UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
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Unocal Corporation
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Unocal Corporation
2141 Rosecrans Avenue, Suite 4000
El Segundo, California 90245
UNOCAL [LOGO APPEARS HERE]
April 12, 2004
Dear Stockholder:
Please accept my personal invitation to attend the 2004 annual
meeting of stockholders of Unocal Corporation on Monday, May 24,
2004. It will be held at the Westin Los Angeles Airport Hotel,
located at 5400 West Century Boulevard, Los Angeles, California,
in the second floor theater, at 10:00 A.M., Pacific Daylight
Time.
The enclosed notice of annual meeting and proxy statement
provide important information concerning the matters to be
considered at the meeting. Before the conclusion of the meeting,
there will be a period for questions and comments.
If you are a registered stockholder and plan to attend the
meeting in person, please mark the attendance box on your proxy
card and bring the tear-off admission ticket with you to the
meeting. If you are a beneficial owner of Unocal common stock
that is held by a bank, broker or other nominee, you will need
proof of ownership to be admitted to the meeting. A recent
brokerage statement or a letter from your bank or broker are
examples of proof of ownership. Stockholders will be asked for
identification for admission to the meeting.
Your vote is important. I urge you to submit your proxy as
soon as possible so that your shares will be represented. Most
stockholders have their choice of three methods to vote by proxy:
- Mail, using the enclosed proxy card and return envelope,
----
- Phone, using the 800 number provided on the proxy card (U.S.
-----
and Canada only), or
- Internet, using the website provided on the proxy card.
--------
Thank you very much for your continued interest and support.
Sincerely,
/S/ Charles R. Williamson
Charles R. Williamson
Chairman of the Board of
Directors,
Chief Executive Officer and
President
TABLE OF CONTENTS
Page
INVITATION FROM THE CHAIRMAN ..............................................Cover
NOTICE OF 2004 ANNUAL MEETING OF STOCKHOLDERS ............................. i
PROXY STATEMENT ........................................................... 1
General Information ....................................................... 1
Proxy Solicitation; Mailing Date ....................................... 1
Stockholders Entitled to Vote .......................................... 1
Quorum; Required Votes ................................................. 1
Solicitation Expenses .................................................. 2
Voting Procedures ...................................................... 2
Revoking Your Proxy .................................................... 2
Confidential Voting .................................................... 2
Electronic Delivery .................................................... 2
Stockholders Sharing an Address ........................................ 2
Copies of the Annual Report and Proxy Statement ........................ 3
Stock Ownership ........................................................... 3
Security Ownership of Certain Beneficial Owners ........................ 3
Security Ownership of Management ....................................... 4
Section 16(a) Beneficial Ownership Reporting Compliance ................ 5
Corporate Governance ...................................................... 5
Director Nomination Process ............................................ 5
Board Committee Meetings and Functions ................................. 6
Directors' Compensation ................................................ 8
Executive Sessions ..................................................... 9
Communications with Board Members ...................................... 9
Report of the Audit Committee ............................................. 10
Executive Compensation .................................................... 10
Report of the Management Development and Compensation
Committee .............................................................. 10
Employment Contracts; Termination of Employment and Change
of Control Arrangements ................................................ 14
Indebtedness of Management ............................................. 16
Summary Compensation Table ............................................. 17
Option/SAR Grants in 2003 .............................................. 19
Aggregated Option/SAR Exercises in 2003 and
December 31, 2003 Option/SAR Values .................................... 20
Long-Term Incentive Plans - Awards in 2003 ............................. 21
Pension Plan Table ..................................................... 21
Performance Graph - Cumulative Total Shareholder Return ................... 22
Equity Compensation Plan Information ...................................... 23
Item 1. Election of Directors ............................................ 24
Nominees for Directors ....................................... 25
Continuing Directors ......................................... 25
Retiring Directors ........................................... 26
Other Information ............................................ 26
Directors' Recommendation .................................... 27
Item 2. Ratification of Appointment of
PricewaterhouseCoopers LLP as Independent Auditors ............... 27
Independent Auditor Fees ..................................... 27
Directors' Recommendation .................................... 28
Item 3. Approval of 2004 Management Incentive Program .................... 28
Summary Description of the Program ........................... 28
New Plan Benefits ............................................ 35
Directors' Recommendation .................................... 36
Item 4. Approval of 2004 Directors' Deferred Compensation
and Restricted Stock Unit Award Plan ............................. 36
Summary Description of the 2004 Plan ......................... 37
New Plan Benefits ............................................ 40
Directors' Recommendation; Interest of Non-Employee
Directors .................................................... 40
Item 5. Stockholder Proposal: Bylaw Requiring that the Chairman
Be an Independent Director ....................................... 41
Directors' Recommendation .................................... 42
Item 6. Stockholder Proposal: Use Restricted Stock in Lieu
of Stock Options for Executive Equity Compensation
Plans ............................................................ 43
Directors' Recommendation .................................... 44
Item 7. Stockholder Proposal: Establish an Office of the
Board of Directors for Shareholder Communication with
Independent Directors Regarding Corporate Governance ............. 45
Directors' Recommendation .................................... 46
Item 8. Stockholder Proposal: Assessment and Report by
Independent Directors Regarding Reduction of
Greenhouse Gasses ................................................ 46
Directors' Recommendation .................................... 47
Item 9. Other Business ................................................... 49
Stockholder Proposals for 2005 Annual Meeting ............................. 49
Exhibit A: Audit Committee Charter ....................................... A-1
Exhibit B: 2004 Management Incentive Program ............................. B-i
Exhibit C: 2004 Directors' Deferred Compensation and Restricted
Stock Unit Award Plan ......................................... C-i
Notice of 2004
Annual Meeting
of Stockholders
UNOCAL [LOGO APPEARS HERE]
Unocal Corporation
2141 Rosecrans Avenue, Suite 4000
El Segundo, California 90245
The 2004 annual meeting of stockholders of Unocal Corporation
(the "Company"), a Delaware corporation, will be held at the
Westin Los Angeles Airport Hotel, located at 5400 West Century
Boulevard, Los Angeles, California, in the second-floor theater,
on Monday, May 24, 2004, at 10:00 A.M., Pacific Daylight Time,
for the following purposes:
(1) to elect three directors for three-year terms that will expire at the
annual meeting in 2007;
(2) to ratify the action of the Audit Committee of the Board of Directors
in appointing PricewaterhouseCoopers LLP as the Company's independent
auditors for 2004;
(3) to approve the 2004 Management Incentive Program;
(4) to approve the 2004 Directors' Deferred Compensation and Restricted
Stock Unit Award Plan;
(5) to consider and act upon the four stockholder proposals 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 25, 2004, are
entitled to notice of and to vote at the annual meeting and any adjournment
thereof.
By Order of the Board of
Directors
/S/ Bryan J. Pechersky
Bryan J. Pechersky
Corporate Secretary
April 12, 2004
El Segundo, California
i
Proxy Statement
Annual Meeting of Stockholders
May 24, 2004
UNOCAL [LOGO APPEARS HERE]
Unocal Corporation
2141 Rosecrans Avenue, Suite
4000
El Segundo, California 90245
GENERAL INFORMATION
-------------------
Proxy Solicitation; Mailing Date. 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 2004 annual
meeting of stockholders of the Company to be held on May 24,
2004, and any adjournment thereof. The Board of Directors has
appointed Messrs. Terry G. Dallas, Executive Vice President and
Chief Financial Officer, and Samuel H. Gillespie III, Senior Vice
President, General Counsel and Chief Legal Officer, as the proxy
holders for the annual meeting. The notice of the annual meeting
and this proxy statement, together with a proxy card and the
Company's 2003 annual report, are first being sent to
stockholders on or about April 12, 2004.
Stockholders Entitled to Vote. Only common stockholders of
record on the books of the Company at the close of business on
March 25, 2004 are entitled to notice of and to vote at the
meeting. A stockholder of record is entitled to one vote for
each share of common stock owned on the record date. As of the
record date, the Company had 262,358,048 shares of common stock
outstanding.
Quorum; Required Votes. The holders of one-third of all of
the outstanding shares of the common stock of the Company
entitled to vote at the meeting, present in person or represented
by proxy, constitute a quorum for the transaction of business at
the meeting. Broker non-votes, which are explained below,
abstentions and withhold votes will count as present for purposes
of establishing a quorum for the transaction of business at the
meeting.
A "broker non-vote" occurs if a broker or other nominee who is
entitled to vote shares on behalf of a record owner has not
received instructions with respect to a particular item to be
voted on and the broker or nominee does not otherwise have
discretionary authority to vote on that matter. Under the rules
of the New York Stock Exchange ("NYSE"), brokers may vote a
client's proxy in their own discretion on certain items even
without instructions from the beneficial owner, but may not vote
a client's proxy without voting instructions on "non-
discretionary" items.
-- Item 1 (election of directors) - A plurality of the votes of
the shares present in person or represented by proxy at the
meeting and entitled to vote on this Item is required for the
election of the directors. This means that director nominees
with the most votes are elected, even if a nominee does not
receive a majority vote. Instructions to "withhold" votes will
not have an effect on the outcome of the election of directors at
the meeting.
-- Item 2 (ratification of independent auditors) - The affirmative vote of the
majority of shares present in person or represented by proxy at the meeting
and entitled to vote on this Item is required for ratification of the
appointment. Abstentions will have the same effect as a negative vote.
-- Items 3 and 4 (approvals of management and director
compensation plans) - The affirmative vote of the majority of
votes cast on these Items is required for approval of the plans,
provided that the total vote cast represents over 50% of all
shares entitled to vote thereon. Abstentions will have the
1
same effect as a negative vote. Broker non-votes will not have an
effect on the outcome of the vote, provided that the total vote
cast represents over 50% of all shares entitled to vote thereon.
-- Items 5 - 8 (stockholder proposals) - The affirmative vote of
the majority of shares present in person or represented by proxy
at the annual meeting and entitled to vote on these Items is
required for approval of these proposals. Abstentions will have
the same effect as a negative vote. Broker non-votes will not
have an effect on the outcome of the vote.
Solicitation Expenses. 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 $16,500, plus reimbursement of
out-of-pocket expenses.
Voting Procedures. All stockholders may vote by signing,
dating and returning their proxy cards in the enclosed pre-
addressed envelopes. Registered stockholders may instead choose
to vote by telephone (from U.S. and Canada locations), using the
toll-free number listed on the proxy card, or electronically on
the Internet, using the web site listed on the proxy card, or in
person at the meeting. If you are a beneficial owner of Unocal
common stock that is held by a bank, broker or other nominee,
please read your voting card to determine whether you may vote by
telephone or electronically on the Internet, following the
instructions on the card. A street-name stockholder who wishes
to vote at the meeting will need to obtain a proxy from the
record holder.
Revoking Your Proxy. 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 telephone or Internet
system, by voting by ballot at the meeting, or by filing an
instrument of revocation with the Inspector of Elections. The
proxy tabulating agent will record your vote according to the
instructions which it receives last, regardless of when you
transmitted the instructions.
Confidential Voting. The Board of Directors has adopted a
policy of ensuring the confidentiality of stockholder votes to
encourage stockholder participation in corporate governance. The
Company retains independent third parties to receive and tabulate
stockholder votes. The manner in which any stockholder votes on
any particular issue shall, subject to 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.
Electronic Delivery. Registered stockholders who have
computer access to the World Wide Web on the Internet and agree
to receive future annual reports and other proxy materials by
accessing the Company's web site should provide their valid e-
mail addresses to our transfer agent, Mellon Investor Services,
LLC, at the agent's website www.melloninvestor.com/ISD. If you
consent to electronic delivery, our transfer agent will send an e-
mail notifying you regarding the web address to access annual
meeting materials and we will not mail paper copies of future
annual reports and proxy materials to you unless you request
paper copies.
Stockholders Sharing an Address. Registered stockholders will
receive one proxy statement and annual report for each account.
Most banks and brokers are delivering only one copy of the annual
report and proxy statement to consenting street-name stockholders
who share the same address. This saves the Company money in
printing and distribution costs. Those who wish to receive
separate copies in the future may do so by contacting their bank
or broker, or, in most cases, by checking the appropriate box on
the voting instruction card sent to them. Similarly, most street-
name stockholders who are receiving
2
multiple copies of the annual report and proxy statement at a single
address may request that only a single set of materials be sent to them
by checking the appropriate box on the voting instruction card sent to them, or
by contacting their bank or broker.
In the alternative, most street-name stockholders may give
instructions to receive separate copies or discontinue multiple
mailings of materials by contacting the third party that mails
annual meeting materials for most banks and brokers by writing to
Householding Department, ADP, 51 Mercedes Way, Edgewood, NY
11717, or telephoning (800) 542-1061. Stockholders may also send
written instructions to Unocal Stockholder Services, 2141
Rosecrans Avenue, Suite 4000, El Segundo, CA 90245, and the
Company will forward your instructions. In both cases, your
instructions must include the name of your stockbrokerage firm
and your account number.
Copies of the Annual Report and Proxy Statement. Copies of
the current annual report and proxy statement are available by
contacting Unocal Stockholder Services at (310) 726-7681, 2141
Rosecrans Avenue, Suite 4000, El Segundo, CA 90245, e-mail:
stockholder_services@unocal.com.
STOCK OWNERSHIP
---------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of December 31, 2003, the following entities were known by
the Company to own beneficially more than five percent of the
Company's common stock:
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Class
------------------- ----------------- -----------
Capital Group International,
Inc.
11100 Santa Monica Blvd. 31,123,270 (A) 11.9%
Los Angeles, CA 90025
Capital Research and
Management Company
333 South Hope Street 28,685,560 (B) 11.0
Los Angeles, California 90071
Dodge & Cox
One Sansome St., 35th Floor 27,901,694 (C) 10.7
San Francisco, CA 94104
(A) Based on a Schedule 13G dated February 10, 2004, Capital Group
International, Inc. beneficially owned these shares as the parent holding
company of a group of investment management companies that provide
investment advisory and management services for their clients, which
include investment companies and institutional accounts. This number
included 394,620 shares resulting from the assumed conversion of 335,900
6 1/4% Trust Convertible Preferred Securities of Unocal Capital Trust. The
investment management companies had sole voting power over 26,659,980
shares, and had sole dispositive power over all these shares. One of the
investment management companies, Capital Guardian Trust Company,
beneficially owned 16,607,430 (6.4%) of Unocal's Common Stock and had sole
voting power over 12,144,140 shares.
(B) Based on a Schedule 13G dated February 10, 2004, Capital
Research and Management Company beneficially owned these
shares as a result of acting as investment advisor to various
investment companies. This number included 528,660 shares
resulting from the assumed conversion of 450,000 6 1/4% Trust
Convertible Preferred Securities of Unocal Capital Trust.
Capital Research and Management Company had the sole
dispositive power over of all these shares, but did not have
voting power over any of the shares.
(notes continued on next page)
3
(C) Based on a Schedule 13G dated February 17, 2004, Dodge &
Cox beneficially owned these shares on behalf of clients,
which may include investment companies, employee benefit
plans, pension funds, endowment funds or other institutional
clients. Dodge & Cox had sole voting power over 26,134,744
shares, and shared voting power over 269,300 shares. Dodge &
Cox had sole dispositive power over all these shares.
SECURITY OWNERSHIP OF MANAGEMENT
The following table lists the beneficial ownership of shares
of the Company's common stock as of March 15, 2004, by (1) all
current directors and director nominees, (2) the CEO and other
five most highly compensated executive officers in 2003 (the
"named executive officers") and (3) all current directors and
executive officers as a group:
Right to Acquire
within 60 Days from
Sole Shared March 15, 2004
Voting or Voting or ------------------- Total
Name Investment Investment Directors Stock Beneficial
Power Power Units (A) Options (B) Ownership
---- ---------- ---------- --------- ----------- ----------
John W. Amerman 11,461 17,085 4,532 33,078
Craig Arnold None
Joe D. Cecil 16,538 5,900 50,537 72,975
John W.Creighton, Jr. 2,000 31,843 4,532 38,375
James W.Crownover 6,425 13,964 4,532 24,921
Terry G. Dallas 13,381 278,784 292,165
Thomas E. Fisher 15,924 8,536 82,774 107,234
Frank C. Herringer 400 (C) 51,332 23,287 4,532 79,551
Timothy H. Ling (D)
Ferrell P. McClean 500 501 2,730 3,731
Richard D. McCormick 3,000 3,000
Donald B. Rice 12,000 1,829 4,532 18,361
Kevin W. Sharer 2,945 14,248 4,532 21,725
Charles O. Strathman 10,572 63,151 73,723
Mark A. Suwyn None
Marina v.N. Whitman 8,026 6,947 4,532 19,505
Charles R. Williamson 83,249 20,605 464,600 568,454
All current
directors and
executive
officers as a
group (E) 194,404 101,279 109,704 969,185 1,374,572
(A) Unocal common stock deliverable for outstanding stock units
under the 2001 Directors' Deferred Compensation and Stock
Award Plan at or within 60 days from March 15, 2004. The
number shown assumes accelerated distribution of the stock
units. Directors may receive immediate payment of stock unit
balances subject to a 10% forfeiture. Directors may also
elect to receive payment of stock units upon termination of
service, provided that such election is made prior to the
deferral period, or twelve months prior to termination.
Excludes units for 1st quarter, 2004 compensation, as units
are credited at the end of each quarter.
4
(B) Common shares underlying employee or director stock options
exercisable at or within 60 days from March 15, 2004,
including shares underlying options that were "out-of-the-
money" on March 15, 2004.
(C) Held by Mr. Herringer as custodian for his daughter.
(D) Mr. Ling died on January 28, 2004 and his stock ownership
was transferred to his beneficiaries.
(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 were
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 ("SEC") rules require
that directors and executive officers report to the SEC changes
in their beneficial ownership of Unocal stock, and that any late
filings must be disclosed. The Company generally makes the
filings on behalf of the directors and officers pursuant to
powers of attorney. A Form 4 for Mr. Douglas M. Miller,
reporting the cancellation of 127 shares for withholding taxes
upon the lapse of restrictions on restricted stock, was filed on
August 6, 2003, which was 20 days late.
CORPORATE GOVERNANCE
--------------------
DIRECTOR NOMINATION PROCESS
The Board Governance Committee has approved certain minimum
standards for candidates for service as a first-time director and
has developed a process for identifying and evaluating first-time
nominees in light of these standards and such other factors as
the Governance Committee deems appropriate. These standards, and
the Governance Committee's evaluation process, apply to all
proposed first-time nominees for directors, including those
nominees recommended by stockholders. Stockholders may recommend
candidates by writing to the Corporate Secretary of the Company
at Unocal Corporation, 2141 Rosecrans Avenue, Suite 4000, El
Segundo, CA 90245. This process of identifying and evaluating
nominees is based on the Governance Committee's familiarity with
the composition of the current Board, its awareness of
anticipated openings, and its assessment of desirable talents or
expertise. The Governance Committee regularly reviews the
composition of the Board in light of its understanding of the
backgrounds, industry and professional experience, and the
various communities, both geographic and demographic, represented
by current members. It also monitors the expected service dates
of Board members, any planned retirement dates, and other
anticipated events that may affect a director's continued ability
to serve. The Governance Committee periodically reviews Board
self-evaluations and information with respect to the business and
professional expertise represented by current directors in order
to identify any specific skills desirable for future board
members.
The Board has approved the following minimum qualifications
for first-time nominees for directors, including nominees
recommended by stockholders, for election to the Company's Board:
(1) a demonstrated breadth and depth of management and/or
leadership experience, preferably in a senior leadership role
(e.g., chief executive officer, managing partner, president) in a
large or recognized organization; (2) financial literacy or other
professional or business experience relevant to an understanding
of the Company and its business; (3) a demonstrated experience in
or knowledge of international operations; and (4) a demonstrated
ability to think and act independently, as well as the ability to
work constructively in a collegial environment. The Governance
Committee will determine, in its sole discretion, whether a
nominee meets these minimum qualifications.
In addition to these minimum qualifications, the Governance
Committee will also consider, in evaluating a candidate for
nomination as a first-time director, the current composition of
the Board in light of the diverse communities and geographies
served by the Company and the interplay of the candidate's
experience with the experience of the other Board members, as
well as such other factors as the Governance Committee considers
appropriate.
5
The Governance Committee is responsible for managing the
process for nomination of new directors. The Governance
Committee identifies potential candidates for first-time
nomination as a director using a variety of sources -
recommendations from the Company's Management Committee, current
Board members, stockholder recommendations, contacts in
communities served by the Company, or by conducting a formal
search using an outside search firm selected and engaged by the
Governance Committee. The Governance Committee then commences an
inquiry to obtain sufficient information on the background of a
potential new director-nominee. Included in this inquiry is an
initial review of the candidate with respect to the following
three factors: (1) whether the individual meets the minimum
qualifications for first-time director nominees; (2) whether the
individual would be considered independent under the NYSE and SEC
rules; and (3) whether the individual would meet any additional
requirements imposed by law or regulation on the members of the
Audit and/or Management Development and Compensation Committees
of the Board. The individual will also be asked to provide the
information required to be disclosed in the Company's proxy
statement.
If it decides to proceed further following its initial review,
the Governance Committee arranges an introductory meeting with
the candidate and either the Company's Chief Executive Officer
("CEO") or the Governance Committee Chair or, in some cases, with
another director, to determine the candidate's interest in
serving on the Board. The Governance Committee, together with
several members of the Board, the CEO, and, if appropriate, other
key Company executives, conducts a comprehensive interview with
the candidate. If the Company and the candidate are both
interested in proceeding, the Governance Committee then reviews
personal information provided by the candidate in light of the
same factors used by the Governance Committee for its initial
review.
Assuming a satisfactory conclusion to the process outlined
above, the Governance Committee then presents the candidate's
name (or names, if more than one acceptable candidate has been
identified by the Governance Committee) to the Board of Directors
for nomination for election as a director and/or inclusion in the
Company's proxy statement.
BOARD COMMITTEE MEETINGS AND FUNCTIONS
The following table lists the current Board members, the
standing Board committees and their current members, and the
number of committee meetings held during 2003:
Management
Development
Board Corporate and Retirement
Audit Governance Executive Responsibility Compensation Plan
Director Committee Committee Committee Committee Committee Committee
-------- --------- ---------- --------- -------------- ------------ ----------
John W.Amerman X X X
Craig Arnold
John W.Creighton, Jr.(A) X X X**
James W. Crownover X** X X**
Frank C. Herringer X X X**
Ferrell P.McClean X X
Richard D. McCormick
Donald B. Rice X** X X X
Kevin W. Sharer X X
Mark A. Suwyn
Marina v.N. Whitman X X X
Charles R. Williamson (B) X**
No. of meetings in 2003 13 5 2 4 4 2
(A) Vice Chairman ** Committee Chair
(B) Chairman X Committee Member
6
Meetings; Annual Meeting Attendance Policy. There were a
total of six Board of Directors meetings and 30 Board committee
meetings in 2003. All directors attended over 75% of their
aggregate Board and committee meetings. All directors are
encouraged to attend annual meetings and all the directors
attended the 2003 annual stockholders meeting.
Board / Committee Independence. The Board of Directors has
determined that, other than the Company's CEO Mr. Williamson,
none of the directors set forth in the preceding table has a
material relationship with the Company and that each such
director, other than the Company's CEO Mr. Williamson, is
otherwise independent under the applicable NYSE listing
standards. Except for the Executive Committee, which is chaired
by Mr. Williamson, all the committees are composed entirely of
non-employee directors. Moreover, the Board of Directors has
determined that none of the current members of the Audit
Committee, Board Governance Committee and Management Development
and Compensation Committee has a material relationship with the
Company and that each such committee member is otherwise
independent under the applicable NYSE listing standards and SEC
rules.
Audit Committee. The Audit Committee assists the Board in
monitoring the integrity and reliability of the Company's
financial reporting, the Company's compliance with legal and
regulatory requirements, the adequacy of the Company's internal
operating policies and controls, and the quality and performance
of combined management, independent auditor, and the internal
audit function. The Board determined that each of John W.
Creighton, Jr., John W. Amerman and Ferrell P. McClean qualifies
as an audit committee financial expert as defined in SEC rules,
and that each member of the Committee is financially literate in
compliance with NYSE listing standards. The Committee's charter
is attached to this proxy statement as Exhibit A, and also is
available on the Company's web site at
www.unocal.com/governance/audit.htm.
Board Governance Committee. The Board Governance Committee
recommends to the Board the composition, role, structure and
procedures of the Board and its committees; oversees the periodic
evaluation of the Board and makes recommendations to improve the
functioning and effectiveness of the Board and its committees;
manages the process for nomination of new directors; and reviews
and presents for Board approval the charters of the Board
committees, director compensation, and the Company's Corporate
Governance Principles. The Committee's charter is available on
the Company's web site at
www.unocal.com/governance/board_gov.htm.
Executive Committee. The Executive Committee has the powers
and authority of the Board during the periods between Board
meetings, except for those powers specifically reserved to the
full Board by the Delaware General Corporation Law or the
Company's Bylaws.
Corporate Responsibility Committee. The Corporate
Responsibility Committee reviews the implementation of the
Company's Vision and Values Statement as it relates to corporate
responsibility, and reviews significant legal or other matters
involving health, environment, safety, human resources, community
affairs and development, or ethical conduct. It coordinates as
necessary with the Audit Committee to ensure effective oversight
of all aspects of the Company's ethics and compliance programs.
Management Development and Compensation Committee. The
Management Development and Compensation Committee designs the
Company's executive compensation program; administers all
management incentive programs and makes recommendations to the
Board with respect to other incentive compensation and equity-
based plans; evaluates the CEO annually and assists the CEO in
the evaluation of senior management; establishes the levels of
compensation for the CEO and senior management; and oversees and
shapes the Company's succession and management development
programs. The Committee's charter is available on the Company's
web site at www.unocal.com/governance/mdc_com.htm.
7
Retirement Plan Committee. The Retirement Plan Committee
oversees the management of the assets of the Company's retirement
plans, which includes setting investment objectives, establishing
asset allocation strategy and reviewing the investment
performance and the funded status of the plans at least annually.
DIRECTORS' COMPENSATION
Cash Compensation and Expenses. Non-employee directors
receive the following fees and reimbursement of expenses:
-- $48,000 annual retainer for serving as a director
-- $48,000 annual retainer for serving as Vice-Chairman of the Board
-- $6,000 annual retainer for chairing a committee other than the
Audit Committee
-- $15,000 annual retainer for chairing the Audit Committee
-- $2,000 for each Board or committee meeting attended in person
-- $1,000 for each Board or committee meeting attended by telephone
-- Reimbursement of reasonable out-of-pocket expenses related to
meetings and other Company business
From January through June 2003, directors received $3,000 for
attending Board meetings and $1,000 for attending committee
meetings, and the annual retainer (paid in monthly installments)
for serving as a director was $25,000, with an additional
$25,000 for serving also as Vice-Chairman. From June through
December 2003, directors received $2,000 for attending certain
committee meetings by telephone.
