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
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Unocal Corporation
2141 Rosecrans Avenue, Suite 4000
El Segundo, California 90245
UNOCAL [LOGO]
April 9, 2001
Dear Stockholder:
Please accept my personal invitation to attend our Annual Meeting of
Stockholders on Monday, May 21, 2001. It will be held in the auditorium at the
Company's Hartley Center, 376 South Valencia Avenue in Brea, California, at
10:00 A.M. to elect four directors, ratify the appointment of independent
accountants, approve the 2001 Directors' Deferred Compensation and Stock Award
Plan, and vote on three stockholder proposals. Before the conclusion of the
Meeting, there will be a period for questions.
If you are a registered stockholder and plan to attend the Stockholders
Meeting, 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 stock held by a bank, broker or other nominee (with your stock held in
"street name"), you will need proof of ownership to be admitted to the Meeting.
A recent brokerage statement or a letter from the bank or broker are examples of
proof of ownership. Stockholders will be asked for identification for admission
to the Meeting.
Your vote is important. I urge you to submit your proxy as soon as possible
so that your shares will be represented. This year, most stockholders have their
choice of three methods to vote by proxy (phone voting is restricted to callers
in the U.S. and Canada)
o Mail, using the enclosed proxy card and return envelope
o Phone, using the 800 number provided on the proxy card
o Internet, using the website provided on the proxy card
Thank you very much for your continued interest and support.
Sincerely,
/s/ John W. Creighton, Jr.
John W. Creighton, Jr.
Chairman of the Board of Directors
TABLE OF CONTENTS
Page
Invitation from the Chairman.............................................................................. Cover
Notice of 2001 Annual Meeting of Stockholders............................................................. i
Proxy Statement........................................................................................... 1
General Information....................................................................................... 1
Item 1. Election of Directors........................................................................... 2
2000 Board Meetings....................................................................................... 5
Board Committee Meetings and Functions.................................................................... 5
Directors' Compensation................................................................................... 7
Security Ownership of Management.......................................................................... 8
Executive Compensation.................................................................................... 9
Report of the Management Development and Compensation Committee........................................ 9
Performance Graph-- Cumulative Return to Stockholders.................................................. 13
Indebtedness of Management................................................................................ 22
Security Ownership of Certain Beneficial Owners........................................................... 23
Item 2. Ratification of Appointment of PricewaterhouseCoopers LLP
as Independent Accountants.................................................................. 23
Report of the Accounting & Auditing Committee............................................................. 23
Audit Fees................................................................................................ 24
All Other Fees............................................................................................ 24
Item 3. Approval of 2001 Directors' Deferred Compensation
and Stock Award Plan........................................................................ 25
Item 4. Stockholder Proposal: Workplace code of conduct
based on ILO conventions.................................................................... 30
Item 5. Stockholder Proposal: Executive compensation review and report.................................. 32
Item 6. Stockholder Proposal: Selection of Board of Directors candidates................................ 34
Item 7. Other Matters................................................................................... 35
Stockholder Proposals for 2002 Annual Meeting............................................................. 36
Exhibit A: Accounting & Auditing Committee Charter....................................................... A-1
Exhibit B: 2001 Directors' Deferred Compensation and Stock Award Plan.................................... B-1
Notice of 2001
Annual Meeting
of Stockholders
UNOCAL [LOGO]
Unocal Corporation
The Annual Meeting of Stockholders of Unocal Corporation (the "Company"), a
Delaware corporation, will be held in the auditorium at The Hartley Center, 376
South Valencia Avenue in Brea, California, on Monday, May 21, 2001, at 10:00
A.M., Pacific Daylight Time, for the following purposes:
(1) To elect four directors for three-year terms that will expire at the
annual meeting in 2004;
(2) To ratify the action of the Board of Directors in appointing
PricewaterhouseCoopers LLP as the Company's independent accountants
for 2001;
(3) To approve the 2001 Directors' Deferred Compensation and Stock Award
Plan;
(4) To consider and act upon the three stockholder proposals described in
the accompanying Proxy Statement, if presented at the Meeting; and
(5) 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 22, 2001, are
entitled to vote at the Annual Meeting and any adjournment thereof.
By Order of the Board of Directors
/s/ Brigitte M. Dewez
Brigitte M. Dewez
Corporate Secretary
April 9, 2001
El Segundo, California
i
Proxy Statement
[LOGO HERE]
Unocal Corporation
2141 Rosecrans Avenue, Suite 4000
El Segundo, California 90245
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Unocal Corporation (the "Company" or
"Unocal"), a Delaware corporation, for use at the Annual Meeting of Stockholders
of the Company to be held on May 21, 2001, and any adjournment thereof, pursuant
to the notice of the Meeting.
The notice of Annual Meeting and this proxy statement, proxy card and the
Company's 2000 Annual Report are being sent to stockholders on or about April 9,
2001.
Only common stockholders of record on the books of the Company at the close
of business on March 22, 2001, are entitled to vote at the Meeting. A
stockholder of record is entitled to one vote for each share of common stock
owned. As of February 28, 2001, the Company had 243,105,407 shares of common
stock outstanding. Under Delaware law, shares voted by brokers as to
discretionary matters only and shares abstaining will be counted as present for
the purpose of determining whether there is a quorum. With regard to the
election of directors, votes that are withheld will be excluded entirely from
the vote and will have no effect. Abstentions on Item 2 (ratification of
appointment of independent accountants), Item 3 (approval of the directors'
plan), and Items 4, 5 and 6 (stockholder proposals) will have the effect of
negative votes. Pursuant to the rules of the New York Stock Exchange, only Items
4, 5 and 6 (stockholder proposals) are "non-discretionary." Brokers who do not
receive instructions from their clients will not have discretion to vote on
Items 4, 5 and 6, and these broker "non votes" will not be counted as votes cast
for determining their outcome.
GENERAL INFORMATION
The Board of Directors is soliciting this proxy. The Company will pay the
cost of soliciting proxies. In addition to solicitation by mail, certain
directors, officers and employees of the Company and its subsidiaries may
solicit proxies by telephone, personal interview, electronic mail, facsimile and
other written communication. The Company also has retained D. F. King & Co.,
Inc., New York, New York, to assist in the solicitation of proxies for a fee
estimated to be $16,000 plus reimbursement of out-of-pocket expenses. The Board
of Directors has appointed Messrs. Timothy H. Ling and Dennis P.R. Codon as the
proxy holders for the Annual Meeting.
All stockholders may vote by signing, dating and returning their proxy
cards in the enclosed pre-addressed envelopes. Registered stockholders may
instead choose to vote by telephone (from U.S. and Canada locations) or
electronically through the internet, using the toll-free number or website
listed on the proxy card, or in person at the Meeting. If you are a beneficial
owner of Unocal stock held by a bank, broker or other nominee (with your stock
held in "street name"), please read your voting card to determine whether you
may vote by telephone or electronically through 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.
1
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 tallying agent will record your vote
according to the instructions which it receives last, regardless of when you
transmitted the instructions.
Unocal's Board of Directors wishes to encourage stockholder participation
in corporate governance by its policy of ensuring the confidentiality of
stockholder votes. 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 any federal or state law requirements, be
strictly confidential.
The Board of Directors considers that some registered stockholders may want
the Company to know how they have voted and the Company, where possible, may
wish to inquire as to how stockholders have voted. If you want the Company to
have access to your proxy card, you may check the box marked "OPEN BALLOT" on
the proxy card and your proxy will be made available to the Company. Your vote
will remain confidential if you do not check the "OPEN BALLOT" box.
Registered stockholders who have computer access to the World Wide Web on
the internet and agree to receive future annual reports and proxy statements by
accessing the Company's web site should check the "Electronic Delivery" box on
the proxy card. If you check this box, we will inform you of the web address to
access these documents electronically, and we will not mail paper copies of
future annual reports and proxy statements to you unless you request paper
copies.
ITEM 1.
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. Directors in each
class are normally elected for three-year terms or until their successors are
duly elected and qualified. There are four nominees for three-year terms
expiring at the annual meeting in 2004. The terms of the other six Directors
will continue as indicated below.
If any nominee becomes unavailable or disqualified to serve as a director,
and if the Board designates a substitute nominee, the proxy holders will vote
for the substitute nominee designated by the Board.
Information about the persons nominated for election as directors, as well
as those Directors continuing in office, is set forth on the following pages.
Directors are elected by a plurality of the votes of the shares entitled to
vote on the election and present, in person or by proxy, at the Annual Meeting.
The proxy holders will vote the proxies received by them FOR the four
nominees, unless authorization to vote for the election of any nominee has been
withheld.
2
NOMINEES FOR DIRECTOR--TERMS TO EXPIRE 2004
Frank C. Herringer
Chairman,
Transamerica Corporation
Age: 58
Director since 1989
Mr. Herringer has been Chairman of Transamerica Corporation since 1996, and
a director since 1986. He also served as Transamerica's President from 1986
and its Chief Executive Officer from 1991 until the company was acquired by
AEGON N.V. in 1999. He served as Chairman of the Board of Directors of the
combined AEGON - Transamerica operations, and he was a member of the
Executive Board of AEGON N.V. with responsibilities for activities in Asia
and for the non-insurance operations of Transamerica, until May 2000. He is
also a director of Charles Schwab & Company, Inc., and Mirapoint, Inc.
Charles R. Larson
Former Commander-in-Chief,
U.S. Pacific Command,
U.S. Navy
Age: 64
Nominee for director
Adm. Larson served as Superintendent of the U.S. Naval Academy from 1994
until he retired in 1998 with more than 40 years of naval service. He was
Commander-in-Chief of the U.S. Pacific Command from 1991 to 1994. He is
also a director of Northrop Grumman Corporation and Constellation Energy
Group Inc.
Marina v.N. Whitman
Professor of Business Administration and Public Policy,
University of Michigan
Age: 66
Director since 1993
Dr. Whitman has been a Professor at the University of Michigan since 1992.
She is also a director of Alcoa, Inc., Procter & Gamble Company, J.P.
Morgan Chase & Co., and Intelliseek. Dr. Whitman also serves as a member,
director, or trustee of several educational and professional organizations.
Charles R. Williamson
Chief Executive Officer,
Unocal Corporation
Age: 52
Director since 2000
Mr. Williamson has been Chief Executive Officer of the Company since
January 1, 2001. He was Executive Vice President, International Energy
Operations, from March 1999 through December 2000. He served as Group
Vice President, Asia Operations, in 1998 and 1999, having previously
served as Group Vice President, International Operations, since 1996.
Mr. Williamson was Vice President, Planning and Economics, from 1995 to
1996.
3
CONTINUING DIRECTORS--TERMS TO EXPIRE 2002
James W. Crownover
Former Director,
McKinsey & Company, Inc.
Age: 57
Director since 1998
Mr. Crownover completed a 30-year career with McKinsey & Company, Inc., at
the end of 1998. He headed that firm's regional practice in the Southwest
between 1984 and 1994. He also co-headed the energy practice for several
years and served on McKinsey's Shareholders Committee (its 20-person
elected board of directors) between 1990 and 1998. Currently, Mr. Crownover
serves as a director of Great Lakes Chemical Corporation, Altra Energy
Technologies, and Xpedior Inc.
Timothy H. Ling
President and Chief Operating Officer,
Unocal Corporation
Age 43
Director since 2000
Mr. Ling has been President and Chief Operating Officer since January 1,
2001. He was Executive Vice President, North American Energy Operations
from March 1999 through December 2000 and Chief Financial Officer from
October 1997 to May 2000. He was a partner of McKinsey & Company, Inc.,
from 1994 to October 1997. Mr. Ling is also a director of Pure Resources,
Inc.
Donald B. Rice
President and Chief Executive Officer,
UroGenesys, Inc. (biotechnology)
Age: 61
Director since 1998
Dr. Rice has been President and Chief Executive Officer of UroGenesys, Inc.
since its founding in 1996. From 1993 until 1996 Dr. Rice was President and
Chief Operating Officer and a director of Teledyne, Inc. He is also a
director of Wells Fargo & Company, Vulcan Materials Company, Amgen Inc.,
and Scios Inc., where he also serves as Chairman of the Board.
CONTINUING DIRECTORS--TERMS TO EXPIRE 2003
John W. Amerman
Former Chairman of the Board & Chief Executive Officer,
Mattel, Inc. (children's toys)
Age: 69
Director since 1991
Mr. Amerman served as the Chairman and Chief Executive Officer of Mattel,
Inc. from 1987 through 1996. He continued to serve as Chairman through
October 1997 and stepped down as director of Mattel in 1998. Mr. Amerman is
also a director of Aegis Group plc.
4
John W. Creighton, Jr.
Chairman of the Board of Directors,
Unocal Corporation
Age: 68
Director since 1995
Mr. Creighton was elected Chairman of the Board of Unocal effective January
1, 2001. He was Weyerhaeuser Company's President and Chief Executive
Officer from 1991 through 1997 and a director of that company from 1988
through 1998. Mr. Creighton is also a Director of UAL Corporation (United
Airlines).
Kevin W. Sharer
Chairman, President and Chief Executive Officer
Amgen, Inc. (biotechnology)
Age: 53
Director since 1997
Mr. Sharer became Chairman of the Board of Amgen, Inc. in January, 2001. He
has been Amgen's Chief Executive Officer since May 2000, and its President,
Chief Operating Officer and a director since 1992.
2000 BOARD MEETINGS
The Board of Directors held 13 meetings in 2000.
BOARD COMMITTEE MEETINGS AND FUNCTIONS
The following table shows the standing committees of the Board of Directors
and their members, the number of committee meetings held during 2000 and the
functions performed by the committees.
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Committee Committee Functions
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ACCOUNTING & AUDITING* Assists the Board in fulfilling its oversight
Meetings: 9 responsibilities for the reliability of the Company's
financial reporting, including: disclosures that
James W. Crownover** reasonably portray its financial condition, results of
John W. Creighton, Jr. operations and plans and long term commitments,
Marina v.N. Whitman the adequacy of internal operating policies and
controls, and quality and performance of the
Internal Audit Department, Comptroller group and
independent accountants.
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(Table continued on next page)
5
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BOARD GOVERNANCE* Recommends to the Board the composition, role,
Meetings: 7 structure and procedures of the Board and its
committees.
John W. Amerman**
Frank C. Herringer Makes recommendations to improve the functionality and
Donald B. Rice effectiveness of the Board and its committees.
Kevin W. Sharer
Identifies and presents candidates for election as directors
of the Company. Considers qualified candidates for directors
recommended by stockholders, who may recommend candidates by
writing to the Corporate Secretary of the Company.
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EXECUTIVE Has the powers and authority of the Board during
Meetings: 1 the periods between Board meetings, except for
those powers specifically reserved to the full Board
John W. Creighton, Jr.** by the Delaware General Corporation Law or the
John W. Amerman Company's Bylaws.
Frank C. Herringer
Donald B. Rice
Charles R. Williamson
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CORPORATE RESPONSIBILITY* Reviews the implementation of the Company's
Meetings: 7 Vision and Values Statement as it relates to
corporate responsibility.
Marina v.N. Whitman**
John W. Creighton, Jr. Reviews significant legal or other matters involving
James W. Crownover health, environment, safety, human resources,
community affairs and development, or ethical
conduct.
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MANAGEMENT DEVELOPMENT Establishes the base salaries of senior officers.
AND COMPENSATION*
Meetings: 9 Administers all management incentive compensation
programs.
Frank C. Herringer**
John W. Amerman Reviews the performance of the Chief Executive
Donald B. Rice Officer and succession plans for senior
Kevin W. Sharer management.
Reviews the responsibilities and performance of
senior officers.
(Retains an outside consultant to advise it
on these matters).
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RETIREMENT PLAN* Oversees the management of the assets of the
Meetings: 4 Company's Retirement Plan, which includes setting
investment objectives, establishing asset allocation
James W. Crownover** strategy and supervising the selection and
John W. Creighton, Jr. replacement of investment managers, consultants
John W. Amerman and trustees.
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* Composed entirely of non-employee directors
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** Serves as Chair of the Committee
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6
DIRECTORS' COMPENSATION
Cash Compensation and Expenses
The annual retainer for each non-employee Director is $25,000. The Chairman
also receives an annual retainer of $200,000. Non-employee Directors receive
$3,000 for each one-day Board meeting attended, $1,000 for each Board committee
meeting attended, and an annual retainer fee of $6,000 for chairing a committee.
