-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GAu7iJXQ+jg1HzHkNMAQWpQgKakTB/NDtplOJFVajukYC2vln6/K5XpJly8ifTv9 SQWZeuBZ8zfW0klQg14aIg== 0000950123-03-001198.txt : 20030213 0000950123-03-001198.hdr.sgml : 20030211 20030211160716 ACCESSION NUMBER: 0000950123-03-001198 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 10 REFERENCES 429: 333-58415 FILED AS OF DATE: 20030211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNOCAL CAPITAL TRUST II CENTRAL INDEX KEY: 0001065172 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-103097-01 FILM NUMBER: 03550360 BUSINESS ADDRESS: STREET 1: 2141 ROSECRANS AVE., SUITE 4000 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107267600 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION OIL CO OF CALIFORNIA CENTRAL INDEX KEY: 0000100880 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 951315450 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-103097 FILM NUMBER: 03550359 BUSINESS ADDRESS: STREET 1: 2141 ROSECRANS AVNUE STREET 2: SUITE 4000 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107267718 MAIL ADDRESS: STREET 1: 2141 ROSECRANS AVENUE STREET 2: SUITE 4000 CITY: EL SEGUNDO STATE: CA ZIP: 90245 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNOCAL CORP CENTRAL INDEX KEY: 0000716039 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 953825062 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-103097-02 FILM NUMBER: 03550361 BUSINESS ADDRESS: STREET 1: 2141 ROSECRANS AVE STREET 2: STE 4000 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107267600 MAIL ADDRESS: STREET 1: 2141 ROSECRANS AVE STREET 2: STE 4000 CITY: EL SEGUNDO STATE: CA ZIP: 90245 S-3 1 y82934sv3.txt FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 11, 2003 REGISTRATION NOS. 333- ; 333- -01; AND 333- -02 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- UNION OIL COMPANY CALIFORNIA 95-1315450 OF CALIFORNIA UNOCAL CORPORATION DELAWARE 95-3825062 UNOCAL CAPITAL TRUST II DELAWARE TO BE APPLIED FOR - --------------------------------------- --------------------------------------- --------------------------------------- (Exact name of registrant as specified (State or other jurisdiction of (I.R.S. Employer Identification Nos.) in its charter) incorporation or organization)
--------------------- 2141 ROSECRANS AVENUE, SUITE 4000 EL SEGUNDO, CALIFORNIA 90245 (310) 726-7600 (Address, including zip code, and telephone number, including area code, of each registrant's principal executive offices) --------------------- CHARLES O. STRATHMAN, ESQ. VICE PRESIDENT AND CHIEF LEGAL OFFICER 2141 ROSECRANS AVENUE, SUITE 4000 EL SEGUNDO, CALIFORNIA 90245 (310) 726-7600 (Name, address, including zip code, and telephone number, including area code, of agent for service for each registrant) --------------------- COPIES TO: DANIEL A. NEFF, ESQ JEFFREY R. HUDSON, ESQ. DAVID C. KARP, ESQ GIBSON, DUNN & CRUTCHER LLP WACHTELL, LIPTON, ROSEN & KATZ 333 SOUTH GRAND AVENUE 51 WEST 52ND STREET LOS ANGELES, CALIFORNIA 90071 NEW YORK, NY 10019 (213) 229-7000 (212) 403-1000
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this registration statement. --------------------- If the only securities being registered on this Form are to be offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If the delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] --------------------- CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF OF SECURITIES TO BE REGISTERED REGISTERED(1) UNIT(2) PRICE(2) REGISTRATION FEE(8) - --------------------------------------------------------------------------------------------------------------------------------- Union Oil debt securities...................... Unocal common stock ($1.00 par value)(3)....... Unocal preferred stock ($0.10 par value)(3).... Unocal and Union Oil warrants(4)............... Unocal guarantees of Union Oil debt securities(5)................................ Unocal stock purchase contracts and stock purchase units(3)............................ $1,200,000,000 100% $1,200,000,000 $110,400 Trust preferred securities of Unocal Capital Trust II representing indirectly undivided beneficial interests in junior subordinated debentures of Unocal held by Unocal Capital Trust II(6).................................. Unocal guarantees of trust preferred securities of Unocal Capital Trust II(7)................ - --------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. (footnotes on next page) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (continued from previous page) - --------------- (1) There is being registered hereunder such indeterminate number or amount, as applicable, of debt securities, common stock, preferred stock, warrants, stock purchase contracts (representing rights to purchase common stock or preferred stock), stock purchase units and guarantees of Union Oil Company of California and Unocal Corporation, as applicable, and trust preferred securities of Unocal Capital Trust II, as may from time to time be issued at indeterminate prices, and as may be issuable upon conversion, redemption, exchange or exercise of any securities registered hereunder, including under any applicable antidilution provisions, with an aggregate initial offering price not to exceed $1,200,000,000 in United States dollars or the equivalent thereof in one or more foreign currencies, foreign currency units or composite currencies. If any debt securities are issued at an original issue discount, such greater amount is being registered as shall result in aggregate net proceeds not in excess of $1,200,000,000 to the registrants (or, if any securities are issued with an offering price payable in a foreign currency, foreign currency unit or composite currency, such amount is being registered as shall result in an aggregate initial offering price equivalent to $1,200,000,000 at the time of initial offering), less the dollar amount of any securities previously issued hereunder. The aggregate amount of equity securities registered hereunder is further limited to that which is permissible under Rule 415(a)(4) under the Securities Act. Any securities registered hereunder may be sold separately, in combination or as units with other securities registered hereunder. (2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act and exclusive of accrued interest, distributions and dividends, if any. (3) Includes an indeterminate number of shares of common stock and preferred stock to be issued by Unocal upon settlement of the stock purchase contracts. Each share of common stock includes one preferred share purchase right. No separate consideration is payable for the preferred share purchase rights. (4) Warrants to purchase Union Oil debt securities or Unocal preferred stock or common stock may be sold separately or with such debt securities, preferred stock or common stock. (5) The Union Oil debt securities will be fully and unconditionally guaranteed as to the payment of principal, interest and premium, if any, by Unocal. Such guarantees are also being registered hereunder. No separate consideration will be received by Unocal for such guarantees. (6) The junior subordinated debentures registered hereunder that may be issued by Unocal and sold to Unocal Capital Trust II may later be distributed for no additional consideration to the holders of trust preferred securities of such Trust upon the distribution of the assets of such Trust. (7) The Unocal Capital Trust II trust preferred securities will be guaranteed as to the payment of principal, interest and premium, if any, by Unocal. Such guarantees are also being registered hereunder. No consideration will be received by Unocal for such guarantees. (8) Pursuant to Rule 429 under the Securities Act, the prospectus filed as part of this registration statement is a combined prospectus relating also to $338.8 million aggregate initial offering price of the securities registered and remaining unissued under a registration statement filed by the registrants on July 2, 1998 (Registration Nos. 333-58415, 333-58415-01 and 333-58415-02) and declared effective by the Securities and Exchange Commission on July 15, 1998. The filing fee paid by the registrants in connection with the remaining unsold securities under such prior registration statement is offset, pursuant to Rule 457(p) under the Securities Act, against the filing fee due in connection with this registration statement, resulting in a net paid filing fee of $110,400. This registration statement, which is a new registration statement, also constitutes a post-effective amendment to such prior registration statement. Such post-effective amendment shall hereafter become effective concurrently with the effectiveness of this registration statement and in accordance with Section 8(c) of the Securities Act. EXPLANATORY NOTE This registration statement contains two forms of prospectuses to be used in connection with offerings of the following securities: - senior and subordinated debt securities of Union Oil guaranteed by Unocal, common stock and preferred stock of Unocal, warrants to purchase Union Oil's debt securities or Unocal's common stock or preferred stock, and stock purchase contracts and stock purchase units of Unocal; and - trust preferred securities of Unocal Capital Trust II, junior subordinated debentures of Unocal and guarantees by Unocal of trust preferred securities that may be issued by Unocal Capital Trust II. Under the "shelf" offering process, we may offer any combination of the securities described in these two prospectuses in one or more offerings with a total initial offering price of up to $1,538,800,000. The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED FEBRUARY , 2003 PROSPECTUS [UNOCAL LOGO] $1,538,800,000 UNION OIL COMPANY OF CALIFORNIA DEBT SECURITIES GUARANTEED BY UNOCAL CORPORATION AND WARRANTS TO PURCHASE DEBT SECURITIES --------------------- UNOCAL CORPORATION COMMON STOCK PREFERRED STOCK WARRANTS TO PURCHASE DEBT SECURITIES, COMMON STOCK AND PREFERRED STOCK AND STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS By this prospectus, Union Oil Company of California may offer, from time to time, in one or more series, senior or subordinated debt securities, guaranteed by Unocal Corporation, and warrants to purchase those debt securities, and Unocal Corporation may offer, from time to time, shares of its common stock or preferred stock, warrants to purchase such shares of common stock or preferred stock or Union Oil's debt securities, stock purchase contracts representing rights to purchase such shares of common stock or preferred stock and stock purchase units. The securities offered by this prospectus will have a maximum aggregate offering price of $1,538,800,000. Union Oil and Unocal may sell these securities to or through underwriters, to other purchasers and/or through agents, on a continuous or delayed basis. This prospectus describes some of the general terms that may apply to these securities and the general manner in which they may be offered. The specific terms of any securities to be offered, and the specific manner in which they may be offered, will be described in a supplement to this prospectus. You should read this prospectus and any supplement carefully before investing. In particular, YOU SHOULD READ THE RISK FACTORS BEGINNING ON PAGE 4. As used in this prospectus, except under "Description of Debt Securities" or if we say otherwise, the terms "Unocal," "we," "us" and "our" refer to Unocal Corporation. As used under "Description of Debt Securities," the terms "Union Oil," "we," "us" and "our" refer to Union Oil Company of California. --------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------- The date of this Prospectus is , 2003. TABLE OF CONTENTS Where You Can Find More Information......................... 2 Unocal and Union Oil........................................ 3 Risk Factors................................................ 4 Special Note on Forward-Looking Statements.................. 10 Use of Proceeds............................................. 11 Ratios of Earnings to Fixed Charges......................... 11 Description of Debt Securities.............................. 12 Description of Preferred Stock.............................. 28 Description of Capital Stock................................ 32 Description of Stock Purchase Contracts and Stock Purchase Units..................................................... 36 Description of Warrants..................................... 36 Limitations on the Issuance of Bearer Securities............ 38 Plan of Distribution........................................ 40 Validity of the Securities.................................. 42 Experts..................................................... 42
WHERE YOU CAN FIND MORE INFORMATION Unocal is required to file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any of these materials at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the SEC's public reference facilities. Unocal's SEC filings are also available to the public over the Internet, at the SEC's web site at http://www.sec.gov, and through the New York Stock Exchange, where Unocal's common stock is listed under the symbol "UCL," at 20 Broad Street, New York, New York 10005. We and Union Oil have filed registration statements with the SEC on Form S-3 pursuant to the Securities Act of 1933, or Securities Act, for the securities offered by this prospectus. In accordance with the rules and regulations of the SEC, this prospectus does not contain all of the information set forth in the registration statements of which it forms a part. For further information regarding the securities offered by this prospectus, you may examine our registration statements and the documents incorporated therein by reference, without charge, at the SEC's public reference facilities identified above. The SEC allows us to "incorporate by reference" the information we file with the SEC. This means that we can disclose important information to you by referring you to the documents we file with the SEC. The information incorporated by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update and where applicable supersede information contained or incorporated by reference in this prospectus. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, or Exchange Act, until we complete our offering of the securities under this registration statement: a. Our Annual Report on Form 10-K, as amended by Amendments Nos. 1 and 2 on Form 10-K/A, for the fiscal year ended December 31, 2001; b. Our Quarterly Report on Form 10-Q for the quarterly period ended March 31, our Quarterly Report on Form 10-Q, as amended by Amendments Nos. 1 and 2 on Form 10-Q/A, for the quarterly period ended June 30, and our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002; 2 c. Our Current Reports on Form 8-K dated (date of earliest event reported) January 22 and 24, March 27, April 8 and 25, June 10 and 20, August 2 and 20, September 4, 13, 18, 25, and 27 (as amended by Amendment No. 1 on Form 8-K/A filed on October 11, 2002), October 1, 8, 24 and 30, November 12, December 3 and 26, 2002, and January 28 and February 4, 2003; and d. The description of the Preferred Share Purchase Rights associated with our common stock, included in our Current Report on Form 8-K dated January 5, 2000, as such rights have been amended as set forth in our Current Reports on Form 8-K dated (date of earliest event reported) March 27 and August 2, 2002. The descriptions of the 6.25% Trust Convertible Preferred Securities of Unocal Capital Trust, (the "Trust Convertible Preferred Securities"), the guarantee thereof by us, and our 6.25% Convertible Junior Subordinated Debentures (the rights and terms of which may materially limit or qualify the rights evidenced by, or amounts payable with respect to, our common stock) set forth under the captions "Description of the Trust Convertible Preferred Securities," "Description of the Guarantee," "Description of the Convertible Debentures," and "Effect of Obligations under the Convertible Debentures and the Guarantee" in the prospectus dated August 7, 1996, included in the Registration Statement on Form S-4 of Unocal and Unocal Capital Trust filed on July 30, 1996, as amended by Pre-Effective Amendment No. 1 filed on August 7, 1996. All documents filed by us pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the filing of a post-effective amendment indicating that all securities offered have been sold or which deregisters all securities then remaining unsold are deemed to be incorporated by reference in this prospectus and to be a part hereof from the date of filing of those documents. We will provide without charge to each person, including any beneficial owner to whom this prospectus is delivered, upon his or her written or oral request at the address described below, a copy of any or all documents referred to above which have been or may be incorporated by reference into this prospectus, excluding exhibits to those documents unless they are specifically incorporated by reference into those documents. Stockholder Services Department Unocal Corporation 2141 Rosecrans Avenue, Suite 4000 El Segundo, California 90245 (800) 252-2233 You may also obtain copies of some of these documents at our web site at http://www.unocal.com. UNOCAL AND UNION OIL We were incorporated in Delaware in 1983 to operate as the parent company of Union Oil. Union Oil was incorporated in California in 1890. We conduct substantially all of our operations through Union Oil and Union Oil's subsidiaries. Through our subsidiaries, we are one of the world's largest independent oil and gas exploration and production companies, with principal operations in North America and Asia. We are also a leading producer of geothermal energy and a provider of electrical power in Asia. Other activities include ownership in proprietary and common carrier pipelines, natural gas storage facilities and the marketing of hydrocarbon commodities. Our and Union Oil's principal executive offices are located at 2141 Rosecrans Avenue, Suite 4000, El Segundo, California 90245, and the telephone number at that address is (310) 726-7600. 3 RISK FACTORS Our subsidiaries' business activities are subject to hazards and risks, including those described below. If any of those events should occur, our business, financial condition and/or results of operations could be materially harmed, and you could lose part or all of your investment. Additional risks relating to the securities you propose to buy may be included in the prospectus supplement relating to those securities. Before making an investment in the securities offered by this prospectus, you should carefully consider all the material risks described below and in the prospectus supplement relating to the securities you propose to buy, as well as the other information contained in those documents and in the documents incorporated by reference in this prospectus, as described under "Where You Can Find More Information." OUR PROFITABILITY IS HIGHLY DEPENDENT ON THE PRICES OF CRUDE OIL, NATURAL GAS AND NATURAL GAS LIQUIDS, WHICH HAVE HISTORICALLY BEEN VERY VOLATILE. Our revenues, profitability, cash flow and future rate of growth are highly dependent on the prices of crude oil, natural gas and natural gas liquids, which are affected by numerous factors beyond our control. Oil and gas liquids and gas prices historically have been very volatile. For example, our lower 48 U.S. gas prices declined significantly in 2001 from the very high levels reached in the second half of 2000 and early 2001. A significant downward trend in commodity prices would have a material adverse effect on our revenues, profitability and cash flow and could result in a reduction in the carrying value of our oil and gas properties and the amounts of our proved oil and gas reserves. OUR HEDGING AND SPECULATING ACTIVITIES MAY PREVENT US FROM BENEFITING FROM PRICE INCREASES AND MAY EXPOSE US TO OTHER RISKS. To the extent that we engage in hedging activities to endeavor to protect ourselves from price volatility, we may be prevented from realizing the benefits of price increases above the levels of the hedges. In addition, we engage in speculative trading in hydrocarbon commodities and derivative instruments in connection with our risk management activities, which subjects us to additional risk. OUR DRILLING ACTIVITIES MAY NOT BE PRODUCTIVE. Drilling for oil and gas involves numerous risks, including the risk that we will not encounter commercially productive oil or gas reservoirs. The costs of drilling, completing and operating wells are often uncertain, and drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, including: - unexpected drilling conditions; - pressure or irregularities in formations; - equipment failures or accidents; - fires, explosions, blow-outs and surface cratering; - marine risks such as capsizing, collisions and hurricanes; - adverse weather conditions; and - shortages or delays in the delivery of equipment. Our future drilling activities may not be successful and, if unsuccessful, this failure could have an adverse effect on our future results of operations and financial condition. While all drilling, whether developmental or exploratory, involves these risks, exploratory drilling involves greater risks of dry holes or failure to find commercial quantities of hydrocarbons. Because of the percentage of our capital budget devoted to higher risk exploratory projects, it is likely that we will continue to experience significant exploration and dry hole expenses. As part of our strategy, we explore for oil and gas offshore, often in deep water or at deep drilling depths, where operations are more difficult and costly than on land or than at shallower depths and in shallower waters. Deepwater operations may require a significant amount of time between a discovery and 4 the time that we can produce and market the oil or gas, increasing both the financial and operational risks involved with these activities. WE MAY NOT BE INSURED AGAINST ALL OF THE OPERATING RISKS TO WHICH OUR BUSINESS IS EXPOSED. Our business is subject to all of the operating risks normally associated with the exploration for and production of oil and gas, including blowouts, cratering and fire, any of which could result in damage to, or destruction of, oil and gas wells or formations or production facilities and other property and injury to persons. As protection against financial loss resulting from these operating hazards, we maintain insurance coverage, including certain physical damage, comprehensive general liability and worker's compensation insurance. However, we are not fully insured against all risks in our business. The occurrence of a significant event against which we are not fully insured could have a material adverse effect on our results of operations and possibly on our financial position. MATERIAL DIFFERENCES BETWEEN ESTIMATED AND ACTUAL TIMING OF CRITICAL EVENTS MAY AFFECT COMPLETION OF AND COMMENCEMENT OF PRODUCTION FROM DEVELOPMENT PROJECTS. We are involved in several large development projects, principally offshore. Key factors that may affect the timing and outcome of those projects include: project approvals by joint venture partners; timely issuance of permits and licenses by governmental agencies; manufacturing and delivery schedules of critical equipment, such as offshore platforms, and commercial arrangements for pipelines and related equipment to transport and market hydrocarbons. Delays and differences between estimated and actual timing of critical events may affect the completion of and commencement of production from projects. OUR OIL AND GAS RESERVE DATA AND FUTURE NET REVENUE ESTIMATES ARE UNCERTAIN. Estimates of reserves by necessity are projections based on engineering data, the projection of future rates of production and the timing of future expenditures. We base the estimates of our proved oil and gas reserves and projected future net revenues on reserve reports we prepare. The process of estimating oil and gas reserves requires substantial judgment on the part of the petroleum engineers, resulting in imprecise determinations, particularly with respect to new discoveries. Different reserve engineers may make different estimates of reserve quantities and revenues attributable to those reserves based on the same data. Future performance that deviates significantly from reserve reports could have a material adverse effect on our business and prospects, as well as on the amounts and carrying values of such reserves. Fluctuations in the prices of oil and natural gas have the effect of significantly altering reserve estimates, because the economic projections inherent in the estimates may reduce or increase the quantities of recoverable reserves. We may not realize the prices our reserve estimates reflect or produce the estimated volumes during the periods those estimates reflect. Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves most likely will vary from our estimates. Any downward revision in our estimated quantities of reserves or of the carrying values of our reserves could have adverse consequences on our financial results, such as increased depreciation, depletion and amortization charges and/or impairment charges, which would reduce earnings and stockholders' equity. IF WE FAIL TO FIND OR ACQUIRE ADDITIONAL RESERVES, OUR RESERVES AND PRODUCTION WILL DECLINE MATERIALLY FROM THEIR CURRENT LEVELS. The rate of production from oil and gas properties generally declines as reserves are depleted. Except to the extent we conduct successful exploration and development activities or, through engineering studies, identify additional productive zones or secondary recovery reserves, or acquire additional properties containing proved reserves, our proved reserves will decline materially as oil and gas is produced. Future oil and gas production is, therefore, highly dependent on our level of success in finding or acquiring additional reserves. 5 OUR GROWTH DEPENDS SIGNIFICANTLY ON OUR ABILITY TO ACQUIRE OIL AND GAS PROPERTIES ON A PROFITABLE BASIS. Acquisitions of producing oil and gas properties have been a key element of maintaining and growing our reserves and production in recent years, particularly in North America. The success of any acquisition will depend on a number of factors, including the ability to estimate accurately the recoverable volumes of reserves, rates of future production and future net revenues attainable from reserves and to assess future abandonment and possible future environmental liabilities. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and actual future production rates and associated costs and potential liabilities with respect to acquired properties. Actual results may vary substantially from those assumed in the estimates. WE ARE SUBJECT TO DOMESTIC GOVERNMENTAL RISKS THAT MAY IMPACT OUR OPERATIONS. Our domestic operations have been, and at times in the future may be, affected by political developments and by federal, state and local laws and regulations such as restrictions on production, changes in taxes, royalties and other amounts payable to governments or governmental agencies, price controls and environmental protection regulations. GLOBAL POLITICAL AND ECONOMIC DEVELOPMENTS MAY IMPACT OUR OPERATIONS. Political and economic factors in international markets may have a material adverse effect on our operations. On an equivalent-barrel basis, over one-half of our oil and gas production in 2002 was outside the United States, and approximately two-thirds of our proved oil and gas reserves at December 31, 2002 were located outside of the United States. All of our geothermal operations and reserves are located outside the United States. There are many risks associated with operations in international markets, including changes in foreign governmental policies relating to crude oil, natural gas liquids, natural gas and geothermal steam pricing and taxation, other political, economic or diplomatic developments, changing political conditions and international monetary fluctuations. These risks include: - political and economic instability or war; - the possibility that a foreign government may seize our property with or without compensation; - confiscatory taxation; - legal proceedings and claims arising from our foreign investments or operations; - a foreign government attempting to renegotiate or revoke existing contractual arrangements; - fluctuating currency values and currency controls; and - constrained natural gas markets dependent on demand in a single or limited geographical area. Actions of the United States government through tax and other legislation, executive order and commercial restrictions can adversely affect our operating profitability overseas, as well as in the U.S. The United States government can prevent or restrict us from doing business in foreign countries. These restrictions and those of foreign governments have in the past limited our ability to operate in or gain access to opportunities in various countries. Various agencies of the United States and other governments have from time to time imposed restrictions on our ability to operate in or gain attractive opportunities in various countries. Actions by both the United States and host governments have affected operations significantly in the past and will continue to do so in the future. THE OIL AND GAS EXPLORATION AND PRODUCTION INDUSTRY IS VERY COMPETITIVE, AND MANY OF OUR EXPLORATION AND PRODUCTION COMPETITORS HAVE GREATER FINANCIAL AND OTHER RESOURCES THAN WE DO. Strong competition exists in all sectors of the oil and gas exploration and production industry and, in particular, in the exploration and development of new reserves. We compete with major integrated and 6 other independent oil and gas companies for the acquisition of oil and gas leases and other properties, for the equipment and labor required to explore, develop and operate those properties and in the marketing of oil and natural gas production. Many of our competitors have financial and other resources substantially greater than those available to us. As a consequence, we may be at a competitive disadvantage in bidding for drilling rights. In addition, many of our larger competitors may have a competitive advantage when responding to factors that affect the demand for oil and natural gas production, such as changes in worldwide prices and levels of production, the cost and availability of alternative fuels and the application of government regulations. We also compete in attracting and retaining personnel, including geologists, geophysicists, engineers and other specialists. ENVIRONMENTAL COMPLIANCE AND REMEDIATION HAVE RESULTED IN AND COULD CONTINUE TO RESULT IN INCREASED OPERATING COSTS AND CAPITAL REQUIREMENTS. Our operations are subject to numerous laws and regulations relating to the protection of the environment. We have incurred, and will continue to incur, substantial operating, maintenance, remediation and capital expenditures as a result of these laws and regulations. Our compliance with amended, new or more stringent requirements, stricter interpretations of existing requirements or the future discovery of contamination may require us to make material expenditures or subject us to liabilities beyond what we currently anticipate. In addition, any failure by us to comply with existing or future laws could result in civil or criminal fines and other enforcement action against us. Our past and present operations and those of companies we have acquired expose us to civil claims by third parties for alleged liability resulting from contamination of the environment or personal injuries caused by releases of hazardous substances. For example: - we are investigating or remediating contamination at a large number of formerly and currently owned or operated sites and have recently announced additional charges relating to some of these sites; and - we have been identified as a potentially responsible party at several Superfund and other multi-party sites where we or our predecessors are alleged to have disposed of wastes in the past. Environmental laws are subject to frequent change and many of those laws have become more stringent. In some cases, they can impose liability for the entire cost of cleanup on any responsible party without regard to negligence or fault and impose liability on us for the conduct of others or conditions others have caused, or for our acts that complied with all applicable requirements when we performed them. It is not possible for us to estimate reliably the amount and timing of all future expenditures related to environmental and legal matters and other contingencies because: - some sites are in the early stages of investigation, and other sites may be identified in the future; - cleanup requirements are difficult to predict at sites where remedial investigations have not been completed or final decisions have not been made regarding cleanup requirements, technologies or other factors that bear on cleanup costs; - environmental laws frequently impose joint and several liability on all potentially responsible parties, and it can be difficult to determine the number and financial condition of other potentially responsible parties and their shares of responsibility for cleanup costs; - environmental laws and regulations are continually changing, and court proceedings are inherently uncertain; and - some legal matters are in the early stages of investigation or proceeding or their outcomes otherwise may be difficult to predict, and other legal matters may be identified in the future. 7 Although our management believes that it has established appropriate reserves for cleanup costs, due to these uncertainties, we could be required to provide significant additional reserves in the future, which could adversely affect our results of operations and possibly our financial position. More detailed information with respect to the matters discussed above is set forth under the caption "Environmental Regulation" in our amended 2001 Annual Report on Form 10-K/A and our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002, which reports are incorporated into this prospectus by reference. Our fourth quarter 2002 reported preliminary net earnings included after-tax provisions of approximately $25 million ($40 million pre-tax) for additional reserves for environmental remediation. Most of the provisions, which resulted from our regular quarterly review of remediation obligations, related to facilities previously sold with retained responsibilities and to formerly operated sites. Most of the provisions were included in our reported September 30, 2002 estimate of possible additional remediation costs. However, we expect to add approximately another $25 million to the aggregate of possible additional remediation costs as of December 31, 2002. WE DEPEND UPON PAYMENTS FROM OUR SUBSIDIARIES. We conduct substantially all of our operations through Union Oil, Pure Resources, Inc. and other subsidiaries. Our principal sources of cash are dividends and advances from our subsidiaries, investments, payments by subsidiaries for services rendered and interest payments from subsidiaries on cash advances. The amount of cash and income available to us from our subsidiaries largely depends upon each subsidiary's earnings and operating and capital requirements. In addition, the ability of our subsidiaries to make any payments or transfer funds will depend on the subsidiaries' earnings, business and tax considerations and legal restrictions. Failure to receive adequate cash and income from our subsidiaries could jeopardize our ability to make payments on debt securities we issue, including those held by Unocal Capital Trust or that we may issue to Unocal Capital Trust II, to satisfy our guarantees of debt securities of Union Oil and the trust preferred securities of Unocal Capital Trust or that Unocal Capital Trust II may issue, and to pay dividends on our common stock and any preferred stock we may issue. OUR DEBT LEVEL MAY LIMIT OUR FINANCIAL FLEXIBILITY. As of December 31, 2002, our preliminary, unaudited consolidated balance sheet showed approximately $3.0 billion of total debt outstanding. In addition, Unocal Capital Trust, a consolidated finance subsidiary, has $522 million of convertible trust preferred securities outstanding, which represent beneficial interests in a like amount of subordinated debt we issued to that trust. We may incur additional debt in the future, including in connection with acquisitions, recapitalizations and refinancings. The level of our debt could have several important effects on our future operations, including, among others: - a significant portion of our cash flow from operations will be applied to the payment of principal and interest on the debt and will not be available for other purposes; - credit rating agencies have changed, and may continue to change, their ratings of our debt and other obligations as a result of changes in our debt level, financial condition, earnings and cash flow, which in turn impacts the costs, terms and conditions and availability of financing; - covenants contained in our existing and future debt arrangements will require us to meet financial tests that may affect our flexibility in planning for and reacting to changes in our business, including possible acquisition opportunities; - our ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate and other purposes may be limited or burdened by increased costs or more restrictive covenants; - we may be at a competitive disadvantage to similar companies that have less debt; and - our vulnerability to adverse economic and industry conditions may increase. 8 A CHANGE OF CONTROL OF US COULD RESULT IN THE ACCELERATION OF OUR OUTSTANDING BANK BORROWINGS AND TRIGGER VARIOUS CHANGE-OF-CONTROL PROVISIONS INCLUDED IN EMPLOYEE AND DIRECTOR PLANS AND AGREEMENTS. Two bank credit facilities guaranteed by us, under which Union Oil can borrow an aggregate of up to $1.0 billion, provide for the termination of their loan commitments and require the prepayment of all outstanding borrowings under the facilities in the event that (1) any person or group becomes the beneficial owner of more than 30 percent of our then-outstanding voting stock other than in a transaction having the approval of our board of directors, at least a majority of which are continuing directors, or (2) our continuing directors cease to constitute at least a majority of the board. If this situation were to occur, we and Union Oil would likely be required to refinance the outstanding indebtedness under these credit facilities. There can be no assurance that we would be able to refinance this indebtedness or, if a refinancing were to occur, that the refinancing would be on terms favorable to us. Under various employee and director plans and agreements, in the event of a change in control, restricted stock would become unrestricted, unvested options and phantom units would vest, performance shares, performance bonus awards and incentive compensation would be paid out, and directors' units would be paid out if the director has so elected. We are also party to employment agreements and other agreements with certain of our employees containing change-of-control provisions. We have adopted an enhanced severance program for approximately 2,800 U.S.-payroll employees not represented by collective bargaining agreements and a limited number of international employees in the event they lose their jobs through a change of control. WE MAY ISSUE PREFERRED STOCK, THE TERMS OF WHICH COULD ADVERSELY AFFECT THE VOTING POWER OR VALUE OF OUR COMMON STOCK. Our certificate of incorporation authorizes our board of directors to issue, without the approval of our stockholders, one or more series of preferred stock having such preferences, powers and relative, participating, optional and other rights, including preferences over our common stock respecting dividends and distributions, as the board of directors generally may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we could grant holders of preferred stock the right to elect some number of directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock. PROVISIONS IN OUR CORPORATE DOCUMENTS AND DELAWARE LAW COULD DELAY OR PREVENT A CHANGE OF CONTROL OF US, EVEN IF THAT CHANGE WOULD BE BENEFICIAL TO OUR STOCKHOLDERS. Our certificate of incorporation and bylaws contain provisions that may make a change of control of us difficult, even if it would be beneficial to our stockholders, including: - provisions governing the classification, nomination and removal of directors; - a provision prohibiting stockholder action by written consent; - a provision that allows only our board of directors to call a special meeting of stockholders; - provisions regulating the ability of our stockholders to bring matters for action before annual stockholder meetings; and - the authorization given to our board of directors to issue and set the terms of preferred stock. In addition, we have adopted a stockholder rights plan, which would cause extreme dilution to any person or group that attempts to acquire a significant interest in Unocal without advance approval of our board of directors, while Section 203 of the Delaware General Corporation Law would impose restrictions on mergers and other business combinations between Unocal and any holder of 15 percent or more of our outstanding common stock. 9 WE MAY REDUCE OR CEASE TO PAY DIVIDENDS ON OUR COMMON STOCK. We can provide no assurance that we will continue to pay dividends at the current rate or at all. The amount of cash dividends, if any, to be paid in the future will depend upon their declaration by our board of directors and upon our financial condition, results of operations, cash flow, the level of our capital and exploration expenditures, our future business prospects and other related matters that our board of directors deems relevant. In addition, under the terms of the outstanding trust preferred securities of Unocal Capital Trust and the Unocal subordinated debt securities held by that trust, we have the right, under certain circumstances to suspend the payment to that trust of interest on the subordinated debt securities, in which event the trust has the right to suspend the payment of distributions on its trust preferred securities. In this situation, we would be prohibited from paying dividends on our common stock. SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS Some of the statements contained or incorporated by reference in this prospectus discuss our plans and strategies for our business or state other "forward-looking statements," as this term is defined in the Private Securities Litigation Reform Act of 1995, as embodied in Section 27A of the Securities Act 1933, as amended, and Section 21E of the Securities Exchange Act 1934, as amended. All statements, other than statements of historical facts, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. The words "believes," "anticipates," "estimates," "expects," "plans," "intends" and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. These statements are based on assumptions and assessments made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors our management believes to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, some of which our management has not yet identified. Any such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by those forward-looking statements as the result of various important factors, some of which are discussed in the "Risk Factors" section of this prospectus, at pages 59-61 of Amendment No. 2 to our 2001 Annual Report on Form 10-K/A and in other documents incorporated by reference in this prospectus. The factors described in the "Risk Factors" section of this prospectus and in the documents we incorporate by reference in this prospectus are not necessarily all of the important factors that could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. Accordingly, our actual results may differ from those expressed in, or implied by, our forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or circumstances or otherwise, except to the extent we may be legally required to do so. 10 USE OF PROCEEDS Unless we say otherwise in the applicable prospectus supplement, we will use the net proceeds from the sale of the offered securities for general corporate purposes, which may include: - contributions or loans to Union Oil and/or its subsidiaries; - repayment and refinancing of indebtedness; - acquisitions; and - repurchases and redemptions of securities. Pending any specific application, we may initially invest those funds in short-term marketable securities or apply them to the reduction of short-term indebtedness. RATIOS OF EARNINGS TO FIXED CHARGES (UNAUDITED) The following table describes, for Unocal and Union Oil, the ratios of earnings to fixed charges for the periods indicated.
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31, ----------------- ----------------------------------------- 2002 2001 2001 2000 1999 1998 1997 ----- ----- ----- ----- ----- ----- ----- Ratio of Earnings to Fixed Charges: Unocal................................. 3.0x 6.6x 5.2x 5.2x 1.9x 1.9x 3.0x Union Oil.............................. 3.4x 7.5x 5.9x 5.9x 2.1x 2.2x 3.4x
For purposes of calculating the ratio of earnings to fixed charges, "earnings" consist of earnings from continuing operations (before discontinued operations and the cumulative effect of a change in an accounting principle) before taxes on income and fixed charges. "Fixed charges" consist of interest on indebtedness and capital lease obligations, amortization of debt discount, debt premium and issuance expense and that portion of operating lease expense which is representative of the interest factor (assumed to be one third), and, in the case of Unocal, distributions on convertible preferred securities. 11 DESCRIPTION OF DEBT SECURITIES As used in this section entitled "Description of Debt Securities," except as otherwise noted, the terms "Union Oil," "we," "us" and "our" refer to Union Oil Company of California. We have summarized below the terms that apply generally to all series of debt securities we may issue, the payment of which will be fully and unconditionally guaranteed by Unocal. The financial and other specific terms that apply to a particular series of debt securities will be described in the prospectus supplement relating to that series. Those specific terms will supplement and, if applicable, may modify or replace the general terms described in this section. If there are differences between the prospectus supplement relating to a particular series and this prospectus, the prospectus supplement will control. Therefore, the statements we make in this section may not apply to a particular series of debt securities. In addition, since we have included (and any prospectus supplement will include) only a summary of the provisions of the debt securities, you must refer to the relevant indenture and its associated documents, including any debt security you may purchase, for the full legal text of the matters described in this section and any applicable prospectus supplement. We may issue senior and/or subordinated debt securities. The senior debt securities will be issued under an indenture dated as of February 3, 1995, among us, Unocal, as guarantor, and J.P. Morgan Trust Company, National Association, as successor trustee, unless a different trustee is specified in the prospectus supplement relating to a particular series of senior debt securities. The subordinated debt securities will be issued under an indenture to be entered into among us, Unocal, as guarantor, and a trustee to be named in the prospectus supplement relating to a particular series of subordinated debt securities. The indentures and the related debt securities are filed as exhibits to the registration statement of which this prospectus forms a part. When we refer to the indenture or the trustee with respect to any particular debt securities, we mean the indenture under which those debt securities will be issued and the trustee under that indenture. The senior debt securities indenture incorporates, and the subordinated debt securities indenture will incorporate, the standard multiple-series indenture provisions, January 1991, of Union Oil, as issuer, and Unocal, as guarantor, dated as of January 2, 1991, which are filed as an exhibit to the registration statement of which this prospectus forms a part. The indentures are substantially identical, except for the covenants described below under "-- Indenture Covenants -- Restriction on Liens" and "-- Limitations on Sale and Leaseback," which are included only in the senior debt securities indenture, and the provisions relating to subordination described below under "-- Subordination," which are included only in the subordinated debt securities indenture. Neither indenture limits the aggregate amount of debt securities that we may issue or the number of series or the aggregate amount of any particular series. Each indenture provides that debt securities of any series may be issued under that indenture up to the aggregate principal amount which we may authorize from time to time. We may also issue debt securities pursuant to the indentures in transactions that are exempt from the registration requirements of securities laws. We will not consider those debt securities in determining the aggregate amount of securities issued under this prospectus. The indentures and the debt securities do not limit our or Unocal's ability to incur other indebtedness or to issue other securities. Also, we and Unocal are not subject to financial or similar restrictions by the terms of the debt securities, except as described below under "-- Indenture Covenants -- Restriction on Liens" and "-- Limitations on Sale and Leaseback." GENERAL The senior debt securities and the subordinated debt securities will be our direct obligations, will not be secured by any of our property or assets or any property or assets of Unocal or any other subsidiary of Unocal, and will be fully and unconditionally guaranteed as to payment by Unocal. The senior debt securities will rank equally with all our other unsecured and unsubordinated indebtedness, and the related Unocal guarantees will rank equally with all other unsecured and unsubordinated indebtedness of Unocal. The subordinated debt securities will be subordinated in right of payment to the prior payment in full of any of our "senior debt," and the related Unocal guarantees will be subordinated in right of payment to the prior payment in full of any "senior debt" of Unocal. For additional information, see "-- Subordina- 12 tion" below. The debt securities may be issued in one or more series with the same or various maturities at prices at or above their principal amount or at a discount below their principal amount. Debt securities may be issued as "original issue discount" securities. A debt security of this type is issued at a price lower than its principal amount and provides that, upon redemption or acceleration of its stated maturity, an amount less than its principal amount will be payable. A debt security issued at a discount below its principal amount may, for United Stated federal income tax purposes, be treated as if it were issued with original issue discount, regardless of the amount payable upon redemption or acceleration of maturity. An original issue discount security may bear no interest or interest at a rate which at the time of issuance is below market rates. Special federal income tax considerations applicable to debt securities issued with original issue discount will be described in the applicable prospectus supplement. The prospectus supplement relating to a series of debt securities will specify the amounts, prices and terms of those securities. Those terms may include: - the title of the series of debt securities; - any limit on the aggregate principal amount of the series of debt securities; - the original price at which the debt securities will be issued, expressed as a percentage of their principal amount; - the authorized denominations of the debt securities, if other than $1,000 (or $5,000, in the case of any debt securities issued in bearer form) and integral multiples of $1,000 (or $5,000); - whether the debt securities will be issued in registered form or bearer form or both; - the date or dates on which the principal of the debt securities will be payable; - the rate or rates (which may be fixed or variable) at which any interest on the debt securities will be payable or the method by which those rates will be determined; - the date or dates from which any interest on the debt securities will accrue or the method by which those dates will be determined; - the dates on which payment of any interest on the debt securities will be payable and the record dates for those interest payment dates; - the place or places where the principal of, and any premium and interest on, the debt securities (and any coupons) will be payable and the place or places where the debt securities may be presented for registration of transfer and, if applicable, for conversion, exercise or exchange; - whether the securities are subject to any sinking fund terms, that is, whether we will deposit money on a regular basis into any separate custodial account to repay the debt securities; - if applicable, the circumstances under which the debt securities may be redeemed at our option or repaid at the holder's option, in whole or in part, before the stated maturity, including any redemption commencement date, repayment date(s), redemption price(s) and redemption period(s); - whether the debt security may be converted into or exercised or exchanged for debt or equity securities of Unocal or third parties, and the terms of any such conversion, exercise or exchange; - any covenants or events of default that are in addition to, modify or delete those described in this prospectus, which are included for the benefit of holders of the debt securities of that series; - the principal amount of any original issue discount debt securities that is payable on redemption or acceleration of the maturity of those securities; - the currency or currencies or currency unit or units of two or more currencies, if not United States dollars, in which the debt securities are denominated, for which they may be purchased, and in which payment of principal and any premium and interest will be payable, and, if the currency or 13 currency unit is at our election or at the election of a holder, the manner in which an election may be made; - any index or formula used to determine the amount of payments of principal of, and any premium and interest, on the debt securities; - whether the debt securities will be issued in the form of one or more global securities (that is, in book-entry form in the name of a depositary), in whole or in part and, if so, the depositary or depositaries for those securities; - if debt securities are issued in the form of global securities, whether they will be issued initially as temporary global securities or as permanent global securities, or any combination of temporary and permanent global securities, and if any temporary global securities are issued, the requirements for certification of ownership by non-United States persons that apply prior to the issuance of a definitive bearer security or the payment of interest on a date for the payment of that interest occurring before the issuance of a definitive bearer security; - the names and duties of any trustees, paying agents, transfer agents, registrars or other agents for the debt securities; - if applicable, the circumstances under which we will pay additional amounts to any holder of debt securities who is not a United States person for tax purposes (as described under "Limitations on the Issuance of Bearer Securities") and under which we can redeem the debt securities of that series rather than pay any additional amounts; - if debt securities are issued in bearer form, any special provisions relating to bearer securities that are not addressed in this prospectus, including under "Limitations on the Issuance of Bearer Securities;" - whether any of the provisions described below under "-- Indenture Covenants," "-- Events of Default," "-- Subordination," "-- Form, Exchange, Registration and Transfer," or "-- Discharge and Defeasance" will not apply to, or will be modified as applied to, the debt securities of that series; and - any other specific terms of the debt securities, including applicable United States federal income tax consequences. INTEREST AND FOREIGN CURRENCY The debt securities will bear interest at a fixed or floating rate or rates for the period or periods of time specified in the applicable prospectus supplement. Unless otherwise specified in the applicable prospectus supplement, the debt securities will bear interest on the basis of a 360-day year consisting of twelve 30-day months. If any of the debt securities are sold for any foreign currency or currency unit or if principal of, or any premium and interest on, any of the debt securities is payable in any foreign currency or currency unit, the applicable prospectus supplement will specify the restrictions, elections, tax consequences, specific terms and other information with respect to those debt securities and foreign currency or currency unit. UNOCAL GUARANTEES Unocal will fully and unconditionally guarantee the full and prompt payment of: - the principal of, and any premium on, any debt securities and coupons we may issue, when and as the same become payable, whether at the stated maturity of the debt securities, by acceleration of the stated maturity, selection for redemption of the debt securities or otherwise; and - any interest on any debt securities and coupons we may issue, when and as the same become payable. 14 The guarantees will remain in effect until all payments due on the debt securities have been made in full or otherwise discharged in accordance with the provisions of the indenture. If we default on the payment of any principal, premium or interest on any debt security and coupon, the trustee will have the right to proceed directly against Unocal without first proceeding against us or exhausting any other remedies that the holders of the debt securities may have. Any right of payment of the holders of senior debt securities under the related guarantees will be prior to the right of payment of the holders of subordinated debt securities under the related guarantees. INDENTURE COVENANTS Under the indentures, we and Unocal are subject to a number of covenants, the most significant of which are described below. LIMITATIONS ON LIENS The senior debt securities indenture provides, with respect to any series of senior debt securities, that neither we, Unocal nor any other "restricted subsidiary" of Unocal may issue, assume or guarantee any indebtedness for money borrowed that is secured by a lien on: - any domestic "oil or gas property," that is, any interest owned by Unocal or a restricted subsidiary in land which in the opinion of Unocal's board of directors is capable of producing crude oil, natural gas or other hydrocarbons in paying quantities, and any interest in those substances, whether produced or to be produced (or in any proceeds from those substances), from those lands, other than exploration or production facilities or other improvements on those lands; - any principal domestic refining or manufacturing plant of Unocal or a restricted subsidiary; or - shares of stock or indebtedness of any restricted subsidiary, unless the senior debt securities of that series are secured equally and ratably or on a priority basis with that indebtedness for money borrowed. "Restricted subsidiary" means us and any other subsidiary of Unocal (1) substantially all of the assets and operations of which are located within any one or more states of the United States and (2) the assets of which represent in excess of 2% of the total consolidated assets of Unocal and its consolidated subsidiaries. This negative pledge covenant, however, will not apply to: - liens on property or securities of a corporation when it becomes a restricted subsidiary; - purchase money liens, which refer generally to liens on property taken to secure the payment of all or any part of the purchase price of that property or to secure any debt incurred (prior to, at the time of or within 360 days after, the acquisition of that property) for the purpose of, or in connection with, financing all or any part of the purchase price; - liens existing at the time of acquisition of property pursuant to a merger, consolidation or purchase of substantially all the assets of the seller; - any liens securing indebtedness for money borrowed owing by a restricted subsidiary to Unocal or to another restricted subsidiary; - liens incurred in connection with the exploration, drilling, development, repair, alteration or improvement of a specific property; - liens on current assets or other personal property to secure indebtedness for money borrowed maturing in not more than one year; and - any extensions, renewals or replacements of any liens described in the first five bullets of this paragraph. 15 Notwithstanding these restrictions, Unocal or one or more restricted subsidiaries may issue, assume or guarantee indebtedness for money borrowed secured by a lien that would otherwise be subject to those restrictions, if the aggregate amount of that indebtedness, when added to the aggregate principal amount of all indebtedness for money borrowed secured by a lien of Unocal and its restricted subsidiaries' then outstanding, does not exceed 20% of Unocal's "consolidated net assets," that is, the total amount of assets (less applicable reserves and other properly deductible items) of Unocal and its consolidated subsidiaries, minus the total amount of liabilities and liability items of Unocal and its consolidated subsidiaries, except long-term debt, stockholders' equity and deferred income taxes, which under generally accepted accounting principles would be included on Unocal's consolidated balance sheet. In addition, the following transactions will not be deemed to create indebtedness for borrowed money secured by a lien: - the sale or transfer of oil, oil shale, gas or other minerals in place for a period of time or in an amount that will allow the transferee to realize from those minerals a specified amount of money, regardless of how determined, or a specified amount of those minerals; - the sale or transfer of any other interest in property of the character commonly referred to as a "production payment;" and - the creation of any lien in favor of domestic or foreign governmental bodies or agencies to secure payment or the performance of any other obligations under any contract or statute, or to secure any indebtedness incurred for the purpose of financing or refinancing all or a part of the purchase price or the cost of construction of the property subject to that lien. The form of subordinated debt securities indenture does not contain any negative pledge provisions. LIMITATIONS ON SALE AND LEASEBACK The senior debt securities indenture provides, with respect to any series of senior debt securities, that Unocal will not, and will not permit us or any other restricted subsidiary of Unocal to, enter into any arrangement with any person providing for the leasing by Unocal or the restricted subsidiary of any real property in the United States (except for leases for a term of not more than five years), if that property has been or is to be sold or transferred by Unocal or the restricted subsidiary to that person or to any other person and funds have been or are to be advanced to that person on the security of the leased property, unless: - Unocal or the restricted subsidiary is not restricted by the provisions described above under "-- Limitations on Liens" from incurring indebtedness for borrowed money secured by a lien on that property; or - within 90 days of completing the transaction, Unocal applies an amount equal to the greater of (1) the fair value (as determined by its board of directors) of the property or (2) the proceeds of the sale of the property, to the retirement (other than any mandatory retirement) of long-term debt of Unocal or a restricted subsidiary, other than any indebtedness for borrowed money owned by Unocal or a restricted subsidiary or that is subordinated to the senior debt securities of that series. These limitations will not apply to any sale and leaseback arrangement between Unocal and any restricted subsidiary or between any pair of restricted subsidiaries. The form of subordinated debt securities indenture does not contain any limitations on sale and leaseback arrangements. 