Stock Compensation. The 2001 Directors' Deferred Compensation
and Stock Award Plan (the "2001 Plan") was approved by the
stockholders at the 2001 annual meeting. A total of 500,000
shares are authorized for issuance for awards made under the 2001
Plan through July 1, 2006. Under the 2001 Plan, each non-
employee director receives:
-- An annual grant of stock units equal in value to 20% of the
director's fees earned during the prior year
-- An initial stock option award with a value of $82,500 upon
first being elected to the Board
-- An annual stock option award with a value of $27,500
-- For any cash fees voluntarily deferred, stock units equal to
120% of the cash deferred
The Board Governance Committee administers the 2001 Plan. The
Governance Committee has broad authority under the 2001 Plan,
including the authority to establish the valuation methodology
that determines the number of shares underlying option grants,
within plan limits. The Governance Committee may also determine
adjustments to plan terms responsive to extraordinary
transactions, and establish, adopt and revise rules and
regulations relating to the plan. For the 2003 annual stock
option awards the numbers of shares underlying the stock option
grants were determined using a Black Scholes model that resulted
in a formula that multiplied the fair market value of a share of
common stock on the grant date by .3316 and then divided the
award value by the result.
Each of the independent directors on May 1, 2003 received an
annual stock option award to purchase 3,003 shares of common
stock under the 2001 Plan at an exercise price of $27.6150, which
expires on May 1, 2013. Stock options granted under the 2001
Plan are 10-year nonqualified stock options. The exercise price
of the options is the fair market value of the shares on the date
of grant. Initial option grants vest 33 1/3% each year over
three years, and annual option grants vest 50% each year over two
years. Options become immediately vested upon: (1) death or
disability; (2) a Change in Control (as defined in the 2001
Plan), or (3) with respect to options that have been outstanding
for at least nine months, retirement from service either (A) at
the end of the director's then current term and after completing
five full years of service, if a director is ineligible to stand
for reelection under the Company's director retirement policy, or
(B) on the date of the annual meeting of stockholders immediately
following
8
the director's 72nd birthday under the Company's director retirement
policy and after completing five full years of service. A director who
terminates service for any reason other than for cause will have three
years to exercise vested options if the director served on the Board for
at least three years, and two years to exercise vested options if the director
served on the Board less than three years.
Stock units represent unfunded bookkeeping entries, which are
paid out in an equal number of shares of common stock at the end
of the deferral period chosen by each director for each annual
grant or voluntarily deferred annual compensation. The units are
fully vested and non-forfeitable at all times. Dividend
equivalents are credited as additional stock units, subject to
the same deferral elections.
The minimum deferral period that may be elected for stock
units is three years or following a termination of services,
whichever is earlier or later. In addition, participants may
elect to accelerate the payout of their units upon a Change in
Control, upon certain hardships, or by requesting an early
distribution, subject to a withdrawal penalty. Payout of units
occurs if a unit holder would otherwise forfeit the units as a
result of acceptance of government or community service.
Subject to customary exceptions, stock options and stock units
are generally non-transferable, except by will or the laws of
descent and distribution or beneficiary designation. The
Governance Committee, however, may permit certain transfers of
stock options for estate and/or tax planning purposes to certain
related persons or entities.
Stockholders will be voting on a new non-employee directors'
plan at this 2004 annual meeting. The new plan, the 2004
Directors' Deferred Compensation and Restricted Stock Unit Award
Plan (the "2004 Plan"), is described in Item 4 of this proxy
statement, and the full text of the 2004 Plan is attached as
Exhibit C. If stockholders approve the 2004 Plan, no additional
awards will be made under the 2001 Plan and outstanding stock
units will be transferred to stock unit accounts under the 2004
Plan, subject to the terms and conditions of the 2004 Plan. In
addition, to prevent a compounding of benefits in 2004, if
stockholders approve the 2004 Plan, the stock options granted in
2004 under the 2001 Plan prior to the annual meeting in
accordance with the terms of the 2001 Plan will be rescinded
without consideration. If the 2004 Plan is approved, director
compensation will be increased as described in Item 4 to include,
among other benefits, initial and annual awards of restricted
stock units in lieu of the award of stock options and stock units
granted under the 2001 Plan.
EXECUTIVE SESSIONS
The Board of Directors has elected Mr. Creighton as Vice
Chairman. An executive session of the independent directors
without management is scheduled after each regularly scheduled
meeting of the Board of Directors. Mr. Creighton presides at
these executive sessions.
COMMUNICATIONS WITH BOARD MEMBERS
Stockholders and other interested parties may send
communications to the Board of Directors, individual directors,
including the Vice-Chairman, or the non-management directors as a
group by writing in care of Unocal Corporation, 2141 Rosecrans
Avenue, Suite 4000, El Segundo, CA 90245.
All communications addressed to the Board of Directors in
general, except any material not related to the duties or
responsibilities of a director, are forwarded to the Chairman of
the Board, the Vice-Chairman, and if appropriate, the chairman of
any relevant Board committee. The Office of the General Counsel
maintains a log of all material not forwarded to the Vice-
Chairman, which the Vice-Chairman reviews periodically.
9
REPORT OF THE AUDIT COMMITTEE
The Audit Committee reviews the Company's financial reporting
process on behalf of the Board of Directors. The Committee is
composed of four independent directors, each of whom meets the
independence standard of the NYSE and the SEC. The Committee
operates under a written charter recommended by the Committee and
adopted by the Board of Directors. The charter is attached to
this proxy statement as Exhibit A. Management has the
responsibility for the financial statements and the reporting
process. The Company's independent auditors,
PricewaterhouseCoopers LLP, are responsible for expressing an
opinion on the conformity of the Company's audited financial
statements to accounting principles generally accepted in the
United States of America.
In this context, the Committee reviewed and discussed with
management and the independent auditors the audited financial
statements to be included in the Company's Annual Report on Form
10-K for the year ended December 31, 2003. The Committee
discussed with the independent auditors the matters required to
be discussed by Statement on Auditing Standards No. 61,
"Communication with Audit Committees," as amended. In addition,
the Committee received from the independent auditors the written
disclosures required by Independence Standards Board Standard No.
1, "Independence Discussions with Audit Committees," and
discussed with them their independence from the Company and its
management.
In reliance on the reviews and discussions referred to above,
the Committee recommended to the Board of Directors that the
audited financial statements be included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2003, for
filing with the SEC.
Audit Committee
of the Board of Directors
James W. Crownover, Chair
John W. Amerman
John W. Creighton, Jr.
Ferrell P. McClean
The preceding Report of the Audit Committee 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.
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 "Compensation
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 independent, non-employee
directors
-- Compensation Committee retains and is assisted by an outside
consultant
-- Salaries are based on comparisons with petroleum and energy
industry medians
-- Short-term and long-term incentives use a combination of stock
performance, financial performance, individual performance and
operational results
The Compensation Committee, composed entirely of independent,
non-employee directors, is responsible for setting and
administering the annual and long-term compensation programs.
The Compensation Committee reviews and determines executive
officer salaries and incentive awards under the 1998 Management
Incentive Program. The Compensation Committee also administers
the 2000
10
Executive Stock Purchase Program. The Compensation 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 CEO. The outside consultant and the CEO are
present at Compensation Committee meetings but cannot vote. The Compensation
Committee considers competitive compensation data, Company performance and
individual performance, including adherence to the Company's Code
of Conduct, in establishing executive compensation. The
Compensation Committee meets outside the presence of the CEO on
certain matters, including CEO compensation and certain
succession issues. The Compensation Committee met four times in
2003.
The compensation program for the CEO and other executives
consists of four elements: salary, annual cash bonus,
performance shares and stock options. All of these elements,
other than salary, are part of the 1998 Management Incentive
Program approved by the stockholders and explicitly link short-
term and long-term incentive compensation to the Company's common
share price performance, thereby reinforcing the goal of creating
value for the stockholders. Each element of executive
compensation is discussed below.
The Company's executive compensation program uses both
absolute and relative share price performance. The "Comparative
Return to Shareholders" compares the Company's share price plus
dividends (Total Shareholder Return or "TSR") to that of a group
of companies in 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, taken as a whole. The companies comprising the Peer
Group are reviewed periodically and changed as business
characteristics of these companies, and of Unocal, change. Once
the Peer Group is established for a particular award, it is not
altered for the award period. If a company in the Peer Group
does not continue as a public company to the end of an award
period, the calculation uses the average share price for the 60
days prior to the announcement of the merger or other corporate
transaction which resulted in such company no longer being listed
on a stock exchange. The Peer Group for 2003 and 2004 awards
under the Management Incentive Program consisted of 11 companies
that, as a group, reflected Unocal's current lines of business.
The Compensation Committee administers the Management
Incentive Program to preserve the deductibility of compensation
in accordance with Section 162(m) of the Internal Revenue Code,
unless such deductibility would be inconsistent with the
objectives of the Program. It is the Compensation Committee's
belief and intention that the Management Incentive Program has
been structured and administered in a manner that preserves the
Company's tax deduction for executive incentive compensation paid
or accrued under the Program in 2003.
In 2003 the Committee's outside consultant, Towers Perrin,
conducted a comprehensive review of the Company's annual and long-
term incentive programs. As a result of that review, several
changes to the Company's compensation program have been
incorporated into the 2004 Management Incentive Program being
submitted to the stockholders for approval. As discussed more
fully beginning on page 28 of this proxy statement, these changes
include using performance-restricted stock, reducing the size of
stock option grants, reducing measurement cycles for performance
share awards to three years and placing more emphasis on
comparative financial and operations performance.
Salary. The base salaries of the CEO and the other executive
officers are reviewed annually and when there is a significant
change in an executive's responsibilities. The Compensation
Committee considers the responsibilities, experience and
performance of the executive officers and survey data on the
compensation paid by energy and petroleum-related companies for
similar positions. For 2003, the Compensation Committee selected
a group of 11 companies to use to compare salary and other
compensation (the "Compensation Group"). These 11 companies also
comprised the Peer Group used for calculating Comparative Return
to Shareholders for incentive programs. Following a review of
compensation data in 2003, the salary of the CEO, Mr. Williamson,
was increased to $925,000 in
11
September 2003. In order to facilitate a total compensation analysis, the
Compensation Committee decided to move the salary review period for 2004 and
future years to February.
The objective of the Compensation Committee is to establish
base salaries that are near the median paid by the companies in
the Compensation Group, with adjustments for reporting
relationships, responsibilities and job scope. After increases
to the base salary of the executive officers for 2003, 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.
Unocal Deferred Compensation Plan. The Unocal Deferred
Compensation Plan (the "DCP"), adopted in 2001, allows
participants to defer up to 90% of annual bonuses and up to 50%
of salary. The participant may elect various investment options,
which determine the ultimate payment due at the end of the
elected deferral period. The DCP is largely unfunded and the
participants are unsecured creditors of the Company.
Revised Incentive Compensation Plan. The Revised Incentive
Compensation Plan (the "RICP") is the Company's annual bonus plan
for senior and middle management. Each award period under the
RICP is one year. The annual bonus pool for a calendar year
equals 2% of the Company's "Net Cash Provided by Operating
Activities," which is the maximum amount of annual cash bonuses
that may be awarded in a calendar year.
Prior to March of each year, the Compensation Committee
establishes a percentage of this bonus pool as the maximum target
award for the CEO and certain other executive officers. The
Compensation Committee also establishes individual target awards
for the remaining participants based on salary grade.
For 2003, the Compensation Committee approved a bonus award
payout based 25% on Comparative Return to Shareholders, 37.5% on
financial performance ("Return on Capital Employed" and "Free
Cash Flow") and 37.5% on an evaluation of the calendar year
activities that will affect future performance. The Compensation
Committee determined that the Company performed significantly
above the established goals with respect to the financial and
future performance measures, while the Company's TSR was at the
41st percentile of the Peer Group, resulting in 62% of target
payout with respect to this factor. Consequently, for 2003 the
bonus award pool for the entire eligible group was set at 120% of
the target amount. Awards were subject to further adjustment to
reflect business unit and individual performance.
The RICP provides for deferral of awards into restricted stock
and awards can also be deferred into the DCP as described above.
The portion of the award deferred into restricted stock is
increased by 20% to compensate for the executive foregoing
immediate cash compensation and for the risk of forfeiture. The
restriction period is five years. The award is forfeited if the
recipient resigns or is terminated for cause prior to the end of
the restriction period, unless the recipient retires at or after
age 65. Mr. Williamson deferred 90% of his award into the DCP.
The Company's other four named executive officers eligible for
deferrals deferred an average of 60% into the DCP.
Executive Stock Purchase Program. The Executive Stock
Purchase Program was approved by stockholders at the 2000 annual
meeting. Mr. Williamson and nine other participants (including
one other named executive officer) received interest-bearing,
full recourse loans to purchase shares of Unocal common stock.
Interest on the executive loans accrues at an annual rate of
6.8%. Dividends on shares held by the participant must be used
to repay loan balances. While participants can elect to repay
the loan and accrued interest at any time, full repayment of
principal and accrued interest is not due until March 2008.
The Program resulted in the participants acquiring 1,150,310
shares of stock, thus aligning their interests with those of
other stockholders. Mr. Williamson acquired 179,736 shares of
Unocal stock and had an outstanding loan balance of $5.6 million
on December 31, 2003. Each of the participants was also granted
a Performance Bonus Award, as described below. In February 2002,
the Compensation
12
Committee decided that no additional loans would be made and cancelled the
authorization for the remaining 599,690 shares reserved under the Program
for future issuance.
On February 10, 2004 the Company repurchased 179,736 shares
from Mr. Williamson, 179,736 from Mr. Ling's estate, and 179,736
shares from two other participants who were employed at the close
of the year. The repurchase price was the average of the high
and low reported prices on the New York Stock Exchange Composite
Transactions for that date. Proceeds from the repurchase in each
case were used partially to pay off the remaining loan balances
of $5.93 million for Mr. Williamson, $5.92 million for Mr. Ling's
estate and $5.98 million for the other two loans respectively,
and the remaining proceeds were paid directly to these
participants.
Long-Term Incentive Plan. The Long-Term Incentive Plan of
1998, as amended (the "1998 Plan"), is administered by the
Compensation Committee and provides for awards in the form of non-
qualified stock options, performance shares, performance bonus
awards and restricted stock.
In 2000, the stockholders approved Performance Bonus Awards
under the 1998 Plan. Performance Bonus Awards were made only to
participants in the Executive Stock Purchase Program. The
Company's TSR and absolute share price for the performance period
that ended on December 31, 2003 were less than the required
levels and therefore no performance bonuses were paid. No
further performance bonuses are available.
The Compensation Committee awarded a "target" number of
performance share units in 2000 to the CEO and other executive
officers for the 2000-2003 performance period under the 1998
Plan. Each unit is the equivalent of one share of the Company's
common stock. The awards are dependent on the executive's level
of responsibility and base compensation. Mr. Williamson's award
for this performance period was 8,500 units.
The actual payout of awards at the end of the four-year
performance period is determined by how the Company's TSR for the
period compares to that of the Peer Group. The maximum number of
shares that can be paid out is 200% of the performance share
units granted, and the maximum value of the payout cannot exceed
400% of the fair market value of the initial award. During the
2000-2003 performance period, the Company's TSR was significantly
below the average of the Peer Group. Therefore, none of the
performance share units awarded were paid out to the
participants, including Mr. Williamson.
Option grants are normally made in February or March of each
calendar year. Prior option grants are not considered in making
these awards except when a grant is in lieu of future grants.
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. The option exercise
price under the 1998 Plan is the fair market value on the date of
grant. Exercise of an 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.
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 600,000 shares. In 2001 the
Company made four grants, including an option for 450,000 shares
to Mr. Williamson and options to purchase 480,000 shares to two
other named executive officers. These grants were made after
reviewing competitive data and were intended to provide an
immediate incentive to the executives to maximize share price
performance by granting three years of options at one time.
Since these grants were for a three-year period, these
individuals did not receive option grants in 2003, and they are
ineligible for option grants in 2004.
Since the total number of shares available under the 1998 Plan
is less than five percent of the outstanding shares, individual
grants during the term of the 1998 Plan have not been of such
magnitude as to have any significant dilutive effects on the
Company's stock.
13
As described above, Unocal aligns management and stockholder
interests by linking executive incentive compensation programs to
share price performance and the creation of stockholder value.
The 1998 Long-Term Incentive Plan also provides for grants of
restricted stock to executives, managers and technical employees
whose performance and potential is exceptional. 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
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
Frank C. Herringer, Chair
Donald B. Rice
Kevin W. Sharer
Marina v.N. Whitman
The preceding Report of the Management Development and
Compensation Committee 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.
EMPLOYMENT CONTRACTS; TERMINATION OF EMPLOYMENT AND CHANGE OF
CONTROL ARRANGEMENTS
Employment Contracts with Messrs. Williamson, Dallas, Fisher
and Gillespie. The Company has employment agreements with
Messrs. Williamson and Dallas that are effective for three years,
and an employment agreement with Mr. Fisher that is effective for
two years, in each case commencing March 12, 2003. The Company
also has an employment agreement with Samuel H. Gillespie III,
the Company's Senior Vice President, Chief Legal Officer and
General Counsel, that is effective for two years commencing
October 1, 2003. These agreements automatically renew daily
until 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.
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 (collectively, a "Termination Without Cause"),
including a payment of 3.18 times annual salary plus three times
target bonus applicable as of the beginning of the calendar year
in which such Termination Without Cause occurs for
Messrs. Williamson or Dallas, and 2.12 times annual salary plus
two times target bonus applicable as of the beginning of the
calendar year in which such Termination Without Cause occurs for
Messrs. Fisher or Gillespie. The agreements also provide for
continuation of medical, dental, life and disability insurance
coverage for two years following the Termination Without Cause.
In lieu of the foregoing continued medical, dental, life and
disability benefits, the Company may elect to pay the sum of
$25,000. In the event of a Termination Without Cause within 24
months of a Change of Control (as defined in the agreements),
Messrs. Williamson, Dallas, Fisher and Gillespie would also be
entitled to the increase in the lump sum value of their benefits
under the Company's qualified and non-qualified retirement plans,
as if three years were added to their benefit service and ages
thereunder. If any payment or distribution by the Company
("Payment") would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code, or any interest or
penalties are incurred with respect to such excise tax (such
excise tax and any such interest and penalties, collectively, the
"Excise Tax"), then the employee is entitled to an additional
payment (a "Gross-Up Payment") in an amount such that after
payment by the employee of all taxes (including any interest or
penalties imposed) and Excise Tax imposed upon the Gross-Up
Payment, the employee retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. 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 Messrs. Williamson, Dallas, Fisher or Gillespie,
such that the receipt of payments would not give rise to
14
any Excise Tax, then no Gross-Up Payment will be made and the
payments will be reduced to the Reduced Amount. Mr. Gillespie
also receives reimbursement for certain relocation and living
expenses under the Company's Relocation Policy.
Messrs. Williamson's and Dallas's agreements were filed as
exhibits to the Company's Annual Report on Form 10-K for the year
ended December 31, 2002. Mr. Fisher's agreement was filed as an
exhibit to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003. Mr. Gillespie's agreement was filed
as an exhibit to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2003.
Employment Contract with Mr. Ling. The Company had a change
in control agreement with Mr. Ling that provided that in the
event of a Termination Without Cause within 36 months following a
Change of Control that occurred during the term of the agreement,
Mr. Ling would have been entitled to the same benefits as
provided in the employment agreement for Mr. Williamson described
above. The agreement was filed as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 2002.
The agreement was terminated without payment of any benefits upon
Mr. Ling's death on January 28, 2004.
Employment Contract with Mr. Strathman. The Company also has
an employment agreement with Mr. Strathman which provides that if
his employment is terminated (a) by the Company, at any time for
reasons other than misconduct, or (b) by the Company or as a
result of Mr. Strathman's resignation (i) after May 31, 2004 for
any reason, (ii) any time after six months following the
appointment of a new Chief Legal Officer/General Counsel, or
(iii) following a reduction of his salary or incentive targets,
then his termination shall be treated as "at the convenience of
the Company" under the Company's long-term incentive plans, thus
entitling him to the extended period provided therein to exercise
vested stock options, the vesting of restricted stock, the pro-
rata payment of performance shares and a Revised Incentive
Compensation ("ICP") award for calendar years 2003 and 2004,
prorated for his actual period of employment. Under such a
termination he will also be entitled to such severance and
termination-type benefits applicable to his position, including,
at a minimum, Unocal Employee Redeployment Program and Unocal
Termination Allowance Plan benefits. The agreement was filed as
an exhibit to the Company's Current Report on Form 8-K dated
February 4, 2003.
Other Termination of Employment and Change in Control
Arrangements. In the event of a "change in control," as defined
in the Company's incentive plans and agreements issued
thereunder, annual cash bonuses will be paid, restricted stock
will become vested, unvested options will become vested, and
payout will be accelerated for performance shares. Performance
shares will be paid out at not less than the target number of
shares, subject to the limitation that the fair market value of
the shares paid out may not exceed 400% of the fair market value
of the initial award of performance shares. Annual cash bonuses
under the Revised Incentive Compensation Plan will pay out at not
less than the target amount, prorated by the ratio that the
shortened award period bears to the calendar year. At
February 29, 2004, 1,549,849 shares of restricted stock were
outstanding, unvested options to purchase 2,926,755 shares of
common stock were outstanding at a weighted average exercise
price of $32.48, and 888,504 performance shares were outstanding.
At February 29, 2004, the number of shares of restricted stock
outstanding for the named executive officers was:
Mr. Williamson, 74,892 shares; Mr. Dallas, 12,118 shares;
Mr. Fisher, 13,852 shares; Mr. Strathman, 5,742 shares; and
Mr. Cecil, 5,690 shares. Unvested options outstanding at
December 31, 2003 for the named executive officers are provided
in the table on page 20 of this proxy statement. Additional
grants were made on February 10, 2004 to Mr. Fisher to purchase
11,040 shares, to Mr. Strathman to purchase 8,467 shares and to
Mr. Cecil to purchase 6,748 shares, each at the price of $36.869
The number of performance shares outstanding at February 29, 2004
(including 84,978 performance shares granted under the 2004
Management Incentive Program subject to stockholder approval, as
described in Item 3 of this proxy statement) for the named
executive officers were: Mr. Williamson, 113,742; Mr. Ling's
estate, 17,192; Mr. Dallas, 38,986; Mr. Fisher, 18,936;
Mr. Strathman, 15,472; and Mr. Cecil, 13,960.
In 2000, the Boards of Directors of the Company and its Union
Oil Company of California subsidiary approved an enhanced
severance program for U.S. payroll employees not represented by
collective bargaining agents in the event they lose their jobs
through a change of control of the Company occurring
15
before 2005. In the event of such a "change of control," as defined in the
Company's Long-term Incentive Plan of 1998, the program provides
for the immediate vesting of accrued benefits and/or accounts of
all covered employees under the Company's retirement and savings
plans and the immediate payment to such employees in cash of
bonuses under its annual incentive compensation plans.
The program also provides the following in the event of an
eligible employee's involuntary termination (other than for
death, disability or misconduct) or "constructive discharge"
within two years following a change of control:
Employees with less than five years of service would receive
four months of base pay plus three-fourths of a month of base
pay for every year of service.
Employees with five or more years of service would receive
four months of base pay plus an enhanced retirement benefit.
The enhanced benefit would add three years to the employee's
service and age, plus the benefit would utilize the highest
consecutive 12 months of pensionable pay in the most recent
120 months of service. The employee would also receive the
incremental difference in value, if any, of three-fourths of a
month of base pay for each completed year of actual service,
to a maximum of 20 months, above the discounted present value
of the enhancement to the retirement benefit.
Although all current executive officers are entitled to the
benefits described in the two preceding paragraphs, payment of
such benefits would reduce the amounts payable to Messrs.
Williamson, Dallas, Fisher and Gillespie under their employment
agreements.
The program permits an eligible employee to elect an immediate
distribution or rollover of his or her total retirement plan
benefits. The program also provides for subsidized "COBRA"
medical and dental coverage for 18 months, adds three years to
the employee's age and service for determining eligibility and
contributions under the Company's retiree and special
continuation medical coverages and eligibility under its retiree
life and AD&D insurance plans, as well as certain other benefits.
The program includes a "tax gross-up" arrangement for
employees subject to the excise tax provided for by Section 280G
of the Internal Revenue Code, including the named executive
officers. Under this section, excise taxes are imposed on
employees receiving change-of-control payments (as defined) that
exceed 2.99 times the employee's average annual compensation (as
defined). Under the arrangement, an employee who is subject to
the excise tax would receive a gross-up payment, in addition to
the amounts deemed change-of-control payments, to eliminate the
effect of the excise tax. This gross-up arrangement would apply
only if the employee's change-of-control payments exceed the
excise tax threshold amount of Section 280G by more than 10%.
Otherwise, such payments would be reduced below the threshold.
INDEBTEDNESS OF MANAGEMENT
The Company made loans in 2000 to ten employees, two of which
were executive officers during 2003, for the purchase of Unocal
common stock under the 2000 Executive Stock Purchase Program,
approved by stockholders at the 2000 annual meeting. The loans
were made on March 16, 2000, with a scheduled maturity of
March 16, 2008, and interest accrual of 6.8%, compounded
annually. The minimum interest payable each March 16 during the
years 2001 through 2005 is limited to the amount of dividends
paid during the prior 12-month period on the number of shares
purchased with the loan. Any remaining unpaid accrued interest
is added to the principal and accrues interest thereafter.
Starting March 16, 2006, principal for outstanding loans is
payable in three equal annual payments along with the full amount
of interest accrued over the past 12 months. The loans were made
as full-recourse loans, with certain exceptions for death or
disability, without being secured by the shares of common stock
purchased or by any other collateral. 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.
16
On February 10, 2004, the Company repurchased 179,736 shares
of Unocal common stock from Mr. Williamson, 179,736 shares from
Mr. Ling's estate, and a total of 179,736 shares from two other
current officers of the Company. The shares, originally acquired
using the loan proceeds, were repurchased in private transactions
at $36.88 per share. A portion of the proceeds from the
repurchases was applied to repay in full each seller's
outstanding loan. There remain loans outstanding to four former
officers.
The following table shows amounts owed on the loans made under
the 2000 Executive Stock Purchase Program to the two employees
who were executive officers during 2003:
Largest
Outstanding Date Loan
Amount Since Repaid in
Name Principal Position January 1, 2003 Full
---- ------------------ --------------- ---------
Mr. Williamson Chairman, Chief $5,932,835 February 10, 2004
Executive Officer
and President
Mr. Ling Former President 5,917,278 February 10, 2004
(deceased) and
Chief Operating
Officer
SUMMARY COMPENSATION TABLE
The following table shows compensation earned in 2003 by the
named executive officers:
Annual Compensation Long Term Compensation
--------------------------------------- ------------------------------------
Awards Payouts
Other -------------------------- -------
Annual Restricted Securities LTIP All Other
Name and Compensa- Stock Awards Underlying Payouts Compen-
Principal Postion Year Salary ($) Bonus ($) tion ($) (A) ($) (B) Options/SARs ($) (C) sation ($)
----------------- ---- --------- --------- ------------ ------------ ------------- ------- -----------
Charles R.