All directors are reimbursed for out-of-pocket expenses incurred in attending
meetings and Company business. The Chairman receives a monthly office expense
allowance of $3,000. Directors who are also employees of the Company receive no
additional compensation for services as Directors.
Stock Compensation
The Directors' Restricted Stock Units Plan (the "1991 Directors' Plan") for
non-employee Directors was approved by the Company's stockholders in 1991 for a
term of 10 years and authorizes the issuance of up to an aggregate of 300,000
shares of common stock. The 1991 Directors' Plan is administered by the
Management Committee. The 1991 Directors' Plan was amended such that, beginning
with the annual grant for 1996 and for elective deferred compensation after
August 31, 1996, restricted stock units replaced restricted shares.
Under the 1991 Directors' Plan each non-employee Director receives an
annual grant of restricted stock units equal in value to 20 percent of the
Directors' fees earned during the prior year.
The 1991 Directors' Plan also has allowed each non-employee director to
make an annual election to defer all or a portion of cash fees for the following
year into restricted stock units which are ultimately to be paid out in shares
of common stock. This provided the non-employee directors with an opportunity to
increase their stockholdings, which further aligns the interests of the
non-employee directors with those of other stockholders. In consideration for
foregoing the current cash compensation, the value of the restricted stock units
is equal to 120 percent of the fees deferred. Six of the seven outside directors
elected to defer some or all of their 2000 cash fees into restricted stock
units.
The restriction period for the restricted stock units is generally five
years, subject to the provisions of the 1991 Directors' Plan. Each director may
elect to defer the receipt of his or her compensation for a longer period of
time. The restricted stock units accumulate in each Director's account, and
dividend equivalent amounts are credited as additional restricted stock units.
At the end of the later of the restriction or deferral period for each annual
grant or annual elective deferral, shares of common stock are issued equal to
the number of accumulated restricted stock units.
Restricted stock units cannot be sold, transferred, or pledged, and are
subject to certain risks of forfeiture during the restricted period if the
director is dismissed for cause, refuses to stand for reelection or resigns for
a reason other than "Good Cause," as broadly defined in the 1991 Plan.
Except for dividend equivalents, no additional restricted stock units will
be credited under the 1991 Directors' Plan after April 30, 2001, the plan's
expiration date (see, however, the paragraph captioned "Accounting
Considerations" under Item 3 on page 28 of this proxy statement). Stockholders
will be voting on a new directors' plan at the Annual Meeting. The new plan is
described in Item 3, starting on page 25 of this proxy statement, and the full
text of the plan is attached as Exhibit B. Directors will have the choice of
rolling over their restricted stock units outstanding under the 1991 Directors'
Plan into restricted stock units under the new plan, subject to the terms and
conditions of the new plan. If the new plan is approved, the directors'
compensation will be increased as described in Item 3 to include, among other
benefits, stock options.
7
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the beneficial ownership of shares of the
Company's common stock as of February 28, 2001, by all directors, director
nominees, named executive officers, and all directors and executive officers as
a group.
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Sole Shared
Voting or Voting or Acquirable Total Restricted
Investment Investment Within 60 Beneficial Stock
Name Power Power Days(A) Ownership Units(B)
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John W. Amerman 7,574 7,574 11,913
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Roger C. Beach 196,003 105,136 326,894 628,033
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Dennis P.R. Codon 121,123 42,872 163,995
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John W. Creighton, Jr. 1,000 1,000 16,310
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James W. Crownover 5,000 5,000 5,939
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Terry G. Dallas 16,250 16,250
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Charles R. Larson
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Frank C. Herringer 400(C) 51,332 51,732 13,828
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Timothy H. Ling 209,969 55,000 264,969
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Donald B. Rice 7,200 7,200 555
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Lucius E. Scott, Jr. 30,028 54,454 84,482
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Kevin W. Sharer 1,000 1,000 8,556
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Marina v.N. Whitman 3,890 3,890 6,674
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Charles R. Williamson 195,010 12,339 44,270 251,619
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All directors and executive 803,136 176,381 589,257 1,568,774 63,775
officers as a group
(15 persons, including
those listed above)(D)
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[FN]
(A) Reflects the number of shares that could be purchased by exercise of
options exercisable on or within 60 days from February 28, 2001. Excludes
shares underlying performance stock options that were forfeited March 30,
2001, because the vesting conditions were not met.
(B) Represents restricted stock units granted under the Directors' Restricted
Stock Units Plan. The units are evidenced by bookkeeping entries, and
participants have no voting or investment power. Each unit is converted
into one share of common stock at the end of the later of the restriction
or deferral period. For this disclosure, the units have been rounded to the
nearest whole number.
(C) Held by Mr. Herringer as custodian for his daughter.
(D) The 1,568,774 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.
8
EXECUTIVE COMPENSATION
Report of the Management Development and Compensation Committee
This report of the Management Development and Compensation Committee of the
Board of Directors (the "Committee") describes the executive compensation
programs and policies of the Company, including its short-term and long-term
incentive compensation plans. Key elements of the compensation program are:
o Compensation Committee members are non-employees
o Salaries are based on comparisons with petroleum and energy industry
averages
o Long-term incentives are based on stock performance
o Short-term incentives use a combination of stock performance, financial
performance and operational results
o The peer group of companies was changed for 2001 to reflect the current
business mix of the Company and changes in the petroleum industry
o Committee retains and is assisted by an outside consultant, Strategic
Compensation Associates
The Committee, composed entirely of non-employee directors, is responsible
for setting and administering the annual and long-term compensation programs.
The Committee reviews and determines executive officer salaries and incentive
awards under the Management Incentive Program. The Committee also administers
the Executive Stock Purchase Program. The Committee is assisted by an outside
consultant, and has delegated certain administrative responsibilities with
respect to salaries and incentive awards for non-executive officers to the Chief
Executive Officer ("CEO"). The consultant and the CEO are present at Committee
meetings but cannot vote. The Committee meets outside the presence of the CEO on
certain matters, including CEO compensation and certain succession issues. The
Committee met nine times in 2000.
The 1998 Management Incentive Program, consisting of the Revised Incentive
Compensation Plan, the Performance Stock Option Plan and the Long-Term Incentive
Plan of 1998, was developed to reinforce the goal of creating value for the
stockholders. The Program, approved by the stockholders in 1998 and subsequently
amended with stockholder approval in 2000, explicitly links short-term and
long-term incentive compensation to the Company's share price plus dividends
(Total Shareholder Return or "TSR") compared to that of a group of companies in
energy and energy-related businesses (the "Peer Group").
The Peer Group is designed to have a composite business mix that is similar
to that of the Company as of the beginning of an award period. Therefore, the
effects of commodity prices and other external events should be similar for the
Company and the Peer Group. The companies comprising the Peer Group are reviewed
periodically and changed as the lines of business of these companies, and of
Unocal, change. Once the Peer Group is established for a particular award, it is
not altered for the award period. The Peer Group for 2000 Awards under the
Management Incentive Program consisted of 15 companies that, as a group,
reflected Unocal's current lines of business. For 2001 Awards, three companies
were
9
added and two companies were deleted, resulting in a Peer Group of 16 companies.
These changes, in part, reflected continuing restructuring in the petroleum
industry.
It is the Committee's belief and intention that applicable executive
compensation paid or accrued in 2000 under the Management Incentive Program will
be fully deductible as performance-based compensation under the requirements of
Section 162(m) of the Internal Revenue Code.
Salary
The base salaries of the CEO and the other executive officers are reviewed
annually and when there is a significant change in the executive's
responsibilities. The Committee considers the responsibilities, experience and
performance of the executive officers and survey data on the compensation paid
by energy and petroleum-related companies for similar positions. In 2000, the
Committee selected a group of 11 companies to use to compare salary and other
compensation ("Compensation Peer Group"). All of these companies were also part
of the Peer Group used for comparative stockholder returns. Following such a
review in 2000, the salary of the former CEO, Mr. Beach, was increased to
$950,004. For 2001, the Compensation Peer Group remains at 11 companies, but
four of the companies were changed, as a result of acquisitions in the industry
and in order to utilize companies of similar asset size to Unocal's.
The objective of the Committee is to establish base salaries that are near
the median paid by the companies in the Compensation Peer Group, with
adjustments for reporting relationships, responsibilities and job scope. After
increases to the base salary of the executive officers for 2000, the salaries of
those officers as a group and that of the CEO were at approximately the
estimated median of comparative salaries of the surveyed companies.
Revised Incentive Compensation Plan
The Revised Incentive Compensation Plan is the Company's annual bonus plan
for senior and middle management. Each award period under the Plan is one year.
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 which could be granted in a calendar year.
The Committee establishes a percentage of this bonus pool as the maximum
target award for the CEO and certain other executive officers. The Committee
also establishes individual target awards for the remaining participants based
on salary grade.
For calendar year 2000 the Committee approved a bonus award payout based
one-half on Comparative Return to Shareholders and one-half on a combination of
financial performance (Return on Capital Employed and Free Cash Flow) and an
evaluation of activities affecting future performance. While the Company met the
financial and future performance measures, the Company's TSR of 10% was below
the 30th percentile established for any payment under that criteria. Therefore,
awards were reduced to 50% of target amounts.
The Plan provides for deferral of awards into restricted stock. The
Committee determined in early 2000 that to better align senior management with
stockholders, a minimum of 50% of awards for calendar year 2000 performance
would be paid in the form of restricted stock. This portion of the award was
increased by 50% to compensate for foregoing cash compensation and for the risk
of forfeiture. A recipient could elect to receive up to an additional 50% of the
award in the form of restricted stock, which was increased by 25%. The
restriction period varies between four and five years, depending on the
percentage of the award deferred. The award is forfeited if the recipient
resigns or is terminated for cause prior to the end of the restriction period,
unless the participant retires at or after age 65. Mr. Beach was not eligible
for deferrals since he retired prior to payment of his 2000 award. The Company's
other seven executive officers had an average of 70% of their awards deferred
into restricted stock.
10
Performance Stock Option Plan
The Performance Stock Option Plan ("PSOP") was approved by the stockholders
in 1998 as part of the 1998 Management Incentive Program. Initial awards of
3,000,000 shares under the PSOP were made in 1998, including 750,000 to Mr.
Beach. These grants were made in lieu of market price options for the years 1998
through 2000. In order for the options to have become exercisable after the
three year performance period that ended March 30, 2001, either (i) the fair
market value of the shares had to be greater than $51.012 for 10 trading days
(during a 20 consecutive trading day period) or (ii) the Company's Comparative
Return to Stockholders had to be in the top quartile of the Peer Group for the
performance period. Since neither condition was met during the three-year
performance period, the options were forfeited.
Executive Stock Purchase Program
The Executive Stock Purchase program was approved by stockholders at the
2000 Annual Meeting. Mr. Beach and nine other participants (including 3
executive officers) received interest-bearing, full recourse loans to purchase
shares of Unocal common stock (see page 22 of this proxy statement). By having
the executive invest in the shares of the Company, the Program links the
participant's interests with other stockholders by having his assets subject to
the risks and rewards of Unocal stock ownership.
The program resulted in the participants acquiring 1,150,310 shares of
stock, which they continue to hold, thus aligning their interests with those of
other stockholders. A total of 599,690 shares remain available under the
Program.
Long-Term Incentive Plan
The Long-Term Incentive Plan of 1998 (the "1998 Plan") is administered by
the Committee. Awards may be in the form of non-qualified stock options,
performance shares, performance bonus awards and restricted stock. The previous
plan, The Long-Term Incentive Plan of 1991 (the "1991 Plan"), also provided for
grants of non-qualified stock options, performance shares and restricted stock.
In 1997, the Committee awarded a target number of performance share units
to the CEO and certain other of the executive officers for the 1997 through 2000
performance period under the 1991 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. Beach's award was 15,000 units.
The actual payout of awards at the end of the four-year performance period
is determined by how the Company's return to stockholders for the period
compares to that of the Peer Group. The maximum 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. During the 1997 to 2000 performance period, the Company's
average annual return to stockholders was slightly below the average of the Peer
Group. Therefore, for that performance period, 84.6% of the performance shares
awarded was paid out to the participants, including Mr. Beach. These payouts
were made in cash.
Option grants are normally made in February or March of each calendar year.
Prior option grants are not considered in making these awards. Currently, the
only numerical restrictions on grants are the total number of shares available
under the 1998 Plan and the limitation that no person may be granted during any
12-month period options to acquire more then 100,000 shares. The option exercise
price under the 1998 Plan is the fair market value on the date of grant.
Exercise of the option results in compensation to the employee only if the fair
market value on the date of exercise exceeds the price on the date granted. Mr.
Beach and other recipients of initial PSOP grants were not eligible for stock
option grants in 1998, 1999 and 2000 except in the event of a promotion. In
connection with Mr. Williamson's promotion to Chief Executive Officer and Mr.
Ling's promotion to President and Chief Operating Officer, each received 100,000
options in December, 2000.
11
The number of options granted to the executive officers is determined by
reviewing option grants for similar positions by the surveyed companies. The
compensation value of the option grants to the executive officers as a group is
also compared to option grants and compensation data available from the proxy
statements of other large public companies. Since the total number of shares
available under the 1998 Plan and the PSOP is less than five percent of the
outstanding shares, individual grants during the term of the 1998 Plan were not
of such magnitude as to warrant review of possible dilutive effects on the
Company's stock.
In 2000 the stockholders approved Performance Bonus Awards under the
1998 Plan. Performance Bonuses are payable based on the Company's comparative
TSR and absolute share price. The payment matrix for the CEO and other executive
officers is indicated on page 18 of this proxy statement. Performance Bonus
Awards were made only to participants in the Executive Stock Purchase Program.
As described above, Unocal aligns management and stockholder interests
by linking executive incentive compensation programs to share price and the
creation of stockholder value. The Long-Term Incentive Plan of 1998 also
provides for grants of restricted stock to executives, managers and technical
employees whose performance and potential is exceptional. During the restriction
period, the award is forfeited if the recipient resigns or is removed for cause
prior to the end of the restriction period. In addition, the Company has
incentive programs for other employees that focus on 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
John W. Amerman
Donald B. Rice
Kevin W. Sharer
12
Performance Graph
Cumulative Return To Stockholders*
December 31, 1995 to December 31, 2000
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
(Fiscal Year Covered) UNOCAL & PRODUCTION S&P 500
--------------------- ------ ------------ -------
Measurement Pt - 1995 $100 $100 $100
FYE 1996 $144 $134 $122
FYE 1997 $139 $123 $164
FYE 1998 $107 $84 $210
FYE 1999 $125 $100 $254
FYE 2000 $125 $157 $229
* Share price changes plus reinvested dividends.
NOTE: 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 9.
The preceding Report of the Management Development and Compensation
Committee and Performance Graph shall not be deemed incorporated by reference
into any filing under the Securities Act of 1933 or the Securities Exchange Act
of 1934, notwithstanding any general incorporation by reference of this Proxy
Statement into any other document or its inclusion as an exhibit thereto.
