Unocal Corporation
2141 Rosecrans Avenue, Suite 4000
El Segundo, California 90245
UNOCAL [LOGO APPEARS HERE]
April 7, 2003
Dear Stockholder:
Please accept my personal invitation to attend our Annual Meeting of
Stockholders on Monday, May 19, 2003. 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, and vote on two stockholder proposals. Before the conclusion of the
Meeting, there will be a period for questions and comments.
If you are a registered stockholder and plan to attend the 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. Again this year, most stockholders have
their choice of three methods to vote by proxy:
o Mail, using the enclosed proxy card and return envelope
----
o Phone, using the 800 number provided on the proxy card
-----
(U.S. and Canada only), or
o Internet, using the website provided on the proxy card.
--------
Thank you very much for your continued interest and support.
Sincerely,
/s/ Charles R. Williamson
Charles R. Williamson
Chairman of the Board of Directors and
Chief Executive Officer
TABLE OF CONTENTS
Page
Invitation from the Chairman.................................................................................Cover
Notice of 2003 Annual Meeting of Stockholders................................................................ i
Proxy Statement.............................................................................................. 1
General Information.......................................................................................... 1
Item 1. Election of Directors............................................................................... 3
2002 Board Meetings....................................................................................... 6
Board Committee Meetings and Functions.................................................................... 6
Directors' Compensation................................................................................... 8
Security Ownership of Management.......................................................................... 10
Section 16(a) Beneficial Ownership Reporting Compliance................................................... 11
Other Information......................................................................................... 11
Executive Compensation.................................................................................... 12
Report of the Management Development and Compensation Committee......................................... 12
Performance Graph-- Cumulative Return to Stockholders................................................... 16
Indebtedness of Management................................................................................ 25
Security Ownership of Certain Beneficial Owners........................................................... 26
Item 2. Ratification of Appointment of PricewaterhouseCoopers LLP as Independent Accountants................ 27
Report of the Audit Committee............................................................................. 27
Audit Fees................................................................................................ 28
All Other Fees............................................................................................ 28
Item 3. Stockholder Proposal: Bylaw Requiring that the Chairman Be an Independent Director ................ 28
Item 4. Stockholder Proposal: Hiring of an Investment Banking Firm to Sell the Corporation................. 31
Item 5. Other
Business...................................................................................... 32
Stockholder Proposals for the 2004 Annual Meeting............................................................ 32
Exhibit A: Corporate Governance Principles.................................................................. A-1
Exhibit B: Directors' Code of Conduct....................................................................... B-1
Exhibit C: Audit Committee Charter.......................................................................... C-1
Notice of 2003
Annual Meeting
of Stockholders
UNOCAL [LOGO APPEARS HERE]
The 2003 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
19, 2003, 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 2006;
(2) To ratify the action of the Audit Committee of the Board of Directors
in appointing PricewaterhouseCoopers LLP as the Company's independent
accountants for 2003;
(3) To consider and act upon the two stockholder proposals described in
the accompanying Proxy Statement, if presented at the Meeting; and
(4) 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 20, 2003, 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 7, 2003
El Segundo, California
i
Proxy Statement
UNOCAL [LOGO APPEARS 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 2003 Annual Meeting of
Stockholders of the Company to be held on May 19, 2003, and any adjournment
thereof, pursuant to the notice of the Meeting.
The notice of the Annual Meeting and this proxy statement, together with a
proxy card and the Company's 2002 Annual Report, are being sent to stockholders
on or about April 7, 2003.
Only common stockholders of record on the books of the Company at the close
of business on March 20, 2003, 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, 2003, the Company had 258,013,728 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 the
appointment of independent accountants), and Items 3 and 4 (stockholder
proposals) will have the effect of negative votes. Pursuant to the rules of the
New York Stock Exchange, only Items 3 and 4 (stockholder proposals) are
"non-discretionary." Brokers who do not receive instructions from their clients
will not have discretion to vote on Items 3 and 4, and these broker "non votes"
will not be counted as votes cast for determining their outcome.
GENERAL INFORMATION
The Unocal 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 $16,500, plus reimbursement of out-of-pocket expenses. The Board
of Directors has appointed Messrs. Timothy H. Ling and Charles O. Strathman 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), using the
toll-free number listed on the proxy card, or electronically on the Internet,
using the web site listed on the proxy card, or in person at the Meeting. If you
are a beneficial owner of Unocal 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 on the Internet,
following the instructions on the card. A street-name stockholder who wishes to
vote at the Meeting will need to obtain a proxy from the record holder.
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.
The 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 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.
Most banks and brokers are delivering only one copy of the annual report
and proxy statement to consenting street-name stockholders who share the same
address. This saves the Company money in printing and distribution costs. Those
banks and brokers will continue this practice unless they receive contrary
instructions from one or more of the stockholders within the household.
Street name stockholders in a single household who received only one copy
of their annual meeting materials can request to receive separate copies in the
future by contacting their bank or broker. In most cases, they may also do so by
checking the appropriate box on the voting instruction card sent to them.
Similarly, most street-name stockholders who are receiving multiple copies of
the annual report and proxy statement at a single address may request that only
a single set of materials be sent to them by checking the appropriate box on the
voting instruction card sent to them, or by contacting their bank or broker.
Rather than contacting their bank or stockbroker directly, most street-name
stockholders may give instructions to receive separate copies or discontinue
multiple mailings of materials by contacting the third party that mails annual
meeting materials for most banks and brokers by writing to Householding
Department, ADP, 51 Mercedes Way, Edgewood, NY 11717, or telephoning (800)
542-1061. Alternatively, stockholders may send written instructions to Unocal
Stockholder Services, 2141 Rosecrans Avenue, Suite 4000, El Segundo, CA 90245,
and the Company will forward your instructions. In both cases, your instructions
must include the name of your stockbrokerage firm and your account number.
Please note that some banks and stockbrokers do not follow the practice of
sending only one copy of the annual meeting materials to consenting stockholders
sharing the same address.
Copies of the current annual report and proxy statement are available by
contacting Unocal Stockholder Services at (310) 726-7681, 2141 Rosecrans Avenue,
Suite 4000, El Segundo, CA 90245, fax (714) 985-6363, e-mail:
stockholder_services@unocal.com.
Registered stockholders will receive one proxy statement and annual report
for each account. Registered stockholders who would prefer to view annual
reports and proxy statements on the internet may request electronic delivery as
explained above.
2
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. This year, there are four director nominees for
three-year terms expiring at the annual meeting in 2006. Information about the
four director nominees and the six continuing directors, whose terms expire in
2004 and 2005, is provided in the table below.
The Company's director retirement policy requires that a director retire on
the day of the annual meeting of stockholders following the director's 72nd
birthday; thus, John W. Amerman would retire in 2004 and John W. Creighton, Jr.
would retire in 2005, even though they are in the class of directors whose terms
expire in 2006.
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.
NOMINEES FOR DIRECTORS--TERMS TO EXPIRE IN 2006
----------------------------- -------------------------------------- ------------- ------------ ----------------------
Age
as of
Principal Occupation and Business Annual Director Other Directorships
Name Experience Meeting Since
----------------------------- -------------------------------------- ------------- ------------ ----------------------
John W. Amerman Former Chairman (1987-1997) and 71 1991 o Aegis Group Plc.
Chief Executive Officer (1987-1996)
of Mattel, Inc. (children's toys)
----------------------------- -------------------------------------- ------------- ------------ ----------------------
John W. Creighton, Jr. Vice Chairman (December, 70 1995
2002-present) of Unocal; Chairman
and Chief Executive Officer (October
2001-August, 2002) of UAL
Corporation (United Airlines);
Chairman (January through October,
2001) of Unocal; Director
(1988-1998), President and Chief
Executive Officer (1991-1997) of
Weyerhaeuser Company (forest
products)
----------------------------- -------------------------------------- ------------- ------------ ----------------------
Kevin W. Sharer Chairman (2001-present), Chief 55 1997 o Amgen Inc.
Executive Officer and President (Chairman)
(2000-present), President and Chief o 3M Company
Operating Officer (1992-2000) and a
director (1992-present) of Amgen
Inc. (biotechnology)
----------------------------- -------------------------------------- ------------- ------------ ----------------------
(Table continued on next page)
3
NOMINEES FOR DIRECTORS--TERMS TO EXPIRE IN 2006
----------------------------- -------------------------------------- ------------- ------------ ----------------------
Age
as of
Principal Occupation and Business Annual Director Other Directorships
Name Experience Meeting Since
----------------------------- -------------------------------------- ------------- ------------ ----------------------
Ferrell P. McClean Former Managing Director, Investment 56 2002 o Graftech
Banking, and Senior Advisor to Head International
of Global Oil & Gas Investment Ltd.
Banking of J.P. Morgan Chase & Co.
(2000-2002); Managing Director,
Investment Banking, and Co-Head of
Global Energy Investment Banking of
J.P. Morgan & Co. (1991-2000)
----------------------------- -------------------------------------- ------------- ------------ ----------------------
CONTINUING DIRECTORS--TERMS TO EXPIRE IN 2004
----------------------------- -------------------------------------- ------------- ------------ ----------------------
Age
as of
Principal Occupation and Business Annual Director Other Directorships
Name Experience Meeting Since
----------------------------- -------------------------------------- ------------- ------------ ----------------------
Frank C. Herringer Former Chairman of the combined 60 1989 o Charles Schwab
AEGON-Transamerica operations Corporation
(financial services) and a member of o Mirapoint, Inc.
the Executive Board of AEGON N.V. o AT&T Corp.
(1999-2000); Chairman
(1996-present), director
(1986-present), President
(1986-1999) and Chief Executive
Officer (1991-1999) of Transamerica
Corporation
----------------------------- -------------------------------------- ------------- ------------ ----------------------
Marina v.N. Whitman Professor of business administration 68 1993 o Procter & Gamble
and public policy at the University Company
of Michigan (1992-present); serves o Intelliseek, Inc.
as a member, director, or trustee of
several educational and professional
organizations
----------------------------- -------------------------------------- ------------- ------------ ----------------------
Charles R. Williamson Chairman (November 2001-present), 54 2000
and Chief Executive Officer
(2001-present) of Unocal; Executive
Vice President, International Energy
Operations (1999-2000), Group Vice
President, Asia Operations
(1998-1999), Group Vice President,
International Operations
(1996-1998), Vice President,
Planning and Economics (1995-1996)
of Unocal
----------------------------- -------------------------------------- ------------- ------------ ----------------------
4
CONTINUING DIRECTORS --TERMS TO EXPIRE IN 2005
----------------------------- -------------------------------------- ------------- ------------ ----------------------
Age
as of
Principal Occupation and Business Annual Director Other Directorships
Name Experience Meeting Since
----------------------------- -------------------------------------- ------------- ------------ ----------------------
James W. Crownover Former Director (1982-1998), 59 1998 o Great Lakes
Managing Director of Southwest Chemical
Practice (1984-1994) of McKinsey & Corporation
Company, Inc. (management consulting) o Weingarten
Realty Investors
o Allied
Waste
Industries, Inc.
----------------------------- -------------------------------------- ------------- ------------ ----------------------
Timothy H. Ling President and Chief Operating 45 2000
Officer (2001-present) of Unocal;
Executive Vice President, North
American Energy Operations
(1999-2000), Chief Financial Officer
(1997-2000) of Unocal; Partner
(1994-1997) of McKinsey & Company,
Inc.
----------------------------- -------------------------------------- ------------- ------------ ----------------------
Donald B. Rice Chairman (February 2002-present), 63 1998 o Wells Fargo
President and Chief Executive &
Officer (1996-present) of Agensys, Company
Inc. (biotechnology); President and o Vulcan
Chief Operating Officer and a Materials
director (1993-1996) of Teledyne, Company
Inc. o Amgen Inc.
o Scios Inc.