Williamson 2003 $863,390 $1,500,000 (D) $8,961 None None None $92,513 (E)
Chairman,
Chief 2002 818,004 543,403 (D) 5,256 $ 28,226 (F) None None 71,391 (G)
Executive
Officer 2001 737,502 1,100,000 (D) 5,847 None 450,000 $189,260 44,823 (H)
and
President
Timothy H.
Ling
Former 2003 683,558 846,000 8,961 None None None 52,989 (I)
President
and Chief 2002 659,514 170,250 (J) 5,256 181,521 (K) None None 41,717 (L)
Operating
Officer 2001 622,500 350,000 (J) 5,191 430,555 (K) 240,000 332,483 35,708 (M)
(deceased)
Terry G.
Dallas 2003 457,283 570,000 (D) 9,816 None None None 43,794 (N)
Vice
President 2002 439,704 233,688 (D) 3,721 None None None 33,974 (O)
and Chief
Financial 2001 415,008 500,000 (D) None None 273,784 None 24,964 (P)
Officer
Thomas E. 2003 315,545 214,000 (D) 8,961 31,751 (F) 21,279 None 29,939 (Q)
Fisher
Senior Vice 2002 303,918 89,000 (D) 5,256 None 12,729 None 25,194 (R)
President,
Commercial 2001 286,758 175,950 (D) 5,191 82,455 (F) 11,584 153,454 18,850 (S)
Affairs
Joe D. Cecil 2003 256,928 142,000 (D) 8,961 None 12,745 None 15,888 (T)
Vice
President 2002 247,968 65,000 (D) 5,256 None 8,813 None 15,029 (U)
and
Comptroller 2001 234,438 120,000 5,413 None 7,819 117,648 14,162 (V)
Charles O. 2003 320,307 179,282 (D) 8,961 None 14,518 None 22,886 (X)
Strathman
Former Vice 2002 271,266 63,600 (D) 7,768 22,166 (F) 9,625 None 18,160 (Y)
President
and Chief 2001 253,620 422,000 (D) 5,684 None 8,447 122,763 15,377 (Z)
Legal
Officer (W)
(A) Excludes perquisites because their value did not meet the
reporting threshold of the lesser of $50,000 or 10% of salary
plus bonus.
(notes continued on next page)
17
(B) Aggregate restricted Unocal common stockholdings at year-
end 2003 and value (based on the closing price of the common
stock as reported in the New York Stock Exchange Composite
Transactions on December 31, 2003): Mr. Williamson 17,371
shares, $639,774; Mr. Ling 38,132 shares, $1,404,402;
Mr. Dallas 2,062 shares, $75,943; Mr. Fisher 9,647 shares,
$355,299; Mr. Cecil 4,786 shares, $176,268; and Mr. Strathman
2,253 shares, $82,978. Dividends are paid on restricted
stock.
(C) Payout of at the end of the four-year performance period
of performance shares awarded under the Long-Term Incentive
Plan of 1991.
(D) Includes amounts deferred under the Unocal Deferred
Compensation Plan.
(E) Company contributions of $12,000 to participant's Unocal
Savings Plan account and $41,598 to participant's Unocal
Supplemental Savings Plan account; and $38,915 reportable
interest on deferred cash compensation.
(F) Value of restricted stock received from the exercise of
stock options with restrictions granted under the Long-Term
Incentive Plan of 1991.
(G) Company contributions of $12,000 to participant's Unocal
Savings Plan account and $38,111 to participant's Unocal
Supplemental Savings Plan account; and $21,280 reportable
interest on deferred cash compensation.
(H) Company contributions of $10,200 to participant's Unocal
Savings Plan account and $34,623 to participant's Unocal
Supplemental Savings Plan account.
(I) Company contributions of $7,777 to participant's Unocal
Savings Plan account and $30,691 to participant's Unocal
Supplemental Savings Plan account; and $14,521 reportable
interest on deferred cash compensation.
(J) Bonus paid under the Revised Incentive Compensation Plan.
Includes cash and amounts deferred under the Unocal Deferred
Compensation Plan. An additional amount deferred into
restricted stock is reported in the "Restricted Stock Awards"
column.
(K) Value on the award date of a restricted stock award
elected in lieu of a portion of a cash bonus payment under
the Revised Incentive Compensation Plan. The amount deferred
into restricted stock was augmented by 20% to compensate for
the risk of forfeiture and to promote management stock
ownership. The number of restricted shares was determined by
using the average closing price of Unocal common stock as
reported in the New York Stock Exchange Composite
Transactions during the last 30 trading days of the grant
year.
(L) Company contributions of $6,783 to participant's Unocal
Savings Plan account and $29,599 to participant's Unocal
Supplemental Savings Plan account; and $5,335 reportable
interest on deferred cash compensation.
(M) Company contributions of $6,808 to participant's Unocal
Savings Plan account and $27,798 to the participant's Unocal
Supplemental Savings Plan account; and $1,102 reportable
accumulated interest on deferred cash bonuses.
(N) Company contributions of $12,000 to the participant's
Unocal Savings Plan account and $15,912 to the participant's
Unocal Supplemental Savings Plan account; and $15,882
reportable accumulated interest on deferred cash bonuses.
(O) Company contributions of $12,000 to participant's Unocal
Savings Plan account and $14,634 to participant's Unocal
Supplemental Savings Plan account; and $7,340 reportable
interest on deferred cash compensation.
(P) Company contributions of $10,200 to the participant's
Unocal Savings Plan account and $14,764 to the participant's
Unocal Supplemental Savings Plan account.
18
(Q) Company contributions of $12,000 to the participant's
Unocal Savings Plan account and $7,459 to the participant's
Unocal Supplemental Savings Plan account; and $10,480
reportable accumulated interest on a deferred cash bonus.
(R) Company contributions of $11,853 to the participant's
Unocal Savings Plan account and $7,503 to the participant's
Unocal Supplemental Savings Plan account; and $5,838
reportable accumulated interest on deferred cash bonuses.
(S) Company contributions of $10,200 to participant's Unocal
Savings Plan account and $7,246 to participant's Unocal
Supplemental Savings Plan account; and $1,404 reportable
interest on deferred cash compensation.
(T) Company contributions of $12,000 to participant's Unocal
Savings Plan account and $3,638 to participant's Unocal
Supplemental Savings Plan account; and $250 reportable
interest on deferred cash compensation.
(U) Company contributions of $12,000 to participant's Unocal
Savings Plan account and $3,029 to participant's Unocal
Supplemental Savings Plan account.
(V) Company contributions of $10,200 to the participant's
Unocal Savings Plan account and $3,962 to the participant's
Unocal Supplemental Savings Plan account.
(W) Mr. Strathman was Vice President and Chief Legal Officer
from December 2002 through September 2003.
(X) Company contributions of $12,000 to the participant's
Unocal Savings Plan account and $7,579 to the participant's
Unocal Supplemental Savings Plan account; and $3,307
reportable interest on deferred cash compensation.
(Y) Company contributions of $12,000 to participant's Unocal
Savings Plan account and $4,516 to participant's Unocal
Supplemental Savings Plan account; and $1,644 reportable
interest on deferred cash compensation.
(Z) Company contributions of $10,200 to participant's Unocal
Savings Plan account and $5,177 to participant's Unocal
Supplemental Savings Plan account.
OPTION/SAR GRANTS IN 2003
The following table shows stock option awards granted in 2003
to the named executive officers:
% of Potential Realizable Value at
No. of Total Assumed Annual Rates of
Securities Options Stock Price Appreciation for
Underlying Granted Exercise Option Term (C)
Options to Employees Price Expiration ------------------------------
Name Granted (A) in 2003 (B) ($/SH) Date 5% ($) 10% ($)
---- ----------- ------------ -------- ---------- -------- ---------
Mr. Fisher 21,279 0.9% $27.07 02/11/2013 $362,257 $918,032
Mr. Strathman 14,518 0.6% $27.07 02/11/2013 247,157 626,344
Mr. Cecil 12,745 0.5% $27.07 02/11/2013 216,973 549,853
(A) The options were granted pursuant to the Long-Term
Incentive Plan of 1998. The options become exercisable in
four equal installments six months, one year, two years and
three years from the date of grant. The exercise price of the
options is the average of the highest and lowest trading
prices of transactions in Unocal common stock as reported in
the NYSE Composite Transactions for the date of grant. The
maximum option exercise period is ten years from the date of
grant. The optionees may pay for option stock with cash,
Unocal common stock they already own, or with proceeds from
the sale of common stock acquired by exercise of the option
through authorized cashless exercise
(notes continued on next page)
19
procedures with stockbrokers. Vesting of options ceases upon
termination of employment. Upon a change of control (as
defined in the option agreements), any unvested options would
vest. The options cease to be exercisable upon termination of
employment, with the following exceptions: a participant who
retires at normal retirement age, upon permanent and total
disability, or under conditions determined by the Management
Development and Compensation Committee to be for the
convenience of the Company, is granted three years in which to
exercise vested options. Beneficiaries have 15 months to
exercise vested options upon death of the option holder.
Options are nontransferable except in the event of the
employee's death or pursuant to a court order, unless the
Committee, in its sole discretion, permits transfers to the
employee's family members and entities established for or
owned by family members.
(B) The number of securities underlying all options granted to
employees in 2003: 2,327,270.
(C) Use of the assumed stock price appreciation of 5% and 10%
each year for the option period is specified in SEC Regulation
S-K. No valuation method can accurately predict future stock
price or option values because there are too many unknown
factors. If the stock price does not increase above the
exercise price, the options will have no value.
AGGREGATED OPTION/SAR EXERCISES IN 2003 AND DECEMBER 31, 2003
OPTION/SAR VALUES
The following table shows exercises of stock option in 2003 by
the named executive officers and the year-end stock option
balances:
No. of Securities Value of Unexercised In-The-
No. Of Underlying Unexercised Money Options/SARs at
Shares Value Options/SARs at 12/31/03 12/31/03 ($) (A)
Acquired on Realized --------------------------- ---------------------------
Name Exercise ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
Mr. Williamson None $ 0 472,119 112,500 $829,039 $165,938
Mr. Ling (B) None 0 335,000 60,000 (B) 423,500 88,500 (B)
Mr. Dallas None 0 270,338 68,446 124,243 41,414
Mr. Fisher 3,849 (C) 31,996 (D) 80,990 25,219 305,526 170,807
Mr. Strathman 15,008 113,449 55,004 17,811 168,287 117,599
Mr. Cecil None 0 43,194 15,918 139,068 103,674
(A) The price of $36.83, which was the closing price of Unocal
common stock as reported in the New York Stock Exchange Composite
Transactions for December 31, 2003, was used to value the
options.
(B) Mr. Ling died on January 28, 2004. His unexercisable
options were canceled.
(C) Excludes 915 shares of restricted stock received upon the
exercise of options with restrictions, which are reported in the
Restricted Stock Awards column of the Summary Compensation Table.
(D) Represents the value realized on the unrestricted shares
received upon exercise. The restricted stock received upon
exercise is valued at the end of the five-year restriction
period, or upon termination of employment due to normal
retirement or at the convenience of the Company.
20
LONG-TERM INCENTIVE PLANS - AWARDS IN 2003
The following table shows performance share awards granted in
2003 to the named executive officers:
Estimated Future Payouts
No. of Period -----------------------------------
Performance Until Threshold Target Maximum
Share Maturation Number of Number of Number of
Name Units (A) or Payout Shares Shares Shares (A)
---- ----------- ---------- --------- --------- ----------
Mr. Williamson 21,000 12/31/2006 0 21,000 42,000
Mr. Ling (B) 13,300 12/31/2006 0 13,300 26,600
Mr. Dallas 9,000 12/31/2006 0 9,000 18,000
Mr. Fisher 5,100 12/31/2006 0 5,100 10,200
Mr. Strathman 4,700 12/31/2006 0 4,700 9,400
Mr. Cecil 4,000 12/31/2006 0 4,000 8,000
(A) Pursuant to the performance shares agreements, the actual
number of performance shares paid out is based on the Company's
return to stockholders for the four-year performance period
(January 1, 2003 through December 31, 2006) compared to that of a
group of peer companies selected by the Management Development
and Compensation Committee. Return to stockholders is defined as
share price appreciation plus dividends expressed as a percentage
of the beginning share price. The maximum number of shares that
can be paid out is 200% of the performance shares granted, and
the maximum value of the payout cannot exceed 400% of the Fair
Market Value of the initial award of performance shares. The
Management Development and Compensation Committee may reduce the
payment based on other factors at the discretion of the
Committee. If Unocal's return to stockholders is at or under the
30th percentile of the peer group's return to stockholders, there
is no payout. The payout percentage may not exceed 50% if
Unocal's return is at the 35th percentile of the peer group's
return, the payout may not exceed 100% if Unocal's return is at
the 60th percentile of the peer group's return, and the payout
percentage may not exceed 200% if Unocal's return is at the 100th
percentile of the peer group's return. A matrix is used for
determining the specific payout percentages that may not be
exceeded for specific return to stockholders levels between the
30th and 100th percentile. Awards can be paid out partly in cash
and partly in shares, as determined by the Management Development
and Compensation Committee.
(B) Mr. Ling died on January 28, 2004. Any payout will be
prorated for the length of his service during the four-year
performance period.
PENSION PLAN TABLE
The following table shows estimated annual retirement benefits
for the names executive officers for the indicated compensation
and years served:
Covered Years of Service
Compen- -------------------------------------------------------------------
sation (A) 1 10 20 25 30 35 40
---------- ------- -------- -------- -------- -------- -------- ---------
$ 200,000 $ 3,200 $ 32,000 $ 64,000 $ 80,000 $ 96,000 $112,000 $ 128,000
400,000 6,400 64,000 128,000 160,000 192,000 224,000 256,000
600,000 9,600 96,000 192,000 240,000 288,000 336,000 384,000
800,000 12,800 128,000 256,000 320,000 384,000 448,000 512,000
1,000,000 16,000 160,000 320,000 400,000 480,000 560,000 640,000
1,200,000 19,200 192,000 384,000 480,000 576,000 672,000 768,000
1,400,000 22,400 224,000 448,000 560,000 672,000 784,000 896,000
1,600,000 25,600 256,000 512,000 640,000 768,000 896,000 1,024,000
1,800,000 28,800 288,000 576,000 720,000 864,000 1,008,000 1,152,000
(note on next page)
21
(A) Covered compensation is the average annualized monthly
compensation in the 36 highest-paid months within the last 120
months immediately preceding retirement. For the named
executive officers in the Summary Compensation Table on page
17, covered compensation equals the amounts in the Salary and
Bonus columns of the Summary Compensation Table and the amount
of bonus that the participant elected to defer into restricted
stock (other than augmentations for deferring into restricted
stock).
The Company has a noncontributory qualified defined benefit
retirement plan covering substantially all U.S. payroll
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 three nonqualified retirement plans
designed to maintain and supplement total retirement benefits.
Among other exclusions, all four of the plans exclude
augmentations to bonuses deferred into restricted stock, and
exclude interest and appreciation in the value of bonuses and/or
salary deferred into the Unocal Deferred Compensation Plan. This
Pension Plan Table, which covers all persons named in the Summary
Compensation Table, shows the estimated annual benefits from the
plans, before the deduction for a portion of the estimated old
age Social Security benefit, as described above. The benefits
shown are computed based on a single life annuity payable at
normal retirement age.
Covered compensation and credited full years of service under
the retirement plan as of year-end 2003 for the executive
officers named in the Summary Compensation Table are as follows:
$1,440,768 and 26 years for Mr. Williamson; $468,220 and 1 year
for Mr. Dallas; $438,043 and 37 years for Mr. Fisher; $395,244
and 23 years for Mr. Strathman; and $348,453 and 32 years for
Mr. Cecil. The accrued benefit for Mr. Ling's surviving spouse
is $3,850 per month.
PERFORMANCE GRAPH
-----------------
The following table shows cumulative total shareholder return
(price changes plus reinvested dividends) from December 31, 1998
to December 31, 2003:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG UNOCAL, S&P EXPLORATION & PRODUCTION AND S&P 500
[PERFORMANCE GRAPH APPEARS HERE]
S&P
Measurement Period Exploration & S&P 500
(Fiscal Year Covered) Unocal Production Index Index
--------------------- ------ ---------------- -------
Measurement Pt - 1998 $100 $100 $100
1999 118 119 121
2000 139 190 110
2001 133 150 97
2002 115 148 76
2003 143 183 97
22
(A) The S&P Oil & Gas Exploration & Production Index consists
of Unocal and six 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 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.
EQUITY COMPENSATION PLAN INFORMATION (A)
----------------------------------------
The following table shows the number of Unocal common shares
authorized for grants of options and other stock-based awards at
December 31, 2003:
No. of
securities to be Weighted
issued upon average
exercise of exercise price No. of
outstanding of outstanding securities
options, options, remaining
warrants and warrants and available for
Plan Category rights rights future issuance
------------- ----------------- -------------- ---------------
Equity
compensation
plans approved 6,406,956(B) $34.62 4,045,661(C)
by security
holders
Equity
compensation
plans not
approved by 6,826,250(D) $32.24 678,656(E)
security
holders
Total 13,233,206 $33.25 4,724,317
(A) Excludes certain other stock-based compensation plans which
do not involve the issuance of common shares.
(B) Includes 1,265,196 shares reserved for a maximum payout of
632,598 performance shares outstanding under the Long-Term
Incentive Plan of 1998 and 120,006 directors' Units
outstanding under the Directors Restricted Stock Units Plan
and 2001 Directors' Deferred Compensation and Stock Award
Plan. There were options outstanding for 84,919 shares under
the 2001 Directors' Deferred Compensation and Stock Award
Plan, 1,806,515 shares under the Long-Term Incentive Plan of
1991, and 3,130,320 shares under the Long-Term Incentive Plan
of 1998.
(C) A total of 280,497 shares were available for future grants
of director stock options or director units under the 2001
Directors' Deferred Compensation and Stock Award Plan. Except
for units to be credited for voluntary deferral of director
fees for the first quarter 2004 and the first quarter dividend
equivalents, this share reserve will be canceled upon
stockholder approval of the 2004 Directors' Deferred
Compensation and Restricted Stock Unit Award Plan.
There were 112,341 shares reserved for dividend equivalents on
existing balances in the Directors' Restricted Stock Units
Plan. A total of 3,652,823 were available for future grants
of stock options, restricted stock, and performance shares
under the 1998 Management Incentive Program. Of the 3,652,823
shares, a total of 1,212,213 shares were available for future
grants of restricted stock and performance shares. As of
February 29, 2004, there were 2,116,595 shares remaining
available under the 1998 Management Incentive Program. Upon
stockholder approval of the 2004 Management Incentive Program,
the remaining balance of shares reserved for grant under the
1998 Management Incentive Program will be canceled.
(notes continued on next page)
23
(D) There remained options outstanding for 272,398 shares under
the Special Stock Option Plan of 1996 and 6,553,852 shares
under the Unocal Stock Option Plan. Additionally, in
connection with the merger of a wholly-owned subsidiary of
Unocal into Pure Resources, Inc. ("Pure"), on October 30,
2002, that resulted in Pure becoming a wholly-owned subsidiary
of Unocal, employee nonqualified stock options to acquire Pure
stock (that were issued by Pure and its predecessors) became
fully vested stock options to acquire Unocal common stock;
options to acquire a total of 2,481,774 shares with a weighted
average exercise price of $18.50 were outstanding at
December 31, 2003 and all of these options became fully vested
at the time of the acquisition. Most of the Pure employee
stock options were issued under Pure's 1999 Incentive Plan, as
approved by Pure stockholders in May of 1999.
(E) A total of 635,373 shares were reserved for future grants
of stock options under the Unocal Stock Option Plan and 43,283
shares were reserved for future grants of restricted stock
under the Union Oil Restricted Stock Plan.
Stock options are nonqualified with a maximum term of ten
years. Except for certain stock options granted under Pure's
1999 Incentive Plan that were granted at prices below fair market
value on the grant date, the exercise price for options may not
be less than the fair market value of the common stock on the
grant date. Options are generally nontransferable except in the
event of an employee's death or pursuant to a court order.
The Compensation Committee of Pure Resources, Inc. may approve
the extension of a loan by the Company to assist in paying the
exercise price of an option and/or any tax required by law to be
withheld upon exercise of an option assumed by Unocal Corporation
in connection with the acquisition. A majority of the options
assumed by Unocal in connection with the Pure acquisition are
exercisable until the end of their full ten-year terms, which
expire from 2004 to 2012.
Stock options granted under the Special Stock Option Plan of
1996 and the Unocal Stock Option Plan cease to vest upon
termination of employment. Vested options may be exercised for
up to three years or the original expiration date, whichever is
earlier, from the date of death, disability, or termination of
employment other than for cause or resignation.
Dividends for restricted stock granted under the Union Oil
Restricted Stock Plan are accumulated and paid out when the
shares vest. The restricted shares are not delivered until the
end of the restricted period, which is four years. The
restricted stock is subject to forfeiture if the holder
terminates employment during the restriction period for reasons
other than death, disability, retirement at or after age 65, or
for the convenience of the Company.
All outstanding restricted stock would become unrestricted and
unvested stock options would become exercisable in the event of a
"change in control" as defined in the plans and agreements
governing the restricted stock and stock options.
ITEM 1. ELECTION OF DIRECTORS
------------------------------
The Board of Directors is divided into three classes.
Directors in each class are elected for three-year terms or until
their successors are duly elected and qualified. Information
about the three director nominees up for election at the 2004
annual meeting for three-year terms expiring at the annual
meeting in 2007 and the seven continuing directors, whose terms
expire in 2005 and 2006, is provided in the tables 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.
24
NOMINEES FOR DIRECTORS-TERMS TO EXPIRE IN 2007
Age
at
2004
Principal Occupation and Annual Director Other
Name Business Experience Meeting Since Directorships
---- ------------------------ ------- -------- -------------
Richard D. Chairman (1991-1999) and 63 2004 -- Wells
McCormick President & CEO (1991- Fargo &
(recommended 1998) of U S. West, Inc. Company
by certain (telecommunications) -- United
current non- Technologies
management Corporation
directors)
Marina v.N. Professor of business 69 1993 -- Intelliseek,
Whitman administration and public Inc.
policy at the University
of Michigan (1992-
present); serves as a
member, director, or
trustee of several
educational and
professional
organizations
Charles R. Chairman (November 2001- 55 2000 None
Williamson present), CEO (2001-
present), and President
(February 2004-present)
of Unocal; Executive Vice
President, International
Energy Operations (1999-
2000), Group Vice
President, Asia
Operations (1998-1999),
Group Vice President,
International Operations
(1996-1998) of Unocal
CONTINUING DIRECTORS-TERMS TO EXPIRE IN 2005
Age
at
2004
Principal Occupation and Annual Director Other
Name Business Experience Meeting Since Directorships
---- ------------------------ ------- -------- -------------
Craig Arnold Sr. Vice President & 44 2004 None
Group Executive, Fluid
Power Group (October 2000-
present) of Eaton
Corporation (industrial
manufacturing); President
(1999-2000) of GE
Lighting Services Ltd.
for General Electric
(Europe); President (1998-
1999) of GE Plastics,
China; President (1997-
1998) of GE Appliances,
Asia
James W. Former Director (1982- 60 1998 -- Great
Crownover 1998), Managing Director Lakes
of Southwest Practice Chemical
(1984-1994) of McKinsey & Corp.
Company, Inc. (management -- Weingarten
consulting) Realty
Investors
-- Allied
Waste
Industries,
Inc.
Donald B. Chairman (February 2002- 64 1998 -- Wells
Rice present), President and Fargo &
CEO (1996-present) of Company
Agensys, Inc. -- Vulcan
(biotechnology); Materials
President and Chief Company
Operating Officer and a -- Amgen Inc.
director (1993-1996) of
Teledyne, Inc.
(aerospace)
25
CONTINUING DIRECTORS-TERMS TO EXPIRE IN 2005
Age
at
2004
Principal Occupation and Annual Director Other
Name Business Experience Meeting Since Directorships
---- ------------------------ ------- -------- -------------
Mark A. Suwyn Chairman & CEO (1996- 61 2004 -- Louisiana-
present) of Louisiana- Pacific
Pacific Corporation; Corp.
Executive Vice President -- Ballard
(1992-1995) of Power
International Paper Co. Systems
(paper industry) Inc.
CONTINUING DIRECTORS-TERMS TO EXPIRE IN 2006
Age
at
2004
Principal Occupation and Annual Director Other
Name Business Experience Meeting Since Directorships
---- ------------------------ ------- -------- -------------
John W. Vice Chairman (December, 71 1995 None
Creighton, Jr. 2002-present) of Unocal;
Chairman and CEO (October
2001-August, 2002) of UAL
Corporation (United
Airlines); Chairman
(January through October,
2001) of Unocal; Director
(1988-1998), President
and CEO (1991-1997) of
Weyerhaeuser Company
(forest products)
Ferrell P. Former Managing Director, 57 2002 -- Graftech
McClean Investment Banking, and International
Senior Advisor to Head of Ltd.
Global Oil & Gas
Investment Banking of
J.P. Morgan Chase & Co.
(2000-2002); Managing
Director, Investment
Banking, and Co-Head of
Global Energy Investment
Banking of J.P. Morgan &
Co. (1991-2000)
(investment banking)
Kevin W. Chairman (2001-present), 56 1997 -- Amgen Inc
Sharer CEO and President (2000- (Chairman)
present), President and -- 3M Company
Chief Operating Officer -- Northrop
(1992-2000) and a Gruman
director (1992-present) Corp.
of Amgen Inc.
(biotechnology)
RETIRING DIRECTORS
Two current independent directors, John C. Amerman (currently
in the class of 2006) and Frank C. Herringer (currently in the
class of 2007), will retire from the Unocal Board at the
Company's annual meeting in May 2004. Mr. Amerman, former
chairman and chief executive officer of Mattel, Inc., has been on
the Board for 13 years; Mr. Herringer, chairman of Transamerica
Corporation, has served 15 years. In addition, the Company's
director retirement policy requires that a director retire on the
day of the annual meeting of stockholders following the
director's 72nd birthday; thus, John W. Creighton, Jr. is
expected to retire in 2005, even though he is in the class of
directors whose terms expire in 2006.
OTHER INFORMATION
Mr. Creighton was interim chairman and chief executive officer
of UAL Corporation from October, 2001 through August, 2002. UAL
Corporation filed for protection under Chapter 11 of the U.S.
Bankruptcy Code on December 9, 2002.