13
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
----------------------------------- ----------------------------------------
Awards Payouts
------------------------- -----------
Other Restricted Securities
Annual Stock Underlying LTIP All Other
Name and Salary Bonus Compensation Awards Options/SARs Payouts Compensation
Principal Position Year (Dollars) (Dollars) (Dollars)(A) (Dollars)(B) (Number) (Dollars)(C) (Dollars)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Roger C. Beach 2000 $915,386 $593,753(E) $ 6,011 None None $461,789 $ 57,715(F)
------------------------------------------------------------------------------------------------------------------------------------
Former Chief 1999 873,336 413,269(G) 191,591(H) None None 616,366 61,288(I)
------------------------------------------------------------------------------------------------------------------------------------
Executive Officer(D) 1998 848,339 237,450(E) 11,696 $263,513(J) 750,000(K) 564,171 57,974(L)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Charles R. Williamson 2000 436,931 186,761(N) 5,247 155,640(O) 100,000 113,908 26,321(P)
------------------------------------------------------------------------------------------------------------------------------------
Chief Executive Officer(M) 1999 348,336 137,756(G) 5,465 None None 104,782 22,127(Q)
------------------------------------------------------------------------------------------------------------------------------------
1998 291,668 55,000(E) 4,943 61,697(J) 300,000 (K) 87,446 18,170(R)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Timothy H. Ling 2000 492,310 186,761(N) 5,644 155,640(O) 100,000 None 26,469(T)
------------------------------------------------------------------------------------------------------------------------------------
President and 1999 452,500 165,308(G) 5,264 522,813(O) None None 39,464(U)
------------------------------------------------------------------------------------------------------------------------------------
Chief Operating Officer(S) 1998 396,668 95,000(E) 5,937 106,573(J) 350,000 (K) None 20,847(V)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Terry G. Dallas 2000 213,464 121,861(X) None None 65,000 None 2,608(Y)
------------------------------------------------------------------------------------------------------------------------------------
Executive Vice President and
------------------------------------------------------------------------------------------------------------------------------------
Chief Financial Officer(W)
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Dennis P.R. Codon 2000 335,004 146,219(Z) 5,247 None None 98,515 20,250(AA)
------------------------------------------------------------------------------------------------------------------------------------
Senior Vice President, 1999 296,672 64,049(G) 7,077 None 161,717(BB) 141,764 17,951(CC)
------------------------------------------------------------------------------------------------------------------------------------
Chief Legal Officer and 1998 283,336 40,000(E) 5,661 58,214(J) 11,761 126,938 8,865(DD)
-----------------------------------------------------------------------------------------------------------------------------------
General Counsel
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
Lucius E. Scott, Jr. 2000 320,004 57,468(EE) 4,665 47,919(O) None 113,908 1,098,804(FF)
------------------------------------------------------------------------------------------------------------------------------------
Former Group Vice President, 1999 313,340 66,123(G) 549 None None 154,092 20,134(GG)
------------------------------------------------------------------------------------------------------------------------------------
Diversified Business Group 1998 306,672 45,000(E) 750 50,493(J) 300,000(K) 126,938 19,186(HH)
------------------------------------------------------------------------------------------------------------------------------------
[FN]
(A) Except for compensation reported for Mr. Beach for 1999, this column
excludes perquisites because their value did not meet the reporting
threshold of the lesser of $50,000 or 10 percent of salary plus bonus.
(B) Aggregate restricted stockholdings at year-end 2000 and value (based on the
closing price of Unocal common stock as reported on the New York Stock
Exchange Composite Transactions on December 29, 2000): Mr. Beach 49,705
shares, $1,922,962; Mr. Williamson 10,087 shares, $390,241; Mr. Ling 27,606
shares, $1,068,007; Mr. Codon 14,592 shares, $564,528; and Mr. Scott 8,667
shares, $335,305. Mr. Beach's restricted stock became vested upon his
termination of employment on December 31, 2000. Dividends are paid on
restricted stock.
(C) Represents payout at the end of the four-year performance period of
performance share units awarded under the Long-Term Incentive Plan of 1991.
The dollar values listed for 1999 and 1998 were paid one-half in cash and
one-half in shares of Unocal common stock.
(D) Mr. Beach was Chief Executive Officer through December 31, 2000.
(E) Amount paid in cash under the Revised Incentive Compensation Plan.
(F) Amount consisted of Company contributions of $10,200 allocated to the
Unocal Savings Plan and $45,229 allocated to the Unocal Supplemental
Savings Plan; and $2,286 reportable accumulated interest on deferred cash
bonuses.
(G) Amount shown is the value of restricted stock awarded under the Long-Term
Incentive Plan of 1998 in lieu of an annual bonus. Valuation for purposes
of this disclosure was based on the closing market price of Unocal common
stock on January 24, 2000, the date of the award.
14
(H) Includes $150,837 for relocation assistance and payment of taxes on the
assistance amount.
(I) Amount consisted of Company contributions of $9,600 allocated to the Unocal
Savings Plan and $49,798 allocated to the Unocal Supplemental Savings Plan;
and $1,890 reportable accumulated interest on deferred cash bonuses.
(J) Represents the value 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%. The
number of restricted shares was determined by using the average closing
price of Unocal common stock during the last 30 trading days of the year.
Valuation for purposes of this disclosure is based on the closing market
price on January 26, 1999, the date of the award.
(K) Performance stock options granted at the option price of $51.012 in tandem
with limited stock appreciation rights ("TLSARs"). The options and TLSARs
were forfeited on March 30, 2001, because the vesting conditions were not
met.
(L) Amount consisted of Company contributions of $9,600 allocated to the Unocal
Savings Plan and $45,788 allocated to the Unocal Supplemental Savings Plan;
and $2,586 reportable accumulated interest on deferred cash bonuses.
(M) Mr. Williamson became Chief Executive Officer January 1, 2001. During 2000,
Mr. Williamson served as Executive Vice President, International Energy
Operations.
(N) Represents the value of 5,359 shares of restricted stock awarded under the
Revised Incentive Compensation Plan. The number of restricted shares was
determined by using the average closing price of Unocal common stock during
the last 30 trading days of the year. Valuation for purposes of this
disclosure was based on the closing market price on February 5, 2001, the
date of the award.
(O) Represents the value of a restricted stock award elected in lieu of all or
a portion of a cash bonus payment under the Revised Incentive Compensation
Plan. The amount deferred into restricted stock was augmented by 25% 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 during the last 30 trading
days of the year. Valuation for purposes of this disclosure was based on
the closing market price on the date of the award.
(P) Amount consisted of Company contributions of $10,200 allocated to the
Unocal Savings Plan and $16,121 allocated to the Unocal Supplemental
Savings Plan.
(Q) Amount consisted of Company contributions of $9,600 allocated to the Unocal
Savings Plan and $12,527 allocated to the Unocal Supplemental Savings Plan.
(R) Amount consisted of $9,600 Company contributions allocated to the Unocal
Savings Plan and $8,570 allocated to the Unocal Supplemental Savings Plan.
(S) Mr. Ling became President and Chief Operating Officer on January 1, 2001.
During 2000, Mr. Ling served as Executive Vice President, North American
Energy Operations. He also served as Chief Financial Officer until May,
2000.
(T) Amount consisted of Company contributions of $6,646 allocated to the Unocal
Savings Plan and $19,470 allocated to the Unocal Supplemental Savings Plan;
and $353 reportable accumulated interest on deferred cash bonuses.
(Footnotes continued on next page)
15
(U) Amount consisted of $6,075 Company contributions allocated to the Unocal
Savings Plan and $33,139 allocated to the Unocal Supplemental Savings Plan;
and $250 reportable accumulated interest on deferred cash bonuses.
(V) Amount consisted of $6,200 Company contributions allocated to the Unocal
Savings Plan and $14,552 allocated to the Unocal Supplemental Savings Plan;
and $95 reportable accumulated interest on a deferred cash bonus.
(W) Mr. Dallas became Executive Vice President in February, 2001. He has been
Chief Financial Officer since joining the Company in May, 2000.
(X) Paid in a combination of $50,000 cash and 2,062 shares of restricted stock
under the Revised Incentive Compensation Plan. The number of restricted
shares was determined by using the average closing price of Unocal common
stock during the last 30 trading days of the year. Valuation for purposes
of this disclosure is based on the closing market price on February 5,
2001, the date of the award.
(Y) Amount of Company contributions allocated to the Unocal Supplemental
Savings Plan.
(Z) Paid in a combination of $60,000 cash and 2,474 shares of restricted stock
under the Revised Incentive Compensation Plan. The number of restricted
shares was determined by using the average closing price of Unocal common
stock during the last 30 trading days of the year. Valuation for purposes
of this disclosure is based on the closing market price on February 5,
2001, the date of the award.
(AA) Amount consisted of Company contributions of $10,200 allocated to the
Unocal Savings Plan and $9,987 allocated to the Unocal Supplemental Savings
Plan; and $63 reportable accumulated interest on deferred cash bonuses.
(BB) Number shown includes 150,000 performance stock options granted at the
option price of $51.012 with TSLARs. The performance options and TSLARs
were forfeited on March 30, 2001, because the vesting conditions were not
met.
(CC) Amount consisted of Company contributions of $9,600 allocated to the Unocal
Savings Plan and $8,249 allocated to the Unocal Supplemental Savings Plan;
and $102 reportable accumulated interest on deferred cash bonuses.
(DD) Amount consisted of Company contributions of $1,300 allocated to the Unocal
Savings Plan and $7,444 allocated to the Unocal Supplemental Savings Plan;
and $121 reportable accumulated interest on deferred cash bonuses.
(EE) Represents the value of 1,649 shares of restricted stock awarded under the
Revised Incentive Compensation Plan. The number of restricted shares was
determined by using the average closing price of Unocal common stock during
the last 30 trading days of the year. Valuation for purposes of this
disclosure is based on the closing market price on February 5, 2001, the
date of the award.
(FF) Amount consisted of $10,200 Company contributions allocated to the Unocal
Savings Plan and $9,099 allocated to the Unocal Supplemental Savings Plan;
$56,093 paid in lieu of accrued vacation; and $1,023,412 for payments under
a termination agreement. The termination agreement is described on page 20
under the caption "Employment Contracts, Termination of Employment and
Change of Control Arrangements."
(GG) Amount consisted of $9,600 Company contributions allocated to the Unocal
Savings Plan and $10,534 allocated to the Unocal Supplemental Savings Plan.
(HH) Amount consisted of $9,600 Company contributions allocated to the Unocal
Savings Plan and $9,586 allocated to the Unocal Supplemental Savings Plan.
16
OPTION/SAR GRANTS IN 2000
------------------- ---------------------- -------------- -------------- ------------- -----------------------------
Number of % of Total Potential Realizable
Securities Options Value at Assumed Annual
Underlying Options Granted to Exercise Rates of Stock Price
Granted (A) Employees in Price Expiration Appreciation for Option
Name (#) 2000 (B) ($/Sh) Date Term (C)
------------------- ---------------------- -------------- -------------- ------------- -----------------------------
5% 10%
($) ($)
------------------- ---------------------- -------------- -------------- ------------- ------------- ---------------
------------------- ---------------------- -------------- -------------- ------------- ------------- ---------------
Mr. Williamson 100,000 3.7% $35.2500 12/04/2010 $2,216,854 $5,617,942
------------------- ---------------------- -------------- -------------- ------------- ------------- ---------------
------------------- ---------------------- -------------- -------------- ------------- ------------- ---------------
Mr. Ling 100,000 3.7 35.2500 12/04/2010 2,216,854 5,617,942
------------------- ---------------------- -------------- -------------- ------------- ------------- ---------------
------------------- ---------------------- -------------- -------------- ------------- ------------- ---------------
Mr. Dallas 65,000 2.4 37.0625 06/12/2010 1,515,046 3,839,425
------------------- ---------------------- -------------- -------------- ------------- ------------- ---------------
[FN]
(A) The options were granted pursuant to the Long-Term Incentive Plan of 1998.
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
New York Stock Exchange Composite Transactions quotations for the date of
grant. The maximum option exercise period is ten years from the date of the
grant. The optionees may pay for option stock with cash, Unocal stock they
already own, or with proceeds from the sale of stock acquired by exercise
of the option (a cashless exercise). The options become exercisable in four
equal installments 6 months, 1 year, 2 years and 3 years from the date of
grant. Vesting of options ceases upon termination of employment. Upon a
change of control (as defined in the Long-Term Incentive Plan of 1998), any
unvested options would vest. The options cease to be exercisable upon
termination of employment, with the following exceptions: a participant who
retires at or after age 65 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.
(B) The number of securities underlying all options granted to employees in
2000: 2,705,057.
(C) Use of the assumed stock price appreciation of 5% and 10% each year for the
option period is specified in Securities and Exchange Commission 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, the options will have no value.
AGGREGATED OPTION/SAR EXERCISES IN 2000
AND DECEMBER 31, 2000 OPTION/SAR VALUES
------------------- ------------- ------------ ------------------------------------ --------------------------------
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised in-the-Money Options/SARs at
Exercise Realized Options/SARs at 12/31/00 12/31/00 (Dollars) (A)
Name (Number) (Dollars) ------------------------------------ --------------------------------
Exercisable Unexercisable(B) Exercisable Unexercisable
------------------- ------------- ------------ --------------- -------------------- -------------- -----------------
------------------- ------------- ------------ --------------- -------------------- -------------- -----------------
Mr. Beach None $0 326,894 750,000 $2,737,736 $ 0
------------------- ------------- ------------ --------------- -------------------- -------------- -----------------
------------------- ------------- ------------ --------------- -------------------- -------------- -----------------
Mr. Williamson None 0 44,270 400,000 338,744 343,750
------------------- ------------- ------------ --------------- -------------------- -------------- -----------------
------------------- ------------- ------------ --------------- -------------------- -------------- -----------------
Mr. Ling None 0 55,000 450,000 0 343,750
------------------- ------------- ------------ --------------- -------------------- -------------- -----------------
------------------- ------------- ------------ --------------- -------------------- -------------- -----------------
Mr. Dallas None 0 16,250 48,750 26,406 79,219
------------------- ------------- ------------ --------------- -------------------- -------------- -----------------
------------------- ------------- ------------ --------------- -------------------- -------------- -----------------
Mr. Codon None 0 36,996 158,812 81,405 9,725
------------------- ------------- ------------ --------------- -------------------- -------------- -----------------
------------------- ------------- ------------ --------------- -------------------- -------------- -----------------
Mr. Scott None 0 54,454 300,000 391,336 0
------------------- ------------- ------------ --------------- -------------------- -------------- -----------------
[FN]
(A) The price of $38.6875, which was the closing price of Unocal common stock
as reported in the new York Stock Exchange composite Transactions
quotations for December 29, 2000, was used to value options.
(B) Amounts include securities underlying performance stock options: Mr. Beach,
750,000; Mr. Williamson, 300,000; Mr. Ling, 350,000; Mr. Codon, 150,000.
The performance stock options and tandem limited stock appreciation rights
were forfeited on March 31, 2001, because the vesting conditions were not
met.
17
LONG-TERM INCENTIVE PLANS - AWARDS IN 2000
Performance Share Units
-------------------- -------------------- ----------------- ---------------------------------------------------------
Estimated Future Payouts
---------------------------------------------------------
Name Threshold Target Maximum
Performance Period Number of Number of Number of
Share Units (A) Until Maturation Shares Shares Shares (A)
(#) or Payout (#) (#) (#)
-------------------- -------------------- ----------------- ----------------- ----------------- ---------------------
Mr. Beach 6,263 (B) 12/31/2003 0 6,263 (B) 12,526 (B)
-------------------- -------------------- ----------------- ----------------- ----------------- ---------------------
Mr. Williamson 8,500 12/31/2003 0 8,500 17,000
-------------------- -------------------- ----------------- ----------------- ----------------- ---------------------
Mr. Ling 8,500 12/31/2003 0 8,500 17,000
-------------------- -------------------- ----------------- ----------------- ----------------- ---------------------
Mr. Dallas 6,000 12/31/2003 0 6,000 12,000
-------------------- -------------------- ----------------- ----------------- ----------------- ---------------------
Mr. Scott 1,869 (C) 12/31/2003 0 1,869 (C) 3,378 (C)
-------------------- -------------------- ----------------- ----------------- ----------------- ---------------------
Mr. Codon 4,800 12/31/2003 0 4,800 9,600
-------------------- -------------------- ----------------- ----------------- ----------------- ---------------------
Performance Bonus Awards
-------------------- ------------------------- ---------------- -----------------------------------------------------
Estimated Future Payouts (E)
---------------- --------------- --------------------
Period
Performance Until Threshold Target Maximum
Bonus Awards (D) Maturation Amount Amount (E) Amount
Name ($) or Payout ($) ($) ($)
-------------------- ------------------------- ---------------- ---------------- --------------- --------------------
-------------------- ------------------------- ---------------- ---------------- --------------- --------------------
Mr. Beach $ 5,000,000 03/16/2004 $ 0 $ 0 $ 6,100,000
-------------------- ------------------------- ---------------- ---------------- --------------- --------------------
-------------------- ------------------------- ---------------- ---------------- --------------- --------------------
Mr. Williamson 5,000,000 03/16/2004 0 0 6,100,000
-------------------- ------------------------- ---------------- ---------------- --------------- --------------------
-------------------- ------------------------- ---------------- ---------------- --------------- --------------------
Mr. Ling 5,000,000 03/16/2004 0 0 6,100,000
-------------------- ------------------------- ---------------- ---------------- --------------- --------------------
-------------------- ------------------------- ---------------- ---------------- --------------- --------------------
Mr. Codon 2,500,000 03/16/2004 0 0 3,050,000
-------------------- ------------------------- ---------------- ---------------- --------------- --------------------
Performance Bonus Awards Payout Matrix (E)
------------------------ --------------------------------------------------------------------------------------------
Ending Stock Price
--------------------------------------------------------------------------------------------
-------------- --------------- -------------- --------------- -------------- ---------------
Relative Stock Price $15.91 $15.92- $19.01- $20.84- $22.90- $33.82
Performance or less $19.00 $20.83 $22.89 $33.81 or more
(#) (#) (#) (#) (#) (#)
------------------------ -------------- --------------- -------------- --------------- -------------- ---------------
------------------------ -------------- --------------- -------------- --------------- -------------- ---------------
<35th Percentile 0 0 0 0 0 0
------------------------ -------------- --------------- -------------- --------------- -------------- ---------------
------------------------ -------------- --------------- -------------- --------------- -------------- ---------------
35th Percentile 0.310 0.310 0.310 0.310 0.310 0.310
------------------------ -------------- --------------- -------------- --------------- -------------- ---------------
------------------------ -------------- --------------- -------------- --------------- -------------- ---------------
50th Percentile 0.610 0.610 0.610 0.610 0.375 0.610
------------------------ -------------- --------------- -------------- --------------- -------------- ---------------
------------------------ -------------- --------------- -------------- --------------- -------------- ---------------
60th Percentile 1.210 1.000 0.880 0.735 0.375 0.920
------------------------ -------------- --------------- -------------- --------------- -------------- ---------------
------------------------ -------------- --------------- -------------- --------------- -------------- ---------------
>75th Percentile 1.210 1.000 0.880 0.735 0.375 1.220
------------------------ -------------- --------------- -------------- --------------- -------------- ---------------
[FN]
(A) The actual number of performance shares paid out is based on the Company's
return to stockholders for the four-year performance period compared to
that of a group of peer companies selected by the Management Development
and Compensation Committee. Return to stockholders is defined as share
price appreciation plus reinvested 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 30% or less than the peer
group's average return to stockholders, there is no payout. The payout
percentage may not exceed 50% if Unocal's return is 35% of the average
return, the payout may not exceed 100% if Unocal's return is 60% of the
average return, and the payout percentage may not exceed 200% if Unocal's
return is at least equal to the average return. A matrix is used for
determining the specific payout percentages that may not be exceeded for
specific average return to stockholders levels between 30% and 100%. Awards
can be paid out partly in cash and partly in shares, as determined by the
Management Development and Compensation Committee.
