges). We believe this indicates a
lack of concern for the environment, has damaged Unocal's image and caused
financial loss;
WHEREAS: We believe that Unocal has further damaged its image by its
association with the repressive government of Burma [Myanmar] and the
consequent litigation brought against it by citizens of Burma alleging our
company's involvement in the egregious human rights violations committed there
as reported by the United Nations, The U.S. State Department, Amnesty
International, Human Rights Watch Asia and other human rights organizations;
WHEREAS: We believe that Unocal has failed to observe its own Statement of
Principles (recently revised under the title of Guiding Principles) which
requires the Company to: "Conduct business in a way that engenders pride in
our employees and respect from the world community. . .communicate openly and
honestly.............improve the quality of life in the communities where we do
business.....protect the environment. . .be a good corporate citizen and a good
friend of the people of our host country." Also, such conduct undercuts the
Global Sullivan Principles which Unocal recently endorsed.
These Global Sullivan Principles explicitly commit endorsing companies to
eight basic principles including the following: "We will express our support
for universal human rights and particularly those of our employees, the
communities within which we operate, and parties with whom we do business."
One important way to insure that any company is serious about its own Code,
or pursuing Principles like the Global Sullivan Principles, is to provide
incentives to executives through their compensation formula to meet those
goals.
BE IT RESOLVED: That the Board of Directors appoint a special committee of
the Board consisting solely of independent Board Members to review ways to
link executive compensation with the Company's ethical and social performance,
and in particular with Unocal's Guiding Principles and to report to the
shareholders the results of this review. This report may omit confidential
information and be prepared at a reasonable cost.
Supporting Statement
We believe linking the compensation and bonus packages of Unocal's
executives to our Company's ethical and social performance is timely and
necessary. It sends a message that Unocal is serious about excellence in these
areas just as meeting financial and business goals are rewarded.
Many other companies, including Kodak, Bristol Myers Squibb, IBM and Proctor
& Gamble, have social responsibility goals and performance reflected in their
compensation formula.
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DIRECTORS' RECOMMENDATION
The Board of Directors unanimously recommends a vote AGAINST the adoption of
this proposal for the following reasons:
Unocal already provides a report to stockholders by the Management
Development and Compensation Committee, comprised entirely of independent
directors. The report, beginning on page 10 of this proxy statement, explains
the criteria for CEO and executive officer compensation. Many aspect of an
executive's performance, including ethical behavior and social responsibility,
are utilized in determining compensation.
Unocal also has a Corporate Responsibility Committee comprised entirely of
outside directors that reviews health and environmental issues, as well as
ethical conduct. The Corporate Responsibility Committee of the Board of
Directors plays a key oversight role in ensuring that Unocal and its
executives live up to the Company's commitment to being a good global citizen.
This committee of outside Directors regularly shares information about the
Company's corporate responsibility efforts with the full Board. A report on
corporate responsibility was mailed to all stockholders in 1999.
Contrary to the implications in the stockholder's proposal, the Company has
not been involved in "egregious human rights violations" in Myanmar or
anywhere else. Unocal is proud of its human rights record. We are working to
help advance and promote respect for human rights through action, education,
assistance and economic engagement wherever we work. In Myanmar, where Unocal
is an investor in the Yadana natural gas pipeline project, the Company is
helping fund an extensive socio-economic program that has brought doctors,
schools, roads, water and sanitation systems, as well as a host of sustainable
economic opportunities to the 40,000 villagers in the pipeline vicinity. Two
internationally respected human rights experts, Reverend Richard W. Timm, CSF
and Justice K. M. Subhan inspected conditions along the pipeline route in
January 1998. They concluded that the lives of people in each village they
visited are better because of the Yadana Project, and that the project should
be a model for other international companies.
Unocal is committed to being a good corporate citizen by operating in a way
that is socially responsible, and that contributes to economic prosperity.
Environmental performance is also a key aspect of our Operations Management
System. Our efforts focus on operating efficiently and effectively, preventing
pollution and producing clean energy. This is true in Southeast Asia, the
United States, and anywhere else where Unocal has business interests.
Our Position
We believe that this proposal is unnecessary. The Board's Management
Development and Compensation Committee, consisting of non-employee directors,
regularly evaluates executive performance and provides a report in the proxy
statement to all stockholders each year. Unocal's Corporate Responsibility
Program supports a broad range of humanitarian and community programs,
including programs in Southeast Asia. The Board's Corporate Responsibility
Committee regularly reviews the company's policies, practices and programs
related to health, environment, safety, human resources, community affairs and
development, and ethical conduct.
The Board of Directors unanimously recommends a vote AGAINST this proposal.
The proxy holders will vote all proxies received AGAINST this proposal unless
instructed otherwise.
The affirmative vote of a majority of the shares present in person or by
proxy at the Annual Meeting, and entitled to vote on this Item, is required
for approval of this proposal.
The Company will provide stockholders with the name and address of the
proponents of the proposal and information about their ownership of Unocal
common stock promptly upon receipt of an oral or written request to the
Secretary of the Company.
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ITEM 6.
OTHER MATTERS
Only such business shall be conducted at an annual meeting of the
stockholders as shall have been properly 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, by or at the direction of the Board of
Directors, or by a stockholder or a beneficial owner of the Company's stock in
compliance with the provisions of Section 7 of Article III of the Company's
Bylaws.
The Board of Directors has no knowledge at the time of the printing of this
Proxy Statement of other business to be presented for action at the Annual
Meeting of Stockholders or any adjournment thereof. If other business properly
comes up for action at the Meeting, the proxy holders will vote the proxies in
their discretion.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Proposals submitted for inclusion in the Company's proxy statement for the
2001 Annual Meeting of Stockholders under Rule 14a-8 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934 must be received
by the Corporate Secretary at 2141 Rosecrans Avenue, Suite 4000, El Segundo,
California 90245 on or before December 12, 2000. Under the Company's Bylaws,
stockholder proposals for consideration at the 2001 annual meeting, but not
for inclusion in the proxy statement, must be received by the Corporate
Secretary no later than February 20, 2001. If the Company's Bylaws are amended
to change the date of the 2001 annual meeting, the deadline for submitting
such proposals shall be the later of 90 days before the meeting date or the
10th day following the day on which public announcement of the meeting date is
first made. Notice of such proposals must also comply with the provisions of
Section 7 of Article III of the Company's Bylaws.
By Order of the Board of Directors
/s/ Brigitte M. Dewez
Brigitte M. Dewez
Corporate Secretary
April 12, 2000
El Segundo, California
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EXHIBIT A
2000 EXECUTIVE STOCK PURCHASE PROGRAM
The purpose of the 2000 Executive Stock Purchase Program (the "Program") is
to promote the long-term growth and financial success of Unocal Corporation
(the "Company") by (1) providing a means whereby executives of the Company and
its subsidiaries can acquire and maintain stock ownership, thereby
strengthening their commitment to maximizing the value of the Company for its
stockholders, while (2) placing them at risk in the event of poor Company
performance through the use of full recourse promissory notes as payment for
Company stock.
1. General Description
The Program provides an opportunity for the Company's executives to purchase
up to 1.75 million shares of Stock of the Company and to receive loans from
the Company to finance such purchases.
2. Definitions
The following definitions shall be applicable throughout the Program but
shall not be deemed to apply in other contexts unless specifically provided
otherwise:
a. "Award" means (i) an award permitting a Participant to purchase Stock
from the Company under this Program at the Purchase Price, together with the
related Purchase Loan, or (ii) an award offering to make a Purchase Loan to a
Participant for the purchase of Stock on a specified date or dates in the open
market, directly from the Company, or by private purchase.
b. "Award Agreement" means a written agreement between the Company and a
Participant which sets forth the terms of an Award. Award Agreements need not
be identical and shall be in the form approved by the Committee.
c. "Board" means the Board of Directors of the Company, except those members
who are Employees.
d. "Cause" means (i) conduct or action by a Participant which, in the
opinion of the Committee, is materially harmful to the Company; (ii) willful
failure by a Participant to follow an order of the Board, except in such case
where the Participant believes in good faith that following such order would
be materially detrimental to the interests of the Company; (iii) a
Participant's conviction of a felony; or (iv) performance by a Participant
which, in the opinion of the Committee, falls below the reasonable
expectations of the Company.
e. "Code" means the Internal Revenue Code of 1986, as amended.
f. "Committee" means the Management Development and Compensation Committee
of the Board, which shall consist solely of two or more directors who qualify
as "outside directors," as defined in the regulations under Section 162 (m) of
the Code and as "Non-Employees Director" as defined in Rule 16b-3.
g. "Company" means Unocal Corporation.
h. "Date of Grant" means the date on which the granting of an Award is
authorized by the Committee or such later date as may be specified by the
Committee in such authorization.
i. "Disability" means the inability of a Participant to perform his or her
normal duties of employment as a result of physical or mental incapacity as
determined by the Committee.
j. "Employee" means any person regularly employed by the Company or a
Subsidiary on a full-time salaried basis.
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k. "Fair Market Value" means the average of the reported high and low prices
of the Stock as reported in the New York Stock Exchange Composite Transactions
quotations on a specified date or the actual purchase price of shares acquired
by the Participant under the Program.
l. "Interest Rate" means the interest rate determined by the Committee,
which shall be the lowest rate which avoids the imputation of interest under
the Code at the time of the Loan.
m. "Participant" means an Employee of the Company or a Subsidiary who has
been granted an Award under the Program.
n. "Purchase Date" means the date or dates on which a Participant purchases
shares of Stock pursuant to an Award.
o. "Purchase Loan" means an extension of credit to a Participant by the
Company evidenced by the Purchase Note.
p. "Purchase Note" means a full recourse promissory note including the terms
set forth in Section 8.
q. "Purchase Price" means (i), in the case of a purchase of Stock from the
Company, the Fair Market Value of the Stock on the Purchase Date or (ii), in
the case of a purchase of Stock in the open market or from a party other than
the Company, the price at which the Participant purchases Stock pursuant to an
Award.
r. "Retirement" means termination of employment on or after "normal
retirement age" as defined in the Company's retirement plan then in effect.
s. "Rule 16b-3" means Rule 16b-3 as promulgated by the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended.
t. "Stock" means shares of common stock of the Company as described in the
Company's Certificate of Incorporation.
u. "Subsidiary" means any corporation of which a majority of the outstanding
voting stock or voting power is beneficially owned directly or indirectly by
the Company.
v. "Voluntary Termination" means any termination of employment by a
Participant prior to Retirement other than a termination without Cause or a
termination due to death or Disability.
3. Effective Date and Duration
The Program shall be effective on March 16, 2000, subject to the approval of
this Program by the Company's stockholders. If this Program is not approved by
the Company's stockholders, Participants must sell to the Company the Stock
purchased under this Program at the lesser of the Purchase Price or the Fair
Market Value on the date of such sale, and each Purchase Loan shall become
immediately due and payable in full (including accrued and unpaid interest).
If this Program is approved by the Company's stockholders, it shall terminate
on December 31, 2003; provided that Purchase Loans outstanding as of such date
shall not be affected or impaired by termination of the Program.
4. Administration
The Committee shall administer the Program. The acts of a majority of its
members present at any meeting at which a quorum is present and acts
unanimously approved in writing by the Committee shall be deemed the acts of
the Committee. The Committee may conduct meetings in person or by telephone.
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No member of the Committee, while serving as such, shall be eligible to
receive an Award under the Program. The Committee shall have the authority,
subject to the provisions of the Program, to establish, adopt, or revise such
rules and regulations and to make all such determinations relating to the
Program as it may deem necessary or advisable in the administration of the
Program. Among other things, the Committee shall have the authority, subject
to the terms of the Program, to determine (a) the individuals to whom the
Awards are granted, (b) the time or times the Awards are granted, (c) the
Purchase Dates for such Awards, (d) the basis for any termination of
employment, including whether or not it was for Cause, Disability, Retirement
or otherwise (which determination shall be reasonable), and (e) the forms,
terms and provisions of the Award Agreement and any other documents under the
Program. The Committee's interpretation of the Program or any Awards granted
pursuant thereto and all decisions and determinations by the Committee with
respect to the Program shall be final, binding, and conclusive on all parties.
5. Shares Subject to the Program
The Committee may, from time to time, grant and amend Awards to eligible
Employees in accordance with the provisions of the Plan; provided, however,
that:
a. Subject to Section 10, the aggregate number of shares of Stock made
subject to Awards under this Plan may not exceed 1,750,000 shares, and no
Participant shall receive an Award with respect to more than 200,000 shares.
b. If a Participant fails to purchase all of the shares of Stock subject to
an Award, such unpurchased shares of Stock shall again be available to be
granted as an Award under this Program.
c. Stock purchased under this Program may be from the Company's authorized
and unissued Stock or Treasury Shares; Stock purchased on the open market; or
Stock acquired by private purchase.