26
DIRECTORS' RECOMMENDATION
The Board of Directors unanimously recommends a vote FOR
election of the nominees. The proxy holders will vote all
proxies received FOR election unless instructed otherwise.
ITEM 2. RATIFICATION OF APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS
--------------------------------------------------
The stockholders will be asked to ratify the appointment of
the firm of PricewaterhouseCoopers LLP ("PwC") as independent
auditors for 2004 which was made by the Audit Committee of the
Board of Directors. PwC, one of the nation's largest public
auditing firms, or one of its predecessors, has served as the
Company's independent auditors for the past 59 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.
INDEPENDENT AUDITORS FEES
The aggregate fees for professional services rendered by PwC
for years 2003 and 2002 were as follows (millions of dollars):
2003 2002
---- ----
Audit Fees $3.9 $3.9
Audit-Related Fees 0.3 0.2
Tax Fees 0.4 2.8
All Other Fees 0.1 0.3
---- ----
Total $4.7 $7.2
Audit Fees. The Audit Fees for years 2003 and 2002 were for
services associated with the audit of the Company's consolidated
financial statements included in its Annual Report on Form 10-K,
reviews of the Company's financial statements included in its
Quarterly Reports, and statutory and subsidiary audits.
Audit-Related Fees. The Audit-Related Fees for years 2003 and
2002 were for services associated with benefit plan audits and
internal control reviews.
Tax Fees. The Tax Fees for years 2003 and 2002 were for
services associated with tax compliance, including preparation of
selected tax returns; and tax planning and tax advice, including
assistance with tax audits, appeals, claims for refunds, and
requests for rulings or technical advice from tax authorities.
All Other Fees. All Other Fees for years 2003 and 2002 were
for services associated with information technology consultation.
The Audit Committee has considered whether the rendering of
non-audit services to the Company by the independent auditors is
compatible with the auditors' independence. Effective May 2003,
in accordance with rules of the SEC implementing the Sarbanes-
Oxley Act of 2002, the Audit Committee pre-approves all audit and
allowable non-audit services performed by PwC. In addition,
effective May 2004, in accordance with rules of the SEC on
Standards Relating to Listed Company Audit Committees, the Audit
Committee will pre-approve all audit services to be performed by
auditors other than PwC. The Audit Committee has appointed its
Chairman as its designated member to pre-approve any allowable
auditor engagements, to the extent necessary, in between Audit
Committee meetings. Any pre-approvals by the Chairman are then
reported to the Audit Committee on a timely basis.
27
DIRECTORS' RECOMMENDATION
The Board of Directors unanimously recommends a vote FOR
ratification of the appointment of PricewaterhouseCoopers LLP as
independent auditors for 2004. The proxy holders will vote all
proxies received FOR ratification unless instructed otherwise.
The Audit Committee will consider the results of the vote in
fulfilling its responsibility to select the independent auditors,
although the results of the vote are not binding on the Audit
Committee.
ITEM 3. APPROVAL OF
2004 MANAGEMENT INCENTIVE PROGRAM
---------------------------------
On February 10, 2004, the Board of Directors, upon the
recommendation of the Management Development and Compensation
Committee, adopted the 2004 Management Incentive Program (the
"2004 Program"), subject to stockholder approval at the 2004
annual meeting.
The Company currently maintains the 1998 Management Incentive
Program, as amended (the "1998 Program"). If the 2004 Program is
approved by the stockholders at the annual meeting, no future
awards will be granted under the 1998 Program. The termination
of the 1998 Program does not affect the awards that are
outstanding on the date of its termination. As of February 29,
2004, 2,116,595 shares remained available for future grants of
awards under the 1998 Program.
The Board of Directors approved the 2004 Program, subject to
stockholder approval, to provide for sufficient share authority
and flexibility to structure future award grants to better align
executive pay with the long-term interests of stockholders and
with corporate goals and strategies. The 2004 Program consists
of:
-- the Incentive Compensation Plan (the "ICP"), which provides
for annual cash bonus awards, a portion of which may be paid as
restricted stock under the LTIP or deferred; and
-- the Long-Term Incentive Plan of 2004 (the "LTIP"), which
provides for grants of non-qualified stock options, performance
share awards, restricted stock and performance restricted stock
awards.
This proposal requests, and the Board of Directors recommends,
stockholder approval of the 2004 Program. If the stockholders do
not approve the 2004 Program, the Company will continue to make
awards under the 1998 Program. Awards of performance shares were
made under the 2004 Program to 69 employees, including six
current officers, subject to stockholder approval of the 2004
Program. These awards are shown in the table entitled "New Plan
Benefits" below.
SUMMARY DESCRIPTION OF THE PROGRAM
The principal terms of the 2004 Program are summarized below.
Because it is not a complete description of all the terms and
conditions of the 2004 Program, please refer the full text of the
2004 Program, which is attached to this proxy statement as
Exhibit B.
Administration and Eligibility
The Board of Directors has appointed the Management
Development and Compensation Committee (the "Committee") to
administer the 2004 Program. The Committee is comprised entirely
of non-employee directors. The Committee will have broad
authority to administer the 2004 Program, including the power,
subject to the terms of the 2004 Program, to make (and amend)
awards, establish, adopt or revise rules and regulations and
interpret and make determinations relating to the 2004 Program as
it may deem necessary or advisable in the administration of the
2004 Program. The Committee, in its
28
discretion, will also be able to select as 2004 Program participants any
employees of the Company and its subsidiaries.
The 2004 Program provides that the Committee may, in its sole
discretion, delegate the authority to grant awards under the 2004
Program to employees other than executive officers to a committee
of the Board of Directors. The Board of Directors has
established a single member committee, with Director, CEO and
President Charles R. Williamson to serve as the sole member,
which shall have such authorities under the 2004 Program as is
expressly delegated to such committee by the Committee within its
authority under the 2004 Program. (References to the Committee
below are qualified by this delegated authority.)
Persons eligible to receive awards under the 2004 Program
include all officers and other employees (including all of the
named executive officers) of the Company and its subsidiaries.
As of March 15, 2004, approximately 5,900 officers and employees
of the Company and its subsidiaries (including all of the named
executive officers) were considered eligible to participate in
the 2004 Program, subject to the Committee's discretion to
determine the particular individuals who, from time to time, will
be selected to receive awards.
Notwithstanding the Committee's broad authority, without prior
stockholder approval, the Company will not reduce the exercise or
purchase price of any option granted under the LTIP (i.e.
"reprice") by amendment, substitution, cancellation and regrant
or other means, other than as a result of antidilution or other
adjustments under the LTIP incident to certain events such as a
stock split, recapitalization, reorganization, or similar
transaction affecting the underlying securities.
Shares Subject to the 2004 Program; Adjustment
The aggregate number of shares of common stock that may be
issued pursuant to all awards under the 2004 Program is
12,000,000. Various additional share limits are imposed. A
maximum of:
-- 6,000,000 shares may be issued as performance shares,
restricted stock awards and performance restricted stock awards.
-- 600,000 shares may be issued pursuant to options granted to
any individual in any calendar year.
-- 800,000 shares may be issued pursuant to performance
restricted stock awards in any calendar year.
Shares subject to awards that lapse or are not exercised
before they expire, terminate or fail to vest, and shares
canceled for withholding taxes upon vesting, also are available
for future awards under the 2004 Program.
The number of shares available for issuance under the 2004
Program and the number and price of the shares or other
consideration subject to outstanding awards are subject to
adjustment by the Committee upon changes in the outstanding
common stock resulting from stock dividends, stock splits,
recapitalizations, reorganizations, mergers, consolidations,
combinations, exchanges or other relevant changes in the
Company's capitalization. In addition, as described in greater
detail below with respect to each type of award, the occurrence
of a "Change of Control" (as defined in Section 2 of the LTIP)
will generally affect outstanding awards granted under the 2004
Program. For the purposes of the 2004 Program, a Change of
Control generally includes:
-- an acquisition by any "person" of beneficial ownership in more
than 20% of the common stock or voting securities then entitled
to vote generally in the election of directors of the Company
(other than an acquisition by or from the Company, an acquisition
by a Company employee benefit plan or any acquisition in
connection with certain business combinations);
-- certain changes in the majority of the Board within a certain
period of time;
29
-- stockholder approval of a complete liquidation or dissolution
of the Company; or
-- the consummation of (or in some cases, immediately preceding)
certain mergers or consolidations or sales of all or
substantially all of the Company's assets.
The 2004 Program does not limit the authority of the Board of
Directors or the Committee to grant awards or authorize any other
compensation, with or without reference to the common stock,
under any other plan or authority.
Awards under the Incentive Compensation Plan
The ICP provides for awards and payments to be determined on a
yearly basis (the "ICP Award Period"). The bonus pool for a year
is equal to 2% of the Company's "Net Cash Provided by Operating
Activities" (as defined in the ICP) during that year. The
aggregate amount of awards (without giving effect to any increase
in value upon a deferral into restricted stock) under the ICP for
a year may not exceed this bonus pool.
Within the first 90 days of each ICP Award Period, the
Committee establishes awards for the CEO and certain other
executive officers ("162(m) Participants"), each of which is
expressed as a percentage of this bonus pool. The Committee has
the sole discretion to determine whether the full amount of such
an award is paid and may reduce, but may not increase, the amount
of the award payable based on any criteria that the Committee
determines. The criteria for reducing the awards for 162(m)
Participants may include, but are not limited to, one or more of
the following (as defined in the ICP): individual performance;
the Company's "Comparative Return to Stockholders"; the Company's
"Return on Capital Employed"; the Company's "Free Cash Flow"; the
Company's "Future Year Value Creation."
The Committee establishes individual target awards, expressed
as a percentage of salary, for participants who are not 162(m)
Participants. Subject to the amount of the bonus pool that
remains after paying awards to the 162(m) Participants, the
Committee may increase or decrease the amounts payable to the
remaining participants under the awards described in this
paragraph based on factors such as, but not limited to, the
following:
-- the Company's "Comparative Return to Stockholders"
-- the Company's "Return on Capital Employed"
-- the Company's "Future Year Value Creation"
-- the Company's "Free Cash Flow"
-- comparison of actual operational or financial results to plans
or goals, adjusted for external factors such as changes in market
prices
-- individual performance of employees selected to participate in
the ICP
-- reasonableness of total cash compensation.
The maximum cash award that may be payable to a participant
for a calendar year is 0.25% of the Company's Net Cash Provided
by Operating Activities (which was $1.57 billion and $1.95
billion in 2002 and 2003, respectively) or, if less, $2,500,000.
The value of the portion of an award deferred in the form of a
restricted stock award granted under the LTIP may be increased up
to 100% as described below.
Unless otherwise provided, awards are payable in cash from the
general funds of the Company in a manner (which may include
deferral of cash awards) prescribed by the Committee. An award
may be paid all or in part as a restricted stock award, granted
under and subject to the terms of the LTIP, either as determined
by the Committee or pursuant to an election by the recipient
under terms established by the Committee. In consideration for
forgoing cash compensation, the Committee may grant a restricted
stock award with a total dollar value (without giving effect to
the reduction in value attributable to the restrictions) of up to
100% greater than the cash amount deferred. For 162(m)
Participants, the
30
Committee will establish any applicable percentage increase at the
same time that it establishes their target award levels for that
ICP Award Period. The number of whole shares of restricted stock
issued in lieu of a cash payment will be equal to the dollar value
of the award after any such increase divided by the fair market value
of the Company's common stock. Fractional shares will be paid in
cash currently.
Upon or in anticipation of a Change of Control, the current
ICP Award Period will be shortened and will end on the date of
such Change of Control. At that time, the amount payable to each
162(m) Participant will be determined as described above, but
based on the bonus pool for the shortened ICP Award Period. Each
other participant will be paid an amount in cash not less than
his or her target award, prorated by the ratio that the shortened
Award Period bears to the calendar year, and subject to the
applicable bonus pool limitation.
A participant's rights and interests, including amounts
payable, under the ICP are nontransferable by the recipient other
than by will, beneficiary designation or the laws of descent and
distribution.
In addition to, or in lieu of, an election to defer awards
into restricted stock, the Committee may permit participants to
defer payment of cash awards pursuant to a cash deferral program
on such terms, including the crediting of interest on the cash
awards, as the Committee may approve in its sole discretion.
Awards under the Long-Term Incentive Plan
The LTIP authorizes the grant of nonqualified stock options,
performance shares, restricted stock and performance restricted
stock.
Stock Options.
An option is the right to purchase shares of common stock at a
future date at a specified price (the "exercise price") during a
specified term not to exceed 10 years.
The Committee, subject to the delegated authority referenced
above, determines the specific officers and employees and the
number of shares subject to each stock option granted under the
LTIP and the manner, conditions and time of exercise. The
Committee may impose restrictions on shares acquired through
exercise. 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 or by
"cashless exercise" as determined by the Committee. Options are
evidenced by stock option agreements in a form approved by the
Committee. The granting of an option does not entitle the
employee to the rights of a stockholder; such rights accrue only
after exercise and issuance of shares.
Under certain circumstances, such as a merger or a public
tender for Unocal stock, the Committee may declare outstanding
options to be immediately exercisable. In addition, as it has
been the practice under the 1998 Program, it is anticipated that
award agreements will generally provide that all outstanding
options will become immediately exercisable upon a Change of
Control. Except as provided in the prior two sentences, no
options may become exercisable less than one year after the date
of grant. The Committee may also provide that outstanding
options that are vested and exercisable may terminate upon the
occurrence of certain events, such as a dissolution or certain
mergers or consolidations of the Company.
Performance Shares.
A performance share represents a bookkeeping unit of
measurement that is deemed to be equal to a share for purposes of
determining the payment, in cash or in shares, of the award upon
the achievement of certain pre-established performance goals.
31
Performance share awards may be granted by the Committee with
respect to a period of time of not less than three years (an
"LTIP Award Period"). Each performance share has an initial
value equivalent to one share of the Company's common stock.
During any 12-month period, no participant may receive more than
30% of the aggregate number of performance shares granted or more
than 90,000 performance shares. Within the first 90 days of an
LTIP Award Period, the Committee will establish (1) performance
goals based on one or more performance criteria set forth below
and (2) a matrix for determining the percentage by which
participants' performance shares will be multiplied based on the
Company's achievement of such performance goals. In no event may
the performance matrix allow for a percentage in excess of 200%.
The performance criteria are as follows (each of which is defined
in the LTIP):
-- Comparative Return to Stockholders
-- Comparative Discretionary Cash Flow Per Share
-- Comparative Production Growth Per Share
-- Comparative Finding and Development Costs Per BOE Added and
-- Comparative Production and G&A Costs Per BOE Produced
At the end of an LTIP Award Period, the Committee will
determine the extent to which the performance goals for the LTIP
Award Period have been achieved and then will multiply the number
of each participant's performance shares by the percentage
determined under the pre-established matrix to determine the
amount payable to each holder (referred to as "payout shares").
Each participant is then entitled to a dollar amount equal to the
fair market value of the payout shares; however, in no event may
the value of the awards with respect to the applicable LTIP Award
Period exceed more than 400% of the value of the award at the
time of grant. The payments may be made in shares of Company
common stock, or cash, or a combination of common stock and cash,
at the discretion of the Committee. To the extent that payout
shares are paid in shares of common stock, the number of shares
paid will be determined by dividing the portion of the award not
paid in cash by the fair market value of the common stock.
In the event of: (1) a public tender for all or any part of
the common stock, (2) any proposal to merge, consolidate or
otherwise combine the Company with another company is submitted
for stockholder approval, or (3) another situation exists that
the Committee determines is similar to either of the foregoing,
then the Committee may declare that any LTIP Award Period ends on
that or another date. At that time, payment of performance share
awards will be accelerated and paid in an amount at least equal
to the number of performance shares credited to each
participant's performance share account at the beginning of the
LTIP Award Period. In addition, award agreements may provide
that upon or in anticipation of a Change of Control any LTIP
Award Period will end on the date of the Change of Control and
payment of performance share awards will be accelerated and paid
in an amount at least equal to the number of performance shares
credited to each participant's performance share account at the
beginning of the LTIP Award Period.
If a participant's employment terminates during an LTIP Award
Period for any reason other than the participant's resignation,
retirement at the participant's election before age 65, or
termination for cause or for performance inadequacy, then the
performance shares will be paid at the end of the LTIP Award
Period and prorated for service during the period. If a
participant's employment terminates during an LTIP Award Period
because he or she resigns, elects to retire before age 65, or as
a result of a termination for cause or performance inadequacy,
then the performance shares award will be forfeited and no payout
will be made.
Restricted Stock Awards.
The Committee may grant shares of common stock subject to
certain restrictions. At the time the grant is made, the
Committee will establish the restriction period (which need not
be the same for each grant), which will not be less than four
years. The employee is entitled to vote the restricted stock and
32
receive dividends during the restriction period. The Committee,
in its sole discretion, will determine whether cash and stock
dividends payable during the restriction period will be paid to
the holder on a current basis or withheld by the Company for the
holder's account until the restrictions lapse. The Committee
will also determine whether dividends that are withheld will be
credited with interest, and if so, the applicable rate and any
applicable terms. If, by the end of the restriction period, the
employee has satisfied all of the conditions of the restricted
stock award established by the Committee, the Company will remove
any restrictions on the shares and deliver any accumulated unpaid
dividends and any interest thereon (to the extent, if any, unpaid
during the restriction period), less any shares withheld for
taxes.
In the event of: (1) a public tender for all or any part of
the common stock, (2) any proposal to merge, consolidate or
otherwise combine the Company with another company is submitted
for stockholder approval, or (3) another situation exists that
the Committee determines is similar to either of the foregoing,
the Committee may change or eliminate the restriction period on
outstanding restricted stock. In addition, award agreements
generally provide for the removal of restrictions upon a Change
of Control (as defined in Section 2 of the LTIP).
The Committee in making or amending a restricted stock award
may determine the effect of termination of service (including
retirement) on the rights and benefits under the restricted stock
award and in doing so may make distinctions based upon the reason
for the termination or other factors.
Performance Restricted Stock Awards.
A Performance Restricted Stock Award is an award of restricted
shares based on the Company's performance over the immediately
preceding calendar year (a "Performance Year"). The first
Performance Year is 2004.
For awards to 162(m) Participants, the Committee will
establish, within the first 90 days of a Performance Year:
-- the target number of restricted shares to be granted as a
Performance Restricted Stock Award to each 162(m) Participant
-- the performance goals based on one or more of Comparative
Return to Shareholders, Return on Capital Employed, Free Cash
Flow, and Net Cash Provided by Operating Activities (each as
defined in the LTIP) for the Performance Year, and
-- the extent to which the individualized target Performance
Restricted Stock Awards will be granted, if at all, based on the
attainment of those performance goals.
Following the end of the applicable Performance Year, the
Committee will determine the extent to which the pre-established
performance goals were met and the corresponding number of
restricted shares subject to each award, if any. The Committee
may reduce, but not increase, the number of shares subject to
award based on the criteria that the Committee determines in its
sole discretion, which may include Future Year Value Creation and
individual performance.
For the participants who are not 162(m) Participants, the
Committee will establish individual restricted stock target
awards for each Performance Year, based on the criteria that the
Committee determines in its sole discretion, which may include
one or more of the following: Return on Capital Employed; Future
Year Value Creation; Free Cash Flow, salary grade; and salary.
Subject to the number of shares that remain available for
grant after the award of Performance Restricted Stock Awards to
162(m) Participants, the Committee will determine the actual
number of shares subject to each Performance Restricted Stock
Award to non-162(m) Participants (which may be more or less than
the target awards) based on any criteria that the Committee
determines. The criteria may include, but is not limited to, the
following:
33
-- comparison of actual operational or financial results to plans
or goals adjusted for external factors, such as changes in
market prices,
-- individual performance of employees selected to participate in
the LTIP, and
-- reasonableness of total cash compensation.
At the time the Committee makes a Performance Restricted Stock
Award, it will establish the restriction period (which need not
be the same for each grant), which will not be less than four
years. The employee is entitled to vote the restricted stock and
receive dividends during the restriction period. The Committee,
in its sole discretion will determine whether cash and stock
dividends payable during the restriction period will be paid to
the holder on a current basis or withheld by the Company for the
holder's account until the restrictions lapse. The Committee
will also determine whether dividends that are withheld will be
credited with interest, and if so, the applicable rate and any
applicable terms. If, by the end of the restriction period, the
employee has satisfied all of the conditions of the Performance
Restricted Stock Award established by the Committee, the Company
will remove any restrictions on the shares and deliver any
accumulated unpaid dividends and any interest thereon (to the
extent, if any, unpaid during the restriction period), less any
shares withheld for taxes.
In the event of: (1) a public tender for all or any part of
the common stock, (2) any proposal to merge, consolidate or
otherwise combine the Company with another company is submitted
for stockholder approval, or (3) another situation exists that
the Committee determines is similar to either of the foregoing,
the Committee may change or eliminate the restriction period on
outstanding restricted stock. In addition, award agreements
generally provide for the removal of restrictions upon a Change
of Control (as defined in Section 2 of the LTIP).
The Committee in making or amending a restricted stock award
may determine the effect of termination of service (including
retirement) on the rights and benefits under the restricted stock
award and in doing so may make distinctions based upon the reason
for the termination or other factors.
Transfer Restrictions.
Awards under the LTIP are generally non-transferable by the
recipient other than by will, beneficiary designation or the laws
of descent and distribution upon the death of an employee, or
pursuant to court orders. Options are generally exercisable only
by the recipient. The Committee may, however, permit the
transfer of options, performance restricted stock and/or
restricted stock awards to the employee's family members and
entities established for or owned by family members.
Amendment and Termination
The Board may terminate the 2004 Program at any time and, with
the consent of an individual participant, the Board or Committee
may cancel, amend, reduce, or alter the outstanding awards
thereunder (except as to repricing). The Board may amend or
suspend or, if suspended, reinstate, the 2004 Program in whole or
in part. Notwithstanding the foregoing, any amendment to the
2004 Program will be subject to stockholder approval to the
extent that stockholder approval is then required by the 2004
Program, applicable law or applicable listing agency, or as
deemed necessary or advisable by the Board.
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, 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
34
stock, if any, acquired through the exercise of stock options will be
subject to the tax treatment described below for restricted stock, except
that it would not be subject to limitations on deductibility
under Section 162(m) of the Internal Revenue Code.
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.
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 (known as an "83(b)
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 generally
receives a tax deduction at the same time and for the same
amount. If an employee elects to be taxed at grant there will be
no further tax consequences attributable to the awarded stock
when the restrictions lapse. The employee will be subject to tax
upon the sale or other disposition of the stock. However,
dividends in cash and stock will be treated as follows:
-- 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; and
-- 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.
The awards under the 2004 Program (except for restricted stock
awards under the LTIP and cash dividends) are designed to satisfy
the requirements for "performance based" compensation under
Section 162(m) of the Internal Revenue Code of 1986, as amended,
and thus preserves the deductibility of such compensation under
federal income tax law. If compensation attributable to awards
is not "performance based" within the meaning of 162(m), the
Company may not deduct aggregate compensation to its CEO or any
of its other four most highly-compensated officers to the extent
that it exceeds $1 million in any calendar year. Furthermore, if
an award is accelerated under the 2004 Program in connection with
a change in control (as the term is used under the Code), the
Company will not be permitted to deduct the portion of the
compensation attributable to the acceleration ("parachute
payments") in excess of the average annual base salary if the
parachute payments exceed certain threshold limits under the
Code; certain related excise taxes also may be triggered.
Securities Underlying Awards.
The closing price of a share of common stock as of March 31,
2004 was $37.28 per share. If the 2004 Program is approved by
stockholders, the Company plans to register the 12,000,000 shares
of common stock available for issuance under the 2004 Program
under the Securities Act of 1933, as amended.
NEW PLAN BENEFITS
On February 10, 2004, the Committee made performance share
awards to 69 employees, including six current officers, subject
to stockholder approval of the 2004 Program. Other than these
awards, the Company has not approved any awards under the 2004
Program and is not currently considering any specific award
grants under the 2004 Program. If the 2004 Program had been in
existence during 2003, the Company expects that award grants
would have been substantially different from those actually made
under the 1998 Program as a result of the changes to the
Company's compensation program, which are
35
incorporated in the 2004 Program and described in the Report of the Management
Development and Compensation Committee in this proxy statement.
The following table shows the performance share awards granted
on February 10, 2004 to (1) the named executive officers, (2) the
Company's current executive officers as a group, (3) the
Company's current non-executive directors as a group and (4) the
Company's current non-executive officer employees as a group:
No. of
Shares
Underlying
Performance
Share
Name and Principal Position Awards(1)
--------------------------- -----------
Charles R. Williamson, Chairman, Chief Executive 61,030
Officer and President
Timothy H. Ling, Former President and Chief Not
Operating Officer (deceased) applicable
Terry G. Dallas, Executive Vice President and Chief 10,486
Financial Officer
Thomas E. Fisher, Senior Vice President, Commercial 5,661
Affairs
Charles O. Strathman, Former Vice President and 4,341
Chief Legal Officer
Joe D. Cecil, Vice President and Comptroller 3,083
Executive Officers as a Group 92,109
Non-Executive Director Group Not
applicable
Non-Executive Officer Employee Group 181,329
(1) Represents shares underlying performance share awards,
which may become payable in cash or shares of common stock
upon the achievement of pre-established performance goals.
The LTIP award period commenced on January 1, 2004.
DIRECTORS' RECOMMENDATION
The Board of Directors recommends a vote FOR approval of the
2004 Management Incentive Program. The proxy holders will vote
all proxies received FOR approval unless instructed otherwise.
ITEM 4. APPROVAL OF 2004 DIRECTORS' DEFERRED COMPENSATION
AND RESTRICTED STOCK UNIT AWARD PLAN
------------------------------------
On February 10, 2004, the Board of Directors, upon the
recommendation of the Board Governance Committee, adopted the
2004 Directors' Deferred Compensation and Restricted Stock Unit
Award Plan (the "2004 Plan"), subject to stockholder approval at
the 2004 annual meeting. The 2004 Plan will become effective
upon the date it is approved by stockholders.
The Company currently maintains the 2001 Directors' Deferred
Compensation and Stock Award Plan (the "2001 Plan"). Upon the
recommendation of the Company's Board Governance Committee, the
Board determined that it was advisable and in the best interests
of stockholders to adopt a new deferred compensation and award
plan that provides for awards that more directly further the
directors' Unocal stock ownership and compensation objectives for
its non-employee directors, consistent with evolving practices of
other public companies. The 2004 Plan is intended to replace the
2001 Plan. The 2004 Plan principally modifies the terms of the
2001 Plan by replacing the initial and annual stock option awards
and annual awards of stock units with an initial and annual
awards of restricted stock units.
On February 10, 2004 stock options were granted, and on May 1,
2004 stock options will be granted, to eligible directors under
the 2001 Plan in accordance with its terms. To prevent a
compounding of benefits in 2004, if stockholders approve the 2004
Plan, the stock options granted in 2004 under the 2001 Plan will
be rescinded without consideration and no additional awards will
be granted under the 2001 Plan. As of February 29, 2004, 260,253
shares remained available for issuance under the 2001 Plan.