18
(B) Mr. Beach's 2000 performance share award was prorated on December 31, 2000,
for length of service during the performance period. The number of
performance shares initially granted was 25,000.
(C) Mr. Scott's 2000 performance share award will be prorated to 1,869 units on
July 31, 2001 for length of service during the performance period. The
number of performance shares initially granted was 4,724.
(D) Performance Bonus Awards are payable in cash if and to the extent that
Unocal's stock price and stock price performance relative to a peer group
of companies reach the goals detailed in the "Performance Bonus Awards
Payout Matrix (the "Matrix")" table. If a participant terminates employment
prior to payout, for any reason other than voluntary termination or
termination for cause, the award will remain outstanding and the
participant will receive the same payout as if he had remained employed
until payout. Mr. Beach's award remains outstanding.
(E) Based upon Unocal's stock price performance in the calendar year 2000,
there would be no payout. For Messrs. Beach, Williamson and Ling, the
payout for the Performance Bonus Awards is the factor shown in the matrix
times the dollar amount of the Performance Bonus Awards granted, determined
by reference to the closing market price of the Company's common stock on
March 16, 2004, and Unocal's return to stockholders relative to the return
by a peer group of companies during the 4-year performance period then
ending. For Mr. Codon, the payout is determined by a substantially similar
matrix. Return to stockholders is defined as stock price appreciation plus
reinvested dividends.
PENSION PLAN TABLE
ESTIMATED ANNUAL RETIREMENT BENEFITS
--------------------------------------------------------------------------------------------------------------------
Years of Service
Covered
Compensation (A)
-------------------------------------------------------------------------------------------
10 20 25 30 35 40
--------------------------------------------------------------------------------------------------------------------
$ 200,000 $ 32,000 $64,000 $80,000 $96,000 $112,000 $ 128,000
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
400,000 64,000 128,000 160,000 192,000 224,000 256,000
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
600,000 96,000 192,000 240,000 288,000 336,000 384,000
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
800,000 128,000 256,000 320,000 384,000 448,000 512,000
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
1,000,000 160,000 320,000 400,000 480,000 560,000 640,000
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
1,200,000 192,000 384,000 480,000 576,000 672,000 768,000
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
1,400,000 224,000 448,000 560,000 672,000 784,000 896,000
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
1,600,000 256,000 512,000 640,000 768,000 896,000 1,024,000
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
1,800,000 288,000 576,000 720,000 864,000 1,008,000 1,152,000
--------------------------------------------------------------------------------------------------------------------
[FN]
(A) Covered compensation is the annual average compensation in the three
highest-paid years out of the last ten years preceding retirement. For the
named executive officers in the Summary Compensation Table on page 14,
covered compensation equals the amounts in the Salary and Bonus columns
(except amounts shown as bonus for 1999) of the Summary Compensation Table
and the amount of bonus that the participant elected to defer in restricted
stock.
The Company has a noncontributory defined benefit retirement plan covering
substantially all U.S. employees. The plan provides participants with retirement
benefits based on a formula relating such benefits to compensation and years of
service, less up to half of the estimated old age Social Security benefit
payable. The amount of these benefits is limited by the Employee Retirement
Income Security Act of 1974 and the Internal Revenue Code. Where that occurs,
the Company has a retirement supplement designed to maintain total retirement
benefits at the retirement plan formula level. This Pension Plan Table, which
covers all persons named in the Summary Compensation Table, shows the estimated
annual benefits from the these plans, before the deduction for a portion of the
estimated old age Social Security benefit, as described above. The benefits
shown are payable in the form of a straight life annuity.
19
Covered compensation and credited full years of service under the
retirement plan as of year-end 2000 for the executive officers named in the
Summary Compensation Table are as follows: $1,534,320 and 39 years for Mr.
Beach; $473,978 and 23 years for Mr. Williamson; $530,493 and 3 years for Mr.
Ling; $213,464 and 0.5 years for Mr. Dallas; $416,671 and 26 years for Mr.
Codon; and $433,339 and 36 years for Mr. Scott.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE OF CONTROL ARRANGEMENTS
The Company has a consulting and settlement agreement with Mr. Beach
effective January 1, 2001, whereby the Board of Directors has retained Mr. Beach
as a consultant for the period beginning January 1, 2001, and ending December
31, 2001, for a fee of $350,000. The agreement specifies that Mr. Beach shall
not be entitled to any payments under his employment agreement dated July 28,
1998, or any other severance-type benefits. The agreement provides that Mr.
Beach's termination of employment shall be treated as "at the convenience of the
Company" and that the termination shall not be deemed a "voluntary termination"
or a "termination for cause" under the Company's long-term incentive plans and
the 2000 Executive Stock Purchase Program. Accordingly, Mr. Beach does not
forfeit his restricted stock, has three years from January 1, 2001 (or normal
expiration, whichever is sooner) to exercise his vested stock options, is
entitled to payment of his performance shares prorated for his actual service
period and his performance bonus award to the extent of the amounts determined
at the end of their award periods, and retains the original payment schedule for
amounts due under his March 16, 2000, loan to purchase shares of common stock of
the Company. The agreement was filed as an exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.
The Company has employment agreements with Messrs. Williamson and Dallas
that are effective for three years, and one with Mr. Codon that is effective for
two years, from the date that the Company gives notice that it does not wish to
further extend the term, but in no event later than the date of the Company's
annual meeting following the employee's 65th birthday. 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"). For each of
Messrs. Williamson and Dallas, these benefits include payments of 3.18 times his
annual salary plus three times his target bonus applicable as of the beginning
of the calendar year in which such Termination Without Cause occurs, as well as
continuation of medical, dental, life and disability insurance coverage for
three years following the Termination Without Cause. For Mr. Dallas, in lieu of
the foregoing continued medical, dental, life and disability benefits, the
Company may elect to pay Mr. Dallas the sum of $25,000. For Mr. Codon, these
benefits include payments of 2.12 times his annual salary plus two times his
target bonus applicable as of the beginning of the calendar year in which such
Termination Without Cause occurs, as well as continuation of medical, dental,
life and disability insurance coverage for two years following the Termination
Without Cause. The employment agreements with Messrs. Williamson, Dallas and
Codon provide that if the Termination Without Cause occurs within 24 months
after a change of control, the amounts payable under the agreements will be
subject to a present value reduction and a reduction to offset any compensation
earned by them during the three years immediately following the Termination
Without Cause. In each case, 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 or Codon, such that the receipt of payments would not give rise to any
Excise tax, then no Gross-Up Payment will be made to Messrs. Williamson, Dallas
or Codon, as the case may be, and the payments will be reduced to the Reduced
Amount. Mr. Williamson's agreement was filed as an exhibit to the Company's
Current Report on Form 8-K dated March 16, 2000. The agreement for Mr. Dallas
was filed as an exhibit to the
20
Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. The
agreement for Mr. Codon was filed as an exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 and an amendment to Mr.
Codon's agreement was filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 2000.
The Company has a change in control agreement with Mr. Ling that is
effective for three years from the date that the Company gives notice that it
does not wish to further extend the term. The agreement was amended on February
28, 2000, to provide that in the event of a Termination Without Cause within 36
months following a Change of Control (as defined in the agreement) that occurred
during the term of the agreement, Mr. Ling will be entitled to the same benefits
as provided in the employment agreement for Mr. Williamson described above,
except that payments under Mr. Ling's agreement are not subject to reduction for
compensation earned by him during the three years immediately following his
Termination Without Cause. The agreement and the February 28, 2000, amendment
thereto were filed as exhibits to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999.
The Company has a termination agreement and general release with Mr. Scott
executed on May 30, 2000, that settles payments due under his employment
agreement dated July 28, 1998. Under the agreement, Mr. Scott was paid
$1,023,412 as a full settlement of all rights due under his employment
agreement. The agreement provides that he shall be a consulting employee of the
Company beginning August 1, 2000, and ending July 31, 2001, at his current
salary of $26,667 per month and remains eligible during the consulting period
for benefits generally applicable to employees in his employment category. Not
later than September 1, 2001, Mr. Scott will receive a lump sum cash settlement
account (estimated to be $155,353), determined in accordance with the terms of
the Unocal Retirement Plan, equal to the difference between (1) the Unocal
retirement benefits that would be payable to him as of August 1, 2001, if two
years were added to his age and benefit service and (2) the amount of Unocal
retirement benefits actually payable to him as of that date. The termination of
employment, pursuant to the agreement, is considered "at the convenience of the
Company" under the Company's long-term incentive plans and the revised incentive
compensation plan. Accordingly, Mr. Scott does not forfeit his restricted stock,
has three years from July 31, 2001 (or normal expiration, whichever is sooner),
to exercise his vested stock options, and is entitled to payment of his prorated
performance shares. Mr. Scott also remained eligible to receive his Revised
Incentive Compensation Plan Award for the entire 2000 calendar year. The
agreement was filed as an exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000.
In the event of a "change in control", as defined in the Company's
incentive plans and agreements issued thereunder, restricted stock will become
vested, unvested options will become vested, and performance shares will be paid
out.
In December, 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. 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 following additional provisions of the program become operative in the
event of an employee's involuntary termination (other than for death, disability
or misconduct) or "constructive discharge" within two years following a change
of control. "Constructive discharge" includes an employee's resignation within
60 days following certain reductions in pay, benefits and/or perquisites, or as
a result of certain work location changes.
The program provides four months of base pay for all eligible employees,
regardless of years of service. Employees with at least five years of service
also would receive credit for an additional three years of service and three
years of age under the Company's retirement plans plus 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
21
retirement benefit. Employees with less than five years of service would receive
the three-fourths of a month of base pay for each completed year of service.
Executive officers holding employment or change of control agreements, including
Messrs. Williamson, Ling, Dallas and Codon, would be entitled to the enhanced
benefit if they agree to its offset against the change-of-control benefits
already provided under such agreements, as discussed above.
The program permits an eligible employee to elect an immediate distribution
or rollover of his or her total retirement plan benefits, as enhanced (the
amount of which would be based on the highest consecutive 12 months of
pensionable pay during the most recent 120 months of service). The program also
provides for subsidized "COBRA" medical and dental coverage for 18 months, a
"three plus three" enhancement to criteria 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 Messrs. Williamson, Ling, Dallas and Codon. 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 percent. Otherwise, such
payments would be reduced below the threshold.
INDEBTEDNESS OF MANAGEMENT
The Company made loans to four executive officers for the purchase of
Unocal common stock under the 2000 Executive Stock Purchase Program, approved by
stockholders at the 2000 Annual Meeting. The loans accrue interest at 6.8%,
compounded annually. The loans were made on March 16, 2000, and they mature on
March 16, 2008. 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 is payable in three equal annual
payments along with the full amount of interest accrued over the past 12 months.
The loans are full-recourse, with exceptions for death or disability, and are
not 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.
LOANS TO EXECUTIVE OFFICERS UNDER THE
2000 EXECUTIVE STOCK PURCHASE PROGRAM
--------------------------- ---------------------------------- ------------------------ ----------------------------
Largest Outstanding
Amount Since Amount Outstanding at
Name Principal Position January 1, 2000 March 17, 2001
--------------------------- ---------------------------------- ------------------------ ----------------------------
--------------------------- ---------------------------------- ------------------------ ----------------------------
Roger C. Beach Former Chief Executive Officer $5,271,040 $5,196,183
--------------------------- ---------------------------------- ------------------------ ----------------------------
--------------------------- ---------------------------------- ------------------------ ----------------------------
Charles R. Williamson Chief Executive Officer 5,271,040 5,159,972
--------------------------- ---------------------------------- ------------------------ ----------------------------
--------------------------- ---------------------------------- ------------------------ ----------------------------
Timothy H. Ling President and Chief Operating 5,271,040 5,196,183
Officer
--------------------------- ---------------------------------- ------------------------ ----------------------------
--------------------------- ---------------------------------- ------------------------ ----------------------------
Dennis P.R. Codon Senior Vice President, General 2,635,520 2,598,091
Counsel and Chief Legal Officer
--------------------------- ---------------------------------- ------------------------ ----------------------------
22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of December 31, 2000, the following entities were known by the
Company to own beneficially more than five percent of the Company's common
stock.
-------------------------------------------------------- ---------------------------------- ------------------------
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Ownership Percent of Class
-------------------------------------------------------- ---------------------------------- ------------------------
-------------------------------------------------------- ---------------------------------- ------------------------
Capital Research and Management Company 20,075,650 (A) 8.20%
333 South Hope Street
Los Angeles, California 90071
-------------------------------------------------------- ---------------------------------- ------------------------
-------------------------------------------------------- ---------------------------------- ------------------------
Wellington Management Company, LLP 17,762,224 (B) 7.31
75 State Street
Boston, Massachusetts 02109
-------------------------------------------------------- ---------------------------------- ------------------------
[FN]
(A) Based on a Schedule 13G dated February 9, 2001, Capital Research and
Management Company beneficially owned all the 20,075,650 shares as a result
of acting as investment advisor to various investment companies. This
number included 1,750,450 shares resulting from the assumed conversion of
1,490,000 6 1/4% Trust Convertible Preferred Securities of Unocal Capital
Trust. Capital Research and Management Company had the sole power to
dispose of or direct the disposition of all these shares. Capital Research
and Management Company did not have voting power over any of the shares,
which was held by the investment companies.
(B) Based on a Schedule 13G dated February 14, 2001, Wellington Management
Company, LLP, beneficially owned all 17,762,224 shares in its capacity as
investment advisor to clients, who were the record owners of the shares.
Wellington Management Company, LLP had shared power to vote or direct the
voting of 10,334,537 shares, and shared power to dispose of or direct the
disposition of all 17,762,224 shares.
ITEM 2.
RATIFICATION OF APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS
The stockholders will be asked to ratify the appointment of the firm of
PricewaterhouseCoopers LLP as independent accountants for 2001. This appointment
was made by the Board of Directors on the recommendation of its Accounting &
Auditing Committee.