6. Eligibility
Senior management and other key Employees of the Company and its
Subsidiaries (including officers or Employees who are members of the Board)
shall be eligible to be granted Awards under this Program.
7. Stock Purchase
a. Grant of Award. The Committee shall determine the Purchase Date and, in
the case of an Award permitting the Participant to purchase Stock from the
Company, the number of shares of Stock that the Participant may purchase under
the Award or, in the case of an Award offering to make a Purchase Loan for a
purchase in the open market or from a third party, the amount of the Purchase
Loan. The Committee shall give each Participant written notice prior to the
Purchase Date stating (i) the maximum and minimum numbers (which numbers may
be identical) of shares of Stock that the Participant may purchase under the
Award or the maximum and minimum amounts (which amounts may be identical) of
the Purchase Loan, (ii) the Purchase Date and (iii) the Interest Rate and
other terms pertaining to the Purchase Loan.
b. Exercise of Award. A Participant shall exercise an Award by delivering to
the Company on the Purchase Date (i) a notice stating the number of shares
(not less than the minimum number and not more than the maximum number
specified in the Award) such Participant elects to purchase or the amount (not
less than the minimum and not more than the maximum amount specified in the
Award) that the Participant elects to borrow, and (ii) an executed Award
Agreement, Purchase Note and any other documents required pursuant to the
Program. Any Participant who does not elect to purchase at least the minimum
number of shares specified in the Award Agreement or to borrow at least the
minimum amount specified in the Award Agreement on the Purchase Date shall
forfeit any rights under the Program with respect to such Award, including,
without limitation, any right to receive a Purchase Loan.
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8. Purchase Loans
a. General. The Company shall extend a Purchase Loan to a Participant upon
exercise of an Award subject to the terms and conditions set forth in this
Section 8. The original principal amount of the Purchase Loan shall be equal
to the total purchase price of the Stock. Such Purchase Loan shall be
evidenced by a Purchase Note with full recourse against the maker. The
obligations of each Participant under the Purchase Loan shall be unconditional
and absolute and, without limiting the generality of the foregoing, shall not
be released, discharged or otherwise affected by any change in the existence,
structure or ownership of the Company, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting the Company or its assets
or the market value of the Stock or any resulting release or discharge of any
obligation of the Company or the existence of any claim, set-off or other
rights which any Participant may have at any time against the Company or any
other person, whether in connection with the Program or with any unrelated
transactions, provided that nothing herein shall prevent the assertion of any
such claim by separate suit or counterclaim.
Notwithstanding anything to the contrary in this Section 8, the Company
shall not be required to make any Purchase Loan to a Participant if the making
of such Purchase Loan will (i) cause the Company to violate any covenant or
similar provision in any indenture, loan agreement or other agreement, or (ii)
violate any applicable federal, state or local law, provided, that the failure
to make such Purchase Loan shall be deemed to revoke the acceptance and
exercise of a related Award unless otherwise specified by the Participant.
Notwithstanding anything to the contrary in this Section 8, the terms and
repayment provisions of the Purchase Note shall conform with the applicable
rules and regulations of the Federal Reserve Board then in effect.
b. Unsecured Loan. Payment of the Purchase Loan shall not be secured,
directly or indirectly, by a pledge of the shares of Stock acquired by the
Participant upon the exercise of the Award to which the Purchase Loan relates.
c. Interest. Interest on the principal balance of the Purchase Loan will
accrue annually, in arrears, at the Interest Rate. Except as provided in the
Purchase Loan and related Purchase Note, interest shall be added to the
balance of the Purchase Loan. To the extent that a Participant receives cash
dividends or other distributions paid in cash on Stock purchased under this
Program, the Participant shall prepay the related Purchase Loan with the full
pre-tax amount of such dividend or distribution received within ten (10) days
of receipt. Such prepayments shall first be applied to pay accrued interest on
the Purchase Loan and then to reduce the principal balance due on the Purchase
Loan.
d. Term. The term of the Purchase Loan for any Participant shall begin on
such Participant's Purchase Date and, subject to prepayment as provided in
this Section 8, shall have a final maturity date on the eighth (8th)
anniversary of the Purchase Date.
e. Payment Schedule. Except as provided in Section 3, and subject to
prepayment as provided in this Section 8, no payments of either principal or
interest shall be due under the Purchase Loan during the first five (5) years
following the Purchase Date. The principal balance of the Purchase Loan
(including accrued but unpaid interest) outstanding after any prepayments
following the end of such five-year period, if any (the "Remaining Balance"),
shall be payable in three (3) equal annual installments on the sixth (6th),
seventh (7th) and eighth (8th) anniversaries of the Purchase Date, with
interest on the unpaid Remaining Balance payable annually in arrears, on each
such anniversary.
f. Optional Prepayments. A Participant may prepay all or any portion of the
Purchase Loan at any time. Any prepayments made to the Company pursuant to
this Section 8(f) shall first be applied to pay accrued interest on the
Purchase Loan and then to reduce the principal balance due on the Purchase
Loan. Any prepayment of the balance of the Purchase Loan shall be applied to
the principal payments due thereon in chronological order of maturity.
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g. Prepayment Obligations Upon Voluntary Termination or Termination for
Cause. Upon a termination of employment that is determined by the Committee to
be a termination for Cause or a Voluntary Termination, any outstanding balance
on the Purchase Loan (including any accrued and unpaid interest) shall become
due and payable on the 60th day following such termination of employment.
Prepayment of a Purchase Loan shall not be required in the event of any other
termination of employment (including termination due to death, Disability,
Retirement, and termination without Cause).
h. Purchase Loan Forgiveness. For Awards granted during the year 2000, the
Committee shall provide for the partial forgiveness of the Purchase Loan in
the case of a Participant who has died or becomes Disabled to the extent that,
at the maturity date of the Purchase Loan, the outstanding balance of the
Purchase Loan (including any accrued and unpaid interest), increased by the
amount of any repayments of principal previously made by the Participant, is
greater than the sum of (i) the Fair Market Value of the number of shares of
Stock purchased by the Participant pursuant to the exercise of the Award plus
(ii) the amount of the Performance Bonus paid to the Participant under the
Long-Term Incentive Plan of 1998 for the four-year award period ending on
December 31, 2003 plus (iii) interest on such Performance Bonus at the
Interest Rate from December 31, 2003 to the repayment date.
9. General
a. Government and Other Regulations. The obligation of the Company with
respect to the grant and exercise of Awards shall be subject to all applicable
laws, rules, and regulations, and to such approvals by governmental agencies
as may be required. The Company shall be under no obligation to register under
the Securities Act of 1933, as amended ("Act") any of the shares of Stock
issued under the Program. If the Stock issued under the Program may in certain
circumstances be exempt from registration under the Act, the Company may
restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
b. Tax Withholding. The Company or a Subsidiary, as appropriate, shall have
the right to deduct from any benefits due under the Program or other amounts
payable to a Participant an amount sufficient to satisfy any federal, state or
local withholding requirements applicable to such benefits. In addition, as a
condition to payment or delivery of any benefit hereunder, including without
limitation, any forgiveness of any portion of a Purchase Loan pursuant to
Section 3 or Section 8(h), the Company or a Subsidiary, as appropriate, may
require a Participant to pay to the Company or Subsidiary the amount of any
applicable federal, state or local withholding taxes.
c. Claim to Awards and Employment Rights. No Employee or other person shall
have any claim or right to be granted an Award under the Program. Neither this
Program nor any action taken hereunder shall be construed as giving any
Employee any right to be retained in the employ of the Company or a
Subsidiary.
d. Applicable Law. This Program, any Award Agreements and all other related
documents shall be governed by and construed in accordance with the laws of
the State of California without regard to the application of the conflicts of
laws provisions thereof except for such matters as are subject to the General
Corporation Law of Delaware.
e. Inurement of Rights and Obligations. The rights and obligations under the
Program and any related Award Agreements shall inure to the benefit of, and
binding upon, the Company, its successors and assigns, and the Participants
and their beneficiaries.
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f. Non-exclusivity of Program. Nothing in this Program shall limit or be
deemed to limit the authority of the Board or the Committee to grant awards or
authorize any other compensation, with or without reference to Stock, under
any other plan or authority.
g. Severability; Validity. This Program is intended to qualify under Rule
16b-3. If any of the terms or provisions of this Program conflict with the
requirements of Rule 16b-3, then such terms and provisions shall be deemed
inoperative to the extent they so conflict with such requirements. In the
event that any provision of the Program or any related Award Agreement or
other related document is held to be invalid, void or unenforceable, the same
shall not affect, in any respect whatsoever, the validity of any other
provision of the Program or any related Award Agreement or other document.
h. Indemnification. Each person who is or shall have been a member of the
Committee or the Board, including the Employee directors, shall be indemnified
and held harmless by the Company against and from any loss, cost, liability,
or expense that may be imposed upon or reasonably incurred by him in
connection with or resulting from any claim, action, suit, or proceeding to
which he may be a party or in which he may be involved by reason of any action
or failure to act under the Program and against and from any and all amounts
paid by him in satisfaction of judgment in any such action, suit or proceeding
against him. He shall give the Company an opportunity, at its own expense, to
handle and defend the same before he undertakes to handle and defend it on his
own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons may be entitled
under the Company's Certificate of Incorporation or Bylaws, as a matter of
law, or otherwise, or any power that the Company may have to indemnify them or
hold them harmless.
i. Reliance on Reports. Each member of the Committee and the Board,
including the Employee directors, shall be fully justified in relying or
acting in good faith upon any report made by the independent public
accountants of the Company and its Subsidiaries and upon any other information
furnished in connection with the Program by any person or persons other than
himself. In no event shall any person who is or shall have been a member of
the Committee or of the Board be liable for any determination made or other
action taken or any omission to act in reliance upon any such report or
information or for any action taken, including the furnishing of information,
or failure to act, if in good faith.
j. Relationship to Other Benefits. No payment under the Program shall be
taken into account in determining any benefits under a pension, retirement,
profit sharing, group insurance or other benefit plan of the Company or any
Subsidiary.
k. Expenses. The expenses of administering the Program shall be borne by the
Company and its Subsidiaries.
l. Pronouns. Masculine pronouns and other words of masculine gender shall
refer to both men and women.
m. Titles and Headings. The titles and headings of the sections in the
Program are for convenience of reference only, and in the event of any
conflict, the text of the Program, rather than such titles or headings, shall
control.
10. Changes in Capital Structure
Any agreements evidencing Awards shall be subject to adjustment by the
Committee as to the number and price of shares of Stock or other
considerations subject to such Awards in the event of changes in the
outstanding Stock by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring after the
Date of Purchase of any such Awards. In the event of any such
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change in the outstanding Stock, the aggregate number of shares available
under the Program and the number of shares issued under any Award shall be
appropriately adjusted by the Committee, whose determination shall be
conclusive.
11. Amendments and Termination
The Board may at any time amend, suspend or terminate the Program subject to
the provisions of this Section 11. No amendment, suspension or termination of
the Program shall, without the consent of the Participant, adversely affect
such Participant's rights under the Program in any material respect. In
addition, without further stockholder approval, the Board shall not:
a. Increase the maximum number of shares which may be issued under the
Program, except as provided in Section 10;
b. Change the Program to permit a purchase of Stock at a price less than
Fair Market Value; or
c. Extend the termination date of the Program.
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EXHIBIT B
1998 MANAGEMENT INCENTIVE PROGRAM
The purpose of the 1998 Management Incentive Program (the "Program") is to
provide a means through which Unocal Corporation (the "Company") and its
subsidiaries may attract and retain able employees upon whom the success of
the Company rests, and provide a means whereby those employees will be fairly
compensated and can acquire and maintain stock ownership, thereby
strengthening their commitment to maximizing the value of the Company for its
stockholders.
The Program has three major components:
1. The Revised Incentive Compensation Plan;
2. The Long-Term Incentive Plan of 1998; and
3. The 1998 Performance Stock Option Plan.
A total of 4,750,000 shares will be subject to issuance under the Revised
Incentive Compensation Plan for Restricted Stock Awards elected after June 1,
1998 and under the Long-Term Incentive Plan of 1998, and a total of 3,500,000
shares will be subject to issuance under the 1998 Performance Stock Option
Plan. Of this total amount of 8,250,000 shares, not more than 1,750,000 shares
may be issued as Performance Share Awards and Restricted Stock Awards.
Each of the components of the Program is described in the sections which
follow.
REVISED INCENTIVE COMPENSATION PLAN
1. General Description
The Revised Incentive Compensation Plan provides for annual cash awards to
Employees of the Company and its Subsidiaries. Participants may elect to defer
a portion of their annual Award into Restricted Stock which is subject to
forfeiture under certain conditions and may, also, elect to defer payment of
cash Awards pursuant to a cash deferral program.