36
SUMMARY DESCRIPTION OF THE 2004 PLAN
The following is a summary of the principal terms of the 2004
Plan. Because it is not a complete description of all of the
terms and conditions of the 2004 Plan, please refer to the full
text of the 2004 Plan attached as Exhibit C to this proxy
statement.
Purpose
The purpose of the 2004 Plan is to attract, motivate and
retain experienced and knowledgeable non-employee directors by
offering them additional stock-based compensation and incentives
to defer and potentially enhance their compensation and encourage
stock ownership in the Company.
Eligibility
Only the Company's non-employee directors are eligible to
participate in the 2004 Plan. As of March 31, 2004, there were
11 non-employee directors on the Board of Directors. The two
retiring directors will not be eligible to participate in the
2004 Plan.
Administration
The Board has appointed its Board Governance Committee (the
"Committee") to administer the 2004 Plan. The Committee will
have broad authority under the 2004 Plan, including, for example,
the authority:
-- to establish, adopt and revise rules and regulations relating
to the 2004 Plan;
-- to adopt the schedules, forms and agreements for use in
connection with the 2004 Plan and elections under the 2004 Plan;
and
-- to delegate ministerial, day-to-day administrative details and
non-discretionary duties and functions to the Company's officers
and employees.
Shares Authorized
The Board of Directors has authorized an aggregate of 500,000
shares of the Company's common stock that may be issued or
delivered under the 2004 Plan, subject to certain antidilution
and other adjustments referenced in Section 11 of the 2004 Plan.
If shares that are reserved to be issued in payment of stock
units are not issued because the award terminates without payment
in shares, the shares will remain available for future grants of
stock units or accumulation of dividend equivalents.
If grants contemplated would exceed 2004 Plan limits, the
Company will prorate any new annual awards of restricted stock
units and credits of stock units among the participants, giving
priority to restricted stock unit awards. If no additional
shares are available for issuance, participants will not be
granted additional restricted stock unit awards and dividend
equivalents on stock units will be paid in cash.
Types of Awards
The 2004 Plan authorizes the annual award of restricted stock
units and opportunities to defer all or a portion of cash
compensation into stock units that are not restricted. A stock
unit represents an unfunded bookkeeping entry which serves as a
unit of measurement relative to one share of common stock for
purposes of determining the payment in shares of a deferred
benefit or right. Stock units, subject to very limited
exception, are payable solely in shares of common stock.
37
Restricted Stock Unit Awards.
On the first day of the month immediately following the 2004
annual meeting, and on June 1 in each year thereafter, each
eligible director then in office will be granted without any
further action by the Committee a number of restricted stock
units ("RSUs") with a total value of $70,000. The number of RSUs
subject to each award will be determined by dividing $70,000 by
the fair market value of the common stock on the grant date.
Thus, if the fair market value of a share of common stock on the
2004 annual meeting date is $37.28 (which was the fair market
value on March 31, 2004), the number of RSUs subject to each 2004
annual award will be 1,878. The Board has the authority, from
time to time, to increase or decrease the nominal value of these
annual awards. The Board may not, however, increase the dollar
value to more than $140,000 in the aggregate over the term of the
2004 Plan.
In addition, any person who first becomes an eligible director
on or after January 1, 2004 will be granted without any further
action by the Committee a number of RSUs with a total value of
$82,500. As to any person who first becomes an eligible director
on or before the 2004 annual meeting, the grant date will be the
first day of the month following the 2004 annual meeting. As to
any person who subsequently becomes an eligible director, the
grant date will be the date that he or she first takes office.
The number of RSUs subject to such award will be determined by
dividing $82,500 by the fair market value of the common stock on
the grant date. The Board has the authority, from time to time,
to increase or decrease the nominal value of these initial
awards. The Board may not, however, increase the dollar value to
more than $165,000 in the aggregate over the term of the 2004
Plan. Eligible directors may not receive more than one RSU award
in any one calendar year.
RSUs granted to eligible directors will vest and become
nonforfeitable over three years with 33 1/3% vesting on each of
the first three anniversaries of the date of grant (or such other
amount that is not less than 20% or more than 50% as the Company
may approve in advance of the date the award is made). Unvested
RSUs will vest and become nonforfeitable early upon the
occurrence of any of the following events:
-- if the director's services are terminated due to his or her
death or disability;
-- upon a Change in Control (defined in Section 2 of the 2004
Plan);
-- the director retires from service either (1) at the end of his
or her then current term and after completing five years of
service, if the eligible director is ineligible to stand for
reelection under the Company's directors' retirement policy or
(2) under the Company's directors' retirement policy on the date
of the annual meeting that immediately follows his or her 72nd
birthday and after completing five years of service; or
-- the director accepts a public interest position (e.g.
community service, philanthropic endeavors, a position with a
501(c)(3) or (c)(4) organization, or government service),
provided that such acceleration does not adversely affect the
director's ability to serve in such position.
The RSUs will accumulate in the participant's stock unit
account and dividend equivalent amounts will be credited as
additional stock units, subject to the same vesting and
distribution elections described below. To the extent that any
portion of a participant's RSUs have not become vested on the
date his or her services terminate, then the unvested RSUs will
be forfeited and the unvested portion of the award will
automatically terminate without payment of consideration by the
Company.
Deferral Units
The 2004 Plan allows participants to make an annual election
to defer all or a portion of cash fees into stock units. In
consideration for and to encourage deferrals, the amount of the
stock units will be based on 120% of the fees deferred. At the
end of each quarter, a participant's stock unit account will be
credited with a number of stock units (referred to as "deferral
units") equal to the value of the adjusted cash deferral amount
divided by the fair market value of the common stock over the
quarter. Deferral units are fully vested and nonforfeitable at
all times and will ultimately be paid in shares of the Company's
38
common stock. The deferral units will accumulate in the
participant's stock unit account and dividend equivalent amounts
will be credited as additional stock units, subject to the same
distribution elections.
If the 2004 Plan is approved by stockholders at the 2004
annual meeting, the stock unit account of each eligible director
who is a participant in the 2001 Plan will be transferred to the
stock unit account established for each such person under the
2004 Plan, effective as of the date of the 2004 annual meeting,
and will be governed by the terms of the 2004 Plan. All deferral
elections, distribution elections and beneficiary designations
made by the non-employee director will continue unless and until
changed in accordance with the 2004 Plan. The stock units
credited to each eligible director's stock unit account under the
2001 Plan before the date the account is transferred to the 2004
Plan account will count against the share limit under the 2001
Plan, and any additional stock units credited to each stock unit
account under the 2004 Plan thereafter, either with respect to
deferral elections or as dividend equivalents, will count against
the share limit under the 2004 Plan.
Distribution Elections
Unless a participant elects otherwise, vested stock units
(including both restricted stock units that have vested and
deferral units) will be paid out in the form of common stock in a
lump sum as soon as practicable following the first to occur of
the participant's termination of service as a director or a
Change in Control. However, a participant may elect to have his
or her vested stock units paid on (1) a termination of service as
a director, (2) on an alternative date, (3) on the earlier of
termination of service or an alternative date or (4) the later of
termination of service or an alternative date. The participant
may also elect whether or not a Change in Control will accelerate
distribution of his or her vested stock units. A participant may
elect to accelerate the distribution of his or her vested stock
units upon certain hardships or by requesting an early
distribution subject to a withdrawal penalty.
Notwithstanding any distribution elections, a participant will
receive an automatic crediting and distribution of vested stock
units if a participant accepts a public interest position (e.g.
community service, philanthropic endeavors, a position with a
501(c)(3) or (c)(4) organization, or government service),
provided that such acceleration does not adversely affect the
director's ability to serve in such position.
Restrictions on Transfer
Stock units, including amounts payable or common stock
deliverable thereunder, are non-transferable except by will or
the laws of descent and distribution or beneficiary designation.
Adjustment
The number and kind of shares available for issuance or
transfer under the 2004 Plan and outstanding stock units are
subject to adjustment and in some cases, termination upon certain
reorganizations, mergers, combinations, consolidations,
recapitalizations, reclassifications, stock splits, stock
dividends, asset sales or other similar events, or extraordinary
dividends or distributions of property to the Company's
stockholders.
Termination of or Changes to the 2004 Plan or Awards
The Board of Directors may amend or terminate the 2004 Plan
(including outstanding awards) and does not contemplate seeking
stockholder approval for amendments (including, for example,
changes in the notional value of the annual restricted stock unit
awards, future initial restricted stock grants, or the valuation
of deferred stock features of the 2004 Plan) except to the extent
required by applicable law, listing agency rule or deemed
necessary or advisable by the Board. (See Section 12 of the 2004
Plan.) Such amendments may increase the benefits to eligible
directors within aggregate share limits. No amendment or
termination may cancel or adversely affect a participant's rights
with respect to amounts or stock units credited to his or her
stock unit account, without his or her consent, except as
otherwise provided in the 2004 Plan.
39
Securities Underlying Stock Units
The market value of a share of common stock as of March 31,
2004, was $37.28 per share. Upon receipt of stockholder
approval, the Company plans to register the 500,000 shares
available under the 2004 Plan under the Securities Act of 1933,
as amended.
NEW PLAN BENEFITS
The following chart shows the benefits or amounts under
restricted stock unit awards that will be allocated under the
2004 Plan, subject to any future 2004 Plan amendments.
2004 Directors' Deferred Compensation and Restricted Stock Unit
Award Plan
(Initial and Annual Restricted Stock Unit Awards)
Notional
Value of
Shares
Underlying
Annual and
Initial
Restricted
Stock Unit
Name and Principal Position Awards(1)
--------------------------- ----------
Charles R. Williamson, Chairman, Chief Executive Not
Officer and President applicable
Timothy H. Ling, Former President and Chief Not
Operating Officer (deceased) applicable
Terry G. Dallas, Executive Vice President and Not
Chief Financial Officer applicable
Thomas E. Fisher, Senior Vice President, Not
Commercial Affairs applicable
Charles O. Strathman, Former Vice President and Not
Chief Legal Officer applicable
Joe D. Cecil, Vice President and Comptroller Not
applicable
Executive Officers as a Group Not
applicable
Non-Executive Director Group (9 persons) $247,500(1)/
$630,000(2)
Non-Executive Officer Employee Group Not
applicable
(1) Represents the notional present value of initial one-time
grants of restricted stock units to the three persons who
became eligible directors in 2004 prior to the 2004 annual
meeting as described above. The actual number of shares
subject to the restricted stock units will depend on the fair
market value of a share of common stock on the first day of
the month immediately following the 2004 annual meeting. Does
not include the value of initial restricted stock unit awards
to eligible directors first elected after the 2004 annual
meeting.
(2) Represents the notional present value of the annual stock
unit award under the 2004 Plan as described above, assuming
nine eligible directors. As described in Note (1) above, in
2004 three of the nine eligible directors will be eligible to
receive initial restricted stock unit awards. Therefore, with
respect to the annual restricted stock unit awards in 2004,
the notional value is $420,000. The actual number of shares
subject to restricted stock units is not determinable because
the number of shares depends on the notional value of the
award, the per share fair market value at future dates, and
the number of eligible directors then seated.
The amount or number of deferral stock units awards authorized
by the 2004 Plan are not currently determinable because the
number of stock units depends on future variables such as stock
prices, aggregate compensation amounts and deferral elections.
DIRECTORS' RECOMMENDATION; INTEREST OF NON-EMPLOYEE DIRECTORS
The Board of Directors unanimously recommends a vote FOR the
approval of the 2004 Directors' Deferred Compensation and
Restricted Stock Unit Award Plan. The proxy holders will vote
all proxies received FOR approval unless instructed otherwise.
The Board of Directors has
40
approved the 2004 Plan and believes it to be in the best interests
of the Company and the stockholders. All non-employee directors are
eligible to receive awards under the 2004 Plan and thus have a personal
interest in its approval.
ITEM 5. STOCKHOLDER PROPOSAL
-----------------------------
A stockholder has given notice that the following proposal
will be presented at the Meeting:
"RESOLVED, that the shareholders of Unocal Corporation
("Company") urge the Board of Directors to take the necessary
steps to amend the by-laws to require that, subject to any
presently existing contractual obligations of the Company, the
Chairman of the Board of Directors shall not concurrently serve
as the Chief Executive Officer.
"Supporting Statement
"The Board of Directors is elected by shareholders to oversee
management and its Chairman provides leadership for the Board.
The Business Roundtable has noted that "the paramount duty of the
board of directors is to select a Chief Executive Officer and to
oversee the CEO and other senior management . . . ." The
Business Roundtable, Principles of Corporate Governance, May
2002.
"We believe that to be effective a board of directors must be
led by a Chairman who is independent of management, for, in our
opinion, having the same individual serve as both Chairman and
CEO necessarily impairs the Chairman's ability to hold the CEO
accountable.
"The Conference Board recently issued a report on corporate
governance. The Commission's members included John Snow, U.S.
Treasury Secretary and Former Chairman of CSX Corporation; John
Bogle, the Founder and former Chairman of Vanguard Group; Arthur
Levitt Jr., former SEC Chairman; and former Federal Reserve
System Chairman Paul Volcker. Its report stated:
"The Commission is profoundly troubled by the corporate
scandals of the recent past. The primary concern in many of
these situations is that strong CEOs appear to have exerted a
dominant influence over their boards, often stifling the efforts
of directors to play the central oversight role needed to ensure
a healthy system of corporate governance . . . .
"The ultimate responsibility for good corporate governance
rests with the board of directors. Only a strong, diligent and
independent board of directors that understands the key issues,
provides wise counsel and asks management the tough questions is
capable of ensuring that the interests of shareowners as well as
other constituencies are being properly served. The Conference
Board Commission on Public Trust and Private Enterprise, Findings
and Recommendations, Jan. 9, 2003.
"The Report discussed three principal approaches to provide
the appropriate balance between board and CEO functions,
including:
"The roles of Chairman and CEO would be performed by two
separate individuals, and the Chairman would be one of the
independent directors. The Commission recommends that each
corporation give careful consideration, based on its particular
circumstances, to separating the offices of the Chairman and
Chief Executive Officer. The Commission believes that separating
the positions of Chairman and CEO is fully consistent with the
objectives of the [Sarbanes-Oxley] Act, the proposed New York
Stock Exchange listing requirements, and the proposed NASDAQ
requirements, and that separating the roles of Chairman and CEO
enhances implementation of the Act and stock exchange reforms.
"Our Company's Chairman is also its CEO. We urge your support
for this proposal to require that the Chairman of the Board of
Directors not also serve as the Chief Executive Officer."
41
DIRECTORS' RECOMMENDATION
The Board of Directors unanimously recommends a vote AGAINST
the adoption of this proposal for the following reasons:
The Board's current governance structure already provides for
strong and independent oversight of the Company's affairs and its
management. An absolute requirement to separate the positions of
Chairman and CEO is not in the best interests of the Company or
its stockholders. Such a requirement would restrict the
flexibility of the Board to provide the Company with the most
effective leadership at any given time. The Board believes that
under current circumstances, a structure that includes a Chairman
also serving as CEO, and a strong independent Vice Chairman, is
in the best interests of the Company and its stockholders.
The Company has a strong, independent Vice Chairman who is
elected by the independent Board members with the following
clearly delineated duties:
(1) Presides at all meetings of the Board at which the
Chairman is not present, including executive sessions of the
independent directors;
(2) Serves as a liaison between the Chairman and the
independent directors;
(3) Reviews and approves pre-meeting information and, where
time allows, update and background information sent to the
Board;
(4) Reviews and approves meeting agendas for the Board;
(5) Reviews and approves schedules of Board meetings to
assure that there is sufficient time for all agenda items;
(6) Has the authority to call meetings of the independent
directors; and
(7) If requested by major stockholders, ensures his
availability for consultation and direct communication.
In addition, Unocal has a strong system of governance that
already provides for the basic advantages sought by the
proponent. The Company's corporate governance principles (posted
on our public web site) include the following:
-- Evaluation of the CEO's performance: a committee composed
entirely of independent directors, the Management Development and
Compensation Committee, annually evaluates the performance of the
CEO and senior management.
-- Board independence: 11 of 12 directors are independent.
-- Board committee independence: the Board Governance Committee,
the Audit Committee, the Management Development and Compensation
Committee and the Corporate Responsibility Committee are all
composed exclusively of independent directors. The Management
Development and Compensation Committee has sole authority to hire
compensation advisors to advise on senior management compensation
review. The Audit Committee has the sole authority to hire the
outside auditors. The Board Governance Committee has the sole
authority to hire search firms to identify director candidates
and compensation advisors to advise on directors' compensation.
-- Private meetings of independent directors: Independent
directors meet privately under the leadership of the Vice
Chairman, outside the presence of the CEO, on a regular basis; in
fact, a private session for independent directors, presided over
by the Vice Chairman, is scheduled at each regular meeting of the
Board.
Unocal's Code of Conduct for directors (posted on our public
web site) strengthens the Board's independence by requiring that
directors inform the Chairman, Vice Chairman and Board Governance
42
Committee of events, circumstances or conditions that may impact
the Board's assessment of whether they meet the independence
requirements of the NYSE and the SEC. This includes notification
of any changes in a director's employment, other board positions
and relationships with other business, charitable and
governmental entities.
Our Position:
The Board believes that Unocal's corporate governance
structure, with its emphasis on independence and accountability
and clearly delineated duties for the Vice Chairman, makes this
stockholder proposal unnecessary. An absolute requirement that
the Chairman be a non-executive of the Company would be overly
restrictive, unduly limiting governance options available to the
Board.
The Board of Directors unanimously recommends voting AGAINST
the adoption of this proposal. The proxy holders will vote all
proxies received AGAINST this proposal unless instructed
otherwise.
ITEM 6. STOCKHOLDER PROPOSAL
-----------------------------
A stockholder has given notice that the following proposal will
be presented at the Meeting:
"Resolved, that the shareholders of Unocal Corporation
("Company") hereby request that the Board of Directors'
Compensation Committee, in developing future senior executive
equity compensation plans, utilize performance and time-based
restricted share programs in lieu of stock options. Restricted
shares issued by the Company should include the following
features:
(1) Operational Performance Measures - The restricted share
program should utilize justifiable operational performance
criteria combined with challenging performance benchmarks for
each criteria utilized. The performance criteria and associated
performance benchmarks selected by the Compensation Committee
should be clearly disclosed to shareholders.
(2) Time-Based Vesting - A time-based vesting requirement of at
least three years should also be a feature of the restricted
shares program. That is, in addition to the operational
performance criteria, no restricted shares should vest in less
than three years from the date of grant.
(3) Dividend Limitation - No dividend or proxy voting rights
should be granted or exercised prior to the vesting of the
restricted shares.
(4) Share Retention - In order to link shareholder and
management interests, a retention feature should also be
included; that is, all shares granted pursuant to the restricted
share program should be retained by the senior executives for the
duration of their tenure with the Company.
"The Board and Compensation Committee should implement this
restricted share program in a manner that does not violate any
existing employment agreement or equity compensation plan.
"Supporting Statement
---------------------
"As long-term shareholders of the Company, we support
executive compensation policies and practices that provide
challenging performance objectives and serve to motivate
executive to achieve long-term corporate value creation goals.
The Company's executive compensation program should include a
long-term equity compensation component with clearly defined
operational performance criteria and challenging performance
benchmarks.
"We believe that performance and time-based restricted shares
are a preferred mechanism for providing senior executives long-
term equity compensation. We believe that stock option plans, as
generally constituted, all too often provide extraordinary pay
for ordinary performance. In our opinion, performance and time-
based restricted shares provide a better means to tie the levels
of equity compensation to meaningful financial performance beyond
stock price performance and to condition equity compensation on
performance above that of peer companies.
43
"Our proposal recognizes that the Compensation Committee is in
the best position to determine the appropriate performance
measures and benchmarks. It is requested that detailed
disclosure of the criteria be made so that shareholders may
assess whether, in their opinion, the equity compensation system
provides challenging targets for senior executives to meet. In
addition, the restricted share program prohibits the receipt of
dividends and the exercise of voting rights until shares vest.
"We believe that a performance and time-based restricted share
program with the features described above offers senior
executives the opportunity to acquire significant levels of
equity commensurate with their long-term contributions. We
believe such a system best advances the long-term interests of
our Company, its shareholders, employees and other important
constituents. We urge shareholders to support this reform."
DIRECTORS' RECOMMENDATION
The Board of Directors unanimously recommends a vote AGAINST
the adoption of this proposal for the following reasons:
The Board believes that this proposal, which calls for
eliminating all stock options for executives and key employees
and replacing them with shares of restricted stock, is
inflexible, overly restrictive and not in the best interests of
stockholders.
The proposal to eliminate all option grants to Unocal
executive employees would deprive the Company of a useful tool in
designing effective incentives. This proposal would put the
Company at a competitive disadvantage in recruiting and retaining
key employees because it is contrary to generally accepted and
widely-used compensation practices. We trust our stockholders
not to overreact to the highly-publicized abuses of stock options
at a few other companies. Unocal's grants of stock options are
always set at market value on the date of grant, allotted to
executives and key employees in fair and appropriate quantities
and have never been re-priced, repurchased or granted with below-
market exercise prices. In fact, Unocal's use of stock options
as a component of potential compensation has been reduced for
2004 grants.
The Management Development and Compensation Committee of the
Board of Directors, composed entirely of independent, non-
employee directors, works with outside consultants to design
incentive programs for Unocal executives and key employees that
will serve the long-term interests of stockholders. A consultant
helped design the 2004 Management Incentive Program, which is
being presented for stockholder approval at the annual meeting
and is included as an exhibit to this proxy statement.
The Committee strongly believes that the most effective way to
attract, retain and motivate these employees is through a
balanced, performance-based compensation program. Unocal's 2004
Management Incentive Program for executives and key employees
uses three types of long-term incentives: restricted stock,
performance shares and stock options. All three share a common
element: pay for demonstrated performance. Each of these three
components of Unocal's long-term executive compensation program
serves a specific purpose.
Restricted stock granted to employees vests over a four-year
period. The restricted stock granted this year was awarded based
on the Company's operating and financial performance during the
previous year. Actual awards are further adjusted for an
individual employee's specific performance and results. Grants
of restricted stock assist the Company in retaining key employees
because the stock will be forfeited if the employee voluntarily
leaves the Company prior to the end of the vesting period.
Performance Share Awards help to retain and motivate
executives and key employees because the level of payout is based
on various performance measures, including total stockholder
returns and other performance factors. There is a three or four
year incentive measurement period. The payout, if any, is made
after the period is completed. If performance measures are not
satisfied, no payout is made - as has been the case the last two
performance cycles.
44
Stock options, when used appropriately, are also an effective
means for retaining and rewarding employees. Stock options align
employee interests with stockholder interests. Employees are
compensated only when the share price appreciates over the grant
price, ensuring that stockholders are rewarded as well as
employees. The compensation the employee realizes is
proportional to that of stockholders.
Our Position:
Unocal's Board of Directors requires flexibility in
determining the best mix of compensation programs and incentives.
The Company's long-term compensation program is a balanced,
performance-based system that includes three basic elements:
restricted stock, performance shares and stock options. This
three-pronged program has been carefully designed to attract,
retain and motivate key employees in one of the most competitive
industries in the global economy.
The Board of Directors unanimously recommends voting AGAINST
the adoption of this proposal. The proxy holders will vote all
proxies received AGAINST this proposal unless instructed
otherwise.
ITEM 7. STOCKHOLDER PROPOSAL
-----------------------------
A stockholder has given notice that the following proposal
will be presented at the Meeting:
"WHEREAS, the board of directors is meant to be an independent
body elected by shareholders and charged by law with the duty and
authority to formulate and direct corporate policies, and
"WHEREAS, in 2002, the Board of Directors of the New York
Stock Exchange, recognizing the need to improve corporate
governance, proposed a listing standard to empower non-management
directors as a more effective check on management, and to
facilitate direct communications between shareholders and the non-
management directors: and
"WHEREAS, in an August 8, 2003, release pertaining, in part,
to disclosure of companies' procedures for shareholder
communications with the directors, the Securities and Exchange
Commission stated that "Providing security holders with
disclosure about the process for communicating with board members
would improve the transparency of board operations, as well as
security holder understanding of the companies in which they
invest;"
"WHEREAS, a January 1994 study entitled: Improving
Communications Between Corporations and Shareholders: Overall
Findings and Recommendations, prepared on behalf the New
Foundations Working Group, John F. Kennedy School of Government,
Harvard University, recommended several mechanisms for direct
communications between directors and shareholders. Among the
recommendations were:
-- Regular meetings with groups of shareholders and selected
board members
-- Meetings between large shareholders and the full board of
directors
"WHEREAS, we believe that the creation of a means for direct
communications on corporate governance matters between
shareholders and the non-management directors would benefit the
company through constructive discussions of perspectives,
enhanced understanding, valuable feedback, and the fostering of
meaningful links between directors and the shareholders by whom
they are elected;
"NOW, THEREFORE, BE IT RESOLVED: that the shareholders
request the board of directors to establish an Office of the
Board of Directors to enable direct communications on corporate
governance matters, including meetings, between non-management
directors and shareholders, based on the
45
standard proposed by the New York Stock Exchange Board of Directors.
The office shall report directly to a committee of the non-management
directors."
DIRECTORS' RECOMMENDATION
The Board of Directors unanimously recommends a vote AGAINST
the adoption of this proposal for the following reasons:
The Board believes that this proposal, which calls for the
creation of a new Office of the Board of Directors to enable
direct communications on corporate governance between independent
directors and stockholders, is unnecessary and would lead to an
inefficient use of time and money.
The Company currently has appropriate policies and procedures
in place regarding communication with stockholders that meet the
new standards of the NYSE regarding direct communications with
the Board. This rule reads as follows: "In order that
interested parties may be able to make their concerns known to
the non-management directors, a company must disclose a method
for such parties to communicate directly with the presiding
director or with the non-management directors as a group."
Consistent with this rule, Unocal has established procedures,
described in this proxy statement, for interested parties to
communicate by correspondence or other means with the Chairman of
the Board, the Vice-Chairman of the Board (who is an independent
director), or with the non-management directors as a group. The
Chairman and Vice-Chairman will use their judgment on a case-by-
case basis with respect to requests for meetings by stockholders.
Both the Chairman and the Vice-Chairman have, in fact, met
individually with stockholders in the past on a range of issues
and concerns, including corporate governance matters.
Unocal's system of corporate governance includes a strong and
comprehensive set of key principles (our Governance Principles
are posted on our public web site) that emphasizes the Board's
independence and strengthens its ability to independently
evaluate corporate and management performance. The Board has a
long tradition of open communication with stockholders. This
includes a set of clear procedures by which stockholders may
submit proposals or bring up matters for consideration at the
annual meeting, and procedures for stockholders to submit
nominations for new directors to the Board, as described in this
proxy statement.