(Chairman)
----------------------------- -------------------------------------- ------------- ------------ ----------------------
5
2002 BOARD MEETINGS
The Board of Directors held nine meetings in 2002.
BOARD COMMITTEE MEETINGS AND FUNCTIONS
The following table lists the standing committees of the Board of Directors
and their members, the number of committee meetings held during 2002 and the
functions performed by the committees.
--------------------------------------------------------------------------------------------------------------------
Committee Committee Functions
--------------------------------------------------------------------------------------------------------------------
AUDIT* Assists the Board in monitoring the integrity and
Meetings: 8 reliability of the Company's financial reporting, the
Company's compliance with legal and regulatory
James W. Crownover** requirements, the adequacy of the Company's internal
John W. Amerman operating policies and controls, and the quality and
John W. Creighton, Jr. performance of combined management, independent
Ferrell P. McClean accountant, and the internal audit function. The
Committee's charter is attached to this proxy
statement as Exhibit C.
--------------------------------------------------------------------------------------------------------------------
BOARD GOVERNANCE* Recommends to the Board the composition, role,
Meetings: 6 structure and procedures of the Board and its
committees.
Donald B. Rice **
Frank C. Herringer Oversees the periodic evaluation of the Board and makes
Kevin W. Sharer recommendations to improve the functioning and
Marina v.N. Whitman effectiveness of the Board and its committees.
Reviews and presents for Board approval the charters of
the Board committees, director compensation, and the
Company's Corporate Governance Principles.
Establishes criteria for selecting candidates for
election and reelection as directors and
identifies and presents to the Board such qualified
candidates. Considers qualified candidates
for directors recommended by stockholders, who may
recommend candidates by writing to the
Corporate Secretary of the Company.
--------------------------------------------------------------------------------------------------------------------
EXECUTIVE Has the powers and authority of the Board during
Meetings: 3 the periods between Board meetings, except for
those powers specifically reserved to the full Board
Charles R. Williamson** by the Delaware General Corporation Law or the
John W. Amerman Company's Bylaws.
Frank C. Herringer
Donald B. Rice
--------------------------------------------------------------------------------------------------------------------
* Composed entirely of non-employee directors
--------------------------------------------------------------------------------------------------------------------
** Serves as Chair of the Committee
--------------------------------------------------------------------------------------------------------------------
6
--------------------------------------------------------------------------------------------------------------------
Committee Committee Functions
--------------------------------------------------------------------------------------------------------------------
CORPORATE RESPONSIBILITY* Reviews the implementation of the Company's
Meetings: 4 Vision and Values Statement as it relates to
corporate responsibility.
John W. Creighton, Jr.**
John W. Amerman Reviews significant legal or other matters involving
James W. Crownover health, environment, safety, human resources,
Ferrell P. McClean community affairs and development, or ethical
conduct.
Coordinates as necessary with the Audit Committee to
ensure effective oversight of all aspects of the
Company's ethics and compliance programs.
--------------------------------------------------------------------------------------------------------------------
MANAGEMENT DEVELOPMENT Designs the Company's executive compensation program.
AND COMPENSATION* Administers all management incentive programs, and makes
Meetings: 5 recommendations to the Board with respect to other
incentive compensation and equity-based plans.
Frank C. Herringer**
Donald B. Rice Evaluates the CEO annually, and assists the CEO in the
Kevin W. Sharer evaluation of senior management.
Marina v.N. Whitman
Establishes the levels of compensation for the CEO
and senior management.
Oversees and shapes the Company's succession and
management development programs.
--------------------------------------------------------------------------------------------------------------------
RETIREMENT PLAN* Oversees the management of the assets of the
Meetings: 2 Company's retirement plans, which includes setting
investment objectives, establishing asset allocation
James W. Crownover** strategy and reviewing the investment performance and
Donald B. Rice the funded status of the plans at least annually.
Marina v.N. Whitman
--------------------------------------------------------------------------------------------------------------------
* Composed entirely of non-employee directors
--------------------------------------------------------------------------------------------------------------------
** Serves as Chair of the Committee
--------------------------------------------------------------------------------------------------------------------
THE PROXY HOLDERS WILL VOTE THE PROXIES RECEIVED FOR THE FOUR NOMINEES,
UNLESS AUTHORIZATION TO VOTE FOR THE ELECTION OF ANY NOMINEE HAS BEEN WITHHELD.
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.
7
DIRECTORS' COMPENSATION
CASH COMPENSATION AND EXPENSES
Non-employee directors receive the following fees and reimbursement of
expenses:
o $25,000 annual retainer for serving as a director
o $25,000 annual retainer for serving as Vice-Chairman of the Board
o $6,000 annual retainer for chairing a committee other than the Audit
Committee
o $15,000 annual retainer for chairing the Audit Committee
o $3,000 per day for each Board meeting attended
o $1,000 for each committee meeting attended
o Reimbursement of reasonable out-of-pocket expenses related to meetings
and other Company business
From January through November, 2002, there was no Vice-Chairman position,
and the annual retainer for chairing the Audit Committee was $6,000. The
retainers are paid in monthly installments.
STOCK COMPENSATION
The 2001 Directors' Deferred Compensation and Stock Award Plan (the "Plan")
was approved by the stockholders at the 2001 annual meeting. A total of 500,000
shares are authorized for issuance for awards made under the Plan through July
1, 2006. Under the Plan, each non-employee director receives:
o An annual grant of stock units equal in value to 20 percent of the
Director's fees earned during the prior year
o An initial stock option award with a value of $82,500 upon first being
elected to the Board
o An annual stock option award with a value of $27,500
o For any cash fees voluntarily deferred, stock units equal to 120% of the
cash deferred
The Board Governance Committee (the "Governance Committee") administers the
Plan. The Governance Committee has broad authority under the Plan, including the
authority to establish the valuation methodology that determines the number of
shares underlying option grants, within plan limits. The Governance Committee
may also determine adjustments to plan terms responsive to extraordinary
transactions, and establish, adopt and revise rules and regulations relating to
the plan. For the 2002 annual stock option awards, and for Ferrell P. McClean's
initial stock option award, the numbers of shares underlying the stock option
grants were determined using a Black Scholes model that resulted in a formula
that multiplied the fair market value of a share of common stock on the grant
date by .3877 and then divided the award value by the result.
8
The following annual stock option awards and initial stock option award
were granted to non-employee directors in 2002 under the Plan:
---------------------------- ------------------------- ------------------- -------------------- --------------------
Number of Shares
Subject to Exercise Price Grant Expiration
Name Stock Option Award Per Share Date Date
---------------------------- ------------------------- ------------------- -------------------- --------------------
John W. Amerman 1,907 $37.2000 May 1, 2002 May 1, 2012
---------------------------- ------------------------- ------------------- -------------------- --------------------
John W. Creighton, Jr. 1,907 $37.2000 May 1, 2002 May 1, 2012
---------------------------- ------------------------- ------------------- -------------------- --------------------
James W. Crownover 1,907 $37.2000 May 1, 2002 May 1, 2012
---------------------------- ------------------------- ------------------- -------------------- --------------------
Frank C. Herringer 1,907 $37.2000 May 1, 2002 May 1, 2012
---------------------------- ------------------------- ------------------- -------------------- --------------------
Ferrell P. McClean 8,188 $30.3850 December 3, 2002 December 3, 2012
---------------------------- ------------------------- ------------------- -------------------- --------------------
Donald B. Rice 1,907 $37.2000 May 1, 2002 May 1, 2012
---------------------------- ------------------------- ------------------- -------------------- --------------------
Kevin W. Sharer 1,907 $37.2000 May 1, 2002 May 1, 2012
---------------------------- ------------------------- ------------------- -------------------- --------------------
Marina v.N. Whitman 1,907 $37.2000 May 1, 2002 May 1, 2012
---------------------------- ------------------------- ------------------- -------------------- --------------------
Stock options granted under the Plan are 10-year nonqualified stock
options. The exercise price of the options is the fair market value of the
shares on the date of grant. Initial option grants vest 33 1/3% each year over
three years, and annual option grants vest 50% each year over two years. Options
become immediately vested upon: (1) death or disability; (2) a Change in
Control; or (3) with respect to options that have been outstanding for at least
nine months, retirement from service either (A) at the end of the director's
then current term and after completing five full years of service, if a director
is ineligible to stand for reelection under the Company's director retirement
policy, or (B) on the date of the Annual Meeting of Stockholders immediately
following the director's 72nd birthday under the Company's director retirement
policy and after completing five full years of service. A director who
terminates service for any reason other than for cause will have three years to
exercise vested options if the director served on the Board for at least three
years, and two years to exercise vested options if the director served on the
Board less than three years.
Stock units represent unfunded bookkeeping entries, which are paid out in
an equal number of shares of common stock at the end of the deferral period
chosen by each Director for each annual grant or voluntarily deferred annual
compensation. The units are fully vested and non-forfeitable at all times.
Dividend equivalents are credited as additional stock units, subject to the same
deferral elections.
The minimum deferral period that may be elected for stock units is three
years or following a termination of services, whichever is earlier or later. In
addition, participants may elect to accelerate the payout of their units upon a
Change in Control, upon certain hardships, or by requesting an early
distribution, subject to a withdrawal penalty. Payout of units occurs if a unit
holder would otherwise forfeit the units as a result of acceptance of government
or community service.
Subject to customary exceptions, stock options and stock units are
generally non-transferable, except by will or the laws of descent and
distribution or beneficiary designation. The Governance Committee, however, may
permit certain transfers of stock options for estate and/or tax planning
purposes to certain related persons or entities.
9
SECURITY OWNERSHIP OF MANAGEMENT
The following table lists the beneficial ownership of shares of the
Company's common stock as of February 28, 2003, by all directors, director
nominees, named executive officers, and all directors and executive officers as
a group.
--------------------------------------------------------------------------------------------------------------------
Right to Acquire
Within 60 Days
Sole Shared from February 28, 2003
Voting or Voting or --------------------------------- Total
Investment Investment Directors' Units Stock Options Beneficial
Name Power Power (A) (B) Ownership
--------------------------------------------------------------------------------------------------------------------
John W. Amerman 11,461 13,177 1,789 26,427
--------------------------------------------------------------------------------------------------------------------
Joe D. Cecil 14,989 4,481 40,007 59,477
--------------------------------------------------------------------------------------------------------------------
Dennis P.R. Codon (C) 122,262 133,116 255,378
--------------------------------------------------------------------------------------------------------------------
John W. Creighton, Jr. 2,000 27,434 1,789 31,223
--------------------------------------------------------------------------------------------------------------------
James W. Crownover 5,000 10,813 1,789 17,602
--------------------------------------------------------------------------------------------------------------------
Terry G. Dallas 2,866 194,088 196,954
--------------------------------------------------------------------------------------------------------------------
Frank C. Herringer 400(D) 51,332 19,495 1,789 73,016
--------------------------------------------------------------------------------------------------------------------
Timothy H. Ling 222,209 11,394 250,000 483,603
--------------------------------------------------------------------------------------------------------------------
Ferrell P. McClean 500 247 747
--------------------------------------------------------------------------------------------------------------------
Donald B. Rice 7,200 1,329 1,789 10,318
--------------------------------------------------------------------------------------------------------------------
Kevin W. Sharer 1,000 1,945 11,307 1,789 16,041
--------------------------------------------------------------------------------------------------------------------
Charles O. Strathman 8,260 66,382 74,642
--------------------------------------------------------------------------------------------------------------------
Marina v.N. Whitman 6,469 6,959 1,789 15,217
--------------------------------------------------------------------------------------------------------------------
Charles R. Williamson 204,806 15,603 340,167 560,576
--------------------------------------------------------------------------------------------------------------------
All directors and 614,314 96,216 90,761 1,084,961 1,886,252
executive officers
as a group
(15 persons, including
those listed above) (E)
--------------------------------------------------------------------------------------------------------------------
(A) Unocal common stock deliverable for outstanding stock units under the 2001
Directors' Deferred Compensation and Stock Award Plan at or within 60 days
from February 28, 2003. The number shown assumes accelerated distribution
of the stock units. Directors may receive immediate payment of stock unit
balances subject to a 10% forfeiture. Directors may also elect to receive
payment of stock units upon termination of service, provided that such
election is made prior to the deferral period, or twelve months prior to
termination. Excludes units for 1st quarter, 2003 compensation, as units
are credited at the end of each quarter.