PricewaterhouseCoopers LLP, one of the nation's largest public accounting
firms, or one of its predecessors has served as the Company's independent
accountants for the past 56 years. Representatives of the firm are expected to
be present at the Annual Meeting, will have the opportunity to make a statement
if so desired and will be available to respond to questions.
Report of the Accounting & Auditing Committee
The Accounting & Auditing Committee reviews the Company's financial
reporting process on behalf of the Board of Directors. The Committee is composed
of three independent directors, each of whom meets the independence standard of
the New York Stock Exchange. 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 primary
responsibility for the financial statements and the reporting process. The
Company's independent accountants, 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.
23
In this context, the Committee reviewed and discussed with management and
the independent accountants the audited financial statements to be included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
The Committee discussed with the independent accountants 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 accountants 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, and the Board approved, that the audited
financial statements be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2000, for filing with the Securities and Exchange
Commission.
Accounting & Auditing Committee
of the Board of Directors
James W. Crownover, Chair
John W. Creighton, Jr.
Marina v.N. Whitman
The preceding Report of the Accounting & Auditing 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.
Audit fees
The aggregate fees for professional services rendered by
PricewaterhouseCoopers LLP for the audit of the Company's consolidated financial
statements included in its Annual Report on Form 10-K for the year ended
December 31, 2000, and reviews of the Company's financial statements included in
its Quarterly Reports on Form 10-Q during 2000 were $1.7 million.
All other fees
The aggregate fees for services rendered by PricewaterhouseCoopers LLP
during 2000, other than those set forth above, were $2.4 million. These services
included:
o Regulatory and compliance audits
o General research and accounting assistance
o Income tax advice
o Mergers and acquisitions advice
o Litigation support services
The Accounting & Auditing Committee has considered whether the provision by
the independent accountants of non-audit services to the Company is compatible
with the accountants' independence.
The Board of Directors unanimously recommends a vote FOR ratification of
the appointment of PricewaterhouseCoopers LLP as independent accountants for
2001. The proxy holders will vote all proxies received FOR ratification unless
instructed otherwise.
The affirmative vote of the holders of a majority of the shares present in
person or by proxy at the Meeting, and entitled to vote on this item, is
required for ratification of the appointment.
24
ITEM 3.
APPROVAL OF 2001 DIRECTORS' DEFERRED COMPENSATION AND STOCK AWARD PLAN
On March 27, 2001, the Board of Directors, upon the recommendation of the
Board Governance Committee, adopted the 2001 Directors' Deferred Compensation
and Stock Award Plan (the "2001 Plan"), subject to stockholder approval at the
Annual Meeting. The purpose of the 2001 Plan is to continue to align
non-employee director interests with those of stockholders, encourage these
directors to take compensation in the form of stock and offer them certain tax
deferral opportunities.
In 1991, the stockholders approved the Directors' Restricted Stock Units
Plan (the "Former Plan") for non-employee directors for a term of 10 years. As
of April 30, 2001, no additional awards beyond dividend equivalents may be
granted under the Former Plan. The 2001 Plan is intended to replace the Former
Plan and create a more simplified deferred compensation arrangement for
non-employee directors and to add option grants to their benefits. The 2001 Plan
modifies the principal terms of the Former Plan by including provisions and
awards that vest deferred compensation and benefits for past services
immediately. The Company believes that these provisions are commensurate with
the current compensation practices of other public companies. William M. Mercer,
Inc., a compensation consultant retained for such purpose, has reviewed the
directors' compensation and has determined that the directors' stock
compensation under the 2001 Plan, together with the cash compensation outlined
under "Directors Compensation - Cash Compensation and Expenses" on Page 7, falls
within the mid-range of competitive industry practices. The 2001 Plan also will
be easier to administer than the Former Plan.
Summary Description of the 2001 Plan
The following is a summary of the principal terms of the 2001 Plan. Because
it is not a complete description of all of the terms and conditions of the 2001
Plan, the summary is qualified in its entirety by the full text of the 2001 Plan
attached as Exhibit B to this proxy statement.
Purpose. The purpose of the 2001 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 increase their stock ownership in the Company.
Eligibility. Only the Company's non-employee directors are eligible to
participate in the 2001 Plan. As of May 21, 2001, there will be eight
non-employee directors on the Board of Directors.
Administration. The Board has appointed its Board Governance Committee (the
"Committee") to administer the 2001 Plan. The Committee will have broad
authority under the 2001 Plan, including, for example, the authority:
o to establish the valuation methodology that will determine option
grant amounts within 2001 Plan limits;
o to determine adjustments to 2001 Plan terms responsive to
extraordinary transactions;
o to establish, adopt and revise rules and regulations relating to the
2001 Plan;
o to adopt the schedules, forms and agreements for use in connection
with the 2001 Plan and elections under the 2001 Plan; and
25
o 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
number of shares of common stock that may be issued or delivered under the 2001
Plan of 500,000 shares, subject to certain antidilution and other adjustments
referenced in Section 9 of the 2001 Plan. If shares that are reserved to be
issued on the exercise of stock options or in payment of stock units are not
issued because the award terminates or expires without payment in shares, the
shares will remain available for future grants or accretions.
If grants contemplated would exceed 2001 Plan limits, the Company will
prorate any new grants of stock options and credits of stock units among the
participants, giving priority to stock options. If no additional shares are
available for issuance, participants will not be granted additional stock
options and dividend equivalents on stock units will be paid in cash.
Types of awards. The 2001 Plan authorizes the grant of stock options
and stock units and opportunities to defer all or a portion of cash compensation
into stock units. Stock units, subject to very limited exception, are payable
solely in shares of the Company's common stock.
Stock options. The stock options granted under the 2001 Plan will be
10-year nonqualified stock options. The exercise price of the stock options will
be 100% of the fair market value of the shares on the date of grant. Full
payment for the shares purchased on the exercise of any option must be made at
the time of exercise in a manner authorized by the 2001 Plan. Stock options
granted under the 2001 Plan will vest and become exercisable and will terminate
to varying degrees when the director's services terminate (see Section 5 of the
2001 Plan).
The 2001 Plan provides for an initial grant of stock options to
eligible directors in office immediately after the 2001 Annual Meeting,
contingent on stockholder approval. The initial grant will be an option to
purchase a number of shares of the Company's common stock with a notional
present value of $82,500. The Committee will determine the number of shares for
this initial grant and other grants using a stock option pricing model that it
selects from time to time. The stock option pricing model will not necessarily
track Black-Scholes or other valuation methodologies. The stock option pricing
formula that the Committee has selected for the initial grant will divide the
notional present value of the grant by 38.77% and further divide the result by
the fair market value of a share of common stock on the date of the Meeting.
Thus, if the fair market value of a share of common stock on the Meeting date is
$36.05 (which was the fair market value on March 14, 2001), the number of shares
subject to each initial option will be 5,902.
After the 2001 Annual Meeting, any person who subsequently becomes an
eligible director will be granted a stock option to purchase a number of shares
of the Company's common stock with a notional present value of $82,500. The
Committee will determine the number of shares using the stock option pricing
model then applicable.
Beginning in 2002, on each May 1st during the term of the 2001 Plan
each eligible director then in office will be automatically granted a stock
option to purchase a number of shares of the Company's common stock with a
notional present value equal to $27,500. The Committee will determine the number
of shares using the stock option pricing model then applicable.
The initial stock options granted to eligible directors in office
immediately after the 2001 Annual Meeting, contingent upon stockholder approval,
will vest and become exercisable over three years with 33 1/3% vesting on the
day before the annual meeting of stockholders on each of the first three years
after the date of grant. Initial options granted to individuals who become
directors after the 2001 Annual Meeting will vest and become exercisable over
three years with 33 1/3% vesting on each of the first three
26
anniversaries of the date of grant. The annual option grants will vest and
become exercisable over two years with 50% vesting on each of the first two
anniversaries of the date of grant. Unvested stock options will vest and become
exercisable early 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 2001
Plan), or, provided that the option has been outstanding for at least nine
months, if the director retires from service at the end of his or her then
current term and after completing 5 full years of service but is not eligible to
stand for reelection under the Company's director retirement policy.
To the extent that an eligible director's stock options are vested upon
a termination of service as a director for any reason other than for cause, the
director will have three years to exercise his or her vested options, if the
director served on the Board for at least three years, and two years to exercise
his or her vested stock options if the director served on the Board less than
three years. If the director's service is terminated for cause, his or her
options will terminate on the date the director's services are terminated.
In general, the current federal income tax consequences of nonqualified
stock options are as follows: The Company is generally entitled to deduct, and
the participant will recognize taxable income in, an amount equal to the
difference between the option exercise price and the fair market value of the
shares at the time of exercise. Once exercised, the participant will receive
capital treatment on any further gain or loss.
Stock Units. 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.
Commencing on July 1, 2002, each participant will receive an annual
grant of stock units in an amount determined by dividing 20% of the director's
fees earned during the prior year (or 14 months, in the case of the first grant)
by the average of the fair market value of the common stock over the 30 trading
days prior to the date of grant. The 2001 Plan also 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
(determined in the same manner as annual grants) will be based on 120% of the
fees deferred. All stock units will ultimately be paid in shares of the
Company's common stock.
Each participant may elect to defer the receipt of his or her
compensation until a chosen date, or following a termination of services,
whichever is earlier or later. In addition, the participant may elect to
accelerate the pay out of his or her compensation upon a change in control. The
stock 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 deferral elections. Participants may elect to accelerate the deferred
payment of their stock units early upon certain hardships or by requesting an
early distribution subject to a withdrawal penalty. The 2001 Plan currently
contemplates only a lump sum payout as to any deferral period.
Notwithstanding any deferral elections, a participant will receive an
automatic crediting and distribution of stock units if, and to the extent that,
as a result of the participant's acceptance of government or community service,
he or she is required to divest all interests in the Company and would otherwise
forfeit his or her benefits.
Participants in the 2001 Plan will have the choice of rolling over
their outstanding restricted stock units under the Former Plan into stock units
under the 2001 Plan, subject to the ongoing terms and conditions of the 2001
Plan. In theory, this election will accelerate vesting of certain restricted
stock units but will not (except possibly in a change in control) accelerate
payout. In practice, the previously accrued restricted stock units under the
Former Plan have rarely if ever failed to vest.
27
Restrictions on transfer. 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 Committee,
however, may permit certain transfers of stock options if the transferor
presents satisfactory evidence that the transfer is for estate and/or tax
planning purposes to certain related persons or entities and without
consideration (other than nominal consideration or in an exchange for interests
in authorized transferees).
Adjustment. The number and kind of shares available for issuance or
transfer under the 2001 Plan and outstanding stock options and stock units, as
well as the exercises price of stock options, 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.
Change in Control. Upon the occurrence of a change in control (defined
in Section 2 of the 2001 Plan), stock options, to the extent unvested, will
immediately vest and become exercisable. If participants have so elected, a
change in control may also accelerate the deferred payment of both types of
their stock units.
Termination of or Changes to the 2001 Plan or Awards. The Board may not
amend the 2001 Plan or an outstanding stock option to reduce the exercise price.
Otherwise, the Board of Directors may amend or terminate the 2001 Plan
(including outstanding awards) and does not contemplate seeking stockholder
approval for amendments (including, for example, changes in the notional value
of the annual option grants, future initial option grants, or exercise features
or the valuation of deferred stock features of the 2001 Plan) except to the
extent required by applicable law. (See Section 10 of the 2001 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 or options granted, without his or her consent, except as
otherwise provided in the 2001 Plan.
Accounting Considerations. The Board of Directors may rescind awards
and/or may terminate the 2001 Plan if the Board determines that any of the
features of the 2001 Plan would jeopardize a prospective "pooling of interest"
accounting. If the rescission would adversely affect the compensation of the
participants, which would be likely in such circumstances, the Board would
likely reinstate and extend the termination date of the Former Plan. The Board
would also likely grant and adjust restricted stock units as necessary to put
the participants in the same position that they would have been in if the Former
Plan had not expired and the 2001 Plan had not been adopted. (See Section 12 of
the 2001 Plan). The future of "pooling of interest" accounting for transactions
is uncertain. Nevertheless, approval of the 2001 Plan constitutes approval of
the extension of the Former Plan to this extent. (The Former Plan awards are
described on page 7 under "Directors' Compensation - Stock Compensation".)
Grants of stock units result in charges to earnings as a compensation
expense. Shares underlying stock options and stock units are included in
calculations of fully diluted shares.
Securities underlying Stock Options and Stock Units. The market value
of a share of common stock as of March 14, 2001, was $36.05 per share. Upon
receipt of stockholder approval, the Company plans to register 500,000 shares
available under the 2001 Plan under the Securities Act of 1933.
28
New Plan Benefits.
The following chart presents the benefits or amounts under options that
will be allocated under the 2001 Plan, subject to any future 2001 Plan
amendments.
2001 Directors' Deferred Compensation and Stock Award Plan
(Initial and Annual Option Awards)
------------------------------------------------------------------------------------ --------------------------------
Name and Principal Position Notional Dollar Value of
Options(1)(2)
------------------------------------------------------------------------------------ --------------------------------
------------------------------------------------------------------------------------ --------------------------------
Roger C. Beach, Former Chief Executive Office N/A
------------------------------------------------------------------------------------ --------------------------------
------------------------------------------------------------------------------------ --------------------------------
Charles R. Williamson, Chief Executive Officer N/A
------------------------------------------------------------------------------------ --------------------------------
------------------------------------------------------------------------------------ --------------------------------
Timothy H. Ling, Chief Operating Officer N/A
------------------------------------------------------------------------------------ --------------------------------
------------------------------------------------------------------------------------ --------------------------------
Terry G. Dallas, Chief Financial Officer N/A
------------------------------------------------------------------------------------ --------------------------------
------------------------------------------------------------------------------------ --------------------------------
Dennis P.R. Codon, Senior Vice President, Chief Legal Officer and General Counsel N/A
------------------------------------------------------------------------------------ --------------------------------
------------------------------------------------------------------------------------ --------------------------------
Executive Officers as a Group N/A
------------------------------------------------------------------------------------ --------------------------------
------------------------------------------------------------------------------------ --------------------------------
Non-Executive Director Group (8 persons) $660,000 (1)
$220,000/year after
2001 (2)
------------------------------------------------------------------------------------ --------------------------------
------------------------------------------------------------------------------------ --------------------------------
Non-Executive Officer Employee Group N/A
------------------------------------------------------------------------------------ --------------------------------
[FN]
(1) Represents the notional present value of initial one-time grants of stock
options to eight eligible directors as described above. The actual number
of shares subject to options will depend on the fair market value of a
share of common stock on May 21, 2001 as included in the stock option
pricing model described above. Does not include the value of initial
options to eligible directors first elected after the 2001 Annual Meeting.
(2) Represents the notional present value of each annual grant of stock options
under the 2001 Plan as described above, assuming eight eligible directors.
The actual number of shares subject to options is not determinable because
the number of shares depends on the stock option pricing model used, the
per share fair market value at future dates, and the number of eligible
directors then seated.
The amount or number of stock units awards authorized by the 2001 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.
Vote Required.
The Board of Directors has approved the 2001 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 2001 Plan and thus have a
personal interest in its approval.
The Board of Directors unanimously recommends a vote FOR the approval
of the 2001 Directors' Deferred Compensation and Stock Award Plan.
The affirmative vote of the holders of a majority of the shares
represented in person or by proxy and entitled to vote on this Item 3 is
required for approval of the 2001 Plan.
29
ITEM 4
STOCKHOLDER PROPOSAL
A stockholder has given notice that the following proposal will be
presented at the Meeting:
"RESOLVED: The shareholders of Unocal Corporation urge the Board of
Directors to adopt, implement and enforce a code of conduct based on the
International Labor Organization's ("ILO") Conventions on Workplace Human Rights
that includes the following elements:
o All workers have the right to form and join trade unions and to
bargain collectively. (Conventions 87 and 98)
o Workers representatives shall not be the subject of discrimination and
shall have access to all workplaces necessary to enable them to carry
out their representation functions. (Convention 135)
o There shall be no discrimination or intimidation in employment. Unocal
shall provide equality of opportunity and treatment regardless of
race, color, sex, religion, political opinion, age, nationality,
social origin or other distinguishing characteristics. (Conventions
100 and 111)
o Employment shall be freely chosen. There shall be no use of force,
including bonded or voluntary prison labor. (Conventions 29 and 105)
o There shall be no use of child labor. (Conventions 138 and 182).