16 RESTRICTIONS ON MERGER AND SALE OF ASSETS Neither we nor Unocal are permitted to consolidate with or merge into another corporation, or sell or convey our respective properties substantially as an entirety to another corporation, unless the following conditions are met: - if the successor corporation in the transaction is not us or Unocal, as the case may be, the successor corporation is organized under the laws of a jurisdiction in the United States and expressly assumes all of our or Unocal's obligations, as the case may be, under the debt securities of that series and the related indenture; and - immediately after the transaction, the surviving corporation or the corporation to which the sale or conveyance was made is not in default in the performance of any of the terms, covenant or conditions under the indenture relating to that series. If the conditions described above are satisfied with respect to the debt securities of any series, we and Unocal will not need to obtain the approval of the holders of those debt securities in order to merge or consolidate with, or sell our respective assets to, any corporation. EVENTS OF DEFAULT Unless the applicable prospectus supplement says otherwise, when we refer to an event of default with respect to any series of debt securities, we mean any one of the following events: - a default in the payment of any interest on any debt security of that series when due, if it continues for 30 days after written notice of the default has been given by the trustee to us or Unocal or by a holder of that debt security to us and the trustee; - a default in the payment of the principal of, or any premium on, a debt security of that series when due and payable; - a default in the deposit of any sinking fund payment (if any is required under provisions described in the applicable prospectus supplement) when due, if it continues for 30 days after written notice of the default has been given by the trustee to us or Unocal or by a holder of that debt security to us and the trustee; - a failure to perform in any material respect any other of our or Unocal's material covenants made in the indenture for the benefit of the relevant series, if it continues for 90 days after written notice of the default has been given by the trustee to us or Unocal or by holders of at least 25% in principal amount of the outstanding debt securities of that series to us and the trustee; - a default resulting in acceleration of any other indebtedness for borrowed money, in an aggregate principal amount exceeding $50,000,000, of us or Unocal under the terms of the instrument or instruments under which that indebtedness is issued or secured, unless the acceleration is annulled, or the indebtedness is discharged, or there is deposited in trust a sum of money sufficient to discharge that indebtedness, within 20 days after written notice of the default has been given by the trustee to us and Unocal or by holders of at least 25% in principal amount of the outstanding debt securities of that series to us, Unocal and the trustee; and - events of bankruptcy, insolvency or reorganization. ACCELERATION OF DEBT SECURITIES UPON AN EVENT OF DEFAULT Each indenture provides that if an event of default occurs and is continuing with respect to the debt securities of a series, either the trustee or the holders of not less than 25% in aggregate principal amount of the outstanding debt securities of that series, by notice in writing to us, Unocal and the trustee (except if the event of default is due to an event of bankruptcy, insolvency or reorganization, in which case no notice is required), may declare the principal of all debt securities of that series due and payable immediately. If, however, before any judgment or decree is entered for the payment of any amount so 17 declared due and payable, (1) we or Unocal deposit with the trustee an amount sufficient to pay all matured installments of interest on the debt securities of that series, and any amounts payable to the trustee, and (2) all defaults under the indenture, other than the non-payment of the principal of the securities that has become due as a result of an acceleration, have been remedied, then the holders of a majority in aggregate principal amount of that series of outstanding debt securities may waive all past defaults and annul the declaration of acceleration and its consequences. LIMITATION ON ACTIONS BY INDIVIDUAL HOLDERS No holder of any debt security of a series will have any right to institute any proceeding against us or Unocal under the related indenture, unless: - the holder previously has given to the trustee written notice of an event of default with respect to that series; - the holders of at least 25% in aggregate principal amount of the debt securities of that series at the time outstanding have (1) requested the trustee in writing to institute the proceeding as trustee under the indenture and (2) offered the trustee reasonable security or indemnity; and - for 60 days after the holders' request, the trustee has failed to institute the proceeding. However, the right of any holder of any debt security to institute suit for enforcement of any payment of principal of, and any interest and premium on, that security on or after the due date indicated on the security may not be impaired or affected without that holder's consent. INDEMNIFICATION OF TRUSTEE FOR ACTIONS TAKEN ON HOLDERS' BEHALF The holders of a majority in principal amount of debt securities of any series at the time outstanding may direct the time, method and place of (1) conducting any proceeding for any remedy available to the trustee or (2) exercising any trust or power conferred on the trustee with respect to the debt securities of that series. The trustee, however, will no be obligated to conduct any proceeding or exercise any of its rights and powers unless, among other requirements of the indenture, the holders have offered reasonable security or indemnity against any costs, expenses and liabilities the trustee may incur in complying with any such direction. ANNUAL CERTIFICATION We and Unocal will be required to furnish to the trustee within 120 days after the end of each fiscal year a statement as to our respective compliance with all conditions and covenants under the indenture. SUBORDINATION The indebtedness represented by the subordinated debt securities and Unocal's guarantees of those securities will be subordinate and junior in right of payment to the prior payment in full of all of our or Unocal's "senior debt," as the case may be, whether outstanding on the date of the subordinated debt securities indenture or incurred after that date. Unless otherwise provided in the applicable prospectus supplement, "senior debt" means, with respect to us or Unocal, as the case may be: - all indebtedness for borrowed money, including (in the case of us) the senior debt securities; - all guarantees of indebtedness for borrowed money of others, including (in the case of Unocal) Unocal's guarantees of the senior debt securities; and - any obligation under any interest rate or currency swap agreement, in each case, whether outstanding on the date of the subordinated debt securities indenture or incurred after that date, that is not by its terms subordinate and junior in right of payment to any other of our or Unocal's indebtedness, as the case may be. 18 The subordinated debt securities indenture provides that in the event of any distribution of our or Unocal's assets, upon any dissolution, winding up, liquidation or reorganization, whether in insolvency or bankruptcy or otherwise (except a distribution in connection with a merger, business combination or sale of substantially all properties to which the covenant described above under "-- Indenture Covenants -- Restrictions on Merger and Sale of Assets" applies) or of any acceleration of debt securities described above under "-- Events of Default -- Acceleration of Debt Securities upon an Event of Default," the holders of our or Unocal's senior debt (that, in the event of an acceleration of debt securities, is outstanding at the time of acceleration), as the case may be, will be entitled to receive payment in full of all principal of, and any premium or interest on, the senior debt, before any payment or other distribution may be made in respect of any subordinated debt securities or any guarantees of those securities. Unless otherwise specified in the applicable prospectus supplement, holders of subordinated debt securities will be entitled to receive subordinated securities provided by a plan of reorganization or readjustment if the rights of holders of senior debt are not altered by the reorganization or readjustment. The specific terms of subordination applicable to any series of subordinated debt securities will be described in the prospectus supplement applicable to that series. By reason of the subordination, our creditors who are holders of senior debt may recover proportionally more than holders of subordinated debt securities. The subordinated debt securities and the related indenture do not limit our or Unocal's ability to incur additional senior debt. CONVERSION, EXERCISE AND EXCHANGE The prospectus supplement relating to any series of debt securities will describe whether the debt securities of that series may be converted into or exercised or exchanged for common or preferred stock or other securities of Unocal, or debt or equity securities of one or more third parties, the terms on which conversion, exercise or exchange may occur, including whether conversion, exercise or exchange is mandatory, at our option or at the option of the holder, the period during which conversion, exercise or exchange may occur, the initial conversion, exercise or exchange price or rate and the circumstances or manner in which the amount of common or preferred stock or other securities issuable upon conversion, exercise or exchange may be adjusted. FORM, EXCHANGE, REGISTRATION AND TRANSFER The debt securities may be issued in fully registered form without coupons, in a form registered as to principal only with or without bearer coupons, in bearer form with or without coupons or in any combination of these alternatives. If a debt security is issued in registered form, it means that our and Unocal's obligations run to the holder of the security named on the face of the security. If a debt security is issued in bearer form, it means that those obligations run to the bearer of the security. We will not issue bearer securities in the United States. Unless otherwise specified in the prospectus supplement applicable to any series of debt securities, the debt securities will be only registered securities. Instead of being issued in definitive form, debt securities may be issued, in whole or in part, in the form of one or more temporary or permanent global securities representing the entire issuance of securities rather than the securities issued to a particular investor. Global securities may also be issued in registered or bearer form. Global securities name a depositary or its nominee as the owner of the debt securities represented by the global securities (other than global bearer securities, which name the bearer as owner). For additional information, see "--Global Securities" below. Unless otherwise specified in the applicable prospectus supplement, debt securities denominated in United States dollars will be issued in denominations of $1,000 for registered securities and $5,000 for bearer securities, and in any integral multiple of those denominations. See, however, "Limitations on the Issuance of Bearer Securities." The prospectus supplement relating to a series of debt securities denominated in a foreign or composite currency will specify the denomination of those securities. Except as described below with respect to global securities, debt securities of any series may be exchanged for debt securities of smaller denominations or combined into fewer debt securities of larger denominations, as long as the total principal amount is not changed, but may not be exchanged for securities of a different 19 series or having different terms, unless the applicable prospectus supplement says otherwise. In addition, if debt securities of any series are issuable as both registered securities and bearer securities, the holder may request in writing that bearer securities (and all attached unmatured coupons and matured coupons that are in default) be exchanged into registered securities of the same series of any authorized denominations, as long as, among other requirements of the indenture, the total principal amount is not changed. Bearer securities that are exchanged for registered securities between a regular or special record date for payment of interest and the relevant date for the payment of that interest must be exchanged without the coupon relating to that payment date and the related interest will not be payable on the registered security issued in exchange for the bearer security, but rather to the holder of the coupon when due in accordance with the terms of the applicable indenture. Unless otherwise stated in the applicable prospectus supplement, registered securities will not be exchangeable for bearer securities. If a holder elects to receive a definitive bearer security, rather than hold an interest in a permanent global bearer security, we may request that the holder pay a service charge and a proportionate share of the cost of printing the definitive bearer security. Debt securities may be exchanged, and registered debt securities (other than a global security) may be transferred, at the office of the security registrar or of any transfer agent specified with respect to any series of debt securities in the applicable prospectus supplement. The holders of the debt securities will be required to pay all service charges, taxes and other governmental dues for the exchange or transfer of any debt security, except that we will pay charges: - for any transfer from a temporary global debt security to any other form of debt security; - if the debt securities are listed on a stock exchange that requires the issuer to pay those charges as a condition to listing; or - if the applicable prospectus supplement otherwise specifies. Any transfer or exchange will be made only if the security registrar or transfer agent is satisfied with the holder's proof of legal ownership and identity. Holders may transfer debt securities in bearer form and any attached coupons by delivery to the transferee. We have appointed the trustee under the senior debt securities indenture, and will appoint the trustee under any other indenture, as security registrar. At the date of this prospectus, the corporate trust office of the trustee for the senior debt securities is located at 560 Mission Street, 13th Floor, San Francisco, California 94105. If the identity or address of the trustee changes, we will include the corrected information in the applicable prospectus supplement. If we appoint any transfer agents in addition to the security registrar with respect to any series of debt securities, they will be named in the applicable prospectus supplement. We may at any time cancel the appointment of any particular transfer agent or approve a change in the office through which any transfer agent acts. However, if debt securities of a series are issuable only as registered securities, we will be required to maintain a transfer agent in each place of payment for that series, and if debt securities of a series are issuable as bearer securities, we will be required to maintain (in addition to the security registrar) a transfer agent in a place of payment for that series outside the United States. We may at any time appoint additional transfer agents with respect to any series of debt securities. In the event of any redemption in part of any series of debt securities, we will not be required to: - issue, register the transfer or exchange debt securities of that series during a period beginning at the opening of business 15 business days before any selection of debt securities of that series for redemption and ending at the close of business on -- the day of mailing of the relevant notice of redemption, if debt securities of the series are issuable only as registered securities, -- the day of the first publication of the relevant notice of redemption, if debt securities of the series are issuable only as bearer securities, or 20 -- the day of mailing of the relevant notice of redemption, if debt securities of the series are issuable as registered securities and bearer securities and there is no publication, - register the transfer or exchange of any registered security, or portion of that security, selected for redemption, except the unredeemed portion of any registered security being partially redeemed; or - exchange any bearer security selected for redemption, except to exchange that bearer security for an equivalent registered security of that series which is also being redeemed. If a debt security is issued as a global security, only the depositary will be entitled to transfer and exchange the debt security as described in this section, since the depositary will be the sole holder of the debt security. See "-- Global Securities" below. Also, the exchange procedures described above apply to exchange of debt securities for other debt securities of the same series and kind. If a debt security is convertible, exercisable or exchangeable into or for a different kind of security, including one that has not yet been issued, or for other property, the rules governing that type of conversion, exercise or exchange will be described in the applicable prospectus supplement. PAYMENT AND PAYING AGENTS PAYMENT ON REGISTERED DEBT SECURITIES Unless the applicable prospectus supplement says otherwise, payment of principal of, and any interest and premium on, registered debt securities will be made at the office of the paying agent or paying agents we may appoint from time to time, but we may elect to pay interest by check mailed to the person entitled to that payment at the address of that person appearing in the security register. Except as otherwise specified in the applicable prospectus supplement, payment of any installment of interest on registered debt securities will be made to the person in whose name the security is registered at the close of business on the regular record date for the payment of that interest. PAYMENT ON BEARER DEBT SECURITIES Subject to applicable law, payment of principal of, and any premium and interest on, bearer debt securities will be payable in United States dollars, unless a different currency is designated in the applicable prospectus supplement, at the offices of the paying agents outside the United States as we may appoint from time to time. Payment of interest on bearer debt securities with coupons attached will be made on the relevant payment date only upon surrender of the coupon relating to that payment date, unless otherwise indicated in the applicable prospectus supplement. No payment with respect to any bearer debt security will be made at the corporate trust office of the trustee or any of our offices or agencies in the United States or by check mailed to any address in the United States or by transfer to any account maintained in the United States. However, payments of principal of, and any premium and interest on, bearer debt securities denominated and payable in United States dollars will be made at the office of our paying agent in New York City, if (but only if) payment in full of those amounts in United States dollars at all offices or agencies outside the United States is illegal or effectively precluded by exchange controls or other similar restrictions. PAYING AGENTS We have designated or will designate the New York City corporate trust office of the applicable trustee as the sole paying agent for payments with respect to debt securities that are issuable as registered securities, and as the paying agent in New York City for any payments that may be made in the United States with respect to debt securities that are issuable solely as bearer securities or as both registered securities and bearer securities. Any paying agents outside the United States and any other paying agents in the United States we may appoint for any series of debt securities will be named in the applicable prospectus supplement. We may appoint additional paying agents or cancel the appointment of any particular paying agent or approve a change in the office through which a paying agent acts. However, we 21 will be required to maintain a paying agent (1) in each place of payment for debt securities of each series that is issuable solely as registered securities, and (2) with respect to each series of bearer securities: - in New York City for payments with respect to any registered securities of the series (and for payments with respect to bearer securities of the series in the circumstances described above); - in a place of payment located outside the United States where debt securities of that series and any attached coupons may be presented and surrendered for payment; and - in each place outside the United States required by any stock exchange on which debt securities of that series are listed. UNCLAIMED PAYMENTS All monies we pay to a paying agent for the payment of principal of, and any premium and interest on, any debt securities that remain unclaimed for two years after the amount is due to a holder will be repaid to us. After that two-year period, the holder may look only to us or Unocal for payment and not to the trustee, any other paying agent or anyone else. GLOBAL SECURITIES Debt securities of any series may be issued in whole or in part in the form of one or more global securities that will be deposited with, or on behalf of, the depositary or its nominee identified in the applicable prospectus supplement. Global securities may be issued in registered or bearer form and in temporary or definitive form. Global securities issued in registered form will be registered in the name of the depositary or nominee with which the global securities have been deposited, in denominations or aggregate denominations representing the aggregate principal amount or face amount of debt securities to be represented by the registered global securities. Unless and until it is exchanged for debt securities in definitive form, a global security may not be transferred except as a whole by and among: - the depositary for the global security; - the nominees of the depositary; or - any successors of the depositary or those nominees. The specific terms of the depositary arrangement relating to any debt securities to be represented by global securities will be described in the prospectus supplement relating to those securities. We anticipate that the following provisions will apply to all depositary arrangements. Ownership of beneficial interests in a global security will be limited to persons, called "participants," that have accounts with the depositary or persons that may hold interests through participants. Upon the issuance of a global security, the depositary will credit on its book-entry registration and transfer system the participants' accounts with the respective principal amounts of the debt securities beneficially owned by them. Any dealers, underwriters or agents participating in the distribution of the debt securities will designate the accounts to be credited, or, if the debt securities are offered and sold directly by us, we or our agents will designate the accounts. Ownership of beneficial interests in a global security will be shown on, and the transfer of that ownership will be effected only through, records maintained by the depositary, with respect to interests of participants, and on the records of participants, with respect to interests of persons holding through participants. In addition, the laws of some jurisdictions may require that some purchasers of securities take physical delivery of those securities in definitive form. These limitations and laws may impair the ability of a holder to transfer beneficial interests in a global security. So long as the depositary or its nominee is the registered owner of a registered global security, that depositary or its nominee, as the case may be, will be considered the sole owner or holder of the debt securities represented by the global security for all purposes under the indenture. Except as described below, owners of beneficial interests in a global security will not be entitled to have debt securities of the series represented by the global security registered in their names, will not receive or be entitled to receive 22 physical delivery of debt securities of that series in definitive form and will not be considered the owners or holders of the debt securities under the indenture. Accordingly, each person owning a beneficial interest in a global security must rely on the procedures of the depositary for that global security and, if that person is not a participant, on the procedures of the participant through which the person owns its interest, to exercise any rights of a holder under the applicable indenture. We understand that under existing industry practices, if we request any action of holders or if an owner of a beneficial interest in a global security desires to give or take any action that a holder is entitled to give or take under the indenture, the depositary for the global security would authorize the participants holding the relevant beneficial interests to give or take that action, and the participants would authorize beneficial owners owning through them to give or take that action or would otherwise act upon the instructions of beneficial owners holding through them. Subject to the restrictions discussed under "Limitations on the Issuance of Bearer Securities," we will make payments of principal of, and any premium and interest on, debt securities registered in the name of a depositary or its nominee to the depositary or its nominee, as the case may be, as the registered owner of the global security. Neither we nor Unocal, the trustee for the debt securities, any paying agent or the security registrar for the debt securities will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a global security, or for maintaining, supervising or reviewing any records relating to those beneficial ownership interests. We expect that the depositary for any debt securities represented by a global security, upon receipt of any payment of principal, premium or interest to holders of that global security, will immediately credit participants' accounts in amounts proportionate to their respective beneficial interests in that global security as shown on the records of the depositary. We also expect that payments by participants to owners of beneficial interests in a global security held through participants will be governed by standing customer instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of those participants. If a depositary for debt securities of a series represented by a global security is at any time unwilling or unable to continue as depositary or ceases to be a clearing agency registered under the Securities Exchange Act of 1934, and a successor depositary that is so registered is not appointed by us within 90 days, we and Unocal will issue debt securities of that series in definitive form in exchange for the global security that had been held by the depositary. In addition, we may at any time and in our sole discretion determine not to have any debt securities of a series represented by global securities, in which case we will issue debt securities of that series in definitive form in exchange for the global security or securities representing those debt securities. Further, the applicable prospectus supplement may provide that an owner of a beneficial interest in a global security representing debt securities of a series may, on terms acceptable to us and the depositary for the global security, receive debt securities of that series in definitive form. In all these cases, an owner of a beneficial interest in a global security will be entitled to physical delivery in definitive form of debt securities of the series represented by the global security equal in principal amount to that beneficial interest and, if the debt securities of that series are issuable as registered securities, to have those debt securities registered in its name. Unless we determine otherwise, any debt securities so delivered will be issued: - as registered securities in denominations of $1,000 and integral multiples of $1,000, if the debt securities of that series are issuable as registered securities; - as bearer securities in the denominations of $5,000 and integral multiples of $5,000, if the debt securities of that series are issuable as bearer securities; or - as either registered or bearer securities in those denominations, if the debt securities of that series are issuable in either form. See, however, "Limitations on the Issuance of Bearer Securities" for a description of some restrictions on the issuance of a bearer security in definitive form in exchange for an interest in a global security. Any securities issued in definitive form in exchange for a global security will be registered in the name or names that the depositary gives to the relevant trustee, transfer agent or other relevant agent. It is 23 expected that the depositary's instructions will be based upon directions received by the depositary from participants with respect to ownership of beneficial interests in the global security that had been held by the depositary. MEETINGS, MODIFICATION AND WAIVER MODIFICATION OF INDENTURES Without Consent of Holders. We, Unocal and the trustee may, without the consent of any holders of debt securities, enter into any supplemental indenture for the purpose of, among other things: - evidencing the assumption by a successor corporation of our or Unocal's obligations; - adding to our or Unocal's covenants for the protection of the holders of debt securities; - adding other events of default; - evidencing the acceptance of appointment by a successor trustee; - establishing the forms or terms of debt securities of any series; - curing ambiguities or inconsistencies in the indenture; or - making any other change to the indenture or the form or terms of the debt securities of any series that does not have a materially adverse affect on the interests of the holders of the debt securities of any series. With Consent of Holders. We, Unocal and the trustee may, with the consent of the holders of not less than a majority in aggregate principal amount of the debt securities then outstanding of each series affected, voting as one class, and subject to the next paragraph, add any provisions to, or change in any manner or eliminate any of the provisions of, the indenture or modify in any manner the rights of the holders of those debt securities. However, we, Unocal and the trustee may not, without the consent of the holder of each debt security of the relevant series then outstanding that is affected by the modification: - change the stated maturity of the principal (or any installment of principal) of, or premium or interest on, any debt security; - reduce the principal amount of, or interest on, any debt security; - change any obligation to pay additional amounts; - reduce the amount of principal of any original issue discount security payable upon acceleration of the maturity of that security; - change the place of payment or the currency or currency unit in which any debt security or interest on that security is payable; - impair the right to institute suit for the enforcement of any payment on or with respect to any debt security; - reduce the percentage in principal amount of debt securities then outstanding of any series, the consent of whose holders is required to modify the applicable indenture, to waive our and Unocal's compliance with the applicable indenture or to waive defaults under the circumstances contemplated by the indenture; - change our obligation to maintain an office or agency in the places and for the purposes required by the indenture; - if the debt securities are convertible into any other of our or Unocal's securities, make any change that would materially adversely affect the right to convert those debt securities; or 24 - modify any indenture provision that governs how that indenture may be amended (as described in this section). In addition, if the debt securities of any series are issuable upon the exercise of debt warrants, then each holder of a debt warrant relating to that series will be treated as a holder of debt securities in the amount issuable upon exercise of those debt warrant for purposes of voting on any proposed modifications to the relevant indenture. WAIVER OF UNOCAL COVENANTS AND PAST DEFAULT The holders of a majority in aggregate principal amount of the debt securities then outstanding of each affected series, voting as one class, may waive compliance by Unocal and its restricted subsidiaries, as the case may be, with the covenants described above under "-- Indenture Covenants -- Limitations on Liens" and "-- Limitations on Sale and Leaseback," and Unocal's obligation to maintain its business assets in good operating condition and to pay taxes and other legal claims when due. The holders of a majority in aggregate principal amount of the debt securities of any series then outstanding may, on behalf of all holders of debt securities of that series, waive any past default under the indenture with respect to debt securities of that series, except a default: - in the payment of principal of, or any premium or interest on, any debt security of that series; and - in respect of a covenant or provision of the indenture which cannot be modified or amended without the consent of the holder of each affected debt security. CALCULATING OUTSTANDING PRINCIPAL OF SOME DEBT SECURITIES The indentures provide that in determining whether the holders of the requisite principal amount of the debt securities that are outstanding have given any request, demand, authorization, direction, notice, consent or waiver or are present at a meeting of holders of debt securities for quorum purposes: - the principal amount of an original issue discount security that will be deemed to be outstanding will be the amount that would be due and payable on the relevant date if the maturity of the debt security were accelerated to that date, for example, because of a default; and - the principal amount of a debt security denominated in a foreign currency or currency unit will be deemed to be that amount of United States dollars that could be obtained for that principal amount on the basis of the spot rate of exchange for the foreign currency or currency unit as determined by us or an exchange rate agent up to 10 days before the date of the action by the holders. MEETINGS AND VOTING Under the indenture, the trustee may call meetings of the holders of debt securities of a series at any time or when so requested by us, Unocal or the holders of at least 25% in principal amount of the debt securities of that series then outstanding, in each case, if notice is given in accordance with the notice provisions described below. Except as described above under "-- Modifications of Indentures" with respect to indenture amendments requiring the consent of holder of each affected debt security of the relevant series then outstanding, and under "-- Waiver of Unocal Covenants and Past Default" with respect to the waiver of past defaults, a resolution presented at a meeting or adjourned meeting at which a quorum of the holders of debt securities of a series then outstanding is present may be adopted by the affirmative vote of the lesser of: - the holders of a majority in principal amount of the debt securities of that series then outstanding; or - the holders of 66 2/3% in principal amount of the debt securities of that series then outstanding represented and voting at the meeting or adjourned meeting. 25 If, however, any consent, waiver, or other action which the indenture expressly provides may be made, given or taken by the holders of a specified percentage, which is less than a majority of the principal amount of the debt securities of a series then outstanding, then such action may be adopted at a meeting or adjourned meeting at which a quorum is present by the affirmative vote of the lesser of: - the holders of that specified percentage in principal amount of the debt securities of that series then outstanding; or - a majority in principal amount of debt securities of that series then outstanding represented and voting at the meeting or adjourned meeting. Any resolution passed or decision taken at any meeting of holders of debt securities of any series duly held in accordance with the indenture will be binding on all holders of debt securities of that series and any related coupons whether or not present or represented at the meeting. Unless otherwise specified in the applicable prospectus supplement, the quorum at a meeting of the holders of a series of debt securities will be persons holding or representing a majority in principal amount of the debt securities of that series then outstanding. The record date for purposes of determining the identity of holders entitled to vote on the matters described above under "-- Events of Default -- Indemnification of Trustee for Actions Taken on Holders' Behalf," or to consent to the waiver of past defaults as described above under "-- Waiver of Unocal Covenants and Past Default," will be the later of: - 30 days prior to the first solicitation of the holders' vote consent; or - the date of the most recent list of holders we or Unocal have furnished to the trustee prior to the solicitation. NOTICES Except as otherwise provided in the applicable prospectus supplement, notices to holders of bearer securities will be given by publication at least once in a newspaper published on a business day in New York City and London and in such other city or cities as may be required with respect to those bearer securities, and will be mailed to those persons whose names and addresses were previously filed with the trustee under the indenture, within the time prescribed for the giving of the notice. Notices to holders of registered securities in definitive form will be given by mail to the address of those holders as they appear in the security register. Notices to be given to holders of a global debt security will be given only to the depositary, in accordance with its applicable policies as in effect from time to time. LEGAL OWNERSHIP OF DEBT SECURITIES We, Unocal, the trustee and any of our or the trustee's agents may treat the bearer of any bearer securities (including bearer securities in permanent global bearer form), the bearer of any coupon and the registered owner of any registered security as the absolute owner of that security (whether or not any debt security or coupon is overdue and despite any notice to the contrary) for the purpose of making payment and for any other purposes. DISCHARGE AND DEFEASANCE We have the ability to eliminate most or all of our and Unocal's obligations under the debt securities prior to maturity if we comply with the provisions described below. If we eliminate our and Unocal's obligations under an indenture, we call that a "discharge." If we discharge our and Unocal's obligations under any series of debt securities, we call that a "defeasance." 26 DISCHARGE We may discharge all of our and Unocal's obligations, other than with respect to existing transfer or exchange rights, under an indenture if: - (1) we have delivered to the trustee for cancellation all of the debt securities and coupons authenticated and delivered under the indenture or (2) those debt securities and coupons not delivered to the trustee for cancellation have become due and payable, will become due and payable at their stated maturity within one year or are to be selected for redemption within one year, and we or Unocal have deposited or caused to be deposited in trust with the trustee funds in an amount in the currency or currency unit in which those securities and coupons are payable sufficient to discharge the entire indebtedness on those securities and coupons; - we or Unocal have paid or caused to be paid all other sums payable under the indenture by us or Unocal; and - we or Unocal have delivered to the trustee an officer certificate and an opinion of counsel stating that the foregoing conditions relating to the discharge of the indenture have been satisfied. DEFEASANCE Unless otherwise indicated in the applicable prospectus supplement, we and Unocal may terminate all our payment and other obligations with respect to the debt securities of any series, and our respective obligations to comply with many of the indenture covenants, including those described above under "-- Indenture Covenants," if: - we irrevocably deposit or cause to be deposited with the trustee, under the terms of an escrow trust agreement in form and substance satisfactory to the appropriate trustee, as trust funds pledged as security only for the benefit of the holders of those debt securities, -- money or -- in the case of debt securities and coupons denominated in United States dollars, specified U.S. government obligations, and, in the case of debt securities and coupons denominated in a foreign currency, specified foreign government securities, which through the payment of interest on and principal of those government securities in accordance with their terms will provide money or -- a combination of money and those government securities, in each case, in an amount sufficient to pay in the currency or currency unit in which the debt securities being defeased are payable all the principal of, and any premium and interest on, those debt securities on the dates any payments are due in accordance with the terms of those debt securities; - there is no event of default on the date of the deposit, no event of default or default due to an event of bankruptcy, insolvency or reorganization has occurred within 90 days after the date of the deposit, and the deposit and its intended consequences will not result in any material default or event of default under any material indenture, agreement or other instrument binding upon us, Unocal or any other subsidiary of Unocal or any of their respective properties; and - we furnish to the trustee a ruling by the Internal Revenue Service or an opinion of counsel, in form and substance satisfactory to the trustee, to the effect that the holders of the debt securities being defeased, -- will not recognize income, gain or loss for federal income tax purposes as a result of our exercise of the defeasance provisions of the indenture, and -- will be subject to federal income tax in the same amount, in the same manner and at the same time as would have been the case if we had not exercised our defeasance rights under the indenture. 27 If we ever fully defeased a debt security, the holder of that security would have to rely solely on the trust deposit for payments on its debt security, and would not be able to look to us or Unocal for payment in the event of any shortfall. If we accomplish covenant defeasance with regard to any debt security, we and Unocal would no longer be subject to the covenants described above and any additional covenants that may be described in the prospectus supplement relating to that security, or to the events of default resulting from a breach of covenants described above under "-- Events of Default." In this case, however, the holder of that debt security may still look to us and Unocal for repayment of its debt security in the event of any shortfall in the trust deposit. THE TRUSTEES A trustee may resign or be removed with respect to one or more series of debt securities and we may appoint a successor trustee to act with respect to that series. If two or more persons are acting as trustee with respect to different series of debt securities under the same indenture, each person will be deemed to be a trustee of a trust under the applicable indenture, separate and apart from the trust administered by any other such person, and any action described in this prospectus to be taken by the trustee may then be taken by each of those trustees with respect to, and only with respect to, the one or more series of debt securities for which it is trustee. The trustee may be, or may be an affiliate of an entity that is, a depositary for our or Unocal's funds, or an entity that performs other services for us or Unocal (such as transfer agent or registrar for securities or administrator of stock purchase or other plans) or that transacts other banking business with us or Unocal in the normal course of business. J.P. Morgan Trust Company, National Association, the successor trustee under the senior debt securities indenture, is an indirect affiliate of J. P. Morgan Securities Inc., which in the past has acted as a principal underwriter of our debt securities and is an indirect affiliate of JPMorgan Chase Bank, which is the Administrative Agent for, and one of the principal lending banks under, our two bank revolving credit agreements. GOVERNING LAW The indentures, the debt securities, the guarantees, and any coupons will be governed by, and construed in accordance with, the laws of the State of New York. DESCRIPTION OF PREFERRED STOCK We may issue preferred stock in one or more series, as described below. This section summarizes terms of our preferred stock that apply generally to all series. We will describe the financial and other specific terms that apply to a particular series in the prospectus supplement relating to that series. Those specific terms will supplement and, if applicable, may modify or replace the general terms described in this section. If there are differences between the prospectus supplement relating to a particular series and this prospectus, the prospectus supplement will control. Therefore, the statements we make in this section may not apply to a particular series of preferred stock. When we refer to a series of preferred stock, we mean all of the shares of preferred stock issued as part of the same series under a certificate of designations filed as part of our certificate of incorporation. The following summary of the material provisions of preferred stock we may issue, and any additional disclosure that will be contained in the prospectus supplement relating to any particular series, is not complete. Each investor should refer to the certificate of designations authorizing the issuance of that series, which will be filed at or about the time of issuance of the preferred stock as an exhibit to the registration statement of which this prospectus forms a part, and to our certificate of incorporation for a complete description of the terms and definitions. Before we issue any series of preferred stock, our board of directors will adopt resolutions creating and designating the series and will file a certificate of designations stating the terms of that series with the Secretary of State of the State of Delaware. The Unocal stockholders need not approve that amendment or otherwise authorize the issuance of a series of preferred stock. 28 OUR AUTHORIZED PREFERRED STOCK Our authorized capital stock includes 100,000,000 shares of preferred stock, par value $0.10 per share. We do not have any preferred stock outstanding as of the date of this prospectus. The prospectus supplement relating to any series of preferred stock will describe any preferred stock that may be outstanding as of the date of that supplement. We have reserved for issuance and designated 5,000,000 shares of our preferred stock as "Series B Junior Participating Cumulative Preferred Stock" which may be issued upon the exercise of rights issued to the holders of our common stock under our rights agreement described under "Description of Capital Stock -- Rights Plan." PREFERRED STOCK ISSUED IN SEPARATE SERIES Our board of directors is authorized, without stockholder approval, to divide the preferred stock into series and, with respect to each series, to determine the designations, the powers, preferences and rights and the qualifications, limitations and restrictions of that series, including: - the designation, number of shares and liquidation preference per share; - the initial public offering price; - the dividend rate or rates, if any, or the method of determining the dividend rate or rates; - the index, if any, upon which the amount of dividends is to be based; - the dates on which dividends will accrue and be payable and the designated record dates for determining the holders entitled to such dividends; - any redemption or sinking fund provisions; - any conversion or exchange provisions; - any provisions for the issuance of global securities; - the currency or currencies (which may be composite currency or currencies) in which liquidation preferences, redemption prices and dividends are payable, if other than United States dollars; - voting rights, if different from those described below under "-- Voting Rights;" and - any additional terms, preferences or rights. The specific terms of a series, as well as the transfer agent, registrar, dividend disbursing agent, redemption agent and, if applicable, conversion agent for the offered series will be specified in the prospectus supplement relating to that series. Preferred stock will be fully paid and nonassessable when issued, which means that its holders will have paid their purchase price in full and that we may not ask them to surrender additional funds. Holders of preferred stock will not have preemptive or subscription rights to acquire more of our stock. The number of authorized shares of any series of preferred stock may be increased or decreased, but not below the number of shares of that series then outstanding, by the affirmative vote of the holders of a majority of our common stock, and no separate vote of the holders of that series or of any holder of preferred stock is required for any such increase or decrease, unless required by the certificate of designations establishing that series. 29 RANK Each series of preferred stock will rank, with respect to voting powers, preferences or relative, participating, optional and other special rights, including with respect to the payment of dividends and the distribution of assets, whether upon liquidation or otherwise: - junior to any series of our capital stock expressly stated to be senior to that series; - senior to our common stock and any class of our capital stock expressly stated to be junior to that series; and - on a parity with each other series of preferred stock and any other classes of our capital stock. We will generally be able to pay dividends and distributions of assets to holders of our preferred stock only if we have satisfied our obligations on our indebtedness then due and payable. DIVIDENDS Holders of each series of preferred stock will be entitled to receive cash dividends when, as and if declared by our board of directors, from funds legally available for the payment of dividends. The rates and dates of payment of dividends for any series of preferred stock will be stated in the prospectus supplement relating to that series. Dividends will be payable to holders of record of preferred stock as they appear on our books on the record dates fixed by our board of directors not more than 60 or less than 10 days preceding the dividend payment date. Dividends on any series of preferred stock may be cumulative or noncumulative, as described in the applicable prospectus supplement. If our board of directors determines not to declare a dividend payable on any dividend payment date on any series of preferred stock for which dividends are noncumulative, the holders of that series will have no right to receive, and we will have no obligation to pay, a dividend with respect to the dividend period ending on that dividend payment date, regardless of whether dividends on that series are declared payable on any future dividend payment dates. We will compute the amount of dividends payable for the initial dividend period or any period shorter than a full dividend period on the basis of a 360-day year consisting of twelve 30-day months, unless otherwise indicated in the applicable prospectus supplement. Accrued but unpaid dividends will not bear interest. REDEMPTION The prospectus supplement relating to any series of preferred stock will indicate whether, and on what terms, shares of preferred stock of that series are subject to redemption (at our option or at the option of the holder), mandatory redemption or a sinking fund provision. The prospectus supplement will also indicate whether, and on what terms, we may redeem at our or the holder's option shares of a series of preferred stock, including the date on or after which redemption may occur. We will effect any optional redemption upon not less than 30 days' notice, at a redemption price of not less than the stated value per share of the applicable series of preferred stock plus accrued and accumulated but unpaid dividends to (but excluding) the date fixed for redemption. Any restriction on the repurchase or redemption by us of our preferred stock while there is an arrearage in the payment of dividends will be described in the applicable prospectus supplement. If fewer than all the outstanding shares of a series of preferred stock are to be redeemed, we will select those to be redeemed proportionally or by lot, by any other method determined by our board of directors to be equitable, or by any method described in the applicable prospectus supplement. 30 A notice of redemption will be mailed to each record holder of the shares of preferred stock to be redeemed at their addresses as they appear on our stock register, stating: - the redemption date; - the series and number of shares of preferred stock to be redeemed (and, if fewer than all shares of a series are to be redeemed, the number of shares to be redeemed from each holder); - the redemption price and the manner in which the redemption price will be paid and delivered; - the place or places where certificates for the shares of preferred stock to be redeemed must be surrendered for payment of the redemption price; and - that dividends on the shares of preferred stock to be redeemed will cease to accrue on the redemption date. After notice of redemption has been given, unless we default in the payment of the redemption price, after the redemption date, dividends will cease to accrue on shares of preferred stock called for redemption and all rights of holders of those shares, including any conversion rights, will terminate, except for the right to receive the redemption price, without interest. Shares of preferred stock called for redemption will no longer be deemed outstanding following the redemption date. If fewer than all of the shares of preferred stock represented by a certificate surrendered for redemption are redeemed, a new certificate will be issued to the holder representing the unredeemed shares. LIQUIDATION PREFERENCE Upon any voluntary or involuntary liquidation, dissolution or winding up of Unocal, holders of each series of preferred stock will be entitled to receive distributions upon liquidation in an amount equal to the stated value per share of offered preferred stock, as described in the applicable prospectus supplement, plus an amount equal to any accrued and unpaid dividends. These distributions will be made before any distribution is made on any securities ranking junior to the preferred stock with respect to liquidation, including our common stock. Holders of our preferred stock will not be entitled to any other amounts from us after they have received their full liquidation preference. If the liquidation amounts payable with respect to the preferred stock of any series and any other securities ranking on a parity regarding liquidation rights with that series are not paid in full, the holders of the preferred stock of that series and the other securities will share in any distribution of our available assets on a ratable basis in proportion to the full liquidation preferences of each security. Because we conduct substantially all of our operations through Union Oil, our right, and therefore the rights of our creditors and stockholders, to participate in any distribution of assets of Union Oil or any other subsidiary upon its liquidation or reorganization or otherwise is subject to the prior claims of creditors of that subsidiary, except to the extent that claims of Unocal itself as a creditor of the subsidiary may be recognized. CONVERSION, EXERCISE AND EXCHANGE The prospectus supplement relating to any series of preferred stock will describe the terms on which any shares of that series are convertible into or exercisable or exchangeable for shares of common stock, another series of preferred stock or other securities of Unocal or debt or equity securities of third parties or any other property. Those terms may include provisions for mandatory conversion or exchange or conversion or exchange at our option or at the option of the holder. 31 VOTING RIGHTS The holders of preferred stock of any series will have no voting rights, except: - as described below or stated in the prospectus supplement relating to, and in the certificate of designations establishing, that series; or - as required by applicable law. If we are in default in the payment of the equivalent of six quarterly dividends, whether or not consecutive, payable on any series of preferred stock, the number of directors on our board of directors will be increased by two, and the holders of all outstanding shares of preferred stock, voting as a single class without regard to series, and to the exclusion of the holders of common stock and with no cumulative voting, will be entitled to elect those two additional directors, who will serve until all dividends in default have been paid or declared and set apart for payment. DESCRIPTION OF CAPITAL STOCK Our certificate of incorporation authorizes our board of directors to issue a maximum of 850,000,000 shares, of which: - 750,000,000 are designated as common stock, par value $1.00 per share; and - 100,000,000 are designated as preferred stock, par value $0.10 per share. As of December 31, 2002, there were 257,980,454 shares of common stock outstanding, 10,622,784 shares of common stock held as treasury shares, 12,261,640 shares of common stock reserved for issuance upon conversion of the 6 1/4% Trust Convertible Preferred Securities of Unocal Capital Trust, 29,668,994 shares of common stock reserved for issuance under our employee benefit plans, directors' plan and dividend reinvestment and common stock purchase plan, and no shares of preferred stock outstanding. All outstanding shares of common stock are validly issued, fully paid and nonassessable. PREFERRED STOCK Our preferred stock is described above under "Description of Preferred Stock." As described in that section, our board of directors is authorized to divide the preferred stock into series and, with respect to each series, to determine the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions of the series. Our board of directors could, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power of the holders of common stock and which could have anti-takeover effects, as described below under "--Certain Anti-Takeover Matters" and under "Risk Factors." COMMON STOCK The following summary of the significant rights pertaining to our common stock is not complete, and each investor should refer to our certificate of incorporation and the applicable provisions of the Delaware General Corporation Law for a complete description of those rights. Dividend Rights. Subject to the preferential rights of any holders of any outstanding series of preferred stock, the holders of common stock are entitled to such dividends and distributions, whether payable in cash or otherwise, as our board of directors may declare from time to time from legally available funds. Voting Rights. Subject to any voting rights of holders of any outstanding series of preferred stock, all voting rights are vested in the holders of the common stock. Each share of common stock is entitled to one vote on all matters presented for stockholder vote, except those matters for which a separate class vote is required under Delaware law. The holders of one third of the shares entitled to vote constitute a quorum at any meeting of stockholders. Because holders of shares of common stock do not have cumulative voting 32 rights, holders of more than 50% of the shares voting for the election of directors can elect all of the directors standing for election if they choose to do so, and, in such event, the holders of the remaining shares voting for the election of directors will not be able to elect any person or persons to our board of directors. Our board of directors is divided into three classes, and directors are elected for three-year terms. One of the classes is presented for election at each annual meeting, so that the entire board of directors is never presented for election in any one year. Liquidation Rights. Subject to the preferential rights of holders of any outstanding series of preferred stock, upon our liquidation, dissolution or winding-up and after payment of all prior claims, the holders of common stock will be entitled to receive all our assets in proportion to their holdings. Preemptive Rights. Other than the stockholder rights described below under "-- Rights Plan," holders of common stock have no redemption or conversion rights or preemptive rights to purchase or subscribe for additional securities that we may issue. Mellon Investor Services, LLC, Los Angeles, California, is the transfer agent and registrar for our common stock. The common stock is listed on the New York Stock Exchange under the symbol "UCL," and may be presented for transfer at the office of Mellon Investor Services, LLC, New York, New York. RIGHTS PLAN Under a rights agreement we have entered into with Mellon Investor Services, LLC, as rights agent, which we refer to as the "rights plan," holders of shares of our common stock have the "right" to purchase from us a unit consisting of one one-hundredth of a share of preferred stock designated as the "Series B Junior Participating Cumulative Preferred Stock" at a purchase price of $180 per unit, subject to adjustment from time to time to prevent dilution. An additional right will attach to each share of common stock that becomes outstanding after January 29, 2000, the date of original issuance of the rights, until the distribution date described below. The rights are not exercisable or transferable separately from the shares of common stock until a date, which we refer to as the "distribution date," which is the earlier of: - 10 days after the public announcement that a person or group has become an "acquiring person" by obtaining beneficial ownership of 15% or more (25% or more in the case of "qualified institutional investors") of our outstanding common stock, or, if earlier, - 10 business days (or a later date determined by our board of directors before any person or group becomes an acquiring person) after a person or group begins a tender or exchange offer which, if consummated, would result in that person or group becoming an acquiring person. Our board of directors may reduce the ownership threshold at which a person or group becomes an acquiring person from 15% to not less than 10% of the outstanding common stock (but may not cause a person or group to become an acquiring person by lowering this threshold below the percentage interest that such person or group already owns). After the rights become exercisable, they entitle the holders, other than the acquiring person, to purchase a number of our common stock or common stock of the potential acquirer, as applicable, having a market value equal to twice the $180 exercise price of the right. After a person or group becomes an acquiring person, but before an acquiring person owns 50% or more of our outstanding common stock, the board of directors may extinguish the rights by exchanging one share of common stock or an equivalent security for each right, other than rights held by the acquiring person. Our board of directors may redeem all but not less than all the rights at a price of $.001 per right, at any time before any person or group becomes an acquiring person. Once the rights are redeemed, the holders of the rights will be entitled only to receive the redemption price of $.001 per right. Unless and until the rights are exercised, a right holder will have no rights as a stockholder of Unocal solely by virtue of being such a holder, including the right to vote or to receive dividends. Unless earlier redeemed, the rights will expire at the close of business on January 29, 2010. 33 Five million shares of Series B Junior Participating Cumulative Preferred Stock have been designated and reserved for issuance upon exercise of the rights. An additional number of shares of Series B Junior Participating Cumulative Preferred Stock equal to one one-hundredth of the number of shares of common stock will be reserved for issuance in connection with an issuance of preferred stock or common stock, whether issued directly, upon exercise of equity warrants or upon conversion of preferred stock or debt securities. The rights may cause substantial dilution to a person or group that attempts to acquire a substantial number of shares of our common stock without approval of our board of directors. This summary description of the rights is qualified by reference to the description of the rights plan contained in our Current Reports on Form 8-K, dated January 5, 2000, March 27, 2002 and August 2, 2002. CERTAIN ANTI-TAKEOVER MATTERS Our certificate of incorporation and bylaws contain provisions that encourage persons considering unsolicited tender offers or other unilateral takeover proposals to negotiate with our board of directors rather than pursue non-negotiated takeover attempts. These provisions, either alone or in combination with the provisions of our rights plan and the provisions of Delaware Law described below under "-- Section 203 of the Delaware General Corporation Law," may have the effect of rendering a change of control of us more difficult. Classified Board of Directors. Our certificate of incorporation provides that the board of directors be divided into three classes, with the directors serving three-year staggered terms. As a result, at least two annual meetings of stockholders may be required for the stockholders to change a majority of our board of directors. In addition, our certificate of incorporation provides that any bylaw amendment increasing or reducing the authorized number of directors (which the bylaws fix at 10) must be adopted by the affirmative vote of 75% of the outstanding stock entitled to vote or, if adopted by the board of directors, by not less than 75% of our directors. Although neither our certificate of incorporation nor our bylaws contain any express provision about the removal of directors, under Delaware law directors of a corporation with a classified board can be removed only for cause. The classification of directors, the inability of stockholders to remove directors without cause and the requirements relating to the increase in the number of directors make it more difficult to change the composition of our board of directors. Inability of Stockholders to Call Special meetings. Our certificate of incorporation provides that special meetings of our stockholders may be called only by our board of directors or an authorized committee of the board. No Written Consent of Stockholders. Our certificate of incorporation provides that any action required or permitted to be taken by our stockholders must be taken at an annual or special meeting and may not be effected by written consent without a meeting. Business Combinations. Our certificate of incorporation provides that at least 75% of our outstanding stock entitled to vote is required to approve a business combination or similar transaction with an entity that, together with its affiliates, owns beneficially more than 10% of the total voting power of all of our outstanding voting stock. Advance Notice Requirements. Our bylaws generally require 90 days' advance notice of (and specified information with respect to) nominations by stockholders of persons for election as directors and other business to be brought before a meeting by a stockholder. Blank Check Preferred Stock. As described above under "-- Preferred Stock," our board of directors has the authority, without further stockholder action, to provide for the issuance of preferred stock and to fix the terms of such stock. To the extent provisions such as extraordinary voting, dividend, redemption or conversion rights are included in any preferred stock, they could render a change of control of us more difficult. 34 Amendment of Bylaws and Certificate of Incorporation. The provisions in our certificate of incorporation regarding the amendment of bylaws, classified board, business combinations, actions by stockholders without a meeting, calling special meetings and amending the certificate of incorporation may not be amended without the affirmative vote of at least 75% of all outstanding shares. Our bylaws may be amended by a vote of 75% of our outstanding stock entitled to vote or by our board of directors. However, the provisions in the bylaws regarding an increase or decrease to the number of directors require a resolution adopted by 75% of the directors. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW Section 203 of the Delaware General Corporation Law applies to us. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes a merger, asset sale or a transaction resulting in a financial benefit to the interested stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or, in certain cases, within the preceding three years did own) 15% or more of the corporation's outstanding voting stock. Under Section 203, a business combination between Unocal and an interested stockholder is prohibited unless it satisfies one of the following conditions: - before the stockholder became an interested stockholder, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; - on completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding, for purposes of determining the number of shares outstanding, shares owned by persons who are directors and also officers of the corporation (or by any employee stock plan that does not provide employees with the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or - the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 66 2/3% of our outstanding voting stock which is not owned by the interested stockholder. LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS Section 102 of the Delaware General Corporation Law allows a corporation to eliminate the personal liability of directors of a corporation to the corporation or to any of its stockholders for monetary damages for a breach of fiduciary duty as a director, except in the case where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase or redemption in violation of the Delaware General Corporation Law or obtained an improper personal benefit. Our certificate of incorporation provides that our directors will not be liable to us or our stockholders for monetary damages for breach of fiduciary duty as directors, except in certain cases where liability is mandated by the Delaware General Corporation Law. This provision could have the effect of reducing the likelihood of derivative litigation against our directors and may discourage or deter our stockholders or management from bringing a lawsuit against our directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefited us and our stockholders. Section 145 of the Delaware General Corporation Law authorizes a corporation generally to indemnify directors and officers against liabilities, including expenses, incurred while acting in such capacities, if the indemnified director or officer acted in good faith and in a manner he or she reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. Our bylaws provide for the indemnification of our directors and officers to the maximum extent permitted by the Delaware General Corporation Law. In addition, we have 35 entered into indemnification agreements with each of our directors and officers providing for additional indemnification, and maintain policies of directors' and officers' liability insurance which insure directors and officers against the costs of defense, settlement or payment of a judgment under specified circumstances. DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS We may issue stock purchase contracts, representing contracts entitling or obligating holders to purchase from us, and us to sell to the holders, or providing for the issuance by us in exchange for other securities of, a specified number of shares of our common stock or preferred stock at a future date or dates or on the occurrence of certain events. We may fix the price or exchange rate per share, or the number of shares, of common stock or preferred stock at the time the contracts are issued or by reference to a specific formula set forth in the contracts. We may issue the stock purchase contracts separately or as a part of units, which we refer to as "stock purchase units," consisting of a stock purchase contract and the following: - debt securities of Union Oil; - debt obligations of third parties, including U.S. Treasury securities; - trust preferred securities that may be issued by Unocal Capital Trust II; or - any combination of the foregoing. The stock purchase contracts may require us to make periodic payments to the holders of the stock purchase units or vice versa, and those payments may be unsecured and may be pre-funded on some basis at the time the contract is issued. The stock purchase contracts may require holders to secure their obligations under those contracts in a specified manner, including through the securities we may issue as part of a stock purchase unit, and in certain circumstances we may deliver newly issued prepaid stock purchase contracts, which are referred to as "prepaid securities," upon release to a holder of any collateral securing that holder's obligations under the original contract. The applicable prospectus supplement will describe the specific terms of any stock purchase contracts or units and, if applicable, prepaid securities, including material United States federal income tax considerations applicable to those contracts or units. Those specific terms will supplement and, if applicable, may modify or replace the general terms described in this section. If there are differences between the prospectus supplement relating to any stock purchase contracts or units and this prospectus, the prospectus supplement will control. Therefore, the statements we make in this section may not apply to particular stock purchase contracts or units. In addition, since we have included (and any prospectus supplement will include) only a summary of the provisions of the stock purchase contracts or units, you must refer to the contracts, the collateral arrangements and depositary arrangements, if applicable, relating to those contracts or units and, if applicable, the prepaid securities and the document under which any prepaid securities will be issued. DESCRIPTION OF WARRANTS We and Union Oil may issue, together with debt securities of Union Oil or separately, warrants for the purchase of those debt securities on terms to be determined at the time of sale. We refer to this type of warrant as a "debt warrant." We may also issue, together with shares of our common stock or preferred stock or separately, warrants for the purchase of those shares on terms to be determined at the time of sale. We refer to this type of warrant as an "equity warrant." We refer to the debt warrants and the equity warrants collectively as the "warrants." We may issue warrants, in such amounts as we may determine, under one or more warrant agreements to be entered into between us and one or more banking institutions or trust companies, as warrant agent. The forms of warrant agreements are filed as exhibits to the registration statement of which 36 this prospectus forms a part. We will describe most of the financial and other specific terms of an offered warrant in the prospectus supplement relating to that warrant. Those specific terms will supplement and, if applicable, may modify or replace the general terms described in this section. If there are differences between the prospectus supplement relating to a particular warrant and this prospectus, the prospectus supplement will control. Therefore, the statements we make in this section may not apply to a particular warrant. The following summary of significant provisions of the warrant agreements and the warrants, and any description that may be contained in the applicable prospectus supplement, are not complete, and holders of warrants should review the detailed provisions of the relevant warrant agreement for a full description and for other information regarding the warrants. The warrants and each warrant agreement will be governed by, and construed in accordance with, the laws of the State of New York. TERMS OF THE WARRANTS Debt warrants and equity warrants may be issued under a warrant agreement, separately or together with any debt securities of Union Oil or any shares of our preferred stock or common stock, and may be transferable with or separately from those other securities. If we or Union Oil issue warrants to purchase debt securities of Union Oil, we will describe the terms of the debt warrants in the applicable prospectus supplement, including: - the offering price, if any, and the currency or currency unit in which the offering price will be payable; - the designation, aggregate principal amount and terms of any debt securities issued with the debt warrants and the number of debt warrants issued with each debt security offered; - if applicable, the date on or after which the debt warrants and the related debt securities will be separately transferable; - the designation, aggregate principal amount and terms of debt securities that may be purchased upon exercise of one debt warrant, and the price or prices at which, and currency or currency unit in which, such principal amount of debt securities may be purchased upon exercise; - the date on which the debt warrants become exercisable and the date on which they expire; - applicable United States federal income tax consequences; - whether the debt warrants will be issued in registered or bearer form or both; and - any other material terms of the debt warrants. If we issue warrants to purchase our common stock or preferred stock, we will describe the terms of the equity warrants in the applicable prospectus supplement, including: - the offering price, if any, including the currency or currency unit in which the offering price will be payable; - the designation of any series of preferred stock purchasable upon exercise of the equity warrants; - the number of shares of preferred stock or common stock that may be purchased upon exercise of one equity warrant, and the price or prices at which, and the currency or currency unit in which, those shares may be purchased upon exercise; - the date on which equity warrants become exercisable and the date on which they expire; - applicable United States federal income tax consequences; - whether the equity warrants will be issued in registered or bearer form or both; 37 - whether the equity warrants or the underlying preferred stock or common stock will be listed on any national securities exchange or automated quotation system; and - any other material terms of the equity warrants. If any debt warrants or equity warrants are sold for any foreign currency or currency units, we will specify in the applicable prospectus supplement the restrictions, elections, tax consequences, specific terms and other information with respect to those warrants. TRANSFER OF WARRANTS Holders of certificates evidencing debt warrants or equity warrants may exchange those certificates for new certificates of different denominations. Warrants held in registered form may be presented for registration of transfer at the corporate trust office of the warrant agent listed in the applicable prospectus supplement or at such other office as may be described in the supplement. RIGHTS OF WARRANT HOLDERS Except to the extent the consent of holders of debt warrants may be required for amendments to the terms of the indenture under which any debt securities issuable upon exercise of those warrants are to be issued, holders of warrants do not have any of the rights of holders of debt securities and are not entitled to payment of principal of, or any premium or interest on, the debt securities. In addition, holders of warrants do not have any of the rights of holders of preferred stock or common stock and are not entitled to payment of dividends or other distributions made on the preferred stock or common stock. EXERCISE OF WARRANTS Warrants may be exercised by surrendering the warrant certificate, if any, at the corporate trust office or other designated office of the warrant agent, with: - the form of election to purchase on the reverse side of the warrant certificate, if any, properly completed and executed; and - payment in full of the exercise price described in the applicable prospectus supplement. Upon exercise of warrants, the warrant agent will, as soon as practicable, deliver the debt securities, preferred stock or common stock issuable upon such exercise in authorized denominations in accordance with the instructions of the holder exercising the warrant and at the sole cost and risk of that holder. If a holder exercises less than all of the warrants evidenced by the warrant certificate, the warrant agent will issue a new warrant certificate to that holder for the remaining amount of unexercised warrants, if sufficient time exists prior to the expiration of those warrants. WARRANT AGREEMENT AMENDMENTS We and the applicable warrant agent may amend any warrant agreement without the consent of any holder: - to cure any ambiguity; - to cure, correct or supplement any defective provision; or - to make any other change that we believe is necessary or desirable, if the amendment does not adversely affect the interests of the holders. LIMITATIONS ON THE ISSUANCE OF BEARER SECURITIES Securities in bearer form are not registered in any name. Whoever is the bearer of the certificate representing a security in bearer form is the legal owner of that security. Legal title and ownership of 38 bearer securities passes by delivery of the certificates representing the securities. If we issue securities in bearer, rather than registered, form, those securities will be subject to special provisions described in this section. This section primarily describes provisions relating to debt securities issued in bearer form. Other provisions may apply to securities of other kinds issued in bearer form, such as warrants we or Unocal may issue in bearer form. We will specify in the applicable prospectus supplement what restrictions or certification requirements, if any, will be applicable to the issuance and delivery of bearer warrants or of those other securities. To the extent the provisions described in this section are inconsistent with those described elsewhere in this prospectus, they supersede those described elsewhere with regard to any bearer securities. Otherwise, the relevant provisions described elsewhere in this prospectus will apply to bearer securities. In compliance with United States federal tax laws and regulations, bearer securities generally may not be offered or sold during the "restricted period" (as defined below) to a person within the United States or to, or for the account or benefit of, a United States person. However, offers or sales can be made to: - the United States office of international organizations (as defined in Section 7701(a)(18) of the Internal Revenue Code of 1986, as amended, or the Code, and the regulations thereunder), - the United States office of foreign central banks (as defined in Section 895 of the Code and the regulations thereunder); and - foreign branches of United States financial institutions which are purchasing for their own account or for resale, and which have agreed to comply with the reporting requirements of Section 165(j)(3)(A), (B) or (C) of the Code and the regulations thereunder. In addition, sales can be made to a United States person acquiring a bearer security through a financial institution described in the third bullet of the preceding sentence if certain certification requirements and other conditions are satisfied. Definitive bearer securities will not be delivered within the United States, or in any event unless the beneficial owner of the securities has complied with the certification requirements to be described in the relevant prospectus supplement. Each underwriter, dealer and agent (or other "distributor" within the meaning of the regulations under Section 163 of the Code) participating in the distribution of any bearer securities will agree that: - it will not offer, sell or deliver bearer securities within the United States or to, or for the account or benefit of, United States persons (other than qualifying financial institutions) (1) until 40 days after the closing date or (2) at any time if the obligation is held as part of an unsold allotment or subscription (we refer to this period as the "restricted period"); and - it has in effect procedures reasonably designed to ensure that its employees and agents who are directly engaged in selling the bearer securities are aware of the restrictions described in the first bullet of this sentence. Bearer securities will bear a legend on their face and on any interest coupons that may be detached from them or, if the obligation is evidenced by a book entry, a legend will appear in the book of record in which the book entry is made substantially to the following effect: "Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code." The Code sections referred to in this legend provide that a United States person who holds a bearer security will not be allowed to deduct any loss realized on the sale, exchange or redemption of that bearer security and any gain (which might otherwise be characterized as capital gain) recognized on such sale, exchange or redemption will be treated as ordinary income. As used in this document, "United States person" means: - an individual who is a citizen or resident of the United States; - a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision thereof; 39 - an estate the income of which is subject to United States federal income taxation regardless of its source; - a trust if a court within the United States is able to exercise primary supervision of the administration of the trust and one or more United States persons have the authority to control all decisions of the trust or certain electing trusts that were existing on August 19, 1996 and treated as domestic trusts on such date, and "United States" means the United States of America (including the States and the District of Columbia) and its possessions, which include, as of the date hereof, Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island, and Northern Mariana Islands. PLAN OF DISTRIBUTION We and Union Oil may offer and sell the securities: - directly to investors, through a specific bidding, auction or other process; - to investors through agents; - through underwriters or dealers; or - through a combination of any of these methods of sale. We and Union Oil may also exchange securities for indebtedness or other securities that we or Union Oil or both may have outstanding. In addition, we or Union Oil may issue the securities as a dividend or distribution or in a subscription rights offering to our respective existing security holders. In some cases, dealers acting on our or Union Oil's behalf may also purchase securities and reoffer them to the public by one or more of the methods described above. This prospectus may be used in connection with any offering of the securities through any of these methods or other methods described in the applicable prospectus supplement. The securities distributed by any of these methods may be sold to the public, in one or more transactions, either: - at a fixed price or prices, which may be changed; - at market prices prevailing at the time of sale; - at prices related to prevailing market prices; or - at negotiated prices. We and Union Oil may solicit offers to purchase securities directly from the public from time to time. We and Union Oil may also designate agents from time to time to solicit offers to purchase securities from the public on our behalf. The prospectus supplement relating to any particular offering of securities will name any agents designated to solicit offers, and will include information about any commissions we or Union Oil may pay the agents, in that offering. Unless otherwise indicated in the applicable prospectus supplement, any such agent will be acting on a best efforts basis for the period of its appointment. Agents may be deemed to be "underwriters" as that term is defined in the Securities Act. From time to time, we and Union Oil may sell securities to one or more dealers acting as principals. The dealers, who may be deemed to be "underwriters" as that term is defined in the Securities Act, may then resell those securities to the public. We and Union Oil may sell securities from time to time to one or more underwriters, who would purchase the securities as principal for resale to the public, either on a firm-commitment or best-efforts basis. If we and Union Oil sell securities to underwriters, we may execute one or more underwriting agreements with them at the time of sale and name them in the applicable prospectus supplement. In connection with those sales, underwriters may be deemed to have received compensation from us or Union 40 Oil in the form of underwriting discounts or commissions and may also receive commissions from purchasers of the securities for whom they may act as agents. Underwriters may resell the securities to or through dealers, and those dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from purchasers for whom they may act as agents. The securities may be either offered to the public through underwriting syndicates represented by managing underwriters, or directly by one or more underwriters. Unless otherwise stated in the applicable prospectus supplement, the obligations of the underwriters to purchase the securities will be subject to specified conditions precedent and the underwriters will be obligated to purchase all the securities if any are purchased. Our and Union Oil's net proceeds from the sale of the securities will be the purchase price in the case of sales to a dealer, the public offering price less discount in the case of sales to an underwriter or the purchase price less commission in the case of sales through an agent -- in each case, less other expenses attributable to issuance and distribution. The applicable prospectus supplement will include this information and any required information about underwriting compensation we or Union Oil pay to underwriters, and any discounts, concessions or commissions underwriters allow to participating dealers, in connection with an offering of securities. If we or Union Oil offer securities in a subscription rights offering to our respective existing security holders, we or Union Oil, as the case may be, may enter into a standby underwriting agreement with dealers, acting as standby underwriters. We or Union Oil may pay the standby underwriters a commitment fee for the securities they commit to purchase on a standby basis. If we or Union Oil do not enter into a standby underwriting arrangement, a dealer-manager may be retained to manage the subscription rights offering. Except for common stock of Unocal, each issue of securities sold will be a new issue of securities with no established trading market. Any underwriters or agents with respect to an issue of securities may make a market in those securities, but will not be obligated to do so and may discontinue any market making at any time without notice. Neither we nor Union Oil can give assurances as to the liquidity of any securities in the secondary market. If securities are issued in exchange for our or Union Oil's outstanding securities, the applicable prospectus supplement will describe the terms of the exchange, the identity of, and the terms of sale of the securities by, the selling security holders. If so indicated in the applicable prospectus supplement, we or Union Oil will authorize agents, underwriters or dealers to solicit offers by specified institutions to purchase the securities from us or Union Oil, as the case may be, at the public offering price set forth in the applicable prospectus supplement under delayed delivery contracts providing for payment and delivery on a specified date in the future. Those contracts will be subject only to those conditions set forth in the applicable prospectus supplement and the applicable prospectus supplement will set forth the commission payable for solicitation of those contracts. Agents, dealers, underwriters and other persons may be entitled under agreements they enter into with us and Union Oil to indemnification by us and Union Oil against certain liabilities, including liabilities under the Securities Act, or to contribution with respect to payments which the agents, dealers, underwriters or those persons may be required to make with respect to those liabilities. Agents, dealers and underwriters, as well as their associates, may be customers or lenders of, and may engage in transactions with or perform services for, us or Unocal in the ordinary course of business. In connection with an offering, the underwriters may purchase and sell securities in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of securities than they are required to purchase in an offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the securities while an offering is in progress. 41 The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the underwriters have repurchased securities sold by or for the account of that underwriter in stabilizing or short-covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the securities. As a result, the price of the securities may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on an exchange or automated quotation system, if the securities are listed on that exchange or admitted for trading on that automated quotation system, or in the over-the-counter market or otherwise. VALIDITY OF THE SECURITIES In connection with particular offerings of the securities in the future, and if stated in the applicable prospectus supplement, the validity of those securities may be passed upon for us and Union Oil by Wachtell, Lipton, Rosen & Katz, or other counsel satisfactory to us and who may be an officer of Unocal, and for any underwriters or agents by Gibson, Dunn & Crutcher LLP or other counsel named in the applicable prospectus supplement. Gibson, Dunn & Crutcher LLP has in the past represented us and Union Oil and continues to represent us and Union Oil from time to time in a variety of matters. EXPERTS The consolidated financial statements incorporated in this prospectus by reference to our amended Annual Report on Form 10-K/A for the year ended December 31, 2001, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 42 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED FEBRUARY , 2003 PROSPECTUS [UNOCAL LOGO] $1,538,800,000 UNOCAL CAPITAL TRUST II TRUST PREFERRED SECURITIES GUARANTEED BY UNOCAL CORPORATION --------------------- UNOCAL CORPORATION JUNIOR SUBORDINATED DEBENTURES --------------------- By this prospectus, Unocal Capital Trust II may offer, from time to time, in one or more series, trust preferred securities. We formed the trust for the purpose of issuing trust preferred securities, representing undivided beneficial interests in the assets of the trust. The trust will use the proceeds from the sale of its trust preferred securities to purchase from us junior subordinated debentures. The junior subordinated debentures may be distributed to holders of the trust preferred securities if and when the trust is dissolved. We will guarantee the trust's payment obligations on the trust preferred securities. The securities offered by this prospectus will have a maximum aggregate offering price of $1,538,800,000. The trust may sell the trust preferred securities to or through underwriters, to other purchasers and/or through agents, on a continuous or delayed basis. This prospectus describes some of the general terms that may apply to these securities and the general manner in which they may be offered. The specific terms of any securities to be offered, and the specific manner in which they may be offered, will be described in a supplement to this prospectus. You should read this prospectus and the supplement carefully before investing. In particular, YOU SHOULD READ THE RISK FACTORS BEGINNING ON PAGE 6. As used in this prospectus, unless we say otherwise, the terms "Unocal," "we," "us" and "our" refer to Unocal Corporation. --------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. --------------------- The date of this prospectus is , 2003. TABLE OF CONTENTS
PAGE ---- Where You Can Find More Information......................... 2 Unocal...................................................... 4 The Trust................................................... 4 Risk Factors................................................ 6 Special Note on Forward-Looking Statements.................. 12 Use of Proceeds............................................. 13 Accounting Treatment Relating to Trust Securities........... 13 Ratios of Earnings to Fixed Charges......................... 13 Description of the Trust Preferred Securities............... 14 Description of the Guarantee................................ 28 Description of the Junior Subordinated Debentures........... 32 Effect of Obligations Under the Junior Subordinated Debentures and the Guarantee.............................. 43 Global Securities........................................... 44 Plan of Distribution........................................ 46 Validity of the Securities.................................. 48 Experts..................................................... 48
WHERE YOU CAN FIND MORE INFORMATION We are required to file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any of these materials at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the SEC's public reference facilities. Our SEC filings are also available to the public over the Internet, at the SEC's web site at http://www.sec.gov, and through the New York Stock Exchange, where our common stock is listed under the symbol "UCL," at 20 Broad Street, New York, New York 10005. We and the trust have filed registration statements with the SEC on Form S-3 pursuant to the Securities Act of 1933, or Securities Act, for the securities offered by this prospectus. In accordance with the rules and regulations of the SEC, this prospectus does not contain all of the information set forth in the registration statements of which it forms a part. For further information regarding the securities offered by this prospectus, you may examine our registration statements and the documents incorporated therein by reference, without charge, at the SEC's public reference facilities identified above. The SEC allows us to "incorporate by reference" the information we file with the SEC. This means that we can disclose important information to you by referring you to the documents we file with the SEC. The information incorporated by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update and where applicable supersede information contained or incorporated by reference in this prospectus. We incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934, or Exchange Act, until we complete our offering of the securities under this registration statement: a. Our Annual Report on Form 10-K, as amended by Amendments Nos. 1 and 2 on Form 10-K/A, for the fiscal year ended December 31, 2001; b. Our Quarterly Report on Form 10-Q for the quarterly period ended March 31, our Quarterly Report on Form 10-Q, as amended by Amendments Nos. 1 and 2 on Form 10-Q/A, for the quarterly 2 period ended June 30, and our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002; c. Our Current Reports on Form 8-K dated (date of earliest event reported) January 22 and 24, March 27, April 8 and 25, June 10 and 20, August 2 and 20, September 4, 13, 18, 25, and 27 (as amended by Amendment No. 1 on Form 8-K/A filed on October 11, 2002), October 1, 8, 24 and 30, November 12, December 3 and 26, 2002, and January 28 and February 4, 2003; and d. The description of the Preferred Share Purchase Rights associated with our common stock, included in our Current Report on Form 8-K dated January 5, 2000, as such rights have been amended as set forth in our Current Reports on Form 8-K dated (date of earliest event reported) March 27 and August 2, 2002. The descriptions of the 6.25% Trust Convertible Preferred Securities of Unocal Capital Trust, (the "Trust Convertible Preferred Securities"), the guarantee thereof by us, and our 6.25% Convertible Junior Subordinated Debentures (the rights and terms of which may materially limit or qualify the rights evidenced by, or amounts payable with respect to, our common stock) set forth under the captions "Description of the Trust Convertible Preferred Securities," "Description of the Guarantee," "Description of the Convertible Debentures," and "Effect of Obligations under the Convertible Debentures and the Guarantee" in the prospectus dated August 7, 1996, included in the Registration Statement on Form S-4 of Unocal and Unocal Capital Trust filed on July 30, 1996, as amended by Pre-Effective Amendment No. 1 filed on August 7, 1996. All documents filed by us pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the filing of a post-effective amendment indicating that all securities offered have been sold or which deregisters all securities then remaining unsold are deemed to be incorporated by reference in this prospectus and to be a part hereof from the date of filing of those documents. We will provide without charge to each person, including any beneficial owner to whom this prospectus is delivered, upon his or her written or oral request at the address described below, a copy of any or all documents referred to above which have been or may be incorporated by reference into this prospectus, excluding exhibits to those documents unless they are specifically incorporated by reference into those documents. Stockholder Services Department Unocal Corporation 2141 Rosecrans Avenue, Suite 4000 El Segundo, California 90245 (800) 252-2233 You may also obtain copies of some of these documents at our web site at http://www.unocal.com. We have not included separate financial statements for Unocal Capital Trust II in this prospectus. We do not believe its financial statements would be helpful because: - the trust is a wholly owned subsidiary of ours, and we file consolidated financial information under the Exchange Act; - the trust will not have any independent operations other than issuing trust preferred securities and common securities, which we refer to together as "trust securities," holding junior subordinated debentures we may issue as trust assets and engaging in other necessary or incidental activities as described in this prospectus; and - we guarantee the payments on the trust preferred securities. We do not expect that the trust will be subject to the reporting requirements of the Exchange Act. 3 UNOCAL We were incorporated in Delaware in 1983 to operate as the parent company of Union Oil Company of California. Union Oil was incorporated in California in 1890. We conduct substantially all of our operations through Union Oil and Union Oil's subsidiaries. Through our subsidiaries, we are one of the world's largest independent oil and gas exploration and production companies, with principal operations in North America and Asia. We are also a leading producer of geothermal energy and a provider of electrical power in Asia. Other activities include ownership in proprietary and common carrier pipelines, natural gas storage facilities and the marketing of hydrocarbon commodities. Our principal executive offices are located at 2141 Rosecrans Avenue, Suite 4000, El Segundo, California 90245, and the telephone number at that address is (310) 726-7600. THE TRUST We created Unocal Capital Trust II as a Delaware statutory trust pursuant to a declaration of trust executed by us as sponsor and the trustees of the trust, and the filing of a certificate of trust with the Delaware Secretary of State on June 30, 1998. We will execute an amended and restated trust agreement for Unocal Capital Trust II, which we refer to in this prospectus as the "trust agreement," that will state the terms and conditions for the trust to issue and sell its trust securities. We have filed a form of trust agreement as an exhibit to the registration statement of which this prospectus forms a part. The trust agreement will be qualified as an indenture under the Trust Indenture Act of 1939. The trust exists solely to: - issue and sell its trust securities, having an aggregate liquidation amount equal to the aggregate principal amount of junior subordinated debentures that we may issue to the trust; - use the proceeds from the sale of its trust securities to purchase junior subordinated debentures issued by us; and - engage in other activities that are necessary, convenient or incidental to the above purposes (such as registering the transfer of trust securities). Accordingly, our junior subordinated debentures will be the sole assets of the trust, and payments under the junior subordinated debentures owned by the trust will be its sole source of revenues. We will hold directly or indirectly all of the common securities of the trust. Unless otherwise specified in the prospectus supplement relating to the trust preferred securities, the common securities of the trust will represent an aggregate liquidation amount equal to at least 1% of the trust's total capitalization. The trust preferred securities will represent the remaining percentage of the trust's total capitalization. The common securities of the trust will have terms substantially identical to, and will rank equal in priority of payment with, the trust preferred securities. However, if we default in payments due under the junior subordinated debentures owned by the trust, then distributions, redemption payments and liquidation payments must be paid to the holders of the trust preferred securities before any payments are made to the holders of the common securities of the trust. The trust will have a term of 40 years from the date of the original declaration of trust, but may terminate earlier as provided in the trust agreement. As the holder of the trust's common securities, we intend to select three of our employees, officers or affiliates to serve as administrative trustees of the trust. Unless otherwise specified in the prospectus supplement relating to the trust preferred securities, the following five trustees will conduct the trust's business and affairs until their resignation or removal: - three of our employees, officers or affiliates, as "administrative trustees;" - The Bank of New York, a banking corporation, as "indenture trustee" under the trust agreement for purposes of compliance with the provisions of the Trust Indenture Act of 1939; and 4 - The Bank of New York (Delaware), an affiliate of the indenture trustee, as "Delaware trustee" under the trust agreement for purposes of compliance with the Delaware Statutory Trust Act. For the purpose of compliance with the Trust Indenture Act, The Bank of New York will also serve as trustee under our guarantee in favor of the holders of trust preferred securities and under the indenture governing our junior subordinated debentures. The indenture trustee will hold title to our junior subordinated debentures for the benefit of the holders of the trust securities and will have the power to exercise all rights, powers and privileges under the indenture governing the junior subordinated debentures as holder of those securities. In addition, the indenture trustee will maintain exclusive control of a segregated, non-interest-bearing trust account to hold all payments made in respect of the junior subordinated debentures for the benefit of the holders of the trust securities. The indenture trustee will make payments of distributions and payments on liquidation, redemption and otherwise to the holders of the trust securities out of funds from the trust account. Trust and trustee-related expenses are not paid from funds in this account, but are paid by us pursuant to the indenture governing the junior subordinated debentures. The address of the Delaware trustee is White Clay Center, Route 273, Newark, Delaware 19711, and the address of the indenture trustee, the guarantee trustee and the debenture trustee is 101 Barclay Street, New York, New York 10286. The Bank of New York is currently serving as trustee with respect to Unocal Capital Trust's 6 1/4% Trust Convertible Preferred Securities and our 6 1/4% Convertible Junior Subordinated Debentures due 2026. In addition, The Bank of New York is currently the trustee under an indenture under which debt securities in an aggregate principal amount of approximately $503 million, maturing from February 2004 to March 2011, have been issued by Union Oil and guaranteed by us. The Bank of New York is also a participating lender under two bank credit agreements of Union Oil guaranteed by us, under which it has committed to lend to Union Oil and other of our subsidiaries an aggregate of approximately $34 million, none of which is outstanding as of the date of this prospectus. We and our subsidiaries have other banking relationships and may in the future enter into other relationships with The Bank of New York in the normal course business. Only we, as direct or indirect owner of the common securities of the trust, can remove or replace any trustee and increase or decrease the number of trustees (but not below two). We will guarantee the trust preferred securities as described in this prospectus and the prospectus supplement relating to the trust preferred securities. We will pay all fees and expenses related to the organization of the trust and the offering of the trust preferred securities. We will also pay all ongoing costs and expenses of the trust, except the trust's obligations under the trust securities. The business address of the trust is 2141 Rosecrans Avenue, Suite 4000, El Segundo, California 90245, and its telephone number at that address is (310) 726-7600. 5 RISK FACTORS Our subsidiaries' business activities are subject to hazards and risks, including those described below. If any of those events should occur, our business, financial condition and/or results of operations could be materially harmed, and you could lose part or all of your investment. Additional risks relating to the securities you propose to buy may be included in the prospectus supplement relating to those securities. Before making an investment in the securities offered by this prospectus, you should carefully consider all the material risks described below and in the prospectus supplement relating to the securities you propose to buy, as well as the other information contained in those documents and in the documents incorporated by reference in this prospectus, as described under "Where You Can Find More Information." OUR PROFITABILITY IS HIGHLY DEPENDENT ON THE PRICES OF CRUDE OIL, NATURAL GAS AND NATURAL GAS LIQUIDS, WHICH HAVE HISTORICALLY BEEN VERY VOLATILE. Our revenues, profitability, cash flow and future rate of growth are highly dependent on the prices of crude oil, natural gas and natural gas liquids, which are affected by numerous factors beyond our control. Oil and gas liquids and gas prices historically have been very volatile. For example, our lower 48 U.S. gas prices declined significantly in 2001 from the very high levels reached in the second half of 2000 and early 2001. A significant downward trend in commodity prices would have a material adverse effect on our revenues, profitability and cash flow and could result in a reduction in the carrying value of our oil and gas properties and the amounts of our proved oil and gas reserves. OUR HEDGING AND SPECULATING ACTIVITIES MAY PREVENT US FROM BENEFITING FROM PRICE INCREASES AND MAY EXPOSE US TO OTHER RISKS. To the extent that we engage in hedging activities to endeavor to protect ourselves from price volatility, we may be prevented from realizing the benefits of price increases above the levels of the hedges. In addition, we engage in speculative trading in hydrocarbon commodities and derivative instruments in connection with our risk management activities, which subjects us to additional risk. OUR DRILLING ACTIVITIES MAY NOT BE PRODUCTIVE. Drilling for oil and gas involves numerous risks, including the risk that we will not encounter commercially productive oil or gas reservoirs. The costs of drilling, completing and operating wells are often uncertain, and drilling operations may be curtailed, delayed or canceled as a result of a variety of factors, including: - unexpected drilling conditions; - pressure or irregularities in formations; - equipment failures or accidents; - fires, explosions, blow-outs and surface cratering; - marine risks such as capsizing, collisions and hurricanes; - adverse weather conditions; and - shortages or delays in the delivery of equipment. Our future drilling activities may not be successful and, if unsuccessful, this failure could have an adverse effect on our future results of operations and financial condition. While all drilling, whether developmental or exploratory, involves these risks, exploratory drilling involves greater risks of dry holes or failure to find commercial quantities of hydrocarbons. Because of the percentage of our capital budget devoted to higher risk exploratory projects, it is likely that we will continue to experience significant exploration and dry hole expenses. As part of our strategy, we explore for oil and gas offshore, often in deep water or at deep drilling depths, where operations are more difficult and costly than on land or than at shallower depths and in 6 shallower waters. Deepwater operations may require a significant amount of time between a discovery and the time that we can produce and market the oil or gas, increasing both the financial and operational risks involved with these activities. WE MAY NOT BE INSURED AGAINST ALL OF THE OPERATING RISKS TO WHICH OUR BUSINESS IS EXPOSED. Our business is subject to all of the operating risks normally associated with the exploration for and production of oil and gas, including blowouts, cratering and fire, any of which could result in damage to, or destruction of, oil and gas wells or formations or production facilities and other property and injury to persons. As protection against financial loss resulting from these operating hazards, we maintain insurance coverage, including certain physical damage, comprehensive general liability and worker's compensation insurance. However, we are not fully insured against all risks in our business. The occurrence of a significant event against which we are not fully insured could have a material adverse effect on our results of operations and possibly on our financial position. MATERIAL DIFFERENCES BETWEEN ESTIMATED AND ACTUAL TIMING OF CRITICAL EVENTS MAY AFFECT COMPLETION OF AND COMMENCEMENT OF PRODUCTION FROM DEVELOPMENT PROJECTS. We are involved in several large development projects, principally offshore. Key factors that may affect the timing and outcome of those projects include: project approvals by joint venture partners; timely issuance of permits and licenses by governmental agencies; manufacturing and delivery schedules of critical equipment, such as offshore platforms, and commercial arrangements for pipelines and related equipment to transport and market hydrocarbons. Delays and differences between estimated and actual timing of critical events may affect the completion of and commencement of production from projects. OUR OIL AND GAS RESERVE DATA AND FUTURE NET REVENUE ESTIMATES ARE UNCERTAIN. Estimates of reserves by necessity are projections based on engineering data, the projection of future rates of production and the timing of future expenditures. We base the estimates of our proved oil and gas reserves and projected future net revenues on reserve reports we prepare. The process of estimating oil and gas reserves requires substantial judgment on the part of the petroleum engineers, resulting in imprecise determinations, particularly with respect to new discoveries. Different reserve engineers may make different estimates of reserve quantities and revenues attributable to those reserves based on the same data. Future performance that deviates significantly from reserve reports could have a material adverse effect on our business and prospects, as well as on the amounts and carrying values of such reserves. Fluctuations in the prices of oil and natural gas have the effect of significantly altering reserve estimates, because the economic projections inherent in the estimates may reduce or increase the quantities of recoverable reserves. We may not realize the prices our reserve estimates reflect or produce the estimated volumes during the periods those estimates reflect. Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves most likely will vary from our estimates. Any downward revision in our estimated quantities of reserves or of the carrying values of our reserves could have adverse consequences on our financial results, such as increased depreciation, depletion and amortization charges and/or impairment charges, which would reduce earnings and stockholders' equity. IF WE FAIL TO FIND OR ACQUIRE ADDITIONAL RESERVES, OUR RESERVES AND PRODUCTION WILL DECLINE MATERIALLY FROM THEIR CURRENT LEVELS. The rate of production from oil and gas properties generally declines as reserves are depleted. Except to the extent we conduct successful exploration and development activities or, through engineering studies, identify additional productive zones or secondary recovery reserves, or acquire additional properties containing proved reserves, our proved reserves will decline materially as oil and gas is produced. Future oil and gas production is, therefore, highly dependent on our level of success in finding or acquiring additional reserves. 7 OUR GROWTH DEPENDS SIGNIFICANTLY ON OUR ABILITY TO ACQUIRE OIL AND GAS PROPERTIES ON A PROFITABLE BASIS. Acquisitions of producing oil and gas properties have been a key element of maintaining and growing our reserves and production in recent years, particularly in North America. The success of any acquisition will depend on a number of factors, including the ability to estimate accurately the recoverable volumes of reserves, rates of future production and future net revenues attainable from reserves and to assess future abandonment and possible future environmental liabilities. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves and actual future production rates and associated costs and potential liabilities with respect to acquired properties. Actual results may vary substantially from those assumed in the estimates. WE ARE SUBJECT TO DOMESTIC GOVERNMENTAL RISKS THAT MAY IMPACT OUR OPERATIONS. Our domestic operations have been, and at times in the future may be, affected by political developments and by federal, state and local laws and regulations such as restrictions on production, changes in taxes, royalties and other amounts payable to governments or governmental agencies, price controls and environmental protection regulations. GLOBAL POLITICAL AND ECONOMIC DEVELOPMENTS MAY IMPACT OUR OPERATIONS. Political and economic factors in international markets may have a material adverse effect on our operations. On an equivalent-barrel basis, over one-half of our oil and gas production in 2002 was outside the United States, and approximately two-thirds of our proved oil and gas reserves at December 31, 2002 were located outside of the United States. All of our geothermal operations and reserves are located outside the United States. There are many risks associated with operations in international markets, including changes in foreign governmental policies relating to crude oil, natural gas liquids, natural gas and geothermal steam pricing and taxation, other political, economic or diplomatic developments, changing political conditions and international monetary fluctuations. These risks include: - political and economic instability or war; - the possibility that a foreign government may seize our property with or without compensation; - confiscatory taxation; - legal proceedings and claims arising from our foreign investments or operations; - a foreign government attempting to renegotiate or revoke existing contractual arrangements; - fluctuating currency values and currency controls; and - constrained natural gas markets dependent on demand in a single or limited geographical area. Actions of the United States government through tax and other legislation, executive order and commercial restrictions can adversely affect our operating profitability overseas, as well as in the U.S. The United States government can prevent or restrict us from doing business in foreign countries. These restrictions and those of foreign governments have in the past limited our ability to operate in or gain access to opportunities in various countries. Various agencies of the United States and other governments have from time to time imposed restrictions on our ability to operate in or gain attractive opportunities in various countries. Actions by both the United States and host governments have affected operations significantly in the past and will continue to do so in the future. THE OIL AND GAS EXPLORATION AND PRODUCTION INDUSTRY IS VERY COMPETITIVE, AND MANY OF OUR EXPLORATION AND PRODUCTION COMPETITORS HAVE GREATER FINANCIAL AND OTHER RESOURCES THAN WE DO. Strong competition exists in all sectors of the oil and gas exploration and production industry and, in particular, in the exploration and development of new reserves. We compete with major integrated and 8 other independent oil and gas companies for the acquisition of oil and gas leases and other properties, for the equipment and labor required to explore, develop and operate those properties and in the marketing of oil and natural gas production. Many of our competitors have financial and other resources substantially greater than those available to us. As a consequence, we may be at a competitive disadvantage in bidding for drilling rights. In addition, many of our larger competitors may have a competitive advantage when responding to factors that affect the demand for oil and natural gas production, such as changes in worldwide prices and levels of production, the cost and availability of alternative fuels and the application of government regulations. We also compete in attracting and retaining personnel, including geologists, geophysicists, engineers and other specialists. ENVIRONMENTAL COMPLIANCE AND REMEDIATION HAVE RESULTED IN AND COULD CONTINUE TO RESULT IN INCREASED OPERATING COSTS AND CAPITAL REQUIREMENTS. Our operations are subject to numerous laws and regulations relating to the protection of the environment. We have incurred, and will continue to incur, substantial operating, maintenance, remediation and capital expenditures as a result of these laws and regulations. Our compliance with amended, new or more stringent requirements, stricter interpretations of existing requirements or the future discovery of contamination may require us to make material expenditures or subject us to liabilities beyond what we currently anticipate. In addition, any failure by us to comply with existing or future laws could result in civil or criminal fines and other enforcement action against us. Our past and present operations and those of companies we have acquired expose us to civil claims by third parties for alleged liability resulting from contamination of the environment or personal injuries caused by releases of hazardous substances. For example: - we are investigating or remediating contamination at a large number of formerly and currently owned or operated sites and have recently announced additional charges relating to some of these sites; and - we have been identified as a potentially responsible party at several Superfund and other multi-party sites where we or our predecessors are alleged to have disposed of wastes in the past. Environmental laws are subject to frequent change and many of those laws have become more stringent. In some cases, they can impose liability for the entire cost of cleanup on any responsible party without regard to negligence or fault and impose liability on us for the conduct of others or conditions others have caused, or for our acts that complied with all applicable requirements when we performed them. It is not possible for us to estimate reliably the amount and timing of all future expenditures related to environmental and legal matters and other contingencies because: - some sites are in the early stages of investigation, and other sites may be identified in the future; - cleanup requirements are difficult to predict at sites where remedial investigations have not been completed or final decisions have not been made regarding cleanup requirements, technologies or other factors that bear on cleanup costs; - environmental laws frequently impose joint and several liability on all potentially responsible parties, and it can be difficult to determine the number and financial condition of other potentially responsible parties and their shares of responsibility for cleanup costs; - environmental laws and regulations are continually changing, and court proceedings are inherently uncertain; and - some legal matters are in the early stages of investigation or proceeding or their outcomes otherwise may be difficult to predict, and other legal matters may be identified in the future. 9 Although our management believes that it has established appropriate reserves for cleanup costs, due to these uncertainties, we could be required to provide significant additional reserves in the future, which could adversely affect our results of operations and possibly our financial position. More detailed information with respect to the matters discussed above is set forth under the caption "Environmental Regulation" in our 2001 amended Annual Report on Form 10-K/A, and our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002, which reports are incorporated into this prospectus by reference. Our fourth quarter 2002 reported preliminary net earnings included after-tax provisions of approximately $25 million ($40 million pre-tax) for additional reserves for environmental remediation. Most of the provisions, which resulted from our regular quarterly review of remediation obligations, related to facilities previously sold with retained responsibilities and to formerly operated sites. Most of the provisions were included in our reported September 30, 2002 estimate of possible additional remediation costs. However, we expect to add approximately another $25 million to the aggregate of possible additional remediation costs as of December 31, 2002. WE DEPEND UPON PAYMENTS FROM OUR SUBSIDIARIES. We conduct substantially all of our operations through Union Oil, Pure Resources, Inc. and other subsidiaries. Our principal sources of cash are dividends and advances from our subsidiaries, investments, payments by subsidiaries for services rendered and interest payments from subsidiaries on cash advances. The amount of cash and income available to us from our subsidiaries largely depends upon each subsidiary's earnings and operating and capital requirements. In addition, the ability of our subsidiaries to make any payments or transfer funds will depend on the subsidiaries' earnings, business and tax considerations and legal restrictions. Failure to receive adequate cash and income from our subsidiaries could jeopardize our ability to make payments on debt securities we issue, including those held by Unocal Capital Trust or that we may issue to Unocal Capital Trust II, to satisfy our guarantees of debt securities of Union Oil and the trust preferred securities of Unocal Capital Trust or that Unocal Capital Trust II may issue, and to pay dividends on our common stock and any preferred stock we may issue. OUR DEBT LEVEL MAY LIMIT OUR FINANCIAL FLEXIBILITY. As of December 31, 2002, our preliminary, unaudited consolidated balance sheet showed approximately $3.0 billion of total debt outstanding. In addition, Unocal Capital Trust, a consolidated finance subsidiary, has $522 million of convertible trust preferred securities outstanding, which represent beneficial interests in a like amount of subordinated debt we issued to that trust. We may incur additional debt in the future, including in connection with acquisitions, recapitalizations and refinancings. The level of our debt could have several important effects on our future operations, including, among others: - a significant portion of our cash flow from operations will be applied to the payment of principal and interest on the debt and will not be available for other purposes; - credit rating agencies have changed, and may continue to change, their ratings of our debt and other obligations as a result of changes in our debt level, financial condition, earnings and cash flow, which in turn impacts the costs, terms and conditions and availability of financing; - covenants contained in our existing and future debt arrangements will require us to meet financial tests that may affect our flexibility in planning for and reacting to changes in our business, including possible acquisition opportunities; - our ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate and other purposes may be limited or burdened by increased costs or more restrictive covenants; - we may be at a competitive disadvantage to similar companies that have less debt; and - our vulnerability to adverse economic and industry conditions may increase. 10 A CHANGE OF CONTROL OF US COULD RESULT IN THE ACCELERATION OF OUR OUTSTANDING BANK BORROWINGS AND TRIGGER VARIOUS CHANGE-OF-CONTROL PROVISIONS INCLUDED IN EMPLOYEE AND DIRECTOR PLANS AND AGREEMENTS. Two bank credit facilities guaranteed by us, under which Union Oil can borrow an aggregate of up to $1.0 billion, provide for the termination of their loan commitments and require the prepayment of all outstanding borrowings under the facilities in the event that (1) any person or group becomes the beneficial owner of more than 30 percent of our then-outstanding voting stock other than in a transaction having the approval of our board of directors, at least a majority of which are continuing directors, or (2) our continuing directors cease to constitute at least a majority of the board. If this situation were to occur, we and Union Oil would likely be required to refinance the outstanding indebtedness under these credit facilities. There can be no assurance that we would be able to refinance this indebtedness or, if a refinancing were to occur, that the refinancing would be on terms favorable to us. Under various employee and director plans and agreements, in the event of a change in control, restricted stock would become unrestricted, unvested options and phantom units would vest, performance shares, performance bonus awards and incentive compensation would be paid out, and directors' units would be paid out if the director has so elected. We are also party to employment agreements and other agreements with certain of our employees containing change-of-control provisions. We have adopted an enhanced severance program for approximately 2,800 U.S.-payroll employees not represented by collective bargaining agreements and a limited number of international employees in the event they lose their jobs through a change of control. WE MAY ISSUE PREFERRED STOCK, THE TERMS OF WHICH COULD ADVERSELY AFFECT THE VOTING POWER OR VALUE OF OUR COMMON STOCK. Our certificate of incorporation authorizes our board of directors to issue, without the approval of our stockholders, one or more series of preferred stock having such preferences, powers and relative, participating, optional and other rights, including preferences over our common stock respecting dividends and distributions, as the board of directors generally may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of our common stock. For example, we could grant holders of preferred stock the right to elect some number of directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock. PROVISIONS IN OUR CORPORATE DOCUMENTS AND DELAWARE LAW COULD DELAY OR PREVENT A CHANGE OF CONTROL OF US, EVEN IF THAT CHANGE WOULD BE BENEFICIAL TO OUR STOCKHOLDERS. Our certificate of incorporation and bylaws contain provisions that may make a change of control of us difficult, even if it would be beneficial to our stockholders, including: - provisions governing the classification, nomination and removal of directors; - a provision prohibiting stockholder action by written consent; - a provision that allows only our board of directors to call a special meeting of stockholders; - provisions regulating the ability of our stockholders to bring matters for action before annual stockholder meetings; and - the authorization given to our board of directors to issue and set the terms of preferred stock. In addition, we have adopted a stockholder rights plan, which would cause extreme dilution to any person or group that attempts to acquire a significant interest in Unocal without advance approval of our board of directors, while Section 203 of the Delaware General Corporation Law would impose restrictions on mergers and other business combinations between Unocal and any holder of 15 percent or more of our outstanding common stock. 11 WE MAY REDUCE OR CEASE TO PAY DIVIDENDS ON OUR COMMON STOCK. We can provide no assurance that we will continue to pay dividends at the current rate or at all. The amount of cash dividends, if any, to be paid in the future will depend upon their declaration by our board of directors and upon our financial condition, results of operations, cash flow, the level of our capital and exploration expenditures, our future business prospects and other related matters that our board of directors deems relevant. In addition, under the terms of the outstanding trust preferred securities of Unocal Capital Trust and the Unocal subordinated debt securities held by that trust, we have the right, under certain circumstances to suspend the payment to that trust of interest on the subordinated debt securities, in which event the trust has the right to suspend the payment of distributions on its trust preferred securities. In this situation, we would be prohibited from paying dividends on our common stock. SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS Some of the statements contained or incorporated by reference in this prospectus discuss our plans and strategies for our business or state other "forward-looking statements," as this term is defined in the Private Securities Litigation Reform Act of 1995, as embodied in Section 27A of the Securities Act 1933, as amended, and Section 21E of the Securities Exchange Act 1934, as amended. All statements, other than statements of historical facts, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. The words "believes," "anticipates," "estimates," "expects," "plans," "intends" and similar expressions are intended to identify these forward-looking statements, but are not the exclusive means of identifying them. These statements are based on assumptions and assessments made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors our management believes to be appropriate. These forward-looking statements are subject to a number of risks and uncertainties, some of which our management has not yet identified. Any such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by those forward-looking statements as the result of various important factors, some of which are discussed in the "Risk Factors" section of this prospectus, at pages 59-61 of Amendment No. 2 to our 2001 Annual Report on Form 10-K/A and in other documents incorporated by reference in this prospectus. The factors described in the "Risk Factors" section of this prospectus and in the documents we incorporate by reference in this prospectus are not necessarily all of the important factors that could cause actual results, performance or achievements to differ materially from those expressed in, or implied by, our forward-looking statements. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. Accordingly, our actual results may differ from those expressed in, or implied by, our forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or circumstances or otherwise, except to the extent we may be legally required to do so. 12 USE OF PROCEEDS Unocal Capital Trust II will use all the net proceeds from the sale of the trust securities to purchase junior subordinated debentures we may issue. Unless we say otherwise in the prospectus supplement, we will use the net proceeds from the sale of the junior subordinated debentures for general corporate purposes, which may include: - contributions or loans to Union Oil and/or its subsidiaries; - repayment and refinancing of indebtedness; - acquisitions; and - repurchases and redemptions of securities. Pending any specific application, we may initially invest those funds in short-term marketable securities or apply them to the reduction of short-term indebtedness. ACCOUNTING TREATMENT RELATING TO TRUST SECURITIES The financial statements of Unocal Capital Trust II will be consolidated with our financial statements, with the trust preferred securities shown on our consolidated financial statements as "Company-obligated mandatorily redeemable preferred securities of a subsidiary trust holding solely parent subordinated debentures." Our financial statements will include a footnote that discloses, among other things, that the assets of the trust consist of our junior subordinated debentures and, from time to time, cash and amounts payable by us on the junior subordinated debentures, and will specify the designation, principal amount, interest rate and maturity date of the junior subordinated debentures. RATIOS OF EARNINGS TO FIXED CHARGES (UNAUDITED) The following table describes for Unocal the ratio of earnings to fixed charges for the periods indicated.
AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31, ------------------- ----------------------------------------- 2002 2001 2001 2000 1999 1998 1997 ----- ----- ----- ----- ----- ----- ----- Ratio of Earnings to Fixed Charges:..................... 3.0x 6.6x 5.2x 5.2x 1.9x 1.9x 3.0x
For purposes of calculating the ratio of earnings to fixed charges, "earnings" consist of earnings from continuing operations (before discontinued operations and the cumulative effect of a change in an accounting principle) before taxes on income and fixed charges. "Fixed charges" consist of interest on indebtedness and capital lease obligations, amortization of debt discount, debt premium and issuance expense and that portion of operating lease expense which is representative of the interest factor (assumed to be one third), and distributions on convertible preferred securities. 13 DESCRIPTION OF THE TRUST PREFERRED SECURITIES The trust preferred securities will be issued pursuant to the terms of an amended and restated trust agreement for Unocal Capital Trust II, which we refer to as the "trust agreement." The trust agreement, a form of which has been filed as an exhibit to the registration statement of which this prospectus is a part, will be qualified as an indenture under the Trust Indenture Act of 1939. The Bank of New York will act as indenture trustee for the trust preferred securities under the trust agreement for purposes of compliance with the Trust Indenture Act. The terms of the trust preferred securities and the rights of holders of the trust preferred securities will include those stated in the trust agreement, those made part of the trust agreement by the Trust Indenture Act, and those set forth in the Delaware Statutory Trust Act. We summarize below the material terms and provisions of the trust preferred securities and the rights of the holders of trust preferred securities. The financial and other specific terms that apply to trust preferred securities we may offer will be described in a supplement to this prospectus. Those specific terms will supplement and, if applicable, may modify or replace the general terms described in this section. If there are differences between the prospectus supplement and this prospectus, the prospectus supplement will control. In addition, since we have included (and the prospectus supplement will include) only a summary of the provisions of the trust preferred securities and the rights of the holders of those securities, you must refer to the trust agreement and its associated documents, including any trust preferred security you may purchase, and the relevant provisions of the Delaware Statutory Trust Act and the Trust Indenture Act, for the full legal text of the matters described in this section and the prospectus supplement. GENERAL The trust agreement authorizes the administrative trustees to issue trust securities on behalf of the trust. The trust securities will represent undivided beneficial interests in the assets of the trust. The only assets of the trust, and its only source of revenue, will be the junior subordinated debentures the trust will purchase from us with the proceeds from the sale of its trust securities. Accordingly, distribution and other payment dates for the trust securities will correspond with the interest and other payment dates for the junior subordinated debentures. If we do not make payments on our junior subordinated debentures in accordance with their terms, the trust will not have funds available to pay distributions or other amounts payable on the trust securities in accordance with their terms. We will own, directly or indirectly, all of the common securities of the trust. The trust's common securities will rank equally, and payments will be made on those securities proportionately, with the trust preferred securities, except if an event of default has occurred and is continuing under the trust agreement. In that event, our rights, as holder of the common securities of the trust, to receive payment of periodic distributions and payments upon liquidation, redemption and otherwise will be subordinated to the rights of the holders of the trust preferred securities. The trust agreement does not permit the issuance by the trust of any securities other than the trust preferred securities and the common securities of the trust, and does not permit the incurrence of any indebtedness by the trust. The indenture trustee will hold our junior subordinated debentures for the benefit of the holders of the trust securities. The payment of distributions out of money held by the trust, and payments upon redemption of the trust preferred securities or liquidation of the trust, will be fully and unconditionally guaranteed by us to the extent described under "Description of the Guarantee." We refer to this guarantee by us of the trust preferred securities as the "guarantee." The guarantee will be held by The Bank of New York, as guarantee trustee, for the benefit of the holders of the trust preferred securities. The guarantee will not cover payment of distributions when the trust does not have sufficient available funds to pay those distributions. In that event, the remedy of a holder of trust preferred securities would be to vote to direct the indenture trustee to enforce its rights as the holder of the junior subordinated debentures, except in the limited circumstances in which the holder may take direct action, as discussed under "-- Trust Preferred Securities Events of Default" and "-- Voting Rights." 14 The prospectus supplement will contain, where applicable, the following specific terms regarding the trust preferred securities: - the specific designation, liquidation amount, number to be issued by the trust and purchase price; - the currency or units based on or relating to currencies in which distributions and other payments will or may be payable; - the distribution rate; - the dates on which distributions will be payable; - any provisions relating to deferral of distribution payments; - the place where distributions and other amounts payable on the trust preferred securities will be payable, if different from that described in this prospectus; - any repayment or redemption provisions; - any conversion, exercise or exchange provisions; - applicable United States federal income tax consequences; and - any other specific terms of the trust preferred securities. DISTRIBUTIONS The trust preferred securities will represent preferred beneficial ownership interests in the trust. Distributions on each trust preferred security will be payable at the rate specified in the prospectus supplement, which we refer to as the "distribution rate." Distributions not paid on the regularly scheduled payment date, including as a result of a deferral as described below, will accumulate interest at the distribution rate, compounded quarterly, to the extent permitted by law. As used in this prospectus, the term "distribution" includes any such accumulated interest unless otherwise stated. The amount of distributions payable for any full quarterly distribution period will be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of distributions payable for any period shorter than a full quarterly distribution period will be computed on the basis of a 30-day month and, for periods of less than a month, on the basis of the actual number of days elapsed in that period. Distributions on the trust preferred securities will be cumulative. Distributions will accumulate from (and including) the date of original issuance, and will be payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year or on the dates specified in the prospectus supplement, when, as and if the trust has funds available for payment. Distributions will be made by the indenture trustee, except as otherwise described below. If provided in the prospectus supplement, we will have the right at any time and from time to time during the term of the junior subordinated debentures to defer payment of interest for the number of consecutive interest payment periods and on the terms otherwise specified in the prospectus supplement, but any period of deferral may not extend beyond the stated maturity of the junior subordinated debentures, which is the date on which the debentures' principal amount is scheduled to become due. To the extent of any such deferral of interest, distributions on the trust securities will also be deferred. See "Description of the Junior Subordinated Debentures -- Interest." Distributions on the trust preferred securities must be paid on the dates on which they are payable only to the extent that the relevant trust has funds available to pay those distributions. The trust's funds available for distribution to the holders of trust preferred securities will be limited to payments we make on the junior subordinated debentures held by the trust. If we do not make interest payments on our junior subordinated debentures, the indenture trustee will not have funds available to pay distributions on the trust preferred securities. We will guarantee the payment of distributions out of funds held by the trust to the extent described under "Description of the Guarantee." 15 Distributions on the trust preferred securities will be payable to the holders of those securities as they appear on the books and records of the trust on the relevant record dates, which, as long as the trust preferred securities remain in book-entry only form, will be one business day prior to the relevant payment dates. These distributions will be paid through the indenture trustee, who will hold amounts received on the junior subordinated debentures held by the trust for the benefit of the holders of the trust securities. Subject to any applicable laws and regulations and the provisions of the trust agreement and the indenture governing the junior subordinated debentures, the administrative trustees may elect to pay distributions on behalf of the trust either: - by check mailed to the holder entitled to the distribution at the address of that holder; or - by transfer to an account maintained by the holder located in the United States except that payments to the depositary for the trust preferred securities, as described under "Global Securities," will be made by wire transfer of immediately available funds to the account of the depositary or its nominee. If the trust preferred securities do not continue to remain in book-entry only form, the administrative trustees will have the right to select record dates, which will conform to the rules of any securities exchange or other organization on which the trust preferred securities may be listed or quoted, and will be at least one business day prior to the relevant payment dates. If any date on which distributions are payable on the trust preferred securities is not a business day, then payment of the distributions payable on that date will be made on the immediately following day that is a business day (and without any interest or other payment for the delay), with the same force and effect as if made on the relevant payment date. If, however, the immediately following business day falls in the next calendar year, payment of those distributions will be made on the immediately preceding business day, with the same force and effect as if made on the relevant payment date. As used in this prospectus, "business day" means any day other than a Saturday, Sunday, or any other day on which banking institutions in New York City or Los Angeles, California, are permitted or required by any applicable law to close. CONVERSION, EXERCISE OR EXCHANGE RIGHTS The terms on which the trust preferred securities may be converted into or exercised or exchanged for common stock or preferred stock or other securities of Unocal or debt or equity securities of one or more third parties, and the terms on which conversion, exercise or exchange may occur, including whether conversion, exercise or exchange is mandatory, at our option or at the option of the holder, the period during which conversion, exercise or exchange may occur, the initial conversion, exercise or exchange price or rate and the circumstances or manner in which the amount of common or preferred stock or other securities issuable upon conversion, exercise or exchange may be adjusted, will be described in the prospectus supplement. MANDATORY REDEMPTION Upon repayment of the junior subordinated debentures held by the trust, whether at maturity or upon redemption, the proceeds from that repayment must immediately be applied to redeem trust securities having an aggregate liquidation amount equal to the aggregate principal amount of the junior subordinated debentures so repaid. The junior subordinated debentures may be redeemed, in whole or in part, at our option as may be provided in the prospectus supplement, or at any time upon the occurrence of a special event in the circumstances described below under "-- Distribution or Redemption Upon the Occurrence of a Special Event." Holders of trust securities must be given not less than 30 nor more than 60 days notice of any such redemption and we will issue a press release announcing the redemption. If we redeem less than all of the junior subordinated debentures held by the trust and, therefore, less than all of the outstanding trust preferred securities are to be redeemed, the trust preferred securities will be redeemed proportionately based on the aggregate liquidation amount of trust preferred securities held by each holder and, if the trust preferred securities are in book-entry form, the redemption proceeds will 16 be distributed in accordance with the procedures of the depositary. We may not redeem any of our junior subordinated debentures (and therefore cause a mandatory redemption of the trust preferred securities) unless all accumulated and unpaid distributions have been paid on all outstanding trust preferred securities for all quarterly distribution payment periods terminating on or prior to the last distribution payment date before the date of redemption. Any redemption of trust preferred securities, other than upon the occurrence of a "special event" described below, will be made at the prices set forth in the prospectus supplement, together with accrued and unpaid interest to (but excluding) the redemption date. DISTRIBUTION OR REDEMPTION UPON THE OCCURRENCE OF A SPECIAL EVENT If, at any time, a "tax event" or an "investment company event," each as defined below and referred to in this prospectus as a "special event," has occurred and is continuing, the trust may, with our consent, except in the limited circumstances described below, be dissolved with the result that, after satisfaction of liabilities to creditors of the trust as provided by applicable law, junior subordinated debentures held by the trust with an aggregate principal amount equal to the aggregate liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accumulated and unpaid distributions on, the trust securities would be distributed proportionately to the holders of the trust securities in liquidation of their respective interests in the trust, within 90 days following the occurrence of the special event. This dissolution and distribution, however, will be conditioned on: - the receipt by the administrative trustees of an opinion of an independent tax counsel experienced in these matters, a "no recognition opinion," which opinion may rely on published revenue rulings of the IRS, to the effect that the holders of the trust securities will not recognize any gain or loss for United States federal income tax purposes as a result of the trust dissolution and distribution of junior subordinated debentures; - we or the trust being unable to avoid the special event within the applicable 90-day period by taking some ministerial action (such as filing a form or making an election or pursuing some other similar reasonable measure) that will have no adverse effect on the trust, Unocal or the holders of the trust securities or does not subject any of them to more than de minimis regulatory requirements; and - our prior written consent to the dissolution and distribution. If we decline to consent to the dissolution and distribution, we may incur an obligation to pay "additional interest," as described under "Description of the Junior Subordinated Debentures -- Additional Interest." Furthermore, if: - after receipt by the administrative trustees of a "dissolution tax opinion" (as described below), we have received an opinion of an independent tax counsel experienced in these matters, a "redemption tax opinion," that, as a result of a tax event, there is more that an insubstantial risk that we would be precluded from deducting the interest on the junior subordinated debentures for United States federal income tax purposes, even after the junior subordinated debentures were distributed to the holders of trust securities in liquidation of their respective interests in the trust as described above; or - after receipt by the administrative trustees of a dissolution tax opinion or a "change in 1940 Act opinion" (as described below), the administrative trustees have been informed by independent tax counsel experienced in these matters that it cannot, for substantive reasons, deliver a no recognition opinion to the trust, then we will have the right, upon not less than 30 nor more than 60 days notice, to redeem the junior subordinated debentures for cash, in whole or in part, at 100% of their aggregate principal amount, plus accrued and unpaid interest, within 90 days following the occurrence of the special event. Following this redemption, trust securities with an aggregate liquidation amount equal to the aggregate principal amount of the junior subordinated debentures so redeemed will be redeemed proportionately by the trust at their liquidation amount plus accumulated and unpaid distributions to (but excluding) the redemption date. If, 17 however, we will then have the opportunity to eliminate the special event within the applicable 90-day period by taking some ministerial action that neither has any adverse effect on the trust, Unocal or the holders of the trust securities nor subjects any of them to more than de minimis regulatory requirements, we or the trust will pursue that action instead of redemption. "Tax event" means that the administrative trustees have received an opinion of an independent tax counsel experienced in these matters, a "dissolution tax opinion," to the effect that on or after the date of issuance of trust preferred securities, as a result of: - any amendment to, clarification of, or change (including any announced prospective change) in the laws, or any regulations under those laws, of the United States or any political subdivision or taxing authority of or in the United States; - any judicial decision, official administrative pronouncement, ruling, regulatory procedure, notice or announcement, including any notice or announcement of intent to adopt those procedures or regulations, which we refer to collectively as an "administrative action;" or - any amendment to, clarification of, or change in the official position or the interpretation of an administrative action or judicial decision that differs from the previously generally accepted position, in each case, by any legislative body, court, governmental authority, or regulatory body, irrespective of the manner in which the amendment, clarification or change is made known, which amendment, clarification, or change is effective or, if a pronouncement or decision, is announced, on or after the date of issuance of the trust preferred securities, there is more than an insubstantial risk that: - the trust is or will be subject to United States federal income tax with respect to interest accrued or received on the junior subordinated debentures held by the trust; - the trust is or will be subject to more than a de minimis amount of taxes, duties or other governmental charges; or - interest payable in cash by us to the trust on our junior subordinated debentures (other than interest attributable to the common securities of the trust) is not, or will not be, deductible, in whole or in part, by us for United States federal income tax purposes. This opinion, however, will not be deemed to be a "dissolution tax opinion" if the change in tax law requires us for United States federal income tax purposes to defer taking a deduction for any "original issue discount" that accrues with respect to the junior subordinated debentures until the interest payment related to that original issue discount is paid by us in cash, provided the change in tax law does not create more than an insubstantial risk that we will be prevented from taking a deduction for original issue discount accruing with respect to the junior subordinated debentures at a date that is no later than the date the interest payment related to that original issue discount is actually paid by us in cash. "Investment company event" means that the administrative trustees have received an opinion of an independent counsel experienced in these matters, a "change in 1940 Act opinion," to the effect that, as a result of the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulation by any legislative body, court, governmental agency, or regulatory authority on or after the date of issuance of the trust preferred securities, there is more than an insubstantial risk that the trust is or will be considered an "investment company" which is required to be registered under the Investment Company Act of 1940. 18 After the date for any distribution of junior subordinated debentures upon dissolution of the trust: - the trust preferred securities will no longer be deemed to be outstanding; - the depositary or its nominee, as the record holder of the trust preferred securities, will receive a registered global certificate or certificates representing the junior subordinated debentures to be delivered upon their distribution; and - any certificate representing trust preferred securities not held by the depositary or its nominee will be deemed to represent beneficial interests in junior subordinated debentures having an aggregate principal amount equal to the aggregate liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accumulated and unpaid distributions on, the trust preferred securities, until those certificates are presented to us or our agent for transfer or reissuance. We cannot give you assurances as to the market prices for any trust preferred securities or the junior subordinated debentures that may be distributed in exchange for those trust preferred securities if a dissolution and liquidation of the trust were to occur. Accordingly, the trust preferred securities that you may purchase, or the junior subordinated debentures that you may receive upon dissolution and liquidation of the trust, may trade at a discount to the price that you paid to purchase the trust preferred securities offered by this prospectus. REDEMPTION PROCEDURES FOR REDEMPTION BY THE TRUST The trust may not redeem any of its outstanding trust preferred securities unless all accumulated and unpaid distributions have been paid on all outstanding trust preferred securities for all quarterly distribution periods terminating on or prior to the last distribution payment date before the date of redemption. Trust preferred securities redeemed on each redemption date will be redeemed at the redemption price described in the prospectus supplement with the proceeds from the contemporaneous redemption of the junior subordinated debentures. Redemptions of trust preferred securities will be made, and the applicable redemption price will be payable, on each redemption date only to the extent the trust has funds on hand available for the payment of the redemption price. If the trust gives a notice of redemption for trust preferred securities that are held in book-entry form, then, by 12:00 noon, New York City time, on the redemption date, if we have paid to the indenture trustee funds sufficient to pay the applicable redemption price plus any accumulated and unpaid distributions, the indenture trustee will irrevocably deposit with the depositary funds sufficient to pay the applicable redemption price and any accumulated and unpaid distributions, and will give the depositary irrevocable instructions and authority to pay the redemption price and any accumulated and unpaid distributions to the holders of the trust preferred securities. If the trust preferred securities are no longer in book-entry form, the indenture trustee, to the extent funds are available, will irrevocably deposit with the paying agent for the trust preferred securities funds sufficient to pay the redemption price plus any accumulated and unpaid distributions and will give the paying agent irrevocable instructions and authority to pay those amounts to the holders of the trust preferred securities upon surrender of their certificates evidencing the trust preferred securities. Notwithstanding the foregoing, distributions payable on or prior to the redemption date for any trust preferred securities selected for redemption will be payable to the holders of those securities on the relevant record dates for the related distribution dates. If a notice of redemption is given and funds are deposited as required, then, immediately prior to the close of business on the date of the deposit, distributions will cease to accrue and all rights of holders of the trust preferred securities selected for redemption will also cease, except for the holders' right to receive the redemption price plus any accumulated and unpaid distributions, but without further accrued interest on the redemption price. If any date fixed for redemption is not a business day, then payment of the redemption price, and any accumulated and unpaid distributions payable on that date, will be made on the immediately following day that is a business day (without any interest or other payments for the delay), with the same force and effect as if made on the relevant redemption date. If, however, the immediately 19 following business day falls in the next calendar year, payment of those amounts will be made on the immediately preceding business day with the same force and effect as if made on the relevant redemption date. If payment of the redemption price and any accumulated and unpaid distributions for any trust preferred securities is improperly withheld or refused and not paid by the indenture trustee or (if paid to the trust) by us under the guarantee, distributions on those trust preferred securities will continue to accumulate at the distribution rate from the original redemption date to the actual date of payment, and the actual payment date will be considered the date fixed for redemption for purposes of calculating the redemption price. If fewer than all of the outstanding trust securities are to be redeemed, the trust securities will be redeemed proportionately based on the liquidation amount of trust securities held by each holder. If the trust securities are in book-entry form, the distribution of proceeds will be made in accordance with the procedures of the depositary. If the trust securities are no longer in book-entry form, payment of the redemption price on the trust preferred securities and any distribution of junior subordinated debentures to the holders of trust preferred securities will be made to the record holders as they appear on the register for the trust preferred securities on the redemption date. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the applicable redemption date to each holder of trust securities to be redeemed at its registered address. Unless we default in the payment of the redemption price on our junior subordinated debentures, on and after the redemption date interest will cease to accrue on the junior subordinated debentures or portions of those debentures (and distributions will cease to accrue on the trust preferred securities or portions of those securities) selected for redemption. Subject to the matters described above and applicable law, including United States federal securities laws, we or any of our subsidiaries may at any time, and from time to time, purchase outstanding trust preferred securities by tender, in the open market or otherwise. SUBORDINATION OF TRUST COMMON SECURITIES Payment of distributions on, and other amounts payable under, the trust preferred securities and the common securities of the trust will be made proportionately based on the liquidation amount of the trust preferred securities and common securities. If, however, on any distribution date or other payment date an event of default under the junior subordinated debentures, which we refer to as a "debenture event of default," has occurred and is continuing: - no payment of any distribution, and no other payment on account of the redemption, liquidation or otherwise, will be made on any common securities of the trust, unless payment in full in cash of all accumulated and unpaid amounts on all of the outstanding trust preferred securities has been made or provided for; and - all funds available to the indenture trustee will first be applied to the payment in full in cash of all distributions on, and all other amounts with respect to, the trust preferred securities then due and payable. In the case of any event of default under the trust agreement occurring as a result of a debenture event of default, we, as holder of the common securities of the trust, will be deemed to have waived any right to act with respect to the event of default under the trust agreement until the effect with respect to the trust preferred securities of all events of default resulting from a debenture event of default have been cured, waived or otherwise eliminated. Until all events of default under the trust agreement resulting from a debenture event of default have been so cured, waived or eliminated, the indenture trustee will act solely on behalf of the holders of the trust preferred securities and not on our behalf, as holder of the common securities of the trust, and only the holders of the trust preferred securities will have the right to direct the indenture trustee to act on their behalf. 20 LIQUIDATION DISTRIBUTION UPON DISSOLUTION In the event of any voluntary or involuntary dissolution, winding-up or termination of the trust, which we refer to as a "liquidation" of the trust, the holders of the trust preferred securities will be entitled to receive out of the assets of the trust, after satisfaction of liabilities to creditors: - distributions in an amount equal to the aggregate of the liquidation amount per trust preferred security plus any accumulated and unpaid distributions to the date of payment, which we refer to as a "liquidation distribution," unless, - in connection with the liquidation of the trust, junior subordinated debentures in an aggregate principal amount equal to the aggregate liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest equal to accumulated and unpaid distributions on, the trust preferred securities have been distributed proportionately to the holders of the trust securities. If, after a liquidation of the trust, the related liquidation distribution can be paid only in part because the trust does not have sufficient assets to pay in full the liquidation distribution on all trust securities, then the amounts payable directly by the trust on the trust securities will be paid proportionately based on the aggregate liquidation amount of trust securities held by each holder. As holder of the common securities of the trust, we will be entitled to receive distributions proportionately with the holders of the trust preferred securities, unless an event of default under the trust agreement has occurred and is continuing, in which case the trust preferred securities will have preference over the common securities with regard to the payment of those distributions. Under the trust agreement, the trust will dissolve: - upon expiration of the 40-year term of the trust; - upon our bankruptcy, as the holder of the common securities of the trust; - upon the filing of a certificate of dissolution or its equivalent with respect to Unocal, as the holder of the common securities of the trust, or the revocation of our charter as the holder of the common securities of the trust and the expiration of 90 days after the date of revocation without a reinstatement of the trust; - upon the occurrence of a special event in the circumstances described above under "-- Distribution or Redemption Upon the Occurrence of a Special Event," or when the junior subordinated debentures have been distributed to the holders of the trust securities in exchange for the trust securities in accordance with their terms; - upon the entry of a decree of judicial dissolution of the trust or of the holder of the common securities of the trust; - upon redemption of all the trust securities; or - upon the occurrence of such other events as may be described in the prospectus supplement. EVENTS OF DEFAULT A debenture event of default constitutes an event of default under the trust agreement with respect to the trust securities. See "Description of the Junior Subordinated Debentures -- Events of Default." Within 90 days after the occurrence of an event of default under the trust agreement, the indenture trustee will notify the holders of trust securities of all debenture events of defaults actually known to it, unless the defaults have been cured before the giving of the notice. We and the trust are each required to file annually with the indenture trustee an officer's certificate as to its compliance with all conditions and covenants under the trust agreement. 21 LIMITATION ON ACTIONS BY INDIVIDUAL HOLDERS OF TRUST PREFERRED SECURITIES If an event of default has occurred and is continuing under the trust agreement, the indenture trustee as the sole holder of the junior subordinated debentures will have the right under the indenture governing the debentures to declare the principal amount of the junior subordinated debentures to be immediately due and payable. If the indenture trustee fails to enforce its rights under the junior subordinated debentures, any holder of trust preferred securities may institute a legal proceeding against us to enforce the indenture trustee's rights under the junior subordinated debentures. However, if an event of default under the trust agreement has occurred and is continuing that is attributable to our failure to pay interest on or principal (or the redemption price) of the junior subordinated debentures on the date that interest or principal is otherwise payable (or in the case of redemption, the redemption date), any holder of trust preferred securities may institute a legal proceeding directly against us, which we refer to as a "direct action," on or after the respective due date specified in the junior subordinated debentures for enforcement of payment to the holder of trust preferred securities of the principal of or interest on the debentures having a principal amount equal to the liquidation amount of the trust preferred securities held by that holder. We may not amend the indenture governing the junior subordinated debentures to remove this right to bring a direct action without the consent of each holder of trust preferred securities. If we make any payments to holders of trust preferred securities as a result of a direct action, we will remain obligated to pay the principal of, and any premium and interest on, our junior subordinated debentures, but will be subrogated to the extent of those payments to the rights of the holders of those trust preferred securities with respect to payments on those trust preferred securities. The holders of trust preferred securities will not be able to exercise directly any other remedy available to the holders of the junior subordinated debentures. WAIVER OF DEFAULTS The holders of a majority in liquidation amount of trust preferred securities may waive any past event of default with respect to the trust preferred securities and its consequences, except: - if the underlying debenture event of default is not waivable under the indenture governing the junior subordinated debentures; or - if the underlying debenture event of default may not be waived without the consent or vote of more than a majority in principal amount of junior subordinated debentures, in which case the trust preferred securities event of default may be waived only by the vote of holders of at least the same percentage in liquidation amount of trust preferred securities as is required under the indenture of aggregate principal amount of junior subordinated debentures outstanding. A waiver of a debenture event of default by the indenture trustee at the direction of the holders of the trust preferred securities constitutes a waiver of the corresponding event of default under the trust agreement. Upon any waiver, the debenture event of default will cease to exist and any related event of default under the trust agreement will be deemed to have been cured for every purpose of the trust agreement. In addition, any waiver by the holders of the trust preferred securities of an event of default with respect to those securities will also be deemed to constitute a waiver of that event of default by the holders of the common securities of the trust with respect to those common securities for all purposes of the trust agreement, without need for any further act, vote or consent of the holders of those common securities. Under the trust agreement, as the holder of the common securities of the trust, we will be deemed to have waived any event of default under the trust agreement with respect to the common securities until all events of default under the trust agreement with respect to the trust preferred securities have been cured, waived or otherwise eliminated. Until all events of default with respect to the trust preferred securities have been so cured, waived, or otherwise eliminated, the indenture trustee will be deemed to be acting solely on behalf of the holders of the trust preferred securities and only those holders will have the right to 22 direct the indenture trustee with respect to the matters described in the trust agreement, and therefore the indenture governing the junior subordinated debentures. VOTING RIGHTS Except as described elsewhere in this prospectus, and as otherwise required by law (including the Delaware Statutory Trust Act and the Trust Indenture Act of 1939) and the trust agreement, the holders of trust preferred securities will have no voting rights. Subject to the requirement of the indenture trustee to obtain the tax opinion described below, the holders of a majority in aggregate liquidation amount of trust preferred securities, voting separately as a class, have the right to direct the time, method and place of conducting any proceeding for any remedy available to the indenture trustee, or direct the exercise of any trust or power conferred upon the indenture trustee under the trust agreement, including the right to direct the indenture trustee, as holder of the junior subordinated debentures, to: - exercise the remedies available under the indenture governing the junior subordinated debentures with respect to the debentures; - waive any past event of default that is waivable under that indenture; or - exercise any right to rescind or annul a declaration that the principal of all the junior subordinated debentures is due and payable. However: - if an event of default under the indenture governing the junior subordinated debentures has occurred and is continuing, then the holders of 25% of the aggregate liquidation amount of the trust preferred securities may direct the indenture trustee to declare the principal of and any premium or interest on the junior subordinated debentures to be immediately due and payable; and - where a consent or action under the indenture would require the consent or act of holders of more than a majority in principal amount of the junior subordinated debentures, only the holders of at least the same percentage in aggregate liquidation amount of the trust preferred securities may direct the indenture trustee to give such consent or take such action. The indenture trustee will notify all holders of trust preferred securities of any notice of default received from the debenture trustee with respect to the junior subordinated debentures. The notice will state that such event of default also constitutes an event of default under the trust agreement. Except with respect to directing the time, method and place of conducting any remedy available to it or the debenture trustee, as described above, the indenture trustee will not take any of the actions described in the first three bullets of this section unless it has obtained an opinion of tax counsel to the effect that, as a result of such action, the trust will not be classified as other than a grantor trust for United States federal income tax purposes. If the consent of the indenture trustee, as the holder of the junior subordinated debentures, is required under the indenture governing the debentures with respect to any amendment, modification or termination of the indenture or the junior subordinated debentures, the indenture trustee will request the direction of the holders of the trust securities with respect to that amendment, modification or termination and will vote with respect to the amendment, modification or termination as directed by a majority in liquidation amount of the trust securities, voting together as a single class, except that, where a consent under the indenture would require the consent of a higher percentage, the indenture trustee may only give that consent at the direction of the holders of at least the same percentage in liquidation amount of the trust securities as is required under the indenture of aggregate principal amount of the junior subordinated debentures outstanding. The indenture trustee will not take any such action in accordance with the direction of the holders of the trust securities unless it has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income taxes the trust will not be classified as other than a grantor trust on account of that action. 23 Any approval or direction of holders of trust preferred securities may be given at a separate meeting of holders of those trust preferred securities convened for that purpose, at a meeting of all of the holders of trust securities or pursuant to written consent. The administrative trustees can at any time call a meeting of holders of any class of trust securities, and must call a meeting if directed to do so by the holders of at least 10% in liquidation amount of any class of trust securities. The administrative trustees will cause a notice of any meeting at which holders of trust preferred securities are entitled to vote, or of any matter upon which action by written consent of those holders is to be taken, to be mailed to each holder of record of trust preferred securities. Each notice will include a statement setting forth the following information: - the date of the meeting or the date by which action is to be taken; - a description of any resolution proposed for adoption at the meeting or of the matter for which written consent is sought; and - instructions for the delivery of proxies or consents. No vote or consent of holders of trust preferred securities will be required for the trust to, in accordance with the trust agreement and the terms of the trust securities: - redeem and cancel trust preferred securities; - distribute junior subordinated debentures; or - if provided in the prospectus supplement, make adjustments to the conversion price or to the kind and amount of the securities, cash and other property into which the junior subordinated debentures are convertible. Notwithstanding the rights of holders of trust preferred securities to vote or consent under the circumstances described above, any trust preferred securities that are owned at the relevant time by us or any of our affiliates will not be entitled to vote or consent and will, for purposes of voting or consenting, be treated as if they were not outstanding. The procedures by which holders of trust preferred securities issued in book-entry form may exercise their voting rights are described under "Global Securities." Holders of trust preferred securities will have no rights to appoint or remove the trustees. The trustees may be appointed, removed or replaced solely by us, as the indirect or direct holder of all of the common securities of the trust. MODIFICATION OF THE TRUST AGREEMENT Except as described below, the trust agreement may be modified and amended with the approval of the administrative trustees (and, if it affects the rights, powers, duties, obligations or immunities of the indenture trustee or the Delaware trustee, of one or both of these trustees), and without the consent of the holders of trust securities, to: - cure any ambiguity; - correct or supplement any provision in the trust agreement that may be defective or inconsistent with any other of its provisions; - add to our covenants, restrictions or obligations; - conform to any change in the Investment Company Act or the Trust Indenture Act or the related rules and regulations, or any written change in interpretation or application of such act, rule or regulation by any legislative body, court, government agency or regulatory authority, if the amendment does not adversely affect the rights, preferences or privileges of the holders in any material respect; - evidence the appointment of a trustee or successor trustee; and 24 - cause the trust to continue to be classified as a grantor trust for United States federal income tax purposes. If the proposed amendment provides for, or the administrative trustees otherwise propose to effect: - any action that would adversely affect the powers, preferences or special rights of the trust securities in any material respect, whether by way of amendment to the trust agreement or otherwise; or - the dissolution, winding-up or termination of the trust other than as provided in the trust agreement, then the holders of the trust securities will be entitled to vote, together as a single class, on the amendment or proposal and the amendment or proposal will not be effective except with the approval of at least a majority in liquidation amount of the trust securities affected by it. If, however, any amendment or proposal would adversely affect the powers, preferences or special rights of only the trust preferred securities or only the common securities of the trust, then only the affected class will be entitled to vote on the amendment or proposal and the amendment or proposal will not be effective except with the approval of a majority in liquidation amount of that class of trust securities. The consent of all holders of trust securities is required to amend the provisions of the trust agreement relating to its modification and amendment. Notwithstanding the foregoing, no amendment or modification may be made to the trust agreement if it would: - cause the trust to be classified for purposes of United States federal income taxation as other than a grantor trust; - reduce or otherwise adversely affect the powers of the indenture trustee in contravention of the Trust Indenture Act of 1939; or - cause the trust to be deemed an "investment company" which is required to be registered under the Investment Company Act of 1940. See "-- Voting Rights" above for a description of the rights of the holders of trust securities with respect to any amendment, modification or termination of the indenture governing the junior subordinated debentures. MERGERS, CONSOLIDATIONS OR AMALGAMATIONS OF THE TRUST The trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to, any corporation or other body, except as described below or as otherwise indicated in the prospectus supplement. The trust may, with the consent of the administrative trustees and without the consent of the holders of trust securities, the Delaware trustee or the indenture trustee, consolidate, amalgamate, merge with or into, convert into, convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, or be replaced by, a trust organized as such under the laws of any state, if: - the successor entity either expressly assumes all of the obligations of the trust under the trust securities or substitutes for the trust preferred securities "successor securities" having substantially the same terms as the trust preferred securities, so long as the successor securities have the same priority as the trust preferred securities with respect to distributions and payments upon liquidation, redemption, and otherwise; - we expressly acknowledge a trustee for the successor entity, possessing the same powers and duties as the indenture trustee, as the holder of the junior subordinated debentures; 25 - we use our reasonable efforts to cause any successor securities to be listed or quoted on any national securities exchange or with another organization on which the trust preferred securities are then listed or quoted; - the merger, consolidation, amalgamation, conversion, conveyance, transfer, lease or replacement does not cause the trust preferred securities, including any successor securities, to be downgraded (if so rated prior to such transaction) by any nationally recognized statistical rating organization; - the merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the holders of the trust securities, including any successor securities, in any material respect (other than with respect to any dilution of the holders' interest in the new entity); - the successor entity has a purpose substantially identical to that of the trust; - prior to the merger, consolidation, amalgamation, conversion, conveyance, transfer, lease or replacement, we have received an opinion of an independent counsel to the trust experienced in these matters to the effect that: -- the merger, consolidation, amalgamation, conversion, conveyance, transfer, lease or replacement does not adversely affect the legal rights, preferences and privileges of the holders of the trust securities, including any successor securities, in any material respect (other than with respect to any dilution of the holders' interest in the new entity), -- following the merger, consolidation, amalgamation, conversion, conveyance, transfer, lease or replacement, neither the trust nor the successor entity will be required to register as an "investment company" under the Investment Company Act of 1940, and -- following the merger, consolidation, amalgamation, conversion, conveyance, transfer, lease or replacement, the trust or the successor entity will continue to be classified as a grantor trust for United States federal income tax purpose; and - we own all of the common securities of the successor entity and guarantee the obligations of that entity under the successor securities, at least to the extent provided by our guarantee of the trust preferred securities. Notwithstanding the foregoing, the trust may not, without the consent of holders of 100% in liquidation amount of trust securities, consolidate, amalgamate, merge with or into, convert into, convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, or be replaced by any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it, if the consolidation, amalgamation, merger, conversion, conveyance, transfer, lease or replacement would cause the trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. INFORMATION CONCERNING THE INDENTURE TRUSTEE The indenture trustee, other than during the occurrence and continuance of an event of default with respect to the trust securities, undertakes to perform only those duties that are specifically set forth in the trust agreement and, after an event of default has occurred that has not been cured or waived, must exercise the rights and powers vested in it by the trust agreement and with the same degree of care as a prudent individual would exercise in the conduct of his or her own affairs. Subject to this provision, the indenture trustee is under no obligation to exercise any of the powers vested in it by the trust agreement at the request of any holder of trust preferred securities, unless it is offered reasonable indemnity by the holder against the costs, expenses and liabilities that might be incurred in complying with the request. Holders of trust preferred securities will not be required to offer this indemnity in the event that, by exercising their voting rights, they direct the indenture trustee to take any action the indenture trustee is empowered to take under the trust agreement following an event of default. The indenture trustee will serve as trustee also under the guarantee and the indenture governing the junior subordinated debentures. 26 As noted under "The Trust," The Bank of New York, the indenture trustee, also serves and may in the future serve as trustee or in other capacities for various other securities we and our affiliates have issued or may issue. EXPENSES AND TAXES Under the junior subordinated debentures, we, as borrower, will agree to pay in connection with the issuance of the debentures and the trust securities: - all costs and expenses relating to the offering, sale and issuance of the junior subordinated debentures and the trust securities, including any underwriting fees, and the compensation of the debenture trustee; - all costs and expenses of the trust, including costs and expenses relating to the organization, maintenance and dissolution of the trust, the fees and expenses of the indenture trustee and the Delaware trustee, and the costs and expenses relating to the operation of the trust; - all costs and expenses related to the enforcement by the indenture trustee of its rights as holder of the junior subordinated debentures; and - any and all taxes to which the trust may become subject (other than United States withholding taxes attributable to the trust or its assets) and all liabilities, costs and expenses relating to those taxes. PAYING AGENT, REGISTRAR AND TRANSFER AGENT Payments on trust preferred securities in book-entry form will be made to the depositary, which will credit the relevant accounts on the applicable distribution dates. Payments on any trust preferred securities that are not issued in book-entry form will be made by check mailed to each holder entitled to those payments at the address of the holder appearing on the books and records of the trust. Unless otherwise stated in the prospectus supplement, the indenture trustee will act as paying agent and may designate an additional or substitute paying agent at any time that is acceptable to the administrative trustees. The paying agent will be permitted to resign as paying agent upon 30 days' written notice to us and the indenture trustee. If the indenture trustee is no longer the paying agent, the administrative trustees will appoint a successor (which must be a bank or trust company) to act as paying agent. Unless otherwise specified in the prospectus supplement, the administrative trustees will provide for the registration and transfer of trust preferred securities. Registration of transfers of trust preferred securities will be effected without charge by or on behalf of the trust, but upon payment (and after giving such indemnity as the administrative trustees may require) to cover any tax or other government charges that may be imposed in relation to the transfer. The trust will not be required to register or cause to be registered the transfer of trust preferred securities after those securities have been converted, exchanged, repaid or selected for redemption. GOVERNING LAW The trust agreement and the trust preferred securities will be governed by, and construed in accordance with, the internal laws of the State of Delaware. MISCELLANEOUS The administrative trustees are authorized and directed to conduct the affairs of and operate the trust in such a way that, and to take any action so that, the trust will not be required to register as an "investment company" under the Investment Company Act of 1940 or characterized as other than a grantor trust for United States federal income tax purposes, and to cooperate with us so that our junior subordinated debentures will be treated as our indebtedness for United States federal income tax purposes. In this regard, the administrative trustees are authorized to take any action, not inconsistent with the 27 certificate of trust, the trust agreement and applicable law, that they determine in their discretion to be necessary or desirable to achieve this end, as long as that action does not adversely affect the interests of the holders of the trust preferred securities in any material respect. Holders of trust preferred securities have no preemptive or similar rights. The trust may not borrow money or issue debt or mortgage or pledge any of its assets. DESCRIPTION OF THE GUARANTEE The following is a summary of the material terms and provisions of the guarantee to be executed and delivered by us for the benefit of the holders from time to time of trust preferred securities, and concurrently with the issuance of those securities. The guarantee will be qualified as an indenture under the Trust Indenture Act of 1939. The Bank of New York will act as the independent trustee under the guarantee for purposes of the Trust Indenture Act. The terms of the guarantee will include those expressly contained in the guarantee and those made part of it by the Trust Indenture Act. Additional terms governing the guarantee may be included in the prospectus supplement relating to the trust preferred securities. If there are differences between the prospectus supplement and this prospectus, the prospectus supplement will control. In addition, since we have included (and the prospectus supplement will include) only a summary of the provisions of the guarantee, you must refer to the guarantee, a form of which has been filed as an exhibit to the registration statement of which this prospectus forms a part, and the applicable provisions of the Trust Indenture Act for the full legal text of the matters described in this section and the prospectus supplement. The guarantee will be held by the guarantee trustee for the benefit of the holders of trust preferred securities. GENERAL We will irrevocably and unconditionally agree, to the extent set forth in the guarantee, to pay in full to the holders of the trust preferred securities the "guaranteed payments" (except to the extent already paid by the trust), as and when due, regardless of any defense, right of set-off, or counterclaim which the trust may have or assert, other than the defense of payment. The following payments constitute "guaranteed payments" with respect to the trust preferred securities that, to the extent not paid by the trust, will be subject to the guarantee: - any accumulated and unpaid distributions required to be paid on the trust preferred securities to the extent the trust has funds available for payment; - the redemption price and all accumulated and unpaid distributions to the date of redemption, to the extent the trust has funds available for payment with respect to any trust preferred securities selected by the trust for redemption; and - upon a voluntary or involuntary dissolution, winding-up, or termination of the trust (other than, if provided in the prospectus supplement, in connection with the conversion of all of the trust securities into our common stock or the distribution of junior subordinated debentures to the holders of trust preferred securities as provided in the trust agreement), the lesser of: -- the aggregate of the liquidation amount and all accumulated and unpaid distributions on the trust preferred securities to the date of payment, to the extent the trust has funds available for payment, and -- the amount of assets of the trust remaining available for distribution to holders of the trust preferred securities in liquidation of the trust. Our obligation to make a guaranteed payment may be satisfied by direct payment of the required amounts to the holders of the trust preferred securities or by causing the trust to pay those amounts to the holders. 28 The guarantee will rank subordinate and junior in right of payment to all of our liabilities, other than any liabilities which expressly by their terms are made equal or subordinate to our obligations under the guarantee. Because we are a holding company, our right to participate in any distribution of assets of any of our subsidiaries upon that subsidiary's liquidation or reorganization or otherwise is subject to the prior claims of creditors of that subsidiary, except to the extent that we may ourselves be a creditor of that subsidiary. Accordingly, our obligations under the guarantee will be effectively subordinated to all existing and future liabilities of our subsidiaries, and claimants should look only to our assets for payments under the guarantee. Except as otherwise provided in the prospectus supplement, the guarantee does not limit the incurrence or issuance by us of other secured or unsecured debt, including "senior indebtedness" (as defined under "Description of the Junior Subordinated Debentures -- Subordination"), whether under the indenture governing the junior subordinated debentures, any future indenture or otherwise. The guarantee will not apply to any payment of distributions on the trust preferred securities except to the extent the trust has funds available for payment. If we do not make interest payments on the junior subordinated debentures purchased by the trust, the trust will not pay distributions on its trust preferred securities and will not have funds available for payment of distributions on the trust preferred securities, as described under "Effect of Obligations Under the Junior Subordinated Debentures and the Guarantee." In that event, holders of the trust preferred securities would not be able to rely upon the guarantee for payment of those amounts. The guarantee, when taken together with our obligations under the junior subordinated debentures and the related indenture, and the trust agreement, including our obligations to pay costs, expenses, debts and liabilities of the trust (other than with respect to trust securities), will provide our full and unconditional guarantee on a subordinated basis of payments due on the trust preferred securities. No single document standing alone or operating in conjunction with fewer than all of the other documents will constitute such guarantee. It is only the combined operation of these documents that has the effect of providing our full, irrevocable and unconditional guarantee of the trust's obligations under the trust preferred securities. We also have agreed separately and to the same extent to fully and unconditionally guarantee the obligations of the trust with respect to the trust's common securities, except that upon an event of default under the indenture governing the junior subordinated debentures, our rights, as holder of common securities of the trust, to receive payment of periodic distributions and payments on liquidation, redemption, or otherwise will be subordinated to the rights of the holders of trust preferred securities. GUARANTEE COVENANTS In the guarantee, we will covenant that, for so long as any trust preferred securities remain outstanding, if there occurs any event that constitutes an event of default under the guarantee or the trust agreement, then: - we will not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of our capital stock, other than -- purchases or acquisitions of shares of capital stock in connection with any employee benefit plan or program, director plan or program, dividend reinvestment, stock repurchase, or other similar plans available to our stockholders, or any option, warrant, right, or exercisable, exchangeable, or convertible security outstanding at the date of issuance of the trust securities, -- as a result of a reclassification of our capital stock pursuant to the exchange or conversion provisions of our capital stock or the exchange or conversion of one class or series of our capital stock for another class or series of our capital stock or the capital securities of any of our subsidiaries (including the trust), -- any declaration of a dividend in connection with the implementation of a shareholder's rights plan, or the issuance of shares, or the redemption or repurchase of any rights issued, under any such plan, or 29 -- the purchase of fractional interests in shares of our capital stock pursuant to the conversion or exchange provisions of that capital stock or the security being converted or exchanged; and - we will not make any payment of interest, principal or premium, if any, on, or repay, repurchase, or redeem, or make any guarantee payments (other than pursuant to our guarantee of the trust preferred securities, if otherwise permitted under our guarantee of Unocal Capital Trust's 6 1/4% Trust Convertible Preferred Securities, or pursuant to our guarantee of those securities) with respect to any of our debt securities that rank equally with or junior to the junior subordinated debentures (other than our 6 1/4% Convertible Junior Subordinated Debentures due 2026). MODIFICATION OF THE GUARANTEE AND ASSIGNMENT Except with respect to any changes that do not adversely affect in any material respect the rights of holders of trust preferred securities, in which case no approval will be required, the guarantee may not be amended without the prior approval of the holders of at least a majority in liquidation amount of the outstanding trust preferred securities. The manner of obtaining any such approval will be as described under "Description of the Trust Preferred Securities -- Voting Rights." The guarantee and all agreements contained in the guarantee will bind our successors, assigns, receivers, trustees, and representatives and will inure to the benefit of the holders of the trust preferred securities then outstanding. TERMINATION The guarantee will terminate: - upon full payment of the redemption price of all trust preferred securities; - upon conversion of all the trust preferred securities into our common stock, if provided in the prospectus supplement, or upon distribution of junior subordinated debentures held by the trust to the holders of the trust preferred securities; or - upon full payment of the amounts payable in accordance with the trust agreement upon liquidation of the trust. However, the guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of trust preferred securities must restore payment of any sums paid under the trust preferred securities or the guarantee. The subordination provisions of the junior subordinated debentures provide that if payment is made on the junior subordinated debentures or the guarantee in contravention of those subordination provisions, those payments will be paid over to the holders of our senior indebtedness. See "Description of the Junior Subordinated Debentures -- Subordination." GUARANTEE EVENTS OF DEFAULT An event of default under the guarantee will occur if we fail to perform any of our payment or other obligations under the guarantee. However, if it is other than a default on a guaranteed payment (or on our obligations described above under "-- Guarantee Covenants" after an event of default has occurred under the trust agreement), in order to constitute an event of default, our failure to perform must remain unremedied for 60 days after we have been notified in writing of the default. If an event of default has occurred and is continuing under the guarantee, the guarantee trustee will enforce the guarantee for the benefit of the holders of trust preferred securities. The holders of a majority in liquidation amount of the trust preferred securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the guarantee trustee in respect of the guarantee or exercising any trust or power conferred upon the guarantee trustee under the guarantee. If the guarantee trustee fails to enforce the guarantee, any holder of trust preferred securities may institute a legal proceeding directly against us to enforce the rights of the guarantee trustee under the guarantee, without first instituting a legal proceeding against the trust, the guarantee trustee or any other person or entity. However, if we have failed to make a payment required under the guarantee, a holder of trust preferred securities may directly institute a 30 proceeding against us for enforcement of the guarantee with respect to that payment. See below "-- Status of the Guarantee." Within 90 days after the occurrence of an event of default (or an event that, with the passage of time or the giving of notice or both, would constitute an event of default) under the guarantee, the guarantee trustee will notify the holders of trust preferred securities of all guarantee events of defaults or defaults actually known to it, unless the defaults have been cured before the giving of the notice. The holders of a majority in liquidation amount of the trust preferred securities may waive any past event of default under the guarantee and its consequences. We will be subrogated to any rights that the holders of trust preferred securities may have against the trust to the extent of any amounts we have paid to the holders under the guarantee. However, unless required by law, we will not be entitled to enforce or exercise any right that we may acquire, by way of subrogation or any indemnity, reimbursement or other agreement, as a result of any such payment if, at the time of payment, any amounts are due and unpaid under the guarantee. If we receive any amount in violation of this provision, we will hold it in trust for the benefit of the holders of trust preferred securities and pay it to those holders. As guarantor, we are required to file annually with the guarantee trustee a certificate as to our compliance with all the conditions and covenants applicable to us under the guarantee. STATUS OF THE GUARANTEE The guarantee will constitute our direct obligation, will not be secured by any of our property or assets or any property or assets of our subsidiaries, and will rank: - subordinate and junior in right of payment to all of our other liabilities, except those that by their terms rank equally with or subordinate to the guarantee; - equally with the most senior preferred or preference stock we have issued or may in the future issue, with our guarantee of Unocal Capital Trust's 6 1/4% Convertible Trust Preferred Securities (except as described above under "-- Guarantee Covenants"), and with any existing or future guarantee we may provide with respect to any preferred or preference stock of any of our affiliates; and - senior to our common stock. The terms of the trust preferred securities provide that each holder of trust preferred securities by acceptance of those securities agrees to the subordination and other provisions of the guarantee. The guarantee does not place a limitation on the amount of indebtedness, including additional senior indebtedness, we may incur. We expect from time to time to incur additional indebtedness constituting senior indebtedness. The guarantee creates a guarantee of payment and not of collection, that is, the holder of trust preferred securities may institute a legal proceeding directly against us to enforce its rights under the guarantee without instituting a legal proceeding against the trust, the guarantee trustee or any other person or entity. Although we have agreed separately to fully and unconditionally guarantee the obligations of the trust with respect to the trust's common securities to the same extent set forth in the preferred securities guarantee, if an event of default has occurred under the indenture governing the junior subordinated debentures, our right, as holder of the common securities of the trust, to receive payment under the common securities guarantee will be subordinated to the rights of the holders of trust preferred securities to receive the guaranteed payments. 