(B) Common shares underlying employee or director stock options exercisable at
or within 60 days from February 28, 2003, including shares underlying
options that were "out-of-the-money" on February 28, 2003.
(C) Mr. Codon ceased being an executive officer on December 3, 2002.
(D) Held by Mr. Herringer as custodian for his daughter.
(E) Shares beneficially owned by all directors, director nominees and executive
officers as a group were less than one percent (1%) of the common stock
outstanding. No 6 1/4% Trust Convertible Preferred Securities of Unocal
Capital Trust were owned by directors or executive officers.
10
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and related Securities
and Exchange Commission rules require that directors and executive officers
report to the Commission changes in their beneficial ownership of Unocal stock,
and that any late filings must be disclosed. On December 3, 2002 Unocal's Board
elected Charles O. Strathman as Vice President and Chief Legal Officer. Mr.
Strathman's Form 3 reporting initial beneficial ownership was filed late on
February 11, 2003.
OTHER INFORMATION
Mr. Creighton was interim chairman and chief executive officer of UAL
Corporation from October, 2001 through August, 2002. UAL Corporation filed for
protection under Chapter 11 of the U.S. Bankruptcy Code on December 9, 2002.
[This space left intentionally blank]
11
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 independent, non-employee directors
o Salaries are based on comparisons with petroleum and energy industry
medians
o Long-term incentives use absolute and/or relative stock performance
o Short-term incentives use a combination of stock performance, financial
performance, individual performance and operational results
o The peer group of companies was changed for 2003 to reflect changes in the
petroleum industry
o Committee retains and is assisted by an outside consultant.
The Committee, composed entirely of independent, 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 1998 Management Incentive Program. The
Committee also administers the 2000 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 Chairman and Chief Executive Officer (the
"CEO"). The outside consultant and the CEO are present at Committee meetings but
cannot vote. The Committee considers competitive compensation data, Company
performance and individual performance, including adherence to the Company's
Code of Conduct, in establishing executive compensation. The Committee meets
outside the presence of the CEO on certain matters, including CEO compensation
and certain succession issues. The Committee met five times in 2002.
The compensation program for the CEO and other executives consists of
four elements: salary, annual cash bonus, performance share awards and stock
options. All of these elements, other than salary, are part of the Management
Incentive Program. Each element of executive compensation is discussed below.
The Management Incentive Program, consisting of the Revised Incentive
Compensation 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 and 2002, explicitly links short-term and long-term incentive
compensation to the Company's common share price performance.
In addition to absolute share price appreciation, some of the
components of the Company's executive compensation program use relative share
price performance. The "Comparative Return to Shareholders" compares the
Company's share price, plus dividends (Total Shareholder Return or "TSR") to
that of a group of companies in energy-related businesses (the "Peer Group").
The Peer Group is designed to have a composite business mix that is
similar to that of the Company as of the beginning of an award period.
Therefore, the effects of commodity prices and other external events should be
similar for the Company and the Peer Group, taken as a whole. The companies
comprising the Peer Group are reviewed periodically and changed as business
characteristics of these
12
companies, and of Unocal, change. Once the Peer Group
is established for a particular award, it is not altered for the award period.
If a company in the Peer Group does not continue as a public company to the end
of an award period, the calculation uses the average share price 60 days prior
to the merger or other corporate transaction which resulted in such company no
longer being listed on a stock exchange. The Peer Group for 2002 awards under
the Management Incentive Program consisted of 15 companies that, as a group,
reflected Unocal's current lines of business. For 2003 Awards, two companies
were added and six companies were deleted, resulting in a Peer Group of 11
companies. These changes reflected continuing restructuring in the petroleum
industry and the growing importance of Unocal's international operations.
It is the Committee's belief and intention that applicable executive
incentive compensation paid or accrued in 2002 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 an 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. For 2002, the
Committee selected a group of 11 companies to use to compare salary and other
compensation (the "Compensation Group"). All of these companies were also part
of the Peer Group used for calculating Comparative Return to Shareholders in
2002, but four companies in the Peer Group were not included either because of
their size or because they were non-U.S. companies. Following a review of
compensation data in 2002, the salary of the CEO, Mr. Williamson, was increased
to $836,000 in July, 2002.
The objective of the Committee is to establish base salaries that are
near the median paid by the companies in the Compensation Group, with
adjustments for reporting relationships, responsibilities and job scope. After
increases to the base salary of the executive officers for 2002, the salaries of
those officers as a group and that of the CEO were at approximately the
estimated median of comparative salaries of the surveyed companies.
UNOCAL DEFERRED COMPENSATION PLAN
The Unocal Deferred Compensation Plan (the "DCP"), adopted in 2001,
allows participants to defer up to 90% of annual bonuses and up to 50% of
salary. The participant may elect various investment options, which determine
the ultimate payment due at the end of the elected deferral period. The DCP is
largely unfunded and the participants are unsecured creditors of the Company.
REVISED INCENTIVE COMPENSATION PLAN
The Revised Incentive Compensation Plan (the "RICP") is the Company's
annual bonus plan for senior and middle management. Each award period under the
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 that may be awarded in a calendar year.
Prior to March of each 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 2002, the Committee approved a bonus award payout based 25% on
Comparative Return to Shareholders, 37.5% on financial performance ("Return on
Capital Employed" and "Free Cash Flow") and 37.5% on an evaluation of the
calendar year activities that will affect future performance. The Committee
13
determined that the Company performed below the established goals with respect
to the financial and future performance measures, while the Company's TSR was at
the 15th percentile of the Peer Group, resulting in no payout with respect to
this factor. Consequently, for 2002 the bonus award pool for the entire eligible
group was set at 52% of the target amount. Awards were subject to further
adjustment to reflect business unit and individual performance.
The RICP provides for deferral of awards into restricted stock and
awards can also be deferred under the DCP as described above. The portion of the
award deferred into restricted stock is increased by 20% to compensate for the
executive foregoing immediate cash compensation and for the risk of forfeiture.
The restriction period is five years. The award is forfeited if the recipient
resigns or is terminated for cause prior to the end of the restriction period,
unless the recipient retires at or after age 65. Mr. Williamson deferred 90% of
his award into the DCP. The Company's other five named executive officers
deferred an average of 10% of their awards into restricted stock and 38% into
the DCP.
EXECUTIVE STOCK PURCHASE PROGRAM
The Executive Stock Purchase Program was approved by stockholders at
the 2000 Annual Meeting. Mr. Williamson and nine other participants (including
three named executive officers) received interest-bearing, full recourse loans
to purchase shares of Unocal common stock. Since the executives invest in shares
of the Company, the Program links their interests with other stockholders by
having the executive's assets subject to the risks and rewards of Unocal stock
ownership. Interest on the executive loans accrues at an annual rate of 6.8%.
Dividends on shares held by the participant must be used to repay loan balances.
While participants can elect to repay the loan and accrued interest at any time,
full repayment of principal and accrued interest is not due until March, 2008.
The program resulted in the participants acquiring 1,150,310 shares of
stock, thus aligning their interests with those of other stockholders. Mr.
Williamson acquired 179,737 shares of Unocal stock and had an outstanding loan
balance of $5.6 million on December 31, 2002. Each of the participants was also
granted a Performance Bonus Award, as described below. In February 2002, the
Committee decided that no additional loans would be made and cancelled the
authorization for the remaining 599,690 shares reserved under the Program for
future issuance.
LONG-TERM INCENTIVE PLAN
The Long-Term Incentive Plan of 1998, as amended (the "1998 Plan"), is
administered by the Committee and provides for awards 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 2000, the stockholders approved Performance Bonus Awards under the
1998 Plan. Performance Bonus Awards were made only to participants in the
Executive Stock Purchase Program. Performance Bonuses are payable based on the
Company's comparative TSR and absolute share price. Determination of whether
these factors will result in any payment will be made as of December 31, 2003.
Based on the Company's TSR and absolute share price as of December 31, 2002, if
the award period had ended on such date, no performance bonuses would have been
payable.
The Committee awarded a "target" number of performance share units in
1999 to the CEO and other executive officers for the 1999 - 2002 performance
period under the 1998 Plan. Each unit is the equivalent of one share of the
Company's common stock. The awards are dependent on the executive's level of
responsibility and base compensation. Mr. Williamson's award for this
performance period was 5,000 units.
14
The actual payout of awards at the end of the four-year performance
period is determined by how the Company's TSR for the period compares to that of
the Peer Group. The maximum number of shares that can be paid out is 200% of the
performance share units granted, and the maximum value of the payout cannot
exceed 400% of the Fair Market Value of the initial award. During the 1999 -
2002 performance period, the Company's TSR was significantly below the average
of the Peer Group. Therefore, none of the performance share units awarded were
paid out to the participants, including Mr. Williamson.
Option grants are normally made in February or March of each calendar
year. Prior option grants are not considered in making these awards except when
a grant is in lieu of future grants. The number of options granted to the
executive officers is determined by reviewing option grants for similar
positions by the surveyed companies. The compensation value of the option grants
to the executive officers as a group is also compared to option grants and
compensation data available from the proxy statements of other large public
companies. The option exercise price under the 1998 Plan is the fair market
value on the date of grant. Exercise of an option results in compensation to the
employee only if the fair market value on the date of exercise exceeds the price
on the date granted.
Currently, the only numerical restrictions on grants are the total
number of shares available under the 1998 Plan and the limitation that no person
may be granted during any 12-month period options to acquire more then 600,000
shares. In 2001 the Company made four grants, including an option for 450,000
shares to Mr. Williamson and options to purchase 630,000 shares to three other
named executive officers. These grants were made after reviewing competitive
data and were intended to provide an immediate incentive to the executive to
maximize share price performance by granting three years of options at one time.
Since these grants were for a three-year period, these individuals did not
receive option grants in 2002, and they are ineligible for option grants in 2003
and 2004.
Since the total number of shares available under the 1998 Plan is less
than five percent of the outstanding shares, individual grants during the term
of the 1998 Plan have not been of such magnitude as to have any significant
dilutive effects on the Company's stock.
As described above, Unocal aligns management and stockholder interests
by linking executive incentive compensation programs to share price performance
and the creation of stockholder value. The 1998 Long-Term Incentive Plan also
provides for grants of restricted stock to executives, managers and technical
employees whose performance and potential is exceptional. The award is forfeited
if the recipient resigns or is removed for cause prior to the end of the
restriction period. In addition, the Company has incentive programs for other
employees that focus on contributions to the success of the Company and its
stockholders, including an Annual Incentive Plan, Chairman's Awards and Special
Recognition Awards.