2. Definitions
The following definitions shall be applicable throughout the Plan:
a ."Award" means a cash award granted under the Plan.
b. "Award Period" means a period of one year.
c. "Board" means the Board of Directors of the Company, except those members
who are Employees.
d. "Code" means the Internal Revenue Code of 1986, as amended.
e. "Committee" means the Management Development and Compensation Committee
of the Board, which shall consist solely of two or more "outside directors,"
as defined in the regulations under Section 162(m) of the Code. In the event
that one or more members of the Committee are determined not to comply with
this requirement, then the entire Board may serve as the Committee for
purposes of the Plan, including ratification of prior grants made by the
Committee.
f. "Company" means Unocal Corporation.
g. "Comparative Return to Stockholders" means the Company's return to
stockholders compared to the return to stockholders of selected Peer Group
Companies. The Committee shall, in its sole discretion, determine the basis
for comparing stockholder returns.
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h. "Employee" means any person regularly employed by the Company or a
Subsidiary on a full-time salaried basis.
i. "Fair Market Value" for Restricted Stock means the average of the closing
prices of the Stock as reported in the New York Stock Exchange Composite
Transactions quotations for the 30 consecutive trading days prior to the first
day of the calendar year in which the Award is payable.
j. "Future Year Value Creation" means the sum of (i) the present value of
additions to oil and gas reserves through new commercial discoveries, (ii) the
increase of the present value of existing assets due to accelerated
development or commercialization and (iii) such other value additions as the
Committee shall establish.
k. "Holder" means an Employee of the Company who has deferred a portion of
his Award into Restricted Stock.
l. "Net Cash Provided by Operating Activities" means net cash provided by
operating activities as determined in accordance with Statement of Financial
Accounting Standards No. 95, Statement of Cash Flows.
m. "Peer Group Companies" means those companies selected by the Committee
for the purpose of comparing returns to stockholders during the Award Period.
n. "Plan" means the Revised Incentive Compensation Plan, as amended from
time to time.
o. "Program" means the 1998 Management Incentive Program, as amended from
time to time.
p. "Restricted Stock" means Stock granted pursuant to the Plan.
q. "Return on Capital Employed" or "ROCE" means the Company's net earnings
generated relative to the total level of capital (debt and equity) utilized.
r. "Stock" means shares of common stock of the Company as defined in Article
Fourth of the Company's Certificate of Incorporation and such other stock as
shall be substituted for such shares as provided in Section 8.
s. "Subsidiary" means any corporation of which a majority of the outstanding
voting stock or voting power is beneficially owned directly or indirectly by
the Company.
3. Plan Duration
The Plan shall have no fixed expiration date.
4. Administration
The Committee shall administer the Plan. The acts of a majority of the
members present at any meeting at which a quorum is present and acts
unanimously approved in writing by the Committee shall be deemed the acts of
the Committee. The Committee may conduct meetings in person or by telephone.
The Committee may, in its discretion, delegate the authority to grant Awards
under the Plan for Employees other than executive officers to a committee of
the Board of Directors of the Company.
No member of the Committee, while serving as such, shall be eligible to
receive an Award under the Plan. The Committee shall have the authority,
subject to the provisions of the Plan, to establish, adopt, or revise such
rules and regulations and to make all such determinations relating to the Plan
as it may deem necessary or advisable in the administration of the Plan. The
Committee's interpretation of the Plan or any Awards granted pursuant thereto
and all decisions and determinations by the Committee with respect to the Plan
shall be final, binding, and conclusive on all parties.
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5. Determination of Bonus Pool and Awards
The committee shall elect Employees to participate in the Plan. The bonus
pool for each Award period shall be an amount equal to two percent (2%) of the
Company's Net Cash Provided By Operating Activities during the Award Period.
The aggregate amount of Awards paid, without giving effect to any augmentation
upon deferral into restricted stock, under the Plan may not exceed this bonus
pool.
No later than 90 days following the beginning of each Award Period, the
Committee shall establish the level of Awards for those executive officers
whose compensation may be subject to the limitation on deductibility under
Section 162(m) of the Code, as determined by the Committee in its sole
discretion. The amount of each such Award shall be expressed as a percentage
of the bonus pool. The committee shall have the sole discretion to determine
whether the full amount of such Awards will be paid to such participants and
may reduce, but may not increase, the amount payable under an Award based on
such criteria as the Committee, in its sole discretion may determine, which
criteria may include, but shall not be limited to, one or more of the
following: Comparative Return to Stockholders, ROCE, Future Year Value
Creation and individual performance.
The Committee shall also establish individual target Awards for the
remaining participants based such criteria as the Committee, in its sole
discretion may determine, which criteria may include, but shall not be limited
to, one or more of the following: Comparative Return to Stockholders, ROCE,
Future Year Value Creation and salary grade. Subject to the amount of the
bonus pool available after payment of the Awards described in the preceding
paragraph, the Committee shall have the sole discretion to determine the
actual amounts paid out under these Awards, which amounts may be greater than
or less than the target amounts, on the basis of factors such as, but not
limited to, the following:
a. Comparison of actual operational or financial results to plans or goals,
adjusted for external factors such as changes in market prices,
b. Individual performance of Employees selected to participate in the Plan,
and
c. Reasonableness of total cash compensation.
Notwithstanding any other provision of the Plan, the maximum cash Award
payable to a participant in the Plan in any calendar year shall be 0.25% of
the Company's Net Cash Provided By Operating Activities for the calendar year
or, if less, $2,000,000; provided, however, that any portion of an Award
deferred in the form of Restricted Stock may be adjusted pursuant to Section
6.
6. Payment and Deferral of Awards
Awards under the Plan shall be paid in cash from general funds of the
Company in a manner to be prescribed by the Committee. An Award may be paid
all or in part as Restricted Stock (a "Restricted Stock Award") as determined
by the Committee or pursuant to an annual election of the recipient under such
terms as the Committee may establish. In consideration for forgoing cash
compensation, the Committee may, in its discretion, make a Restricted Stock
Award with a total dollar value greater than the Award deferred, provided that
any such increase shall not exceed 100% of the dollar value of the Award
deferred. The number of shares of Restricted Stock issued in consideration of
Awards deferred shall be based on Fair Market Value, after any such increase
described above. The Committee may also permit participants in the Plan to
defer payment of cash Awards pursuant to a cash deferral program on such
terms, including interest which may be credited thereon, as the Committee may
approve in its sole discretion.
a. Restriction Period. At the time a Restricted Stock Award is made, the
Committee shall establish a period of time (the "Restriction Period")
applicable to such Restricted Stock Award, which
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shall be not less than four years. Each Restricted Stock Award may have a
different Restriction Period, at the discretion of the Committee. In the event
of a public tender for all or any portion of the Stock of the Company; in the
event that any proposal to merge, consolidate or otherwise combine the Company
with another company is submitted for stockholder approval; or if another
situation exists that the Committee determines is similar thereto, the
Committee may in its sole discretion change or eliminate the Restriction
Period, and it may also include provisions for such events in the Restricted
Stock Award.
b. Other Terms and Conditions. Subject to the terms of the Plan, the
Committee shall determine and may amend the terms and conditions applicable to
any particular Restricted Stock Award. The Holder shall have the right to
enjoy all stockholder rights during the Restriction Period with the exception
that:
(i) The Holder may not sell, transfer, pledge, exchange, hypothecate, or
otherwise dispose of the Stock during the Restriction Period, except as
permitted pursuant to Section 7(e).
(ii) Any breach of the terms and conditions established by the Committee
pursuant to the Restricted Stock Award shall cause a forfeiture of the
Restricted Stock Award, and any dividends withheld thereon.
(iii) Cash and stock dividends may either be currently paid or withheld
by the Company for the Holder's account. At the discretion of the
Committee, interest may be paid on the amount of cash dividends withheld,
including cash dividends on stock dividends, at a rate and subject to such
terms as determined by the Committee.
c. Termination of Employment. Unless the Committee determines otherwise, in
the event a Holder terminates employment during a Restriction Period, a
Restricted Stock Award will be subject to the following:
(i) Termination determined by the Committee to be at the convenience of
the Company and not for "cause" or for performance inadequacy:
--The Restricted Stock Award would be payable in full and distributed
as soon as practicable after termination.
(ii) Resignation or discharge other than pursuant to Section 6(c)(i):
--The Restricted Stock Award would be completely forfeited.
(iii) Retirement, other than early retirement, pursuant to the Company
retirement plan then in effect:
--The Restricted Stock Award would be payable in full and distributed
as soon as practicable after retirement.
(iv) Early Retirement:
--If at the Holder's request, the Restricted Stock Award would be
completely forfeited.
--If at the Company's request, the Restricted Stock Award would be
payable in full and distributed as soon as practicable after
retirement.
(v) Death or Total and Permanent Disability:
--The Restricted Stock Award would be payable in full and distributed
as soon as practicable after death or disability.
d. Distribution. Except as provided in Section 6 (a), in no event shall
Stock be delivered prior to six months from the date of grant.
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7. General
a. Government and Other Regulations. The obligation of the Company to make
payment of distributions under the Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by governmental agencies
as may be required. The Company shall be under no obligation to register under
the Securities Act of 1933, as amended ("Act") any of the shares of Stock paid
under the Plan. If the shares paid under the Plan may in certain circumstances
be exempt from registration under the Act, the Company may restrict the
transfer of such shares in such manner as it deems advisable to ensure the
availability of any such exemption.
b. Tax Withholding. The Company or a Subsidiary, as appropriate, shall have
the right to deduct from all Awards paid in cash any federal, state or local
taxes as required by law to be withheld with respect to such cash payments,
and, in the case of Awards paid in Stock, the Employee or other person
receiving such Stock may be required to pay to the Company or a Subsidiary, as
appropriate, the amount of any such taxes which the Company or Subsidiary is
required to withhold with respect to such Stock. The Company may, in lieu of
requiring cash payment of any such taxes, elect to withhold from Stock
payments a number of whole shares of Stock whose value is at least equal to
the amount of such taxes. Valuation for this purpose shall be the average of
the reported high and low prices of the Stock as reported in the New York
Stock Exchange Composite Transactions quotations for the first trading date
following the Award or Restriction Period, unless the Committee determines
that it is appropriate to value the Stock on some other date for this purpose.
c. Claim to Awards and Employment Rights. No Employee or other person shall
have any claim or right to be granted an Award under the Plan. Neither this
Plan nor any action taken hereunder shall be construed as giving any Employee
any right to be retained in the employ of the Company or a Subsidiary.
d. Beneficiaries. Any payment due under the Plan to a deceased participant
shall be paid to the beneficiary designated by the participant and filed with
the Committee. If no such beneficiary has been designated, payment shall be
made to the participant's surviving spouse. If a participant does not
designate a beneficiary or have a surviving spouse, payment shall be made to
the participant's legal representative. A beneficiary designation may be
changed or revoked by a participant at any time, provided the change or
revocation is filed with the Committee.
e. Nontransferability. A person's rights and interests under the Plan,
including amounts payable, may not be assigned, pledged, or transferred
except, in the event of an Employee's death, to a designated beneficiary as
provided in the Plan, or in the absence of such designation, by will or the
laws of descent and distribution, except as may be permitted by the Committee
in its sole discretion. The Committee, in its sole discretion, may permit
transfers of Restricted Stock to an Employee's family members and entities
(including trusts, corporations, partnerships, and limited liability
companies) which are established for the exclusive benefit of or are owned
solely by family members and may prescribe such rules and limitations as it
deems appropriate regarding such transfers, taking into account tax
considerations, the impact of Section 16 of the Securities Exchange Act of
1934, the need to register shares under the Securities Act of 1933 and any
applicable State Blue Sky Laws, and any other relevant considerations.
f. Indemnification. Each person who is or shall have been a member of the
Committee or the Board, including the Employee directors, shall be indemnified
and held harmless by the Company against and from any loss, cost, liability,
or expense that may be imposed upon or reasonably incurred by him in
connection with or resulting from any claim, action, suit, or proceeding to
which he may be a party or in which he may be involved by reason of any action
or failure to act under the Plan and against and from any and all amounts paid
by him in satisfaction of judgment in any such action, suit or proceeding
against him. He shall give the Company an opportunity, at its own expense, to
handle
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and defend the same before he undertakes to handle and defend it on his own
behalf. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under
the Company's Certificate of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
g. Reliance on Reports. Each member of the Committee and the Board,
including the Employee directors, shall be fully justified in relying or
acting in good faith upon any report made by the independent public
accountants of the Company and its Subsidiaries and upon any other information
furnished in connection with the Plan by any person or persons other than
himself. In no event shall any person who is or shall have been a member of
the Committee or of the Board be liable for any determination made or other
action taken or any omission to act in reliance upon any such report or
information or for any action taken, including the furnishing of information,
or failure to act, if in good faith.
h. Relationship to Other Benefits. No payment under the Plan shall be taken
into account in determining any benefits under any pension, retirement, profit
sharing, group insurance or other benefit plan of the Company or any
Subsidiary, unless specifically so provided under such plan.
i. Lapse of Awards. To the extent a Restricted Stock Award lapses or the
rights of its Holder terminate or are forfeited, any shares of Stock subject
to such Award which are forfeited shall again be available to be granted as an
Award. Upon satisfaction of tax withholding obligations in connection with any
payment made or benefit realized under this Plan by the transfer or
relinquishment of Stock, there shall be deemed to have been issued or
transferred under this Plan only the number of shares of Stock actually issued
or transferred by the Company less the number of shares of Stock so transferred
or relinquished.
j. Expenses. The expenses of administering the Plan shall be borne by the
Company and its Subsidiaries.
k. Pronouns. Masculine pronouns and other words of masculine gender shall
refer to both men and women.
l. Titles and Headings. The titles and headings of the sections in the Plan
are for convenience of reference only and in the event of any conflict, the
text of the Plan, rather than such titles or headings, shall control.