31 INFORMATION CONCERNING THE GUARANTEE TRUSTEE The guarantee trustee, other than during the occurrence and continuance of an event of default with respect to the guarantee, will undertake to perform only such duties as are specifically set forth in the guarantee and, after the occurrence of an event of default that has not been cured or waived, must exercise the rights and powers vested in it by the guarantee and use the same degree of care and skill as a prudent individual would exercise or use under the circumstances in the conduct of his or her own affairs. Subject to this provision, the guarantee trustee is under no obligation to exercise any of the powers vested in it by the guarantee at the request of any holder of trust preferred securities, unless the holder has provided to the guarantee trustee security and indemnity reasonably satisfactory to the guarantee trustee against the costs, expenses and liabilities that it may incur in complying with the request. GOVERNING LAW The guarantee will be governed by and construed in accordance with the laws of the State of New York. DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES We will issue the junior subordinated debentures under (1) a multiple series indenture dated as of September 11, 1996 between Unocal and The Bank of New York, as trustee, unless a different trustee, which we refer to as the "debenture trustee," is specified in the prospectus supplement relating to the junior subordinated debentures, and (2) a supplemental indenture to be entered into between us and the debenture trustee. Both the base indenture and the form of supplemental indenture, which we refer to in this section collectively as the "indenture," have been filed as exhibits to the registration statement of which this prospectus is a part. We summarize below the material terms and provisions of the junior subordinated debentures. The financial and other specific terms that apply to the junior subordinated debentures we may offer will be described in a supplement to this prospectus. Those specific terms will supplement and, if applicable, may modify or replace the general terms described in this section. If there are differences between the prospectus supplement and this prospectus, the prospectus supplement will control. In addition, since we have included (and the prospectus supplement will include) only a summary of the provisions of the junior subordinated debentures, you must refer to the base indenture and the supplemental indenture and their associated documents, including the junior subordinated debentures, for the full legal text of the matters described in this section and the prospectus supplement. In the circumstances described under "Description of the Trust Preferred Securities -- Distribution or Redemption Upon the Occurrence of a Special Event," the trust may be dissolved and the junior subordinated debentures held by the dissolved trust may be distributed to the holders of the trust securities in liquidation of the trust. If that happens, we will use our reasonable efforts to list or quote the junior subordinated debentures distributed to those holders on any national securities exchange or similar organization on which the trust preferred securities may be then listed or quoted. GENERAL Except as may provided in the prospectus supplement, the indenture does not limit the amount of junior subordinated debentures or other debt securities we can issue under it. The indenture provides that debt securities of any series may be issued under it up to the aggregate principal amount we may authorize from time to time. The indenture also does not limit the incurrence or issuance of other secured or unsecured indebtedness, including senior indebtedness, or of securities, whether under the indenture or any other indenture or instrument currently in effect or in which we may enter into in the future, and does not otherwise afford holders of junior subordinated debentures protection in the event of a highly leveraged or similar transaction that may adversely affect them. See "-- Consolidation, Merger and Sale of Assets." The junior subordinated debentures will be issued as unsecured debt under the indenture, will be limited in aggregate principal amount to the amount specified in the prospectus supplement, and may be payable in 32 currencies other than United States dollars, in composite currencies or in amounts determined by reference to an index, as provided in the prospectus supplement. Unless we say otherwise in the prospectus supplement, the junior subordinated debentures will not be subject to a sinking fund provision, that is, we will not deposit money on a regular basis into a separate custodial account to repay the debentures. The entire principal amount of the junior subordinated debentures will mature and become due and payable, together with any accrued and unpaid interest, on the date specified in the prospectus supplement. The prospectus supplement will contain, where applicable, the following specific terms regarding the junior subordinated debentures: - the designation and aggregate principal amount of the junior subordinated debentures; - the percentage of principal amount at which the junior subordinated debentures will be issued; - the date or dates on which the principal of the junior subordinated debentures is payable or the method of determining that date or dates, including any right we may have to shorten or extend the stated maturity date under specified circumstances; - the rate or rates, if any, at which the junior subordinated debentures will bear interest or the method of determining the interest rate or rates; - the dates from and on which interest, if any, will accrue and be payable on the junior subordinated debentures and the designated record dates for payment of that interest, including any right we may have to defer or extend an interest payment date and any related record date, or the method for determining any of these matters; - the place or places where the junior subordinated debentures may be presented for payment, if other than as described below under "-- Payment and Paying Agents," or registration of transfer or exchange, if other than as described below; - any period or periods within which, or date or dates on which, the price or prices at which and the terms and conditions upon which junior subordinated debentures may be redeemed, in whole or in part, at our option or the option of a holder; - our obligation, if any, to redeem, purchase or repay the junior subordinated debentures and the period or periods within which, the price or prices at which, and the other terms and conditions upon which the junior subordinated debentures will be redeemed, repaid or purchased, in whole or in part, pursuant to that obligation; - whether the junior subordinated debentures will be convertible, exercisable or exchangeable for other securities or property, including the terms and conditions of any obligation or right we or a holder may have to convert or exchange the junior subordinated debentures into or for trust preferred securities, and, if so, the terms of any conversion, exercise or exchange and the terms of the other securities; - the denominations in which any junior subordinated debentures will be issuable; - if other than in United States dollars, the currency or currencies, including currency unit or units, in which the principal of, and any premium and interest on, the junior subordinated debentures will be payable, or in which the junior subordinated debentures will be denominated; - any index or indices used to determine the amount of payments of principal of, and any premium and interest on, the junior subordinated debentures and the manner in which those amounts will be determined; - whether the junior subordinated debentures will be issuable in registered form or bearer form or both and, if bearer securities are issuable, any restrictions applicable to the exchange of one form for another and to the offer, sale and delivery of the bearer securities; 33 - provisions for issuance of the junior subordinated debentures as global securities (that is, in book-entry form in the name of a depositary); - any additions, modifications or deletions in the events of default under the indenture or in our covenants with respect to the junior subordinated debentures; - the appointment of any trustees, depositaries, authenticating or paying agents, transfer agents or registrars or other agents; - the forms of trust agreement and guarantee agreement, if applicable; and - any other terms of the junior subordinated debentures not inconsistent with the provisions of the indenture. The junior subordinated debentures may be issued as discounted junior subordinated debentures (bearing no interest or interest at a rate which at the time of issuance is below market rates) to be sold at a discount below their stated principal amount. Federal income tax consequences and other special considerations applicable to the discounted junior subordinated debentures will be described in the prospectus supplement. If junior subordinated debentures are distributed to holders of trust preferred securities in liquidation of their respective interests in the trust, the junior subordinated debentures will initially be issued as a global security. Junior subordinated debentures may be issued in definitive form in exchange for a global security only under the limited circumstances described under "Global Securities." Unless otherwise provided in the prospectus supplement, if the junior subordinated debentures are issued in certificated form, the junior subordinated debentures will be in denominations of $50 and integral multiples of $50 and may be transferred or exchanged at the offices described below. Payments on junior subordinated debentures issued as a global security will be made to the depositary or, if no depositary is used, to a paying agent for the junior subordinated debentures. The procedures for transfer of interests in junior subordinated debentures issued as a global securities will depend upon the procedures of the depositary for those global securities, as more fully described under "Global Securities." If junior subordinated debentures are issued in certificated form, (1) principal and interest will be payable, (2) the transfer of the junior subordinated debentures will be registrable and (3) junior subordinated debentures will be exchangeable for junior subordinated debentures of other denominations of an equivalent aggregate principal amount, at the corporate trust office of the indenture trustee for the trust in New York, New York. We may, however, at our option elect to pay interest on the junior subordinated debentures by check mailed to the address of the holder entitled to that payment as it appears in the register for the junior subordinated debentures. Notwithstanding the foregoing, for so long as the indenture trustee for the trust is the holder of any junior subordinated debentures, the payment of principal of and any premium and interest on those debentures will be made at such place and to such account as may be designated by the indenture trustee for the trust. Holders may transfer junior subordinated debentures in bearer form and the related coupons, if any, by delivery to the transferee. Upon any redemption, neither we nor the debenture trustee will be required to: - issue, register the transfer of or exchange junior subordinated debentures during a period beginning at the opening of business 15 days before the day of selection for redemption of junior subordinated debentures and ending at the close of business on the day of mailing of the relevant notice of redemption; or - transfer or exchange any junior subordinated debentures so selected for redemption, except the unredeemed portion of any junior subordinated debentures being partially redeemed. The indenture provides that if any junior subordinated debentures are denominated in a currency other than United States dollars or in a composite currency, in the absence of a contrary provision in the junior subordinated debentures, any action or distribution under the indenture will be based on the relative amount of United States dollars that could be obtained on such reasonable basis of exchange on such date as we or the debenture trustee may specify. 34 All of the junior subordinated debentures will be our direct obligations and will not be secured by any of our property or assets of any property or assets of any of our subsidiaries. Because we are a holding company, our rights to participate in any distribution of assets of any of our subsidiaries upon its liquidation or reorganization or otherwise (and thus the ability of holders of the junior subordinated debentures to benefit indirectly from that distribution) are subject to the prior claims of creditors of that subsidiary, except to the extent we may ourselves be a creditor of that subsidiary. Claims by creditors, other than ourselves, on our subsidiaries include long-term debt and substantial obligations in respect of federal funds purchased, securities sold under repurchase agreements and other short-term borrowings, as well as deposit liabilities. Accordingly, the junior subordinated debentures will be effectively subordinated to all existing and future liabilities of our subsidiaries, and holders of the junior subordinated debentures should look only to our assets for payments on the junior subordinated debentures. Except as described below under "-- Consolidation, Merger and Sale of Assets," neither the indenture nor the junior subordinated debentures contain provisions which would afford holders of the junior subordinated debentures protection in the event of a takeover, recapitalization or similar restructuring involving Unocal, which could adversely affect the junior subordinated debentures. SUBORDINATION The junior subordinated debentures are subordinated and junior in right of payment to all of our "senior indebtedness," as defined below, to the extent specified in the indenture. The indenture provides that no payment of principal (including redemption payments) and any premium or interest on the junior subordinated debentures may be made if: - any of our senior indebtedness is not paid when due and any applicable grace period relating to that default has ended and the default has not been cured or waived or ceased to exist; or - the maturity of any of our senior indebtedness has been accelerated because of a default and the acceleration has not been rescinded. If we make any payment or distribute any of our assets, whether in cash, property or securities (except as described below), to creditors upon any dissolution, winding-up, liquidation, or reorganization of our company, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, other than in connection with a transaction to which the covenant described under "-- Consolidation, Merger and Sale of Assets," applies, all amounts due on all of our senior indebtedness must first be paid or provided for in full before any payment of principal of, and any premium or interest on, the junior subordinated debentures may be made to the holders. Any payment made in violation of these provisions will be held in trust for the benefit of, and paid over or delivered to, the holders of our senior indebtedness or their representatives. Upon satisfaction of all claims of all senior indebtedness then outstanding, the rights of the holders of the junior subordinated debentures will be subrogated to the rights of the holders of our senior indebtedness to receive payments of distributions applicable to senior indebtedness until all amounts owing on the junior subordinated debentures are paid in full. Notwithstanding the foregoing: - the words "cash, property or securities" will not be deemed to include shares of stock of Unocal as reorganized or readjusted, or securities of Unocal or any other corporation provided for by a plan of reorganization or readjustment which are subordinated in right of payment to all of our senior indebtedness at the time outstanding, substantially to the same extent as, or to a greater extent than, the junior subordinated debentures; and - if we consolidate with, or merge into, another entity or liquidate our company following the transfer of our properties and assets substantially as an entirety to another entity in compliance with the terms and conditions described below under "-- Consolidation, Merger and Sale of Assets," that transaction will not be deemed a dissolution, winding up, liquidation or reorganization for purposes of these subordination provisions. 35 For purposes of the subordination provisions, the payment, issuance and delivery of cash, property or securities (other than stock and other junior securities) upon conversion of any junior subordinated debenture will be deemed to constitute payment on account of the principal of that junior subordinated debenture. By reason of the subordination, in the event of liquidation or insolvency, our general creditors may recover proportionately less than holders of senior indebtedness and may recover proportionately more than the holders of the junior subordinated debentures. If the maturity of any junior subordinated debentures is accelerated, the holders of senior indebtedness outstanding at the time of acceleration will first be entitled to receive payment in full of all amounts due or to become due on that senior indebtedness, or that provision be made for that payment, before the holders of the junior subordinated debentures will be entitled to receive any payment of principal of, and any premium or interest on, the junior subordinated debentures. As used in this prospectus, the term "senior indebtedness" means all of our current and future obligations and liabilities, whether absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise, except for: - any of our accounts payable or other obligations to trade creditors that are created or assumed in the ordinary course of business; - any of our obligations that expressly by its terms is subordinated to or ranks equal with the junior subordinated debentures of any series issued under the indenture; and - any of our obligations or liabilities to any person in which we own, directly or indirectly, at least a majority of the voting interest under ordinary circumstances at that time. The indenture does not limit the aggregate amount of senior indebtedness that we may issue or incur and does not limit obligations, at Union Oil Company of California or any other of our subsidiaries, which are structurally senior to the junior subordinated debentures. COVENANTS OF UNOCAL If we exercise our right to defer payment of interest on the junior subordinated debentures, as described below under "-- Interest," during the period of deferral or any extension of that period: - we will not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of our capital stock, other than -- purchases or acquisitions of shares of capital stock in connection with any employee benefit plan or program, director plan or program, dividend reinvestment, stock repurchase, or other similar plans available to our stockholders, or any option, warrant, right, or exercisable, exchangeable, or convertible security outstanding at the date of issuance of the junior subordinated debentures, -- as a result of a reclassification of our capital stock pursuant to the exchange or conversion provisions of our capital stock or the exchange or conversion of one class or series of our capital stock for another class or series of our capital stock or the capital securities of any of our subsidiaries (including the trust), -- any declaration of a dividend in connection with the implementation of a shareholder's rights plan, or the issuance of shares, or the redemption or repurchase of any rights issued, under any such plan, or -- the purchase of fractional interests in shares of our capital stock pursuant to the conversion or exchange provisions of that capital stock or the security being converted or exchanged; and - we will not make any payment of principal of, or any premium or interest on, or repay, repurchase or redeem, or make any guarantee payment (other than pursuant to our guarantee of the trust 36 preferred securities, if otherwise permitted under our guarantee of Unocal Capital Trust's 6 1/4% Trust Convertible Preferred Securities, or pursuant to our guarantee of those securities) with respect to, any of our debt securities that rank equally with or junior to the junior subordinated debentures (other than our 6 1/4% Convertible Junior Subordinated Debentures due 2026). Except as otherwise provided in the indenture, for so long as the trust or its indenture trustee for the trust holds junior subordinated debentures and trust securities remain outstanding, we will covenant: - to maintain 100% ownership, directly or indirectly, of the common securities of the trust (except that any of our permitted successors under the indenture may succeed to our ownership of the common securities); - to use our reasonable efforts to cause the trust, -- to remain a statutory trust, except in connection with any distribution of the junior subordinated debentures, any redemption of all trust securities, or any mergers, consolidations, amalgamations or other transactions, in each case, that is permitted by the trust agreement, and -- to continue to be classified as a grantor trust for United States federal income tax purposes; and - to use our reasonable efforts to cause each holder of trust securities to be treated as owning an undivided beneficial interest in the junior subordinated debentures. REDEMPTION AT OUR OPTION Except as described below with respect to accrued and unpaid interest, we will have the right to redeem the junior subordinated debentures, in whole or in part, from time to time, as provided in the prospectus supplement, upon not less than 30 nor more than 60 days notice, at the redemption prices specified in the prospectus supplement. However, we may not redeem any junior subordinated debentures if we have not paid all accrued and unpaid interest on all outstanding junior subordinated debentures for all quarterly interest payment periods terminating on or prior to the last interest payment date before the date of redemption. If we redeem junior subordinated debentures on any interest payment date, accrued and unpaid interest on the debentures will be payable to holders of record on the record date for that interest payment. We also will have the right to redeem the junior subordinated debentures if a special event, as described under "Description of the Trust Preferred Securities -- Distribution or Redemption Upon the Occurrence of a Special Event," has occurred and is continuing, and either we have received a "redemption tax opinion" or a "no recognition opinion" (each as defined in that section) cannot be delivered to the trust, at 100% of the principal amount, plus accrued and unpaid interest to (but excluding) the redemption date, or as otherwise provided in the prospectus supplement. If we redeem less than all of the junior subordinated debentures, the junior subordinated debentures will be redeemed proportionately. The trust agreement requires that, so long as the trust preferred securities are outstanding, the proceeds from the redemption of any junior subordinated debentures be used to redeem trust preferred securities. INTEREST Each junior subordinated debenture will bear interest at the rate provided in the prospectus supplement from the date of original issuance. Except as otherwise provided in the junior subordinated debentures, interest will be payable to registered holders of the junior subordinated debenture quarterly in arrears, on the interest payment dates for each year provided in the prospectus supplement, at the close of business on the business day immediately preceding the applicable interest payment date. If the trust preferred securities do not continue to remain in book-entry only form and the junior subordinated 37 debentures are not in the form of a global security, we will have the right to select record dates, which will be at least one business day before an interest payment date. The amount of interest will be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of interest payable for any period shorter than a full quarterly period will be computed on the basis of a 30-day month and, for periods of less than a month, on the basis of the actual number of days elapsed in that period, unless otherwise specified in the prospectus supplement. If any date on which interest is payable on the junior subordinated debentures is not a business day, then payment of the interest payable on that date will be made on the immediately following day that is a business day (and without any interest or other payment for the delay), with the same force and effect as if made on the relevant interest payment date. If, however, the immediately following business day falls in the next calendar year, then payment of that interest will be made on the immediately preceding business day, with the same force and effect as if made on the relevant interest payment date. If provided in the prospectus supplement, we will have the right at any time and from time to time during the term of the junior subordinated debentures to defer payment of interest for such number of consecutive interest payment periods as we may specify, and on the terms described, in the prospectus supplement. To the extent permitted by applicable law, any deferred interest will bear interest at the rate specified for the junior subordinated debentures, compounded quarterly for each quarter included in the deferral period. Any deferral period, including any extension of that period, may not extend beyond the stated maturity of the junior subordinated debentures. Some of the United States Federal income tax consequences and special considerations applicable to these junior subordinated debentures will be described in the prospectus supplement. CONVERSION, EXERCISE OR EXCHANGE OF THE JUNIOR SUBORDINATED DEBENTURES The prospectus supplement will describe the terms on which junior subordinated debentures may be convertible into or exercisable or exchangeable for trust preferred securities or other securities or property, including whether any conversion, exercise or exchange is mandatory, at the option of the holder or at our option. In that case, the number of securities to be received by the holders of junior subordinated debentures will be calculated as of a time and in the manner described in the prospectus supplement. ADDITIONAL INTEREST If at any time while the indenture trustee for the trust is the holder of the junior subordinated debentures, the trust is required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States or any other taxing authority, then, in any such case, we will pay as "additional interest" such additional amounts as will be required so that the net amounts received and retained by the trust after paying any of those taxes, duties, assessments or other governmental charges will be not less than the amounts the trust would have received had those taxes, duties, assessments or other governmental charges not been imposed. CONSOLIDATION, MERGER AND SALE OF ASSETS We may not consolidate or merge with or into any other corporation, or transfer our property substantially as an entirety to any other corporation, unless the following conditions are satisfied: - immediately after the consolidation, merger or transfer, the corporation formed by or surviving the consolidation or merger (whether or not Unocal), or to which the property has been transferred, is not in default in the performance of any of the terms, covenants and conditions of the indenture applicable to us; and - the corporation surviving the consolidation or merger, if other than us, or to which the property has been transferred, (1) is a corporation organized under the laws of, or of any state of, the United States, and (2) assumes the due and punctual payment of the principal of, and any premium and interest on, the junior subordinated debentures, and the due and punctual performance of all 38 covenants and conditions of the indenture to be performed by us (including with respect to any conversion provision of the debentures), by means of a supplemental indenture delivered to the debentures trustee in form satisfactory to the trustee. The indenture does not contain covenants or other provisions that afford the junior subordinated debentures protection in the event of a recapitalization transaction, a change of control of us or a highly leveraged transaction involving Unocal. This covenant would only apply if the recapitalization transaction, change of control or highly leveraged transaction were structured to include a merger or consolidation of Unocal or a sale, lease or conveyance of all or substantially all of our assets. EVENTS OF DEFAULT The indenture provides holders of junior subordinated debentures with remedies if we fail to perform specific obligations, such as making payments on the junior subordinated debentures or other indebtedness, or if we become bankrupt. Unless otherwise provided in the prospectus supplement, any one of the following events will constitute an event of default under the indenture with respect to the junior subordinated debentures: - default in the payment of any interest on the junior subordinated debentures when due and payable, if continued for 30 days after written notice has been given as provided in the indenture, whether or not that payment is prohibited by the subordination provisions of the indenture and the junior subordinated debentures. A valid extension of the interest payment period in accordance with the terms of the junior subordinated debentures does not, however, constitute a default in the payment of interest; - default in the payment of principal of, or any premium on, the junior subordinated debentures when due and payable, whether or not that payment is prohibited by the subordination provisions of the indenture and the junior subordinated debentures; - failure to perform any of our other covenants in the indenture or the junior subordinated debentures (other than a covenant included in the indenture solely for the benefit of any series of debt securities other than the junior subordinated debentures), if continued for 90 days after written notice has been given as provided in the indenture; - events of bankruptcy, insolvency or reorganization; - while the indenture trustee for the trust is the holder of the junior subordinated debentures, the voluntary or involuntary dissolution, winding-up or termination of the trust, except in connection with, - the distribution of junior subordinated debentures to the holders of trust securities in liquidation of their interest in the trust, - the redemption of all of the trust preferred securities outstanding, and - mergers, consolidations or amalgamations as permitted by the trust agreement; or - any other events of default described in the prospectus supplement. The indenture requires that we file annually with the debenture trustee a certificate as to our compliance with all conditions and covenants under the indenture. ACCELERATION OF JUNIOR SUBORDINATED DEBENTURES UPON AN EVENT OF DEFAULT If any event of default under the indenture occurs and is continuing, the indenture trustee for the trust, as the holder of the junior subordinated debentures, will have the right to declare the principal of the junior subordinated debentures and any other amounts payable under the indenture to be immediately due and payable and to enforce its other rights as a creditor with respect to the junior subordinated debentures. 39 See also "-- Modification, Waiver, Meetings and Voting -- Waiver of Default" below and "Description of the Trust Preferred Securities -- Voting Rights." LIMITATION ON ACTIONS BY INDIVIDUAL HOLDERS OF JUNIOR SUBORDINATED DEBENTURES An event of default under the indenture also constitutes an event of default under the trust agreement. In the circumstances described under "Description of the Trust Preferred Securities -- Trust Preferred Securities Events of Default," and "-- Voting Rights," the holders of trust preferred securities will have the right to direct the indenture trustee for the trust to exercise its rights as the holder of the junior subordinated debentures. If, however, an event of default under the indenture has occurred and is continuing that is attributable to our failure to pay interest on or principal (or the redemption price ) of the junior subordinated debentures on the date that interest or principal is otherwise payable (or in the case of redemption, the redemption date), a holder of trust preferred securities may institute a direct action against us for payment on or after the applicable due date specified in the junior subordinated debentures of interest on or principal (or the redemption price) of the debentures. See "Description of the Trust Preferred Securities -- Trust Preferred Securities Events of Default." If we make any payments to holders of trust preferred securities as a result of a direct action, we will remain obligated to pay the principal of, and any premium and interest on, the junior subordinated debentures, but will be subrogated to the extent of those payments to the rights of the holder of those trust preferred securities with respect to payments on those trust preferred securities. The holders of trust preferred securities will not be able to exercise directly any other remedy available to the holders of the junior subordinated debentures. DEFEASANCE Our obligations with respect to the junior subordinated debentures, including to pay the principal of, and any premium and interest on, the junior subordinated debentures and to comply with the limitations described under "-- Consolidation, Merger and Sale of Assets," will terminate if we irrevocably deposit or cause to be deposited with the debenture trustee, under the terms of an escrow trust agreement in form and substance satisfactory to the debenture trustee, as a trust fund specifically pledged as security for, and dedicated solely to, the benefit of the holders of the junior subordinated debentures: - money; - if the junior subordinated debentures are denominated in United States dollars, U.S. government obligations, which through the payment of interest on and principal of those obligations in accordance with their terms will provide money at such time or times as payments are due and payable on the junior subordinated debentures; or - a combination of money and U.S. government obligations, sufficient to pay and discharge the junior subordinated debentures and any other amounts payable with respect to the junior subordinated debentures. The discharge of the junior subordinated debentures is subject to other conditions, including: - - that no event of default under the indenture or event (including the deposit of money and/or U.S. government obligations) which with notice or lapse of time would become an event of default has occurred and is continuing on the date of the deposit; and - - that the deposit and the related intended consequence will not result in any default or event of default under any material indenture, agreement, or other instrument binding upon us or any of our subsidiaries or any of our or their properties. If provided in the prospectus supplement, any conversion rights under the indenture will survive until the junior subordinated debentures are no longer outstanding. 40 MODIFICATION, WAIVER, MEETINGS AND VOTING MODIFICATION OF INDENTURE Without Consent of Holders. The indenture provides that we and the debenture trustee may, without the consent of any holders of junior subordinated debentures (or any other series of securities issued under the indenture), enter into supplemental indentures for the purpose of, among other things: - adding to our covenants, adding additional events of default or establishing the form or terms of junior subordinated debentures (or any other series of securities issued under the indenture); - curing ambiguities or inconsistencies in the indenture; or - making other change to the indenture or form or terms of the junior subordinated debentures (or any other series of securities issued under the indenture) that does not have a material adverse effect on the interests of the holders of the junior subordinated debentures (or of the securities of any such other series). With Consent of Holders. In addition, we and the debenture trustee may make any modifications and amendments to the indenture with the consent of the holders of not less than a majority in aggregate principal amount of the junior subordinated debentures (or any other series of securities issued under the indenture affected by the modification or amendment) then outstanding, except the following modifications or amendments, which require the consent of each holder of outstanding junior subordinated debentures (or securities of any such other series): - changing the stated maturity of the principal or any installment of principal of or interest on, the junior subordinated debentures; - reducing the principal amount of, or rate of interest on, or premium payable upon redemption of, any junior subordinated debentures; - changing any obligation to pay additional amounts with respect to the junior subordinated debentures; - changing the place of payment or the currency or currency unit in which the junior subordinated debentures or interest or premium on them is payable; - impairing the right to institute suit for the enforcement of any payment on the junior subordinated debentures; - reducing the percentage in principal amount of junior subordinated debentures outstanding required to modify or amend the indenture, to waive our compliance with the indenture or to waive defaults under the circumstances contemplated by the indenture; - changing any of our obligations to maintain an office or agency in the places and for the purposes required by the indenture; - if provided in the prospectus supplement, making any change that would materially adversely affect the right of holders to convert the junior subordinated debentures; or - modifying any of the above provisions. See "Description of the Trust Preferred Securities -- Voting Rights" for a description of the rights of the holders of trust securities with respect to any amendment, modification or termination of the indenture. Modification of Subordination Provisions. We may not make any change in the subordination provisions of the indenture that adversely affects the rights of any holders of the junior subordinated debentures of any series in any material respect, without the consent of the holders of the junior subordinated debentures issued by this prospectus affected by that change. 41 WAIVER OF DEFAULT If, after the acceleration of the principal of the junior subordinated debentures as a result of the occurrence and continuance of an event of default under the indenture, but before any judgment or decree is entered for the payment of any amount so accelerated, (1) we pay or deposit with the debenture trustee an amount sufficient to pay all matured installments of interest on the junior subordinated debentures and any amounts payable to the debenture trustee, and (2) all defaults under the indenture, other than the non-payment of the principal that gave rise the acceleration, have been remedied, then the holders of a majority in aggregate principal amount of junior subordinated debentures then outstanding may waive all defaults and annul the declaration of acceleration and its consequences. In addition, before any declaration of acceleration as a result of an event of default, the holders of a majority in aggregate principal amount of the junior subordinated debentures then outstanding may, on behalf of the holders of all junior subordinated debentures, waive any past default under the indenture with respect to the junior subordinated debentures and its consequences, except a default: - in the payment of principal of, or any premium or interest, on the junior subordinated debentures; or - with respect to a covenant or provision of the indenture that cannot be modified or amended without the consent of each holder of junior subordinated debentures. See "Description of the Trust Preferred Securities -- Events of Default" and "-- Voting Rights" for a description of the rights of the holders of trust securities with respect to waivers of events of default relating to the junior subordinated debentures. MEETINGS AND VOTING The debenture trustee may call a meeting of holders of the junior subordinated debentures at any time or when so requested by us (pursuant to a resolution of our board of directors) or by holders of at least 25% in principal amount of the junior subordinated debentures then outstanding. Except as otherwise provided in the indenture, including as described above under "-- Modifications of Indenture" and "-- Waiver of Default," a resolution presented at a meeting or reconvened meeting at which a quorum of the holders of junior subordinated debentures then outstanding is present may be adopted by the affirmative vote of the lesser of: - the holders of a majority in principal amount of the junior subordinated debentures then outstanding; or - the holders of 66 2/3% in principal amount of the junior subordinated debentures then outstanding represented and voting at the meeting. However, if the indenture expressly provides that any consent, waiver or other action may be made, given or taken by the holders of a specified percentage that is less than a majority of the principal amount of junior subordinated debentures then outstanding, that action may be adopted at a meeting or reconvened meeting of holders at which a quorum is present by the affirmative vote of the lesser of: - the holders of that specified percentage in principal amount of junior subordinated debentures then outstanding; or - the holders of a majority in principal amount of junior subordinated debentures then outstanding represented and voting at the meeting. Any resolution passed or decision taken at any meeting of holders of junior subordinated debentures duly held in accordance with the indenture will be binding on all holders of junior subordinated debentures whether or not present or represented at the meeting. Except with respect to reconvened meetings as described in the indenture, the quorum at a meeting of the holders of junior subordinated debentures will be persons holding or representing a majority in principal amount of junior subordinated debentures then outstanding. 42 PAYMENT AND PAYING AGENTS Unless otherwise indicated in the prospectus supplement, payment of principal of, and any premium and interest on, junior subordinated debentures will be made at the offices of the debenture trustee, as paying agent in the City of New York, or at the offices of such other paying agent or paying agents as we may designate from time to time in the prospectus supplement. We may, however, at our option pay any interest: - except in the case of global junior subordinated debentures, by check mailed to the person entitled to payment of that interest at the address of that person appearing in the securities register; or - by transfer to the account maintained by the person entitled to payment of that interest as specified in the securities register, if we have received proper transfer instructions by the record date. Unless otherwise indicated in the prospectus supplement, payment of any interest on any junior subordinated debenture will be made to the person in whose name that debenture is registered at the close of business on the record date for the payment of that interest, except in the case of defaulted interest. Although we may at any time appoint additional paying agents or cancel the appointment of any paying agent, we will at all times be required to maintain a paying agent in New York for the junior subordinated debentures. Any monies deposited with the debenture trustee or any paying agent, or then held by us in trust, for the payment of the principal of, and any premium or interest on, any junior subordinated debenture and remaining unclaimed for two years after that principal, premium or interest has become due and payable will, at our request, be repaid to us and the holder of that junior subordinated debenture will after that time look, as a general unsecured creditor, only to us for payment. FEES AND EXPENSES The indenture provides that we will pay fees and expenses and taxes in connection with the issuance of the junior subordinated debentures and the trust preferred securities, as described under "Description of the Trust Preferred Securities -- Expenses and Taxes." GOVERNING LAW The indenture and the junior subordinated debentures will be governed by, and construed in accordance with, the internal laws of the State of New York. EFFECT OF OBLIGATIONS UNDER THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE As described in the trust agreement, the sole purposes of the trust are issuing trust securities in exchange for junior subordinated debentures having an aggregate principal amount equal to the aggregate liquidation amount of the trust securities and engaging in any activities that are necessary or incidental to that issuance. If payments of interest and other payments are made when due on the junior subordinated debentures, those payments will be sufficient to cover distributions and payments due on the trust securities for the following reasons: - the aggregate principal amount of junior subordinated debentures will be equal to the aggregate liquidation amount of the trust securities; - the interest rate and the interest and other payment dates on the junior subordinated debentures will match the distribution rate and distribution and other payment dates for the trust securities; 43 - we will pay all costs, expenses, debt, and obligations of the trust, and the trust will not be obligated to pay, directly or indirectly, any of those costs (other than with respect to the trust securities); and - the trust agreement provides that the trustees for the trust will not take or cause or permit the trust to, among other things, engage in any activity that is not consistent with the purposes of the trust. We guarantee the payment of distributions and other payments due on the trust preferred securities to the extent funds are available for payment and otherwise as and to the extent described under "Description of the Guarantee." If we do not make interest payments on the junior subordinated debentures, the trust will not have sufficient funds to pay distributions on the trust preferred securities. The guarantee is a full guarantee on a subordinated basis with respect to the trust preferred securities from the time of their issuance by the trust, but does not apply to any payment of distributions unless and until the trust has sufficient funds for the payment of those distributions. The guarantee covers the payment of distributions and other payments on the trust preferred securities only if and to the extent we have made a payment of interest or principal on the junior subordinated debentures held by the trust as its sole asset. The guarantee, when taken together with our obligations under the junior subordinated debentures, the indenture and the trust agreement, including our obligations to pay costs, expenses, debts and liabilities of the trust (other than with respect to the trust securities), provide a full and unconditional guarantee on a subordinated basis of amounts on the trust preferred securities. No single document standing alone or operating in conjunction with fewer than all of the other documents will constitute such guarantee. It is only the combined operation of these documents that has the effect of providing our full, irrevocable and unconditional guarantee of the trust's obligations under the trust preferred securities. If we fail to make interest or other payments on the junior subordinated debentures when due (taking account of any period during which interest payments are deferred as provided in the indenture), the trust agreement provides a mechanism whereby a holder of trust preferred securities, using the procedures described under "Description of the Trust Preferred Securities -- Voting Rights," may direct the indenture trustee for the trust to enforce its rights under the junior subordinated debentures. In addition, as described in that section, a holder of trust preferred securities may institute a direct action against us for payment on or after the applicable due date specified in the junior subordinated debentures, and we will be subrogated, to the extent of any payments we make, to the rights of that holder of trust preferred securities. We acknowledge under the guarantee that the guarantee trustee will enforce the guarantee on behalf of the holders of the trust preferred securities. If we fail to make payments under the guarantee, the guarantee provides a mechanism whereby the holders of trust preferred securities may direct the guarantee trustee to enforce its rights under the guarantee. Any holder of trust preferred securities may institute a legal proceeding directly against us to enforce its right to receive payment under the guarantee without first instituting a legal proceeding against the trust, the guarantee trustee or any other person or entity. See "Description of the Guarantee -- Guarantee Events of Default." GLOBAL SECURITIES The trust preferred securities and any junior subordinated debentures that are distributed to the holders of trust preferred securities as described in this prospectus, may be issued in whole or in part in the form of one or more global securities that will be deposited with, or on behalf of, the depositary or its nominee identified in the prospectus supplement. Global securities may be issued in registered or bearer form and in temporary or definitive form. Global securities issued in registered form will be registered in the name of the depositary or nominee with which the global securities have been deposited, in denominations or aggregate denominations representing the total number of trust preferred securities or aggregate principal amount or face amount of junior subordinated debentures, as the case may be, to be 44 represented by the registered global securities. Unless and until it is exchanged for securities in definitive form, a global security may not be transferred except as a whole by and among: - the depositary for the global security; - the nominees of the depositary; or - any successors of the depositary or those nominees. The specific terms of the depositary arrangement relating to any portion of trust preferred securities or junior subordinated debentures to be represented by global securities will be described in the prospectus supplement. We and the trust anticipate that the following provisions will apply to all depositary arrangements. Ownership of beneficial interests in a global security will be limited to persons, called "participants," that have accounts with the depositary or persons that may hold interests through participants. Upon the issuance of a global security, the depositary will credit on its book-entry registration and transfer system the participants' accounts with the respective number of trust preferred securities or principal amounts of junior subordinated debentures beneficially owned by them. Any dealers, underwriters or agents participating in the distribution of the trust preferred securities will designate the accounts to be credited, or, if the trust preferred securities are offered and sold directly by us, we or our agents will designate the accounts. Ownership of beneficial interests in a global security will be shown on, and the transfer of that ownership will be effected only through, records maintained by the depositary, with respect to interests of participants, and on the records of participants, with respect to interests of persons holding through participants. In addition, the laws of some jurisdictions may require that some purchasers of securities take physical delivery of those securities in definitive form. These limitations and laws may impair the ability of a holder to transfer beneficial interests in a global security. So long as the depositary or its nominee is the registered owner of a registered global security, that depositary or its nominee, as the case may be, will be considered the sole owner or holder of the trust preferred securities or junior subordinated debentures represented by the global security for all purposes under the trust agreement and the indenture governing the debentures. Except as described below, owners of beneficial interests in a global security will not be entitled to have securities represented by the global security registered in their names, will not receive or be entitled to receive physical delivery of securities in definitive form and will not be considered the owners or holders of the trust preferred securities under the trust agreement or the junior subordinated debentures under the indenture. Accordingly, each person owning a beneficial interest in a global security must rely on the procedures of the depositary for that global security and, if that person is not a participant, on the procedures of the participant through which the person owns its interest, to exercise any rights of a holder under the trust agreement or the indenture, as the case may be. We and the trust understand that under existing industry practices, if we request any action of holders or if an owner of a beneficial interest in a global security desires to give or take any action that a holder is entitled to give or take under the trust agreement or the indenture, as the case may be, the depositary for the global security would authorize the participants holding the relevant beneficial interests to give or take that action, and the participants would authorize beneficial owners owning through them to give or take that action or would otherwise act upon the instructions of beneficial owners holding through them. We will make payments of principal of, and any premium and interest on, junior subordinated debentures, and any payments to holders with respect to the trust preferred securities, represented by a global security registered in the name of a depositary or its nominee, to the depositary or its nominee, as the case may be, as the registered owner of the global security. None of Unocal, the trust, the trustees for the trust, the debenture trustee, any paying agent or the security registrar for the trust preferred securities or the junior subordinated debentures will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a global security, or for maintaining, supervising or reviewing any records relating to those beneficial ownership interests. 45 We and the trust expect that the depositary for any securities represented by a global security, upon receipt of any payment of principal, premium, interest or other distribution with respect to underlying securities to holders in respect of the global security, will immediately credit participants' accounts in amounts proportionate to their respective beneficial interests in the global security as shown on the records of the depositary. We and the trust also expect that payments by participants to owners of beneficial interests in a global security held through participants will be governed by standing customer instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of those participants. If a depositary for trust preferred securities represented by a global security is at any time unwilling or unable to continue as depositary or ceases to be a clearing agency registered under the Securities Exchange Act of 1934, and a successor depositary that is so registered is not appointed by us or the trust, as the case may be, within 90 days, we or the trust, as the case may be, will issue securities in definitive form in exchange for the global security that had been held by the depositary. In addition, we or the trust, as the case may be, may at any time and in our sole discretion determine not to have any trust preferred securities represented by global securities and, in that event, will issue securities in definitive form in exchange for the global security or securities representing those securities. Further, the prospectus supplement may provide that an owner of a beneficial interest in a global security may, on terms acceptable to us and the depositary for the global security, receive securities in definitive form. In all these cases, an owner of a beneficial interest in a global security will be entitled to physical delivery in definitive form of securities represented by the global security equal in number of trust preferred securities or principal amount of junior subordinated debentures to that beneficial interest and, if the securities are issuable as registered securities, to have those securities registered in its name. Any securities issued in definitive form in exchange for a global security will be registered in the name or names that the depositary gives to the relevant trustee, transfer agent or other relevant agent of ours or the trust. It is expected that the depositary's instructions will be based upon directions received by the depositary from participants with respect to ownership of beneficial interests in the global security that had been held by the depositary. PLAN OF DISTRIBUTION We may offer and sell junior subordinated debentures and the trust may offer and sell trust preferred securities: - directly to investors, through a specific bidding, auction or other process; - to investors through agents; - through underwriters or dealers; or - through a combination of any of these methods of sale. We and the trust may also exchange these securities for indebtedness or other securities that we or Union Oil or both may have outstanding. In some cases, dealers acting on our and the trust's behalf may also purchase these securities and reoffer them to the public by one or more of the methods described above. This prospectus may be used in connection with any offering of junior subordinated debentures and trust preferred securities through any of these methods or other methods described in the prospectus supplement relating to those securities. The securities distributed by any of these methods may be sold to the public, in one or more transactions, either: - at a fixed price or prices, which may be changed; - at market prices prevailing at the time of sale; 46 - at prices related to prevailing market prices; or - at negotiated prices. We and the trust may solicit offers to purchase these securities directly from the public from time to time. We and the trust may also designate agents from time to time to solicit offers to purchase these securities from the public on our respective behalf. The prospectus supplement relating to the securities will name any agents designated to solicit offers, and will include information about any commissions we and the trust may pay the agents in that offering. Unless otherwise indicated in the prospectus supplement, any such agent will be acting on a best efforts basis for the period of its appointment. Agents may be deemed to be "underwriters" as that term is defined in the Securities Act. From time to time, we and the trust may sell these securities to one or more dealers acting as principals. The dealers, who may be deemed to be "underwriters" as that term is defined in the Securities Act, may then resell the securities to the public. We and the trust may sell these securities from time to time to one or more underwriters, who would purchase the securities as principal for resale to the public, either on a firm-commitment or best-efforts basis. If we and the trust sell these securities to underwriters, we may execute one or more underwriting agreements with them at the time of sale and name them in the prospectus supplement. In connection with those sales, underwriters may be deemed to have received compensation from us and the trust in the form of underwriting discounts or commissions and may also receive commissions from purchasers of the securities for whom they may act as agents. Underwriters may resell the securities to or through dealers, and those dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from purchasers for whom they may act as agents. The securities may be either offered to the public through underwriting syndicates represented by managing underwriters, or directly by one or more underwriters. Unless otherwise stated in the prospectus supplement, the obligations of the underwriters to purchase these securities will be subject to specified conditions precedent and the underwriters will be obligated to purchase all the securities if any are purchased. Our and the trust's net proceeds from the sale of these securities will be the purchase price in the case of sales to a dealer, the public offering price less discount in the case of sales to an underwriter or the purchase price less commission in the case of sales through an agent -- in each case, less other expenses attributable to issuance and distribution. The prospectus supplement will include this information and any required information about underwriting compensation we and the trust pay to underwriters, and any discounts, concessions or commissions underwriters allow to participating dealers, in connection with an offering of the securities. Each issue of these securities sold will be a new issue of securities with no established trading market. Any underwriters or agents with respect to an issue of the securities may make a market in those securities, but will not be obligated to do so and may discontinue any market making at any time without notice. Neither we nor the trust can give assurances as to the liquidity of any of these securities in the secondary market. If these securities are issued in exchange for our or Union Oil's outstanding securities, the prospectus supplement will describe the terms of the exchange, the identity of, and the terms of sale of the securities by, the selling security holders. If so indicated in the prospectus supplement, we and the trust will authorize agents, underwriters or dealers to solicit offers by specified institutions to purchase these securities from us, at the public offering price set forth in the prospectus supplement under delayed delivery contracts providing for payment and delivery on a specified date in the future. Those contracts will be subject only to those conditions set forth in the prospectus supplement and the prospectus supplement will set forth the commission payable for solicitation of those contracts. Agents, dealers, underwriters and other persons may be entitled under agreements they enter into with us and the trust to indemnification by the trust and us against certain liabilities, including liabilities under the Securities Act, or to contribution with respect to payments which the agents, dealers, underwriters or 47 those persons may be required to make with respect to those liabilities. Agents, dealers and underwriters, as well as their associates, may be customers or lenders of, and may engage in transactions with or perform services for, us in the ordinary course of business. In connection with an offering, the underwriters may purchase and sell these securities in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of securities than they are required to purchase in an offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the securities while an offering is in progress. The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the underwriters have repurchased securities sold by or for the account of that underwriter in stabilizing or short-covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of the securities. As a result, the price of the securities may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters at any time. These transactions may be effected on an exchange or automated quotation system, if the securities are listed on that exchange or admitted for trading on that automated quotation system, or in the over-the-counter market or otherwise. VALIDITY OF THE SECURITIES In connection with an offering of trust preferred securities in the future, and if stated in the prospectus supplement relating to such securities, certain matters of Delaware law relating to the validity of the trust preferred securities may be passed upon for the Unocal Capital Trust II by Morris, Nichols, Arsht & Tunnell, or other counsel satisfactory to us and who may be an officer of Unocal, and the validity of the junior subordinated debentures may be passed upon for us by Wachtell, Lipton, Rosen & Katz, or other counsel satisfactory to us and who may be an officer of Unocal. The validity of the trust preferred securities and the junior subordinated debentures will be passed upon for any underwriters or agents by Gibson, Dunn & Crutcher LLP or other counsel named in the applicable prospectus supplement. Gibson, Dunn & Crutcher LLP has in the past represented us and our subsidiaries and continues to represent us from time to time in a variety of matters. EXPERTS The consolidated financial statements incorporated in this prospectus by reference to our amended Annual Report on Form 10-K/A for the year ended December 31, 2001, have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 48 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth expenses payable by the registrants in connection with the issuance and distribution of the securities being registered. All the amounts shown are estimates, except the SEC registration fee. SEC registration fee........................................ $ 110,400 NASD filing fee............................................. 30,500 Blue sky fees and expenses.................................. 25,000 Printing expenses........................................... 265,000 Legal fees and expenses..................................... 200,000 Accounting fees and expenses................................ 250,000 Rating agency fees.......................................... 816,000 Fees and expenses (including counsel fees) of Trustees, Warrant Agents, Transfer Agent and Registrar.............. 80,000 Miscellaneous expenses...................................... 50,000 ---------- Total.................................................. $1,826,900 ==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law authorizes Unocal to indemnify directors and officers in certain circumstances against liabilities, including expenses, incurred while acting in such capacities; provided, generally, that any such indemnified director or officer acted in good faith and in a manner he or she reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The Bylaws of Unocal provide for the indemnification of directors and officers to the maximum extent permitted by the Delaware General Corporation Law. Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation is not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for payments of unlawful dividends or unlawful stock repurchases or redemptions or (iv) for any transaction from which the director derived an improper personal benefit. Unocal has provided in its Restated Certificate of Incorporation that it will eliminate the personal liability of its directors to the fullest extent permitted by the Delaware General Corporation Law. In addition, Unocal has entered into indemnification agreements with each of its directors and officers providing for additional indemnification. Unocal has policies of directors' and officers' liability insurance which insure directors and officers against the costs of defense, settlement or payment of a judgment under certain circumstances. Section 8 of the Standard Underwriting Provisions -- Debt Securities, July 1994, Standard Underwriting Provisions -- Preferred Stock, July 1994, and Standard Underwriting Provisions -- Common Stock, July 1994. (Exhibits 1.1, 1.2 and 1.3 hereto) and Section 7 of the Form of Distribution Agreement (Exhibit 1.5 hereto) each provides for indemnification of directors and officers of Union Oil and Unocal by the underwriters and agents under the circumstances described in those agreements. The Amended and Restated Declaration of Trust of Unocal Capital Trust II provides that Unocal will indemnify, to the full extent provided by law, (i) the regular trustees for the Trust, (ii) any affiliate of a regular trustee for the Trust, (iii) any officers, directors, shareholders, members, partners, employees, II-1 representatives, or agents of a regular trustee for the Trust and (iv) any officer, employee or agent of the Trust or its affiliates, for losses, liabilities and expenses incurred in connection with such person's actions as trustee of the Trust if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Trust (except that, with respect to actions in the right of the Trust, no such indemnification will be made in respect of a matter as to which such person has been adjudged to be liable to the Trust, unless the court in which such matter was brought determines that such person is fairly and reasonably entitled to indemnity) and with respect to any criminal action or proceeding, had no reasonable cause to believe such person's conduct was unlawful. Unocal has agreed to indemnify (a) the indenture trustee for the trust, (b) the Delaware trustee, (c) any affiliate of the indenture trustee or the Delaware trustee and (d) any officers, directors, shareholders, members, partners, employees, representatives, custodians, nominees, or agents of the indenture trustee or Delaware trustee for any losses, liabilities, and expenses incurred without negligence or bad faith on its part in connection with the exercise or performance of any of its powers or duties under the Amended and Restated Declaration of Trust. Section 8 of the Standard Underwriting Provisions -- Trust Preferred Securities, June 1998 (Exhibit 1.4 hereto) provides for indemnification of each of Unocal and the Trust, their directors, trustees and officers who sign this registration statement, and each person, if any, who controls Unocal or the Trust within the meaning of either Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended, by the underwriters and agents, under the circumstances described in those agreements. ITEM 16. EXHIBITS The Exhibit Index lists the exhibits that are filed as part of this registration statement. ITEM 17. UNDERTAKINGS (a) The undersigned registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. II-2 (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrants' annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, each registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by a registrant of expenses incurred or paid by a director, officer or controlling person of such registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, such registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrants certify that they have reasonable grounds to believe that they meet all of the requirements for filing on Form S-3 and have duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the city of El Segundo, state of California, on February 10, 2003. UNION OIL COMPANY OF CALIFORNIA UNOCAL CORPORATION By: /s/ D. D. CHESSUM ------------------------------------ Darrell D. Chessum Treasurer of Union Oil and Unocal Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on February 10, 2003:
SIGNATURE TITLE --------- ----- /s/ CHARLES R. WILLIAMSON* Chairman of the Board of Directors and Chief - -------------------------------------- Executive Officer (Principal Executive Charles R. Williamson Officer) of Union Oil and Unocal /s/ TIMOTHY H. LING* President and Chief Operating Officer and - -------------------------------------- Director of Union Oil and Unocal Timothy H. Ling /s/ TERRY G. DALLAS* Executive Vice President and Chief Financial - -------------------------------------- Officer Terry G. Dallas (Principal Financial Officer) of Union Oil and Unocal /s/ JOE D. CECIL* Vice President and Comptroller (Principal - -------------------------------------- Accounting Officer) of Union Oil and Unocal Joe D. Cecil /s/ JOHN W. CREIGHTON, JR.* Director of Unocal - -------------------------------------- John W. Creighton, Jr. /s/ JAMES W. CROWNOVER* Director of Unocal - -------------------------------------- James W. Crownover /s/ FRANK C. HERRINGER* Director of Unocal - -------------------------------------- Frank C. Herringer /s/ DONALD B. RICE* Director of Unocal - -------------------------------------- Donald B. Rice /s/ KEVIN W. SHARER* Director of Unocal - -------------------------------------- Kevin W. Sharer
II-4
SIGNATURE TITLE --------- ----- /s/ MARINA V.N. WHITMAN* Director of Unocal - -------------------------------------- Marina v.N. Whitman *By: /s/ D. D. CHESSUM ----------------------------- Darrell D. Chessum (as Attorney-in-Fact pursuant to Power of Attorney filed herewith)
II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of El Segundo, state of California, on February 10, 2003. UNOCAL CAPITAL TRUST II By: /s/ D. D. CHESSUM ------------------------------------ Darrell D. Chessum Trustee Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on February 10, 2003.
SIGNATURE TITLE --------- ----- /s/ D. D. CHESSUM Trustee - --------------------------------------------- Darrell D. Chessum /s/ DANIEL A. FRANCHI Trustee - --------------------------------------------- Daniel A. Franchi /s/ RICHARD L. WALTON* Trustee - --------------------------------------------- Richard L. Walton *By: /s/ D. D. CHESSUM ---------------------------------------- Darrell D. Chessum (as Attorney-in-Fact pursuant to Power of Attorney filed herewith)
II-6 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT - ------- ------- 1.1 Standard Underwriting Provisions for Guaranteed Debt Securities of Union Oil Company of California, July 1994 (including form of Underwriting Agreement) (incorporated by reference to Exhibit 1.1 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on August 2, 1994 (Registration Nos. 33-54861 and 33-54861-01)). 1.2 Standard Underwriting Provisions for Preferred Stock (and Warrants to purchase Preferred Stock) of Unocal Corporation, July 1994 (including form of Underwriting Agreement) (incorporated by reference to Exhibit 1.2 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on August 2, 1994 (Registration Nos. 33-54861 and 33-54861-01)). 1.3 Standard Underwriting Provisions for Common Stock (and Warrants to purchase Common Stock) of Unocal Corporation, July 1994 (including form of Underwriting Agreement) (incorporated by reference to Exhibit 1.3 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on August 2, 1994 (Registration Nos. 33-54861 and 33-54861-01)). 1.4 Standard Underwriting Provisions for Trust Preferred Securities, June 1998 (including form of Underwriting Agreement) (incorporated by reference to Exhibit 1.4 to the Registration Statement on Form S-3 filed by Union Oil, Unocal and Unocal Capital Trust II on July 2, 1998 (Registration Nos. 333-58415, 333-58415-01 and 333-58415-02)). 1.5 Form of Distribution Agreement for Guaranteed Medium-Term Notes, Series C, of Union Oil (including form of Purchase Agreement) (incorporated by reference to Exhibit 1.5 to the Registration Statement on Form S-3 filed by Union Oil, Unocal and Unocal Capital Trust II on July 2, 1998 (Registration Nos. 333-58415, 333-58415-01 and 333-58415-02)). 3.1 Restated and Amended Articles of Incorporation of Union Oil Company of California, as amended through April 1, 1999, and currently in effect (incorporated by reference to Exhibit 99.1 to Unocal's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 (File No. 1-8483)). 3.2 Bylaws of Union Oil Company of California, as amended through January 1, 2001, and currently in effect (incorporated by reference to Exhibit 99 to Unocal's Current Report on Form 8-K, dated December 8, 2000 (File No. 1-8483)). 3.3 Restated Certificate of Incorporation of Unocal Corporation, dated as of January 31, 2000, as currently in effect (incorporated by reference to Exhibit 3.1 to Unocal's Annual Report on Form 10-K, as amended, for the year ended December 31, 1999 (File No. 1-8483)). 3.4 Bylaws of Unocal Corporation, as amended through December 3, 2002, and currently in effect (incorporated by reference to Exhibit 3 to Unocal's Current Report on Form 8-K, dated December 3, 2002 (File No. 1-8483)). 3.5 Certificate of Trust of Unocal Capital Trust II (incorporated by reference to Exhibit 3.5 to the Registration Statement on Form S-3 filed by Union Oil, Unocal and Unocal Capital Trust II on July 2, 1998 (Registration Nos. 333-58415, 333-58415-01 and 333-58415-02)). 4.1 Form of Unocal Common Stock Certificate (incorporated by reference to Exhibit 4.8 to Registration Statement on Form S-4 filed by Unocal Corporation on July 30, 1996 (Registration Nos. 333-09137 and 333-09137-01)). 4.2 Rights Agreement, dated as of January 5, 2000, between Unocal and Mellon Investor Services, LLC, as Rights Agent (incorporated by reference to Exhibit 4 to Unocal's Current Report on Form 8-K dated January 5, 2000 (File No. 1-8483)), as amended by (1) Amendment to Rights Agreement, dated as of March 27, 2002 (incorporated by reference to Exhibit 10 to Unocal's Current Report on Form 8-K dated March 27, 2002 (File No. 1-8483)) and (2) Amendment No. 2 to Rights Agreement, dated as of August 2, 2002 (incorporated by reference to Exhibit 10 to Unocal's Current Report on Form 8-K dated August 2, 2002 (File No. 1-8483)). 4.3 Standard Multiple-Series Indenture Provisions, January 1991, of Union Oil, as issuer, and Unocal, as guarantor, dated January 2, 1991 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on January 2, 1991 (Registration Nos. 33-38505 and 33-38505-01)).
EXHIBIT NUMBER EXHIBIT - ------- ------- 4.4 Form of Indenture for Senior Debt Securities, dated as of February 3, 1995, among Union Oil, as issuer, Unocal, as guarantor, and J.P. Morgan Trust Company, National Association, as successor trustee (incorporated by reference to Exhibit 4.6 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on August 2, 1994 (Registration Nos. 33-54861 and 33-54861-01)). 4.5 Form of Indenture for Subordinated Debt Securities of Union Oil, as issuer, and Unocal, as guarantor (incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on August 2, 1994 (Registration Nos. 33-54861 and 33-54861-01)). 4.6 Form of Warrant Agreement for Guaranteed Debt Securities of Union Oil (including form of Warrant Certificate) (incorporated by reference to Exhibit 4.8 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on August 2, 1994 (Registration Nos. 33-54861 and 33-54861-01)). 4.7 Form of Warrant Agreement for Preferred Stock of Unocal (including form of Warrant Certificate) (incorporated by reference to Exhibit 4.9 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on August 2, 1994 (Registration Nos. 33-54861 and 33-54861-01)). 4.8 Form of Warrant Agreement for Common Stock of Unocal (including form of Warrant Certificate) (incorporated by reference to Exhibit 4.10 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on August 2, 1994 (Registration Nos. 33-54861 and 33-54861-01)). 4.9 Form of Multiple-Series Indenture (Junior Subordinated Indenture), dated as of September 11, 1996, between Unocal and The Bank of New York, as trustee (incorporated by reference to Exhibit 4.3 to Amendment No. 1 to Registration Statement on Form S-4 filed by Unocal on August 7, 1996 (Registration Nos. 333-09137 and 333-09137-01)). 4.10* Form of Second Supplemental Indenture, between Unocal and The Bank of New York, as trustee, including form of Junior Subordinated Debenture. 4.11 Declaration of Trust of Unocal Capital Trust II (incorporated by reference to Exhibit 4.10 to the Registration Statement on Form S-3 filed by Union Oil, Unocal and Unocal Capital Trust II on July 2, 1998 (Registration Nos. 333-58415, 333-58415-01 and 333-58415-02)). 4.12* Form of Amended and Restated Declaration of Trust of Unocal Capital Trust II, including form of Trust Preferred Security. 4.13* Form of Preferred Securities Guarantee Agreement, Unocal Capital Trust II (the Guarantee). 4.14 Form of Senior and Subordinated Security (incorporated by reference to Exhibit 4.11 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on August 2, 1994 (Registration Nos. 33-54861 and 33-54861-01)). 4.15 Form of Temporary Global Bearer Fixed Rate Security (incorporated by reference to Exhibit 4.12 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on August 2, 1994 (Registration Nos. 33-54861 and 33-54861-01)). 4.16 Form of Permanent Global Bearer Fixed Rate Security (incorporated by reference to Exhibit 4.13 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on August 2, 1994 (Registration Nos. 33-54861 and 33-54861-01)). 4.17 Form of Fixed Rate Registered Medium-Term Note (incorporated by reference to Exhibit 4.14 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on August 2, 1994 (Registration Nos. 333-58415, 333-58415-01 and 333-58415-02)). 4.18 Form of Floating Rate Registered Medium-Term Note (incorporated by reference to Exhibit 4.15 to the Registration Statement on Form S-3 filed by Union Oil and Unocal on August 2, 1994 (Registration Nos. 333-58415, 333-58415-01 and 333-58415-02)). 5.1* Opinion of Charles O. Strathman, Esq. 5.2* Opinion of Morris, Nichols, Arsht & Tunnell. 12.1* Statement regarding computation of ratio of earnings to fixed charges for Union Oil.
- --------------- * Filed herewith
EXHIBIT NUMBER EXHIBIT - ------- ------- 12.2* Statement regarding computation of ratio of earnings to fixed charges for Unocal. 23.1* Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Charles O. Strathman, Esq. (contained in his opinion filed as Exhibit 5.1 to this Registration Statement). 23.3 Consent of Morris, Nichols, Arsht & Tunnell (contained in its opinion filed as Exhibit 5.2 to this Registration Statement). 24.1* Power of Attorney, dated as of October 1, 2002, for Union Oil and Unocal. 24.2 Power of Attorney for Unocal Capital Trust II (contained in the Certificate of Trust of Unocal Capital Trust II filed as Exhibit 3.5 to this Registration Statement). 25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, as amended, of the trustee under the indenture for Senior Debt Securities (incorporated by reference to Exhibit 25.1 to the Registration Statement on Form S-3 filed by Union Oil, Unocal and Unocal Capital Trust II on July 2, 1998 (Registration Nos. 333-58415, 333-58415-01 and 333-58415-02)). 25.2 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, as amended, of The Bank of New York, as trustee under the Junior Subordinated Indenture (incorporated by reference to Exhibit 25.2 to the Registration Statement on Form S-3 filed by Union Oil, Unocal and Unocal Capital Trust II on July 2, 1998 (Registration Nos. 333-58415, 333-58415-01 and 333-58415-02)). 25.3 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, as amended, of The Bank of New York, as trustee under Unocal Capital Trust II's Amended and Restated Declaration of Trust (incorporated by reference to Exhibit 25.3 to the Registration Statement on Form S-3 filed by Union Oil, Unocal and Unocal Capital Trust II on July 2, 1998 (Registration Nos. 333-58415, 333-58415-01 and 333-58415-02)). 25.4 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, as amended, of The Bank of New York, as trustee under the Unocal's Guarantee for the benefit of the holders of the Trust Preferred Securities (incorporated by reference to Exhibit 25.4 to the Registration Statement on Form S-3 filed by Union Oil, Unocal and Unocal Capital Trust II on July 2, 1998 (Registration Nos. 333-58415, 333-58415-01 and 333-58415-02)).