Management Development
and Compensation Committee
of the Board of Directors
Frank C. Herringer, Chair
Donald B. Rice
Kevin W. Sharer
Marina v.N. Whitman
15
PERFORMANCE GRAPH
Cumulative Return To Stockholders*
December 31, 1997 to December 31, 2002
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG UNOCAL, S&P EXPLORATION & PRODUCTION AND S&P 500
[PERFORMANCE GRAPH APPEARS HERE]
S&P
Measurement Period Exploration & S&P 500
(Fiscal Year Covered) Unocal Production Index Index
--------------------- ------ ---------------- -------
Measurement Pt - 1997 $100 $100 $100
1998 77 68 129
1999 90 81 156
2000 107 130 141
2001 102 102 125
2002 89 101 97
* 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 12.
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.
16
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
------------------------------------ ----------------------------------
Awards Payouts
------------------------ ---------
Other Restricted
Annual Stock Securities LTIP
Compensation Awards Underlying Payouts All Other
Name and Salary Bonus (Dollars) (Dollars) Options/SARs (Dollars) Compensation
Principal Position Year (Dollars) (Dollars) (A) (B) (Number) (C) (Dollars)
--------------------------------------------------------------------------------------------------------------------
Charles R. Williamson 2002 $818,004 $ 543,403 (D) $5,256 $28,226(E) None None $71,391 (F)
Chief Executive
Officer
---------------------------------------------------------------------------------------------
2001 737,502 1,100,000 (D) 5,847 None 450,000 $189,260 44,823 (G)
---------------------------------------------------------------------------------------------
2000 436,931 186,761 (H) 5,247 155,640(I) 100,000 113,908 26,321 (J)
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Timothy H. Ling 2002 659,514 170,250 (K) 5,256 181,521(L) None None 41,717 (M)
President and
Chief Operating
Officer
---------------------------------------------------------------------------------------------
2001 622,500 350,000 (K) 5,191 430,555(L) 240,000 332,483 35,708 (N)
---------------------------------------------------------------------------------------------
2000 492,310 186,761 (H) 5,644 155,640(I) 100,000 None 26,469 (O)
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Terry G. Dallas 2002 439,704 233,688 (D) 3,721 None None None 33,974 (P)
Executive Vice
President
and Chief
Financial Officer
---------------------------------------------------------------------------------------------
2001 415,008 500,000 (D) None None 273,784 None 24,964 (Q)
---------------------------------------------------------------------------------------------
2000 213,464 121,861 (R) None None 65,000 None 2,608 (S)
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Dennis P.R. Codon 2002 393,672 115,068 (D) 5,256 None None None 1,504,555 (U)
Former Senior Vice
President, Chief
Legal Officer and
General Counsel (T)
---------------------------------------------------------------------------------------------
2001 372,504 200,000 (D) 5,191 None 166,410 179,029 22,845 (V)
---------------------------------------------------------------------------------------------
2000 335,004 146,219 (W) 5,247 None None 98,515 20,250 (X)
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Charles O. Strathman 2002 271,266 63,600 (D) 7,768 22,166(E) 9,625 None 18,160 (Y)
Vice President and
Chief Legal Officer
---------------------------------------------------------------------------------------------
2001 253,620 422,000 (D) 5,684 None 8,447 122,763 15,377 (Z)
---------------------------------------------------------------------------------------------
2000 236,018 109,286(AA) 4,668 None 10,249 67,729 14,198(BB)
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
Joe D. Cecil 2002 247,968 65,000 (D) 5,256 None 8,813 None 15,029(CC)
Vice President and
Comptroller
---------------------------------------------------------------------------------------------
2001 234,438 120,000 5,413 None 7,819 117,648 14,162(DD)
---------------------------------------------------------------------------------------------
2000 219,190 67,911(EE) 9,333 32,550(L) 7,145 41,561 13,171(FF)
--------------------------------------------------------------------------------------------------------------------
(A) 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 Unocal common stockholdings at year-end 2002 and
value (based on the closing price of the common stock as reported in
the New York Stock Exchange Composite Transactions on December 31,
2002): Mr. Williamson 18,154 shares, $555,149; Mr. Ling 49,830 shares,
$1,523,801; Mr. Dallas 2,062 shares, $63,056; Mr. Codon 11,500 shares,
$351,670; Mr. Strathman 2,867 shares, $87,673; and Mr. Cecil 4,907
shares, $150,056. Dividends are paid on restricted stock.
(C) Payout of at the end of the four-year performance period of performance
shares awarded under the Long-Term Incentive Plan of 1991.
(D) Includes amounts deferred under the Unocal Deferred Compensation Plan.
(E) Value of restricted stock received from the exercise of stock options
with restrictions granted under the Long-Term Incentive Plan of 1991.
(F) Company contributions of $12,000 to participant's Unocal Savings Plan
account and $38,111 to participant's Unocal Supplemental Savings Plan
account; and $21,280 reportable interest on deferred cash compensation.
(Footnotes continued on following two pages)
17
(G) Company contributions of $10,200 to participant's Unocal Savings Plan
account and $34,623 to participant's Unocal Supplemental Savings Plan
account.
(H) Value on the award date, February 5, 2001, of 5,359 shares of
restricted stock awarded in lieu of cash under the Revised Incentive
Compensation Plan. The number of shares awarded was determined by using
the average closing price of Unocal common stock as reported in the New
York Stock Exchange Composite Transactions during the last 30 trading
days of the grant year.
(I) Value on the award date, February 5, 2001, of a restricted stock award
elected in lieu 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 as
reported in the New York Stock Exchange Composite Transactions during
the last 30 trading days of the grant year.
(J) Company contributions of $10,200 to the participant's Unocal Savings
Plan account and $16,121 to the participant's Unocal Supplemental
Savings Plan account.
(K) Bonus paid under the Revised Incentive Compensation Plan. Includes cash
and amounts deferred under the Unocal Deferred Compensation Plan. An
additional amount deferred into restricted stock is reported in the
"Restricted Stock Awards" column.
(L) Value on the award date of a restricted stock award elected in lieu of
a portion of a cash bonus payment under the Revised Incentive
Compensation Plan. The amount deferred into restricted stock was
augmented by 20% to compensate for the risk of forfeiture and to
promote management stock ownership. The number of restricted shares was
determined by using the average closing price of Unocal common stock as
reported in the New York Stock Exchange Composite Transactions during
the last 30 trading days of the grant year.
(M) Company contributions of $6,783 to participant's Unocal Savings Plan
account and $29,599 to participant's Unocal Supplemental Savings Plan
account; and $5,335 reportable interest on deferred cash compensation.
(N) Company contributions of $6,808 to participant's Unocal Savings Plan
account and $27,798 to the participant's Unocal Supplemental Savings
Plan account; and $1,102 reportable accumulated interest on deferred
cash bonuses.
(O) Company contributions of $6,646 to the participant's Unocal Savings
Plan account and $19,470 to the participant's Unocal Supplemental
Savings Plan account; and $353 reportable accumulated interest on
deferred cash bonuses.
(P) Company contributions of $12,000 to participant's Unocal Savings Plan
account and $14,634 to participant's Unocal Supplemental Savings Plan
account; and $7,340 reportable interest on deferred cash compensation.
(Q) Company contributions of $10,200 to the participant's Unocal Savings
Plan account and $14,764 to the participant's Unocal Supplemental
Savings Plan account.
(R) 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 as reported in the New York Stock Exchange
Composite Transactions during the last 30 trading days of the grant
year. Amount shown includes the value of the shares of restricted stock
on the grant date, February 5, 2001.
18
(S) Company contributions to the participant's Unocal Supplemental Savings
Plan account.
(T) Mr. Codon ceased being an executive officer on December 3, 2002.
(U) Lump sum payment of $1,415,522 and accrued vacation time of $62,000
payable pursuant to an agreement with Mr. Codon dated November 6, 2002,
which is summarized under the caption "Employment Contracts,
Termination of Employment and Change of Control Arrangements" beginning
on page 22; Company contributions of $12,000 to participant's Unocal
Savings Plan account and $12,186 to participant's Unocal Supplement
Savings Plan account; and $2,847 reportable interest on deferred cash
compensation.
(V) Company contributions of $10,200 to the participant's Unocal Savings
Plan account and $12,537 to the participant's Unocal Supplemental
Savings Plan account; and $108 reportable accumulated interest on a
deferred cash bonus.
(W) 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 as reported in the New York Stock Exchange
Composite Transactions during the last 30 trading days of the grant
year. Amount shown includes the value of the shares of restricted stock
on the grant date, February 5, 2001.
(X) Company contributions of $10,200 to the participant's Unocal Savings
Plan account and $9,987 to the participant's Unocal Supplemental
Savings Plan account; and $63 reportable accumulated interest on
deferred cash bonuses.
(Y) Company contributions of $12,000 to participant's Unocal Savings Plan
account and $4,516 to participant's Unocal Supplemental Savings Plan
account; and $1,644 reportable interest on deferred cash compensation.
(Z) Company contributions of $10,200 to participant's Unocal Savings Plan
account and $5,177 to participant's Unocal Supplemental Savings Plan
account.
(AA) Paid in a combination of $74,157 cash and 1,008 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 as reported in the New York Stock Exchange
Composite Transactions during the last 30 trading days of the grant
year. Amount shown includes the value of the shares of restricted stock
on the grant date, February 5, 2001.
(BB) Company contributions of $10,200 to participant's Unocal Savings Plan
account and $3,998 to participant's Unocal Supplemental Savings Plan
account.
(CC) Company contributions of $12,000 to participant's Unocal Savings Plan
account and $3,029 to participant's Unocal Supplemental Savings Plan
account.
(DD) Company contributions of $10,200 to the participant's Unocal Savings
Plan account and $3,962 to the participant's Unocal Supplemental
Savings Plan account.
(EE) The portion deferred into restricted stock is reported in the
"Restricted Stock Awards" column.
(FF) Company contributions of $10,200 to the participant's Unocal Savings
Plan account and $2,971 to the participant's Unocal Supplemental
Savings Plan account.
19
OPTION/SAR GRANTS IN 2002
------------------- ---------------------- -------------- ------------- ------------- ------------------------------
Potential Realizable Value
at Assumed Annual Rates of
% of Total Stock Price Appreciation for
Number of Securities Options Option Term (C)
Underlying Options Granted to Exercise ------------------------------
Granted (A) Employees in Price Expiration 5% 10%
Name (#) 2002 (B) ($/Sh) Date ($) ($)
------------------- ---------------------- -------------- ------------- ------------- -------------- ---------------
Mr. Strathman 9,625 0.5% $34.7250 02/12/2012 $210,194 $532,674
------------------- ---------------------- -------------- ------------- ------------- -------------- ---------------
Mr. Cecil 8,813 0.5 34.7250 02/12/2012 192,462 487,735
------------------- ---------------------- -------------- ------------- ------------- -------------- ---------------
(A) The options were granted pursuant to the Long-Term Incentive Plan of 1998.
The options become exercisable in four equal installments 6 months, 1 year,
2 years and 3 years from the date of grant. The exercise price of the
options is the average of the highest and lowest trading prices of
transactions in Unocal common stock as reported in the New York Stock
Exchange Composite Transactions for the date of grant. The maximum option
exercise period is ten years from the date of grant. The optionees may pay
for option stock with cash, Unocal common stock they already own, or with
proceeds from the sale of common stock acquired by exercise of the option
through authorized cashless exercise procedures with stock brokers. Vesting
of options ceases upon termination of employment. Upon a change of control
(as defined in the option agreements), any unvested options would vest. The
options cease to be exercisable upon termination of employment, with the
following exceptions: a participant who retires at or after age 65, upon
permanent and total disability, or under conditions determined by the
Management Development and Compensation Committee to be for the convenience
of the Company, is granted three years in which to exercise vested options.