Our Position:
Unocal's Board of Directors already has appropriate policies
and procedures in place, consistent with NYSE standards, by which
interested parties can communicate with non-management directors
on any subject, including corporate governance. The Board does
not need a new office to enable direct communications between non-
management directors and stockholders. The creation of such a
new office would be unnecessary and wasteful.
The Board of Directors unanimously recommends voting AGAINST
the adoption of this proposal. The proxy holders will vote all
proxies received AGAINST this proposal unless instructed
otherwise.
ITEM 8. STOCKHOLDER PROPOSAL
-----------------------------
A stockholder has given notice that the following proposal
will be presented at the Meeting:
"WHEREAS: In 2001, the Intergovernmental Panel on Climate
Change concluded "there is new and stronger evidence that most of
the warming observed over the last 50 years is attributable to
human activities." The National Academy of Sciences stated that
the "degree of confidence in the IPCC assessment is higher today
than it was 10, or even 5 years ago."
46
"The Environmental Protection Agency's "Climate Action Report
- 2002," concluded that climate change poses risks to coastal
communities due to sea level rise, water shortages, and increases
in the heat index and frequency of heat waves.
"The European Union, Japan and China have passed laws that
will restrict fossil fuel use. This could affect global demand,
and may disadvantage U.S. companies against competitors
accustomed to operating under carbon constraints. At least half
of U.S. states are addressing global warming, through
legislation, lawsuits against the Bush administration or programs
initiated by governors.
"According to recent polls by Zogby and Gallup, 75% of
Americans favor mandatory controls on GHG emissions.
"Recent reports by CERES, the Carbon Disclosure Project,
Innovest Strategic Value Advisors, and the Investor
Responsibility Research Center demonstrate the growing financial
risks of climate change for US corporations, and that companies
are not adequately disclosing these risks to investors.
"The reinsurer Swiss Re is asking companies applying for
directors and officers insurance to explain what they are doing
to prepare for potential regulation of GHG emissions.
"We believe our industry is highly exposed to risk from climate
change; according to the Energy Information Administration, over
half of all GHG emissions in the United States are from oil and
gas combustion.
"According to Oil and Gas Investor, the industry's
environmental record is hurting its ability to attract strong
employees. Companies like BP claim that their proactive stance
on climate change helps to recruit and retain quality employees.
"Industry leaders such as Royal Dutch/Shell, BP,
ConocoPhillips, Statoil, Suncor and Amerada Hess are taking
actions to reduce their exposure to climate related risks,
including assuming a cost for carbon in their strategic planning,
reporting on and reducing their GHG emissions, engaging in
emissions trading, and investing in renewable energy. BP reports
that its emissions reduction activities have generated savings
with an NPV of $650 million.
"Unocal has made investments in geothermal energy, which could
be the basis for a competitively positioned renewables strategy.
"RESOLVED: The shareholders request that a committee of
independent directors of the Board assess how the company is
responding to rising regulatory, competitive, and public pressure
to significantly reduce carbon dioxide and other greenhouse gas
emissions and report to shareholders (at reasonable cost and
omitting proprietary information) by September 1, 2004.
"Supporting Statement
"We believe management has a fiduciary duty to assess and
disclose to shareholders all pertinent information on its
response to climate change. We believe taking early action to
reduce emissions and prepare for standards could provide
competitive advantages, and inaction and opposition to emissions
control efforts could expose companies to regulatory and
litigation risk, and reputation damage."
DIRECTORS' RECOMMENDATION
The Board of Directors unanimously recommends a vote AGAINST
the adoption of this proposal for the following reasons:
We do not believe this shareholder report is necessary.
Unocal already provides detailed information on the Company's
climate change program in our biennial Corporate Responsibility
Reports. A new report is expected to be published and available
on our web site in April 2004. Additional
47
information on the Company's climate change program is also posted
on Unocal's public web site. These documents detail the Company's
efforts to monitor greenhouse gas (GHG) emissions from our activities and
discuss the measures we have put in place to reduce those
emissions through responsible, energy-efficient and cost-
effective operations. This information is also shared with our
Board Corporate Responsibility Committee which consists entirely
of independent directors. Unocal is an industry-leading producer
of renewable energy. To summarize:
We are tracking the emissions of GHGs from operations - with
an emphasis on methane and carbon dioxide emissions. In both
2000 and 2001, annual GHG emissions from facilities operated by
Unocal amounted to about 9 million metric tons of CO2 equivalent.
We are promoting the development and consumption of natural
gas worldwide. Although crude oil will remain a vital source of
energy for the global economy, natural gas is relatively abundant
and the cleanest-burning fossil fuel.
As a leading producer of geothermal steam for power
generation, Unocal has been a leading developer and operator of
this environmentally-friendly energy source, which generates very
little GHG emissions.
The following section highlights activities and
accomplishments of Unocal's climate change program:
Oil and Gas: About two-thirds of Unocal's global hydrocarbon
reserves is natural gas, the cleanest-burning fossil fuel - this
percentage is expected to continue increasing. In many cases,
gas tends to displace more emissions-intensive fuels, like coal
and diesel. In 2000, to improve efficiency and reduce GHG
emissions, the Company's business units began developing specific
goals and activities to reduce their energy use and GHG
emissions.
Renewable Energy: Unocal has developed about 2,150-MWs of
geothermal power production capacity over more than 30 years
making Unocal a global leader. Currently, Unocal is involved in
projects totaling about 1,100-MW, which since inception have
produced about 110,000 GWh of renewable energy. This represents
a reduction in GHG emissions of about 72 million tons of CO2
equivalent (if compared to a combination of coal- and gas-fired
generation).
Increased Resource Allocation to Climate Change: Since 2002,
Unocal has a senior-level Climate Change Steering Team comprising
members from across the Company. Since 2000, the Climate Change
Working Group, consisting of environmental staff from each
facility, has spearheaded the development of the GHG inventory.
And, in early 2004, a full-time position at Corporate Health,
Environment & Safety was created to further strengthen Unocal's
approach to climate change and GHG mitigation.
Emissions Trading: Unocal, the first US oil and gas
multinational to join the International Emissions Trading
Association (IETA), has been actively seeking to catalyze further
GHG reductions and improve the competitiveness of geothermal
projects by participating in the emerging GHG emissions market.
In 2002, Unocal undertook a pilot-scale emissions credit
transaction and continues to pursue others. In 2003, the
International Finance Corporation of the World Bank Group used a
Unocal Indonesia flare/vent reduction project as a case study for
a report analyzing oil and gas sector projects potentially
eligible to sell emission credits. These efforts involve
significant capacity building efforts with NGOs, Government and
industry in SE Asia, including sponsorship of and participation
in the SE Asia Forum on GHG Mitigation, Market Mechanisms and
Sustainable Development (2003).
Relevant Association Participation: Unocal is actively
involved in understanding and addressing climate change related
issues, including GHG accounting standards, with the American
Petroleum Institute, International Petroleum Industry
Environmental Conservation Association and the World Business
Council for Sustainable Development. Similarly, Unocal also
participates in the GHG accounting standards process of the
International Standards Organization. In addition, Unocal's Vice
President for Public Policy, Health, Environment & Safety and a
senior environmental staff representative
48
met several times in 2003 with several stockholder proponents to
share information about Unocal's ongoing emissions reduction efforts and our
climate change activities.
Our Position
The adoption of this proposal is unnecessary. Unocal has a
strong global climate change program in place and already
documents this effort in considerable detail in the Company's
Corporate Responsibility Reports. The Company plans to issue a
new report in April. The new report, which is reviewed by the
Board Corporate Responsibility Committee, features significant
new information and updates on our climate change program. This
information is also shared with the public by means of the Unocal
web site. Unocal is proud of its significant worldwide emission
reduction efforts and our general commitment to environmental
responsibility and good corporate citizenship. Unocal is also a
leading developer of geothermal power with over 30 years of
history creating one of the most significant renewable energy
portfolios of any company.
The Board of Directors unanimously recommends voting AGAINST
the adoption of this proposal. The proxy holders will vote all
proxies received AGAINST this proposal unless instructed
otherwise.
____________________________________
The Company will provide stockholders with the names and
addresses of the proponents of the stockholder proposals and
information about their ownership of Unocal common stock promptly
upon receipt of an oral or written request to the Secretary of
the Company.
ITEM 9. OTHER BUSINESS
-----------------------
Only business that is properly brought before an annual
meeting pursuant to the notice of meeting (or any supplement
thereto) given 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, is permitted to be conducted at the annual
meeting.
The Board of Directors has no knowledge at the time of the
printing of this proxy statement of business other than that
described in Items 1 through 8 above to be presented for action
at the 2004 annual meeting 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 2005 ANNUAL MEETING
---------------------------------------------
Proposals submitted for inclusion in the Company's proxy
statement for the 2005 annual meeting of stockholders pursuant to
Rule 14a-8 of the SEC must be received by the Corporate Secretary
at 2141 Rosecrans Avenue, Suite 4000, El Segundo, California
90245, on or before December 13, 2004. Under the Company's
Bylaws, stockholder proposals for consideration at the 2005
annual meeting, but not for inclusion in the proxy statement,
must be received by the Corporate Secretary no later than
February 22, 2005. If the Company's Bylaws are amended to change
the date of the 2005 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.
49
EXHIBIT A
UNOCAL CORPORATION
AUDIT COMMITTEE CHARTER
This Audit Committee Charter describes the Committee's
organization, role and primary duties. The Charter will be
maintained to be consistent with relevant external rules and
regulations and with the needs of the Board of Directors and the
Company. This document does not attempt to describe the
practices to be used in carrying out the charter since these will
evolve over time.
ORGANIZATION
The Audit Committee (Committee) shall consist of at least three
members, each of whom shall be independent Directors satisfying
the independence requirements of the New York Stock Exchange and
the Securities Exchange Commission. All members of the Committee
shall have (or obtain within a reasonable time frame) working
familiarity with basic finance and accounting practices and at
least one member of the Committee shall be an audit committee
financial expert. The chairperson and members of the Committee
shall be appointed by the Board on the recommendation of the
Governance Committee and may be replaced by the Board.
The Committee shall meet as often as it deems necessary, but not
less than once per quarter. It will utilize executive sessions
with the independent auditor, the internal auditor, and
management. The chairperson will set the agenda for the
Committee. The Committee shall have the authority to retain such
outside professional assistance as it deems appropriate and shall
have unrestricted access to all company personnel, facilities and
records. The Company shall provide the financial resources the
Committee requires in fulfilling its obligations. The Committee
shall keep minutes of its meetings, report to the Board
periodically, and present to the Board an annual evaluation of
the Committee's performance. Two members shall constitute a
quorum. The Committee may delegate from time to time its duties
to a subcommittee made up of one or more Committee members.
Actions and decisions of any subcommittee shall be reported to
the Committee.
ROLE
The independent auditor and General Auditor shall report directly
to the Committee. With assistance from management, the Committee
shall be responsible for the appointment, compensation, retention
and oversight of the independent auditor. It will ascertain the
independent auditor's qualifications and independence and monitor
its performance.
The Committee shall provide assistance to the Board in
monitoring: 1) the integrity and reliability of the Company's
financial statements; 2) the Company's compliance with legal and
regulatory requirements; 3) the adequacy of the Company's
internal operating policies and controls; and 4) the quality and
performance of combined management, independent auditor, and the
internal audit function. It is the responsibility of the
Committee to maintain free and open means of communication
between directors, independent auditor, internal auditors, and
management.
While the Committee will pursue the purposes set forth in this
Charter, it is not the duty of the Committee to plan or conduct
audits or to determine that the Company's financial statements
and disclosures are complete and accurate and are in accordance
with generally accepted accounting principles and applicable
rules and regulations. These are the responsibilities of the
independent auditor and management, respectively.
A-1
DUTIES
The Committee shall have duties such as the following, in
carrying out the role described above. It will be at the
discretion of the Committee to determine the time dedicated to
each duty as well as its focus and manner of approaching the
duty.
External audit process
1. Annually appoint the independent auditor (subject to
shareholder ratification) to audit the Company's financial
statements including:
-- Audit services to be performed
-- Audit scope and plan, and
-- Fee arrangements and overall staffing.
2. Carry out a process for review and pre-approval of all
services to be performed by the principal independent auditor.
3. Carry out a process for review and pre-approval of the
engagement of auditors other than the principal independent
auditor.
4. Obtain and review annually from the independent auditor
written statements:
-- Describing all relationships the independent auditor has with
the Company in order to establish their objectivity and
independence, and
-- Asserting that, in their judgment, they are independent of the
Company.
5. Obtain and review annually a report from the independent
auditor with respect to their internal quality control
procedures, any material issues raised by the most recent
internal quality control review or peer review of the firm or by
any inquiry or investigation by governmental or professional
authorities, within the preceding five years, respecting one or
more independent audits carried out by the firm, and steps taken
to deal with any such issue.
6. Review with the independent auditor any disagreements it has
with management and any audit problems or difficulties
confronting the independent auditor in the execution of its
assignments and management's response thereto.
7. Establish personnel policies associated with the relationship
between the Company and the independent auditor.
8. With input from management, periodically review the
performance of the independent auditor in carrying out its
assignments; ensure appropriate feedback to the audit firm and
the Board.
Internal audit process
1. Approve the Internal Audit Department Charter and the
appointment of the General Auditor.
2. Review and discuss annually with the General Auditor the
internal audit function including:
-- The internal audit plan and how it addresses Company policies
and current financial results,
-- The sufficiency of coverage for significant risk areas, and
A-2
-- The internal audit department budget and staffing.
3. Review summaries of internal audit reports and assessments of
the Company's control structure.
4. Review the coordination of audit efforts between the
independent auditor and internal audit to ensure completeness of
coverage, reduction of redundant effort and the effective use of
audit resources.
Financial reporting
1. Review and discuss with management and the independent auditor
the annual audited financial statements, including disclosures
made in Management's Discussion and Analysis of Financial
Condition and Results of Operations, and their judgment on the
quality of accounting principles employed, the reasonableness of
significant judgments and the clarity of the financial statement
disclosures prior to the filing of its SEC Form 10-K. Recommend
to the Board whether the audited financial statements should be
included in the Company's SEC Form 10-K.
2. Review and discuss with management and the independent auditor
the Company's quarterly financial statements, including
disclosures made in Management's Discussion and Analysis of
Financial Condition and Results of Operations, prior to the
filing of its SEC Form 10-Q, including the results of the
independent auditor's review of the quarterly financial
statements.
3. Discuss with management and the independent auditor
significant financial reporting issues, and judgments made in
connection with the preparation of the Company's financial
statements, including any significant changes in the Company's
selection or application of accounting principles, any major
issues as to the adequacy of the Company's internal controls and
any special steps adopted in light of material control
deficiencies.
4. Review and discuss timely reports from the independent auditor
on:
-- Critical accounting policies and practices to be used and
their rationale.
-- Alternative generally accepted accounting principles treatment
of financial information and their implications including the
treatment preferred by the independent auditor.
-- Other material written communications between the independent
auditor and management.
-- All other matters required to be communicated to the Committee
by the independent auditors under generally accepted auditing
standards and/or SEC or NYSE regulations.
5. Discuss earnings press releases, as well as financial
information and earnings guidance provided to analysts and rating
agencies.
6. Discuss with management and the independent auditor the effect
of regulatory and accounting initiatives as well as off-balance
sheet structures on the Company's financial statements.
7. Discuss with management, the Company's major financial risk
exposures and the steps management has taken to monitor and
control such exposures, including the Company's risk assessment
and risk management policies and practices.
8. Review disclosures made to the Committee by the Company's CEO
and CFO during their certification process for the SEC Form 10-K
and SEC Form 10-Q about any significant deficiencies in the
design or operation of internal controls or material weaknesses
therein.
9. Prepare the Audit Committee report that SEC rules require to
be included in the Company's annual proxy statement.
A-3
Internal controls
1. Review with management, the General Auditor and the
independent auditor the adequacy of the Company's internal
controls including controls and procedures for both financial
reporting and disclosure.
2. Review periodic reports from internal audit summarizing the
results of completed engagements and the resolution or status of
previously reported significant control issues.
3. Review with management, the General Auditor and the
independent auditor significant risks or exposures.
Compliance and other
In general, the Committee shall review and investigate any
matters pertaining to the Company's compliance with legal and
regulatory requirements and the integrity of management,
including conflicts of interest, and the adherence to business
conduct as required in the policies of the Company. This shall
include:
1. Regular reviews of compliance processes including legal and
regulatory requirements such as the Foreign Corrupt Practices Act
and compliance training efforts.
2. Review of Company policies and procedures for reviewing
officers' expenses, perquisites and use of Company assets.
3. Meet with the Chief Legal Officer and other Company officers
as necessary to confirm compliance and review any matters, legal
or otherwise, that could have a significant impact on the
Company's financial statements and disclosures.
4. Establish procedures for the receipt, retention, and treatment
of complaints, from employees and others, received by the Company
regarding accounting, internal accounting controls, and auditing
issues, including procedures to ensure confidential, anonymous
submission. Ensure a process for responding to such complaints.
A-4
EXHIBIT B
2004 MANAGEMENT INCENTIVE PROGRAM
TABLE OF CONTENTS
Page
INCENTIVE COMPENSATION PLAN ............................... B-1
1. General Description ................................ B-1
2. Definitions ........................................ B-1
3. Effective Date and Duration ........................ B-3
4. Administration ..................................... B-3
5. Determination of Bonus Pool and Awards ............. B-3
6. Payout and Deferral of Awards ...................... B-4
7. General ............................................ B-4
8. Amendment and Termination .......................... B-5
LONG-TERM INCENTIVE PLAN OF 2004 .......................... B-6
1. General Description ................................ B-6
2. Definitions ........................................ B-6
3. Effective Date and Duration ........................ B-10
4. Administration ..................................... B-10
5. Grant of Options, Restricted Stock Awards, and
Performance Share Awards: Shares Subject
to the Plan ........................................ B-10
6. Eligibility ........................................ B-11
7. Stock Options ...................................... B-11
8. Performance Shares ................................. B-12
9. Restricted Stock Awards ............................ B-13
10. Performance Restricted Stock Awards ................ B-14
11. General ............................................ B-15
12. Changes in Capital Structure ....................... B-17
13. Amendment and Termination .......................... B-17
B-i
2004 MANAGEMENT INCENTIVE PROGRAM
The purpose of the 2004 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 two major components:
1. The Incentive Compensation Plan; and
2. The Long-Term Incentive Plan of 2004
A total of 12,000,000 shares will be subject to issuance under
the Incentive Compensation Plan and under the Long-Term Incentive
Plan of 2004. Of this amount of 12,000,000 shares, not more than
6,000,000 shares may be issued as Performance Share Awards,
Restricted Stock Awards and Performance Restricted Stock Awards.
Each of the components of the Program is described in the
sections which follow.
INCENTIVE COMPENSATION PLAN
1. General Description
The 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 shall be granted under and subject
to the terms of the Long-Term Incentive Plan of 2004, 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
directors who qualify as "outside directors" as defined in the
regulations under Section 162(m) of the Code and as "non-employee
directors" within the meaning of Rule 16b-3 under Section 16 of
the Securities Exchange Act of 1934. In the event that one or
more members of the Committee is determined not to comply with
these requirements, 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.
B-1
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.
h. "Employee" means any person regularly employed by the Company
or a Subsidiary on a full-time salaried basis.
i. "Fair Market Value" for purposes of determining the number of
shares subject to a Restricted Stock Award under Section 6 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. "Free Cash Flow" means cash flow from operating activities
less cash flow used in investing activity.
k. "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.
l. "Holder" means an Employee of the Company who has deferred a
portion of his Award into Restricted Stock.
m. "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.
n. "162(m) Participant" means an Employee who is an executive
officer 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.
o. "Peer Group Companies" means those companies selected by the
Committee prior to the expiration of the first 90 days of an
Award Period for the purpose of comparing returns to stockholders
during the Award Period. Unless otherwise provided by the
Committee at the time target awards are established, if, during
an Award Period, a member of the Peer Group of Companies is
acquired by or merged into another company and separate reports
with respect to its return to stockholders are not available, or
a member is liquidated or for any other reason does not have
separate reports with respect to its return to stockholders, then
such company shall cease to be a member of the Peer Group of
Companies.
p. "Plan" means the Incentive Compensation Plan, as amended from
time to time.
q. "Program" means the 2004 Management Incentive Program, as
amended from time to time.
r. "Restricted Stock Award" means a restricted stock award as
defined in the Long Term Incentive Plan of 2004.
s. "Return on Capital Employed" or "ROCE" means the Company's net
earnings generated relative to the total level of capital (debt
and equity) utilized.
t. "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.
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3. Effective Date and Duration
The Plan shall be effective on February 10, 2004, the date of
its approval by the Board (the "Effective Date"). This Plan
shall be submitted for and subject to stockholder approval no
later than twelve months after the Effective Date. Unless
earlier terminated by the Board, this Plan shall terminate at the
close of business on March 31, 2009. After the termination of
this Plan either upon such stated expiration date or its earlier
termination by the Board, no additional awards may be granted
under this Plan, but previously granted awards (and the authority
of the Committee with respect thereto, including the authority to
amend such awards) shall remain outstanding in accordance with
their applicable terms and conditions and the terms and
conditions of this Plan.
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 to 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.
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 under the Plan, without giving effect to any
augmentation upon deferral into Restricted Stock, may not exceed
this bonus pool.
Within the first 90 days of each Award Period, the Committee
shall establish the level of Awards for 162(m) Participants. 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, Free Cash
Flow, Future Year Value Creation and individual performance.
The Committee shall also establish individual target Awards,
expressed as a percentage of salary, for the remaining
participants. 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. Comparative Return to Stockholders,
b. ROCE,
c. Free Cash Flow,
d. Future Year Value Creation,
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e. Comparison of actual operational or financial results to plans
or goals, adjusted for external factors such as changes in market
prices,
f. Individual performance of Employees selected to participate in
the Plan, and
g. 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,
$2,500,000; provided, however, that any portion of an Award
deferred in the form of Restricted Stock may be adjusted pursuant
to Section 6.
In the event of a "Change of Control" (as such term is defined
in the Long-Term Incentive Plan of 2004) the Award Period shall
be reduced to the period ending on the date of such Change of
Control. The amount payable to 162(m) Participants shall be
determined as set forth in Section 5, but based on the bonus pool
for the shortened Award Period. Each other participant in the
Plan shall be paid in cash not less than his or her target award,
prorated by the ratio that the reduced Award Period bears to the
calendar year and subject to the limitation of the first
paragraph of this Section 5.
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 a Restricted Stock Award,
granted under and subject to the terms of the Long-Term Incentive
Plan of 2004, 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, and provided
further, with respect to 162(m) Participants, the Committee shall
establish any applicable percentage increase at the same time
that it establishes their Award levels for the Award Period. The
number of shares of Restricted Stock issued in consideration of
Awards deferred shall be equal to the dollar value of the Award
after any such increase divided by the Fair Market Value of the
Stock. Any fractional shares shall be paid in cash. 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.
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.
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. The provisions of the Long
Term Incentive Plan of 2004 shall govern tax withholding with
respect to any portion of an Award paid in the form of a
Restricted Stock Award.
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 in writing 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
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representative. A beneficiary designation may be changed or revoked
by a participant at any time, provided the change or revocation is filed
in writing 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 transfer restrictions set forth in
provisions of the Long Term Incentive Plan of 2004 shall apply to
any Restricted Stock Awards granted in lieu of cash under an
Award.
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 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. 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.
8. 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,
to the extent then required by applicable law or any applicable
listing agency, or as deemed necessary or advisable by the Board,
any amendment to this Plan shall be subject to shareholder
approval.
B-5
LONG-TERM INCENTIVE PLAN OF 2004
1. General Description
The Long-Term Incentive Plan of 2004 provides for granting
Nonqualified Stock Options, Restricted Stock Awards, Performance
Shares and Performance Restricted Stock Awards. The Plan
succeeds the Unocal Long-Term Incentive Plan of 1998.
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 Option, Restricted Stock Award, Performance Share Award or
Performance Restricted Stock Award.
b. "Award Period" means the period of time (which shall not be
less than three years) used to determine any payments of
Performance Share 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 that violates
the Company's code of conduct or is materially harmful to the
Company, (ii) theft, forgery, fraud, misappropriation,
embezzlement, moral turpitude or other act of material misconduct
against the Company or any of its affiliates, (iii) 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, (iv) a Holder's conviction of or pleading guilty or
nolo contendere to a felony or (v) performance by a Holder 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 entity
controlled by the Company or (D) any acquisition by any entity
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 February 10, 2004, 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 February 10, 2004
whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
B-6
PAGE>
(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
entity (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 entity
resulting from such Business Combination (including, without
limitation, an entity 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) (the
"Resulting Entity") 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 Resulting Entity or any employee benefit plan (or related
trust) of the Company or such Resulting Entity) beneficially
owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the Resulting Entity
or the combined voting power of the then outstanding voting
securities of such entity 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
Resulting Entity 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.
Notwithstanding the foregoing, the Board may deem
"consummation of" an event to include a period of time
immediately prior to or contemporaneous with the event to
enable the Holder to exercise the Award or otherwise realize
the benefits of the Award with respect to the underlying
shares in the same manner as available to the common
stockholders generally as a result of the event, but subject
to the occurrence of a Change of Control, and, in the case
of an Option, subject to the payment or any permitted offset
of the exercise price and any applicable withholding taxes.
For purposes of clause (iii), "entity" means any
corporation, limited liability company, partnership or any
other statutorily recognized business organization or entity
that is similar to a statutory corporation and that can be
merged into or combined with a statutory corporation.
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
directors who qualify as "outside directors" as defined in the
regulations under Section 162(m) of the Code and as "non-employee
directors" within the meaning of Rule 16b-3 under Section 16 of
the Securities Exchange Act of 1934. In the event that one or
more members of the Committee is determined not to comply with
these requirements, 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 Discretionary Cash Flow per Share (Debt
Adjusted)" means the Company's Discretionary Cash Flow per Share
(Debt Adjusted) compared to the Discretionary Cash Flow per Share
(Debt Adjusted) of a selected group of Peer Group Companies.
j. "Comparative Finding and Development Costs per BOE Added"
means the Company's Finding and Development Costs per BOE Added
compared to the Finding and Development Costs per BOE Added of
the Peer Group Companies.
B-7
k. "Comparative Production and G&A Costs per BOE Added" means the
Company's Production and G&A Costs per BOE Added compared to the
Production and G&A Costs per BOE Added of the Peer Group
Companies.
l. "Comparative Production Growth per Share (Debt Adjusted)"
means the Company's Production Growth per Share (Debt Adjusted)
compared to the Production Growth per Share (Debt Adjusted) of
the Peer Group Companies.
m. "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, establish the basis for comparing
stockholder returns within the first 90 days of the applicable
Award Period or Performance Year.
n. "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.
o. "Discretionary Cash Flow Per Share (Debt Adjusted)" means the
debt adjusted discretionary cash flow per share for the Company
and each applicable Peer Group Company as determined based on
such data and pursuant to such procedures as the Committee
establishes within the first 90 days of the applicable Award
Period.
p. "Employee" means any person regularly employed by the Company
or a Subsidiary on a full-time salaried basis.
q. "Fair Market Value" means:
(i) For Options, 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.