- --------------- * Filed herewith EX-4.10 3 y82934exv4w10.txt FORM OF SECOND SUPPLEMENTAL INDENTURE EXHIBIT 4.10 UNOCAL CORPORATION AS ISSUER AND THE BANK OF NEW YORK AS TRUSTEE ___% JUNIOR [CONVERTIBLE] SUBORDINATED DEBENTURES SECOND SUPPLEMENTAL INDENTURE DATED AS OF ____________, _____ TABLE OF CONTENTS
Page ---- ARTICLE I Definitions Section 1.1. Definition of Terms..........................................................................1 ARTICLE II General Terms and Conditions of the Debentures Section 2.1. Designation and Principal Amount.............................................................7 Section 2.2. Maturity.....................................................................................7 Section 2.3. Form and Payment.............................................................................7 Section 2.4. Global Debenture.............................................................................7 Section 2.5. Interest.....................................................................................8 ARTICLE III Redemption of the Debentures Section 3.1. Special Event Redemption.....................................................................9 Section 3.2. Optional Redemption by Company..............................................................10 Section 3.3. Redemption of Less Than All Debentures......................................................11 Section 3.4. No Sinking Fund.............................................................................11 ARTICLE IV Extension of Interest Payment Period Section 4.1. Extension of Interest Payment Period........................................................11 Section 4.2. Notice of Extension.........................................................................11 Section 4.3. Limitation of Transactions..................................................................12 ARTICLE V Expenses Section 5.1. Payment of Expenses.........................................................................13 Section 5.2. Payment Upon Resignation or Removal.........................................................13 ARTICLE VI Covenants Section 6.1. Covenants as to the Trust...................................................................13 Section 6.2. Listing or Quotation of Debentures..........................................................14
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Page ---- ARTICLE VII Conversion of Debentures Section 7.1. Conversion Rights...........................................................................14 Section 7.2. Conversion Procedures.......................................................................14 Section 7.3. Certain Conversion Price Adjustments........................................................16 Section 7.4. Merger, Consolidation, or Sale of Assets....................................................20 Section 7.5. Notice of Adjustments of Conversion Price...................................................22 Section 7.6. Prior Notice of Certain Events..............................................................22 Section 7.7. Certain Plans, Rights or Securities.........................................................23 Section 7.8. Preferred Stock Purchase Rights.............................................................23 Section 7.9. Special Provisions Regarding Adjustment of Conversion Price or Other Provisions.............24 Section 7.10. Certain Additional Rights...................................................................24 Section 7.11. Trustee Not Responsible for Determining Conversion Price or Adjustments.....................25 ARTICLE VIII Events of Default Section 8.1. Events of Default...........................................................................25 ARTICLE IX Supplemental Debentures Section 9.1. Supplemental Debentures with Consent of Holders.............................................26 ARTICLE X Form of Debenture Section 10.1. Form of Debenture...........................................................................26 ARTICLE XI Original Issue of Debentures Section 11.1 Original Issue of Debentures................................................................26 ARTICLE XII Miscellaneous Section 12.1. Ratification of Base Indenture: Supplemental Indenture Controls.............................26 Section 12.2. Trustee Not Responsible for Recitals........................................................27 Section 12.3. Governing Law...............................................................................27 Section 12.4. Separability................................................................................27
-ii- Section 12.5. Counterparts................................................................................27 Section 12.6. List of Holders of Securities...............................................................27
-iii- THIS SECOND SUPPLEMENTAL INDENTURE, dated as of __________, _____ (the "Supplemental Indenture"), is between Unocal Corporation, a Delaware corporation (the "Company"), and The Bank of New York, as trustee (the "Trustee"). RECITALS WHEREAS, the Company has executed and delivered the Base Indenture (as defined herein) to the Trustee to provide for the issuance of the Company's Securities from time to time in one or more series as might be determined by the Company under the Base Indenture, in an unlimited aggregate principal amount as may be authenticated and delivered as provided in the Base Indenture; WHEREAS, pursuant to the terms of the Base Indenture, the Company desires to provide for the establishment of a new series of its Securities to be known as its "___% Junior [Convertible] Subordinated Debentures" (the "Debentures"), the form and substance of such Debentures and the terms, provisions and conditions thereof to be set forth as provided in the Base Indenture and this Supplemental Indenture; WHEREAS, Unocal Capital Trust II, a Delaware statutory trust (the "Trust"), intends to issue up to $__________ aggregate liquidation amount of its ___% Trust [Convertible] Preferred Securities (the "Trust Preferred Securities") and up to $____________ aggregate liquidation amount of its ___ % Trust Common Securities (the "Trust Common Securities" and, together with the Trust Preferred Securities, the "Trust Securities"), representing undivided beneficial interests in the assets of the Trust; and WHEREAS, the Trust proposes to issue Trust Securities to the Company in exchange for Debentures in an aggregate principal amount equal to the aggregate liquidation amount of the Trust Securities issued: NOW, THEREFORE, in consideration of the issuance to the Company of Trust Securities by the Trust and the acceptance of the Debentures in exchange therefor by the Trust, and for the purpose of setting forth, as provided in the Base Indenture, the form and substance of the Debentures and the terms, provisions and conditions thereof, the Company covenants and agrees with the Trustee as follows: ARTICLE I Definitions Section 1.1. Definition of Terms. For all purposes of this Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) unless otherwise defined herein, the capitalized terms used herein that are defined in the Base Indenture have the same meanings when used in this Supplemental Indenture; (b) the terms defined in this Article I have the meanings assigned to them in this Article I and include the plural as well as the singular; (c) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (d) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States of America, and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States of America at the date of such computation; (e) a reference to a Section or Article (or subdivision thereof) or the Recitals is to a Section or Article (or subdivision thereof) or the Recitals of this Supplemental Indenture; (f) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Supplemental Indenture as a whole and not to any particular Article, Section or other subdivision; (g) headings are for convenience of reference only and do not affect interpretation; and (h) the terms defined as follows shall have the meanings assigned to them as follows: "Additional Interest" has the meaning specified in Section 2.5(c). ["Applicable Price" means (i) in the event of a Non-Stock Fundamental Change in which the holders of Common Stock receive only cash, the amount of cash received by the holder of one share of Common Stock and (ii) in the event of any other Fundamental Change, the average of the Closing Prices of the Common Stock for the 10 Trading Days immediately prior to the record date for the determination of the holders of Common Stock entitled to receive cash, securities, property or other assets in connection with such Fundamental Change or, if there is no such record date, the date upon which the holders of the Common Stock shall have the right to receive such cash, securities, property or other assets.] "Base Indenture" means that Indenture dated as of September 11, 1996 between the Company and the Trustee, as it may be amended, restated, supplemented and/or modified from time to time. "Business Day" means any day other than a Saturday, Sunday, or any other day on which banking institutions in New York, New York or Los Angeles, California are permitted or required by any applicable law to close. "Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation, that is acting as depositary for the Debentures and in whose name or in the name of a nominee of that organization shall be registered a Global Debenture and which shall undertake to effect book entry transfers and pledges of the Debentures. The initial Clearing Agency shall be the Depository Trust Company. -2- "Closing Price" of any common stock on any day shall mean the last reported sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices regular way of such common stock, in each case on the New York Stock Exchange composite tape or, if the common stock is not listed or admitted to trading on such exchange, on the principal national securities exchange or quotation system on which such common stock is listed or quoted or admitted to trading, or, if not listed or quoted or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such common stock as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose or, if not so available in such manner, as otherwise determined in good faith by the Board of Directors. "Common Security Certificate" means a definitive certificate in fully registered form representing a Trust Common Security substantially in the form of Exhibit A-2 to the Declaration. ["Common Stock" means shares of the common stock, $1.00 par value, of the Company.] ["Common Stock Fundamental Change" means any Fundamental Change in which more than 50% of the value (as determined in good faith by the Board of Directors) of the consideration received by the holders of Common Stock consists of common stock that, for the 10 Trading Days immediately prior to such Fundamental Change, has been admitted for listing or admitted for listing subject to notice of issuance on a national securities exchange or quoted or approved for quotation subject to notice of issuance on the Nasdaq National Market System; provided, however, that a Fundamental Change shall not be a Common Stock Fundamental Change unless either (i) the Company continues to exist after the occurrence of such Fundamental Change and the outstanding Debentures continue to exist as outstanding Debentures, or (ii) not later than the occurrence of such Fundamental Change, the outstanding Debentures are converted into or exchanged for [convertible] debentures of a corporation succeeding to the business of the Company, which [convertible] debentures have terms substantially similar to those of the Debentures as determined in good faith by the Board of Directors.] "Company" has the meaning specified in the first paragraph hereof. "Compounded Interest" has the meaning specified in Section 4.1. ["Conversion Agent" means the Institutional Trustee acting as Conversion Agent for a Holder.] ["Conversion Date" has the meaning specified in Section 7.2(b).] ["Conversion Notice" has the meaning specified in Section 7.2(a).] ["Conversion Price" means $______ as of the date of this Supplemental Indenture, as may be adjusted from time to time as set forth in Article VII.] "Coupon Rate" has the meaning specified in Section 2.5(a). -3- ["Current Market Price" means, on any date in question, the average of the Closing Prices of such common stock for the 10 Trading Day period ending on the earlier of the day in question and, if applicable, the day before the "ex date" with respect to the issuance or distribution requiring such computation; provided, however, that if more than one event occurs that would require an adjustment pursuant to Section 7.3, the Board of Directors may make such adjustments to the Closing Prices during such 10 Trading Day period as it deems appropriate to effectuate the intent of the adjustments in Section 7.3, in which case any such determination by the Board of Directors shall be set forth in a Board Resolution and shall be conclusive.] "Debentures" has the meaning specified in the Recitals. "Declaration" means the Amended and Restated Declaration of Trust of the Trust, dated as of ________________, ________, as it may be amended, restated, supplemented and/or modified from time to time. "Deferred Interest" has the meaning specified in Section 4.1. "Delaware Trustee" means the Delaware Trustee, if any, of the Trust. "Dissolution Event" means that the Trust is to be dissolved in accordance with the Declaration, as a result of the occurrence and continuation of a Special Event or otherwise, and the Debentures held by the Institutional Trustee are to be distributed to the holders of the Trust Securities issued by the Trust pro rata in accordance with the Declaration. "Dissolution Tax Opinion" has the meaning specified in the Declaration. "Distribution" means a distribution to the holders of Trust Securities of the amount of any interest (including Compounded Interest and Additional Interest), premium and/or principal paid on the Debentures. "Distribution Date" has the meaning specified in the Rights Agreement. ["ex date" (1) when used with respect to any issuance or distribution, means the first date on which such common stock trades regular way on the New York Stock Exchange or, if not listed on the New York Stock Exchange, on any securities exchange where such common stock may be listed or in the relevant market from which the Closing Prices were obtained, without the right to receive such issuance or distribution, and (2) when used with respect to any tender or exchange offer means the first date on which such common stock trades regular way on such securities exchange or in such market after the Expiration Time of such offer.] ["Expiration Time" has the meaning specified in Section 7.3(e).] "Extended Interest Payment Period" has the meaning specified in Section 4.1. ["Fundamental Change" means the occurrence of any transaction or event or series of transactions or events pursuant to which all or substantially all of the Common Stock is exchanged for, converted into, acquired for or constitutes solely the right to receive cash, securities, property or other assets (whether by means of an exchange offer, liquidation, tender -4- offer, consolidation, merger, combination, reclassification, recapitalization or otherwise); provided, however, in the case of any such series of transactions or events, for purposes of adjustment of the Conversion Price, a Fundamental Change shall be deemed to have occurred when substantially all of the Common Stock shall have been exchanged for, converted into or acquired for, or constitute solely the right to receive, such cash, securities, property or other assets, but the adjustment shall be based upon the consideration that the holders of Common Stock received in the transaction or event as a result of which more than 50% of the Common Stock outstanding shall have been exchanged for, converted into or acquired for, or shall constitute solely the right to receive, such cash, securities, property or other assets.] "Global Debenture" has the meaning specified in Section 2.4. "Guarantee" means that Preferred Securities Guarantee Agreement dated as of even date hereof between the Company and the Preferred Guarantee Trustee (as defined therein) for the benefit of the holders of Trust Preferred Securities. "Interest Payment Date" has the meaning specified in Section 2.5. "Investment Company Event" has the meaning specified in the Declaration. "Institutional Trustee" means the Institutional Trustee of the Trust. "Junior Securities," as used in the Base Indenture, shall mean (i) shares of any stock of any class of the Company and (ii) securities of the Company which are subordinated in right of payment to all Senior Indebtedness that may be outstanding at the time of issuance or delivery of such securities to substantially the same extent as, or to a greater extent than, the Debentures are so subordinated as provided in Article XI. "List of Holders" has the meaning specified in Section 12.6. "Maturity Date" means the date on which the Debentures mature and on which the principal shall be due and payable together with all accrued and unpaid interest thereon including Compounded Interest and Additional Interest, if any. "Ministerial Action" has the meaning specified in the Declaration. "1996 Debentures" means the Company's 6-1/4% Convertible Junior Subordinated Debentures due 2026. "1996 Preferred Securities" means Unocal Capital Trust's 6 1/4% Trust Convertible Preferred Securities. "90-Day Period" has the meaning specified in Section 3.1. "Non Book-Entry Preferred Securities" has the meaning specified in Section 2.4(a)(ii). ["Non-Stock Fundamental Change" means any Fundamental Change other than a Common Stock Fundamental Change.] -5- "No Recognition Opinion" has the meaning specified in the Declaration. "Optional Redemption Price" has the meaning specified in Section 3.2. "Preferred Security Certificate" means a certificate representing a Trust Preferred Security substantially in the form of Exhibit A-1 to the Declaration. "Principal Amount of One Debenture" means $___ as of the date of this Supplemental Indenture. ["Purchased Shares" has the meaning specified in Section 7.3(e).] ["Purchaser Stock Price" means, with respect to any Common Stock Fundamental Change, the average of the Closing Prices for one share of the common stock received by holders of Common Stock in such Common Stock Fundamental Change for the 10 Trading Days immediately prior to the record date for the determination of the holders of Common Stock entitled to receive such common stock or, if there is no such record date, the date upon which the holders of Common Stock shall have the right to receive such common stock.] "Redemption Tax Opinion" has the meaning specified in the Declaration. ["Reference Date" has the meaning specified in Section 7.3(c).] ["Reference Market Price" initially means $______, and, in the event of any adjustment to the Conversion Price other than as a result of a Fundamental Change, the amount as adjusted so that the ratio of the Reference Market Price to the Conversion Price after giving effect to any such adjustment of the Conversion Price shall always be the same as the ratio of $_____ to the initial Conversion Price of $_____.] "Regular Record Date" has the meaning specified in Section 2.5(a). "Regular Trustee" means the Regular Trustee of the Trust. "Rights" has the meaning specified in Section 7.8. "Rights Agreement" shall mean that certain Rights Agreement dated as or January 5, 2000 by and between the Company and the Rights Agent (as defined therein), as amended as of March 27 and August 2, 2002, as it may be amended, restated, supplemented and/or modified from time to time. "Rights Expiration Date" shall mean the "Final Expiration Date" as defined in the Rights Agreement. ["Rights Record Date" has the meaning specified in Section 7.3(b).] "Rights Redemption Date" shall mean the "Redemption Date" as defined in the Rights Agreement. "Section 13 Event" has the meaning specified in Section 7.8(b). -6- "Series B Stock" has the meaning specified in Section 7.8(b). "Special Event" means a Tax Event or an Investment Company Event. "Special Event Redemption Price" has the meaning specified in Section 3.1. "Supplemental Indenture" has the meaning specified in the first paragraph hereof. "Tax Event" has the meaning specified in the Declaration. "Trading Day" shall mean a day on which any securities are traded on the national securities exchange or quotation system used to determine the Closing Price. "Trust" has the meaning specified in the Recitals. "Trust Common Securities" has the meaning specified in the Recitals. "Trust Preferred Securities" has the meaning specified in the Recitals. "Trustee" has the meaning specified in the Recitals. "Trust Securities" has the meaning specified in the Recitals. ARTICLE II General Terms and Conditions of the Debentures Section 2.1. Designation and Principal Amount. There is hereby authorized a series of Debentures designated the "___% Junior Subordinated Debentures," limited in aggregate principal amount to $__________, which amount shall be as set forth in a Company Order (as defined in the Base Indenture) for the authentication and delivery of Debentures pursuant to Section 2.03 of the Base Indenture. Section 2.2. Maturity. The Maturity Date is __________ 1, 20__. Section 2.3. Form and Payment. Except as provided in Section 2.4, the Debentures shall be issued in fully registered certificated form without Coupons, in denominations of the Principal Amount of One Debenture and integral multiples thereof. Principal and interest on the Debentures issued in certificated form will be payable, the transfer of such Debentures will be registrable, and such Debentures will be exchangeable for Debentures bearing identical terms and provisions, at the office or agency of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the Holder (as defined in the Base Indenture) at such address as shall appear in the Security Register (as defined in the Base Indenture). Notwithstanding the foregoing, so long as the Holder of any Debentures is the Institutional Trustee, the payment of the principal of and interest (including Compounded Interest and Additional Interest, if any) on such Debentures held by the Institutional Trustee will be made at such place and to such account as may be designated by the Institutional Trustee. Section 2.4. Global Debenture. (a) In connection with a Dissolution Event, -7- (i) the Debentures in certificated form may be presented to the Trustee by the Institutional Trustee in exchange for a global Debenture in an aggregate principal amount equal to the aggregate principal amount of all outstanding Debentures (a "Global Debenture"), to be registered in the name of the Clearing Agency, or its nominee, and delivered by the Trustee to the Clearing Agency for crediting to the accounts of its participants pursuant to the instructions of the Regular Trustees. The Company upon any such presentation shall execute a Global Debenture in such aggregate principal amount and deliver the same to the Trustee for authentication and delivery in accordance with the Base Indenture. Payments on the Debentures issued as a Global Debenture will be made to the Clearing Agency; and (ii) any Preferred Security Certificate which represents Trust Preferred Securities other than Trust Preferred Securities held by the Clearing Agency or its nominee ("Non Book-Entry Preferred Securities") will be deemed to represent beneficial interests in Debentures having an aggregate principal amount equal to the aggregate liquidation amount of, with an interest rate identical to the distribution rate of, and accrued and unpaid interest (including Compounded Interest) equal to accumulated and unpaid distribution on the Non Book-Entry Preferred Securities until such Preferred Security Certificates are presented to the Security Registrar (as defined in the Base Indenture) for transfer or reissuance at which time such Preferred Security Certificates will be canceled and a Debenture, registered in the name of the Holder of the Preferred Security Certificate or the transferee of the Holder of such Preferred Security Certificate, as the case may be, with an aggregate principal amount equal to the aggregate liquidation amount of the Preferred Security Certificate canceled, will be executed by the Company and delivered to the Trustee for authentication and delivery in accordance with the Base Indenture. On issue of such Debentures, Debentures with an equivalent aggregate principal amount that were presented by the Institutional Trustee to the Trustee will be deemed to have been canceled. (b) A Global Debenture may be transferred, in whole but not in part, only to another nominee of the Clearing Agency, or to a successor Clearing Agency selected or approved by the Company or to a nominee of such successor Clearing Agency. Section 2.5. Interest. (a) Each Debenture will bear interest at the rate of ____% per annum (the "Coupon Rate") from _____________, _____, or the most recent date on which interest has been paid in full, until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the Coupon Rate, compounded quarterly, payable (subject to the provisions of Article IV) quarterly in arrears on March 1, June 1, September 1 and December 1 of each year (each, an "Interest Payment Date"), commencing on ____________, _____, to the Holder of such Debenture or any Predecessor Debenture (as defined in the Base Indenture), at the close of business on the record date for such Interest Payment Date, which record date (the "Regular Record Date") shall be, (i) in respect of (A) Debentures of which the Institutional Trustee is the only Holder and the related Trust Preferred Securities are in book-entry only form or (B) a Global Debenture, the close of business on the Business Day next preceding that Interest Payment Date; and (ii) in respect of Debentures other than as set forth in -8- (i), such Regular Record Date as the Company may select for such interest installment, which shall be any date at least one Business Day before an Interest Payment Date. (b) The amount of interest payable for any full quarterly period shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed, shall be computed on the basis of 30-day months and, for periods of less than a month, the actual number of days elapsed per 30-day month. In the event that any date on which interest is payable on the Debentures is not a Business Day, then payment of interest payable on such date shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. (c) If, at any time while the Institutional Trustee is the Holder of any Debentures, the Trust or the Institutional Trustee shall be required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any such case, the Company shall pay as additional interest ("Additional Interest") on the Debentures held by the Institutional Trustee such additional amounts as shall be required so that the net amounts received and retained by the Trust and the Institutional Trustee after paying such taxes, duties, assessments or other governmental charges will be equal to the amounts the Trust and the Institutional Trustee would have received had no such taxes, duties, assessments or other government charges been imposed. ARTICLE III Redemption of the Debentures Section 3.1. Special Event Redemption. If a Special Event has occurred and is continuing and: (a) the Company has received a Redemption Tax Opinion; or (b) the Regular Trustees shall have been informed by independent tax counsel experienced in such matters that, for substantive reasons, it cannot deliver a No Recognition Opinion to the Trust, then, notwithstanding Section 3.2 but subject to Section 3.3, the Company shall have the right upon not less than 30 days nor more than 60 days notice to the Holders of the Debentures to redeem the Debentures, in whole or in part, for cash within 90 days following the occurrence of such Special Event (the "90-Day Period") at a redemption price equal to 100% of the principal amount to be redeemed (the "Special Event Redemption Price") plus any accrued and unpaid interest (including Compounded and Additional Interest) thereon to but excluding the date of such redemption, provided that, if at the time there is available to the Company the opportunity to eliminate, which elimination shall be complete within the 90-Day Period, such Special Event by taking some Ministerial Action, the Company shall pursue such Ministerial Action in lieu of redemption, and, provided, further, that the Company shall have no right to redeem the -9- Debentures while the Trust is pursuing any Ministerial Action pursuant to its obligations under the Declaration; provided such Ministerial Action can eliminate such Special Event during the 90-Day Period. The Special Event Redemption Price, plus such accrued and unpaid interest, shall be paid prior to 12:00 noon, New York time, on the date fixed by the Company for such redemption or at such earlier time as the Company determines, provided that the Company shall deposit with the Trustee an amount sufficient to pay the Special Event Redemption Price plus such accrued and unpaid interest thereon by 10:00 a.m., New York time, on the date such Special Event Redemption Price is to be paid. Section 3.2. Optional Redemption by Company. Subject to the provisions of Section 3.3 and to the provisions of Article 3 of the Base Indenture, the Company shall have the right to redeem the Debentures, in whole or in part at any time on or after ____________, ______. Any redemption pursuant to this Section 3.2 will be made upon not less than 30 days nor more than 60 days notice to the Holders of the Debentures, at the following prices (expressed as percentages of the principal amount of the Debentures) (the "Optional Redemption Price") together with accrued and unpaid interest, including Compounded and Additional Interest to, but excluding, the redemption date, if redeemed during the 12-month period beginning on ____________1 (other than the first period, which will begin on ___________, _______) of the following years:
Year Redemption Price ____ ________________ _____ ______% _____ ______% _____ ______% _____ ______% _____ ______%
and 100% if redeemed on or after __________ 1, ______. The Company may not redeem any Debentures unless all accrued and unpaid interest has been paid on all outstanding Debentures for all quarterly interest payment periods terminating on or prior to the last Interest Payment Date before the date of redemption. If Debentures are redeemed on any March 1, June 1, September 1, or December 1, accrued and unpaid interest shall be payable to Holders on the relevant record date. The Company shall issue a press release announcing any redemption pursuant to this Section 3.2. The Optional Redemption Price plus such accrued and unpaid interest thereon shall be paid prior to 12:00 noon, New York time, on the date fixed by the Company for such redemption or at such earlier time as the Company determines, provided that the Company shall deposit with the Trustee an amount sufficient to pay the Optional Redemption Price, plus accrued and unpaid -10- interest thereon, by 10:00 a.m., New York time, on the date such Optional Redemption Price is to be paid. Section 3.3. Redemption of Less Than All Debentures. If the Debentures are only partially redeemed, the Debentures will be redeemed pro rata or by lot or by any other method utilized by the Trustee. The Company may not redeem any Debentures unless all accrued and unpaid interest has been paid on all of the outstanding Debentures for all quarterly interest periods terminating on or prior to the last Interest Payment Date before the date of redemption. Section 3.4. No Sinking Fund. The Debentures are not entitled to the benefit of any sinking fund. ARTICLE IV Extension of Interest Payment Period Section 4.1. Extension of Interest Payment Period. As long as an Event of Default under Section 6.01(a) of the Base Indenture shall not have occurred and be continuing, the Company shall have the right, at any time and from time to time during the term of the Debentures, to defer payments of interest by extending the interest payment period of such Debentures for a period not exceeding 20 consecutive quarters (an "Extended Interest Payment Period"), during which Extended Interest Payment Period no interest shall be due and payable on the Debentures; provided that no Extended Interest Payment Period may extend beyond the Maturity Date. To the extent permitted by applicable law, interest, the payment of which has been deferred during an Extended Interest Payment Period, shall bear interest thereon at the Coupon Rate compounded quarterly for each quarter of the Extended Interest Payment Period ("Compounded Interest"). Before the termination of any such Extended Interest Payment Period, the Company may further extend such Extended Interest Payment Period, provided that such Extended Interest Payment Period together with all such previous and further extensions thereof shall not exceed 20 consecutive quarters, or extend beyond the Maturity Date. At the end of the Extended Interest Payment Period, the Company shall pay all interest accrued and unpaid on the Debentures, including any Additional Interest and Compounded Interest (together, "Deferred Interest") that shall be payable to the Holders of Debentures in whose names the Debentures are registered in the Security Register on the first record date after the termination of the Extended Interest Payment Period. Upon the termination of any Extended Interest Payment Period and upon the payment of all Deferred Interest then due, the Company may commence a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof, but the Company may pay at any time all or any portion of the interest accrued during an Extended Interest Payment Period. Section 4.2. Notice of Extension. (a) If the Institutional Trustee shall be the only Holder of the Debentures at the time the Company elects an Extended Interest Payment Period, the Company shall give written notice to the Regular Trustees, the Institutional Trustee and the Trustee of its election of such Extended Interest Payment Period one Business Day before the earlier of (i) the date on which Distributions on the Trust Securities are payable for the first quarter of such Extended Interest -11- Payment Period, or (ii) the date the Regular Trustees are required to give notice of the record date or the date such Distributions are payable for the first quarter of such Extended Interest Payment Period to any national stock exchange or other organization on which the Trust Preferred Securities are listed or quoted or to holders of Trust Preferred Securities, but in any event at least one Business Day before such record date or such payment date. (b) If the Institutional Trustee shall not be the only Holder of the Debentures at the time the Company elects an Extended Interest Payment Period, the Company shall give the Holders of Debentures written notice of its election of such Extended Interest Payment Period at least 10 Business Days before the earlier of (i) the Interest Payment Date for the first quarter of such Extended Interest Payment Period, or (ii) the date the Company is required to give notice of the record date or the date of such interest payment for the first quarter of such Extended Interest Payment Period to any national stock exchange or other organization on which the Debentures are listed or quoted or to Holders of Debentures. (c) The quarter in which any notice is given pursuant to subsections (a) or (b) of this Section 4.2 shall be, and shall be counted as, one of the 20 quarters permitted in the maximum Extended Interest Payment Period permitted under Section 4.1. Section 4.3. Limitation of Transactions. If the Company shall exercise its right to defer payment of interest as provided in Section 4.1, then during such Extended Interest Payment Period (a) the Company shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of its capital stock (other than (i) purchases or acquisitions of shares of capital stock in connection with any employee benefit plan or program, director plan or program, dividend reinvestment, stock repurchase, or other similar plans available to stockholders of the Company, or any option, warrant, right, or exercisable, exchangeable, or convertible security outstanding as of __________ __, _____, (ii) as a result of a reclassification of the Company's capital stock pursuant to the exchange or conversion provisions of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of its capital stock or the capital securities of a subsidiary (including a trust such as the Trust), (iii) any declaration of a dividend in connection with the implementation of a shareholder's rights plan, or the issuance of shares under any such plan, or the redemption or repurchase of any rights issued thereunder, or (iv) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged), and (b) the Company shall not make any payment of interest, principal or premium, if any, on, or repay, repurchase or redeem, or make any guarantee payment (other than pursuant to the Guarantee, if otherwise permitted under the Company's preferred securities guarantee of the 1996 Preferred Securities , or pursuant to such guarantee of the 1996 Preferred Securities) with respect to, any debt securities issued by the Company that rank pari passu with or junior in right of payment to the Debentures (other than the 1996 Debentures). -12- ARTICLE V Expenses Section 5.1. Payment of Expenses. In connection with the issuance of the Debentures to the Institutional Trustee in exchange for the Trust Securities and in connection with the issuance of the Trust Securities by the Trust to the Company, the Company, in its capacity as borrower with respect to the Debentures, shall: (a) pay all costs and expenses relating to the offering, sale and issuance of the Debentures and the Trust Securities, including fees payable pursuant to any underwriting agreements by and among the Company, the Trust and the underwriters named therein, and compensation of the Trustee under the Base Indenture in accordance with the provisions of Section 7.06 of the Base Indenture; (b) pay all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization, maintenance and dissolution of the Trust, the fees and expenses of the Institutional Trustee and the Delaware Trustee, the costs and expenses relating to the operation of the Trust, including, without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing, and disposition of Trust assets); (c) pay all costs and expenses related to the enforcement by the Institutional Trustee of its rights as a Holder of Debentures; (d) be primarily liable for any indemnification obligations arising with respect to the Declaration; and (e) pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust. Section 5.2. Payment Upon Resignation or Removal. Upon termination of this Supplemental Indenture or the Base Indenture or the removal or resignation of the Trustee pursuant to Section 7.9 of the Base Indenture, the Company shall pay to the Trustee all amounts accrued to the date of such termination, removal or resignation. ARTICLE VI Covenants Section 6.1. Covenants as to the Trust. If the Institutional Trustee is the Holder of the Debentures, the Company shall (a) maintain 100% direct or indirect ownership of the Trust Common Securities; provided, however, that any permitted successor of the Company under the Base Indenture may succeed to the Company's ownership of the Common Securities, (b) use its reasonable efforts to cause the Trust (i) to remain a statutory trust, except in connection with a distribution of Debentures to the holders of Trust Securities, the redemption of all of the Trust -13- Securities, or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, and (ii) to continue to be classified as a grantor trust for United States federal income tax purposes, and (c) use its reasonable efforts to cause each holder of Trust Securities to be treated as owning an undivided beneficial interest in the Debentures. Section 6.2. Listing or Quotation of Debentures. If the Debentures are to be distributed to the holders of Trust Securities upon a Dissolution Event, the Company shall use its reasonable efforts to arrange to list, or seek approval for quotation of, such Debentures on any stock exchange or other organization on which the Trust Preferred Securities are then listed or quoted, if any. [ARTICLE VII Conversion of Debentures Section 7.1. Conversion Rights. Subject to and upon compliance with the provisions of this Article VII, the Debentures are convertible, at the option of the Holder thereof, at any time beginning _________ ___, _____ and prior to the close of business (New York time) on __________ 1, 20__, (or, in the case of Debentures called for redemption, prior to the close of business (New York time) on the Business Day prior to the corresponding redemption date) into that number of fully paid and nonassessable shares of Common Stock obtained by dividing the principal amount of the Debentures to be converted by the Conversion Price. For example, the initial Conversion Price is $________ and thus each Debenture is initially convertible into ______________ shares of Common Stock (calculated by dividing the Principal Amount of One Debenture as of the date of this Supplemental Indenture by the initial Conversion Price). The Conversion Price is subject to adjustment as described in this Article VII. All calculations under this Article VII shall be made to the nearest cent or to the nearest 1/l00th of a share, as the case may be. Section 7.2. Conversion Procedures. (a) In order to convert all or a portion of the Debentures, the Holder thereof shall (i) sign and deliver to the Conversion Agent an irrevocable notice of election to convert ("Conversion Notice") setting forth the principal amount of Debentures to be converted (which shall equal the Principal Amount of One Debenture or integral multiples thereof), together with the name or names, if other than the Holder, in which the shares of Common Stock should be issued upon conversion, (ii) if such Debentures are definitive Debentures, surrender to the Conversion Agent the Debentures to be converted, with such endorsements or transfer documents as requested by the Conversion Agent, and (iii) pay any transfer or similar tax, if required. In addition, a holder of Trust Securities may exercise its right under the Declaration to convert such Trust Securities into Common Stock by delivering to the Conversion Agent an irrevocable conversion request setting forth the information called for by the preceding sentence and directing the Conversion Agent (i) to exchange such Trust Securities for a portion of the Debentures held by the Trust (at an exchange rate of $1 of principal amount of Debentures for each $1 liquidation amount of Trust Securities) and (ii) to immediately convert such Debentures, on behalf of such holder, into Common Stock pursuant to this Article VII and, if such Trust Securities are in definitive form, surrendering such Preferred Security Certificates or Common Security Certificates, as the case may be, duly endorsed or assigned to the Trust or in blank. So long as any Trust Preferred Securities are outstanding, the -14- Trust shall not convert any Debentures except pursuant to a conversion request delivered to the Conversion Agent by a holder of Trust Securities. Accrued but unpaid interest will not be paid in cash on Debentures that are converted, nor will such accrued interest be converted into additional shares of Common Stock upon conversion of the Debentures, but such accrued interest shall be deemed to be paid in full and then returned by the Holder to the Company as partial consideration for Common Stock received on conversion, and the Company shall not make nor be required to make any other payment, adjustment or allowance with respect to accrued but unpaid interest on the Debentures being converted, which shall be deemed to be paid in full. If any Debentures are converted into shares of Common Stock during the period from (but excluding) a record date to (and including) the next succeeding interest payment date, then either (i) if such Debentures have been called for redemption on a redemption date that occurs during such period, or are to be redeemed in connection with a Special Event which occurs during such period, the Company shall not be required to pay interest on such Interest Payment Date in respect of such Debentures or (ii) if otherwise converted during such period, such Debentures shall be accompanied by funds equal to the interest payable on such succeeding Interest Payment Date on the principal amount so converted. (b) Each conversion shall be deemed to have been effected immediately prior to the close of business on the day on which the Conversion Notice was received (the "Conversion Date") by the Conversion Agent from the Holder or from a holder of the Trust Securities effecting a conversion thereof pursuant to its conversion rights under the Declaration, as the case may be. The Person or Persons entitled to receive Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock as of the Conversion Date. As promptly as practicable on or after the Conversion Date, the Company shall issue and deliver at the office of the Conversion Agent, unless otherwise directed by the Holder in the Conversion Notice, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same. The Conversion Agent shall deliver such certificate or certificates to such Person or Persons. (c) The Company's delivery upon conversion of the fixed number of shares of Common Stock into which the Debentures are convertible (together with the cash payment, if any, in lieu of fractional shares) shall be deemed to satisfy the Company's obligation to pay the principal amount at the Maturity Date of the portion of Debentures so converted and any unpaid interest (including Compounded Interest) accrued on such Debentures at the time of such conversion. (d) No fractional shares of Common Stock will be issued as a result of conversion, but in lieu thereof, the Company shall pay in cash an amount equal to the same fraction of the Closing Price of such fractional interest on the Conversion Date, or, if such day is not a Trading Day, on the next Trading Day. The Company shall pay such cash amount, if any, to the Conversion Agent and the Conversion Agent in turn will pay such cash amount, if any, to the Holder of the Debentures or the holder of the Trust Securities so converted, as appropriate. -15- (e) In the event of the conversion of any Debenture in part only, a new Debenture or Debentures for the unconverted portion thereof will be issued in the name of the Holder thereof upon the cancellation thereof in accordance with Section 2.08 of the Base Indenture. (f) In effecting the conversion transactions described in this Section 7.2, the Conversion Agent is acting as agent of the holders of Trust Securities (in the exchange of Trust Securities for Debentures) and as agent of the Holders of Debentures (in the conversion of Debentures into Common Stock), as the case may be. The Conversion Agent is hereby authorized (i) to exchange Debentures held by the Trust from time to time for Trust Securities in connection with the conversion of such Trust Securities in accordance with this Article VII and (ii) to convert all or a portion of the Debentures into Common Stock and thereupon to deliver such shares of Common Stock in accordance with the provisions of this Article VII and to deliver to the Trust a new Debenture or Debentures for any resulting unconverted principal amount. Section 7.3. Certain Conversion Price Adjustments. The Conversion Price shall be adjusted from time to time as follows: (a) In case the Company shall, while any of the Debentures are outstanding, (i) pay a dividend or make a distribution with respect to Common Stock in shares of Common Stock, (ii) subdivide outstanding shares of Common Stock, (iii) combine outstanding shares of Common Stock into a smaller number of shares or (iv) issue by reclassification of shares of Common Stock any shares of capital stock of the Company, the conversion privilege and the Conversion Price for the Debentures shall be adjusted so that the Holder of any Debenture thereafter surrendered for conversion shall be entitled to receive the number of shares of capital stock of the Company which such Holder would have owned immediately following such action had such Debenture been converted immediately prior thereto. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record date in the case of a dividend or other distribution and shall become effective immediately after the effective date in case of a subdivision, combination or reclassification (or immediately after the record date if a record date shall have been established for such event). If, as a result of an adjustment made pursuant to this subsection (a), the Holder of any Debenture thereafter surrendered for conversion shall become entitled to receive shares of two or more classes or series of capital stock of the Company, the Board of Directors (as defined in the Base Indenture) (whose determination shall be conclusive and shall be described in a Board Resolution filed with the Trustee) shall determine in good faith the allocation of the adjusted Conversion Price for the Debentures between or among shares of such classes or series of capital stock. (b) In case the Company shall, while any of the Debentures are outstanding, issue rights or warrants to all holders of Common Stock entitling them (for a period expiring within 45 days after the record date for the determination of stockholders entitled to receive such rights or warrants (the "Rights Record Date")) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price per share of Common Stock on the Rights Record Date, the Conversion Price for the Debentures shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of issuance of such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or -16- warrants plus the number of shares which the aggregate offering price of the total number of shares so offered for subscription or purchase would purchase at such current market price, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall become effective immediately after the Rights Record Date. To the extent that shares of Common Stock are not so delivered after the expiration of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect if such date fixed for the determination of stockholders entitled to receive such rights or warrants had not been fixed. For the purposes of this subsection, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company shall not issue any rights or warrants in respect of shares of Common Stock held in the treasury of the Company. In case any rights or warrants referred to in this subsection in respect of which an adjustment shall have been made shall expire unexercised within 45 days after the same shall have been distributed or issued by the Company, the Conversion Price shall be readjusted at the time of such expiration to the Conversion Price that would have been in effect if no adjustment had been made on account of the distribution or issuance of such expired rights or warrants. (c) Subject to the last sentence of this subsection (c), in case the Company shall, by dividend or otherwise, distribute to all holders of Common Stock evidences of its indebtedness, shares of any class or series of capital stock (other than Common Stock), cash or assets or rights or warrants to subscribe for or purchase any of its securities (excluding any rights or warrants referred to in subsection (b), any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in subsection (a) of this Section 7.3), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subsection (c) by a fraction of which the numerator shall be the Current Market Price per share of the Common Stock on the date fixed for the payment of such distribution (the "Reference Date") less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors), on the Reference Date, of the portion of the evidences of indebtedness, shares of capital stock, cash and assets so distributed or of such subscription rights or warrants applicable to one share of Common Stock and the denominator shall be such Current Market Price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the Reference Date; provided, however, that in the event the numerator shall be less than one, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder of Debentures shall have the right to receive upon conversion the amount of such distribution such Holder would have received had such Holder converted each Debenture immediately prior to the Reference Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not occurred. If the Board of Directors determines the fair market value of any distribution for purposes of this subsection (c) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price per share of Common Stock. For purposes of this subsection (c), any dividend or distribution that includes shares of Common Stock or rights or warrants to subscribe for or purchase shares of Common Stock shall be -17- deemed instead to be (i) a dividend or distribution of the evidences of indebtedness, shares of capital stock, cash or assets other than such shares of Common Stock or such rights or warrants (making any Conversion Price reduction required by this subsection (c) immediately followed by (ii) a dividend or distribution of such shares of Common Stock or such rights or warrants (making any further Conversion Price reduction required by subsection (a) or (b)), except (A) the Reference Date of such dividend or distribution as defined in this subsection (c) shall be substituted as (1) "the record date in the case of a dividend or other distribution," and (2) "the record date for the determination of stockholders entitled to receive such rights or warrants" and (3) "the date fixed for such determination" within the meaning of subsections (a) and (b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed outstanding for purposes of computing any adjustment of the Conversion Price in subsection (a). (d) In case the Company shall pay or make a dividend or other distribution on the Common Stock exclusively in cash (excluding any quarterly cash dividend on Common Stock to the extent that the aggregate cash dividend per share of Common Stock in any quarter does not exceed the greater of (i) the amount per share of Common Stock of the next preceding quarterly dividend on Common Stock to the extent such preceding quarterly dividend did not require an adjustment of the Conversion Price pursuant to this subsection (d) (as adjusted to reflect subdivisions or combinations of Common Stock), and (ii) ____ % of the Current Market Price per share, and excluding any dividend or distribution in connection with the liquidation, dissolution or winding-up of the Company), the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subsection (d) by a fraction of which the numerator shall be the Current Market Price per share of Common Stock on the date fixed for the payment of such distribution less the amount of cash so distributed (and not excluded as provided above) applicable to one share of Common Stock and the denominator shall be such Current Market Price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the date fixed for the payment of such distribution; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price per share of Common Stock on the record date mentioned above, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder of Debentures shall have the right to receive upon conversion the amount of cash such Holder would have received had such Holder converted each Debenture immediately prior to the record date for the distribution of the cash. If an adjustment is required to be made pursuant to this subsection (d) as a result of a distribution that is a quarterly dividend, such adjustment shall be based upon the amount by which such distribution exceeds the amount of the quarterly cash dividend permitted to be excluded as provided above. If an adjustment is required to be made pursuant to this subsection (d) as a result of a distribution that is not a quarterly dividend, such adjustment shall be based upon the full amount of the distribution. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such record date had not been fixed. (e) In case a tender or exchange offer (other than an odd-lot offer) made by the Company or any Subsidiary of the Company for all or any portion of the Common Stock shall expire and such tender or exchange offer shall involve the payment by the Company or such Subsidiary of consideration per share of Common Stock having a fair market value (as -18- determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds the Closing Price of the Common Stock on the Trading Day next succeeding the Expiration Time, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subsection (e) by a fraction (which shall not be greater than one) of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the Closing Price of Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (i) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (ii) the product of the number of shares of the Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Closing Price of Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become retroactively effective immediately prior to the opening of business on the day following the Expiration Time. (f) In case a tender or exchange offer made by a Person other than the Company or any Subsidiary of the Company for all or any portion of the Common Stock shall expire and such tender or exchange offer shall involve the payment by a Person other than the Company or any Subsidiary of the Company of consideration per share of Common Stock having a fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) at the applicable Expiration Time that exceeds the Closing Price of the Common Stock on the Trading Day next succeeding the applicable Expiration Time in which as of the closing date of the offer the Board of Directors of the Company is not recommending rejection of the offer, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subsection (f) by a fraction (which shall not be greater than one) of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the Closing Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (i) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the Purchased Shares and (ii) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the Closing Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become retroactively effective immediately prior to the opening of business on the day following the Expiration Time; provided, however, that the reduction of the Conversion Price contemplated by this subsection (f) will only be made if the tender offer or exchange offer is made for an amount that increases that Person's ownership of Common Stock to more than 25% of the total shares of Common Stock outstanding and provided, further, that the reduction of the Conversion Price contemplated by this subsection (f) will not be made if as of the close of the offer, the offering documents with respect to such offer disclose a plan or an intention to cause -19- the Company to engage in a consolidation or merger of the Company or a sale of all or substantially all of the assets of the Company. (g) The Company may make such reductions in the Conversion Price, in addition to those required by subsections (a) through (f), as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. The Company, at its option, may from time to time reduce the Conversion Price by any amount for any period of time if the period is at least 20 days, the reduction is irrevocable during the period, and the Board of Directors shall have made a determination in good faith that such reduction would be in the best interest of the Company, which determination shall be conclusive. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to Holders of record of the Debentures a notice of the reduction at least 15 days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period it will be in effect. (h) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1 % in the Conversion Price; provided, however, that any adjustments which by reason of this subsection (h) are not required to be made shall be carried forward and taken into account in determining whether any subsequent adjustment shall be required. (i) If any action would require adjustment of the Conversion Price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value to the Holder of Debentures. Section 7.4. Merger, Consolidation, or Sale of Assets. (a) In the event that the Company shall be a party to (i) any recapitalization or reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of the Common Stock), (ii) any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger that does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock), (iii) any sale or transfer of all or substantially all of the assets of the Company, (iv) any compulsory share exchange, or (v) any other transaction, in any such case pursuant to which shares of Common Stock shall be converted into the right to receive other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby the Holder of each Debenture then outstanding shall have the right thereafter to convert such Debenture only into: (A) in the case of any such transaction that does not constitute a Common Stock Fundamental Change and subject to funds being legally available for such purpose under applicable law at the time of such conversion, the kind and amount of the securities, cash and/or other property that would have been receivable upon such recapitalization, reclassification, consolidation, merger, sale, transfer, or share exchange by a holder of the number of shares of Common Stock issuable upon conversion of such -20- Debenture immediately prior to such recapitalization, reclassification, consolidation, merger, sale, transfer or share exchange, after giving effect, in the case of any such transaction that is a Non-Stock Fundamental Change, to any adjustment in the Conversion Price in accordance with clause (i) of subsection (c) of this Section 7.4; and (B) in the case of any such transaction that constitutes a Common Stock Fundamental Change, common stock of the kind received by holders of Common Stock as a result of such Common Stock Fundamental Change in an amount of shares of common stock of such kind equal to the Principal Amount of One Debenture divided by the Conversion Price as adjusted in accordance with clause (ii) of subsection (c) of this Section 7.4. (b) The company or the Person (i) formed by such consolidation, (ii) resulting from such merger, (iii) that acquired such assets or the shares of the Common Stock or (iv) that is the issuer of the securities into which the Common Stock was converted into the right to receive, as the case may be, shall make provision in its certificate or articles of incorporation or other constituent document to establish the rights set forth in this Section 7.4. Such certificate or articles of incorporation or other constituent document shall provide for adjustments that, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent document (or the amendment thereto), shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article VII. The above provisions shall similarly apply to successive transactions of the foregoing type. (c) Notwithstanding any other provision of this Section 7.4 to the contrary, if any Fundamental Change occurs, then the Conversion Price in effect will be adjusted immediately after such Fundamental Change as follows: (i) in the case of a Non-Stock Fundamental Change, the Conversion Price immediately following such Non-Stock Fundamental Change shall be the lower of (A) the Conversion Price in effect immediately prior to such Non-Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to Section 7.3, and (B) the product of (1) the greater of the Applicable Price or the then applicable Reference Market Price and (2) a fraction, the numerator of which shall be the Principal Amount of One Debenture and the denominator of which shall be (x) the amount of the Optional Redemption Price set forth in Section 3.2 for the Debentures if the redemption date were the date of such Non-Stock Fundamental Change (or, for the period from the date of this Supplemental Indenture through _________, ____, the twelve-month periods commencing on ___________ 1, _____ and __________ 1, _____ and the period from __________ 1, ____ to __________ 1, ______, the product of ______, _______, _____ and _______, respectively, multiplied by the Principal Amount of One Debenture) plus (y) any then-accrued and unpaid interest on the Principal Amount of One Debenture to but excluding the date of such Non-Stock Fundamental Change; and (ii) in the case of a Common Stock Fundamental Change, the Conversion Price immediately following such Common Stock Fundamental Change shall be the Conversion Price in effect immediately prior to such Common Stock Fundamental Change, but after giving effect to any other prior adjustments effected pursuant to Section -21- 7.3, multiplied by a fraction, the numerator of which is the Purchaser Stock Price and the denominator of which is the Applicable Price; provided, however, that in the event of a Common Stock Fundamental Change in which (A) 100% of the value of the consideration received by a holder of Common Stock is common stock of the successor, acquiror or other third party (and cash, if any, paid with respect to any fractional interests in such common stock resulting from such Common Stock Fundamental Change) and (B) all of the Common Stock shall have been exchanged for, converted into or acquired for, common stock of the successor, acquiror or other third party (and cash, if any, paid with respect to any fractional interests in such common stock resulting from such Common Stock Fundamental Change), the Conversion Price immediately following such Common Stock Fundamental Change shall be the Conversion Price in effect immediately prior to such Common Stock Fundamental Change divided by the number of shares of common stock of the successor, acquiror or other third party received by a holder of one share of Common Stock as a result of such Common Stock Fundamental Change. Section 7.5. Notice of Adjustments of Conversion Price. Whenever the Conversion Price is adjusted as provided in this Article VII: (a) the Company shall compute the adjusted Conversion Price and shall prepare a certificate signed by the Chief Financial Officer or the Treasurer of the Company setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with the Trustee and the transfer agent for the Trust Preferred Securities and the Debentures; and (b) a notice stating the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall as soon as practicable be mailed by the Company to all record holders of Trust Preferred Securities and Holders of the Debentures at their last addresses as they appear upon the securities transfer books of the Company and the Trust. Section 7.6. Prior Notice of Certain Events. In case: (a) the Company shall (i) declare any dividend (or any other distribution) on its Common Stock, other than (A) a dividend payable in shares of Common Stock or (B) a dividend payable in cash that would not require an adjustment pursuant to Section 7.3(c) or (d) or (ii) authorize a tender or exchange offer that would require an adjustment pursuant to Section 7.3(e); (b) the Company shall authorize the granting to all holders of Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or series or of any other rights or warrants; (c) of any reclassification of Common Stock (other than a subdivision or combination of the outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company shall be required, or of the sale or transfer of all or substantially all of the assets of the Company or of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property; or -22- (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall (i) if any Trust Preferred Securities are outstanding, cause to be filed with the transfer agent for the Trust Preferred Securities, and shall cause to be mailed to the holders of record of the Trust Preferred Securities, at their last addresses as they shall appear upon the securities transfer books of the Trust or (ii) shall cause to be mailed to all Holders at their last addresses as they shall appear in the Security Register, at least 15 days prior to the applicable record or effective date hereinafter specified, a notice stating (A) the date on which a record (if any) is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined or (B) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up (but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice). Section 7.7. Certain Plans, Rights or Securities. Notwithstanding the foregoing provisions, no adjustment of the Conversion Price shall be made upon (a) the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under any such plan, (b) the issuance of any shares of Common Stock, or options or rights to purchase shares of Common Stock pursuant to any present or future employee benefit plan or program, or present or future director plan or program of the Company or (c) the issuance of any shares of Common Stock pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of __________, _____. There shall also be no adjustment of the Conversion Price in case of the issuance of any stock (or securities convertible into or exchangeable for stock) of the Company except as specifically described in this Article VII. Section 7.8. Preferred Stock Purchase Rights. (a) So long as Rights of a kind similar to those declared and distributed by the Board of Directors in January 2000 pursuant to the Rights Agreement, as the same may hereafter be amended or reissued ("Rights"), are attached to the outstanding shares of Common Stock, each share of Common Stock issued upon conversion of the Debentures prior to the earliest of any Distribution Date, the date of redemption of the Rights or the date of expiration of the Rights shall be issued with Rights per such share of Common Stock in a number equal to the number of Rights then attached to each outstanding share of Common Stock. (b) For the purposes of Section 7.3(b), upon the earlier to occur of (i) the eleventh Business Day (as such term is defined in the Rights Agreement) following a Shares Acquisition Date and (ii) an event described in Section 13 of the Rights Agreement (a "Section 13 Event"), then an issuance of rights to purchase shares of Common Stock during a period not exceeding 45 days from the date of such dividend or other distribution shall be deemed to have occurred, -23- unless a Rights Redemption Date or a Rights Expiration Date has occurred prior to such eleventh Business Day (as defined in the Rights Agreement) or such Section 13 Event, as the case may be. For purposes of the reduction of the conversion price provided for in Section 7.3(b) upon such