8. Changes in Capital Structure
Restricted Stock Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee as to the number and price of shares of
Stock or other considerations subject to such Awards in the event of changes
in the outstanding Stock by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring after the
date of grant of any such Award. In the event of any such change in the
outstanding Stock, the aggregate number of shares available under the Plan may
be appropriately adjusted by the Committee, whose determination shall be
conclusive.
9. Amendments and Termination
The Board may at any time terminate the Plan, and with the express written
consent of a Holder, the Board or Committee may cancel, reduce or otherwise
alter his outstanding Awards thereunder if, in its judgment, the tax,
accounting, or other effects of the Plan or potential payouts thereunder would
not be in the best interest of the Company. The Board may, at any time, or
from time to time, amend or suspend and, if suspended, reinstate, the Plan in
whole or in part, provided, however, that without
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further stockholder approval the Board shall not permit the granting of an
Award to a person who is not an Employee or increase the maximum number of
shares which may be issued pursuant to Restricted Stock Awards under the Plan
or Program, except as provided in Section 8.
LONG-TERM INCENTIVE PLAN OF 1998
1. General Description
The Long-Term Incentive Plan of 1998 provides for granting Nonqualified
Stock Options, Restricted Stock Awards, Performance Shares and Performance
Bonuses. The Plan succeeds the Unocal Long-Term Incentive Plans of 1985 and
1991, with certain grants under the 1985 and 1991 Plans subject to the
provisions of the 1998 Plan as described herein.
2. Definitions
The following definitions shall be applicable throughout the Plan but shall
not be deemed to apply in other contexts unless specifically provided
otherwise:
a. "Award" means, individually or collectively, any Nonqualified Stock
Options, Restricted Stock Award, Performance Share Award or Performance Bonus
Award.
b. "Award Period" means the period of time (which shall be not less than
four years) used to determine any payments of Performance Share Awards or
Performance Bonus Awards.
c. "Board" means the Board of Directors of the Company, except those members
who are Employees.
d. "Cause" means (i) conduct or action by a Holder which, in the opinion of
the Committee, is materially harmful to the Company; (ii) willful failure by a
Holder to follow an order of the Board, except in such case where the Holder
believes in good faith that following such order would be materially
detrimental to the interests of the Company; (iii) a Holder's conviction of a
felony; or (iv) performance by a Holder which, in the opinion of the
Committee, falls below the reasonable expectations of the Company.
e. "Change of Control" means:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")(a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (A) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (B) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "outstanding
Company Voting Securities"); provided, however, that for purposes of this
paragraph (i), the following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Company, (B) any acquisition
by the Company, (C) any acquisition by an employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled
by the Company or (D) any acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B) and (C) of paragraph (iii)
of this Section 2(e); or
(ii) Individuals who, as of June 1, 1998, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority
of the Board; provided, however, that any individual becoming a director
subsequent to June 1, 1998 whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption
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of office occurs as a result of an actual or threatened election contest
with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination,
(A) all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding any corporation resulting from
such Business Combination or any employee benefit plan (or related trust)
of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except
to the extent that such ownership existed prior to the Business Combination
and (C) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or
of the action of the Board, providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
f. "Code" means the Internal Revenue Code of 1986, as amended.
g. "Committee" means the Management Development and Compensation Committee
of the Board, which shall consist solely of two or more "outside directors,"
as defined in the regulations under Section 162(m) of the Code. In the event
that one or more members of the Committee are determined not to comply with
this requirement, then the entire Board may serve as the Committee for
purposes of the Plan, including ratification of prior grants made by the
Committee.
h. "Company" means Unocal Corporation.
i. "Comparative Return to Stockholders" means the Company's return to
stockholders compared to the return to stockholders of a selected group of
Peer Group Companies. The Committee shall, in it sole discretion, determine
the basis for comparing stockholder returns.
j. "Date of Grant" means the date on which the granting of an Award is
authorized by the Committee or such later date as may be specified by the
Committee in such authorization.
k. "Employee" means any person regularly employed by the Company or a
Subsidiary on a full-time salaried basis.
l. "Fair Market Value" means:
(i) For Options and Performance Bonus Awards, the average of the reported
high and low prices of the Stock as reported in the New York Stock Exchange
Composite Transactions quotations on a specified date.
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(ii) For Performance Share Awards, the average of the closing prices of
the Stock as reported in the New York Stock Exchange Composite Transactions
quotations for the 30 consecutive trading days prior to the "Valuation
Date." The "Valuation Date" for the purpose of granting Performance Share
Awards shall be the first day of the calendar year in which the Award is
made. The "Valuation Date" for the purpose of Performance Share payments
shall be the trading day on which the Committee approves the payment.
m. "Holder" means an Employee of the Company or a Subsidiary who has been
granted an Option, a Restricted Stock Award, a Performance Share Award or a
Performance Bonus Award.
n. "Option" or "Nonqualified Stock Option" means an Award granted under
Section 7.
o. "Peer Group Companies" means those companies selected by the Committee,
in its sole discretion, for the purpose of comparing returns to stockholders
during the Award Period.
p. "Performance Bonus" means an Award granted under Section 10.
q. "Performance Share" means an Award granted under Section 8.
r. "Plan" means the Long-Term Incentive Plan of 1998, as amended from time
to time.
s "Program" means the 1998 Management Incentive Program, as amended from
time to time.
t. "Restricted Stock Award" means an Award granted under Section 9.
u. "Retirement" means termination of employment on or after "normal
retirement age" as defined in the Company's retirement plan then in effect.
v. "Stock" means shares of common stock of the Company as defined in Article
Fourth of the Company's Certificate of Incorporation and such other stock as
shall be substituted for such shares as provided in Section 12.
w. "Subsidiary" means any corporation of which a majority of the outstanding
voting stock or voting power is beneficially owned directly or indirectly by
the Company.
x. "Voluntary Termination" means any termination of employment by a Holder
prior to Retirement other than a termination without Cause or a termination
due to death or disability.
3. Effective Date and Duration
The Plan shall be effective on June 1, 1998. Subject to the provisions of
Section 13, Awards may be made as provided herein for a period of ten years.
The Plan shall continue in effect until all matters relating to the payment
of Awards and administration of the Plan have been settled.
4. Administration
The Committee shall administer the Plan. The acts of a majority of the
members present at any meeting at which a quorum is present and acts
unanimously approved in writing by the Committee shall be deemed the acts of
the Committee. The Committee may conduct its meetings in person or by
telephone. The Committee may, in its discretion, delegate the authority to
grant Awards under the Plan for Employees other than executive officers to a
committee of the Board of Directors of the Company.
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No member of the Committee, while serving as such, shall be eligible to
receive an Award under the Plan. The Committee shall have the authority,
subject to the provisions of the Plan, to establish, adopt, or revise such
rules and regulations and to make all such determinations relating to the Plan
as it may deem necessary or advisable in the administration of the Plan. The
Committee's interpretation of the Plan or any Awards granted pursuant thereto
and all decisions and determinations by the Committee with respect to the Plan
shall be final, binding, and conclusive on all parties.
5. Grant of Options, Restricted Stock Awards, and Performance Share Awards:
Shares Subject to the Plan
The Committee may, from time to time, grant and amend Awards to Employees in
accordance with the provisions of the Plan; provided however that:
a. Subject to Section 12, the aggregate number of shares of Stock made
subject to Awards under the Plan may not exceed 4,750,000 shares. All shares
which were not previously subject to grants under the Long Term Incentive
Plans of 1985 and 1991 shall be canceled.
b. To the extent an Award lapses or the rights of its Holder terminate or
are forfeited, any shares of Stock subject to such Award which are not
exercised or are forfeited shall again be available to be granted as an Award.
Upon the full or partial payment of any option price by the transfer to the
Company of Stock or upon satisfaction of tax withholding obligations in
connection with any such exercise or any other payment made or benefit
realized under this Plan by the transfer or relinquishment of Stock, there
shall be deemed to have been issued or transferred under this Plan only the
number of shares of Stock actually issued or transferred by the Company less
the number of shares of Stock so transferred or relinquished.
c. Stock delivered by the Company in settlement under the Plan may be from
the Company's authorized and unissued Stock or Stock purchased on the open
market or by private purchase.
d. Except as provided in Sections 7(d)(v), 8(c) or 9(a), the Company shall
not distribute Stock until six months have elapsed from the date of the Award
under the Plan.
e. Awards may contain such other provisions as the Committee may determine
which are not inconsistent with the terms of the Plan.
6. Eligibility
All Employees of the Company and its Subsidiaries (including officers or
Employees who are members of the Board of Directors) shall be eligible to be
granted Awards under the Plan.
7. Stock Options
One or more Options may be granted to any Employee. No person may be granted
during any 12-month period Options to acquire more than 100,000 shares of
Stock under this Plan. Each Option so granted shall be subject to the
following conditions:
a. Option Price. The option price per share of Stock shall be set by the
grant, but shall be not less than Fair Market Value on the Date of Grant.
b. Form of Payment. At the time of the exercise of the Option, the option
price shall be payable in a combination of cash and/or shares of Stock
acceptable to the Committee valued at the Fair Market Value as of the date the
Option is exercised, including (if permitted by the Company) proceeds from the
sale of Stock acquired by exercise of the Option (a cashless exercise).
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c. Restrictions on Shares Acquired. The Committee may impose restrictions
for a specified period (the "Restriction Period") on a portion or all of the
shares acquired through exercise of Options in order to promote the share
ownership objectives of the Plan.
d. Stock Option Agreement. Each Option granted under the Plan shall be
evidenced by a "Stock Option Agreement" between the Company and the Holder of
the Option containing provisions determined by the Committee, which shall
include the following terms and conditions:
(i) Any Option or portion thereof that is exercisable shall be
exercisable for the full amount or for any part thereof, except as
otherwise determined by the grant.
(ii) Every share purchased through the exercise of an Option shall be
paid for in full prior to delivery of stock or, if permitted by the
Company, through a cashless exercise. Each Option shall cease to be
exercisable, as to any share, when the Holder purchases the share or when
the Option lapses.
(iii) Options shall not be transferable by the Holder except by will or
the laws of descent and distribution and shall be exercisable during the
Holder's lifetime only by the Holder, his guardian or legal representative,
except as permitted pursuant to Section 11(e).
(iv) In consideration for the granting of each Option, the Holder shall
agree to remain in the employment of the Company or one or more of its
Subsidiaries at the pleasure of the Company or such Subsidiary for a
continuous period of at least one year after the Date of Grant. At the
discretion of the Committee, this requirement may be waived if the Holder
during said one-year period becomes incapacitated or enters the active
service of the military forces of the United States or other United States
service connected with national defense activities. The Holder agrees that
during such employment, he will devote his entire time, energy and skills
to the service and interest of the Company or such Subsidiary subject to
vacations, sick leave, and other absences in accordance with the regular
policies of the Company and its Subsidiaries.
(v) Notwithstanding any other provision of the Plan, in the event of a
public tender for all or any portion of the Stock of the Company; in the
event that a proposal to merge, consolidate, or otherwise combine with
another company is submitted for stockholder approval; or another situation
exists which the Committee determines is similar thereto, the Committee may
in its sole discretion declare outstanding Options to be immediately
exercisable, and it may also include provisions for such events in the
Stock Option Agreement.
(vi) The Committee may in its sole discretion declare that outstanding
Options which are immediately exercisable, but have not been exercised,
will terminate upon (i) a dissolution of the Company, (ii) a merger,
reorganization, consolidation or similar event that the Company does not
survive, or (iii) the consummation of a merger, reorganization,
consolidation or similar event approved by the Board of Directors, and it
may also include provisions for such events in the Stock Option Agreement.
e. Other Terms and Conditions. Each Option shall become exercisable in such
manner (which may include cumulative annual or other installments) on or after
such date or dates and within such period or periods, not to exceed ten years
from its Date of Grant, as set forth in the Stock Option Agreement.