Supporting Statement
"As a global corporation, Unocal faces many regulatory regimes and
public pressures that expose it to various risks. Managing operations
effectively and increasing shareholder value depend, in part, on public and
governmental support. A company's record of good corporate citizenship is a
valuable asset, and positive workplace relations improve a company's ability to
reliably supply products to its customers.
"This proposal addresses Unocal's risk of being a party to or appearing
to benefit from workplace human rights violations. Neither Unocal's Guiding
Principles nor the Global Sullivan Principles endorsed by Unocal incorporates
standards of the ILO, a United-Nations-affiliated organization.
"Unocal does business in Burma, which has been ruled for over a decade
by a military dictatorship widely condemned for human rights abuses. Unocal
partnered with the Burmese government in a gas field project that hired the
Burmese military to provide security and other services. In doing so, the
military committed numerous human rights violations, including forced labor.
"In Doe v. Unocal, a federal judge stated: 'The evidence does suggest
that Unocal knew that forced labor was being utilized and that the Joint
Venturers [including Unocal] benefited from the practice.' A Wall Street Journal
article quoted a Texaco consultant's report as noting the 'harsh conditions' of
unpaid laborers on the Burma pipelines, 'including young children.'
"The Doe lawsuit was dismissed for failure to meet the requirements of
the Alien Tort Claims Act. Unocal's reputation may nonetheless be harmed by an
appearance that the Company knew about and benefited from serious human rights
violations. That perception may also make Unocal less attractive to
institutional investors -- such as those that have adopted responsible
contractor and workplace practice guidelines -- that are concerned with the
impact of workplace practices on shareholder value.
"We therefore believe that adoption of this code, coupled with
effective enforcement and monitoring by independent organizations, and with the
results of these efforts communicated to shareholders, are necessary to maintain
confidence in Unocal's commitment to human rights.
"We urge shareholders to vote FOR this resolution."
30
Directors' Recommendation
The Board of Directors recommends a vote AGAINST the adoption of this proposal
for the following reasons:
Unocal's update to the Company Code of Conduct last year reaffirmed our
strong commitment to workplace values and human rights. Under our "Guiding
Principles for Doing Business" - which is included in the Code - Unocal commits
to conducting business openly, with honesty, integrity and trust, respecting
human rights in all our activities, complying with the law in all respects and
operating in accordance with the highest ethical standards. Our "Guiding
Principles" also affirm our commitment to providing a safe and secure working
environment, seeking a diverse base of employees, ensuring equal opportunity to
all qualified individuals in recruiting, compensation, professional development,
promotion, and other employment practices, and providing a supportive working
environment in which all employees may freely contribute.
The Company's Equal Employment Opportunity and Harassment policies
explicitly prohibit any discrimination or harassment, in word or action, against
any employee or applicant on the basis of race, gender, national origin,
religion, age, disability, sexual preference, or veteran's status.
Our Code of Conduct, Guiding Principles, and explicit support for the
Global Sullivan Principles further affirm our commitment to being a good
corporate citizen and operating under the highest ethical standards in all
countries and regions where we work.
The proponent's statements may mislead stockholders about Unocal's
investment in Myanmar and the federal Judge's order granting Unocal's motion for
summary judgment in the Doe v. Unocal case. Based only on the proponent's
characterization of the lawsuit, it might not be clear that even though the
judge was required by the rules to view all the evidence and any inferences
based on the underlying facts in the light most favorable to the plaintiffs, the
court still found that the evidence did not justify a trial. In his order
dismissing the action, the judge specifically stated that:
o "Plaintiffs present no evidence that Unocal 'participated in or
influenced' the military's unlawful conduct; nor do plaintiffs present
evidence that Unocal `conspired' with the military to commit the
challenged conduct."
o "In this case, there are no facts suggesting that Unocal sought to
employ forced or slave labor."
Our Position
Unocal is committed to meeting the highest ethical standards in all
countries and regions where the Company does business. This includes treating
everyone fairly and with respect, maintaining a safe and healthful workplace,
and advancing economic prosperity and social progress wherever we work. In view
of our existing workplace practices and policies, this proposal is neither
necessary or warranted.
Therefore, the Board of Directors unanimously recommends a vote AGAINST
this proposal. The proxy holders will vote all proxies received AGAINST this
proposal unless instructed otherwise.
The affirmative vote of the holders of a majority of the shares present
in person or by proxy at the Annual Meeting, and entitled to vote on this Item,
is required of this proposal.
31
ITEM 5
STOCKHOLDER PROPOSAL
A stockholder has given notice that the following proposal will be
presented at the Meeting:
"WHEREAS: We believe Unocal has violated its Guiding Principles by its
association with the repressive government of Burma. Foreign governments,
international organizations and human rights groups have criticized that
Government for committing such human rights abuses as torture, abuse of women,
summary and arbitrary executions, forced labor, forced relocation and arbitrary
arrests and detentions.
"WHEREAS: Judge Ronald W. Lew, U.S. District Judge confirmed that
Unocal executives were aware of these violations in stating that 'The evidence
does suggest that Unocal knew that forced labor was being utilized and that the
--------------------------------------------------------------
Joint Venturers [Unocal, Total, MOGE and PTT] benefited from the practice.'
--------------------------------------------------------------------------
"WHEREAS: Unocal has had historic and on-going environmental
violations, especially at a number of California's pristine locations (e.g.
Guadalupe spill, the largest in California, costing $43.8M), Avila Beach spill
(killing a town economically -- costing up to $200 million), San Francisco Bay
spill (costing $83 million with a possible $50 million more), and Molycorp
Mountain Pass Mine (failed to report toxic discharges). We believe this
indicates a lack of concern for communities and the environment, has damaged
Unocal's image and caused financial loss;
"WHEREAS: We believe that Unocal has failed to obey its Guiding
Principles which requires the Company to: 'Conduct business in a way that
engenders pride in our employees and respect from the world
community...communicate openly and honestly...improve the quality of life in the
communities where we do business...protect the environment...be a good corporate
citizen and a good friend of the people of our host country.'
"WHEREAS: We also believe that Unocal has failed to conform to the
Global Sullivan Principles, recently endorsed by Unocal, which explicitly
commits endorsing companies to eight basic principles including the following:
'We will express our support for universal human rights and particularly those
of our employees, the communities within which we operate, and parties with whom
we do business.'
"WHEREAS: One important way to insure that any company is serious about
its own Code, or pursuing principles like the Global Sullivan Principles, is to
provide incentives to executives through their compensation formula to meet
those goals.
"BE IT RESOLVED: That the Board of Directors appoint a special
committee of the Board consisting solely of independent Board Members to review
ways to link executive compensation with the Company's ethical and social
performance, and in particular with Unocal's Guiding Principles and to report to
the shareholders the results of this review. This report may omit confidential
information and be prepared at a reasonable cost.
Supporting Statement
"We believe linking the compensation and bonus packages of Unocal's
executives to our Company's ethical and social performance is timely and
necessary. It sends a message that Unocal is as serious about excellence in
these areas as in meeting financial and business goals.
"Many other companies, including Kodak, Bristol Myers Squibb, IBM and
Proctor & Gamble, has social responsibility goals and performance reflected in
their compensation formula."
32
Directors' Recommendation
The Board of Directors recommends a vote AGAINST the adoption of this proposal
for the following reasons:
We believe that this proposal is unnecessary. Unocal's executive
compensation is already determined by a committee of the Board comprised
exclusively of independent directors (the Management Development and
Compensation Committee), assisted by Strategic Compensation Associates, the
Company's outside consultant. Many aspects of executive performance, including
ethical behavior and social responsibility, are utilized in determining
compensation. The Management Development and Compensation Committee's report
explaining the criteria for executive officer compensation is already provided
to all stockholders, as required by law, and is found beginning on page 9 of
this proxy statement.
Unocal also has a Corporate Responsibility Committee, composed entirely
of independent Directors to review the Company's policies, practices and
programs related to health, environment, safety, human resources, community
affairs, and ethical conduct. This committee of outside directors regularly
shares information about the company's corporate responsibility efforts with the
full Board. A report on corporate responsibility was made available to
stockholders in 1999 and shared with the public through the company's internet
site. Later this year, Unocal will issue a progress report on our corporate
responsibility program, our expanded community initiatives, and our efforts to
participate in the global dialogue on human rights and the responsibilities of
international energy companies.
The proponent's statements may mislead stockholders about Unocal's
investment in Myanmar and the federal judge's order granting Unocal's motion for
summary judgment in the Doe v. Unocal case. For example, based on the statement
regarding the Doe v. Unocal case, the reader may believe that the judgment was
rendered against the Company. In fact, the court ruled in Unocal's favor and
stated that there is no evidence that Unocal sought to use forced labor or
participated in or influenced the military's unlawful conduct.
Unocal is firmly committed to being a good corporate citizen by
operating in a way that is socially responsible and that contributes to economic
prosperity. Our efforts focus on operating efficiently and effectively,
preventing pollution and producing clean energy. This is true in Southeast Asia,
the United States and anywhere else Unocal has business interests.
Our Position
We believe this proposal is unnecessary because Unocal already has a
committee made up exclusively of independent non-employee directors that
regularly conducts the review requested by the proposal and provides a detailed
report on this review to all stockholders in the annual proxy statement.
The Board of Directors unanimously recommends a vote AGAINST this
proposal. The proxy holders will vote all proxies received AGAINST this proposal
unless instructed otherwise.
The affirmative vote of the holders of a majority of the shares present
in person or by proxy at the Annual Meeting, and entitled to vote on this Item,
is required for approval of this proposal.
33
ITEM 6
STOCKHOLDER PROPOSAL
A stockholder has given notice that the following proposal will be presented at
the Meeting:
"WHEREAS: Employees, customers, and stockholders make up a greater
diversity of backgrounds than ever before. We believe that the board composition
of major corporations should reflect the workforce and marketplace of the
twenty-first century if our company is going to remain competitive.
"The Department of Labor's 1995 Glass Ceiling Commission reported that
diversity and inclusiveness in the workplace positively impact the bottom line
('Good for Business: Making Full Use of the Nation's Human Capital'). A Covenant
Fund report of S&P 500 companies revealed that "firms that succeed in shattering
their own glass ceiling racked up stock-market records that were nearly 2.5
times better than otherwise-comparable companies."
"The Investor Responsibility Research Center (IRRC) reported in 1996
that inclusiveness at senior management levels was at only 12 percent for the
over 39,000 companies required to submit the EEO-1 Report. The Glass Ceiling
Commission reported that companies select from only half of the available talent
within the U.S. workforce.
"If we are to be prepared for the 21st century, we must learn how to
compete in an increasingly diverse global marketplace by promoting and selecting
the best qualified people regardless of race, gender or physical challenge. Sun
Oil's CEO Robert Campbell stated, 'often what a woman or minority person can
bring to the board is some perspective a company has not had before -- adding
some modern-day reality to the deliberation process. Those perspectives are of
great value, and often missing from an all-white, male gathering. They can also
be inspirational to the company's diverse workforce' (Wall Street Journal,
8/12/96).
"We believe that the judgement and perspectives of a diverse board will
improve the quality of corporate decision-making. A growing proportion of
stockholders is attaching value to board inclusiveness, since the board is
responsible for representing shareholder interests in corporate meetings. The
Teachers Insurance and Annuity Association and College Retirement Equities Fund,
the largest American institutional investor, recently issued a set of corporate
governance guidelines which included a call for 'diversity of directors by
experience, sex, age, and race.'
"We therefore, urge our company to enlarge its search for qualified
board members.
"RESOLVED: The Shareholders request that
1. The company make available to shareholders, at reasonable
expense, a report four months from the date of the annual
meeting, which includes a description of:
a) Efforts to encourage diversified representation on the
board;
b) Criteria for board qualification;
c) The process of selecting board nominees and board committee
members;
2. The Board Nominating Committee make a greater effort to locate
qualified women and persons of color as candidates for nomination
to the board."
34
Directors' Recommendation
The Board of Directors recommends a vote AGAINST the adoption of this
proposal for the following reasons:
This stockholder proposal would require the Board to provide a report
four months from the date of the Annual Meeting describing its efforts, criteria
and process of achieving Board inclusiveness. The Board of Directors believes
that this report is unnecessary and recommends a vote against this proposal.
Our Board Governance Committee is charged with identifying new
candidates for the Board. It seeks the best qualified individuals to serve as
directors of the Company based on relevant business experience, expertise,
abilities, and the willingness to commit time to a dynamic Board. One of the
explicit criteria it considers in identifying new directors is the potential
impact of a candidate on the diversity of the Board as a whole. In addition, the
Committee solicits recommendations of qualified candidates from our stockholders
in our proxy statement. We are proud of the success we have had in increasing
the diversity of our Board. Our nine current directors include Timothy Ling, our
president and chief operating officer, who is Asian-American, and Dr. Marina
v.N. Whitman, a Unocal director since 1993.
As a global energy Company with employees based around the world,
Unocal employs and strongly benefits from a diverse workforce. As of January
2001, more than half of the Company's total workforce of 6,800, were non-U.S.
citizens. Unocal is committed to offering equal employment to all persons
without regard to race, creed, color, gender, age, religion, national origin,
sexual orientation or physical limitations. The Company makes the same
commitment when seeking new candidates for the Board.
Our Position
The Board of Directors believes that this stockholder proposal is
unnecessary because we already are careful to consider the potential impact of
new directors on the diversity of the Board, and the preparation of a special
report would not be of additional benefit to stockholders.
The Board of Directors unanimously recommends a vote AGAINST this
proposal. The proxy holders will vote all proxies received AGAINST this proposal
unless instructed otherwise.
The affirmative vote of the holders of a majority of the shares present
in person or by proxy at the Annual Meeting, and entitled to vote on this Item,
is required for approval of this proposal.
The Company will provide stockholders with the names and addresses of
the proponents of the three 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 7.
OTHER MATTERS
Only such business shall be conducted at an annual meeting of the
stockholders as shall have been properly brought before the meeting pursuant to
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, or by a stockholder or a beneficial owner of the
Company's stock in compliance with the provisions of Section 7 of Article III of
the Company's Bylaws.
The Board of Directors has no knowledge at the time of the printing of this
Proxy Statement of other business to be presented for action at the Annual
Meeting of Stockholders or any adjournment thereof. If other business properly
comes up for action at the Meeting, the proxy holders will vote the proxies in
their discretion.
35
STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Proposals submitted for inclusion in the Company's proxy statement for the
2002 Annual Meeting of Stockholders pursuant to Rule 14a-8 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934 must be received
by the Corporate Secretary at 2141 Rosecrans Avenue, Suite 4000, El Segundo,
California 90245, on or before December 10, 2001. Under the Company's Bylaws,
stockholder proposals for consideration at the 2002 Annual Meeting, but not for
inclusion in the proxy statement, must be received by the Corporate Secretary no
later than February 19, 2002. If the Company's Bylaws are amended to change the
date of the 2002 Annual Meeting, the deadline for submitting such proposals
shall be the later of 90 days before the meeting date or the 10th day following
the day on which public announcement of the meeting date is first made. Notice
of such proposals must also comply with the provisions of Section 7 of Article
III of the Company's Bylaws.
By Order of the Board of Directors
/s/ Brigitte M. Dewez
Brigitte M. Dewez
Corporate Secretary
April 9, 2001
El Segundo, California
36
EXHIBIT A
UNOCAL CORPORATION
ACCOUNTING & AUDITING COMMITTEE
CHARTER
PURPOSE
The Accounting & Auditing Committee (the Committee) is a committee established
by the Board of Directors (the Board) to assist it in fulfilling its oversight
responsibilities for the reliability of the Company's financial reporting and
the adequacy of its internal operating policies and controls, and the quality
and performance of Unocal's internal audit department, comptroller group, and
independent accountants.
AUTHORITY
The Committee authority is derived from this Charter as approved by the Board.
The Committee is empowered to investigate any matter brought to its attention
and shall have unrestricted access to all Company personnel and facilities,
books and records, and will be given the resources necessary to discharge its
responsibilities.