deemed issuance of rights, each share of Series B Junior Participating Preferred Stock of the Company (the "Series B Stock") shall be deemed to constitute 100 shares of Common Stock (subject to adjustment as provided in the Rights Plan), and the date fixed for determination of stockholders entitled to receive such rights shall be the close of business on the tenth such Business Day following such Shares Acquisition Date or the date of such Section 13 Event, as the case may be; provided, however, that the current market price per share of the Common Stock shall be determined based on the 10 consecutive Trading Days prior to and including the Distribution Date. (c) For purposes of Section 7.3(b), the redemption by the Company of Rights shall be deemed to be an expiration of such rights. (d) In lieu of any adjustment to the Conversion Price as required by subsections (b) and (e) of this Section 7.8, the Company may amend the Rights Agreement to provide that upon conversion of Debentures the Holder will receive, in addition to the common stock issuable upon conversion, the Rights that were attached to such shares of Common Stock prior to the Distribution Date. (e) If any Debenture has been converted on or after the Distribution Date and on or before the tenth Business Day (as defined in the Rights Agreement) following such Shares Acquisition Date or the date of such Section 13 Event, as the case may be, then as soon as practicable following the date on which the adjustment required by subsection (b) of this Section 7.8 is made, the Company shall issue to the holder of the Debenture so converted a number of additional shares of Common Stock (and cash in lieu of any fractional share) that would have been issuable upon such conversion had such adjustment been made immediately prior to such conversion. Section 7.9. Special Provisions Regarding Adjustment of Conversion Price or Other Provisions. In the event that the provisions of this Article VII specifying the methods by which the Conversion Price or other provisions are adjusted would require an adjustment that is determined in good faith by the Board of Directors to be inconsistent with the purposes of the provisions hereof providing for Conversion Price or other adjustments (generally, to place the holders of the Debenture and the Trust Securities in a position equivalent to the position they were in prior to the event requiring an adjustment to the Conversion Price or other provisions), the Board of Directors may make an adjustment (in lieu of that required pursuant to such provisions) that it determines in good faith to place the Holders of the Debentures in a position at least equivalent to the position they were in prior to such event, which determination shall be described in a Board Resolution. Section 7.10. Certain Additional Rights. In case the Company shall, by dividend or otherwise, declare or make a distribution on the Common Stock referred to in Section 7.3(c) or 7.3(d) (including, without limitation, dividends or distributions referred to in the last sentence of Section 7.3(d)) the Holder of Debentures, upon the conversion thereof subsequent to the close of business on the date fixed for the determination of stockholders entitled to receive such -24- distribution and prior to the effectiveness of the Conversion Price adjustment in respect of such distribution, shall also be entitled to receive for each share of Common Stock into which Debentures are converted, the portion of the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock; provided, however, that, at the election of the Company (whose election shall be evidenced by a resolution of the Board of Directors) with respect to all Holders so converting, the Company may, in lieu of distributing to such Holder any portion of such distribution not consisting of cash or securities of the Company, pay such Holder an amount in cash equal to the fair market value thereof (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors). If any conversion of Debentures described in the immediately preceding sentence occurs prior to the payment date for a distribution to holders of Common Stock which the Holder of Debentures so converted is entitled to receive in accordance with the immediately preceding sentence, the Company may elect (such election to be evidenced by a resolution of the Board of Directors) to distribute to such Holder a due bill for the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets to which such Holder is so entitled, provided, that such due bill (a) meets any applicable requirements of the principal securities exchange or other market on which the Common Stock is then traded and (b) requires payment or delivery of such shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets no later than the date of payment or delivery thereof to holders of shares of Common Stock receiving such distribution. Section 7.11. Trustee Not Responsible for Determining Conversion Price or Adjustments. Neither the Trustee nor any Conversion Agent shall at any time be under any duty or responsibility to any Holder of any Debenture to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or whether this supplemental indenture need be entered into. Neither the Trustee nor any Conversion Agent shall be accountable with respect to the validity or value (or the kind of account) of any shares of Common Stock or of any securities or property, which may at any time be issued or delivered upon the conversion of any Debenture; and neither the Trustee nor any Conversion Agent makes any representation with respect thereto. Neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property upon the surrender of any Debenture for the purpose of conversion.] ARTICLE VIII Events of Default Section 8.1. Events of Default. (a) In addition to those events set forth in Section 6.01 of the Base Indenture, "Event of Default" with respect to the Debentures, shall include the following events: (i) in the event the Institutional Trustee is the Holder of the Debentures, the Trust shall have voluntarily or involuntarily dissolved, wound-up its business or otherwise terminated its existence except in connection with (i) the distribution of Debentures to holders of Trust Securities in liquidation of their interest in the Trust, (ii) -25- the redemption of all of the outstanding Trust Securities, or (iii) certain mergers, consolidations or amalgamations, each as permitted by the Declaration[; and (ii) the failure by the Company to deliver the Common Stock upon a valid conversion election by a Holder of Debentures to convert such Debentures into shares of Common Stock (whether or not such conversion is prohibited by the subordination provisions set forth in the Base Indenture)]. (b) Notwithstanding any other provision to the contrary, a valid extension of the interest payment period of the Debentures pursuant to Section 4.1 shall not constitute a default in the payment of an installment of interest under Section 6.01(a) of the Base Indenture. ARTICLE IX Supplemental Indentures Section 9.1. Supplemental Indentures with Consent of Holders. In addition to the provisions of Section 10.02 of the Base Indenture, the following shall apply: no supplemental indenture shall make any change in the subordination provisions of the Indenture that adversely affects the rights of any Holders of any Securities of any series in any material respect, without the consent of the Holder of each Debenture so affected. ARTICLE X Form of Debenture Section 10.1. Form of Debenture. The Debentures and the Trustee's Certificate of Authentication to be endorsed thereon shall be substantially in the form set forth as Annex I to this Supplemental Indenture. ARTICLE XI Original Issue of Debentures Section 11.1. Original Issue of Debentures. Debentures in the aggregate principal amount of up to $__________ may, upon or following execution of this Supplemental Indenture, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and make available for delivery said Debentures to or upon the written order of the Company, signed by its Chairman, its Vice Chairman, its Chief Executive Officer, its Chief Financial Officer, its President or any Vice President and its Treasurer or an Assistant Treasurer, without any further action by the Company. ARTICLE XII Miscellaneous Section 12.1. Ratification of Base Indenture: Supplemental Indenture Controls. The Base Indenture, as supplemented by this Supplemental Indenture, is in all respects ratified and confirmed, and this Supplemental Indenture shall be deemed part of the Base Indenture in the manner and to the extent herein and therein provided. The provisions of this Supplemental -26- Indenture shall supersede the provisions of the Base Indenture to the extent the Base Indenture is inconsistent herewith. Section 12.2. Trustee Not Responsible for Recitals. The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture. Section 12.3. Governing Law. This Supplemental Indenture and each Debenture shall be deemed to be a contract made under the internal laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State. Section 12.4. Separability. In case any one or more of the provisions contained in this Supplemental Indenture or in the Debentures shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Supplemental Indenture or of the Debentures, but this Supplemental Indenture and the Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. Section 12.5. Counterparts. This Supplemental Indenture may be executed in any number of counterparts each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. Section 12.6. List of Holders of Securities. (a) The Company shall provide the Trustee (i), except while the Trust Preferred Securities remain in book entry form, at least one Business Day prior to an Interest Payment Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders of Debentures ("List of Holders") as of such record date, provided that the Company shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Institutional Trustee by the Company and (ii) at any other time, within 30 days of receipt by the Company of a written request for a list of Holders as of a date no more than 14 days before such List of Holders is given to the Trustee. The Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in Lists of Holders given to it or which it receives in the capacity as Paying Agent (if acting in such capacity) provided that the Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Trustee shall comply with its obligations under Sections 311(b), 311(b) and 312(b) of the Trust Indenture Act. -27- IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the day and year first above written. UNOCAL CORPORATION By__________________________________ Name: Title: THE BANK OF NEW YORK, as Trustee By__________________________________ Name: Title: -28- ANNEX I FORM OF DEBENTURE [FORM OF FACE OF DEBENTURE] [IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, INSERT THE FOLLOWING: This Debenture is a Global Debenture within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee of a Depositary. This Debenture is exchangeable for Debentures registered in the name of a Person other than the Depositary or its nominee only in the limited circumstances described in the Indenture, and] no transfer of this Debenture (other than a transfer of this Debenture as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary) may be registered except in such limited circumstances.] [IF THE CLEARING AGENCY IS THE DEPOSITORY TRUST COMPANY, INSERT THE FOLLOWING OR SUCH OTHER STATEMENT AS THE DEPOSITORY TRUST COMPANY SHALL SPECIFY: Unless this Debenture is presented by an authorized representative of The Depository Trust Company, a New York corporation (55 Water Street, New York, New York), to the issuer or its agent for registration of transfer, exchange or payment, and any Debenture issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of The Depository Trust Company), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.] No. _____________ CUSIP No. _____________ UNOCAL CORPORATION| ____% JUNIOR [CONVERTIBLE] SUBORDINATED DEBENTURE Unocal Corporation, a Delaware corporation (the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to _________________________________, or registered assigns, the principal sum of ______________ Dollars ($_________) on __________ 1, 20__, and to pay interest on said principal sum from ___________ __, _____, or from the most recent date on which interest has been paid in full, quarterly (subject to deferral as set forth herein) in arrears on March 1, June 1, September 1, and December 1 of each year (each, an "Interest Payment Date") commencing __________ 1, ____, at the rate of ____% per annum until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, and overdue installment of interest at the same rate per annum compounded quarterly (without duplication and to the extent that payment of such interest is enforceable under applicable law). The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed will be computed on the basis of 30-day months and, for periods of less than a month, the actual number of days elapsed per 30-day month. In the event that any date on which interest is payable on this Debenture is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture (referred to on the reverse hereof), be paid to the person in whose name this Debenture (or one or more Predecessor Debentures) is registered on the Regular Record Date for such interest installment. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holders on such Regular Record Date and may be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders of the Debentures not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of (and premium, if any) and the interest on this Debenture shall be payable at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered Holder at such address as shall appear in the Security Debenture. Notwithstanding the foregoing, so long as the Holder of this Debenture is the Institutional Trustee, the payment of the principal of (and premium, if any) and interest on this Debenture will be made at such place and to such account as may be designated by the Institutional Trustee. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such Holder upon said provisions. -2- This Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be executed. UNOCAL CORPORATION By __________________________________ Name: Title: Attest: By:_________________________ Name: Title: -3- [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Debentures of the series of Debentures described in the within-mentioned Indenture. Dated: ______________________________ THE BANK OF NEW YORK, as Trustee or as Authentication Agent By _____________________________ By _____________________________ Authorized Signatory Authorized Signatory -4- [FORM OF REVERSE OF DEBENTURE] This Debenture is one of a duly authorized series of Securities of the Company specified in the Indenture, all issued or to be issued in one or more series under and pursuant to an Indenture (the "Base Indenture") dated as of September 11, 1996, duly executed and delivered between the Company and The Bank of New York, as Trustee (the "Trustee"), as supplemented by the Second Supplemental Indenture dated as of ______________, ____, between the Company and the Trustee (such Second Supplemental Indenture, as it supplements the Base Indenture, the "Indenture"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of Debentures. By the terms of the Indenture, the Securities are issuable thereunder in series that may vary as to amount, date of maturity, rate of interest and in other respects as provided in the Indenture. This series of Securities is limited in aggregate principal amount as specified in said Supplemental Indenture and is herein sometimes referred to as the "Debentures." Because of the occurrence and continuation of a Special Event, in certain circumstances, this Debenture may be redeemed by the Company, in whole or in part, at 100% of the principal amount to be redeemed (the "Special Event Redemption Price") together with any accrued and unpaid interest, including Compounded Interest and Additional Interest, thereon to but excluding the redemption date. The Special Event Redemption Price plus such accrued and unpaid interest, shall be paid prior to 12:00 noon, New York time, on the date of such redemption or at such earlier time as the Company determines. In addition, the Company shall have the right to redeem this Debenture at the option of the Company, upon not less than 30 nor more than 60 days notice, without premium or penalty, in whole or in part at any time on or after ___________ 1, ______ at the following prices (expressed as percentages of the principal amount of the Debentures) (the "Optional Redemption Price") together with accrued and unpaid interest, including Additional Interest and Compounded Interest to, but excluding, the redemption date, if redeemed during the 12-month period beginning on _________ 1 (other than the first period, which will begin on __________ 1, _____) of the following years:
Year Redemption Price ---- ---------------- ----- ------% ----- ------% ----- ------% ----- ------% ----- ------%
and 100% if redeemed on or after __________1, ____. -5- The Company may not redeem any Debentures unless all accrued and unpaid interest has been paid on all outstanding Debentures for all quarterly interest payment periods terminating on or prior to the last Interest Payment Date before the date of redemption. If Debentures are redeemed on any March 1, June 1, September 1, or December 1, accrued and unpaid interest shall be payable to Holders on the relevant record date. The Company shall issue a press release announcing any Optional Redemption. If the Debentures are only partially redeemed by the Company pursuant to an Optional Redemption, the Debentures will be redeemed pro rata. In the event of redemption of this Debenture in part only, a new Debenture or Debentures of this series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the Holders of not less than a majority in aggregate principal amount of the Securities of each series affected at the time outstanding, as defined in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of the Securities of such series; provided, however, that no such supplemental indenture shall (a) extend the fixed maturity of any Securities of any series, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, or make any change that adversely affects the right to convert any Securities of any series or make any change in the subordination provisions that adversely affects the rights of any Holders of any Securities of any series in any material respect, without the consent of the Holder of each Debenture so affected, or (b) reduce the aforesaid percentage of Securities of such series, the Holders of which are required to consent to any such supplemental indenture, without the consent of the Holders of each Security of any series then outstanding and affected thereby. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Securities of any series at the time outstanding affected thereby, on behalf of all of the Holders of the Securities of such series, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture with respect to such series, and its consequences, except a default in the payment of the principal of or premium, if any, or interest on any Securities of such series or a failure to convert any Securities of such series in accordance with its terms upon an election by the Holders thereof. Any such consent or waiver by the registered Holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders and owners of this Debenture and of any Debenture issued in exchange therefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Debenture. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest on this Debenture at the time and place and at the rate and in the money herein prescribed. -6- As long as an Event of Default under Section 6.01(a) of the Base Indenture shall not have occurred and be continuing, the Company shall have the right, at any time and from time to time during the term of the Debentures, to defer payments of interest by extending the interest payment period of the Debentures for a period not exceeding 20 consecutive quarters (an "Extended Interest Payment Period") during which Extended Interest Payment Period no interest shall be due and payable on the Debentures; provided, that no Extended Interest Payment Period may extend beyond the Maturity Date. To the extent permitted by applicable law, interest, the payment of which has been deferred during an Extended Interest Payment Period, shall bear interest thereon at the rate specified for these Debentures, compounded quarterly for each quarter of the Extended Interest Payment Period ("Compounded Interest"). Before the termination of any such Extended Interest Payment Period, the Company may further extend such Extended Interest Payment Period, provided, that such Extended Interest Payment Period together with all such previous and further extensions thereof shall not exceed 20 consecutive quarters, or extend beyond the Maturity Date. At the end of the Extended Interest Payment Period, the Company shall pay all interest then accrued and unpaid on the Debentures, including any Additional Interest and Compounded Interest, that shall be payable to the Holders of Debentures on the first record date after the termination of the Extended Interest Payment Period. Upon the termination of any such Extended Interest Payment Period and upon the payment of all accrued and unpaid interest (including Compounded Interest to the extend permitted by applicable law), the Company may commence a new Extended Interest Payment Period. The Company may pay at any time all or any portion of the interest accrued during an Extended Interest Payment Period, subject to the requirements set forth in the Indenture. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the registered Holder hereof on the Security Register of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Trustee in the City and State of New York accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered Holder hereof or his or her attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee, any paying agent and the Security Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Security Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Security Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or -7- penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. [Subject to and upon compliance with Article VII of the Supplemental Indenture, the Holder of this Debenture has the right, exercisable at any time beginning _______ __, _____ and prior to the close of business (New York time) on ____________ 1, 20__ (or, in the event this Debenture is called for redemption, prior to the close of business (New York time) on the Business Day prior to the corresponding redemption date), to convert the principal amount hereof (or any portion thereof that is an integral multiple of the Principal Amount of One Debenture) into that number of fully paid and nonassessable shares of Common Stock obtained by dividing the principal amount of the Debentures to be converted by the Conversion Price in effect on the Conversion Date. For example, the initial Conversion Price is $__.__ and thus each Debenture is initially convertible into 1. __ shares of Common Stock (calculated by dividing the Principal Amount of One Debenture as of the date of the Supplemental Indenture by the initial Common Price). The Conversion Price is subject to adjustment as described in the Indenture. All conversion price and conversion provision calculations shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. To convert all or a portion of this Debenture, a Holder must (a) complete and sign an irrevocable notice of election to convert substantially in the form attached hereto and deliver such Conversion Notice to the Conversion Agent, (b) surrender the Debenture to the Conversion Agent, (c) furnish appropriate endorsements or transfer documents if required by the Conversion Agent and (d) pay any transfer or similar tax, if required. Accrued but unpaid interest will not be paid in cash on Debentures that are converted, nor will such accrued interest be converted into additional shares of Common Stock upon conversion of the Debentures, but such accrued interest shall be deemed to be paid in full and then returned by the Holder to the Company as partial consideration for Common Stock received on conversion, and the Company shall not make nor be required to make any other payment, adjustment or allowance with respect to accrued but unpaid interest on the Debentures being converted, which shall be deemed to be paid in full. If any Debentures are converted during the period from (but excluding) a record date to (and including) the next succeeding interest payment date, then either (i) if such Debentures have been called for redemption on a redemption date that occurs during such period, or are to be redeemed in connection with a Special Event which occurs during such period, the Company shall not be required to pay interest on such Interest Payment Date in respect of such Debentures or (ii) if otherwise converted during such period, such Debentures shall be accompanied by funds equal to the interest payable on such succeeding Interest Payment Date on the principal amount so converted. No fractional shares will be issued upon conversion but a cash payment shall be made by the Company in lieu of such fractional interest. The outstanding principal amount of any Debenture shall be reduced by the principal amount thereof converted into shares of Common Stock. The Company's delivery upon conversion of the fixed number of shares of Common Stock into which the Debentures are convertible (together with cash in lieu of fractional shares) shall be deemed to satisfy the Company's obligation to pay the principal amount at the Maturity Date of the portion of Debentures so converted and any unpaid interest (including Compounded Interest) accrued on such Debentures at the time of such conversion.] -8- The Debentures of this series are issuable only in registered form without Coupons in denominations of the Principal Amount of One Debenture and any integral multiple thereof. [IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, SUBSTITUTE THE FOLLOWING FOR THE PREVIOUS SENTENCE: This Global Debenture is exchangeable for Debentures in definitive form only under certain limited circumstances set forth in the Indenture. Debentures of this series so issued are issuable only in registered form without Coupons in denominations of the Principal Amount of One Debenture and any integral multiple thereof.] As provided in the Indenture and subject to certain limitations therein set forth, Debentures of this series are exchangeable for a like aggregate principal amount of Debentures of this series of a different authorized denomination, as requested by the Holder surrendering the same. All terms used in this Debenture that are defined in the Indenture shall have the meanings assigned to them in the Indenture. THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN THE INDENTURE AND THE DEBENTURES WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF. -9- [FORM OF ELECTION TO CONVERT] ELECTION TO CONVERT To: Unocal Corporation The undersigned Holder of this Debenture hereby irrevocably exercises the option to convert this Debenture, or the portion below designated, into Common Stock of Unocal Corporation in accordance with the terms of the Indenture referred to in this Debenture, and directs that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Date: __________________________ in whole ____ in part __ Portion of principal amount of the Debenture to be converted (the Principal Amount of One Debenture or integral multiples thereof): $ _______________________________________ _______________________________________ _______________________________________ Signature (for conversion only) Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number _______________________________________ _______________________________________ _______________________________________ Signature Guarantee:(*) _______________________________________ -10- (*) Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. -11- ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Debenture to: _____________________________________________________ _____________________________________________________ _____________________________________________________ (Insert assignee's social security or tax identification number) _____________________________________________________ _____________________________________________________ _____________________________________________________ (Insert address and zip code of assignee) and irrevocably appoints _____________________________________________________ _____________________________________________________ _____________________________________________________ agent to transfer this Debenture on the books of the Trust. The agent may substitute another to act for him or her. Date: ________________________________________ Signature: ____________________________________ (Sign exactly as your name appears on the other side of this Debenture) Signature Guarantee:(*) _________________________ ________________ * Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Debenture Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. -12- EX-4.12 4 y82934exv4w12.txt FORM OF AMENDED AND RESTATED DECLARATION OF TRUST EXHIBIT 4.12 -------------------- FORM OF AMENDED AND RESTATED DECLARATION OF TRUST OF UNOCAL CAPITAL TRUST II DATED AS OF ____________ --------------------
TABLE OF CONTENTS Page ---- ARTICLE I Interpretation and Definitions Section 1.1. Definitions ............................................................. 1 ARTICLE II Trust Indenture Act Section 2.1. Trust Indenture Act: Application ....................................... 8 Section 2.2. Lists of Holders of Securities .......................................... 8 Section 2.3. Reports by the Institutional Trustee .................................... 9 Section 2.4. Periodic Reports to Institutional Trustee ............................... 9 Section 2.5. Evidence of Compliance with Conditions Precedent ........................ 9 Section 2.6. Events of Default: Waiver .............................................. 9 Section 2.7. Event of Default: Notice ............................................... 11 ARTICLE III Organization Section 3.1. Name .................................................................... 11 Section 3.2. Office .................................................................. 11 Section 3.3. Purposes and Functions .................................................. 11 Section 3.4. Authority ............................................................... 12 Section 3.5. Title to Property of the Trust .......................................... 12 Section 3.6. Powers, Duties and Authority of the Regular Trustees .................... 12 Section 3.7. Prohibition of Actions by the Trust and the Trustees .................... 15 Section 3.8. Powers and Duties of the Institutional Trustee .......................... 15 Section 3.9. Certain Duties and Responsibilities of the Institutional Trustee ........ 17 Section 3.10. Certain Rights of Institutional Trustee ................................. 19 Section 3.11. Delaware Trustee ........................................................ 21 Section 3.12 Execution of Documents .................................................. 21 Section 3.13. Not Responsible for Recitals or Issuance of Securities .................. 21 Section 3.14 Duration of Trust ....................................................... 21 Section 3.15. Mergers ................................................................. 21 ARTICLE IV Sponsor Section 4.1. Issuance of Securities to Sponsor ....................................... 23 Section 4.2. Responsibilities of the Sponsor ......................................... 23
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Page ---- ARTICLE V Trustees Section 5.1. Number of Trustees ...................................................... 24 Section 5.2. Delaware Trustee ........................................................ 24 Section 5.3. Institutional Trustee Eligibility ....................................... 24 Section 5.4. Certain Qualifications of Regular Trustees and Delaware Trustee Generally 25 Section 5.5. Regular Trustees ........................................................ 25 Section 5.6. Delaware Trustee ........................................................ 25 Section 5.7. Appointment, Removal and Resignation of Trustees ........................ 25 Section 5.8. Vacancies Among Trustees ................................................ 27 Section 5.9. Effect of Vacancies ..................................................... 27 Section 5.10. Meetings ................................................................ 27 Section 5.11. Delegation of Power by Regular Trustees ................................. 27 Section 5.12. Merger, Conversion, Consolidation or Succession to Business ............. 28 ARTICLE VI Distributions Section 6.1. Distributions ........................................................... 28 ARTICLE VII Issuance of Securities Section 7.1. General Provisions Regarding Securities ................................. 28 Section 7.2. Execution and Authentication ............................................ 29 Section 7.3. Form and Dating ......................................................... 29 Section 7.4. Paying Agent ............................................................ 30 ARTICLE VIII Termination of Trust Section 8.1. Termination of Trust .................................................... 30 ARTICLE IX Transfer of Interests Section 9.1. Transfer of Securities .................................................. 31 Section 9.2. Transfer of Certificates ................................................ 31 Section 9.3. Deemed Security Holders ................................................. 32 Section 9.4. Book Entry Interests .................................................... 32 Section 9.5. Notices to Clearing Agency .............................................. 32 Section 9.6. Appointment of Successor Clearing Agency ................................ 33 Section 9.7. Definitive Preferred Security Certificates .............................. 33 Section 9.8. Mutilated, Destroyed, Lost or Stolen Certificates ....................... 33
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Page ---- ARTICLE X Limitation of Liability of Holders of Securities, Trustees or Others Section 10.1. Liability ............................................................... 34 Section 10.2. Exculpation ............................................................. 34 Section 10.3. Fiduciary Duty .......................................................... 35 Section 10.4. Indemnification ......................................................... 36 Section 10.5. Outside Business ........................................................ 38 ARTICLE XI Accounting Section 11.1. Fiscal year ............................................................. 38 Section 11.2. Certain Accounting Matters .............................................. 38 Section 11.3. Banking ................................................................. 39 Section 11.4. Withholding ............................................................. 39 ARTICLE XII Amendments and Meetings Section 12.1. Amendments .............................................................. 40 Section 12.2. Meetings of the Holders of Securities: Action by Written Consent ........ 41 ARTICLE XIII Representations of Institutional Trustee and Delaware Trustee Section 13.1. Representations and Warranties of Institutional Trustee ................. 43 Section 13.2. Representations and Warranties of Delaware Trustee ...................... 43 ARTICLE XIV Miscellaneous Section 14.1. Notices ................................................................. 44 Section 14.2. Governing Law ........................................................... 45 Section 14.3. Intention of the Parties ................................................ 45 Section 14.4. Headings ................................................................ 45 Section 14.5. Successors and Assigns .................................................. 45 Section 14.6. Partial Enforceability .................................................. 46 Section 14.7. Counterparts ............................................................ 46 ANNEX I Terms of __% Trust [Convertible] Preferred Securities __% Trust Common Securities ....................................................... I-1 EXHIBIT A-1 Form of Preferred Security Certificate .................................. A1-1 EXHIBIT A-2 Form of Trust Common Certificate ........................................ A2-1 EXHIBIT B Specimen of Junior Subordinated Debenture ............................... B
-iii- AMENDED AND RESTATED DECLARATION OF TRUST OF UNOCAL CAPITAL TRUST II THIS AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") by and among the Trustees (as defined herein), the Sponsor (as defined herein) and the holders, from time to time, of undivided beneficial interests in the Trust to be issued pursuant to this Declaration is dated and effective as of _____________. RECITALS WHEREAS, the Trustees and the Sponsor established Unocal Capital Trust II (the "Trust"), a trust under the Delaware Statutory Trust Act pursuant to a Declaration of Trust dated as of June 30, 1998, (the "Original Declaration") and a Certificate of Trust filed with the Secretary of State of the State of Delaware on June 30, 1998, for the sole purposes of issuing and selling certain securities representing undivided beneficial interests in the assets of the Trust, investing the proceeds from such sales in the Debentures issued by the Debenture Issuer (as those terms are hereinafter defined) and engaging in only those activities necessary or incidental thereto; WHEREAS, as of the date hereof, no interests in the Trust have been issued; WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend and restate each and every term and provision of the Original Declaration; and NOW, THEREFORE, it being the intention of the parties hereto to continue the Trust as a statutory trust under the Delaware Statutory Trust Act and that this Declaration constitute the governing instrument of such statutory trust, the Trustees declare that all assets contributed to the Trust will be held in trust for the benefit of the holders, from time to time, of the securities representing undivided beneficial interests in the assets of the Trust issued hereunder, subject to the provisions of this Declaration. ARTICLE I INTERPRETATION AND DEFINITIONS Section 1.1. Definitions. Unless the context otherwise requires: (a) capitalized terms used in this Declaration but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) a term defined anywhere in this Declaration has the same meaning throughout; (c) all references to "the Declaration" or "this Declaration" are to this Declaration, including the Annexes and Exhibits hereto, as modified, supplemented or amended from time to time; (d) all references in this Declaration to Articles, Sections, Recitals, Annexes, and Exhibits are to Articles, Sections and the Recitals of, and Annexes and Exhibits to, this Declaration unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Declaration unless otherwise defined in this Declaration or unless the context otherwise requires; and (f) a reference to the singular includes the plural and vice versa. "Administrative Action" has the meaning specified in Section 4(c) of Annex I. "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act or any successor rule thereunder. ["Agent" means any Paying Agent or Conversion Agent.] "Authorized Officer" of a Person means any Person that is authorized to bind such Person. "Base Indenture" means that Indenture dated as of September 11, 1996 between Unocal as issuer and The Bank of New York, as trustee. "Book Entry Interest" means a beneficial interest in a Global Certificate, ownership and transfers of which shall be maintained and made through book entries by a Clearing Agency as described in Section 9.4. "Business Day" means any day other than a Saturday, Sunday, or any other day on which banking institutions in New York, New York or Los Angeles, California are permitted or required by any applicable law to close. "Certificate" means a Common Security Certificate or a Preferred Security Certificate. "Change in 1940 Act Opinion" has the meaning specified in Section 4(c) of Annex I. "Clearing Agency" means an organization registered as a "Clearing Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary for the Preferred Securities and in whose name or in the name of a nominee of that organization shall be registered a Global Certificate and which shall undertake to effect book entry transfers and pledges of the Preferred Securities. The initial Clearing Agency shall be the Depository Trust Company. "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time the Clearing Agency effects book entry transfers and pledges of securities deposited with the Clearing Agency. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor legislation. -2- "Commission" means the United States Securities and Exchange Commission. "Common Securities" has the meaning specified in Section 7.1(a). "Common Securities Guarantee" means the guarantee agreement, to be dated as of _________________, of the Sponsor in respect of the Common Securities. "Common Security Certificate" means a definitive certificate in fully registered form representing a Common Security substantially in the form of Exhibit A-2. "Common Stock" means shares of the common stock, $1.00 par value, of Unocal. "Contract Preferred Securities" means Preferred Securities sold pursuant to a Delayed Delivery Contract. ["Conversion Agent" has the meaning set forth in Section 7.4. "Conversion Date" has the meaning set forth in Section 5(b) of Annex I. "Conversion Request" has the meaning set forth in Section 5(b) of Annex I.] "Corporate Trust Office" means the office of the Institutional Trustee at which the corporate trust business of the Institutional Trustee shall be, at any particular time, principally administered, which office at the date of execution of this Agreement is located at 101 Barclay Street, Floor 21 West, New York, New York 10286. "Coupon Rate" has the meaning set forth in Section 2(a) of Annex I. "Covered Person" means: (a) any officer, director, shareholder, partner, member, representative, employee or agent of (i) the Trust or (ii) the Trust's Affiliates; and (b) any Holder of Securities. "Debenture Issuer" means Unocal (or its successor) in its capacity as issuer of the Debentures under the Indenture. "Debenture Trustee" means The Bank of New York, as trustee under the Indenture until a successor is appointed thereunder, and thereafter means such successor trustee. "Debentures" means the series of ___% Junior [Convertible] Subordinated Debentures issued or to be issued by the Debenture Issuer under the Indenture and held by the Institutional Trustee, a specimen certificate for such series of Debentures being Annex I to the Supplemental Indenture. "Definitive Preferred Security Certificates" has the meaning set forth in Section 9.7(c). "Delaware Trustee" has the meaning set forth in Section 5.2(a). "Delayed Delivery Contract" means a contract, substantially in the form attached as Annex III to the Standard Underwriting Provisions incorporated by reference in the Underwriting -3- Agreement, for the purchase of Preferred Securities on the delivery date or dates and the amounts set forth therein, such Preferred Securities being referred to herein as "Contract Preferred Securities." "Direct Action" has the meaning set forth in Section 3.8(e). "Dissolution Tax Opinion" has the meaning set forth in Section 4(c) of Annex I. "Distribution" has the meaning set forth in Section 6.1. "Event of Default" in respect of the Securities means an Indenture Event of Default has occurred and is continuing. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation. "Extension Period" has the meaning set forth in Section 2(b) of Annex I. "Fiduciary Indemnified Person" has the meaning set forth in Section 10.4(b). "Fiscal Year" has the meaning set forth in Section 11.1. "Global Certificate" has the meaning set forth in Section 9.4(a). "Guarantees" means the Preferred Securities Guarantee and the Common Securities Guarantee. "Holder" means a Person in whose name a Certificate representing a Security is registered, such Person being a beneficial owner within the meaning of the Statutory Trust Act. "Indemnified Person" means a Sponsor Indemnified Person or a Fiduciary Indemnified Person. "Indenture" means the Base Indenture and the Supplemental Indenture pursuant to which the Debentures are or are to be issued. "Indenture Event of Default" means an "Event of Default" as defined in the Indenture. "Institutional Trustee" has the meaning set forth in Section 5.3(a). "Institutional Trustee Account" has the meaning set forth in Section 3.8(c). "Investment Company" means an investment company as defined in the Investment Company Act. "Investment Company Act" means the Investment Company Act of 1940, as amended from time to time, or any successor legislation. "Investment Company Event" has the meaning set forth in Section 4(c) of Annex I. -4- "Legal Action" has the meaning set forth in Section 3.6(g). "Liquidation Distribution" has the meaning set forth in Section 3 of Annex I. "List of Holders" has the meaning set forth in Section 2.2(a). "Majority in liquidation amount of the Securities" means, except as provided in the terms of the Preferred Securities or by the Trust Indenture Act, Holder(s) of outstanding Securities voting together as a single class who are the record owners of more than 50% of the aggregate liquidation amount of all outstanding Securities or, if the context so requires, Holders of outstanding Preferred Securities or Holders of outstanding Common Securities voting separately as a class who are the record owners of more than 50% of the aggregate liquidation amount of all outstanding securities of the relevant class. "Ministerial Action" has the meaning set forth in Section 4(c) of Annex I. "90-Day Period" has the meaning set forth in Section 4(c) of Annex I. "No Recognition Opinion" has the meaning set forth in Section 4(c) of Annex I. "Officers' Certificate" means, with respect to any Person, a certificate signed by two Authorized Officers of such Person or, if such Person is an individual, signed by such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Declaration shall include: (a) a statement that each officer signing the Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "OID" has the meaning set forth in Section 4(c) of Annex I. "Original Declaration" has the meaning set forth in the Recitals. "Paying Agent" has the meaning set forth in Section 7.4. "Payment Amount" has the meaning set forth in Section 6.1. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, statutory or -5- business trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Securities" has the meaning specified in Section 7.1(a). "Preferred Securities Guarantee" means the guarantee agreement, to be dated as of _________________, of the Sponsor in respect of the Preferred Securities. "Preferred Security Beneficial Owner" means, with respect to a Book Entry Interest, a Person who is the beneficial owner of such Book Entry Interest, as reflected on the books of the Clearing Agency, or on the books of a Person maintaining an account with such Clearing Agency (directly as a Clearing Agency Participant or as an indirect participant, in each case in accordance with the rules of such Clearing Agency). "Preferred Security Certificate" means a certificate representing a Preferred Security substantially in the form of Exhibit A-1. "Pro Rata" has the meaning set forth in Section 9 of Annex I. "Quorum" means a majority of the Regular Trustees or, if there are only two Regular Trustees, both of them. "Redemption/Distribution Notice" has the meaning set forth in Section 4(f) of Annex I. "Redemption Tax Opinion" has the meaning set forth in Section 4(c) of Annex I. "Regular Trustee" has the meaning set forth in Section 5.1(b). "Related Party" means, with respect to the Sponsor, any direct or indirect wholly owned subsidiary of the Sponsor or any other Person that owns, directly or indirectly, 100% of the outstanding voting securities of the Sponsor. "Responsible Officer" means, with respect to the Institutional Trustee, any officer within the Corporate Trust Office of the Institutional Trustee, including any vice president, any assistant vice president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Institutional Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Securities" means the Common Securities and the Preferred Securities. "Securities Act" means the Securities Act of 1933, as amended from time to time, or any successor legislation. "Special Event" has the meaning set forth in Section 4(c) of Annex I. -6- "Sponsor" means Unocal (or its successor), in its capacity as sponsor of the Trust, and any transferee of the Common Securities permitted by Article IX. "Sponsor Indemnified Person" means (a) any Regular Trustee; (b) any Affiliate of any Regular Trustee; (c) any officers, directors, shareholders, members, partners, employees, representatives or agents of any Regular Trustee; or (d) any officer, employee or agent of the Trust or its Affiliates. "Standard Underwriting Provisions" means Unocal's Trust Preferred Securities Standard Underwriting Provisions, June 1998. "Statutory Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 DEL. CODE Section 3801 et seq., as it may be amended from time to time, or any successor legislation. "Successor Delaware Trustee" has the meaning set forth in Section 5.7(b)(ii). "Successor Entity" has the meaning set forth in Section 3.15(b)(i). "Successor Institutional Trustee" has the meaning set forth in Section 5.7(b)(i). "Successor Securities" has the meaning set forth in Section 3.15(b)(i)(B). "Super Majority" has the meaning set forth in Section 2.6(a)(ii). "Supplemental Indenture" means that Second Supplemental Indenture dated as of ________________ between Debenture Issuer and The Bank of New York, as Trustee. "Tax Event" has the meaning set forth in Section 4(c) of Annex I. "10% in liquidation amount of the Securities" means, except as provided in the terms of the Preferred Securities or by the Trust Indenture Act, Holder(s) of outstanding Securities voting together as a single class or, as the context may require, Holders of outstanding Preferred Securities or Holders of outstanding Common Securities voting separately as a class, who are the record owners of 10% or more of the aggregate liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Securities of the relevant class. "Treasury Regulations" means the income tax regulations, including temporary and proposed regulations, promulgated under the Code by the United States Treasury, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations). "Trust" has the meaning set forth in the Recitals. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended from time to time, or any successor legislation. -7- "Trustee" or "Trustees" means each Person who has signed this Declaration as a trustee, so long as such Person shall continue in office in accordance with the terms hereof, and each other Person who may from time to time be duly appointed, qualified and serving as a Trustee in accordance with the provisions hereof, and references herein to a Trustee or the Trustees shall refer to such Person or Persons solely in their capacity as trustees hereunder. "Underwriting Agreement" means the Underwriting Agreement by and among Unocal, the Trust and the underwriters named in Schedule I thereto, attached as Annex I to the Standard Underwriting Provisions. "Unocal" means Unocal Corporation, a Delaware corporation, or any successor entity in a merger, consolidation, amalgamation or other transaction. ARTICLE II TRUST INDENTURE ACT Section 2.1. Trust Indenture Act: Application. (a) This Declaration is subject to the provisions of the Trust Indenture Act that are required to be part of this Declaration and shall, to the extent applicable, be governed by such provisions. (b) The Institutional Trustee shall be the only Trustee which is a Trustee for the purposes of the Trust Indenture Act. (c) If and to the extent that any provision of this Declaration limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. (d) The application of the Trust Indenture Act to this Declaration shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. Section 2.2. Lists of Holders of Securities. (a) Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide the Institutional Trustee (i), except while the Preferred Securities remain in book-entry only form, at least one Business Day prior to the date for payment of Distributions, a list, in such form as the Institutional Trustee may reasonably require, of the names and addresses of the Holders of the Securities ("List of Holders") as of such record date, provided that neither the Sponsor nor the Regular Trustees on behalf of the Trust shall be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Institutional Trustee by the Sponsor and the Regular Trustees on behalf of the Trust, and (ii) at any other time, within 30 days of receipt by the Trust of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Institutional Trustee. The Institutional Trustee shall preserve, in as current a form as is reasonably practicable, all information contained in Lists of Holders given to it or which it receives in the capacity as Paying Agent (if acting in such capacity) provided that the Institutional Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. -8- (b) The Institutional Trustee shall comply with its obligations under Sections 311(a), 311(b) and 312(b) of the Trust Indenture Act. Section 2.3. Reports by the Institutional Trustee. Within 60 days after May 15 of each year, the Institutional Trustee shall provide to the Holders of the Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Institutional Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. Section 2.4. Periodic Reports to Institutional Trustee. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Institutional Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Institutional Trustee is for informational purposes only and the Institutional Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Sponsor's compliance with any of its covenants hereunder (as to which the Institutional Trustee is entitled to rely exclusively on Officers' Certificates). Section 2.5. Evidence of Compliance with Conditions Precedent. Each of the Sponsor and the Regular Trustees on behalf of the Trust shall provide to the Institutional Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Declaration that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act may be given in the form of an Officers' Certificate. Section 2.6. Events of Default: Waiver. (a) The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default in respect of the Preferred Securities and its consequences, provided that, if the underlying Indenture Event of Default: (i) is not waivable under the Indenture, such Event of Default under the Declaration shall also not be waivable; or (ii) requires the consent or vote of the holders of greater than a majority (a "Super Majority") in principal amount of the Debentures to be waived under the Indenture, such Event of Default under the Declaration may only be waived by the vote of the Holders of at least the same Super Majority percentage in liquidation amount of the Preferred Securities as is required under the Indenture of aggregate principal amount of the Debentures outstanding. -9- The foregoing provisions of this Section 2.6(a) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such Indenture Event of Default shall cease to exist, and any Event of Default with respect to the Preferred Securities arising therefrom shall be deemed to have been cured, for every purpose of this Declaration, but no such waiver shall extend to any subsequent or other Indenture Event of Default or Event of Default with respect to the Preferred Securities or impair any right consequent thereon. Any waiver by the Holders of the Preferred Securities of an Event of Default with respect to the Preferred Securities shall also be deemed to constitute a waiver by the Holders of the Common Securities of any such Event of Default with respect to the Common Securities for all purposes of this Declaration without any further act, vote, or consent of the Holders of the Common Securities. (b) The Holders of a Majority in liquidation amount of the Common Securities may, by vote, on behalf of the Holders of all of the Common Securities, waive any past Event of Default with respect to the Common Securities and its consequences, provided that, if the underlying Indenture Event of Default: (i) is not waivable under the Indenture, such Event of Default under the Declaration shall also not be waivable unless the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided below in this Section 2.6(b); (ii) requires the consent or vote of a Super Majority in principal amount of the holders of the Debentures to be waived under the Indenture, except where such Event of Default under the Declaration may only be waived by the vote of the Holders of at least the same Super Majority percentage in liquidation amount of the Common Securities as is required under the Indenture of aggregate principal amount of the Debentures outstanding, unless the Holders of the Common Securities are deemed to have waived such Event of Default under the Declaration as provided below in this Section 2.6(b); provided further, that each Holder of Common Securities will be deemed to have waived any such Indenture Event of Default and all Events of Default with respect to the Common Securities and its consequences until all Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated, and until such Events of Default with respect to the Preferred Securities have been so cured, waived or otherwise eliminated, the Institutional Trustee will be deemed to be acting solely on behalf of the Holders of the Preferred Securities and only the Holders of the Preferred Securities will have the right to direct the Institutional Trustee in accordance with the terms of the Securities. The foregoing provisions of this Section 2.6(b) shall be in lieu of Sections 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act and such Sections 316(a)(l)(A) and 316(a)(l)(B) of the Trust Indenture Act are hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Subject to the foregoing provisions of this Section 2.6(b), upon such cure, waiver or other elimination, any such Indenture Event of Default shall cease to exist and any Event of Default with respect to the Common Securities arising therefrom shall be deemed to have been cured, waived or otherwise eliminated for every purpose of this Declaration, but no such cure, waiver or other elimination -10- shall extend to any subsequent or other Indenture Event of Default or Event of Default with respect to the Common Securities or impair any right consequent thereon. (c) A waiver of an Indenture Event of Default by the Institutional Trustee at the direction of the Holders of the Preferred Securities, constitutes a waiver of the corresponding Event of Default under this Declaration. The foregoing provisions of this Section 2.6(c) shall be in lieu of Section 316(a)(l)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly excluded from this Declaration and the Securities, as permitted by the Trust Indenture Act. Section 2.7. Event of Default: Notice. (a) The Institutional Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Securities, notices of all defaults with respect to the Securities actually known to a Responsible Officer of the Institutional Trustee, unless such defaults have been cured before the giving of such notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby defined to be an Indenture Event of Default, not including any periods of grace provided for therein and irrespective of the giving of any notice provided therein); provided that, except for a default in the payment of principal of (or premium, if any) or interest on any of the Debentures, the Institutional Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Institutional Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Securities. (b) The Institutional Trustee shall not be deemed to have knowledge of any default except: (i) a default under Sections 6.01(a) or (b) of the Base Indenture; or (ii) any default as to which the Institutional Trustee shall have received written notice or of which a Responsible Officer of the Institutional Trustee charged with the administration of the Declaration shall have actual knowledge. ARTICLE III ORGANIZATION Section 3.1. Name. The Trust is named "Unocal Capital Trust II." Such name may be modified from time to time by the Regular Trustees following written notice to the Holders of Securities. The Trust's activities may be conducted under the name of the Trust or any other name deemed advisable by the Regular Trustees. Section 3.2. Office. The address of the principal office of the Trust is c/o Unocal Corporation, 2141 Rosecrans Avenue, Suite 4000, El Segundo, California 90245. On 10 Business Days' written notice to the Holders of Securities, the Regular Trustees may designate another principal office. Section 3.3. Purposes and Functions. The sole purposes and functions of the Trust are (a) to issue and sell Securities and use the gross proceeds from such sale to acquire Debentures, and (b) except as otherwise limited herein, to engage in only those other activities necessary or incidental thereto. The Trust shall not borrow money, issue debt or reinvest proceeds derived -11- from investments, pledge any of its assets, or otherwise undertake (or permit to be undertaken) any activity that would cause the Trust not to be classified for United States federal income tax purposes as a grantor trust. Section 3.4. Authority. Subject to the limitations provided in this Declaration and to the specific duties of the Institutional Trustee, the Regular Trustees shall have exclusive and complete authority to carry out the purposes and functions of the Trust. An action taken by the Regular Trustees in accordance with their powers shall constitute the act of and serve to bind the Trust and an action taken by the Institutional Trustee on behalf of the Trust in accordance with its powers shall constitute the act of and serve to bind the Trust. In dealing with the Trustees acting on behalf of the Trust, no Person shall be required to inquire into the authority of the Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely conclusively on the power and authority of the Trustees as set forth in this Declaration. Section 3.5. Title to Property of the Trust. Except as provided in Section 3.8 with respect to the Debentures and the Institutional Trustee Account or as otherwise provided in this Declaration, legal title to all assets of the Trust shall be vested in the Trust. The Holders shall not have legal title to any part of the assets of the Trust, but shall have an undivided beneficial interest in the assets of the Trust. Section 3.6. Powers, Duties and Authority of the Regular Trustees. The Regular Trustees shall have the exclusive power, duty and authority to cause the Trust to engage in the following activities: (a) to issue and sell the Preferred Securities and the Common Securities in accordance with this Declaration; provided, however, that the Trust may issue no more than one series of Preferred Securities (which series of Preferred Securities shall include any Contract Preferred Securities to be issued hereunder) and no more than one series of Common Securities, and, provided further, that there shall be no interests in the Trust other than the Securities; (b) in connection with the issuance of the Securities, at the direction of the Sponsor, to: (i) execute and file with the Commission the registration statement on Form S-3 and any other registration statement and filing prepared by the Sponsor, including any amendments or supplements thereto, pertaining to the issuance of Preferred Securities and the Preferred Securities Guarantee; (ii) execute and file any documents prepared by the Sponsor, or take any acts as determined by the Sponsor to be necessary in order to qualify or register all or part of the Preferred Securities in any State in which the Sponsor has determined to qualify or register such Preferred Securities for sale; (iii) if desired by the Sponsor, execute and file an application, prepared by the Sponsor, to the New York Stock Exchange, the American Stock Exchange or any other national stock exchange or the Nasdaq National Market for listing or quotation upon notice of issuance of any Preferred Securities; -12- (iv) if applicable, execute and file with the Commission a request for exemption from the reporting requirements of the Exchange Act; (c) to acquire the Debentures using the proceeds from the issuance of the Securities; provided, however, that the Regular Trustees shall cause legal title to the Debentures to be held of record in the name of the Institutional Trustee for the benefit of the Holders of the Preferred Securities and the Holders of Common Securities; (d) to give the Sponsor and the Institutional Trustee prompt written notice of the occurrence of a Special Event; provided that the Regular Trustees shall consult with the Sponsor and the Institutional Trustee before taking or refraining from taking any Ministerial Action in relation to a Special Event; (e) to establish a record date with respect to all actions to be taken hereunder that require a record date be established, including and with respect to, for the purposes of Section 316(c) of the Trust Indenture Act, Distributions, voting rights, redemptions and exchanges, and to issue relevant notices to the Holders of Preferred Securities, Holders of Common Securities and, to the extent applicable, to any stock exchange or other organization on which the Preferred Securities are listed or quoted or to the Clearing Agency, as to such actions and applicable record dates; (f) to take all actions and perform such duties as may be required of the Regular Trustees pursuant to the terms of the Securities; (g) to bring or defend, pay, collect, compromise, settle, terminate, arbitrate, resort to legal action, or otherwise adjust claims or demands of or against the Trust ("Legal Action"), unless pursuant to Section 3.8(e), the Institutional Trustee has the exclusive power to bring such Legal Action; (h) to employ or otherwise engage employees and agents (who may be designated as officers with titles) and managers, contractors, advisors, and consultants and pay reasonable compensation for such services; (i) to cause the Trust to comply with the Trust's obligations under the Trust Indenture Act; (j) to give the certificate required by Section 314(a)(4) of the Trust Indenture Act to the Institutional Trustee, which certificate may be executed by any Regular Trustee; (k) to incur expenses that are necessary or incidental to carry out any of the purposes or functions of the Trust; (l) to act as, or appoint another Person to act as, registrar and transfer agent for the Securities; (m) to give prompt written notice to the Holders of the Securities of any notice received from the Debenture Issuer of its election to defer payments of interest on the Debentures as permitted under the Indenture; -13- (n) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Securities or to enable the Trust to effect the purposes for which the Trust was created; (o) to take any action, not inconsistent with this Declaration or with applicable law, that the Regular Trustees determine in their discretion to be necessary or desirable in carrying out the activities of the Trust as set out in this Section 3.6, including, but not limited to: (i) causing the Trust not to be deemed to be an Investment Company required to be registered under the Investment Company Act; (ii) causing the Trust not to be classified as other than a grantor trust for United States federal income tax purposes; and (iii) cooperating with the Debenture Issuer so that the Debentures will be treated as indebtedness of the Debenture Issuer for United States federal income tax purposes, provided that such action does not adversely affect the interests of Holders in any material respect; (p) to take all action necessary to cause all applicable tax returns and tax information reports that are required to be filed with respect to the Trust to be duly prepared and filed by the Regular Trustees, on behalf of the Trust; (q) to execute all documents, agreements or instruments and to take all action necessary to cause the Clearing Agency to act as clearing agency for the securities and to perform all duties required by such documents, agreements and instruments; and (r) to execute all documents, agreements or instruments, perform all duties and powers, and do all things for and on behalf of the Trust in all matters necessary or incidental to the foregoing. The Regular Trustees must exercise the powers set forth in this Section 3.6 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Regular Trustees shall not take any action that is inconsistent with the purposes and functions of the Trust set forth in Section 3.3. Subject to this Section 3.6, the Regular Trustees shall have none of the powers or the authority of the Institutional Trustee set forth in Section 3.8. Any expenses incurred by the Regular Trustees pursuant to this Section 3.6 shall be reimbursed by the Sponsor. The Sponsor shall otherwise pay all costs and expenses of the Trust as set forth in the Supplemental Indenture. -14- Section 3.7. Prohibition of Actions by the Trust and the Trustees. (a) The Trust shall not, and the Trustees (including the Institutional Trustee) shall not, engage in any activity other than as required or authorized by this Declaration. In particular, the Trust shall not and the Trustees (including the Institutional Trustee) shall cause the Trust not to: (i) invest any proceeds received by the Trust from holding the Debentures, but shall distribute all such proceeds to Holders of Securities pursuant to the terms of this Declaration and of the Securities; (ii) acquire any assets other than as expressly provided herein; (iii) possess Trust property for other than a Trust purpose; (iv) make any loans or incur any indebtedness other than loans represented by the Debentures; (v) possess any power or otherwise act in such a way as to vary the Trust assets or the terms of the Securities in any way whatsoever except as specifically provided herein; (vi) issue any securities or other evidences of beneficial ownership