Beneficiaries have 15 months to exercise vested options upon death of the
option holder. Options are nontransferable except in the event of the
employee's death or pursuant to a court order, unless the Committee, in its
sole discretion, permits transfers to the employee's family members and
entities established for or owned by family members.
(B) The number of securities underlying all options granted to employees
in 2002: 1,782,442.
(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 above the exercise price, the options will have no
value.
AGGREGATED OPTION/SAR EXERCISES IN 2002
AND DECEMBER 31, 2002 OPTION/SAR VALUES
------------------- ------------ --------------- ----------------------------------- --------------------------------
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-The-Money Options/SARs at
on Value Options/SARs at 12/31/02 12/31/02 (Dollars) (A)
Exercise Realized ----------------------------------- --------------------------------
Name (Number) (Dollars) Exercisable Unexercisable Exercisable Unexercisable
------------------- ------------ --------------- -------------- -------------------- -------------- -----------------
Mr. Williamson 2,052 (B) $28,035 (C) 340,167 250,000 $52,169 $ 0
------------------- ------------ --------------- -------------- -------------------- -------------- -----------------
Mr. Ling None 0 250,000 145,000 0 0
------------------- ------------ --------------- -------------- -------------------- -------------- -----------------
Mr. Dallas None 0 185,642 153,142 0 0
------------------- ------------ --------------- -------------- -------------------- -------------- -----------------
Mr. Codon (D) None 0 129,014 83,204 0 0
------------------- ------------ --------------- -------------- -------------------- -------------- -----------------
Mr. Strathman 2,480 (E) 22,475 (C) 59,303 14,002 64,057 5,729
------------------- ------------ --------------- -------------- -------------------- -------------- -----------------
Mr. Cecil None 0 33,469 12,898 15,978 5,324
------------------- ------------ --------------- -------------- -------------------- -------------- -----------------
(A) The price of $30.58, which was the closing price of Unocal common stock as
reported in the New York Stock Exchange Composite Transactions for December
31, 2002, was used to value the options.
20
(B) Excludes 809 shares of restricted stock received upon the exercise of 2,051
options with restrictions, which are reported in the Restricted Stock
Awards column of the Summary Compensation Table.
(C) Represents the value realized on the unrestricted shares received upon
exercise. The restricted stock received upon exercise is valued at the end
of the five-year restriction period, or upon termination of employment due
to normal retirement or at the convenience of the Company.
(D) Mr. Codon ceased being an executive officer on December 3, 2002.
(E) Excludes 571 shares of restricted stock received upon the exercise of 2,480
options with restrictions, which are reported in the Restricted Stock
Awards column of the Summary Compensation Table.
LONG-TERM INCENTIVE PLANS - AWARDS IN 2002
PERFORMANCE SHARE UNITS
----------------------- ------------------- --------------- ------------------------------------------------------
Estimated Future Payouts
------------------------------------------------------
Period Threshold Target Maximum
Performance Until Number of Number of Number of
Share Units (A) Maturation Shares Shares Shares (A)
Name (#) or Payout (#) (#) (#)
----------------------- ------------------- --------------- -------------- ----------------- ---------------------
Mr. Williamson 17,712 12/31/2005 0 17,712 35,424
----------------------- ------------------- --------------- -------------- ----------------- ---------------------
Mr. Ling 11,424 12/31/2005 0 11,424 22,848
----------------------- ------------------- --------------- -------------- ----------------- ---------------------
Mr. Dallas 10,000 12/31/2005 0 10,000 20,000
----------------------- ------------------- --------------- -------------- ----------------- ---------------------
Mr. Codon (B) 4,000 12/31/2005 0 4,000 8,000
----------------------- ------------------- --------------- -------------- ----------------- ---------------------
Mr. Strathman 3,401 12/31/2005 0 3,401 6,802
----------------------- ------------------- --------------- -------------- ----------------- ---------------------
----------------------- ------------------- --------------- -------------- ----------------- ---------------------
Mr. Cecil 3,500 12/31/2005 0 3,500 7,000
----------------------- ------------------- --------------- -------------- ----------------- ---------------------
(A) Pursuant to the performance shares agreements, the actual number of
performance shares paid out is based on the Company's return to
stockholders for the four-year performance period (January 1, 2002 through
December 31, 2005) compared to that of a group of peer companies selected
by the Management Development and Compensation Committee. Return to
stockholders is defined as share price appreciation plus dividends
expressed as a percentage of the beginning share price. The maximum number
of shares that can be paid out is 200% of the performance shares granted,
and the maximum value of the payout cannot exceed 400% of the Fair Market
Value of the initial award of performance shares. The Management
Development and Compensation Committee may reduce the payment based on
other factors at the discretion of the Committee. If Unocal's return to
stockholders is at or under the 30th percentile of the peer group's return
to stockholders, there is no payout. The payout percentage may not exceed
50% if Unocal's return is at the 35th percentile of the peer group's
return, the payout may not exceed 100% if Unocal's return is at the 60th
percentile of the peer group's return, and the payout percentage may not
exceed 200% if Unocal's return is at the 100th percentile of the peer
group's return. A matrix is used for determining the specific payout
percentages that may not be exceeded for specific return to stockholders
levels between the 30th and 100th percentile. Awards can be paid out partly
in cash and partly in shares, as determined by the Management Development
and Compensation Committee.
(B) Mr. Codon ceased being an executive officer on December 3, 2002. Any payout
will be prorated for the length of his service during the four-year
performance period.
21
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
--------------------------------------------------------------------------------------------------------------------
(A) Covered compensation is the average monthly compensation in the 36
highest-paid months out of the last 120 months immediately preceding
retirement. For the named executive officers in the Summary Compensation
Table on page 17, covered compensation equals the amounts in the Salary and
Bonus columns of the Summary Compensation Table and the amount of bonus
that the participant elected to defer into restricted stock (other than
augmentations for deferring into restricted stock).
The Company has a noncontributory qualified defined benefit retirement plan
covering substantially all U.S. payroll employees. The plan provides
participants with retirement benefits based on a formula relating such benefits
to compensation and years of service, less up to half of the estimated old age
Social Security benefit payable. The amount of these benefits is limited by the
Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.
Where that occurs, the Company has nonqualified retirement plans designed to
maintain total retirement benefits at the qualified plan formula level. The
plans exclude augmentations to bonuses deferred into restricted stock, and
interest and appreciation in the value of bonuses and/or salary deferred into
the Unocal Deferred Compensation Plan. This Pension Plan Table, which covers all
persons named in the Summary Compensation Table, shows the estimated annual
benefits from the plans, before the deduction for a portion of the estimated old
age Social Security benefit, as described above. The benefits shown are computed
based on a single life annuity payable at normal retirement age.
Covered compensation and credited full years of service under the
retirement plan as of year-end 2002 for the executive officers named in the
Summary Compensation Table are as follows: $1,167,480 and 25 years for Mr.
Williamson; $974,776 and 5 years for Mr. Ling; $364,236 and 1 year for Mr.
Dallas; $525,393 and 28 years for Mr. Codon; $364,766 and 22 years for Mr.
Strathman; and $333,957 and 31 years for Mr. Cecil.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND
CHANGE OF CONTROL ARRANGEMENTS
The Company has employment agreements with Messrs. Williamson and Dallas
that are effective for three years. These agreements automatically renew daily
until the Company gives notice that it does not wish to further extend the term,
but in no event later than the date of the Company's annual meeting following
the employee's 65th birthday. The agreements provide for certain benefits
following an employment termination without cause or following an alteration of
the employee's employment situation, as defined in the agreements (collectively,
a "Termination Without Cause"), including a payment of 3.18 times annual salary
plus three times target bonus applicable as of the beginning of the calendar
year in which such Termination Without Cause occurs, as well as continuation of
medical, dental, life and disability insurance coverage for two years following
the Termination Without Cause. In lieu of the
22
foregoing continued medical, dental, life and disability benefits, the Company
may elect to pay the sum of $25,000. In the event of a Termination Without Cause
within 24 months of a Change of Control (as defined in the agreement), Messrs.
Williamson and Dallas would also be entitled to the increase in the lump sum
value of their benefits under the Company's qualified and non-qualified
retirement plans, as if three years were added to their benefit service and ages
thereunder. If any payment or distribution by the Company ("Payment") would be
subject to the excise tax imposed by Section 4999 of the Internal Revenue Code,
or any interest or penalties are incurred with respect to such excise tax (such
excise tax and any such interest and penalties, collectively, the "Excise Tax"),
then the employee is entitled to an additional payment (a "Gross-Up Payment") in
an amount such that after payment by the employee of all taxes (including any
interest or penalties imposed) and Excise Tax imposed upon the Gross-Up Payment,
the employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. If distributions and payments to be made by the
Company do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to Messrs. Williamson or Dallas, such that the receipt of payments
would not give rise to any Excise tax, then no Gross-Up Payment will be made and
the payments will be reduced to the Reduced Amount. Messrs. Williamson's and
Dallas's agreements were filed as exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 2002.
The Company has a change in control agreement with Mr. Ling that is
effective for three years, renewing daily until the date that the Company gives
notice that it does not wish to further extend the term. The agreement provides
that in the event of a Termination Without Cause within 36 months following a
Change of Control that occurred during the term of the agreement, Mr. Ling will
be entitled to the same benefits as provided in the employment agreement for Mr.
Williamson described above. The agreement was filed as an exhibit to the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.
The Company also has an employment agreement with Mr. Strathman which
provides that if his employment is terminated (a) by the Company, at any time
for reasons other than misconduct, or (b) by the Company or as a result of Mr.
Strathman's resignation, (i) after May 31, 2004 for any reason, (ii) any time
after six months following the appointment of a new Chief Legal Officer/General
Counsel, or (iii) following a reduction of his salary or incentive targets, then
his termination shall be treated as "at the convenience of the Company" under
the Company's long-term incentive plans, thus entitling him to the extended
period provided therein to exercise vested stock options, the vesting of
restricted stock, the pro-rata payment of performance shares and a Revised
Incentive Compensation ("ICP") award for calendar years 2003 and 2004, prorated
for his actual period of employment. Under such a termination he will also be
entitled to such severance and termination-type benefits applicable to his
position, including, at a minimum, Unocal Employee Redeployment Program and
Unocal Termination Allowance Plan benefits. The agreement was filed as an
exhibit to the Company's Current Report on Form 8-K dated February 4, 2003.
The Company has an agreement with Mr. Codon relating to his resignation as
an officer and to his retention as a consulting employee through September 30,
2003 (or earlier if he accepts conflicting employment). During such period, Mr.
Codon will continue to be paid his current salary, accrue retirement benefits
and continue to be eligible for all of the Company's benefit plans generally
applicable to a full-time employee at his salary grade, provided that he will
not receive any severance-type benefits or benefits under his prior employment
agreement. Thereafter he will be eligible for all retiree health and welfare
benefits generally applicable to an employee in his employment category. Under
the agreement, Mr. Codon was paid the sum of $1,415,522, the value of his
accrued vacation, his account balances under the Supplemental Savings Plan, the
deferred cash portion of his ICP awards, and will be eligible to receive
financial counseling services at Company expense through December 31, 2003. For
calendar year 2002 he will be eligible to receive an ICP Award based on the
percentage of target awards payable to corporate department employees of the
Company in his salary grade based on Company performance without any adjustment
for individual performance. For calendar year 2003 he will be entitled to the
greater of (a) 75% of the ICP Award that would be payable to a corporate
department employee in his salary grade, based on Company performance but
without any adjustment for individual performance, or (b) 75% of the target ICP
Award for an employee in his salary grade, without adjustment for Company or
23
individual performance. In the event of the announcement of a "Change of
Control" (as defined in the Long-Term Incentive Plan of 1998) prior to October
1, 2003, which is consummated prior to October 1, 2005, Mr. Codon shall receive
the sum of $911,970 within 60 days of said Change of Control. The agreement
provides that Mr. Codon will be entitled to an extended period to exercise
vested stock options, the vesting of restricted stock and the pro-rata payment
of performance shares, under the Company's long-term incentive plans, and
retains the original payment schedule for amounts due under his March 16, 2000
loan to purchase shares of common stock of the Company under the 2000 Executive
Stock Purchase Program. The agreement was filed as an exhibit to the Company's
Current Report on Form 8-K dated December 3, 2002.