8. Performance Shares
All outstanding grants of Performance Share Awards under the Long-Term
Incentive Plans of 1985 and 1991 shall be subject to the terms of this Plan,
subject to any required consent of the Holder.
a. Awards. Grants of Performance Shares may be made by the Committee during
the term of the Plan, which shall be credited to a Performance Share account
to be maintained for each such
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<PAGE>
Holder. Each Performance Share shall have a value equivalent to one share of
Stock of the Company. Grants of Performance Shares shall be deemed to have
been made on January 1 of the calendar year in which grants are made. In
determining the size of Awards, the Committee may take into account a Holder's
responsibility level, performance, potential, cash compensation level, and the
Fair Market Value of the Company's Stock at the time of Awards, as well as
such other considerations as it deems appropriate. No person may receive more
than 30% of the aggregate number of Performance Shares granted or more than
25,000 Performance Shares in any 12-month period.
b. Right to Payment of Performance Shares. Following the end of the Award
Period, the Committee shall establish and determine a percentage by which the
Performance Shares awarded shall be multiplied, based on the Company's
Comparative Return to Stockholders, and each Holder's Performance Shares shall
be multiplied by that percentage ("Payout Shares"). In no event shall such
percentage exceed 200%.
Each Holder of Performance Shares shall be entitled at the end of an Award
Period to a dollar amount equal to the Fair Market Value of his Payout Shares
as of the Valuation Date. In no event shall the Fair Market Value of the
Payout Shares exceed 400% of the Fair Market Value of the initial Award of
Performance Shares.
c. Timing and Form of Payment. No payment of Performance Shares shall be
made prior to the end of an Award Period, but shall be made as soon as
practicable thereafter. The Committee may authorize payment in a combination
of cash and/or Stock, as it deems appropriate. Stock may be withheld to
satisfy the tax obligations resulting from the Award. Stock delivered in
payment of Performance Shares may be shares purchased for the account of the
Holder or authorized and unissued shares, or any combination thereof. The
number of shares of Stock to be paid in lieu of cash will be determined by
dividing the portion of the payment not paid in cash by:
(i) The average of the reported high and low prices of the Stock as
reported in the New York Stock Exchange Composite Transactions quotations
on the date on which the shares are issued, or
(ii) The price per share paid for shares purchased for a Holder's account
should the Company purchase shares on behalf of a Holder.
Notwithstanding any other provision of the Plan, in the event of any public
tender for all or any part of the Stock of the Company; in the event that any
proposal to merge, consolidate or otherwise combine the Company with another
company is submitted for stockholder approval; or another situation exists
which the Committee determines is similar thereto, the Committee may in its
sole discretion declare any Award Period ended as of a specific date and
accelerate full payments of such Awards accordingly, and it may also include
provisions for such events in the Performance Share Award. The Committee shall
determine a Comparative Return to Stockholders for the reduced Award Period.
d. Termination of Employment. In the event a Holder terminates employment
during an Award Period, payout would be as follows:
(i) Termination determined by the Committee to be at the convenience of
the Company and not for Cause or for performance inadequacy:
--Payout would be at the end of the Award Period and prorated for
service during the period.
(ii) Resignation or discharge other than pursuant to Section 8(d)(i):
--The Award would be completely forfeited.
(iii) Retirement:
--Payout would be at the end of the Award Period and prorated for
service during the period.
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(iv) Early retirement:
--If at the Holder's request, the Award would be completely forfeited.
--If at the Company's request, payout would be at the end of the Award
Period and prorated for service during the period.
(v) Death or Total and Permanent Disability:
--Payout would be at the end of the Award Period and prorated for
service during the period.
9. Restricted Stock Awards
a. Restriction Period. A Restricted Stock Award may be granted by the
Committee to any Employee. At the time a Restricted Stock Award is made, the
Committee shall establish a period of time (the "Restriction Period")
applicable to such Award which shall be not less than four years. Each
Restricted Stock Award may have a different Restriction Period, at the
discretion of the Committee. In the event of a public tender for all or any
portion of the Stock of the Company; or in the event that any proposal to
merge, consolidate, or otherwise combine the Company with another company is
submitted for stockholder approval; or another situation exists which the
Committee determines is similar thereto, the Committee may in its sole
discretion change or eliminate the Restriction Period, and it may also include
provisions for such events in the Restricted Stock Award.
b. Other Terms and Conditions. Subject to the terms of the Plan, the
Committee shall determine the terms and conditions applicable to any
particular grant of a Restricted Stock Award. The Holder shall have the right
to enjoy all stockholder rights during the Restriction Period with the
exception that:
(i) The Holder may not sell, transfer, pledge, exchange, hypothecate, or
otherwise dispose of the Stock during the Restriction Period, except as
permitted pursuant to Section 11(e).
(ii) Any breach of the terms and conditions established by the Committee
pursuant to the Restricted Stock Award shall cause a forfeiture of the
Restricted Stock Award, and any dividends withheld thereon.
(iii) Cash and stock dividends may either be currently paid or withheld
by the Company for the Holder's account. At the discretion of the
Committee, interest may be paid on the amount of cash dividends withheld,
including cash dividends on stock dividends, at a rate and subject to such
terms as determined by the Committee.
c. Termination of Employment. Unless the Committee determines otherwise, in
the event a Holder terminates employment during a Restriction Period, a
Restricted Stock Award will be subject to the following:
(i) Termination determined by the Committee to be at the convenience of
the Company and not for Cause or for performance inadequacy:
--The Restricted Stock Award would be prorated for service during the
Restriction Period and would be distributed as soon as practicable
following termination.
(ii) Resignation or discharge other than pursuant to Section 9(c)(i):
--The Restricted Stock Award would be completely forfeited.
(iii) Retirement:
--The Restricted Stock Award would be prorated for service during the
Restriction Period and would be distributed as soon as practicable
following retirement.
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<PAGE>
(iv) Early retirement:
--If at the Holder's request, the Restricted Stock Award would be
completely forfeited.
--If at the Company's request, the Restricted Stock Award would be
prorated for service during the Restriction Period and would be
distributed as soon as practicable following early retirement.
(v) Death or Total and Permanent Disability:
--The Restricted Stock Award would be prorated for service during the
Restriction Period and distributed as soon as practicable following
death or disability.
10. Performance Bonuses
a. Awards. Grants of Performance Bonus Awards may be made by the Committee
during the term of the Plan. Each Performance Bonus Award shall represent the
right to be paid a cash bonus if the goal or goals based on the Company's
Comparative Return to Stockholders for the Award Period are satisfied. Grants
of Performance Bonus Awards shall be deemed to have been made on January 1 of
the calendar year in which grants are made. At the time of granting a
Performance Bonus Award, the Committee shall establish (i) the goal or goals
based in part on the Company's Comparative Return to Stockholders and changes
to the price of the Company's common stock, (ii) a matrix to be used to
determine the cash amount, if any, that will be paid based on the extent that
such goal or goals are not achieved. In determining the range of possible
Performance Bonuses, the Committee may take into account a Holder's
responsibility level, cash compensation level, and the Fair Market Value of
the Company's Stock at the time of granting the Performance Bonus Awards, as
well as such other considerations as it deems appropriate. The maximum
Performance Bonus that may be paid to any person for any four-year Award
Period shall be $6.5 million. The maximum Performance Bonus that may be paid
to any person for any Award Period that is longer than four years shall be
$1.625 million multiplied by the number of years in such Award Period.
b. Right to Payment of Performance Bonus. Following the end of the Award
Period, the Committee shall determine the amount of each Holder's Performance
Bonus in accordance with the performance matrix. In no event shall such
percentage exceed 100%.
c. Timing and Form of Payment. No payment of Performance Bonuses shall be
made prior to the end of an Award Period, but shall be made as soon as
practicable thereafter.
Notwithstanding any other provision of the Plan, in the event of a Change in
Control of the Company, the Committee shall declare any Award Period ended as
of the date of the Change in Control and accelerate payments of such
Performance Bonus Awards. The Committee shall determine the Comparative Return
to Stockholders and other factors in the matrix for the reduced Award Period
and the amount of Performance Bonuses payable based on such Comparative Return
to Stockholders, the change to the price of the Company's common stock, and
other performance criteria as if the full Award Period had been completed;
provided, however, that in no event shall a Holder's Performance Bonus be less
than 50% of the maximum amount under the Performance Bonus Award.
d. Termination of Employment. In the event a Holder terminates employment
during an Award Period for a reason other than a Voluntary Termination or is
terminated without Cause, in either case as determined by the Committee, the
Performance Bonus Award shall remain outstanding and the Holder shall receive
the same Performance Bonus at the end of the Award Period based on the
Company's Comparative Return to Stockholders as if the Holder had remained
employed during the full Award Period.
If a Holder terminates employment during an Award Period in a Voluntary
Termination or is terminated for Cause, in either case as determined by the
Committee, such Holder's Performance Bonus Award shall be forfeited.
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<PAGE>
11. General
a. Government and Other Regulations. The obligation of the Company to make
payment of Awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by governmental agencies
as may be required. The Company shall be under no obligation to register under
the Securities Act of 1933, as amended ("Act") any of the shares of Stock paid
under the Plan. If the Stock issued under the Plan may in certain
circumstances be exempt from registration under the Act, the Company may
restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
b. Tax Withholding. The Company or a Subsidiary, as appropriate, shall have
the right to deduct from all Awards paid in cash any federal, state or local
taxes as required by law to be withheld with respect to such cash payments,
and, in the case of Awards paid in Stock, the Employee or other person
receiving such Stock may be required to pay to the Company or a Subsidiary, as
appropriate, the amount of any such taxes which the Company or Subsidiary is
required to withhold with respect to such Stock. The Company may, in lieu of
requiring cash payment of any such taxes, elect to withhold from Stock
payments a number of whole shares of Stock whose value is at least equal to
the amount of such taxes. Valuation for this purpose shall be the average of
the reported high and low prices of the Stock as reported in the New York
Stock Exchange Composite Transactions quotations for the first trading date
following the Restriction Period, unless the Committee determines that it is
appropriate to value the Stock on some other date for this purpose.
c. Claim to Awards and Employment Rights. No Employee or other person shall
have any claim or right to be granted an Award under the Plan. Neither this
Plan nor any action taken hereunder shall be construed as giving any Employee
any right to be retained in the employ of the Company or a Subsidiary.
d. Beneficiaries. Any payment of Awards due under this Plan to a deceased
Holder shall be paid to the beneficiary designated by the Holder and filed
with the Company. If no such beneficiary has been designated, payment shall be
made to the Holder's surviving spouse. If the Holder has not designated a
beneficiary and has no surviving spouse, payment shall be made to the Holder's
legal representative. A beneficiary designation may be changed or revoked by a
Holder at any time, provided the change or revocation is filed with the
Committee.
e. Nontransferability. A Holder's rights and interests under the Plan,
including amounts payable, may not be assigned, pledged, or transferred
except, in the event of an Employee's death, to a designated beneficiary as
provided in the Plan, or in the absence of such designation, by will or the
laws of descent and distribution, except as may be permitted by the Committee
in its sole discretion. The Committee, in its sole discretion, may permit
transfers of Options, Performance Shares and/or Restricted Stock Awards to an
Employee's family members and entities (including trusts, corporations,
partnerships, and limited liability companies) which are established for the
exclusive benefit of or are owned solely by family members and may prescribe
such rules and limitations as it deems appropriate regarding such transfers,
taking into account tax considerations, the impact of Section 16 of the
Securities Exchange Act of 1934, the need to register shares under the
Securities Act of 1933 and any applicable State Blue Sky Laws, and any other
relevant considerations.
f. Indemnification. Each person who is or shall have been a member of the
Committee or the Board, including the Employee directors, shall be indemnified
and held harmless by the Company against and from any loss, cost, liability,
or expense that may be imposed upon or reasonably incurred by him in
connection with or resulting from any claim, action, suit, or proceeding to
which he may be a party or in which he may be involved by reason of any action
or failure to act under the Plan and against and from any and all amounts paid
by him in satisfaction of judgment in any such action, suit or proceeding
against him. He shall give the Company an opportunity, at its own expense, to
handle
B-15
<PAGE>
and defend the same before he undertakes to handle and defend it on his own
behalf. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under
the Company's Certificate of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold
them harmless.
g. Reliance on Reports. Each member of the Committee and the Board,
including the Employee directors, shall be fully justified in relying or
acting in good faith upon any report made by the independent public
accountants of the Company and its Subsidiaries and upon any other information
furnished in connection with the Plan by any person or persons other than
himself. In no event shall any person who is or shall have been a member of
the Committee or of the Board be liable for any determination made or other
action taken or any omission to act in reliance upon any such report or
information or for any action taken, including the furnishing of information,
or failure to act, if in good faith.
h. Relationship to Other Benefits. No payment under the Plan shall be taken
into account in determining any benefits under a pension, retirement, profit
sharing, group insurance or other benefit plan of the Company or any
Subsidiary.
i. Expenses. The expenses of administering the Plan shall be borne by the
Company and its Subsidiaries.
j. Pronouns. Masculine pronouns and other words of masculine gender shall
refer to both men and women.
k. Titles and Headings. The titles and headings of the sections in the Plan
are for convenience of reference only, and in the event of any conflict, the
text of the Plan, rather than such titles or headings, shall control.