(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.
r. "Finding and Development Costs Per BOE Added" means finding
and development costs per barrel of oil equivalent added as
determined in accordance with generally accepted accounting
principles and reported in the Company's or a Peer Group
Company's 10-K Supplemental Information on Oil and Gas and
Exportation and Production Activities.
s. "Free Cash Flow" means cash flow from operating activities
less cash flow used in investing activity.
t. "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
within the first 90 days of a Performance Year, each of which
shall be determined based on such data and pursuant to such
procedures as the Committee establishes within the first 90 days
of the applicable Performance Year.
u. "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 Restricted Stock Award.
B-8
v. "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.
w. "162(m) Participant" means an Employee who is an executive
officer 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.
x. "Option" or "Nonqualified Stock Option" means an Award granted
under Section 7.
y. "Peer Group Companies" means those companies selected by the
Committee, in its sole discretion prior to the expiration of the
first 90 days of an Award Period or Performance Year, for the
purpose of comparing applicable Performance Criteria during the
Award Period or Performance Year. Unless otherwise determined by
the Committee at the time of grant, if, during an Award Period or
Performance Year, a member of the Peer Group of Companies is
acquired by or merged into another company and separate reports
with respect to its Performance Criteria are not available, or a
member is liquidated or for any other reason does not have
separate reports with respect to its Performance Criteria, then
such company shall cease to be a member of the Peer Group of
Companies.
z. "Performance Criteria" means:
(i) with respect to Performance Shares for 162(m) Participants,
any one or more of the following: Comparative Return to
Stockholders, Comparative Discretionary Cash Flow Per Share,
Comparative Production Growth Per Share, Comparative Finding and
Development Costs Per BOE Added, and Comparative Production and
G&A Costs Per BOE Produced, and
(ii) with respect to Performance Restricted Stock Awards, any
one or more of the following: Comparative Return to Stockholders,
ROCE, Future Year Value Creation, and Net Cash Provided by
Operating Activities.
aa. "Performance Restricted Stock" means an Award granted under
Section 10.
bb. "Performance Share" means an Award granted under Section 8.
cc. "Plan" means the Long-Term Incentive Plan of 2004, as
amended from time to time.
dd. "Production and G&A Costs per BOE Produced" means the
Company's or a Peer Group Company's production and general and
administrative costs per barrel of oil equivalent determined
based on such data and pursuant to such procedures as the
Committee establishes within the first 90 days of the applicable
Award Period and reported in its 10-K Supplemental Information on
Oil and Gas and Exploration and Production Activities.
ee. "Production Growth Per Share (Debt-Adjusted)" means the
Company's or a Peer Group Company's debt adjusted production
growth per share determined based on such data and pursuant to
such procedures as the Committee establishes within the first 90
days of the applicable Award Period.
ff. "Program" means the 2004 Management Incentive Program, as
amended from time to time.
gg. "Restricted Stock Award" means an Award granted under
Section 9.
hh. "Retirement" means termination of employment on or after
attaining age 65.
ii. "Return on Capital Employed" or "ROCE" means the Company's
net earnings generated relative to the total level of capital
(debt and equity) utilized as determined based on such data and
pursuant to
B-9
such procedures as the Committee establishes within
the first 90 days of the applicable Performance Year.
jj. "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.
kk. "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.
ll. "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 February 10, 2004, the date of
its approval by the Board (the "Effective Date"). This Plan
shall be submitted for and subject to stockholder approval no
later than twelve months after the Effective Date. Unless
earlier terminated by the Board, this Plan shall terminate at the
close of business on the day before the fifth anniversary of the
Effective Date. After the termination of this Plan either upon
such stated expiration date or its earlier termination by the
Board, no additional awards may be granted under this Plan, but
previously granted awards (and the authority of the Committee
with respect thereto, including the authority to amend such
awards) shall remain outstanding in accordance with their
applicable terms and conditions and the terms and conditions of
this Plan.
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.
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 12,000,000
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 that 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
B-10
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), 7(e), 8(c), 9(a) or
10(d), 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 that 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 600,000 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
established by the Committee at the time of 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).
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 Committee and set forth in the
Stock Option Agreement.
(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) Notwithstanding any other provision of the Plan, in the
event (A) of a public tender for all or any portion of the Stock
of the Company, (B) that a proposal to merge, consolidate, or
otherwise combine with another company is submitted for
stockholder approval, or (C) another situation exists
B-11
that the Committee determines is similar thereto then, 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.
(v) The Committee may in its sole discretion declare that
outstanding Options that are immediately exercisable, but have
not been exercised, will terminate upon (A) a dissolution of the
Company, (B) a merger, reorganization, consolidation or similar
event that the Company does not survive, or (C) 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. Except as
provided in Section 7(d)(v) or upon a Change of Control, no
Option granted hereunder shall become exercisable prior to one
year from the date of grant.
f. Option Repricing/Cancellation and Regrant. Except as provided
in or pursuant to Section 12, the Committee may not authorize,
generally or in specific cases only, for the benefit of any
Participant any adjustment in the exercise or purchase price or
the number of shares subject to an Option by cancellation of an
outstanding Option and a subsequent regranting of an Option, by
amendment or by substitution of an outstanding Option without
prior approval of the Company's stockholders.
8. Performance Shares
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
Holder. Each Performance Share shall represent a bookkeeping
unit of measurement that is deemed to have a value equivalent to
one share of Stock of the Company. Grants of Performance Shares
shall be made within the first 90 days of the applicable Award
Period, and 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. During any 12-month period no person may receive
more than 30% of the aggregate number of Performance Shares
granted or more than 90,000 Performance Shares. Within the first
90 days of the applicable Award Period, the Committee shall
establish (i) performance goals based on one or more of the
Performance Criteria and (ii) a matrix for determining the
percentage by which participants' Performance Shares will be
multiplied based on the Company's achievement of such performance
goals. In no event shall the matrix allow for a percentage in
excess of 200%.
b. Right to Payment of Performance Shares. Following the end of
the Award Period, the Committee shall determine the extent to
which the performance goals for the Award Period have been
achieved. The Committee shall then multiply the number of each
Holder's Performance Shares by the percentage determined under
the pre-established matrix to determine the amount payable to
each Holder (the "Payout Shares").
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 payment
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 delivered
B-12
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
(A) of any public tender for all or any part of the Stock of the
Company, (B) that any proposal to merge, consolidate or otherwise
combine the Company with another company is submitted for
stockholder approval, or (C) another situation exists which the
Committee determines is similar thereto, then the Committee may
in its sole discretion declare any Award Period ended as of a
specific date and accelerate payments of such Performance Share
Awards to Holders in amounts at least equal to the number of
Performance Shares credited to each Holder's Performance Share
account at the beginning of the Award Period, and it may also
include provisions for such events in the Performance Share
Award.
d. Termination of Employment. In the event a Holder terminates
employment during an Award Period, payout shall 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 shall be made at the end of the Award Period
and shall be prorated for service during the period.
(ii) Resignation or discharge other than pursuant to
Section 8(d)(i):
- The Award shall be completely forfeited.
(iii) Retirement:
- Payout shall be made at the end of the Award Period
and shall be prorated for service during the period.
(iv) Early retirement:
- If at the Holder's request, the Award shall be
completely forfeited.
- If at the Company's request, payout shall be at the
end of the Award Period and shall be prorated for
service during the period.
(v) Death or Total and Permanent Disability:
- Payout shall be at the end of the Award Period and
shall be 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
B-13
event (i) of a public tender for all or any portion of the Stock of
the Company, (ii) that any proposal to merge, consolidate, or otherwise
combine the Company with another company is submitted for stockholder
approval, or (iii) another situation exists which the Committee
determines is similar thereto, then 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. The Committee shall establish, and
set forth in the applicable Restricted Stock Award, the effect of
a termination of employment on the rights and benefits of a
Restricted Stock Award and, in doing so, may make distinctions
based upon, inter alia, the reason for the termination of
employment.
10. Performance Restricted Stock Awards
a. General. Grants of Performance Restricted Stock Awards may be
made by the Committee during the term of the Plan. A Performance
Restricted Stock Award is an award of restricted shares based on
the Company's performance over the immediately preceding calendar
year (a "Performance Year"). The first Performance Year shall be
2004. The maximum number of shares that may be granted subject
to Performance Restricted Stock Awards in any Performance Year is
800,000 shares.
b. Awards to 162(m) Participants. Within the first 90 days of a
Performance Year, the Committee shall establish (i) the target
number of restricted shares to be granted as a Performance
Restricted Stock Award to each 162(m) Participant, (ii) the
performance goals based on one or more of Comparative Return to
Shareholders, ROCE, Free Cash Flow and Net Cash Provided by
Operating Activities for the Performance Year, and (iii) the
extent to which the individualized target Performance Restricted
Stock Awards will be granted, if at all, based on the attainment
of those performance goals. Following the end of such
Performance Year, the Committee shall determine the extent to
which the pre-established performance goals were met and the
corresponding number of restricted shares subject to each 162(m)
Participant's Performance Restricted Stock Award, if any. The
Committee may reduce (but not increase) the number of shares
subject to each such Award based on such criteria as the
Committee, in its sole discretion may determine, including but
not limited to Future Year Value Creation and individual
performance.
c. Awards to Non-162(m) Participants. For each Performance Year,
the Committee shall establish individual target restricted stock
awards for the participants who are not 162(m) Participants based
upon such criteria as the Committee, in its sole discretion may
determine, which criteria may include, but is not limited to, one
or more of the following: ROCE, Free Cash Flow, Future Year
Value Creation, salary grade and salary. Following the end of
the Performance Year and subject to the number of restricted
shares available for grant after the award of Performance
Restricted Stock Awards to 162(m) Participants, the Committee
shall have the sole discretion to determine the actual number of
shares subject to each
B-14
Performance Restricted Stock Award, which amounts may be greater or lesser
than the target amounts, 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 Plan, and
(iii) Reasonableness of total cash compensation.
d. Restriction Period. At the time a Performance Restricted
Stock Award is made, the Committee shall establish a period of
time (the "Restriction Period") applicable to such Performance
Restricted Stock Award, which shall be not less than four years
(subject to Section 10(b)). Each Performance Restricted Stock
Award may have a different Restriction Period, at the discretion
of the Committee. In the event (i) of a public tender for all or
any portion of the Stock of the Company, (ii) that any proposal
to merge, consolidate or otherwise combine the Company with
another company is submitted for stockholder approval, or (iii)
another situation exists that the Committee determines is similar
thereto, then the Committee may in its sole discretion change or
eliminate the Restriction Period, and it may also include
provisions for such events in the Performance Restricted Stock
Award.
e. Other Terms and Conditions. The provisions of Section 9(b)
shall apply to Performance Restricted Stock Awards granted
pursuant to Section 10.
f. Termination of Employment. The provisions of Section 9(c)
shall apply to Performance Restricted Stock Awards granted
pursuant to Section 10.
g. Distribution. Except as provided in Section 10(d), in no
event shall Stock be delivered prior to six months from the date
of grant.
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 with a value equal to the minimum applicable
withholding obligation on vesting or payment. 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. Shares in no event may be withheld in excess of the
minimum number required for tax withholding under applicable law.
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.
B-15
d. Beneficiaries. Any payment of Awards due under this Plan to a
deceased Holder shall be paid to the beneficiary designated by
the Holder in writing 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 in writing 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 Restricted Stock and/or
Restricted Stock Awards to an Employee's family members and
entities (including trusts, corporations, partnerships, and
limited liability companies) that 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. The above transfer restrictions shall not apply
to transfers pursuant to a court order, including, but not
limited to, any domestic relations orders.
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.
B-16
12. Changes in Capital Structure
Options, Restricted Stock Awards, Performance Share Awards,
Performance 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
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, subject to
Section 7(f), 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.
Notwithstanding the foregoing, to the extent then required by
Section 7(f), applicable law or any applicable listing agency, or
deemed necessary or advisable by the Board, any amendment to this
Plan shall be subject to stockholder approval.
B-17
EXHIBIT C
2004 DIRECTORS' DEFERRED COMPENSATION AND
RESTRICTED STOCK UNIT AWARD PLAN
TABLE OF CONTENTS
Page
1. General Description ......................................... C-1
2. Definitions ................................................. C-1
3. Effective Date; Duration .................................... C-4
4. Administration .............................................. C-4
5. Restricted Stock Units ...................................... C-4
(a) Initial Awards .......................................... C-4
(b) Annual Awards ........................................... C-4
(c) Maximum Number of Shares; Individual Award Limits ....... C-4
(d) Vesting Period .......................................... C-5
(e) Acceleration of Vesting ................................. C-5
(f) Distribution Elections .................................. C-5
6. Deferral Units .............................................. C-5
(a) Deferral of Regular Cash Compensation Into Deferral Units C-5
(b) Vesting of Deferral Units ............................... C-5
(c) Deferral Elections ...................................... C-6
7. Dividend Equivalent Units ................................... C-6
8. Restrictions, Distributions and Changes to Distributions;
Payment of Units ............................................ C-6
(a) Time and Manner of Distribution ......................... C-6
(b) Change in Time of Distribution .......................... C-7
(c) Early Distributions ..................................... C-7
(d) Distributions for Unforeseeable Emergencies ............. C-7
(e) Payment of Units ........................................ C-8
9. Shares Subject To The Plan; Share Limits .................... C-8
(a) Shares Available for Issuance ........................... C-8
(b) Share Limits; Cut Backs ................................. C-8
(c) Fractional Shares; Minimum Issue ........................ C-8
10. General ..................................................... C-8
(a) Government and Other Regulations ........................ C-8
(b) Tax Withholding ......................................... C-8
(c) Beneficiaries ........................................... C-9
(d) Non-transferability ..................................... C-9
(e) Expenses ................................................ C-9
(f) Titles and headings ..................................... C-9
(g) Governing Law ........................................... C-9
(h) Limitation on Participants' Rights; Unfunded Plan ....... C-9
(i) Rights with Respect to Stock Units ...................... C-10
(j) Restricted Stock Unit Agreements ........................ C-10
(k) Plan Construction ....................................... C-10
11. Changes in Capital Structure ................................ C-10
12. Amendments and Termination .................................. C-10
13. Stockholder Approval ........................................ C-11
14. Transfer of Accounts from Former Plan ....................... C-11
C-i
2004 DIRECTORS' DEFERRED COMPENSATION AND
RESTRICTED STOCK UNIT AWARD PLAN
1. General Description.
The Plan provides for annual grants of restricted stock units
to non-employee directors. Non-employee directors may also elect
to defer all or a portion of their annual cash compensation into
stock units subject to certain conditions.
The purpose of the Plan is to attract, motivate and retain
experienced and knowledgeable directors by offering additional
stock based compensation and incentives to defer and potentially
enhance their compensation and to encourage stock ownership in
the Company.
2. Definitions.
The following definitions shall be applicable throughout the
Plan:
"Board" means the Board of Directors of the Company.
"Change in Control" means the occurrence of any of the
following:
(a) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (i)
the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or
(ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote
generally in the election of directors (the
"Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change in
Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any
acquisition by an employee benefit plan (or related
trust) sponsored or maintained by the Company or any
entity controlled by the Company or (iv) any
acquisition by any entity pursuant to a transaction
which satisfied conditions (i), (ii) and (iii) of
clause (c) below.
(b) Individuals who, as of the Effective Date,
constitute the Board (the "Incumbent Board") cease for
any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming
a director subsequent to the Effective Date whose
election, or nomination for election by the Company's
stockholders, 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, except that, any
such individual whose initial assumption of office
occurs as a result of an actual or threatened election
contest with respect to the election or removal of
directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other
than the Board shall not be considered a member of the
Incumbent Board; or
(c) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company or the
acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of
the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination will
beneficially own, directly or indirectly, more than 50%
of, respectively, the then outstanding shares of common
stock and the combined voting power of the
C-1
outstanding voting securities entitled to vote generally
in the election of directors, as the case may be, of the
entity resulting from such Business Combination,
including, without limitation, an entity 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 (the
"Resulting Entity") in substantially the same
proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding any
Resulting Entity from such Business Combination or any
employee benefit plan (or related trust) of the Company
or such Resulting Entity from such Business
Combination) will beneficially own, directly or
indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the entity
resulting from such Business Combination or the
combined voting power of the then outstanding voting
securities of such entity except to the extent that
such ownership level existed (with respect to the
Company or Resulting Entity) prior to the Business
Combination and (iii) at least a majority of the
members of the board of directors of the Resulting
Entity from such Business Combination were members of
the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company
other than in the context of a Business Combination.
Notwithstanding the foregoing, the Board may deem
"consummation of" an event to include a period of time
immediately prior to or contemporaneous with the event to
enable the Participant to realize the benefits of the Stock
Units with respect to the underlying shares in the same
manner as available to common stockholders generally as a
result of the event, but subject to the occurrence of a
Change in Control. For purposes of clause (c), "entity"
means any corporation, limited liability company,
partnership or any other statutorily recognized business
organization or entity that is similar to a statutory
corporation and that can be merged into or combined with a
statutory corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Board Governance Committee or any
other committee appointed by the Board to administer the
Plan, which committee shall be comprised only of two or more
"non-employee directors" (within the meaning of Rule 16b-3).
"Company" means Unocal Corporation and, if it should cease
to exist as a public company, thereafter (on prospective
basis) its successors.
"Deferral Units" means Stock Units credited pursuant to
Section 6 with respect to 120% of the actual amount of
compensation deferred by the Eligible Director and any
dividend equivalent Stock Units credited thereon pursuant to
Section 7.
"Disability" means a "total and permanent disability" within
the meaning of Section 22(e)(3) of the Code and such other
disabilities, infirmities, afflictions or mental or physical
conditions that render materially more burdensome or
impossible the director's continued service as the Committee
by resolution may recognize.
"Effective Date" means the date on which the stockholders of
the Company approve the Plan.
"Eligible Director" means any member of the Board who is not
an employee of the Company or a Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
C-2
"Fair Market Value" means the closing price of the Stock as
reported on the New York Stock Exchange - Composite
Transactions Summary or any successor principal market for
the Stock on the applicable date.
"Former Plan" means the Company's 2001 Directors' Deferred
Compensation and Stock Award Plan, as amended.
"Participant" means each person who has been granted a
Restricted Stock Unit award or who has deferred all or a
portion of his or her cash compensation into Deferral Units,
and each participant in the Former Plan for whom a Stock
Unit Account has been established under this Plan.
"Plan" means the Unocal Corporation 2004 Directors' Deferred
Compensation and Restricted Stock Unit Award Plan, as set
forth herein and as it may be amended from time to time.
"Restricted Stock Units" or "RSUs" means an award of Stock
Units credited pursuant to Section 5 and any dividend
equivalent Stock Units credited thereon pursuant to
Section 7, which Stock Units are subject to vesting and
other restrictions as set forth herein.
"Securities Act" means the Securities Act of 1933, as
amended.
"Stock" means shares of common stock, par value $1.00 per
share, of the Company, including any rights attendant
thereto upon issuance of the shares, together with any
restrictions, limitations or conditions of and to such
rights, under the Rights Agreement dated as of January 5,
2000 between the Company and Mellon Investor Services,
L.L.C. (as Rights Agent) as it may be amended from time to
time and such other stock or other securities or property
into which the Stock (or such rights) may be converted or
for which it is exchanged or substituted, and any credits
thereon, pursuant to Section 11.
"Stock Unit" means a non-voting unit of measurement that is
(a) deemed for bookkeeping purposes to be equivalent to one
outstanding share of Stock solely for purposes of
determining benefits under the Plan, (b) credited to a
Participant's Stock Unit Account pursuant to the grant of
Restricted Stock Units under Section 5, an election to defer
cash compensation under Section 6, or in respect of dividend
equivalents under Section 7, and (c) payable solely in a
share of Stock, on a one-for-one basis, and shall include
Stock Units transferred to Stock Unit Accounts from the
Former Plan as provided in Section 14.
"Stock Unit Account" means the bookkeeping account
maintained by the Company for each Eligible Director that is
credited with Stock Units in accordance with the Plan, and
includes, to the extent applicable, any Stock Unit
Subaccount.
"Stock Unit Subaccount" means a subaccount of an Eligible
Director's Stock Unit Account established to separately
account for Stock Units that are subject to different
vesting restrictions, different distribution elections or
established for different deferral periods.
"Subsidiary" means any entity of which a majority of the
outstanding voting stock or voting power is beneficially
owned directly or indirectly by the Company.
"Unforeseeable Emergency" means a severe financial hardship
to the Eligible Director resulting from a sudden and
unexpected illness or accident of the Eligible Director or a
dependent of the Eligible Director, loss to the Eligible
Director's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Eligible
Director. The circumstances that will constitute an
Unforeseeable Emergency will depend upon the facts of each
case.
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3. Effective Date; Duration.
The effective date of the Plan is the date on which the
stockholders of the Company approve the Plan. No awards may be
granted under the Plan after June 1, 2009. The Plan shall
continue in effect until all matters relating to Stock Units and
the accrual and distribution in respect of compensation deferred
on or prior to that date and the administration of the Plan have
been completed and all payments of such compensation have been
made.
4. Administration.
The Plan shall be administered by the Committee. The acts of
a majority of the members present at any meeting at which a
quorum is present and the acts unanimously approved in writing or
by electronic transmission by the Committee shall be deemed the
acts of the Committee.
The Committee shall have the authority, subject to the
provisions of the Plan, to establish, adopt and revise such
rules, regulations and forms and agreements 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 shall
also have the authority, subject to the provisions of the Plan,
to delegate ministerial, day-to-day administrative details and
non-discretionary duties and functions to officers and employees
of the Company. 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. Restricted Stock Units.
(a) Initial Awards. Any person who first becomes an Eligible
Director on or after January 1, 2004 shall be granted without
further action by the Committee a number of Restricted Stock
Units with a total value of $140,000. Any person who first
becomes an Eligible Director on or before the 2004 annual meeting
of stockholders, the date of grant of such Initial Award shall be
the first day of the month immediately following such annual
meeting, and as to any person who subsequently becomes an
Eligible Director, the date of grant of such Initial Award shall
be the date the person takes office. The number of Restricted
Stock Units included in each such award shall be determined by
dividing $140,000 by the Fair Market Value of the Stock on the
date of grant. The Company shall credit to the Eligible
Director's Stock Unit Account the number of whole and fractional
RSUs so determined. Notwithstanding the foregoing, the Board
may, from time to time, in its sole discretion, adjust (upward or
downward) the nominal dollar value of such initial awards;
provided however that the Board may not increase the nominal
dollar value of an initial award under this Section 5(a) to more
than $280,000 in the aggregate during the term of the Plan.
(b) Annual Awards. On the first day of the month immediately
following the annual meeting of stockholders in 2004, and on
June 1 in each calendar year thereafter, each Eligible Director
then in office shall be granted without further action by the
Committee a number of Restricted Stock Units with a total value
of $70,000. The number of Restricted Stock Units included in
each such award shall be determined by dividing $70,000 by the
Fair Market Value of the Stock on the date of grant. The Company
shall credit to the Eligible Director's Stock Unit Account the
number of whole and fractional RSUs so determined.
Notwithstanding the foregoing, the Board may, from time to time,
in its sole discretion, adjust (upward or downward) the nominal
dollar value of such annual awards; provided, however that the
Board may not increase the nominal value of an annual award under
this Section 5(b) to more than $140,000 in the aggregate during
the term of the Plan.
(c) Maximum Number of Shares; Individual Award Limits. Annual
grants that would otherwise exceed the maximum number of shares
allotted for issuance under the Plan contained in Section 9(a)
shall be prorated within such limitation pursuant to
Section 9(b). An Eligible Director shall not receive more than
one Restricted Stock Unit award under this Section 5 in any
calendar year. Commencing in 2005, if an Eligible Director is
first eligible for a Restricted Stock Unit award under the Plan
on June 1 of a
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year, the number of shares subject to the Restricted Stock Unit award
will be determined under clause (a) above.
(d) Vesting Period. For each initial Restricted Stock Unit
award granted under Section 5(a), 33 1/3% of the RSUs subject to
the award shall vest and become nonforfeitable on each of the
first three (3) anniversaries of the date of grant. For each
annual RSU award granted under Section 5(b), 100% of the RSUs
subject to the award shall vest and become nonforfeitable on the
next following annual meeting of stockholders.
(e) Acceleration of Vesting. Notwithstanding Section 5(d),
each Restricted Stock Unit award shall become immediately vested
and non-forfeitable upon the occurrence of any of the following
events:
(1) a Participant's service as a director is terminated due to
death or Disability,
(2) a Change in Control, or
(3) a Participant accepts a public interest position (e.g.,
community service, philanthropic endeavors, a position with a
501(c)(3) or (c)(4) organization, or government service),
provided such acceleration does not adversely affect the
Participant's ability to serve in such position.
(f) Distribution Elections. Subject to Section 8, Participants
may elect the time of payment of the RSUs awarded under this
Section 5. For a distribution election to be effective, any such
election must be received by the Company no later than the
applicable deadline for each RSU award, which (1) with respect to
RSUs granted in 2004, shall be no later than 30 days after the
Effective Date and (2) with respect to RSUs granted in subsequent
calendar years, shall be no later than the immediately preceding
December 31 for each calendar year. Notwithstanding the
preceding sentence, a person who first becomes an Eligible
Director during a calendar year may make a distribution election
with respect to the initial RSU award granted pursuant to
Section 5(a), provided that the election is received by the
Company within the 30-day period following the date that the
person first becomes an Eligible Director. An Eligible Director
shall be permitted to make a different distribution election with
respect to each RSU award. For each Eligible Director who makes
one or more distribution elections, his or her Stock Unit Account
shall be divided into two or more Stock Unit Subaccounts as
necessary or advisable to separately account for RSUs awards that
vest or are payable at different times.
6. Deferral Units.
(a) Deferral of Regular Cash Compensation Into Deferral Units.
Each Eligible Director may also elect annually to defer all or
part of his or her cash compensation, in increments of no less
than 10%, payable for services rendered as a director, into
Deferral Units. An Eligible Director's election to defer cash
compensation shall be irrevocable, except as expressly provided
in the Plan, and shall be effective for compensation earned for
services as a director of the Company for the calendar year with
respect to which the deferral election is made. The amount of
compensation earned by an Eligible Director under the Plan in any
month shall be increased by 20% (as so increased, the "Adjusted
Deferral Amount") for purposes of determining the number of
Deferral Units to be credited to such Eligible Director. An
Eligible Director's deferral election shall be made pursuant to
the election procedures in Section 6(c).