In the event of a "change in control," as defined in the Company's
incentive plans and agreements issued thereunder, annual cash bonuses will be
paid, restricted stock will become vested, unvested options will become vested,
and payout will be accelerated for performance shares and Performance Bonus
Awards under the Long-Term Incentive Plan of 1998. Performance shares will be
paid out at not less than the target number of shares, subject to the limitation
that the fair market value of the shares paid out may not exceed 400% of the
fair market value of the initial award of performance shares. The payout for
Performance Bonus Awards will in no event be less than 50% of the maximum amount
awardable thereunder. Annual cash bonuses under the Revised Incentive
Compensation Plan will pay out at not less than the target amount, prorated by
the ratio that the shortened award period bears to the calendar year. At
February 28, 2003, 1,197,031 shares of restricted stock were outstanding,
unvested options to purchase 4,540,640 shares of common stock were outstanding
at a weighted average exercise price of $30.66, and 836,645 performance shares
were outstanding. At February 28, 2003, the number of shares of restricted stock
outstanding for the named executive officers were: Mr. Williamson, 17,371
shares; Mr. Ling, 38,132 shares; Mr. Dallas, 2,062 shares; Mr. Codon, 10,272
shares; Mr. Strathman, 2,253 shares; and Mr. Cecil, 4,786 shares. Unvested
options outstanding at December 31, 2002 for the named executive officers are
provided in the second table on page 20 of this proxy statement. Additional
grants were made on February 11, 2003 to Mr. Cecil to purchase 12,745 shares,
and to Mr. Strathman to purchase 14,518 shares, each at the price of $27.07. The
number of performance shares outstanding at February 28, 2003 for the named
executive officers were: Mr. Williamson, 61,212; Mr. Ling, 43,224; Mr. Dallas,
34,500; Mr. Codon, 14,800; Mr. Strathman, 14,263; and Mr. Cecil, 13,370. The
maximum amounts payable to the named executive officers for outstanding
Performance Bonus Awards at February 28, 2003 were: $6.1 million for Mr.
Williamson, $6.1 million for Mr. Ling, and $3.05 million for Mr. Codon. No
Performance Bonus Awards were made to Messrs. Dallas, Strathman and Cecil.
In 2000, the Boards of Directors of the Company and its Union Oil Company
of California subsidiary approved an enhanced severance program for U.S. payroll
employees not represented by collective bargaining agents in the event they lose
their jobs through a change of control of the Company occurring before 2005. In
the event of such a "change of control", as defined in the Company's Long-term
Incentive Plan of 1998, the program provides for the immediate vesting of
accrued benefits and/or accounts of all covered employees under the Company's
retirement and savings plans and the immediate payment to such employees in cash
of bonuses under its annual incentive compensation plans.
The program also provides the following in the event of an eligible
employee's involuntary termination (other than for death, disability or
misconduct) or "constructive discharge" within two years following a change of
control:
Employees with less than five years of service would receive four months of
base pay plus three-fourths of a month of base pay for every year of service.
Employees with five or more years of service would receive four months of
base pay plus an enhanced retirement benefit. The enhanced benefit would add
three years to the employee's service and age, plus the benefit would utilize
the highest consecutive 12 months of pensionable pay in the most
24
recent 120 months of service. The employee would also receive the incremental
difference in value, if any, of three-fourths of a month of base pay for each
completed year of actual service, to a maximum of 20 months, above the
discounted present value of the enhancement to the retirement benefit.
Although all current executive officers are entitled to the benefits
described in the two preceding paragraphs, payment of such benefits would reduce
the amounts payable to Messrs. Williamson and Dallas under their employment
agreements and to Mr. Ling under his change in control agreement.
The program permits an eligible employee to elect an immediate
distribution or rollover of his or her total retirement plan benefits. The
program also provides for subsidized "COBRA" medical and dental coverage for 18
months, 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 the named executive officers. Under this section, excise taxes are
imposed on employees receiving change-of-control payments (as defined) that
exceed 2.99 times the employee's average annual compensation (as defined). Under
the arrangement, an employee who is subject to the excise tax would receive a
gross-up payment, in addition to the amounts deemed change-of-control payments,
to eliminate the effect of the excise tax. This gross-up arrangement would apply
only if the employee's change-of-control payments exceed the excise tax
threshold amount of Section 280G by more than 10 percent. Otherwise, such
payments would be reduced below the threshold.
INDEBTEDNESS OF MANAGEMENT
The Company made loans in 2000 to ten employees, three of which were
executive officers during 2002, for the purchase of Unocal common stock under
the 2000 Executive Stock Purchase Program, approved by stockholders at the 2000
Annual Meeting. The loans were made on March 16, 2000, and they mature on March
16, 2008. The loans accrue interest at 6.8%, compounded annually. The minimum
interest payable each March 16 during the years 2001 through 2005 is limited to
the amount of dividends paid during the prior 12 month period on the number of
shares purchased with the loan. Any remaining unpaid accrued interest is added
to the principal and accrues interest thereafter. Starting March 16, 2006,
principal 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
Amount Since Outstanding at
Name Principal Position January 1, 2002 March 17, 2003
------------------------------ ---------------------------------------- ----------------------- --------------------------
Mr. Williamson Chairman and Chief Executive Officer $5,732,021 $5,588,232
------------------------------ ---------------------------------------- ----------------------- --------------------------
Mr. Ling President and Chief Operating Officer 5,717,367 5,573,579
------------------------------ ---------------------------------------- ----------------------- --------------------------
Mr. Codon (A) Former Senior Vice President, General 2,886,662 2,814,768
Counsel and Chief Legal Officer
------------------------------ ---------------------------------------- ----------------------- --------------------------
(A) Mr. Codon ceased being an executive officer on December 3, 2002.
25
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of December 31, 2002, 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 32,447,920 (A) 12.5%
333 South Hope Street
Los Angeles, California 90071
-------------------------------------------------------- ---------------------------------- ------------------------
Capital Group International, Inc.
11100 Santa Monica Blvd., 15th Floor 28,075,470 (B) 10.9
Los Angeles, CA 90025
-------------------------------------------------------- ---------------------------------- ------------------------
Dodge & Cox
One Sansome St., 35th Floor 20,534,719 (C) 8.0
San Francisco, CA 94104
-------------------------------------------------------- ---------------------------------- ------------------------
(A) Based on a Schedule 13G dated February 10, 2003, Capital Research and
Management Company beneficially owned these shares as a result of acting as
investment advisor to various investment companies. This number included
1,351,020 shares resulting from the assumed conversion of 1,150,000 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 10, 2003, Capital Group
International, Inc. beneficially owned these shares as the parent holding
company of a group of investment management companies that provide
investment advisory and management services for their clients, which
include investment companies and institutional accounts. This number
included 470,980 shares resulting from the assumed conversion of 400,900 6
1/4% Trust Convertible Preferred Securities of Unocal Capital Trust. The
investment management companies had sole voting power over 24,241,040
shares, and had sole dispositive power over all these shares.
(C) Based on a Schedule 13G dated February 13, 2003, Dodge & Cox beneficially
owned these shares on behalf of clients, which may include investment
companies, employee benefit plans, pension funds, endowment funds or other
institutional clients. Dodge & Cox had sole voting power over 18,931,569
shares, and shared voting power over 391,500 shares. Dodge & Cox had sole
dispositive power over all these shares.
26
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 2003. This appointment
was made by the Audit Committee of the Board of Directors.
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 58 years. Representatives of the firm are expected to
be present at the Annual Meeting and will have the opportunity to make a
statement if so desired and will be available to respond to questions.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee reviews the Company's financial reporting process
on behalf of the Board of Directors. The Committee is composed of four
independent directors, each of whom meets the independence standard of the 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 C. Management has the primary responsibility
for the financial statements and the reporting process. The Company's
independent accountants, PricewaterhouseCoopers LLP (PwC), are responsible for
expressing an opinion on the conformity of the Company's audited financial
statements to accounting principles generally accepted in the United States of
America.
In this context, the Committee reviewed and discussed with management and
the independent accountants the audited financial statements to be included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2002.
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 that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2002, for filing with the Securities and Exchange Commission.
Audit Committee
of the Board of Directors
James W. Crownover, Chair
John W. Amerman
John W. Creighton, Jr.
Ferrell P. McClean
The preceding Report of the Audit Committee shall not be deemed
incorporated by reference into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934, notwithstanding any general incorporation
by reference of this proxy statement into any other document or its inclusion as
an exhibit thereto.
27
AUDIT FEES
The aggregate fees for professional services rendered by PwC 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, 2002, and reviews of the Company's
financial statements included in its Quarterly Reports on Form 10-Q during 2002
were $3.6 million.
ALL OTHER FEES
The aggregate fees for services rendered by PwC during 2002, other than
those set forth above, were $3.6 million. These services included:
o Compliance audits $0.4 million
o Benefit plan audits $0.1 million
o Tax services $2.7 million
o Information technology consulting $0.3 million
o Internal control consulting $0.1 million
The Audit Committee has considered whether the rendering of non-audit
services to the Company by the independent accountants is compatible with the
accountants' independence. For the year 2002, PwC non-audit projects that
involved fees of $100,000 or more were reviewed by the Audit Committee. PwC
non-audit projects are defined as any work performed by PwC that is not required
for it to render its audit opinion on the Company's annual consolidated
financial statements. Effective May 2003, in accordance with rules of the
Securities and Exchange Commission implementing the Sarbanes-Oxley Act of 2002,
the Audit Committee will pre-approve all audit and allowable non-audit services
performed by PwC.
The Board of Directors unanimously recommends a vote FOR ratification of
the appointment of PricewaterhouseCoopers LLP as independent accountants for
2003. 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.
ITEM 3
STOCKHOLDER PROPOSAL
A stockholder has given notice that the following proposal will be
presented at the Meeting:
"RESOLVED: The shareholders of Unocal Corporation (the "Company") urge
the Board of Directors to take the necessary steps to amend the bylaws to
require that an independent director who has not served as chief executive
officer ("CEO") of the Company shall serve as chairman of the Board of
Directors.
"Supporting Statement
---------------------
"The primary purpose of the Board of Directors is to protect
shareholders' interests by providing independent oversight of management,
including the CEO. We believe that separating the roles of chairman and CEO will
promote greater management accountability to shareholders and lead to a more
objective evaluation of the CEO. In our opinion, an independent chairman will
enhance investor confidence in our Company and strengthen the integrity of the
Board of Directors.
28
"Recent corporate scandals have focused attention on the issue of board
independence and the need for an independent board chairman. According to the
Wall Street Journal, "in a post-Enron world of tougher corporate-governance
standards, the notion of a separate outside chairman is gaining boardroom
support as a way to improve monitoring of management and relieve overworked
CEOs" (Splitting Posts of Chairman, CEO Catches on With Boards, November 11,
2002).
"Corporate governance experts have questioned how one person serving as
both chairman and CEO can effectively monitor and evaluate his or her own
performance. A blue-ribbon commission of the National Association of Corporate
Directors recently observed "it is difficult for us to see how an active CEO,
already responsible for the operations of the corporation, can give the time
necessary to accept primary responsibility for the operations of the board."