12. Changes in Capital Structure
Options, Restricted Stock Awards, Performance Share Awards, Performance
Bonus Awards and any agreements evidencing such Awards shall be subject to
adjustment by the Committee as to the number and price of shares of Stock or
other considerations subject to such Awards in the event of changes in the
outstanding Stock by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring after the
Date of Grant of any such Options or Awards. In the event of any such change
in the outstanding Stock, the aggregate number of shares available under the
Plan and Program may be appropriately adjusted by the Committee, whose
determination shall be conclusive.
13. Amendments and Termination
The Board may at any time terminate the Plan and, with the express written
consent of a Holder, the Board or Committee may cancel, reduce or otherwise
alter his outstanding Awards thereunder if, in its judgment, the tax,
accounting, or other effects of the Plan or potential payouts thereunder would
not be in the best interest of the Company. The Board may, at any time, or
from time to time, amend or suspend and, if suspended, reinstate, the Plan in
whole or in part, provided, however, that without further stockholder approval
the Board shall not:
a. Increase the maximum number of shares which may be issued under the Plan
or Program, or the maximum number of shares which may be granted as Restricted
Stock Awards under the Plan or Program, except as provided in Section 12 or
increase the maximum cash bonus payable under a Performance Bonus Award under
the Plan;
b. Change the minimum option price for Options; or
c. Extend the termination date of the Plan.
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<PAGE>
1998 PERFORMANCE STOCK OPTION PLAN
1. General Description
The 1998 Performance Stock Option Plan provides for granting Nonqualified
Stock Options and Tandem Limited Stock Appreciation Rights to senior
management and other key Employees of the Company.
2. Definitions
The following definitions shall be applicable throughout the Plan:
a. "Average Fair Market Value" means the average of the Fair Market Values
of the Stock on each trading day within the specified period.
b. "Award" means, individually or collectively, any Nonqualified Stock
Options and/or Tandem Limited Stock Appreciation Rights.
c. "Board" means the Board of Directors of the Company, except those members
who are Employees.
d. "Change in Control Event" means an event which is defined in Section
7(d)(vi).
e. "Code" means the Internal Revenue Code of 1986, as amended.
f. "Committee" means the Management Development and Compensation Committee
of the Board, which shall consist solely of two or more "outside directors,"
as defined in the regulations under Section 162(m) of the Code. In the event
that one or more members of the Committee are determined not to comply with
this requirement, then the entire Board may serve as the Committee for
purposes of the Plan, including ratification of prior grants made by the
Committee.
g. "Company" means Unocal Corporation.
h. "Comparative Return to Stockholders" means the Company's return to
stockholders compared to the return to stockholders of a selected group of
Peer Group Companies. The Committee shall, in it sole discretion, determine
the basis for comparing stockholder returns.
i. "Conversion Date" means a date which is defined in Section 7 or 9.
j. "Date of Grant" means the date on which the granting of an Award is
authorized by the Committee or such later date as may be specified by the
Committee in such authorization.
k. "Employee" means any person regularly employed by the Company or a
Subsidiary on a full-time salaried basis.
l. "Fair Market Value" means the average of the reported high and low prices
of the Stock as reported in the New York Stock Exchange Composite Transactions
quotations on a specified date.
m. "Grant Agreement" means an agreement which sets forth the terms of an
Award of a Performance Stock Option and/or Tandem Limited Stock Appreciation
Right to an eligible Employee pursuant to the Plan.
n. "Holder" means an Employee of the Company or a Subsidiary who has been
granted a Performance Stock Option and/or Tandem Limited Stock Appreciation
Right.
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<PAGE>
o. "Initial Award" means an Award of a Performance Stock Option and Tandem
Limited Stock Appreciation Right with a Date of Grant of March 30, 1998.
p. "Option," "Nonqualified Stock Option" or "Performance Stock Option" means
an Award granted under Section 7 or 9.
q. "Peer Group Companies" means those companies selected by the Committee,
in its sole discretion, for the purpose of comparing returns to stockholders
during the Performance Period.
r. "Performance Condition" means a performance condition for exercise of an
Option which is established under Section 7 or 9.
s. "Performance Period" means a period which is defined in Section 7 or 9.
t. "Plan" means the 1998 Performance Stock Option Plan, as amended from time
to time.
u. "Stock" means shares of common stock of the Company as defined in Article
Fourth of the Company's Certificate of Incorporation and such other Stock as
shall be substituted for such shares as provided in Section 11.
v. "Subsidiary" means any corporation of which a majority of the outstanding
voting stock or voting power is beneficially owned directly or indirectly by
the Company.
w. "Tandem Limited Stock Appreciation Right" or "TLSAR" means an Award
granted under Section 8 or 9.
x. "Vesting Condition" means a vesting condition for exercise of an Option
which is established under Section 7 or 9.
3. Effective Date and Duration
The Plan shall be effective on March 30, 1998. Subject to the provisions of
Section 12, Awards may be made as provided herein for a period of five years.
The Plan shall continue in effect until all matters relating to the payment
of Awards and administration of the Plan have been settled.
4. Administration
The Committee shall administer the Plan. The acts of a majority of the
members present at any meeting at which a quorum is present and acts
unanimously approved in writing by the Committee shall be deemed the acts of
the Committee. The Committee may conduct meetings in person or by telephone.
No member of the Committee, while serving as such, shall be eligible to
receive an Award under the Plan. The Committee shall have the authority,
subject to the provisions of the Plan, to establish, adopt, or revise such
rules and regulations and to make all such determinations relating to the Plan
as it may deem necessary or advisable in the administration of the Plan. The
Committee's interpretation of the Plan or any Awards granted pursuant thereto
and all decisions and determinations by the Committee with respect to the Plan
shall be final, binding, and conclusive on all parties.
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5. Grant of Performance Stock Options and Tandem Limited Stock Appreciation
Rights: Shares Subject to the Plan
The Committee may, from time to time, grant and amend Awards to eligible
Employees in accordance with the provisions of the Plan; provided, however,
that:
a. Subject to Section 11, the aggregate number of shares of Stock made
subject to Awards under this Plan may not exceed 3,500,000 shares.
b. To the extent an Award lapses or the rights of its Holder terminate or
are forfeited, any shares of Stock subject to such Award which are not
exercised or are forfeited shall again be available to be granted as an Award;
provided, however, that any shares of Stock which are subject to Options which
terminate due to failure to satisfy the Performance Conditions established for
exercise of the Options shall not be available to be the subject of another
Award. Upon the full or partial payment of any option price by the transfer to
the Company of Stock or upon satisfaction of tax withholding obligations in
connection with any such exercise or any other payment made or benefit
realized under this Plan by the transfer or relinquishment of Stock, there
shall be deemed to have been issued or transferred under this Plan only the
number of shares of Stock actually issued or transferred by the Company less
the number of shares of Stock so transferred or relinquished.
c. Stock delivered by the Company in settlement under the Plan may be from
the Company's authorized and unissued Stock or Stock purchased on the open
market or by private purchase.
d. Except as provided in Sections 7(e)(v), 8, or 9(f ) or (g), the Company
shall not distribute Stock until six months have elapsed from the date of the
Award under the Plan.
6. Eligibility
Senior management and other key Employees of the Company and its
Subsidiaries (including officers or Employees who are members of the Board)
shall be eligible to be granted Awards under the Plan.
7. Performance Stock Options
One or more Performance Stock Options may be granted to any eligible
Employee. No person may be granted during any 36-month period Performance
Stock Options to acquire more than 750,000 shares of Stock under this Plan.
Each Performance Stock Option so granted shall be subject to the following
conditions:
a. Option Price. The option price per share of Stock for a Performance Stock
Option shall be set by the grant, but shall represent a premium of at least
25% over the Fair Market Value on the Date of Grant, as determined by the
Committee in its sole discretion.
b. Form of Payment. At the time of the exercise of the Option, the option
price shall be payable in a combination of cash and/or shares of Stock
acceptable to the Committee valued at the Fair Market Value as of the date the
Option is exercised, including (if permitted by the Company) proceeds from the
sale of Stock acquired by exercise of the Option (a cashless exercise).
c. Performance Conditions and Performance Period. The Committee shall
establish the Performance Conditions and Performance Period for each Option
granted under this Plan. The Performance Conditions may be based on increases
in the Fair Market Value of the Company's Stock and/or Comparative Return to
Stockholders during the Performance Period. A Performance Condition
established for the Option must be satisfied during the Performance Period in
order for the Holder to become entitled to exercise all or any portion of the
Option. Otherwise, the Option shall terminate and be forfeited at the end of
the Performance Period.
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d. Vesting Conditions. The Committee shall impose Vesting Conditions for
each Option which must be satisfied in order for the Holder to become entitled
to exercise all or any portion of the Option. Unless the Committee provides
otherwise, the Vesting Condition for an Option will be satisfied if the Holder
remains in employment with the Company or a Subsidiary from the Date of Grant
until the end of the Performance Period for the Option, and in the event the
Holder terminates employment during the Performance Period, the Option will be
subject to the following:
(i) Termination determined by the Committee to be at the convenience of
the Company and not for "cause" or for performance inadequacy:
--The Vesting Condition would be satisfied for a portion of the shares
subject to the Option prorated for service during the Performance
Period, and the balance of the shares subject to the Option would be
forfeited.
(ii) Resignation or discharge other than pursuant to Section 7(d)(i):
--The Option would be completely forfeited.
(iii) Retirement, other than early retirement, pursuant to the Company
retirement plan then in effect:
--The Vesting Condition would be satisfied for a portion of the shares
subject to the Option prorated for service during the Performance
Period, and the balance of the shares subject to the Option would be
forfeited.
(iv) Early Retirement:
--If at the Holder's request, the Option would be completely forfeited.
--If at the Company's request, the Vesting Condition would be satisfied
for a portion of the shares subject to the Option prorated for
service during the Performance Period, and the balance of the shares
subject to the Option would be forfeited.
(v) Death or Total and Permanent Disability:
--The Vesting Condition would be satisfied for a portion of the shares
subject to the Option prorated for service during the Performance
Period, and the balance of the shares subject to the Option would be
forfeited.
e. Grant Agreement. Each Performance Stock Option granted under the Plan
shall be evidenced by a Grant Agreement between the Company and the Holder of
the Option containing provisions determined by the Committee, which shall
include the following terms and conditions:
(i) Any Option or portion thereof that is exercisable shall be
exercisable for the full amount or for any part thereof, except as
otherwise determined by the grant.
(ii) Every share purchased through the exercise of an Option shall be
paid for in full prior to delivery of stock or, if permitted by the
Company, through a cashless exercise. Each Option shall cease to be
exercisable, as to any share, when the Holder purchases the share or when
the Option lapses.
(iii) Options shall not be transferable by the Holder except by will or
the laws of descent and distribution and shall be exercisable during the
Holder's lifetime only by the Holder, his guardian or legal representative,
except as permitted pursuant to Section 10(e).
(iv) In consideration for the granting of each Option, the Holder shall
agree to remain in the employment of the Company or one or more of its
Subsidiaries at the pleasure of the Company or such Subsidiary for a
continuous period of at least one year after the Date of Grant. At the
discretion of the Committee, this requirement may be waived if the Holder
during said one-year period becomes incapacitated or enters the active
service of the military forces of the United
B-20
<PAGE>
States or other United States service connected with national defense
activities. The Holder agrees that during such employment, he will devote
his entire time, energy and skills to the service and interest of the
Company or such Subsidiary subject to vacations, sick leave, and other
absences in accordance with the regular policies of the Company and its
Subsidiaries.
(v) Notwithstanding any other provision of the Plan, in the event of a
public tender for all or any portion of the Stock of the Company; in the
event that a proposal to merge, consolidate, or otherwise combine with
another company is submitted for stockholder approval; or another situation
exists which the Committee determines is similar thereto, the Committee may
in its sole discretion declare outstanding Options for which the
Performance Conditions have been or are thereafter satisfied to be
immediately exercisable, and it may also include provisions for such events
in the Grant Agreement. Any such event which causes an outstanding Option
to be immediately exercisable shall be referred to in the Plan as a "Change
in Control Event" and shall be deemed to satisfy the Vesting Conditions for
the Option (except for any portion of the shares originally subject to the
Option which have previously been forfeited).