RESPONSIBILITIES
The Committee's responsibilities are to assist the Board in monitoring
significant business risks, the internal control systems and the integrity of
the financial reporting process of the Company. Oversight activities will
include:
o Review monitoring of compliance with Company's Conflict of Interest
Policy.
o Review the adequacy of the Company's system of internal controls for
financial reporting accuracy, and safeguarding of assets.
o Review accounting policies and policy changes including the
appropriateness of principles and practices to be followed.
o Review, with the Company's General Counsel, any legal matters that
could have a significant impact on the Company's financial statements.
o Review significant reporting or operating issues affecting the
financial statements that were discussed and resolved during the
accounting period.
o Review disputes between management and the independent accountants in
connection with the preparation of the Company's financial statements.
o Review annually with management and the independent accountants:
- The financial statements to be included in the Company's
Annual Report on Form 10-K including their judgement about
the quality of accounting principles employed, the
reasonableness of significant judgements, and the clarity of
the financial statement disclosures;
- Results of the annual financial statement audit including
significant related recommendations to management; and,
- Any other matters required to be communicated to the
Committee by the independent accountants under generally
accepted auditing standards.
A-1
o Review with management and the independent accountants the interim
financial results prior to filing of the Company's Quarterly Report on
Form 10-Q and discuss the results of the quarterly review and any
other matters required to be communicated by the independent
accountants under generally accepted auditing standards. The
Chairperson of the Committee or a designee may represent the entire
Committee for the purpose of this review.
o Review the independent accountants' proposed audit scope and approach.
o Evaluate together with the Board the performance of the independent
accountants and if so determined by this Committee, recommend that the
Board replace the independent accountants.
o Review the independent accountants' fee arrangement for audit and
non-audit services.
o Recommend to the Board the selection and appointment of the
independent accountants, which firm is ultimately accountable to this
Committee and the Board as representatives of the shareholders.
o Receive periodic written reports from the independent accountants
regarding their independence, discuss such reports with the
independent accountants, and if so determined by this Committee,
recommend that the Board take appropriate action to satisfy itself of
the independence of the accountants.
o Review internal audit plans and budgets to ensure they provide
adequate support for the Committee's goals and objectives.
o Approve the Internal Audit Department Charter.
o Review the quality and activities of the internal audit function.
o Review management's appointment of the General Auditor.
o Prepare the Accounting & Auditing Committee report required by the
rules of the Securities and Exchange Commission to be included in the
Company's annual proxy statement.
o Obtain from the independent accountants assurance that Section 10A of
the Private Securities Litigation Reform Act of 1995 has not been
violated and copies of any reports the independent accountants have
filed under this Act in relation to the Company or any of its
subsidiaries.
The Committee is also responsible to provide assurance that the Company is
conducting its affairs ethically and is maintaining effective controls against
employee conflict of interest. Oversight activities will include:
o Review Company policies relating to business conduct and the
investigation of misconduct.
o Review management's monitoring of compliance with the Company's Code
of Conduct and with the Foreign Corrupt Practices Act.
o Review significant cases of misconduct.
o Review Company policies and procedures for reviewing officers'
expenses, perquisites and use of Company assets.
o Meet privately at least annually with senior management of the
Company, with the internal auditors and with the independent
accountants to discuss the quality of accounting and internal controls
and to determine if any restrictions have been placed on their
examinations by management or if there are any other items that should
be discussed.
This Committee shall also review and reassess the adequacy of the Charter
annually and recommend any proposed changes to the Board for approval.
A-2
REPORTING
The Committee shall maintain lines of communication with Company management, the
independent accountants and the internal auditors. Meetings shall be scheduled
and reports requested as deemed necessary by the Committee.
The Committee shall report committee activities to the Board regularly.
ORGANIZATION
The Committee shall consist of at least three outside directors who meet the
independence and experience requirements of the New York Stock Exchange.
The Committee should meet not less than once per Quarter.
The Board shall appoint the Chairperson and Committee members.
Two members shall constitute a quorum.
General
While this Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of this Committee to plan or conduct audits or to
determine that the Company's financial statements are complete and accurate and
are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent accountants. Nor is it the duty
of this Committee to resolve disagreements, if any, between management and the
independent accountants or to assure compliance with laws and regulations and
provisions of the Company's Code of Conduct.
A-3
EXHIBIT B
UNOCAL CORPORATION
2001 DIRECTORS' DEFERRED COMPENSATION AND STOCK AWARD PLAN
B-i
Table of Contents
1. General Description.............................................................................. B-1
2. Definitions...................................................................................... B-1
3. Effective Date, Duration......................................................................... B-4
4. Administration................................................................................... B-4
5. Stock Options.................................................................................... B-4
(a) Time of Initial Award................................................................... B-4
(b) Subsequent Annual Awards................................................................ B-4
(c) Maximum Number of Shares; Individual Award Limits....................................... B-4
(d) Option Price............................................................................ B-5
(e) Option Period and Exercisability........................................................ B-5
(f) Termination of Directorship............................................................. B-5
(g) Acceleration of Vesting................................................................. B-6
6. Stock Units...................................................................................... B-6
(a) Annual Stock Units Award................................................................ B-6
(b) Deferral of Regular Cash Compensation Into Deferral Units............................... B-6
(c) Vesting of Units........................................................................ B-7
(d) Dividend Equivalent Units............................................................... B-7
(e) Deferral Elections...................................................................... B-7
(f) Restrictions, Distributions and Changes to Distributions................................ B-7
(g) Payment of Units........................................................................ B-8
7. Shares Subject To The Plan; Share Limits......................................................... B-9
(a) Shares Available for Issuance........................................................... B-9
(b) Share Limits; Cut Backs................................................................. B-9
(c) Fractional Shares; Minimum Issue........................................................ B-9
B-ii
8. General.......................................................................................... B-9
(a) Government and other regulations........................................................ B-9
(b) Tax withholding......................................................................... B-9
(c) Beneficiaries........................................................................... B-9
(d) Non-transferability..................................................................... B-10
(e) Expenses................................................................................ B-10
(f) Titles and headings..................................................................... B-10
(g) Governing Law........................................................................... B-10
(h) Limitation on Participants' Rights...................................................... B-11
(i) Rights with respect to Stock Units...................................................... B-11
(j) Option Agreements....................................................................... B-11
(k) Plan Construction....................................................................... B-11
9. Changes in Capital Structure..................................................................... B-11
10. Amendments and Termination....................................................................... B-12
11. Stockholder Approval............................................................................. B-12
12. Pooling Limitations.............................................................................. B-12
13. Roll-over of Accounts from Former Plan........................................................... B-12
B-iii
UNOCAL CORPORATION
2001 DIRECTORS' DEFERRED COMPENSATION AND STOCK AWARD PLAN
1. General Description
The Plan provides for grants of stock units and stock options 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:
"Award Units" means Stock Units credited pursuant to Section 6(a) and
any dividend equivalent Stock Units credited thereon pursuant to
Section 6(d).
"Board" means the Board of Directors of the Company.
"Cause" shall have the same meaning as determined under Delaware law.
"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 date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by
the Company's 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, but excluding, for this
purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
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(c) The approval by the stockholders of the Company 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"), or, if the consummation of such Business
Combination is subject, at the time of such approval by
stockholders, to the consent of any governmental agency , the
obtaining of such consent either explicitly or implicitly by
consummation of the 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
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
corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities
of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the
Resulting Entity from such Business Combination will have been
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.
"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 directors or such
greater number of directors as may be required under applicable law.
"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(b)
with respect to the actual amount of compensation deferred by the
Eligible Director increased by 20% and any dividend equivalent Stock
Units credited thereon pursuant to Section 6(d).
"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.
"Distribution Subaccount" means a subaccount of an Eligible Director's
Stock Unit Account established to separately account for Stock Units
that are subject to different distribution elections or established
for different deferral periods.
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"Effective Date" means March 27, 2001.
"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.
"Former Plan" means the Company's Directors' Restricted Stock Units
Plan, as amended.
"Fair Market Value" means (1) with respect to Options, the average of
the high and the low prices of the Stock and (2) with respect to Stock
Units, the closing price of the Stock, in each case as reported on the
New York Stock Exchange - Composite Transactions Summary or any
successor principal market for the Stock.
"Option" or "Nonqualified Stock Option" means an option to purchase a
certain number of shares of Stock granted to Eligible Directors
pursuant to Section 5.
"Participant" means a person who has been granted an Option or Award
Units or who has deferred all or a portion of his or her cash
compensation into Deferral Units.
"Plan" means the Unocal Corporation 2001 Directors' Deferred
Compensation and Stock Award Plan, as set forth herein and as it may
be amended from time to time.
"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 9.
"Stock Unit" means a non-voting unit of measurement which is deemed
for bookkeeping purposes to be equivalent to one outstanding share of
Stock solely for purposes of determining benefits under the Plan,
established pursuant to the grant of Award Units under Section 6(a),
an election to defer cash compensation under Section 6(b), or in
respect of dividend equivalents under Section 6(d), and payable solely
in a share of Stock, on a one-for-one basis.
"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 Distribution Subaccount.
"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 March 27, 2001, subject to stockholder
approval. No awards may be granted under the Plan after July 1, 2006. The Plan
shall continue in effect until all matters relating to Options, 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 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. Stock Options
(a) Time of Initial Award. Persons who are Eligible Directors in office
immediately after the first annual meeting of stockholders following the date
that the Plan is approved by the Board shall be granted without further action
by the Committee (except to ascertain the appropriate pricing model) a
Nonqualified Stock Option to purchase the number of shares of Stock with a
notional present value of $82,500, as determined by the Committee based on a
stock option pricing model that it selects.
After such annual meeting, if any person who is not then an officer or
employee of the Company shall become a director of the Company, such person
shall be granted without further action by the Committee (except to ascertain
the appropriate pricing model) a Nonqualified Stock Option (the date of grant of
which will be the date the person takes office) to purchase the number of shares
of Stock with a notional present value of $82,500, as determined by the
Committee from time to time based on a stock option pricing model that it
selects.
(b) Subsequent Annual Awards. On each May 1 during the term of the Plan,
commencing in 2002, each Eligible Director then in office shall be granted
without further action by the Committee (except to ascertain the appropriate
pricing model) a Nonqualified Stock Option to purchase the number of shares of
Stock with a notional present value equal to $27,500, as determined by the
Committee from time to time based on a stock option pricing model that it
selects.
(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 7(a) shall be prorated within such limitation
pursuant to Section 7(b). An Eligible Director shall not receive more than one
Nonqualified Stock Option under this Section 5 in any calendar year. If a
director is first eligible for an Option under the Plan on May 1 of a year, the
number of shares subject to an Option will be determined under clause (a) above.
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(d) Option Price. The exercise price per share of the Stock covered by each
Option granted pursuant to Section 5(a) and 5(b) shall be 100 percent of the
Fair Market Value of the Stock on the date of grant. The exercise price of any
Option granted under this Section shall be paid in full at the time of each
purchase in cash or by check or in shares of Stock valued at their Fair Market
Value on the date the Participant exercises the Option, or partly in such shares
and partly in cash, provided that any such shares used in payment that were
previously acquired by the Participant from the Company upon exercise of an
Option or otherwise shall have been owned by the Participant at least six months
prior to the date of exercise. In addition to the payment methods described
above, unless otherwise determined by the Committee, the Option may be exercised
and payment made by delivering a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale proceeds necessary to pay the exercise price and any applicable
tax withholding under Section 8(b). The Company shall not be obligated to
deliver shares of Stock unless and until it receives full payment of the
exercise price therefor and any related withholding obligations and conditions
of the Option have been satisfied.
(e) Option Period and Exercisability
(1) Each Option granted under this Section 5 and all rights or
obligations thereunder shall expire ten years after the date of grant and
shall be subject to earlier termination as provided in Section 5(f) below.
(2) Each Option shall vest and become exercisable according to the
following schedules:
(A) Initial options granted to persons pursuant to Section 5(a)
who are Eligible Directors remaining in office after the first annual
meeting of stockholders immediately following the date the Plan is
approved by the Board shall vest and become exercisable 33 1/3% on the
day before the annual meeting of stockholders on each of the first 3
years after the date of grant;
(B) Initial options granted to persons pursuant to Section 5(a)
who become Eligible Directors after the annual meeting of stockholders
at which the Plan was approved shall vest and become exercisable 33
1/3% on each of the first 3 anniversaries of the date of grant; and
(C) Annual options granted to persons pursuant to Section 5(b)
shall vest and become exercisable 50% on each of the first 2
anniversaries of the date of grant.
(f) Termination of Directorship
(1) If an Eligible Director has served on the Board for three
years or more, and his or her services terminate for any reason other
than for Cause, then the Participant will have until the date that is
three years after the date of such termination or until the expiration
of the stated term (whichever first occurs) to exercise his or her
Option (or portion thereof) to the extent that it was both vested and
exercisable on the date of termination of service.
(2) If an Eligible Director has served on the Board for less than
three years, and his or her services terminate for any reason other
than for Cause, then the Participant will have until the date that is
two years after the date of such termination or until the expiration
of the stated term (whichever first occurs) to exercise his or her
Option (or portion thereof) to the extent that it was both vested and
exercisable on the date of termination of services.
(3) If an Eligible Director's services are terminated for Cause,
all unexercised Options, vested and unvested, shall terminate on the
date of termination of services.
B-5
(4) If an Eligible Director's services terminate for any reason
other than for Cause, to the extent not vested on the date of
termination of service, the Option shall terminate. Options vesting by
acceleration as of such date are deemed vested.
(g) Acceleration of Vesting. If (1) a Participant's service as a director
is terminated due to death or Disability, (2) a Change in Control occurs, or (3)
with respect to Options that have been outstanding for at least nine months, a
Participant retires from service at the end of the Participant's then current
term and after completing five full years of service but is ineligible to stand
for reelection under the Company's director retirement policy, each Option
granted under this Section 5 shall become immediately vested and exercisable in
full.
6. Stock Units
(a) Annual Stock Units Award. As of July 1 of each year during the term of
the Plan commencing in 2002, each Eligible Director then in office shall be
granted Award Units with a total value equal to 20 percent of his or her cash
compensation payable by the Company, whether or not paid in cash, for services
rendered as a director (determined before any deferral election under Section
6(b)) during the prior 14 month period (from May 1, 2001, through June 30, 2002)
as to the July 1, 2002 award, and during the prior 12 month period for each year
thereafter. The number of Award Units included in each such award shall be based
on the Fair Market Value of the Stock for the 30 consecutive trading days prior
to the date of grant. The Company shall credit to the Eligible Director's Stock
Unit Account the number of Award Units so determined. The Award Units will be
distributed pursuant to the applicable deferral election made by the Participant
in accordance with the deferral election procedures described in Section 6(e).
If the Participant does not timely elect otherwise, Award Units will be paid in
a lump sum as soon as administratively practicable after the earlier of the date
that the Participant no longer serves as a member of the Board or upon a Change
in Control.
If an Eligible Director terminates his or her service as a director prior
to July 1 of any year after July 1, 2001, he or she shall be granted Award Units
with a total value equal to 20% of the cash compensation so payable by the
Company for services rendered to the Company as a director from the start of the
applicable 14 or 12 month period in which the termination occurs through the
service termination date. The number of Award Units included in each such award
shall be based on the Fair Market Value of the Stock for the 30 consecutive
trading days prior to the service termination date. The Award Units shall be
credited to his or her Stock Unit Account within 30 days after the date of
termination and will be distributed pursuant to the applicable deferral election
made by the Participant.
(b) 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; except with respect to the period from May
1, 2001, through December 31, 2001, for which the deferral election will be
effective only for compensation earned from May 1, 2001, through December 31,
2001. 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 director. An Eligible Director's deferral election shall be made
pursuant to the election procedures in Section 6(e).
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(b) shall be the director's Adjusted Deferral Amount for that quarter
divided by the Fair Market Value of the Stock over the quarter.
B-6
(c) Vesting of Units. Deferral Units and Award Units shall be fully vested
and non-forfeitable at all times..
(d) Dividend Equivalent Units
(1) At 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 Account. 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 Account as of the end of the preceding quarter
divided by the Fair Market Value of a share of Stock over the preceding
quarter.
(2) If a distribution event occurs after a record date but before a
dividend payment date, the dividend equivalent rights, with respect to
distributed shares, will be settled in cash, in lieu of additional Stock
Units, on the payment date based on the total number of shares distributed.
(3) Stock Units credited in respect of dividend equivalents shall be
paid in Stock (except as provided in Section 7(b)) at the same time and the
same manner as the Stock Units to which they relate.