"New listing standards proposed by the New York Stock Exchange also
stress the importance of independent boards. The proposed rules require that
non-management directors must regularly meet without management. An independent
chairman would provide strong leadership at these meetings.
"Many institutional investors have found that a strong, objective board
leader can best provide the necessary oversight of management. For example, the
California Public Employees' Retirement System's (CalPERS) Corporate Governance
Core Principles and Guidelines advocate that a lead independent director be
appointed to coordinate the activities of the independent directors when the
offices of chairman and CEO are held by the same person. CalPERS also asserts
"true board independence may ultimately--within the next decade--require a
serious re-examination of this historic combination of [the chairman and CEO]
powers." (emphasis in original)
"By setting agendas, priorities and procedures, the position of
chairman is critical in shaping the work of the Board of Directors. Accordingly,
we believe that having an independent director serve as chairman can help ensure
the objective functioning of an effective board. Conversely, we fear that
combining the positions of chairman and CEO may result in a passive and
uninvolved board that rubber-stamps the CEO's own decisions.
"For these reasons, we urge a vote FOR this resolution."
DIRECTORS' RECOMMENDATION
The Board of Directors unanimously recommends a vote AGAINST the adoption
of this proposal for the following reasons:
The Board's current structure already provides for strong and
independent oversight of the Company's affairs and its management. An absolute
requirement to separate the positions of Chairman and CEO is not in the best
interest of the Company or its stockholders. Such a requirement would restrict
the flexibility the Board now has to provide the Company with the most effective
leadership at any given time. While in 2001 the Board separated the roles of the
Chairman and CEO, the Board believes that under current circumstances a
structure that includes a Chairman also serving as CEO and an independent Vice
Chairman is in the best interest of the Company and its stockholders.
The Company has a strong system of governance that already provides for the
advantages sought by the proponent. The Company's corporate governance
principles (see Exhibit A, attached to this proxy statement ) include the
following:
o Evaluation of the CEO's performance: a committee composed entirely of
independent directors, the Management Development and Compensation
Committee, annually evaluates the performance of the CEO and senior
management.
29
o Board independence: eight of ten directors are independent.
o Board committee independence: the Board Governance Committee, the
Audit Committee, the Management Development and Compensation Committee
and the Corporate Responsibility Committee are all composed
exclusively of independent directors. The Management Development and
Compensation Committee has sole authority to hire compensation
advisors to advise on senior management compensation review. The Audit
Committee has the sole authority to hire the outside auditors. The
Board Governance Committee has the sole authority to hire search firms
to identify director candidates and compensation advisors to advise on
directors' compensation.
o Private meetings of independent directors: Independent directors meet
privately, outside the presence of the CEO, on a regular basis; in
fact, a private session for independent directors is scheduled at each
regular meeting of the Board.
o Independent directors' leadership: the Vice Chairman of the Board, who
is an independent director, chairs the private meetings of independent
directors. The Vice Chairman also sets the Board agenda in conjunction
with the CEO.
Unocal Directors' Code of Conduct (see Exhibit B, attached to this proxy
statement) strengthens the Board's independence by requiring that directors
inform the Chairmen of the Board and the Board Governance Committee of events,
circumstances or conditions that may impact the Board's assessment of whether
they meet the independence requirements of the New York Stock Exchange and the
Securities and Exchange Commission. This includes notification of any changes in
a director's employment, other board positions, and relationships with other
business, charitable and governmental entities.
Our Position:
The Board believes that Unocal's corporate governance structure, with
its emphasis on independence and accountability, makes this stockholder proposal
unnecessary. Moreover, an absolute requirement that the Chairman be a
non-executive of the Company would unduly limit governance options now available
to the Board.
The Board of Directors unanimously recommends voting AGAINST the
adoption of this proposal. The proxy holders will vote all proxies received
AGAINST this proposal unless instructed otherwise.
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.
30
ITEM 4
STOCKHOLDER PROPOSAL
A stockholder has given notice that the following proposal will be presented at
the Meeting:
"RESOLVED: That the shareholders of Unocal Corporation, assembled at
the annual meeting in person and by proxy, hereby request the Board of Directors
to take the needed steps to hire an investment banking firm to sell the
Corporation.
"Supporting Statement
---------------------
"This proposal is necessary due to the Company's chronic inability to
increase the value of the common stock. Taking into account the common stock's
miserable long term past performance, I believe it is in the best interest of
the Corporation and its stockholders that the Corporation be promptly sold with
the objective of realizing a premium over the current market price of its common
stock."
DIRECTORS' RECOMMENDATION
The Board of Directors unanimously recommends a vote AGAINST the adoption
of this proposal for the following reasons:
The Board unanimously believes that implementation of this proposal would
not be in the best interest of the stockholders or Unocal. The proponent, a
former employee, wrongly assumes that hiring an investment banker to sell Unocal
would increase stockholder value. The Board believes that carrying out this
proposal would not only fail to maximize stockholder value but would also harm
Unocal and its stockholders.
Although approval of this proposal would not be binding, the Board believes
that its approval would erode stockholder value. Speculation that Unocal was
"for sale" would harm relationships with employees, business partners, foreign
governments and national oil and gas companies, thereby negatively impacting
Unocal's existing operations and its ability to obtain rights to new oil and gas
interests. This adverse impact could significantly compromise our future
opportunities and profits. The result: a decline in stockholder value.
The Board is committed to increase the value of Unocal for all
stockholders, and will continue to pursue the strategies that it believes will
best achieve that objective. Unocal has assembled a very attractive portfolio of
properties and interests in some of the most desirable oil and gas basins
throughout the world. We expect to realize the significant value of this
portfolio over the next several years.
The Board also has a fiduciary duty to make decisions in a manner that
it believes in good faith, after proper investigation, to be in the best
interest of Unocal and its stockholders, including any sale or other strategic
transaction involving Unocal. In this regard, the Board does not believe that a
forced sale of the Company, as is advocated by the proposal, is the way to
achieve maximum value for the stockholders.
The Board has never foreclosed the possibility of any strategic
transaction that is in the best interest of Unocal and its stockholders. It
regularly reviews its strategic focus and alternatives, and considers
initiatives that may be implemented to maximize value for its stockholders. In
addition, Unocal has relationships with nationally recognized investment banking
firms and receives their advice on financial and strategic matters from time to
time.
Our Position
Unocal is fully committed to enhancing stockholder value and continuing
to undertake initiatives to achieve that objective. The hiring of an investment
banker to engage in a forced sale of the company is counterproductive.
31
The Board of Directors unanimously recommends voting AGAINST the
adoption of this proposal. The proxy holders will vote all proxies received
AGAINST this proposal unless instructed otherwise.
The 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 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 5.
OTHER BUSINESS
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.
STOCKHOLDER PROPOSALS FOR 2004 ANNUAL MEETING
Proposals submitted for inclusion in the Company's proxy statement for the
2004 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 9, 2003. Under the Company's Bylaws,
stockholder proposals for consideration at the 2004 Annual Meeting, but not for
inclusion in the proxy statement, must be received by the Corporate Secretary no
later than February 24, 2004. If the Company's Bylaws are amended to change the
date of the 2004 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 7, 2003
El Segundo, California
32
EXHIBIT A
UNOCAL CORPORATION
CORPORATE GOVERNANCE PRINCIPLES
Unocal's system of corporate governance emphasizes the Board of Directors'
independence and strengthens its ability to evaluate corporate and management
performance. It includes the following key principles:
o Eight of ten directors are non-management. All eight are independent.
o The Board Governance Committee, composed of independent directors
only, is charged with the responsibility of advising the Board on all
board governance matters, including recommending the composition,
role, structure and procedures of the board; recommending the
appointment, composition and responsibilities of the committees of the
board; and identifying and presenting qualified candidates for
election and re-election as directors.
o The Audit Committee, the Corporate Responsibility Committee, and the
Management Development and Compensation Committee also consist
entirely of independent directors.
o The Management Development and Compensation Committee annually
evaluates the performance of the CEO and senior management.
o The board reviews succession planning and management development at
least annually.
o Compensation for executive officers is linked to share price
performance, operating objectives and other factors, including
adherence to the company's code of conduct.
o The board, as a matter of policy, does not authorize the re-pricing of
stock options.
o The schedule and length of board meetings allow sufficient time for
in-depth discussions, analysis and strategic planning.
o Independent directors meet privately on a regular basis. The Vice
Chairman of the Board presides at such meetings.
o The board meeting format is designed to encourage interaction between
directors and the company's management.
o The board and its Committees have ready access to management and the
right to hire their own legal or other outside advisors. The
Compensation and Management Development Committee has the sole
authority to hire and terminate compensation advisors for senior
management compensation review. The Audit Committee has the sole
authority to hire and terminate the outside auditors. The Board
Governance Committee has the sole authority to hire and terminate
search firms to identify director candidates and compensation advisors
to advise on directors' compensation.
o An orientation program is provided to each new director.
o Directors' compensation is reviewed annually and includes cash and
stock-based incentives.
o Directors must retire from the board on the day of the Annual Meeting
of Stockholders following their 72nd birthday.
o The company ensures the confidentiality of stockholder votes.
o The board reviews its performance periodically.
o The board sets the corporate governance principles and reviews them at
least annually.
A-1
EXHIBIT B
UNOCAL CORPORATION
DIRECTORS' CODE OF CONDUCT
Purpose
Unocal Corporation's ("Unocal") commitment to ethical and lawful business
conduct is a fundamental shared value of our Board of Directors, management and
employees and critical to the company's success. Our standards for business
conduct provide that we will uphold ethical and legal standards vigorously as we
pursue our financial objectives, and that honesty and integrity will not be
compromised by Unocal anywhere at any time. Consistent with these principles,
Unocal's Board has adopted this Code of Conduct as a guide to the high ethical
and legal standards expected of its members.
Guidelines
In performing their Board and Board Committee functions, our directors will:
o Act diligently, openly, honestly and in good faith.
o Provide leadership in advancing the company's Vision, Values and Guiding
Principles.
o Discharge their duties, as members of the Board and of any Board Committees
on which they serve, in accordance with their good faith business judgment
and in the best interests of the company and its shareholders.
o Become and remain familiar with Unocal's business and the economic and
competitive environment in which the company operates and understand
Unocal's principal business plans, strategies and objectives; operational
results and financial condition; and relative marketplace position.
o Commit the time necessary to prepare for, attend (in person or
telephonically, as appropriate) and actively participate in regular and
special meetings of the Board and of the Board Committees on which they
serve.
o Inform the Chairman of the Board and the Chairman of the Board Governance
Committee of changes in their employment, other board positions,
relationships with other business, charitable and governmental entities,
and other events, circumstances or conditions that may interfere with their
ability to perform their Board or Board Committee duties or impact the
Board's assessment of whether they meet the independence requirements of
the New York Stock Exchange and the Securities and Exchange Commission.
o Not enter into, without the prior approval of the disinterested members of
the Board, any transaction or relationship with Unocal in which they will
have a financial or personal interest (either directly or indirectly, such
as through a family member or other person or organization with which they
are associated), or any transaction or situation which otherwise involves a
conflict of interest.
o Maintain the confidentiality of all material non-public information about
Unocal, its business and affairs.
o Abide by all applicable laws and regulations and Unocal's Insider Trading
Compliance Program.
B-1
EXHIBIT C
UNOCAL CORPORATION
AUDIT COMMITTEE CHARTER
This Audit Committee Charter describes the Committee's organization, role and
primary duties. The Charter will be maintained to be consistent with relevant
external rules and regulations and with the needs of the Board of Directors and
the Company. This document does not attempt to describe the practices to be used
in carrying out the charter since these will evolve over time.