(vi) All Options granted under this Plan shall automatically terminate to
the extent not previously exercised upon (i) a dissolution of the Company,
(ii) a merger, reorganization, consolidation or similar event that the
Company does not survive, or (iii) the consummation of a merger,
reorganization, consolidation or similar event approved by the Board which
the Board determines to be a Change in Control Event. The date upon which
any such event occurs shall be referred to in the Plan as a "Conversion
Date."
f. Other Terms and Conditions. Each Option shall become exercisable in such
manner on or after such date or dates and within such period or periods, not
to exceed ten years from its Date of Grant, as set forth in the Grant
Agreement. An Option shall not become exercisable until the Performance
Conditions and Vesting Conditions for the Option have been satisfied, and,
unless the Grant Agreement provides otherwise, may not be exercised before the
end of the Performance Period for the Option. Unless the Grant Agreement
provides otherwise, an Option which is exercisable following termination of
employment shall remain exercisable until the end of the original term of the
Option.
8. Tandem Limited Stock Appreciation Rights
The Committee has the power and sole discretion to grant Tandem Limited
Stock Appreciation Rights ("TLSARs") to eligible Employees in conjunction with
Options granted under the Plan. Each TLSAR so granted shall be subject to the
following conditions:
a. Grant of TLSAR: Grant Price and Number of Shares. The grant price and
number of shares of Stock subject to a TLSAR granted in conjunction with an
Option shall be set forth in the Grant Agreement for the Award. The grant
price per share of Stock for a TLSAR shall not be less than the Fair Market
Value on the Date of Grant.
b. Termination Date of TLSAR. A TLSAR shall terminate on the earlier of the
following dates:
(i) The date on which the related Option is exercised, with respect to
the same percent of shares of Stock subject to the TLSAR as the percent of
shares of Stock subject to the related Option which were exercised.
(ii) The date on which the related Option lapses or is terminated or
forfeited, unless the TLSAR is payable on such date.
In the event of the termination of employment of a Holder, a TLSAR shall be
forfeited with respect to the same percent of shares of Stock subject to the
TLSAR as the percent of shares of Stock subject to the related Option which
were forfeited on account of such termination of employment.
B-21
<PAGE>
c. Timing and Form of Payment for TLSAR. Each TLSAR which has not otherwise
terminated or been forfeited shall become immediately vested and payable upon
the occurrence of a Conversion Date. The Holder shall be entitled to receive
payment from the Company equal to the amount determined by multiplying (i)
times (ii):
(i) The amount by which the Fair Market Value of a share of Stock on or
immediately prior to the Conversion Date exceeds the grant price of the
TLSAR.
(ii) The number of shares of Stock with respect to which the TLSAR is
payable.
Each TLSAR shall be paid in cash, provided that if any such payment would
cause a Change in Control Event to be ineligible for pooling of interests
accounting under APB No. 16, which transaction but for such payment otherwise
would have been eligible to receive such accounting treatment, any TLSAR shall
be paid in shares of Stock having a Fair Market Value equal to the cash amount
foregone.
d. Grant Agreement. Each Tandem Limited Stock Appreciation Right granted
under the Plan in conjunction with an Option shall be evidenced by the Grant
Agreement between the Company and the Holder of the Option and TLSAR
containing provisions determined by the Committee. The Grant Agreement shall
provide that TLSARs shall not be transferable by the Holder except by will or
the laws of descent and distribution and shall be payable during the Holder's
lifetime only to the Holder, his guardian or legal representative, except as
permitted pursuant to Section 10(e).
9. Initial Awards of Performance Stock Options and Tandem Limited Stock
Appreciation Rights
The Initial Awards under the Plan were granted by the Committee, subject to
approval of the Plan by the Company's stockholders in compliance with the
requirements of the New York Stock Exchange, on March 30, 1998, which shall be
the Date of Grant for the Initial Awards. The Initial Awards of Performance
Stock Options and Tandem Limited Stock Appreciation Rights shall be subject to
the following conditions:
a. Option Price for Performance Stock Options. The option price per share of
Stock for Initial Awards of Options shall be the greater of:
(i) $50.00, or
(ii) a price 33 1/3% above the Average Fair Market Value of the Stock
during the period from January 26, 1998 to May 29, 1998, including such
beginning and ending dates.
b. Performance Period. The Performance Period for Initial Awards of Options
shall be the period of time beginning on the Date of Grant and ending on the
third anniversary of the Date of Grant for such Options.
c. Performance Conditions. The Performance Conditions for Initial Awards of
Options will be satisfied if the Company's Stock achieves either (i) a certain
Stock price or (ii) a certain Comparative Return to Stockholders, as each is
specified below, during the Performance Period:
(i) Stock Price. The Fair Market Value of the Stock has been equal to or
greater than the option price for ten trading days (occurring within any
period of twenty consecutive trading days) during the Performance Period.
(ii) Comparative Return to Stockholders. The Comparative Return to
Stockholders places the Company in the top quartile (75th percentile or
above) of the Peer Group Companies for the Performance Period, as
determined by the Committee.
B-22
<PAGE>
d. Vesting Conditions. The Vesting Conditions for Options set forth in
Section 7(d) shall apply to Initial Awards of Options.
e. Exercise Period. If the Performance Condition is satisfied, vested
Options under Initial Awards may be exercised from the first day after the end
of the Performance Period through the tenth anniversary of the Date of Grant
of such Initial Awards.
f. Change in Control Event. Upon the occurrence of a Change in Control
Event, the Vesting Conditions of Options under Initial Awards shall be waived,
and, if the Performance Condition has been satisfied, such Options may be
immediately exercised. If the Performance Conditions have not yet been
satisfied, such Options may be exercised immediately upon satisfaction of the
Performance Conditions. For Initial Awards, a Change in Control Event shall
include the following:
(i) Approval by the stockholders of the Company of the dissolution or
liquidation of the Company;
(ii) Approval by the stockholders of the Company of an agreement to merge
or consolidate, or otherwise reorganize, with one or more entities that are
not Subsidiaries or other controlled affiliates, as a result of which less
than 50% of the outstanding voting securities of the surviving or resulting
entity immediately after the reorganization are, or will be, owned,
directly or indirectly, by stockholders of the Company immediately before
such reorganization (assuming for purposes of such determination that there
is no change in the record ownership of the Company's securities from the
record date for such approval until such reorganization and that such
record owners hold no securities of the other parties to such
reorganization, but including in such determination any securities of the
other parties to such reorganization held by Subsidiaries or other
controlled affiliates of the Company);
(iii) Approval by the stockholders of the Company of the sale of
substantially all of the Company's business and/or assets to a person or
entity that is not a Subsidiary or other controlled affiliate;
(iv) Any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), but
excluding any person described in and satisfying the conditions of Rule
13d-1(b)(1) thereunder), other than a Subsidiary or other controlled
affiliate and other than an employee benefit plan sponsored by the Company
or any of its Subsidiaries or controlled affiliates, becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act, and except pursuant
to customary forms of revocable proxies used in connection with annual
meetings of stockholders), directly or indirectly, of securities of the
Company representing more than 50% of the combined voting power of the
Company's then outstanding securities entitled to then vote generally in
the election of directors of the Company; or
(v) During any period not longer than two consecutive years, individuals
who at the beginning of such period constituted the Board of Directors
cease to constitute at least a majority thereof, unless the election, or
the nomination for election by the Company's stockholders, of each new
Board member was approved by a vote of at least three-fourths of the Board
members then still in office who were Board members at the beginning of
such period (including for these purposes, new members whose election or
nomination was so approved).
For purposes of clause (iv) above, a person shall be deemed to have the right
to acquire outstanding securities immediately prior to the actual acquisition
of the securities if the securities are acquired pursuant to a tender or
exchange offer subject to Section 14(d) of the Exchange Act.
g. TLSARs. TLSARs shall be granted in tandem with Options pursuant to
Initial Awards and shall be subject to the terms and conditions of Section 8
of the Plan. The grant price and number of
B-23
<PAGE>
shares of Stock subject to TLSARs granted pursuant to Initial Awards shall be
set forth in the Grant Agreement. TLSARs will be granted for a number of
shares of Stock equal to (i) 0.53 times (ii) the number of shares of Stock
under the related Performance Stock Option. The grant price per share of Stock
for the TLSARs will be the greater of (i) $38.6875 or (ii) the Fair Market
Value on the Date of Grant.
h. Grant Agreement. The Grant Agreements for Initial Awards shall contain
such provisions as the Committee may determine, which shall include the terms
and conditions set forth in Sections 7(e) and 8(d) of the Plan.
10. General
a. Government and Other Regulations. The obligation of the Company to make
payment of Awards in Stock or otherwise shall be subject to all applicable
laws, rules, and regulations, and to such approvals by governmental agencies
as may be required. The Company shall be under no obligation to register under
the Securities Act of 1933, as amended ("Act") any of the shares of Stock paid
under the Plan. If the Stock issued under the Plan may in certain
circumstances be exempt from registration under the Act, the Company may
restrict the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
b. Tax Withholding. The Company or a Subsidiary, as appropriate, shall have
the right to deduct from all Awards paid in cash any federal, state or local
taxes as required by law to be withheld with respect to such cash payments,
and, in the case of Awards paid in Stock, the Employee or other person
receiving such Stock may be required to pay to the Company or a Subsidiary, as
appropriate, the amount of any such taxes which the Company or Subsidiary is
required to withhold with respect to such Stock. The Company may, in lieu of
requiring cash payment of any such taxes, elect to withhold from Stock
payments a number of whole shares of Stock whose value is at least equal to
the amount of such taxes. Valuation for this purpose shall be the average of
the reported high and low prices of the Stock as reported in the New York
Stock Exchange Composite Transactions quotations for the applicable date as
determined by the Committee.
c. Claim to Awards and Employment Rights. No Employee or other person shall
have any claim or right to be granted an Award under the Plan. Neither this
Plan nor any action taken hereunder shall be construed as giving any Employee
any right to be retained in the employ of the Company or a Subsidiary.
d. Beneficiaries. Any payment of Awards due under this Plan to a deceased
Holder shall be paid to the beneficiary designated by the Holder and filed
with the Committee. If no such beneficiary has been designated, payment shall
be made to the Holder's surviving spouse. If the Holder has not designated a
beneficiary and has no surviving spouse, payment shall be made to the Holder's
legal representative. A beneficiary designation may be changed or revoked by a
Holder at any time, provided the change or revocation is filed with the
Committee.
e. Nontransferability. A Holder's rights and interests under the Plan,
including amounts payable, may not be assigned, pledged, or transferred
except, in the event of an Employee's death, to a designated beneficiary as
provided in the Plan, or in the absence of such designation, by will or the
laws of descent and distribution, except as may be permitted by the Committee
in its sole discretion. The Committee, in its sole discretion, may permit
transfers of Options and/or TLSARs to an Employee's family members and
entities (including trusts, corporations, partnerships, and limited liability
companies) which are established for the exclusive benefit of or are owned
solely by family members and may prescribe such rules and limitations as it
deems appropriate regarding such transfers, taking into account tax
considerations, the impact of Section 16 of the Securities Exchange Act of
1934, the need to register shares under the Securities Act of 1933 and any
applicable State Blue Sky Laws, and any other relevant considerations.
B-24
<PAGE>
f. Indemnification. Each person who is or shall have been a member of the
Committee or the Board, including the Employee directors, shall be indemnified
and held harmless by the Company against and from any loss, cost, liability,
or expense that may be imposed upon or reasonably incurred by him in
connection with or resulting from any claim, action, suit, or proceeding to
which he may be a party or in which he may be involved by reason of any action
or failure to act under the Plan and against and from any and all amounts paid
by him in satisfaction of judgment in any such action, suit or proceeding
against him. He shall give the Company an opportunity, at its own expense, to
handle and defend the same before he undertakes to handle and defend it on his
own behalf. The foregoing right of indemnification shall not be exclusive of
any other rights of indemnification to which such persons may be entitled
under the Company's Certificate of Incorporation or Bylaws, as a matter of
law, or otherwise, or any power that the Company may have to indemnify them or
hold them harmless.
g. Reliance on Reports. Each member of the Committee and the Board,
including the Employee directors, shall be fully justified in relying or
acting in good faith upon any report made by the independent public
accountants of the Company and its Subsidiaries and upon any other information
furnished in connection with the Plan by any person or persons other than
himself. In no event shall any person who is or shall have been a member of
the Committee or of the Board be liable for any determination made or other
action taken or any omission to act in reliance upon any such report or
information or for any action taken, including the furnishing of information,
or failure to act, if in good faith.
h. Relationship to Other Benefits. No payment under the Plan shall be taken
into account in determining any benefits under a pension, retirement, profit
sharing, group insurance or other benefit plan of the Company or any
Subsidiary.
i. Expenses. The expenses of administering the Plan shall be borne by the
Company and its Subsidiaries.
j. Pronouns. Masculine pronouns and other words of masculine gender shall
refer to both men and women.
k. Titles and Headings. The titles and headings of the sections in the Plan
are for convenience of reference only, and in the event of any conflict, the
text of the Plan, rather than such titles or headings, shall control.