(e) Deferral Elections. Subject to Section 6(f):
(1) Initial Elections. Participants may make an irrevocable election
to defer all or a portion of Award Units awarded under Section 6(a) and all
or a portion of cash compensation into Deferral Units under Section 6(b).
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 30 days after
the Plan is adopted by the Board as to compensation earned in 2001 and
immediately preceding December 31 for each subsequent 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.
(2) Subsequent Elections. An Eligible Director shall be permitted to
make a different election with respect to each annual deferral period and,
with respect to Award Units and Deferral Units, 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 Distribution Subaccounts as necessary or advisable
to separately account for deferrals which are payable at different times.
(f) Restrictions, Distributions and Changes to Distributions
(1) Time and Manner of Distribution. Participants shall be entitled to
receive a distribution of his or her Stock Unit Account at such time as may
be elected by the Participant at the time of a deferral election under
Section 6(e) and as set forth in writing on forms provided by the Company.
The earliest distribution date that may be elected for Deferral Units is
three years after the commencement of the applicable deferral period, and
for Award Units, three years after the date of award, except, in either
case, upon a Change in Control or the Participant's termination of services
as a director if the director has elected such earlier time. The latest
distribution date for Stock Units will be, in the aggregate, the later of
15 years from the commencement of the applicable deferral period or the
Participant's termination of service.
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Notwithstanding any contrary elections or other terms of the Plan, a
Participant shall receive an immediate crediting and distribution of Stock
Units under the Plan if, and to the extent that, as a result of the
Participant accepting government or community service, the Participant is
required to divest all interests in the Company and would otherwise forfeit
such benefits.
(2) 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 shall be
recognized as to any Participant.
(3) 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 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:
(A) The election to take an Early Distribution shall be made in
writing on a form provided by and filed with the Committee;
(B) The amount of the Early Distribution shall equal 90% of the amount
the Eligible Director has elected to withdraw; and
(B) 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.
The Eligible Director's remaining Stock Units in the Stock Unit Account
shall continue to be credited with Dividend Equivalents in accordance with
Section 6(d).
(4) Distributions for Unforeseeable Emergencies. A Participant may
request a distribution of the 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
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.
(g) Payment of Units. Upon a distribution event, the Company shall, subject
to Section 8(b) hereunder, deliver a number of shares of Stock equal to the
number of Stock Units (as adjusted pursuant to Section 6(f)(3) if applicable) to
which the Participant is then entitled (whether by expiration of the applicable
deferral period, determination of Unforeseeable Emergency or voluntary
withdrawal under Section 6(f)(3)) under the terms of the Plan.
B-8
7. Shares Subject To The Plan; Share Limits
(a) Shares Available for Issuance. Subject to adjustment under Section 9,
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 exercise of Options or payment of
Stock Units shall be reserved for issue, and to the extent that awards terminate
or expire without payment in shares, the shares will be available for subsequent
grants or accretions.
(b) Share Limits; Cut Backs. If any grant of an Option or the 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 grant of new Options or award of Stock Units
and allocate the number of remaining shares available for issuance first to the
grant of Options, second toward the award of Award Units and third to the
crediting of Deferral Units. If and for so long as no available share
authorization remains, no additional Options shall be granted or Stock Units
credited, cash shall be paid in lieu of dividend equivalents under Section 6(d)
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. No fewer than 100 shares may be purchased on exercise of an Option at any
one time unless the number purchased is the total number at the time available
for purchase under the Option.
8. General
(a) Government and other regulations. The obligation of the Company to book
Stock Units, issue or deliver stock or Options 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. The Company may, in lieu of requiring cash payment of any such taxes,
elect to withhold from Stock payments a number of whole shares of Stock whose
value is at least equal to the amount of such taxes. Valuation for this purpose
shall be the Fair Market Value on the date of distribution.
(c) Beneficiaries
(1) Beneficiary Designation. Upon forms provided by the Company each
Eligible Director may designate in writing the Beneficiary or Beneficiaries
(as defined in Section 8(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
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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. A Participant's rights and interests under the
Plan in respect of Options and Stock Units, including amounts payable or Stock
deliverable under or in respect thereof, may not be assigned, pledged, or
transferred except:
(1) in the event of a Participant's death, to a designated beneficiary
as provided in Section 8(c) above the Plan, or in the absence of such
designation, by will or the laws of descent and distribution; or
(2) in the case of Options, with the consent of the Committee
evidenced in writing or by duly adopted resolution, to certain persons or
entities related to the Participant, including but not limited to members
of the Participant's immediate family, charitable institutions, or trusts
or other entities whose beneficiaries or beneficial owners are members of
the Participant's immediate family and/or charitable institutions, pursuant
to such conditions and procedures as the Committee may establish. Any
permitted transfer shall be subject to the condition that the Committee
receive evidence satisfactory to it that the transfer is being made for
essentially estate and/or tax planning purposes on a gratuitous or donative
basis and without consideration (other than nominal consideration or in
exchange for an interest in a qualified transferee) and only if such
transfer would not adversely affect the Company's eligibility to use Form
S-8 to register under the Securities Act of 1933, as amended, the offering
of shares issuable under the Plan by the Company.
The above exercise and transfer restrictions shall not apply to transfers to the
Company, transfers pursuant to a court order or to the authorization by the
Committee of "cashless exercise" procedures for Options granted under the Plan.
(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.
B-10
(h) Limitation on Participants' Rights. 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. The Plan, in and of itself, has no assets.
Participants shall have rights no greater than those of a general unsecured
creditor of the Company with respect to amounts or benefits payable or credited
under the Plan.
(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 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) Option Agreements. Each Option granted to an Eligible Director under
the Plan shall be evidenced by an agreement in a form approved by the Committee
and will contain the terms and conditions consistent with the Plan as approved
by the Committee relating to the Option.
(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 as well as grants of Options will be entitled to the benefits of Rule
16b-3 or other exemptive rules under Section 16 of the Exchange Act.
9. 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 Options, 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)
subject to any or all outstanding Options and payable in respect of Stock Units,
(c) the grant, purchase, or exercise price of any or all outstanding Options,
and the number and type of Stock Units (both credited and vested) under the
Plan.
To the extent that any vested Option is not exercised prior to (i) a
dissolution of the Company or (ii) a merger or other corporate event, and no
provision is made for the assumption, conversion, substitution or exchange of
the Option, the Option shall terminate upon the occurrence of such event.
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 9 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.
B-11
10. Amendments and Termination
Subject to Section 11, 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 which are then vested (assuming solely
for such purposes a voluntary termination of services as of the date of such
amendment or termination) or Options granted, and provided further that neither
Section 5 nor any other provision of the Plan or an award shall be amended to
permit the reduction (by amendment, substitution, cancellation and regrant or
other means) of the exercise price of any Option without prior stockholder
approval. 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 9 shall not be deemed to constitute changes or
amendments for purposes of this Section 10.
11. Stockholder Approval
The Plan, any grant, election, action, crediting or vesting prior to
stockholder approval, shall be subject to approval of the Plan by the
stockholders of the Company and, to the extent required under applicable law,
required by the provisions of Section 10, or deemed necessary or advisable by
the Board, any amendment to the Plan shall be subject to stockholder approval.
12. Pooling Limitations
If the Board, in its sole discretion, determines that the existence of the
Plan, or the grant of any Options or award or crediting of any Stock Units under
the Plan would cause any transaction (whether or not contemplated at the time
the Plan was adopted) that is or likely would be intended to be accounted for as
a pooling of interests transaction to fail to qualify for pooling of interests
accounting, the Board may rescind any grant of any Option or crediting or award
of Stock Units and any acceleration of vesting or delivery of Stock in respect
of the rollover of stock units to the extent (if any) required by the applicable
accounting rules to qualify such transaction or remain eligible for pooling of
interest accounting. To the extent that such Board action would adversely affect
the compensation of the Participants, the Former Plan shall be deemed
reinstated, the termination date under Section 3 of the Former Plan shall be
extended through June 30, 2003 and the number of shares authorized by the Former
Plan shall be increased to the extent (if any) as may be necessary to
accommodate the adjustments contemplated below. The restrictions upon and the
number of Stock Units then credited shall be subject to adjustment and/or
forfeiture to the extent necessary to reflect the terms and number of stock
units that would have been credited under the Former Plan had the Former Plan
been in effect without interruption and the Plan not adopted, all to the extent
that such adjustment is necessary to preserve the Company's ability to qualify
for pooling of interest accounting. If so reinstated, the Former Plan shall
continue in effect until all matters relating to stock units, including accrual
and distributions in respect of compensation deferred, the administration and
payout of stock units, have been completed.
13. Roll-over of Accounts from Former Plan
A Participant may make a one time election to roll over 100% of stock units
awarded to the Participant under the Former Plan into the Participant's Stock
Unit Account. Unless the Participant otherwise elects as permitted hereby, the
stock units shall remain subject to the deferral elections then in effect with
regard to the stock units. The Participant shall be entitled to make a one time
modification to such election to provide for a distribution upon an earlier
termination of service or upon a Change in Control; provided that any such
modification shall not be effective until 12 months after the election is made.
Any stock units so rolled over into the Plan shall become subject to and
governed by the terms and conditions of the Plan; provided however, that the
provisions of Sections 6(f)(1) and 6(f)(2) shall not apply and the Participant
shall not be entitled to make any additional changes permitted by Section 6(e)
to his or her original distribution election under the Plan.
B-12
UNOCAL CORPORATION
C/O MELLON INVESTOR SERVICES LLC
P.O. Box 1474, Church Street Station
New York, NY 10277-1474
UNOCAL [LOGO]
Board of Directors Proxy
2001 ANNUAL MEETING OF STOCKHOLDERS
TIMOTHY H. LING AND DENNIS P.R. CODON, OR EITHER OF THEM, WITH FULL POWER OF
SUBSTITUTION, ARE HEREBY APPOINTED BY THE SIGNATORY OF THIS PROXY TO VOTE ALL
SHARES OF COMMON STOCK HELD BY THE SIGNATORY ON MARCH 22, 2001, AT THE MAY 21,
2001 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 AGAINST ITEMS 4,5 AND 6.
(CONTINUED, AND TO BE DATED AND SIGNED ON REVERSE SIDE)
-FOLD AND DETACH HERE-
-FOLD AND DETACH HERE-
YOUR VOTE IS IMPORTANT TO THE COMPANY
YOU MAY VOTE BY TELEPHONE OR THE INTERNET
USING THE INSTRUCTIONS ON THE REVERSE SIDE
OR
MAIL IN YOUR VOTE USING THE
ENCLOSED POSTAGE-PAID ENVELOPE
UNOCAL [LOGO]
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE 2001
ANNUAL MEETING OF STOCKHOLDERS OF UNOCAL CORPORATION
Please mark your votes as indicated in this example [X]
- ---------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends votes for Items 1, 2, and 3
-----------------------------------------------------------------------------------------------------------------------------
Item 1: Election of the following nominees as FOR ALL WITHHOLD AUTHORITY
directors for three-year terms to Nominees [_] to vote for all nominees [_]
expire in 2004:
(01) Frank C. Herringer
(02) Charles R. Larson WITHHOLD AUTHORITY TO VOTE FOR THE FOLLOWING NOMINEE(S):
(03) Marina v.N. Whitman
(04) Charles R. Williamson --------------------------------------------------------
Item 2: Ratification of appointment of PricewaterhouseCoopers LLP FOR AGAINST ABSTAIN
as independent accountants [_] [_] [_]
Item 3: Approval of 2001 Directors' Deferred Compensation FOR AGAINST ABSTAIN
and Stock Award Plan [_] [_] [_]
-----------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends votes AGAINST Items 4,5, and 6
-----------------------------------------------------------------------------------------------------------------------------
Item 4: Stockholder Proposal: Workplace code of conduct FOR AGAINST ABSTAIN
based on ILO conventions [_] [_] [_]
Item 5: Stockholder Proposal: Executive Compensation review and report FOR AGAINST ABSTAIN
[_] [_] [_]
Item 6: Stockholder Proposal: Selection of Board of Directors FOR AGAINST ABSTAIN
candidates [_] [_] [_]
----------------------------------------------------------------------------------------------------------------------------
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 2001 Annual Meeting
CHECK THIS BOX FOR
ELECTRONIC DELIVERY [_]
(If you check this box, you agree to
receive future annual reports and proxy
statements by using a computer to access
Unocal's site on the internet, and we
will not mail paper copies of future
annual reports and proxy statements to you
unless you request them.)
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 -
UNOCAL [LOGO]
ADMISSION TICKET
UNOCAL CORPORATION ANNUAL MEETING OF STOCKHOLDERS
Meeting Time/date: 10:00 a.m., Monday, May 21, 2001
Meeting Location: Unocal Hartley Center Auditorium,
376 S. Valencia Avenue, Brea, CA 92823
***Bring this admission ticket and a photo I.D. with you to the meeting on
May 21. Do not mail.***
--------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Your telephone or Internet 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.proxyvoting.com/ucl 1-800-840-1208
------------------------------ ------------------------ --------------------------
Use the Internet to vote your Use any touch-tone Mark, sign and date your
proxy. Have your proxy card telephone to vote proxy card and return
in hand when you access the your proxy. Have it in the enclosed
web site. You will be OR your proxy card in OR postage-paid envelope.
prompted to enter your control hand when you call.
number, located in the box You will be prompted
below, to create and submit to enter your control
an electronic ballot. number, located in the
box below, and then
follow the directions
given.
------------------------------ ------------------------ --------------------------
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
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 21,
2001. THE SHARES IN YOUR ACCOUNT WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF
SUCH DIRECTION, THE TRUSTEE OF THE UNOCAL SAVINGS PLAN WILL VOTE THE SHARES IN
THE SAME PROPORTION ON EACH ISSUE AS IT VOTES THE SHARES FOR WHICH IT RECEIVES
DIRECTION, EXCEPT AS LIMITED BY LAW. IT IS UNDERSTOOD THAT THE TRUSTEE WILL HAVE
THE AUTHORITY TO VOTE OR GIVE PROXY TO VOTE ON ALL OTHER MATTERS WHICH MAY
PROPERLY COME BEFORE THE MEETING AND AT ANY ADJOURNMENT THEREOF. YOUR VOTING
INSTRUCTIONS WILL BE KEPT CONFIDENTIAL BY THE INDEPENDENT VOTING TABULATOR.
TO: HOLDERS OF UNOCAL RESTRICTED STOCK
YOUR VOTING INSTRUCTIONS ARE SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
UNOCAL CORPORATION FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 21,
2001. 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 your votes as indicated in this example [X]
- ---------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends votes for Items 1, 2, and 3
-----------------------------------------------------------------------------------------------------------------------------
Item 1: Election of the following nominees as FOR ALL WITHHOLD AUTHORITY
directors for three-year terms to Nominees [_] to vote for all nominees [_]
expire in 2004:
(01) Frank C. Herringer
(02) Charles R. Larson WITHHOLD AUTHORITY TO VOTE FOR THE FOLLOWING NOMINEE(S):
(03) Marina v.N. Whitman
(04) Charles R. Williamson --------------------------------------------------------
Item 2: Ratification of appointment of PricewaterhouseCoopers LLP FOR AGAINST ABSTAIN
as independent accountants [_] [_] [_]
Item 3: Approval of 2001 Directors' Deferred Compensation FOR AGAINST ABSTAIN
and Stock Award Plan [_] [_] [_]
-----------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends votes AGAINST Items 4,5, and 6
-----------------------------------------------------------------------------------------------------------------------------
Item 4: Stockholder Proposal: Workplace code of conduct FOR AGAINST ABSTAIN
based on ILO conventions [_] [_] [_]
Item 5: Stockholder Proposal: Executive Compensation review and report FOR AGAINST ABSTAIN
[_] [_] [_]
Item 6: Stockholder Proposal: Selection of Board of Directors FOR AGAINST ABSTAIN
candidates [_] [_] [_]
----------------------------------------------------------------------------------------------------------------------------
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 telephone or Internet 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 your proxy card in hand, dial 1-800-840-1208 using a touch-tone
telephone.
3) When prompted, enter your Control Number, located in the lower right-hand
-------------- ----------------
corner of this form.
------
4) Follow the simple instructions to vote.
or
VOTE BY INTERNET:
-----------------
1) Read the accompanying Proxy Statement.
2) With this card in hand, access http://www.proxyvoting.com/ucl
3) When prompted, enter your Control Number, located in the lower right-hand
-------------- ----------------
corner of this form.
------
4) 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