ORGANIZATION
The Audit Committee (Committee) shall consist of at least three members who
shall be independent Directors. All members of the Committee shall have (or
obtain within a reasonable time frame) working familiarity with basic finance
and accounting practices and at least one member of the Committee shall be an
audit committee financial expert. The chairperson and members of the Committee
shall be appointed by the Board on the recommendation of the Governance
Committee and may be replaced by the Board.
The Committee shall meet as often as it deems necessary, but not less than once
per quarter. It will utilize executive sessions with the independent accountant,
the internal auditor, and management. The chairperson will set the agenda for
the Committee. The Committee shall have the authority to retain such outside
professional assistance as it deems appropriate and shall have unrestricted
access to all company personnel, facilities and records. The Company shall
provide the financial resources the Committee requires in fulfilling its
obligations. The Committee shall keep minutes of its meetings, report to the
Board periodically, and present to the Board an annual evaluation of the
Committee's performance. Two members shall constitute a quorum. The Committee
may delegate from time to time its duties to a subcommittee made up of one or
more Committee members. Actions and decisions of any subcommittee shall be
reported to the Committee.
ROLE
The independent accountant and General Auditor shall report directly to the
Committee. With assistance from management, the Committee shall be responsible
for the appointment, compensation, retention and oversight of the independent
accountant. It will ascertain the independent accountant's qualifications and
independence and monitor its performance.
The Committee shall provide assistance to the Board in monitoring: 1) the
integrity and reliability of the Company's financial reporting; 2) the Company's
compliance with legal and regulatory requirements; 3) the adequacy of the
Company's internal operating policies and controls; and 4) the quality and
performance of combined management, independent accountant, and the internal
audit function. It is the responsibility of the Committee to maintain free and
open means of communication between directors, independent accountant, internal
auditors, and management.
While the Committee will pursue the purposes set forth in this Charter, it is
not the duty of the Committee to plan or conduct audits or to determine that the
Company's financial statements and disclosures are complete and accurate and are
in accordance with generally accepted accounting principles and applicable rules
and regulations. These are the responsibilities of management and the
independent accountant.
DUTIES
The Committee shall have duties such as the following, in carrying out the role
described above. It will be at the discretion of the Committee to determine the
time dedicated to each duty as well as its focus and manner of approaching the
duty.
C-1
External audit process
1. Annually appoint the independent accountant (subject to shareholder
ratification) to audit the Company's financial statements including:
o Audit services to be performed
o Audit scope and plan, and
o Fee arrangements and overall staffing.
2. Carry out a process for reviewing and approving significant non-audit
services to be performed by the independent accountant.
3. Obtain annually from the independent accountant written statements:
o Describing all relationships the independent accountant has
with the Company in order to establish their objectivity and
independence, and
o Asserting that, in their judgment, they are independent of
the Company.
4. Obtain and review annually a report from the independent accountant
with respect to their internal quality control procedures, any
material issues raised by the most recent internal quality control
review or peer review of the firm or by any inquiry or investigation
by governmental or professional authorities and steps taken to deal
with any such issue.
5. Review with the independent accountant any disagreements it has with
management and other difficulties confronting the independent
accountant in the execution of its assignments.
6. Establish personnel policies associated with the relationship between
the Company and the independent accountant (e.g., five-year rotation
of audit partners serving the Company, and Company hiring of auditor
personnel who have had a past relationship with the Company).
7. With input from management, periodically review the performance of the
independent accountant in carrying out its assignments; ensure
appropriate feedback to the accountancy firm and the Board.
Internal audit process
1. Approve the Internal Audit Department Charter and the appointment of
the General Auditor.
2. Review and discuss annually with the General Auditor the internal
audit function:
o The internal audit plan and how it addresses these policies
and current results, and
o The sufficiency of coverage for significant risk areas.
3. Review summaries of internal audit reports and assessments of the
company's control structure.
4. Review the coordination of audit efforts between the independent
accountant and internal audit to ensure completeness of coverage,
reduction of redundant effort and the effective use of audit
resources.
Financial reporting
1. Review and discuss with management and the independent accountant the
annual audited financial statements, including disclosure made in
management's discussion and analysis, and their judgment on the
quality of accounting principles employed, the reasonableness of
significant
C-2
judgments and the clarity of the financial statement disclosures.
Recommend to the Board whether the audited financial statements should
be included in the Company's SEC Form 10-K.
2. Review and discuss with management and the independent accountant the
Company's quarterly financial statements, including disclosures made
in management's discussion and analysis, prior to the filing of its
SEC Form 10-Q, including the results of the independent accountant's
review of the quarterly financial statements.
3. Discuss with management and the independent accountant significant
financial reporting issues, and judgments made in connection with the
preparation of the Company's financial statements, including any
significant changes in the Company's selection or application of
accounting principles, any major issues as to the adequacy of the
Company's internal controls and any special steps adopted in light of
material control deficiencies.
4. Review and discuss timely reports from the independent accountant on:
o Critical accounting policies and practices to be used and
their rationale.
o Alternative generally accepted accounting principles
treatment of financial information and their implications
including the treatment preferred by the independent
accountant.
o Other material written communications between the
independent accountant and management.
o All other matters required to be communicated to the
Committee by the independent accountants under generally
accepted auditing standards and/or SEC or NYSE regulations.
5. Discuss earnings press releases.
6. Discuss with management and the independent accountant the effect of
regulatory and accounting initiatives as well as off-balance sheet
structures on the Company's financial statements.
7. Discuss with management the Company's major financial risk exposures
and the steps management has taken to monitor and control such
exposures, including the Company's risk assessment and risk management
policies and practices.
8. Review disclosures made to the Committee by the Company's CEO and CFO
during their certification process for the SEC Form 10-K and SEC Form
10-Q about any significant deficiencies in the design or operation of
internal controls or material weaknesses therein.
9. Prepare the Audit Committee report that SEC rules require to be
included in the Company's annual proxy statement.
Internal controls
1. Review with management, the General Auditor and the independent
accountant the adequacy of the Company's internal controls including
controls and procedures for both financial reporting and disclosure.
2. Review periodic reports from internal audit summarizing the results of
completed engagements and the resolution or status of previously
reported significant control issues.
3. Review with management, the General Auditor and the independent
accountant significant risks or exposures.
C-3
Compliance and other
In general, the Committee shall review and investigate any matters pertaining to
the integrity of management, including conflicts of interest, the adherence to
business conduct as required in the policies of the company, and the adherence
to other legal and regulatory requirements. This shall include:
1. Regular reviews of compliance processes including legal and regulatory
requirements such as the Foreign Corrupt Practices Act and compliance
training efforts.
2. Review of Company policies and procedures for reviewing officers'
expenses, perquisites and use of Company assets.
3. Meet with the Chief Legal Officer and the other Company officers as
necessary including review of any legal matters that could have a
significant impact on the Company's financial statements and
disclosures.
4. Establish procedures for the receipt, retention, and treatment of
complaints, from employees and others, received by the Company
regarding accounting, internal accounting controls, and auditing
issues. Ensure a process for responding to such complaints.
C-4
UNOCAL CORPORATION
C/O MELLON INVESTOR SERVICES LLC
P.O. Box 3535
South Hackensack, NJ 07606-9235
UNOCAL [LOGO]
Board of Directors Proxy
2003 ANNUAL MEETING OF STOCKHOLDERS
TIMOTHY H. LING AND CHARLES O. STRATHMAN, 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 20, 2003, AT THE MAY 19,
2003 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 AND 2, AND AGAINST ITEMS 3 AND 4.
--- -------
(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 2003 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 and 2
-----------------------------------------------------------------------------------------------------------------------------------
Item 1: Election of the following nominees as FOR ALL WITHHOLD AUTHORITY
directors for three-year terms to expire Nominees [_] to vote for ALL nominees [_]
in 2006:
(01) John W. Amerman
(02) John W. Creighton, Jr. WITHHOLD AUTHORITY TO VOTE FOR THE FOLLOWING NOMINEE(S):
(03) Ferrell P. McClean
(04) Kevin W. Sharer --------------------------------------------------------
Item 2: Ratification of appointment of FOR AGAINST ABSTAIN
PricewaterhouseCoopers LLP as independent [_] [_] [_]
accountants
-----------------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends votes AGAINST Items 3 and 4
-----------------------------------------------------------------------------------------------------------------------------------
Item 3: Stockholder Proposal: Bylaw requiring that the FOR AGAINST ABSTAIN
Chairman be an independent Director. [_] [_] [_]
Item 4: Stockholder Proposal: Hiring of an investment FOR AGAINST ABSTAIN
banking firm to sell the corporation. [_] [_] [_]
-----------------------------------------------------------------------------------------------------------------------------------
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 2003 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 19, 2003
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
19. 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.eproxy.com/ucl 1-800-435-6710
------------------------------ ------------------------------ -----------------------------
Use the Internet to vote your Use any touch-tone telephone Mark, sign and date your
proxy. Have your proxy card to vote your proxy. Have proxy card and return it
in hand when you access the your proxy card in hand when in the enclosed postage-paid
web site. You will be OR you call. You will be OR envelope.
prompted to enter your control prompted to enter your
number, located in the box control number, located in
below, to create and submit an the box below, and then
electronic ballot. 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 19,
2003. THE SHARES IN YOUR ACCOUNT WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF
SUCH DIRECTION, THE TRUSTEE OF THE UNOCAL SAVINGS PLAN WILL VOTE THE SHARES IN
THE SAME POROPORTION ON EACH ISSUE AS IT VOTES THE SHARES FOR WHICH IT RECEIVES
DIRECTION, EXCEPT AS LIMITED BY LAW. IT IS UNDERSTOOD THAT THE TRUSTEE WILL HAVE
THE AUTHORITY TO VOTE OR GIVE PROXY TO VOTE ON ALL OTHER MATTERS WHICH MAY
PROPERLY COME BEFORE THE MEETING AND AT ANY ADJOURNMENT THEREOF. YOUR VOTING
INSTRUCTIONS WILL BE KEPT CONFIDENTIAL BY THE INDEPENDENT VOTING TABULATOR.
TO: HOLDERS OF UNOCAL RESTRICTED STOCK
YOUR VOTING INSTRUCTIONS ARE SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
UNOCAL CORPORATION FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 19,
2003. 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 and 2
-----------------------------------------------------------------------------------------------------------------------------------
Item 1: Election of the following nominees as FOR ALL WITHHOLD AUTHORITY
directors for three-year terms to expire Nominees [_] to vote for ALL nominees [_]
in 2006:
(01) John W. Amerman
(02) John W. Creighton, Jr. WITHHOLD AUTHORITY TO VOTE FOR THE FOLLOWING NOMINEE(S):
(03) Ferrell P. McClean
(04) Kevin W. Sharer --------------------------------------------------------
Item 2: Ratification of appointment of FOR AGAINST ABSTAIN
PricewaterhouseCoopers LLP as independent [_] [_] [_]
accountants
-----------------------------------------------------------------------------------------------------------------------------------
The Board of Directors recommends votes AGAINST Items 3 and 4
-----------------------------------------------------------------------------------------------------------------------------------
Item 3: Stockholder Proposal: Bylaw requiring that the FOR AGAINST ABSTAIN
Chairman be an independent Director. [_] [_] [_]
Item 4: Stockholder Proposal: Hiring of an investment FOR AGAINST ABSTAIN
banking firm to sell the corporation. [_] [_] [_]
-----------------------------------------------------------------------------------------------------------------------------------
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 this proxy card in hand, dial 1-800-435-6710 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.
VOTE BY INTERNET:
-----------------
1) Read the accompanying Proxy Statement.
2) With this card in hand, access http://www.eproxy.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