11. Changes in Capital Structure
Options, TLSARs and any agreements evidencing such Awards shall be subject
to adjustment by the Committee as to the number and price of shares of Stock
or other considerations subject to such Awards in the event of changes in the
outstanding Stock by reason of stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations, combinations,
exchanges, or other relevant changes in capitalization occurring after the
Date of Grant of any such Options or Awards. In the event of any such change
in the outstanding Stock, the aggregate number of shares available under the
Plan may be appropriately adjusted by the Committee, whose determination shall
be conclusive.
B-25
<PAGE>
12. Amendments and Termination
The Board may at any time terminate the Plan and, with the express written
consent of a Holder, the Board or Committee may cancel, reduce or otherwise
alter his outstanding Awards thereunder if, in its judgment, the tax,
accounting, or other effects of the Plan or potential payouts thereunder would
not be in the best interest of the Company. The Board may, at any time, or
from time to time, amend or suspend and, if suspended, reinstate, the Plan in
whole or in part, provided, however, that without further stockholder approval
the Board shall not:
a. Increase the maximum number of shares which may be issued under the Plan,
except as provided in Section 11;
b. Change the minimum option price for Options or minimum grant price for
TLSARs; or
c. Extend the termination date of the Plan.
B-26
<PAGE>
Unocal Corporation
C/O Chasemellon Shareholder Services
P.O. Box 1474, Church Street Station
New York, NY 10277-1474
UNOCAL [LOGO]
Board of Directors Proxy
2000 ANNUAL MEETING OF STOCKHOLDERS
Timothy H. Ling and Dennis P.R. Codon, or either of them, with full power of
substitution, are hereby appointed by the signatory of this Proxy to vote all
shares of Common Stock held by the signatory on March 28, 2000, at the May 22,
2000 Annual Meeting of Stockholders of Unocal Corporation, and any adjournment
thereof, on each of the items on the reverse side and in accordance with the
directions given there and, in their discretion, on all other matters that may
properly come before the Annual Meeting and any adjournment thereof.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED ON THE REVERSE SIDE, OR IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR ITEMS 1,2,3, AND 4 AND AGAINST ITEM 5.
(CONTINUED, AND TO BE DATED AND SIGNED ON REVERSE SIDE)
-FOLD AND DETACH HERE-
YOUR VOTE IS IMPORTANT TO THE COMPANY
PHONE IN YOUR VOTE USING THE
INSTRUCTIONS ON THE REVERSE SIDE
OR
MAIL IN YOUR VOTE USING THE
ENCLOSED POSTAGE-PAID ENVELOPE
<PAGE>
<TABLE>
<CAPTION>
UNOCAL [LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE 2000
ANNUAL MEETING OF STOCKHOLDERS OF UNOCAL CORPORATION
Please mark your votes as indicated in this example [X]
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR ITEMS 1, 2, 3 AND 4
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Item 1: Election of the following nominees as FOR ALL WITHHOLD AUTHORITY
directors for three-year terms to Nominees [_] to vote for all nominees [_]
expire in 2003:
(01) John W. Amerman
(02) Roger C. Beach WITHHOLD AUTHORITY TO VOTE FOR THE FOLLOWING NOMINEE(S):
(03) John W. Creighton, Jr.
(04) Kevin W. Sharer --------------------------------------------------------
Item 2: Ratification of appointment of PricewaterhouseCoopers LLP FOR AGAINST ABSTAIN
as independent accountants [_] [_] [_]
Item 3: Approval of 2000 Executive Stock Purchase Program FOR AGAINST ABSTAIN
[_] [_] [_]
Item 4: Approval of amendments to 1998 Management Incentive Program FOR AGAINST ABSTAIN
[_] [_] [_]
- ---------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST Item 5
Item 5: Stockholder proposal: Review and report on executive compensation FOR AGAINST ABSTAIN
[_] [_] [_]
CHECK THIS BOX FOR OPEN BALLOT [_]
(If you check this box, the
Company will be given access
to your proxy)
MEETING ATTENDANCE [_]
Check this box if you plan to
attend the 2000 Annual Meeting
CHECK THIS BOX FOR ELECTRONIC DELIVERY [_]
(If you check this box, you agree to
receive future annual reports and proxy
statements by using a computer to access
Unocal's site on the internet, and we
will not mail paper copies of future
annual reports and proxy statements to you
unless you request it)
SIGNATURE SIGNATURE DATE
---------------------------- --------------------------- ----------------
</TABLE>
Please mark, date and sign as your name appears above and return in the enclosed
envelope. If acting as executor, administrator, trustee or guardian, you should
so indicate when signing. If the signer is a corporation, please sign the full
corporate name, by duly authorized officer. If share are held jointly, each
stockholder should sign.
- SEE OTHER SIDE FOR IMPORTANT INFORMATION -
- --------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
VOTE BY TELEPHONE
24 hours a day/7 days a week - toll free!
---------
VOTE BY PHONE:
- -------------
1) Read the accompanying Proxy Statement.
2) With your proxy card in hand, dial 1-800-840-1208 using a touch-tone
telephone.
3) When prompted, enter your Control Number, located in the lower right-hand
-------------- ----------------
corner of this form.
-----
4) Follow the simple instructions to vote your proxy.
or
VOTE BY PROXY CARD: Read the accompanying Proxy Statement, mark, sign, and date
- ------------------
your proxy card and return promptly in the enclosed envelope. (NOTE: If you
vote by telephone, there is no need to mail your Proxy Card).
------------------------
THANK YOU FOR VOTING
- --------------------------------------------------------------------------------
VIEW UNOCAL'S ANNUAL REPORT AND PROXY STATEMENT ON THE WORLD WIDE WEB!
ANNUAL REPORT: http://www.unocal.com/annualreport
Proxy Statement: http://www.unocal.com/proxy
<PAGE>
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
TO: MEMBERS OF THE UNOCAL SAVINGS PLAN
Your voting instructions are solicited on behalf of the Board of Directors of
Unocal Corporation for the Annual Meeting of Stockholders to be held on May
22,2000. The shares in your account will be voted as directed. In the absence
of such direction, the Trustee of the Unocal Savings Plan will vote the shares
in the same proportion on each issue as it votes the shares for which it
receives direction, except as limited by law. It is understood that the Trustee
will have the authority to vote or give proxy to vote on all other matters which
may properly come before the meeting and at any adjournment thereof. Your
voting instructions will be kept confidential by the independent voting
tabulator.
TO: HOLDERS OF UNOCAL RESTRICTED STOCK
Your voting instructions are solicited on behalf of the Board of Directors of
Unocal Corporation for the Annual Meeting of Stockholders to be held on May 22,
2000. Your restricted stock will be voted as directed. In the absence of such
direction the Management Development and Compensation Committee of the Board of
Directors will vote your restricted stock in its direction, except as limited by
law. it is understood that the Management Development and Compensation
Committee will have the authority to vote or give proxy to vote on all matters
which may properly come before the meeting and at any adjournment thereof.
Your voting instructions will be kept confidential by the independent voting
tabulator.
Putnam Fiduciary Trust Company, Trustee Unocal Corporation, Administrator
Unocal Savings Plan Management Incentive Programs
859 Willard Street 2141 Rosecrans Ave, Suite 4000
Quincy, MA 02269-09110 El Segundo CA 90245
<PAGE>
<TABLE>
<CAPTION>
PUTNAM FIDUCIARY TRUST COMPANY, TRUSTEE - UNOCAL SAVINGS PLAN
UNOCAL CORPORATION - ADMINISTRATOR FBO EMPLOYEES WITH RESTRICTED STOCK
ANNUAL MEETING OF STOCKHOLDERS - VOTING INSTRUCTIONS
Please mark your votes as indicated in this example [X]
The Board of Directors Recommends Votes FOR Items 1, 2, 3 and 4
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Item 1: Election of the following nominees as FOR ALL WITHHOLD AUTHORITY
directors for three-year terms to Nominees [_] to vote for ALL nominees [_]
expire in 2003:
(01) John W. Amerman
(02) Roger C. Beach Withhold authority to vote for the following nominee(s):
(03) John W. Creighton, Jr.
(04) Kevin W. Sharer --------------------------------------------------------
Item 2: Ratification of appointment of PricewaterhouseCoopers LLP FOR AGAINST ABSTAIN
as independent accountants [_] [_] [_]
Item 3: Approval of 2000 Executive Stock Purchase Program FOR AGAINST ABSTAIN
[_] [_] [_]
Item 4: Approval of amendments to 1998 Management Incentive Program FOR AGAINST ABSTAIN
[_] [_] [_]
The Board of Directors recommends a vote AGAINST Item 5
- ----------------------------------------------------------------------------------------------------------------------------
Item 5: Stockholder proposal: Review and report on executive compensation FOR AGAINST ABSTAIN
[_] [_] [_]
SIGNATURE SIGNATURE DATE
----------------------- ------------------- ----------------
</TABLE>
Please mark, date and sign as your name appears above and return in the enclosed
envelope. If acting as executor, administrator, trustee or guardian, you should
so indicate when signing. If the signer is a corporation, please sign the full
corporate name, by duly authorized officer. If shares are held jointly, each
stockholder should sign.
- See other side for important information -
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
VOTE BY TELEPHONE
24 hours a day/7 days a week - toll free!
VOTE BY PHONE:
- -------------
1) Read the accompanying Proxy Statement.
2) With your proxy card in hand, dial 1-800-840-1208 using a touch-tone
telephone.
3) When prompted, enter your Control Number, located in the lower right-hand
-------------- ----------------
corner of this form.
------
4) Follow the simple instructions to vote your proxy.
or
VOTE BY PROXY CARD: Read the accompanying Proxy Statement, mark, sign, and date
- ------------------
your proxy card and return promptly in the enclosed envelope. (NOTE: If you
vote by telephone, there is no need to mail your Proxy Card).
------------------------
THANK YOU FOR VOTING.
- --------------------------------------------------------------------------------
View Unocal's Annual Report and Proxy Statement on the World Wide Web!
Annual Report: http://www.unocal.com/annualreport
Proxy Statement: http://www.unocal.com/proxy
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF
(Continued from other side) OF THE BOARD OF DIRECTORS FOR THE
MAY 22, 2000 ANNUAL MEETING OF
STOCKHOLDERS OF UNOCAL CORPORATION
UNOCAL [LOGO]
The Board of Directors recommends votes FOR Items 1, 2, 3 and 4
<TABLE>
<S> <C>
Item 1: Election of the following nominees as
directors for three-year terms to WITHHOLD AUTHORITY
expire in 2003: to vote for the following nominee(s):
-------------------------------------
John W. Amerman John W. Creighton, Jr.
Roger C. Beach Kevin W. Sharer
[_] FOR ALL [_] WITHHOLD AUTHORITY
nominees to vote for all of the nominees
Item 2: Ratification of appointment of
PricewaterhouseCoopers LLP as
independent accountants
[_] FOR [_] AGAINST [_] ABSTAIN
Item 3: Approval of 2000 Executive Stock
Purchase Program
[_] FOR [_] AGAINST [_] ABSTAIN
Item 4: Approval of amendments to 1998 Signature(s).........................................
Management Incentive Program
.....................................................
[_] FOR [_] AGAINST [_] ABSTAIN
Dated ............, 2000
The Board of Directors recommends votes AGAINST Item 5
------------------------------------------------------
Item 5: Stockholder proposal:
Review and report on executive compensation
Persons signing in representative capacity should
[_] FOR [_] AGAINST [_] ABSTAIN indicate title as such.
</TABLE>
Board of Directors UNOCAL CORPORATION
Proxy c/o CHASEMELLON SHAREHOLDER
UNOCAL [LOGO] Annual Meeting of SERVICES
Stockholders P.O. BOX 1474, CHURCH STREET
May 22, 2000 STATION
NEW YORK, NY 10277-1474
Timothy H. Ling and Dennis P.R. Codon, or either of them, with full power of
substitution, are hereby appointed by the signatory of this Proxy to vote all
shares of Common Stock represented by this Proxy at the May 22, 2000 Annual
Meeting of Stockholders of Unocal Corporation, and any adjournment thereof, on
each of the items on the reverse side and in accordance with the directions
given there and, in their discretion, on all other matters that may properly
come before the Annual Meeting and any adjournment thereof.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED ON THE REVERSE SIDE, OR IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR ITEMS 1, 2, 3 AND 4, AND AGAINST ITEM 5.
(Continued, and to be dated and signed on reverse side)