At the end of each quarter, the number of Deferral Units to be
credited to an Eligible Director's Stock Unit Account with
respect to deferrals under this Section 6 shall be the Eligible
Director's Adjusted Deferral Amount for that quarter divided by
the average of the Fair Market Values of the Stock over the
quarter.
(b) Vesting of Deferral Units. Deferral Units shall be fully
vested and non-forfeitable at all times.
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(c) Deferral Elections.
(1) For a deferral election to be effective, any such election
must be received by the Company no later than the applicable
deadline for the period to which the deferral relates (but, in
any event, no later than the immediately preceding December 31
for each calendar year). Notwithstanding the preceding sentence,
a person who first becomes an Eligible Director during a calendar
year may make a deferral election with respect to the
compensation payable through the end of that calendar year,
provided that (a) the election is received by the Company within
the 30-day period following the date that the person first
becomes an Eligible Director, and (b) the election applies only
to compensation earned for services as a Board member after the
date the election is received by the Company. As provided in
Section 14, with respect to compensation earned or to be earned
in calendar year 2004, any deferral election made by an Eligible
Director under the Former Plan with respect to such 2004
compensation shall be effective for the deferral of such 2004
compensation under this Plan.
(2) An Eligible Director shall be permitted to make a different
election with respect to each annual deferral period and as to
the time in which his or her benefits shall be distributed. For
each Eligible Director who makes one or more distribution
elections, his or her Stock Unit Account shall be divided into
two or more Stock Unit Subaccounts as necessary or advisable to
separately account for deferrals which are payable at different
times.
7. Dividend Equivalent Units.
(a) As of the end of each quarter in which a dividend is paid
on Stock, additional Stock Units (or portions thereof) will be
credited to the Eligible Director's Stock Unit Subaccounts. The
number of Stock Units so credited shall equal the cash dividend
(or declared value of any other dividend) per share multiplied by
the number of Stock Units in the Eligible Director's Stock Unit
Subaccounts as of the end of the immediately preceding quarter
divided by the average of the Fair Market Values of a share of
Stock over the quarter then ending. Dividend equivalent Stock
Units credited in respect of RSU awards shall be vested to the
same extent as the RSU awards to which they relate.
(b) If a Stock Unit distribution event occurs after a dividend
record date and after the dividend payment date but before the
dividend equivalent crediting date set forth in Section 7(a),
then the crediting of dividend equivalent rights, with respect to
such dividend and such distributed shares, will be settled in
cash, in lieu of additional Stock Units, as soon as practicable
following such Stock Unit distribution based on the total number
of shares distributed. Notwithstanding the foregoing, if a Stock
Unit distribution event occurs after a dividend record date but
before a dividend payment date, the crediting of dividend
equivalent rights, with respect to such distributed shares, will
be settled in cash, in lieu of additional Stock Units, on the
dividend payment date based on the total number of shares
distributed.
(c) Stock Units credited in respect of dividend equivalents
shall be paid in Stock (except as provided in Section 7(b) and
Section 9(b)) at the same time and the same manner as the vested
Stock Units to which they relate.
8. Restrictions, Distributions and Changes to Distributions;
Payment of Units.
(a) Time and Manner of Distribution. Unless a Participant
elects otherwise, distribution with respect to vested Stock Units
will be made in a lump sum as soon as administratively
practicable following the earlier to occur of a termination of
the Participant's service as a director of the Company or a
Change in Control. However, a Participant may elect that the
distribution be made (1) on a termination of service as a
director, (2) on an alternative date, (3) on the earlier of
termination of service or an alternative date or (2) on the later
of termination of service or an alternative date. The
Participant may also elect whether or not a Change in Control
will accelerate distribution. In the case of a Restricted Stock
Unit award, the earliest alternative distribution date that a
Participant may elect is the later of the date of full vesting of
the award or three years after the date of the grant of the
award, and the latest alternative distribution date that a
Participant may elect is 15 years after the date of the grant of
the
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award. In the case of Deferral Units, the earliest
alternative distribution date that a Participant may elect is
three years after the calendar year for which the Participant's
compensation was deferred into such Deferral Units, and the
latest alternative distribution date that a Participant may elect
is 15 years after the calendar year for which the compensation
was deferred into such Deferral Units. Any election under this
Section 8(a) must be made by the Participant in writing on forms
provided by the Company at the time of making the distribution
election under Section 5(f) or the deferral election under
Section 6(c), whichever is applicable.
Notwithstanding any contrary elections or other terms of the
Plan, a Participant shall receive an immediate crediting and
distribution of vested Stock Units (which includes any Stock
Units that become vested pursuant to Section 5(e)(4)) under the
Plan if a Participant accepts a public interest position (e.g.,
community service, philanthropic endeavors, a position with a
501(c)(3) or (c)(4) organization, or government service),
provided such acceleration does not adversely affect the
Participant's ability to serve in such position.
(b) Change in Time of Distribution. An Eligible Director may
elect to further defer the commencement of any distribution to be
made with respect to Stock Units benefits payable under the Plan
by filing a new written election in a form and manner approved by
the Committee; provided, however, that (A) no such new election
shall be effective until 12 months after such election is filed,
(B) no such new election shall be effective with respect to any
Stock Units after the distribution of benefits with respect to
the applicable Stock Units subaccount shall have commenced, and
(C) no more than two new elections with respect to any annual
deferral period or single RSU award shall be recognized as to any
Participant. In addition, to the extent necessary to preserve
the benefits of the exemptive rules under Section 16 of the
Exchange Act, any such new election shall be subject to prior
approval of the Board or the Committee.
(c) Early Distributions. Participant shall be permitted to
elect to withdraw (subject to Committee approval to the extent
required to avoid any matchable event under Section 16(b) of the
Exchange Act) not less than 50% of the vested portion of his or
her Stock Unit Account, reduced by the withdrawal penalty
described below, prior to the applicable payment date(s) ("Early
Distributions"), subject to the following restrictions:
(1) The election to take an Early Distribution shall be made in
writing on a form provided by and filed with the Committee;
(2) The amount of the Early Distribution shall equal 90% of the
amount the Eligible Director has elected to withdraw;
(3) The remaining 10% of the amount the Eligible Director has
elected to withdraw shall be permanently surrendered, and the
Eligible Director or his or her Beneficiary shall have no rights
with respect to such surrendered amounts; and
(4) Unless the Committee otherwise provides, no more than two
early distribution elections shall be recognized as to any
Participant.
The Eligible Director's remaining Stock Units in the Stock Unit
Account shall continue to be credited with Dividend Equivalents
in accordance with Section 7.
(d) Distributions for Unforeseeable Emergencies. A Participant
may request a distribution of the vested portion of Participant's
Stock Units for an Unforeseeable Emergency (without penalty or
surrender of rights). Any distribution for an Unforeseeable
Emergency shall be subject to approval by the Committee in its
sole discretion and may be made only to the extent necessary to
satisfy the hardship.
The Committee may treat a distribution as necessary for an
Unforeseeable Emergency if it relies on the Eligible Director's
written representation, without actual knowledge to the contrary,
that the hardship
C-7
cannot reasonably be relieved through timely reimbursement or
compensation by insurance or otherwise, or by liquidation of the
Eligible Director's assets, to the extent the liquidation of such
assets would not itself cause severe financial hardship.
(e) Payment of Units. Upon a distribution event, the Company
shall, subject to Section 9(b) hereunder, deliver a number of
shares of Stock equal to the number of vested Stock Units (as
adjusted pursuant to Section 8(c)(3) if applicable) to which the
Participant is then entitled (whether upon his or her previously
elected distribution date, determination of Unforeseeable
Emergency or voluntary withdrawal under Section 8(c)(3)) under
the terms of the Plan.
(f) Forfeiture of Unvested Units. To the extent any portion or
a Participant's RSUs have not become vested upon the date the
Participant's services as a director terminate, such RSUs shall
be forfeited and the award shall automatically be terminated
without payment of consideration by the Company.
9. Shares Subject To The Plan; Share Limits.
(a) Shares Available for Issuance. Subject to adjustment under
Section 11, the aggregate number of shares of Stock that may be
issued or delivered under the Plan shall not exceed 500,000
shares. Stock delivered by the Company under the Plan shall be
shares of authorized and unissued shares of Stock and/or
previously issued Stock held as treasury shares and shall be
fully paid and non-assessable when issued. Shares issuable on
payment of Stock Units shall be reserved for issuance, and to the
extent that awards terminate without payment in shares, the
shares will be available for subsequent awards or accretions of
dividend equivalents.
(b) Share Limits; Cut Backs. If any award or crediting of
Stock Units would cause the sum of the shares of Stock previously
issued and shares issuable under outstanding awards under the
Plan to exceed the maximum number of shares authorized under the
Plan, the Company shall prorate among the Eligible Directors the
award of Restricted Stock Units and allocate the number of
remaining shares available for issuance first to the award of
Restricted Stock Units and second toward the crediting of
Deferral Units. If and for so long as no available share
authorization remains, no additional Stock Units will be
credited, cash shall be paid in lieu of dividend equivalents
under Section 7 for such duration and any contrary or
inconsistent elections shall be deemed revised or rescinded
accordingly.
(c) Fractional Shares; Minimum Issue. Fractional share
interests may be accumulated but shall not be issued. Cash will
be paid or transferred in lieu of any fractional share interests
that remain upon a final distribution under the Plan.
10. General.
(a) Government and Other Regulations. The obligation of the
Company to credit Stock Units, issue or deliver Stock or
otherwise make payments under the Plan are subject to compliance
with all applicable laws, rules, and regulations (including,
without limitation, federal and state securities laws), and to
such approvals by any listing, agency, or regulatory or
governmental authorities as may, in the opinion of counsel for
the Company, be necessary or advisable in connection therewith.
The Company shall be under no obligation to register under the
Securities Act any of the securities issued or delivered under
the Plan. Any securities issued or delivered under the Plan
shall be subject to such restrictions, and the person acquiring
such securities shall, if requested by the Company, provide such
assurances and representations to the Company, as the Company may
deem necessary or advisable to assure compliance with all
applicable legal requirements.
(b) Tax Withholding. The Company shall have the right to
deduct from all cash payments any federal, state or local taxes
as required by laws to be withheld with respect to such cash
payments and, with respect to the delivery of Stock, the Company
has the right to require the person receiving such Stock to pay
to the Company the amount of any such taxes which the Company is
required to withhold.
C-8
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 equal to the amount of such taxes. Valuation for this
purpose shall be the Fair Market Value on the date of distribution.
(c) Beneficiaries.
(1) Beneficiary Designation. Upon and subject to the terms of
forms provided by the Company each Eligible Director may
designate in writing the Beneficiary or Beneficiaries (as defined
in Section 10(c)(2)) whom such Eligible Director desires to
receive any amounts payable under the Plan after his or her
death. Beneficiary designation forms shall be effective on the
date that the form is received by the Corporate Secretary. An
Eligible Director may from time to time change his or her
designated Beneficiary or Beneficiaries without the consent of
such Beneficiary or Beneficiaries by filing a new designation in
writing with the Corporate Secretary. However, if a married
Eligible Director wishes to designate a person other than his or
her spouse as Beneficiary, such designation shall be consented to
in writing by the spouse. The Eligible Director may change any
election designating a Beneficiary or Beneficiaries without any
requirement of further spousal consent if the spouse's consent so
provides. Notwithstanding the foregoing, spousal consent shall
not be necessary if it is established that the required consent
cannot be obtained because the spouse cannot be located or
because of other circumstances prescribed by the Committee. The
Company and the Committee may rely on the Eligible Director's
designation of a Beneficiary or Beneficiaries last filed in
accordance with the terms of the Plan.
(2) Definition of Beneficiary. An Eligible Director's
"Beneficiary" or "Beneficiaries" shall be the person, persons,
trust or trusts so designated by the Eligible Director or, in the
absence of such designation, entitled by will or the laws of
descent and distribution to receive the Eligible Director's
benefits under the Plan in the event of the Eligible Director's
death, and shall mean the Eligible Director's executor or
administrator if no other Beneficiary is identified and able to
act under the circumstances.
(d) Non-transferability. Except as provided in Section 10(c),
a Participant's rights and interests under the Plan in respect of
Stock Units, including amounts payable or Stock deliverable under
or in respect thereof, may not be assigned, pledged, or
transferred.
(e) Expenses. The expenses of administering the Plan shall be
borne by the Company.
(f) 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.
(g) Governing Law. The validity of the Plan or any of its
provisions and any agreements entered into under the Plan shall
be construed, administered and governed in all respects under the
laws of the State of Delaware. If any provisions of the Plan
shall be held by a court of competent jurisdiction to be invalid
or unenforceable, the remaining provisions hereof shall continue
to be fully effective.
(h) Limitation on Participants' Rights; Unfunded Plan.
Participation in the Plan shall not give any person the right to
continue to serve as a member of the Board or any rights or
interests other than as expressly provided herein. No
Participant shall have any right to any payment or benefit
hereunder except to the extent provided herein. The Plan shall
create only a contractual obligation on the part of the Company
as to such amounts and shall not be construed as creating a trust
or fiduciary relationship between the Company, the Board, the
Committee, and any Participant or other person. Participants and
their Beneficiaries shall have no legal or equitable rights,
claims, or interest in any specific property or assets of the
Company. No assets of the Company shall be held under any trust,
or held in any way as collateral security for the fulfilling of
the obligations of the Company under this Plan. Any and all of
the Company's assets shall be, and remain, the general unpledged,
unrestricted assets of the Company. The Company's obligation
under the Plan shall be merely that of an unfunded and unsecured
promise of
C-9
the Company to pay benefits in the future, and the
rights of the Participants and Beneficiaries shall be no greater
than those of unsecured general creditors.
(i) Rights with Respect to Stock Units. A Participant's Stock
Unit Account shall be a memorandum account on the books of the
Company. The Stock Units credited to such account shall be used
solely as a device to determine the number of shares of Stock to
be eventually distributed to the Participant, subject to
applicable vesting requirements, in accordance with the Plan.
The Stock Units shall not be treated as property or as a trust
fund of any kind. No Participant shall be entitled to any voting
or other stockholder rights with respect to Stock Units credited
under the Plan.
(j) Restricted Stock Unit Agreements. Each Restricted Stock
Unit award granted to an Eligible Director under the Plan shall
be evidenced by a writing approved by the Committee and will
contain the terms and conditions consistent with the Plan as
approved by the Committee relating to the RSUs.
(k) Plan Construction. By its approval of the Plan, the Board
intends that the transactions contemplated by the Plan satisfy
and be interpreted in a manner that satisfies the applicable
requirements of Rule 16b-3 promulgated under the Exchange Act so
that, among other transactions, the elective deferrals, the
crediting of Stock Units and payment in Stock, and other
elections in respect thereof will be entitled to the benefits of
Rule 16b-3 or other exemptive rules under Section 16 of the
Exchange Act.
11. Changes in Capital Structure.
Upon or in contemplation of any reclassification,
recapitalization, stock split (including a stock split in the
form of a stock dividend) or reverse stock split; any merger,
combination, consolidation or other reorganization; any split-up;
spin-off, or similar extraordinary dividend distribution in
respect of the Stock (whether in the form of securities or
property); any exchange of Stock or other securities of the
Company, or any similar, unusual or extraordinary corporate
transaction in respect of the Stock; or a sale of substantially
all the assets of the Company as an entirety; then the Board
shall, in such manner, to such extent (if any) and at such time
as it deems appropriate and equitable in the circumstances
proportionately adjust any or all of (a) the number and type of
shares of Stock (or other securities or property) that thereafter
may be made the subject of Stock Units and Stock Unit Accounts
(including the specific maxima and numbers of shares set forth
elsewhere in the Plan), (b) the number, amount and type of shares
of Stock (or other securities or property) payable in respect of
Stock Units, and (c) the number and type of Stock Units (both
credited and vested), and applicable vesting schedule thereof,
under the Plan.
Any rights in respect of cash or any equivalent into which the
Stock or rights to receive stock may be or have been converted as
a result of an event contemplated by this Section 11 shall
include a right to quarterly interest credits based upon the rate
(quoted as an annual rate) that is 120% of the federal rate for
compounding for the applicable period of time to payment,
determined and published by the Secretary of the United States
Department of Treasury under Section 1274(d) of the Code, for the
month in which interest is credited.
12. Amendments and Termination.
Subject to Section 13, the Board shall have the right to amend
the Plan (including outstanding awards) in whole or in part from
time to time or may at any time suspend or terminate the Plan;
provided, however, that no amendment or termination shall cancel
or otherwise adversely affect in any way, without his or her
written consent, any Participant's rights with respect to Stock
Units credited to his or her Stock Unit Account. Notwithstanding
the foregoing, Participant consent shall not be required to the
extent that the Board determines that applicable law requires
amendment or termination of the Plan (and/or outstanding awards)
to preserve the intended tax benefits to the Participants and the
Company hereunder. Any amendments authorized hereby shall be
stated in an instrument in writing, and all Participants (subject
to any applicable consent requirement above) shall be bound
thereby upon receipt of notice thereof. Changes contemplated by
Section 11 shall not be deemed to constitute changes or
amendments for purposes of this Section 12.
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13. Stockholder Approval.
The Plan shall be subject to approval of the Plan by the
stockholders of the Company at the 2004 annual meeting. To the
extent required under applicable law, listing agency rule, deemed
necessary or advisable by the Board any subsequent amendment to
the Plan shall be subject to stockholder approval. Changes
contemplated by Section 11 shall not be deemed to constitute
changes or amendments for purposes of this Section 13. Without
limiting the amendment authority set forth in Section 12, changes
specifically contemplated by Section 5 are deemed approved by the
stockholders upon their approval of the Plan.
14. Transfer of Accounts from Former Plan.
The Stock Units (and dividend equivalents credited with
respect thereto) credited to the Stock Unit Account of each
Eligible Director who is a Participant in the Former Plan as of
the Effective Date will be transferred to a Stock Unit Account
under this Plan for such Participant as of such date and
thereafter shall be governed by the terms of this Plan. Any
deferral election with respect to compensation earned and to be
earned in calendar year 2004 filed under the Former Plan shall be
effective for the deferral of such compensation under this Plan,
and any distribution election and beneficiary designation made by
any Participant under the Former Plan with respect to such
transferred Stock Units (and dividend equivalents credited with
respect thereto) shall remain in effect and apply to such
Participant's Accounts and participation under this Plan unless
and until the Participant makes a different election in
accordance with the terms of this Plan. All Stock Units so
transferred shall be fully vested and nonforfeitable.
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ocal Corporation
UNOCAL CORPORATION
C/O MELLON INVESTOR SERVICES LLC
P.O. Box 3535
South Hackensack, NJ 07606-9235
UNOCAL [LOGO]
Board of Directors Proxy
2004 ANNUAL MEETING OF STOCKHOLDERS
TERRY G. DALLAS AND SAMUEL H. GILLESPIE III, 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 25, 2004, AT THE MAY 24,
2004 ANNUAL MEETING OF STOCKHOLDERS OF UNOCAL CORPORATION, AND ANY ADJOURNMENT
THEREOF, ON EACH OF THE ITEMS ON THE REVERSE SIDE, SUBJECT TO ANY 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 ITEMS
--- -------
5,6,7, AND 8.
(CONTINUED, AND TO BE DATED AND SIGNED ON REVERSE SIDE)
Address Change/Comments (Mark the corresponding box on the reverse side)
-------------------------------------------------------------------------------
-FOLD AND DETACH HERE-
Consenting to receive all future annual meeting materials and shareholder
communications electronically is simple and fast! Enroll today at
www.melloninvestor.com/ISD for secure online access to your prxoy materials,
statements, tax documents and other important shareholder correspondence.
--------------------------------------------------------------------------------
-FOLD AND DETACH HERE-
[Graphic appears here: map showing meeting location on Century Blvd,
West of the 405 Frewway and East of the Los Angeles International Airport]
DIRECTIONS TO THE WESTIN LOS ANAGELES AIRPORT HOTEL AND PARKING FOR STOCKHOLDERS
From the 405, exit Century Boulevard west toward Los Angeles International
Airport. The entrance to The Westin Hotel is located 1 block past La Cienega on
the left hand (south) side of Century Blvd.
From the Airport, take the Century Boulevard exit east, and continue on Century
Boulevard approximately 4 blocks. The Westin Hotel is located 1/2 block past
Aviation Boulevard, on the right hand (south) side of Century Boulevard.
PARKING: Proceed past the hoetel's front entrance and enter the parking garage
on your left. Unocal will validate your parking ticket at the registration table
in front of the theater. Unocal will not validate valet parking.
UNOCAL [LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE 2004 ANNUAL
MEETING OF STOCKHOLDERS OF UNOCAL CORPORATION
Please Mark Here for Address Change or Comments
SEE REVERSE SIDE [ ]
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends votes FOR Items 1,2,3 and 4
-----------------------------------------------------------------------------------------------------------------------------------
Item 1: Election of the following nominees as FOR ALL WITHHOLD AUTHORITY
directors for three-year terms to expire Nominees [_] to vote for ALL nominees listed [_]
in 2007:
(01) Richard D. McCormick WITHHOLD AUTHORITY TO VOTE FOR THE FOLLOWING NOMINEE(S):
(02) Marina v.N. Whitman
(03) Charles R. Williamson --------------------------------------------------------
Item 2: Ratification of appointment of FOR AGAINST ABSTAIN
PricewaterhouseCoopers LLP as independent [_] [_] [_]
auditors
Item 3: Approval of the 2004 Management FOR AGAINST ABSTAIN
Incentive Program [_] [_] [_]
Item 4: Approval of the 2004 Directors' Deferred FOR AGAINST ABSTAIN
Compensation and Restricted Stock Unit Award Plan [_] [_] [_]
-----------------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends votes AGAINST Items 5, 6, 7 and 8
-----------------------------------------------------------------------------------------------------------------------------------
Item 5: Stockholder Proposal: Bylaw requiring that the FOR AGAINST ABSTAIN
Chairman not concurrently serve as CEO [_] [_] [_]
Item 6: Stockholder Proposal: Use of restricted stock programs for FOR AGAINST ABSTAIN
executive compensation in lieu of stock options [_] [_] [_]
Item 7: Stockholder Proposal: Board of Directors office for direct FOR AGAINST ABSTAIN
communications with Independent Directors regarding corporate governance [_] [_] [_]
Item 8: Stockholder Proposal: Board of Directors committee report on FOR AGAINST ABSTAIN
greenhouse gases [_] [_] [_]
-----------------------------------------------------------------------------------------------------------------------------------
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 2004 Annual Meeting
SIGNATURE SIGNATURE DATE
--------------------- --------------------- ------------
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 Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to the annual meeting day.
Your Internet or telephone vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed and returned your proxy card.
------------------------------ ------------------------------ -----------------------------
Internet Telephone Mail
http://www.eproxy.com/ucl 1-800-435-6710
------------------------------ ------------------------------ -----------------------------
Use the Internet to vote your Use any touch-tone telephone Mark, sign and date your
proxy. Have your proxy card to vote your proxy. Have proxy card and return it
in hand when you access the OR your proxy card in hand when OR in the enclosed postage-paid
web site. you call. envelope.
------------------------------ ----------------------------- -----------------------------
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
--------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
Bring this admission ticket and a photo I.D. with you
to the meeting on May 24. Do not mail.
UNOCAL [LOGO] Unocal Corporation
Annual Meeting of Stockholders
ADMISSION TICKET
----------------
Meeting Time/Date:
10:00 a.m. P.D.T., Monday, May 24, 2004
Meeting Location:
Theater
The Westin Los Angeles Airport Hotel
5400 W. Century Blvd., Los Angeles, CA 90045
UNOCAL HAS A NEW ANNUAL MEETING SITE.
PLEASE SEE REVERSE SIDE FOR MAP AND DIRECTIONS.
--------------------------------------------------------------------------------
- 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 24,
2004. 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 POROPORTION 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 24,
2004. 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 DISCRETION, 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
Investors Way 2141 Rosecrans Ave, Suite 4000
Norwood, MA 02062 El Segundo, CA 90245
PUTNAM FIDUCIARY TRUST COMPANY, TRUSTEE - UNOCAL SAVINGS PLAN
UNOCAL CORPORATION - ADMINISTRATOR FBO EMPLOYEES WITH RESTRICTED STOCK
ANNUAL MEETING OF STOCKHOLDERS - VOTING INSTRUCTIONS
Please Mark Here for Address Change or Comments
SEE REVERSE SIDE [ ]
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends votes FOR Items 1,2,3 and 4
-----------------------------------------------------------------------------------------------------------------------------------
Item 1: Election of the following nominees as FOR ALL WITHHOLD AUTHORITY
directors for three-year terms to expire Nominees [_] to vote for ALL nominees listed [_]
in 2007:
(01) Richard D. McCormick WITHHOLD AUTHORITY TO VOTE FOR THE FOLLOWING NOMINEE(S):
(02) Marina v.N. Whitman
(03) Charles R. Williamson --------------------------------------------------------
Item 2: Ratification of appointment of FOR AGAINST ABSTAIN
PricewaterhouseCoopers LLP as independent [_] [_] [_]
auditors
Item 3: Approval of the 2004 Management FOR AGAINST ABSTAIN
Incentive Program [_] [_] [_]
Item 4: Approval of the 2004 Directors' Deferred FOR AGAINST ABSTAIN
Compensation and Restricted Stock Unit Award Plan [_] [_] [_]
-----------------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends votes AGAINST Items 5, 6, 7 and 8
-----------------------------------------------------------------------------------------------------------------------------------
Item 5: Stockholder Proposal: Bylaw requiring that the FOR AGAINST ABSTAIN
Chairman not concurrently serve as CEO [_] [_] [_]
Item 6: Stockholder Proposal: Use of restricted stock programs for FOR AGAINST ABSTAIN
executive compensation in lieu of stock options [_] [_] [_]
Item 7: Stockholder Proposal: Board of Directors office for direct FOR AGAINST ABSTAIN
communications with Independent Directors regarding corporate governance [_] [_] [_]
Item 8: Stockholder Proposal: Board of Directors committee report on FOR AGAINST ABSTAIN
greenhouse gases [_] [_] [_]
-----------------------------------------------------------------------------------------------------------------------------------
SIGNATURE SIGNATURE DATE
--------------------- --------------------- ------------
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 OR INTERNET
24 hours a day/7 days a week
Your Internet or telephone vote authorizes the named proxy holders to vote your
shares in the same manner as if you marked, signed, and returned your voting
instructions.
VOTE BY PHONE:
--------------
1) Read the accompanying Proxy Statement.
2) With this proxy card in hand, dial 1-800-435-6710 using a touch-tone
telephone.
3) Follow the simple instructions to vote.
VOTE BY INTERNET:
-----------------
1) Read the accompanying Proxy Statement.
2) With this card in hand, access http://www.eproxy.com/ucl
3) Follow the simple instructions to vote.
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