of, or beneficial interest in, the Trust other than the Securities; or (vii) other than as provided in this Declaration or Annex I, (A) direct the time, method and place of exercising any trust or power conferred upon the Debenture Trustee with respect to the Debentures, (B) waive any past default that is waivable under the Indenture, (C) exercise any right to rescind or annul any declaration that the principal of all the Debentures shall be due and payable, or (D) consent to any amendment, modification or termination of the Indenture or the Debentures where such consent shall be required unless the Trust shall have received an opinion of counsel to the effect that such modification will not cause more than an insubstantial risk that for United States federal income tax purposes the Trust will not be classified as a grantor trust. Section 3.8. Powers and Duties of the Institutional Trustee. (a) Unless distributed to the Holders of the Securities in accordance with the terms thereof, the legal title to the Debentures shall be owned by and held of record in the name of the Institutional Trustee in trust for the benefit of the Holders of the Securities. The right, title and interest of the Institutional Trustee to the Debentures shall vest automatically in each Person who may hereafter be appointed as Institutional Trustee in accordance with Section 5.7. Such vesting and succession of title shall be effective whether or not conveyancing documents with regard to the Debentures have been executed and delivered. (b) The Institutional Trustee shall not transfer its right, title and interest in the Debentures to the Regular Trustees or to the Delaware Trustee (if the Institutional Trustee does not also act as Delaware Trustee). -15- (c) The Institutional Trustee shall: (i) establish and maintain a segregated non-interest bearing trust account (the "Institutional Trustee Account") in the name of and under the exclusive control of the Institutional Trustee on behalf of the Holders of the Securities and, upon the receipt of payments of funds made in respect of the Debentures held by the Institutional Trustee, deposit such funds into the Institutional Trustee Account and make payments to the Holders of the Preferred Securities and Holders of the Common Securities from the Institutional Trustee Account in accordance with Section 6.1. Funds in the Institutional Trustee Account shall be held uninvested until disbursed in accordance with this Declaration. The Institutional Trustee Account shall be an account that is maintained with a banking institution the rating on whose long-term unsecured indebtedness is at least equal to the rating assigned to the Preferred Securities by a "nationally recognized statistical rating organization", as that term is defined for purposes of Rule 436(g)(2) under the Securities Act; (ii) engage in such ministerial activities as shall be necessary or appropriate to effect the redemption of the Preferred Securities and the Common Securities to the extent the Debentures are redeemed or mature; and (iii) upon written notice of distribution issued by the Regular Trustees in accordance with the terms of the Securities, engage in such ministerial activities as shall be necessary or appropriate to effect the distribution of the Debentures to Holders of Securities upon the occurrence of certain special events (as may be defined in the terms of the Securities) arising from a change in law or a change in legal interpretation or other specified circumstances pursuant to the terms of the Securities. (d) The Institutional Trustee shall take all actions and perform such duties as may be specifically required of the Institutional Trustee pursuant to the terms of the Securities. (e) The Institutional Trustee shall take any Legal Action which arises out of or in connection with an Event of Default of which a Responsible Officer of the Institutional Trustee has actual knowledge or the Institutional Trustee's duties and obligations under this Declaration or the Trust Indenture Act; provided, however, that if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Preferred Securities may directly institute a proceeding for enforcement of payment to such Holder of the principal of or interest on Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such Holder (a "Direct Action") on or after the respective due date specified in the Debentures. In connection with such Direct Action, the rights of the Holders of the Common Securities will be subrogated to the rights of such Holder of Preferred Securities to the extent of any payment made by the Debenture Issuer to such Holder of Preferred Securities in such Direct Action. Except as provided in the preceding sentences, the Holders of Preferred Securities will not be able to exercise directly any other remedy available to the holder of the Debentures. -16- (f) The Institutional Trustee shall not resign as a Trustee unless either: (i) the Trust has been completely liquidated and the proceeds of the liquidation distributed to the Holders of Securities pursuant to the terms of the Securities; or (ii) a Successor Institutional Trustee has been appointed and has accepted that appointment in accordance with Section 5.7. (g) The Institutional Trustee shall have the legal power to exercise all of the rights, powers and privileges of a holder of Debentures under the Indenture and, if an Event of Default actually known to a Responsible Officer of the Institutional Trustee occurs and is continuing, the Institutional Trustee shall, for the benefit of Holders of the Securities, enforce its rights as holder of the Debentures subject to the rights of the Holders pursuant to the terms of such Securities. (h) For such time as the Institutional Trustee is the Paying Agent, the Institutional Trustee may authorize one or more Persons to act as additional Paying Agents to pay Distributions on behalf of the Trust with respect to all securities and any such Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. Any such additional Paying Agent may be removed by the Institutional Trustee at any time so long as the Institutional Trustee remains as Paying Agent, and a successor Paying Agent or additional Paying Agents may be appointed at any time by the Institutional Trustee. (i) Subject to this Section 3.8, the Institutional Trustee shall have none of the duties, liabilities, powers, or the authority of the Regular Trustees set forth in Section 3.6. The Institutional Trustee must exercise the powers set forth in this Section 3.8 in a manner that is consistent with the purposes and functions of the Trust set out in Section 3.3, and the Institutional Trustee shall not take any action that is inconsistent with the purposes and functions of the Trust set out in Section 3.3. Section 3.9. Certain Duties and Responsibilities of the Institutional Trustee. (a) The Institutional Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Declaration and no implied covenants shall be read into this Declaration against the Institutional Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) of which a Responsible Officer of the Institutional Trustee has actual knowledge, the Institutional Trustee shall exercise such of the rights and powers vested in it by this Declaration, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) No provision of this Declaration shall be construed to relieve the Institutional Trustee from liability for its own negligent action, its own negligent failure to act, or its own will misconduct, except that: (i) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: -17- (A) the duties and obligations of the Institutional Trustee shall be determined solely by the express provisions of this Declaration and the Institutional Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Declaration, and no implied covenants or obligations shall be read into this Declaration against the Institutional Trustee; and (B) in the absence of bad faith on the part of the Institutional Trustee, the Institutional Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Institutional Trustee and conforming to the requirements of this Declaration; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Institutional Trustee, the Institutional Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Declaration; (ii) the Institutional Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Institutional Trustee, unless it shall be proved that the Institutional Trustee was negligent in ascertaining the pertinent facts; (iii) the Institutional Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under this Declaration; (iv) no provision of this Declaration shall require the Institutional Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Declaration or indemnity reasonably satisfactory to the Institutional Trustee against such risk or liability is not reasonably assured to it; (v) the Institutional Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Institutional Trustee Account shall be to deal with such property in a similar manner as the Institutional Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Institutional Trustee under this Declaration and the Trust Indenture Act; (vi) the Institutional Trustee shall have no duty or liability for or with respect to the value, genuineness, existence or sufficiency of the Debentures or the payment of any taxes or assessments levied thereon or in connection therewith; -18- (vii) the Institutional Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree in writing with the Sponsor. Money held by the Institutional Trustee need not be segregated from other funds held by it except in relation to the Institutional Trustee Account maintained by the Institutional Trustee pursuant to Section 3.8(c)(i) and except to the extent otherwise required by law; and (viii) the Institutional Trustee shall not be responsible for monitoring the compliance by the Regular Trustees or the Sponsor with their respective duties under this Declaration, nor shall the Institutional Trustee be liable for any default or misconduct of the Regular Trustees or the Sponsor. Section 3.10. Certain Rights of Institutional Trustee. (a) Subject to the provisions of Section 3.9: (i) the Institutional Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (ii) any direction or act of the Sponsor or the Regular Trustees contemplated by this Declaration shall be sufficiently evidenced by an Officers' Certificate; (iii) whenever in the administration of this Declaration, the Institutional Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Institutional Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Sponsor or the Regular Trustees; (iv) the Institutional Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or registration thereof; (v) the Institutional Trustee may consult with counsel of its selection or other experts and the advice or opinion of such counsel and experts with respect to legal matters or advice within the scope of such experts' area of expertise shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion, such counsel may be counsel to the Sponsor or any of its Affiliates, and may include any of its employees. The Institutional Trustee shall have the right at any time to seek instructions concerning the administration of this Declaration from any court of competent jurisdiction; (vi) the Institutional Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Declaration at the request or direction of any Holder, unless such Holder shall have provided to the Institutional Trustee security and indemnity, reasonably satisfactory to the Institutional Trustee, against the costs, expenses -19- (including attorneys' fees and expenses and the expenses of the Institutional Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Institutional Trustee provided, that, nothing contained in this Section 3.10(a)(vi) shall be taken to relieve the Institutional Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Declaration; (vii) the Institutional Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Institutional Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Institutional Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, custodians, nominees or attorneys and the Institutional Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Institutional Trustee or its agents hereunder shall bind the Trust and the Holders of the Securities, and the signature of the Institutional Trustee or its agents alone shall be sufficient and effective to perform any such action and no third party shall be required to inquire as to the authority of the Institutional Trustee to so act or as to its compliance with any of the terms and provisions of this Declaration, both of which shall be conclusively evidenced by the Institutional Trustee's or its agent's taking such action; (x) whenever in the administration of this Declaration the Institutional Trustee shall deem it desirable to receive written instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Institutional Trustee (i) may request written instructions from the Holders of the Securities which instructions may only be given by the Holders of the same proportion in liquidation amount of the Securities as would be entitled to direct the Institutional Trustee under the terms of the Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in or accordance with such instructions; (xi) except as otherwise expressly provided by this Declaration, the Institutional Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Declaration; and (xii) the Institutional Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Declaration. -20- (b) No provision of this Declaration shall be deemed to impose any duty or obligation on the Institutional Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Institutional Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Institutional Trustee shall be construed to be a duty. Section 3.11. Delaware Trustee. Notwithstanding any other provision of this Declaration other than Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities of the Regular Trustees or the Institutional Trustee described in this Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Statutory Trust Act. Section 3.12. Execution of Documents. Except as otherwise required by the Statutory Trust Act, any Regular Trustee is authorized to execute on behalf of the Trust any documents that the Regular Trustees have the power and authority to execute pursuant to Section 3.6; provided that, the registration statements and filings referred to in Section 3.6(b)(i), including any amendments or supplements thereto, if signed by any Regular Trustee, shall be signed by all of the Regular Trustees. Section 3.13. Not Responsible for Recitals or Issuance of Securities. The recitals contained in this Declaration and the Securities shall be taken as the statements of the Sponsor, and the Trustees do not assume any responsibility for their correctness. The Trustees make no representations as to the value or condition of the property of the Trust or any part thereof. The Trustees make no representations as to the validity or sufficiency of this Declaration or the Securities. Section 3.14. Duration of Trust. The Trust, unless terminated pursuant to the provisions of Article VIII hereof, shall have existence for forty (40) years from the date of the Original Declaration. Section 3.15. Mergers. (a) The Trust may not consolidate, amalgamate, merge with or into, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to, any corporation or other body, except as described in Sections 3.15(b) and (c) or Section 9 of Annex I. (b) The Trust may, with the consent of the Regular Trustees or, if there are more than two, a majority of the Regular Trustees and without the consent of the Holders of the Securities, the Delaware Trustee or the Institutional Trustee, consolidate, amalgamate, merge with or into, convert into, convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, or be replaced by, a trust organized as such under the laws of any state; provided that: (i) such successor entity (the "Successor Entity") either: -21- (A) expressly assumes all of the obligations of the Trust under the Securities; or (B) substitutes for the Securities other securities having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Preferred Securities rank with respect to Distributions and payments upon liquidation, redemption and otherwise; (ii) the Debenture Issuer expressly acknowledges a trustee of the Successor Entity that possesses the same powers and duties as the Institutional Trustee as the Holder of the Debentures; (iii) the Debenture Issuer uses its reasonable efforts to cause any Successor Securities to be listed or quoted, or to cause any Successor Securities to be listed or quoted upon notification of issuance, on any national securities exchange or with another organization on which the Preferred Securities are then listed or quoted; (iv) such merger, consolidation, amalgamation, conversion, conveyance, transfer, lease or replacement does not cause the Preferred Securities (including any Successor Securities) to be downgraded (if so rated prior to such transaction) by any nationally recognized statistical rating organization; (v) such merger, consolidation, amalgamation or replacement does not adversely affect the rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect (other than with respect to any dilution of such Holders' interests in the new entity); (vi) such Successor Entity has a purpose substantially identical to that of the Trust; (vii) prior to such merger, consolidation, amalgamation, conversion, conveyance, transfer, lease or replacement, the Sponsor has received an opinion of independent counsel to the Trust experienced in such matters to the effect that: (A) such merger, consolidation, amalgamation, conversion, conveyance, transfer, lease or replacement does not adversely affect the legal rights, preferences and privileges of the Holders of the Securities (including any Successor Securities) in any material respect (other thin with respect to any dilution of the Holders' interest in the new entity); (B) following such merger, consolidation, amalgamation, conversion, conveyance, transfer, lease or replacement, neither the Trust nor the Successor Entity will be required to register as an Investment Company under the Investment Company Act; and (C) following such merger, consolidation, amalgamation, conversion, conveyance, transfer, lease or replacement, the Trust (or the Successor Entity) -22- will continue to be, or will be, classified as a grantor trust for United States federal income tax purposes; and (viii) the Sponsor or any successor thereto guarantees the obligations of such Successor Entity under the Successor Securities at least to the extent provided by the Preferred Securities Guarantee. (c) Notwithstanding Section 3.15(b), the Trust shall not, except with the consent of Holders of 100% in liquidation amount of the Securities, consolidate, amalgamate, merge with or into, convert into, convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to, or be replaced by, any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, conversion, conveyance, transfer, lease or replacement would cause the Trust or Successor Entity to be classified as other than a grantor trust for United States federal income tax purposes. ARTICLE IV SPONSOR Section 4.1. Issuance of Securities to Sponsor. The aggregate stated liquidation amount of Common Securities outstanding at any time shall be no less than 1% of the capital of the Trust. Section 4.2. Responsibilities of the Sponsor. In connection with the issuance and sale of the Preferred Securities, the Sponsor shall have the exclusive right and responsibility to engage in the following activities: (a) to prepare for filing by the Trust with the Commission a registration statement on Form S-3 and any other registration statement or filing, including any amendments or supplements thereto, pertaining to the issuance of the Preferred Securities and the Preferred Securities Guarantee, and to execute such registration statements and amendments on behalf of the Trust in its capacity as Sponsor or direct the Regular Trustee to do so; (b) to determine the States in which to take appropriate action to qualify or register all or part of the Preferred Securities and the Preferred Securities Guarantee and to do any and all such acts, other than actions which must be taken by the Trust, and advise the Trust of actions it must take, and prepare for execution and filing any documents to be executed and filed by the Trust, as the Sponsor deems necessary or advisable in order to comply with the applicable laws of any such States; (c) if the Sponsor so desires, to prepare for filing by the Trust an application to the New York Stock Exchange or any other national stock exchange or the Nasdaq National Market for listing upon notice of issuance of any Preferred Securities; and (d) to negotiate the terms of, execute and enter into, on behalf of the Trust, the Underwriting Agreement and cause the Trust to perform its obligations thereunder; and (e) to negotiate the form of, execute and enter into, on behalf of the Trust, Delayed Delivery Contracts and cause the Trust to perform its obligations thereunder. -23- ARTICLE V TRUSTEES Section 5.1. Number of Trustees. The number of Trustees initially shall be five (5), and: (a) at any time before the issuance of any Securities, the Sponsor may, by written instrument, increase or decrease the number of Trustees; and (b) after the issuance of any Securities, the number of Trustees may be increased or decreased by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities or by written consent; provided, however, that the number of Trustees shall in no event be less than two (2); provided further that (i) if required by Section 5.2, one Trustee shall be the Delaware Trustee; (ii) there shall be at least one Trustee who is an employee, officer or Affiliate of the Sponsor (a "Regular Trustee"); and (iii) if required by Section 5.3, one Trustee shall be the Institutional Trustee, and such Institutional Trustee may also serve as Delaware Trustee if it meets the applicable requirements. Section 5.2. Delaware Trustee. (a) If required by the Statutory Trust Act, one Trustee (the "Delaware Trustee") shall be: (i) a natural person who is a resident of the State of Delaware; or (ii) if not a natural person, an entity which has its principal place of business in the State of Delaware, and otherwise meets the requirements of applicable law. (b) If the Institutional Trustee meets the requirements of Section 5.2(a), then the Institutional Trustee shall also be the Delaware Trustee and Section 3.11 shall have no application. Section 5.3. Institutional Trustee Eligibility. (a) For so long as this Declaration is required to qualify as an indenture under the Trust Indenture Act, there shall at all times be one Trustee (the "Institutional Trustee") which shall: (i) not be an Affiliate of the Sponsor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by federal, state, territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then for the purposes of this Section 5.3(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. -24- (b) If at any time the Institutional Trustee shall cease to be eligible to so act under Section 5.3(a), the Institutional Trustee shall immediately resign in the manner and with the effect set forth in Section 5.7(c). (c) If the Institutional Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Institutional Trustee and the Holder of the Common Securities (as if it were the obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. (d) The Preferred Securities Guarantee shall be deemed to be specifically described in this Declaration for purposes of clause (i) of the first provision contained in Section 310(b) of the Trust Indenture Act. (e) The initial Institutional Trustee shall be: The Bank of New York Section 5.4. Certain Qualifications of Regular Trustees and Delaware Trustee Generally. Each Regular Trustee and the Delaware Trustee (unless the Institutional Trustee also acts as Delaware Trustee) shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more Authorized Officers. Section 5.5. Regular Trustees. (a) The initial Regular Trustees shall be: Darrell D. Chessum Daniel A. Franchi Richard L. Walton (b) Except as expressly set forth in this Declaration and except if a meeting of the Regular Trustees is called with respect to any matter over which the Regular Trustees have power to act, any power of the Regular Trustees may be exercised by, or with the consent of, any one such Regular Trustee. (c) Unless otherwise determined by the Regular Trustees, and except as otherwise required by the Statutory Trust Act or applicable law, any Regular Trustee is authorized to execute on behalf of the Trust any documents which the Regular Trustees have the power and authority to cause the Trust to execute pursuant to Section 3.6, provided, that, where applicable, the registration statement referred to in Section 3.6, including any amendments thereto, shall be signed by all of the Regular Trustees personally or by power of attorney. Section 5.6. Delaware Trustee. The initial Delaware Trustee shall be: The Bank of New York (Delaware). Section 5.7. Appointment, Removal and Resignation of Trustees. (a) Subject to Section 5.7(b), Trustees may be appointed or removed without cause at any time: (i) until the issuance of any Securities, by written instrument executed by the Sponsor; and -25- (ii) after the issuance of any Securities, by vote of the Holders of a Majority in liquidation amount of the Common Securities voting as a class at a meeting of the Holders of the Common Securities. (b) (i) the Trustee that acts as Institutional Trustee shall not be removed in accordance with Section 5.7(a) until a successor Institutional Trustee (a "Successor Institutional Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Institutional Trustee and delivered to the Regular Trustees and the Sponsor; and (ii) the Trustee that acts as Delaware Trustee shall not be removed in accordance with this Section 5.7(a) until a successor Trustee possessing the qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a "Successor Delaware Trustee") has been appointed and has accepted such appointment by written instrument executed by such Successor Delaware Trustee and delivered to the Regular Trustees and the Sponsor. (c) A Trustee appointed to office shall hold office until his successor shall have been appointed or until his death, removal or resignation. Any Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing signed by the Trustee and delivered to the Sponsor and the Trust, which resignation shall take effect upon such delivery or upon such later date as is specified therein; provided, however, that: (i) No such resignation of the Trustee that acts as the Institutional Trustee shall be effective: (A) until a Successor Institutional Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Institutional Trustee and delivered to the Trust, the Sponsor and the resigning Institutional Trustee; or (B) until the assets of the Trust have been completely liquidated and the proceeds thereof distributed to the Holders of the Securities; and (ii) no such resignation of the Trustee that acts as the Delaware Trustee shall be effective until a Successor Delaware Trustee has been appointed and has accepted such appointment by instrument executed by such Successor Delaware Trustee and delivered to the Trust, the Sponsor and the resigning Delaware Trustee. (d) The Holders of the Common Securities shall use their best efforts to promptly appoint a Successor Delaware Trustee or Successor Institutional Trustee as the case may be if the Institutional Trustee or the Delaware Trustee delivers an instrument of resignation in accordance with this Section 5.7. (e) If no Successor Institutional Trustee or Successor Delaware Trustee shall have been appointed and accepted appointment as provided in this Section 5.7 within 60 days after delivery of an instrument of resignation or removal, the Institutional Trustee or Delaware Trustee resigning or being removed, as applicable, may petition any court of competent jurisdiction for appointment of a Successor Institutional Trustee or Successor Delaware Trustee. Such court -26- may thereupon, after prescribing such notice, if any, as it may deem proper and prescribe, appoint a Successor Institutional Trustee or Successor Delaware Trustee, as the case may be. (f) No Institutional Trustee or Delaware Trustee shall be liable for the acts or omissions to act of any Successor Institutional Trustee or Successor Delaware Trustee, as the case may be. Section 5.8. Vacancies Among Trustees. If a Trustee ceases to hold office for any reason and the number of Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is increased pursuant to Section 5.1, or if the number of Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A resolution certifying the existence of such vacancy by the Regular Trustees or, if there are more than two, a majority of the Regular Trustees shall be conclusive evidence of the existence of such vacancy. The vacancy shall be filled with a Trustee appointed in accordance with Section 5.7. Section 5.9. Effect of Vacancies. The death, resignation, retirement, removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Regular Trustees shall occur, until such vacancy is filled by the appointment of a Regular Trustee in accordance with Section 5.7, the Regular Trustees in office, regardless of their number, shall have all the powers granted to the Regular Trustees and shall discharge all the duties imposed upon the Regular Trustees by this Declaration. Section 5.10. Meetings. If there is more than one Regular Trustee, meetings of the Regular Trustees shall be held from time to time upon the call of any Regular Trustee. Regular meetings of the Regular Trustees may be held at a time and place fixed by resolution of the Regular Trustees. Notice of any in-person meetings of the Regular Trustees shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 48 hours before such meeting. Notice of any telephonic meetings of the Regular Trustee or any committee thereof shall be hand delivered or otherwise delivered in writing (including by facsimile, with a hard copy by overnight courier) not less than 24 hours before a meeting. Notices shall contain a brief statement of the time, place and anticipated purposes of the meeting. The presence (whether in person or by telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice of such meeting except where a Regular Trustee attends a meeting for the express purpose of objecting to the transaction of any activity on the ground that the meeting has not been lawfully called or convened. Unless provided otherwise in this Declaration, any action of the Regular Trustees may be taken at a meeting by vote of a majority of the Regular Trustees present (whether in person or by telephone) and eligible to vote with respect to such matter, provided that a Quorum is present, or without a meeting by, the unanimous written consent of the Regular Trustees. In the event there is only one Regular Trustee, any and all action of such Regular Trustee shall be evidenced by a written consent of such Regular Trustee. Section 5.11. Delegation of Power by Regular Trustees. (a) Any Regular Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents, including, but not limited -27- to those contemplated by Sections 3.6, 3.12 and 5.5(c), or executing or making any other governmental or other filing. (b) The Regular Trustees shall have power to delegate from time to time to such of their number or to officers of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Regular Trustees or otherwise as the Regular Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. Section 5.12. Merger, Conversion, Consolidation or Succession to Business. Any Person into which the Institutional Trustee or the Delaware Trustee or any Regular Trustee that is not a natural person, as the case may be, may be merged or converted or with which either may be consolidated, or any Person resulting from any merger, conversion or consolidation to which the Institutional Trustee or the Delaware Trustee or such Regular Trustee, as the case may be, shall be a party, or any Person succeeding to all or substantially all the corporate trust business of the Institutional Trustee or the Delaware Trustee or such Regular Trustee, as the case may be, shall be the successor of the Institutional Trustee or the Delaware Trustee or such Regular Trustee, as the case may be, hereunder, provided such Person shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. ARTICLE VI DISTRIBUTIONS Section 6.1. Distributions. Holders shall receive Distributions (as defined herein) in accordance with the applicable terms of the relevant Holder's Securities. Distributions shall be made on the Preferred Securities and the Common Securities in accordance with the preferences set forth in their respective terms. If and to the extent that the Debenture Issuer makes a payment of interest (including Compounded Interest (as defined in the Indenture) and Additional Interest (as defined in the Indenture), premium and/or principal on the Debentures held by the Institutional Trustee (the amount of any such payment being a "Payment Amount"), the Institutional Trustee shall and is directed, to the extent funds are available for that purpose, to make a distribution (a "Distribution") of the Payment Amount to Holders. ARTICLE VII ISSUANCE OF SECURITIES Section 7.1. General Provisions Regarding Securities. (a) The Regular Trustees shall on behalf of the Trust issue one class of preferred securities (which preferred securities may be or include Contract Preferred Securities issued and sold pursuant to Delayed Delivery Contracts) having such terms as are set forth in Annex I (the "Preferred Securities") and one class of common securities having such terms as are set forth in Annex I (the "Common Securities"). The Securities represent undivided beneficial interests in the assets of the Trust. The Trust shall issue no securities or other interests in the assets of the Trust other than the Preferred Securities and the Common Securities. -28- (b) The consideration received by the Trust for the issuance of the Securities shall constitute a contribution to the capital of the Trust and shall not constitute a loan to the Trust. (c) Upon issuance of the Securities as provided in this Declaration, the Securities so issued shall be deemed to be validly issued, fully paid and non-assessable. (d) Every Person, by virtue of having become a Holder or a Preferred Security Beneficial Owner in accordance with the terms of this Declaration, shall be deemed to have expressly assented and agreed to the terms of, and shall be bound by, this Declaration. Section 7.2. Execution and Authentication. (a) The Certificates shall be signed on behalf of the Trust by a Regular Trustee. In case any Regular Trustee of the Trust who shall have signed any of the Securities shall cease to be such Regular Trustee before the Certificates so signed shall be delivered by the Trust, such Certificates nevertheless may be delivered as though the person who signed such Certificates had not ceased to be such Regular Trustee; and any Certificate may be signed on behalf of the Trust by such persons who, at the actual date of execution of such Security, shall be the Regular Trustees of the Trust, although at the date of the execution and delivery of the Declaration any such person was not such a Regular Trustee. (b) One Regular Trustee shall sign the Preferred Securities for the Trust by manual or facsimile signature. Unless otherwise determined by the Trust, such signature shall, in the case of Common Securities, be a manual signature. A Preferred Security shall not be valid until authenticated by the manual signature of an authorized signatory of the Institutional Trustee. The signature shall be conclusive evidence that the Preferred Security has been authenticated under this Declaration. Upon a written order of the Trust signed by one Regular Trustee, the Institutional Trustee shall authenticate the Preferred Securities for original issue. The Institutional Trustee may appoint an authenticating agent acceptable to the Trust to authenticate Preferred Securities. An authenticating agent may authenticate Preferred Securities whenever the Institutional Trustee may do so. Each reference in this Declaration to authentication by the Institutional Trustee includes authentication by such agent. An authenticating agent has the same rights as the Institutional Trustee to deal with the Company or an Affiliate. Section 7.3. Form and Dating. The Preferred Securities and the Institutional Trustee's certificate of authentication shall be substantially in the form of Exhibit A-1 and the Common Securities shall be substantially in the form of Exhibit A-2, each of which is hereby incorporated in and expressly made a part of this Declaration. Certificates may be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof. The Securities may have letters, numbers, notations or other marks of identification or designation and such legends or endorsements required by law, stock exchange rule, agreements to which the Trust is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Trust). The Trust at the direction of the Sponsor shall furnish any such legend not contained in Exhibit A-1 to the Institutional Trustee in writing. Each Preferred Security Certificate shall be dated the -29- date of its authentication. The terms and provisions of the Securities set forth in Annex I and the forms of Securities set forth in Exhibits A-1 and A-2 are part of the terms of this Declaration and to the extent applicable, the Institutional Trustee and the Sponsor, by their execution and delivery of this Declaration, expressly agree to such terms and provisions and to be bound thereby. Section 7.4. Paying Agent. In the event that the Preferred Securities are not in book-entry only form, the Trust shall maintain in the Borough of Manhattan, City of New York, State of New York, an office or agency where the Preferred Securities may be presented for payment ("Paying Agent"), and any such Paying Agent shall comply with Section 317(b) of the Trust Indenture Act; provided that payment of distributions may be made at the option of the Regular Trustees on behalf of the Trust by check mailed to the address of the Holder entitled thereto or by wire transfer of immediately available funds to an account designated by such Holder in the United States. [The Trust shall maintain an office or agency where Securities may be presented for conversion ("Conversion Agent").] The Trust may appoint the Paying Agent [and the Conversion Agent] and may appoint one or more additional paying agents [and one or more additional conversion agents] in such other locations as it shall determine. The term "Paying Agent" includes any additional paying agent [and the term "Conversion Agent" includes any additional conversion agent]. The Trust may change any Paying Agent [or Conversion Agent] without prior notice to any Holder. The Trust shall notify the Institutional Trustee in writing of the name and address of any [Paying] Agent not a party to this Declaration. If the Trust fails to appoint or maintain another entity as Paying Agent [or Conversion Agent], the Institutional Trustee shall act as such. The Trust or any of its Affiliates may act as Paying Agent [or Conversion Agent]. The Trust shall act as Paying Agent [and Conversion Agent] for the Common Securities. [The Trust initially appoints the Institutional Trustee as Conversion Agent for the Preferred Securities.] ARTICLE VIII TERMINATION OF TRUST Section 8.1. Termination of Trust. (a) The Trust shall dissolve: (i) upon the bankruptcy of the Sponsor; (ii) upon the filing of a certificate of dissolution or its equivalent with respect to the Sponsor; or the revocation of the Sponsor's charter and the expiration of 90 days after the date of revocation without a reinstatement thereof; (iii) upon the entry of a decree of judicial dissolution of the Trust; (iv) when all of the Securities shall have been called for redemption and the amounts necessary for redemption thereof shall have been paid to the Holders in accordance with the terms of the Securities; (v) upon the occurrence and continuation of a Special Event in accordance with the terms of the Securities; or when all of the Debentures have been distributed to the Holders of the Securities in exchange for all of the Securities in accordance with the terms of the Securities; -30- [(vi) upon the distribution of the Sponsor's common stock to all Securities Holders upon conversion of all outstanding Preferred Securities;] (vii) the expiration of the term of the Trust on _________, 20__; or (viii) before the issuance of any Securities, with the consent of all of the Regular Trustees and the Sponsor. (b) As soon as is practicable after the occurrence of an event referred to in Section 8.1(a), the Trustees (each of whom is hereby authorized to take such action) shall file a certificate of cancellation with the Secretary of State of the State of Delaware terminating the Trust. (c) The provisions of Sections 3.9 and 3.10 and Article X shall survive the termination of the Trust. ARTICLE IX TRANSFER OF INTERESTS Section 9.1. Transfer of Securities. (a) Securities may only be transferred, in whole or in part, in accordance with the terms and conditions set forth in this Declaration and in the terms of the Securities. Any transfer or purported transfer of any Security not made in accordance with this Declaration shall be null and void. (b) Subject to this Article IX, Preferred Securities shall be freely transferable. (c) Subject to this Article IX, the Sponsor and any Related Party may only transfer Common Securities to the Sponsor or a Related Party of the Sponsor; provided that, any such transfer is subject to the condition precedent that the transferor obtain the written opinion of independent counsel experienced in such matters that such transfer would not cause more than an insubstantial risk that: (i) the Trust would be classified for United States federal income tax purposes as other than a grantor trust; and (ii) the Trust would be an Investment Company required to be registered under the Investment Company Act. Section 9.2. Transfer of Certificates. The Regular Trustees shall provide for the registration of Certificates and of transfers of Certificates, which will be effected without charge but only upon payment (with such indemnity as the Regular Trustees may require) in respect of any tax or other government charges that may be imposed in relation to it. The Trust will not be required to register or cause to be registered the transfer of Preferred Securities after they have been [converted,] exchanged, repaid or called for redemption. Upon surrender for registration of transfer of any Certificate, the Regular Trustees shall cause one or more new Certificates to be issued in the name of the designated transferee or transferees. Every Certificate surrendered for registration of transfer shall be accompanied by a written instrument of transfer in form satisfactory to the Regular Trustees duly executed by the Holder or such Holder's attorney duly -31- authorized in writing. Each Certificate surrendered for registration of transfer shall be canceled by the Regular Trustees. A transferee of a Certificate shall be entitled to the rights and subject to the obligations of a Holder hereunder upon the receipt by such transferee of a Certificate. By acceptance of a Certificate, each transferee shall be deemed to have agreed to be bound by this Declaration. Section 9.3. Deemed Security Holders. The Trustees may treat the Person in whose name any Certificate shall be registered on the books and records of the Trust as the sole Holder of such Certificate and of the Securities represented by such Certificate for purposes of receiving Distributions and for all other purposes whatsoever and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Certificate or in the Securities represented by such Certificate on the part of any Person, whether or not the Trust shall have actual or other notice thereof. Section 9.4. Book Entry Interests. (a) On original issuance to the Sponsor, the Preferred Securities Certificates will be issued by or on behalf of the Trust in the form of one or more, fully registered, global Preferred Security Certificates (each a "Global Certificate"), either to the Sponsor or to the initial Clearing Agency for the benefit of the Sponsor. The Preferred Securities Certificates, upon the initial transfer from the Sponsor, will be in the form of Global Certificates held by the Clearing Agency. (b) Except as provided in Sections 9.4(a) and 9.7: (i) Global Certificates delivered to the Clearing Agency shall be registered on the books and records of the Trust in the name of the Clearing Agency or its nominee, and no Preferred Security Beneficial Owner will receive a Definitive Preferred Security Certificate representing such Preferred Security Beneficial Owner's interests in such Global Certificates; (ii) the Trust and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Declaration (including the payment of Distributions on the Global Certificates and receiving approvals, votes or consents hereunder) as the Holder of the Preferred Securities and the sole holder of the Global Certificates and shall have no obligation to the Preferred Security Beneficial Owners; (iii) to the extent that the provisions of this Section 9.4 conflict with any other provisions of this Declaration, the provisions of this Section 9.4 shall control; and (iv) the rights of the Preferred Security Beneficial Owners shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Preferred Security Beneficial Owners and the Clearing Agency and/or the Clearing Agency Participants and receive and transmit payments of Distributions on the Global Certificates to such Clearing Agency Participants. The Clearing Agency will make book entry transfers among the Clearing Agency Participants. Section 9.5. Notices to Clearing Agency. Whenever a notice or other communication to the Preferred Security Holders is required under this Declaration, unless and until Definitive Preferred Security Certificates shall have been issued to the Preferred Security Beneficial -32- Owners pursuant to Section 9.7, the Regular Trustees shall give all such notices and communications specified herein to be given to the Preferred Security Holders to the Clearing Agency, and shall have no notice obligations to the Preferred Security Beneficial Owners. Section 9.6. Appointment of Successor Clearing Agency. If any Clearing Agency elects to discontinue its services as securities depositary with respect to the Preferred Securities, the Regular Trustees may, in their sole discretion, appoint a successor Clearing Agency with respect to such Preferred Securities. Section 9.7. Definitive Preferred Security Certificates. If: (a) a Clearing Agency elects to discontinue its services as securities depositary with respect to the Preferred Securities and a successor Clearing Agency is not appointed within 90 days after such discontinuance pursuant to Section 9.6; or (b) the Regular Trustees elect after consultation with the Sponsor to terminate the book entry system through the Clearing Agency with respect to the Preferred Securities, then: (c) definitive, fully registered Preferred Security Certificates (the "Definitive Preferred Security Certificates") shall be prepared by the Regular Trustees on behalf of the Trust with respect to such Preferred Securities; and (d) upon surrender of the Global Certificates by the Clearing Agency, accompanied by registration instructions, the Regular Trustees shall cause Definitive Preferred Securities Certificates to be delivered to Preferred Security Beneficial Owners in accordance with the instructions of the Clearing Agency. Neither the Trustees nor the Trust shall be liable for any delay in delivery of such instructions and each of them may conclusively rely on and shall be protected in relying on, said instructions of the Clearing Agency. The Definitive Preferred Security Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Regular Trustees, as evidenced by their execution thereof, and may have such letters, numbers or other marks of identification or designation and such legends or endorsements as the Regular Trustees may deem appropriate, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which Preferred Securities may be listed, or to conform to usage. Section 9.8. Mutilated, Destroyed, Lost or Stolen Certificates. If: (a) any mutilated Certificates should be surrendered to the Regular Trustees, or if the Regular Trustees shall receive evidence to their satisfaction of the destruction, loss or theft of any Certificate; and (b) there shall be delivered to the Regular Trustees such security or indemnity as may be required by them to keep each of them harmless, then, in the absence of notice that such Certificate shall have been acquired by a bona fide purchaser, any Regular Trustee on behalf of the Trust shall execute and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like -33- denomination. In connection with the issuance of any new Certificate under this Section 9.8, the Regular Trustees may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Certificate issued pursuant to this Section shall constitute conclusive evidence of an ownership interest in the relevant Securities, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time. ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS Section 10.1. Liability. (a) Except as expressly set forth in this Declaration, the Guarantees and the terms of the Securities, the Sponsor shall not be: (i) personally liable for the return of any portion of the capital contributions (or any return thereon) of the Holders of the Securities which shall be made solely from assets of the Trust; or (ii) be required to pay to the Trust or to any Holder of Securities any deficit upon dissolution of the Trust or otherwise. (b) Pursuant to Section 3803(a) of the Statutory Trust Act, the Holders of the Common Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware, provided, however, the Holders of the Common Securities shall be liable for all of the debts and obligations of the Trust (other than with respect to the Securities) to the extent not satisfied out of the Trust's assets, and, upon dissolution of the Trust, shall pay or make reasonable provision to pay all claims and obligations, including all contingent, conditional or unmatured claims and obligations known to the Trust and all claims and obligations which are known to the Trust but for which the identity of the claimant is unknown (other than with respect to amounts payable pursuant to the terms of the Securities) to the extent not satisfied out of the Trust's assets. (c) Pursuant to Section 3803(a) of the Statutory Trust Act, the Holders of the Preferred Securities shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. Section 10.2. Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Trust or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith on behalf of the Trust and in a manner such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Declaration or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's gross negligence or willful misconduct with respect to such acts or omissions. -34- (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Trust and upon such information, opinions, reports or statements presented to the Trust by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Trust, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Securities might properly be paid. Section 10.3. Fiduciary Duty. (a) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to any other Covered Person, an Indemnified Person acting under this Declaration shall not be liable to the Trust or to any other Covered Person for its good faith reliance on the provisions of this Declaration. The provisions of this Declaration, to the extent that they restrict the duties and liabilities of an Indemnified Person otherwise existing at law or in equity (other than the duties imposed on the Institutional Trustee under the Trust Indenture Act), are agreed by the parties hereto to replace such other duties and liabilities of such Indemnified Person. (b) Unless otherwise expressly provided herein: (i) whenever a conflict of interest exists or arises between any Covered Persons; or (ii) whenever this Declaration or any other agreement contemplated herein or therein provides that an Indemnified Person shall act in a manner that is, or provides terms that are, fair and reasonable to the Trust or any Holder of Securities, the Indemnified Person shall resolve such conflict of interest, take such action or provide such terms, considering in each case the relative interest of each party (including its own interest) to such conflict, agreement, transaction or situation and the benefits and burdens relating to such interests, any customary or accepted industry practices, and any applicable generally accepted accounting practices or principles. In the absence of bad faith by the Indemnified Person, the resolution, action or term so made, taken or provided by the Indemnified Person shall not constitute a breach of this Declaration or any other agreement contemplated herein or of any duty or obligation of the Indemnified Person at law or in equity or otherwise. (c) Whenever in this Declaration an Indemnified Person is permitted or required to make a decision: (i) in its "discretion" or under a grant of similar authority, the Indemnified Person shall be entitled to consider such interests and factors as it desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Trust or any other Person; or (ii) in its "good faith" or under another express standard, the Indemnified Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Declaration or by applicable law. -35- Section 10.4. Indemnification. (a) (i) The Sponsor shall indemnify, to the full extent permitted by law, any Sponsor Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Trust) by reason of the fact that he is or was a Sponsor Indemnified Person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Sponsor Indemnified Person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Trust, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (ii) The Sponsor shall indemnify, to the full extent permitted by law, any Sponsor Indemnified Person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Trust to procure a judgment in its favor by reason of the fact that he is or was a Sponsor Indemnified Person against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Trust and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such Sponsor Indemnified Person shall have been adjudged to be liable to the Trust unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (iii) To the extent that a Sponsor Indemnified Person shall be successful on the merits or otherwise (including dismissal of an action without prejudice or the settlement of an action without admission of liability) in defense of any action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 10.4(a), or in defense of any claim, issue or matter therein, he shall be indemnified, to the full extent permitted by law, against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (iv) Any indemnification under paragraphs (i) and (ii) of this Section 10.4(a) (unless ordered by a court) shall be made by the Sponsor only as authorized in the specific case upon a determination that indemnification of the Sponsor Indemnified Person is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (i) and (ii). Such determination shall be made (1) by the Regular Trustees by a majority vote of a quorum consisting of such Regular Trustees who were not parties to such action, suit or proceeding, (2) if such a quorum is not obtainable, -36- or, even if obtainable, if a quorum of disinterested Regular Trustees so directs, by independent legal counsel in a written opinion, or (3) by the Common Security Holder of the Trust. (v) Expenses (including attorneys' fees) incurred by a Sponsor Indemnified Person in defending a civil, criminal, administrative or investigative action, suit or proceeding referred to in paragraphs (i) and (ii) of this Section 10.4(a) shall be paid by the Sponsor in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Sponsor Indemnified Person to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Sponsor as authorized in this Section 10.4(a). Notwithstanding the foregoing, no advance shall be made by the Sponsor if a determination is reasonably and promptly made (i) by the Regular Trustees by a majority vote of a quorum of disinterested Regular Trustees, (ii) if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested Regular Trustees so directs, by independent legal counsel in a written opinion or (iii) the Common Security Holder of the Trust, that, based upon the facts known to the Regular Trustees, counsel or the Common Security Holder at the time such determination is made, such Sponsor Indemnified Person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Trust, or, with respect to any criminal proceeding, that such Sponsor Indemnified Person believed or had reasonable cause to believe his conduct was unlawful. In no event shall any advance be made in instances where the Regular Trustees, independent legal counsel or Common Security Holder reasonably determine that such person deliberately breached his duty to the Trust or its Common or Preferred Security Holders. (vi) The indemnification and advancement of expenses provided by, or granted pursuant to, the other paragraphs of this Section 10.4(a) shall not be deemed exclusive of any other rights to which those seeking indemnification and advancement of expenses may be entitled under any agreement, vote of stockholders or disinterested directors of the Sponsor or Preferred Security Holders of the Trust or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. All rights to indemnification under this Section 10.4(a) shall be deemed to be provided by a contract between the Sponsor and each Sponsor Indemnified Person who serves in such capacity at any time while this Section 10.4(a) is in effect. Any repeal or modification of this Section 10.4(a) shall not affect any rights or obligations then existing. (vii) The Sponsor or the Trust may purchase and maintain insurance on behalf of any person who is or was a Sponsor Indemnified Person against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Sponsor would have the power to indemnify him against such liability under the provisions of this Section 10.4(a). (viii) For purposes of this Section 10.4(a), references to "the Trust" shall include, in addition to the resulting or surviving entity, any constituent entity (including any constituent of a constituent) absorbed in a consolidation or merger, so that any person who is or was a director, trustee, officer or employee of such constituent entity, or is or was serving at the request of such constituent entity as a director, trustee, officer, -37- employee or agent of another entity, shall stand in the same position under the provisions of this Section 10.4(a) with respect to the resulting or surviving entity as he would have with respect to such constituent entity if its separate existence had continued. (ix) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 10.4(a) shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a Sponsor Indemnified Person and shall inure to the benefit of the heirs, executors and administrators of such a person. (b) The Sponsor agrees to indemnify the (i) Institutional Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Institutional Trustee and the Delaware Trustee, and (iv) any officers, directors, shareholders, members, partners, employees, representatives, custodians, nominees or agents of the Institutional Trustee and the Delaware Trustee (each of the Persons in (i) through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to hold each Fiduciary Indemnified Person harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration or the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against or investigating any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 10.4(b) shall survive the satisfaction and discharge of this Declaration. Section 10.5. Outside Business. Any Covered Person, the Sponsor, the Delaware Trustee and the Institutional Trustee may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Trust, and the Trust and the Holders of Securities shall have no rights by virtue of this Declaration in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee, or the Institutional Trustee shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and any Covered Person, shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular investment or other opportunity. Any Covered Person, the Delaware Trustee and the Institutional Trustee may engage or be interested in any financial or other transaction with the Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Sponsor of its Affiliates. ARTICLE XI ACCOUNTING Section 11.1. Fiscal Year. The fiscal year ("Fiscal Year") of the Trust shall be the calendar year, or such other year as is required by the Code. Section 11.2. Certain Accounting Matters. (a) At all times during the existence of the Trust, the Regular Trustees shall keep, or cause to be kept, full books, records and supporting -38- documents, which shall reflect detail, each transaction of the Trust. The books of account shall be maintained on the accrual method of accounting in compliance with generally accepted accounting principles, consistently applied. The Trust shall use the accrual method of accounting for the United States federal income tax purposes. The books of account and the records of the Trust shall be examined by and reported upon as of the end of each Fiscal Year of the Trust by a firm of independent certified public accountants selected by the Regular Trustees. (b) The Regular Trustees shall cause to be duly prepared and delivered to each of the Holders of Securities, any annual United States federal income tax information statement, required by the Code, containing such information with regard to the Securities held by each Holder as is required by the Code and the Treasury Regulations. Notwithstanding any right under the Code to deliver any such statement at a later date, the Regular Trustees shall endeavor to deliver all such statements within 30 days after the end of each Fiscal Year of the Trust. (c) The Regular Trustees shall cause to be duly prepared and filed with the appropriate taxing authority, an annual United States federal income tax return, on a Form 1041 or such other form required by United States federal income tax law, and any other annual income tax returns required to be filed by the Regular Trustees on behalf of the Trust with any state or local taxing authority. Section 11.3. Banking. The Trust shall maintain one or more bank accounts in the name and for the sole benefit of the Trust; provided, however, that all payments of funds in respect of the Debentures held by the Institutional Trustee shall be made directly to the Institutional Trustee Account and no other funds of the Trust shall be deposited in the Institutional Trustee Account. The sole signatories for such accounts shall be designated by the Regular Trustees; provided, however, that the Institutional Trustee shall designate the signatories for the Institutional Trustee Account. Section 11.4. Withholding. The Trust and the Regular Trustees shall comply with all withholding requirements under United States federal, state and local law. The Trust shall request, and the Holders shall provide to the Trust, such forms or certificates as are necessary to establish an exemption from withholding with respect to each Holder, and any representations and forms as shall reasonably be requested by the Trust to assist it in determining the extent of, and in fulfilling, its withholding obligations. The Regular Trustees shall file required forms with applicable jurisdictions and, unless an exemption from withholding is properly established by a Holder, shall remit amounts withheld with respect to the Holder to applicable jurisdictions. To the extent that the Trust is required to withhold and pay over any amounts to any authority with respect to distributions or allocations to any Holder, the amount withheld shall be deemed to be a distribution in the amount of the withholding to the Holder. In the event of any claimed over withholding, Holders shall be limited to an action against the applicable jurisdiction. If the amount required to be withheld was not withheld from actual Distributions made, the Trust may reduce subsequent Distributions by the amount of such withholding. -39- ARTICLE XII AMENDMENTS AND MEETINGS Section 12.1. Amendments. (a) Except as otherwise provided in this Declaration or by any applicable terms of the Securities, this Declaration may only be amended by a written instrument approved and executed by: (i) the Regular Trustees (or, if there are more than two Regular Trustees a majority of the Regular Trustees); (ii) if the amendment affects the rights, powers, duties, obligations or immunities of the Institutional Trustee, the Institutional Trustee; and (iii) if the amendment affects the rights, powers, duties, obligations or immunities of the Delaware Trustee, the Delaware Trustee. (b) No amendment shall be made, and any such purported amendment shall be void and ineffective: (i) unless, in the case of any proposed amendment, the Institutional Trustee shall have first received an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); (ii) unless, in the case of any proposed amendment which affects the rights, powers, duties, obligations or immunities of the Institutional Trustee, the Institutional Trustee shall have first received: (A) an Officers' Certificate from each of the Trust and the Sponsor that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (B) an opinion of counsel (who may be counsel to the Sponsor or the Trust) that such amendment is permitted by, and conforms to, the terms of this Declaration (including the terms of the Securities); and (iii) to the extent the result of such amendment would be to: (A) cause the trust to be classified for purposes of United States federal income taxation as other than a grantor trust; (B) reduce or otherwise adversely affect the powers of the Institutional Trustee in contravention of the Trust Indenture Act; or (C) cause the Trust to be deemed to be an Investment Company required to be registered under the Investment Company Act. -40- (c) At such time after the Trust has issued any Securities that remain outstanding, any amendment that would adversely affect the rights, privileges or preferences of any Holder of Securities may be effected only with such additional requirements as may be set forth in the terms of such Securities. (d) Section 9.1(c) and this Section 12.1 shall not be amended without the consent of all of the Holders of the Securities. (e) Article IV shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities. (f) The rights of the Holders of the Common Securities under Article V to increase or decrease the number of, and appoint and remove Trustees shall not be amended without the consent of the Holders of a Majority in liquidation amount of the Common Securities. (g) Notwithstanding Section 12.1(c), this Declaration may be amended without the consent of the Holders of the Securities to: (i) cure any ambiguity; (ii) correct or supplement any provision in this declaration that may be defective or inconsistent with any other provision of this Declaration; (iii) add to the covenants, restrictions or obligations of the Sponsor; (iv) conform to any change in the Investment Company Act or the Trust Indenture Act or the rules and regulations promulgated thereunder or any written change in interpretation or application of any such act, rule or regulation by any legislative body, court, government agency or regulatory authority, which amendment does not adversely affect the rights, preferences or privileges of the Holders in any material respect; (v) evidence the appointment of a Trustee or Successor Trustee; and (vi) cause the Trust to continue to be classified as a grantor trust for United States federal income tax purposes. Section 12.2. Meetings of the Holders of Securities: Action by Written Consent. (a) Meetings of the Holders of any class of Securities may be called at any time by the Regular Trustees (or as provided in the terms of the Securities) to consider and act on any matter on which Holders of such class of Securities are entitled to act under the terms of this Declaration, the terms of the Securities or the rules of any stock exchange on which the Preferred Securities are listed or admitted for trading. The Regular Trustees shall call a meeting of the Holders of such class if directed to do so by the Holders of at least 10% in liquidation amount of such class of Securities. Such direction shall be given by delivering to the Regular Trustees one or more calls in a writing stating that the signing Holders of Securities wish to call a meeting and indicating the general or specific purpose for which the meeting is to be called. Any Holders of Securities calling a meeting shall specify in writing the Security Certificates held by the Holders of Securities exercising the right to call a meeting and only those Securities specified shall be -41- counted for purposes of determining whether the required percentage set forth in the second sentence of this paragraph has been met. (b) Except to the extent otherwise provided in the terms of the Securities, the following provisions shall apply to meetings of Holders of Securities: (i) notice of any such meeting shall be given to all the Holders of Securities having a right to vote thereat at least 7 days and not more than 60 days before the date of such meeting. Whenever a vote, consent or approval of the Holders of Securities is permitted or required under this Declaration or the rules of any stock exchange on which the Preferred Securities are listed or admitted for trading, such vote, consent or approval may be given at a meeting of the Holders of Securities. Any action that may be taken at a meeting of the Holders of Securities may be taken without a meeting if a consent in writing setting forth the action so taken is signed by the Holders of Securities owning not less than the minimum amount of Securities in liquidation amount that would be necessary to authorize or take such action at a meeting at which all Holders of Securities having a right to vote thereon were present and voting. Prompt notice of the taking of action without a meeting shall be given to the Holders of Securities entitled to vote who have not consented in writing. The Regular Trustees may specify that any written ballot submitted to the Security Holder for the purpose of taking any action without a meeting shall be returned to the Trust within the time specified by the Regular Trustees; (ii) each Holder of a Security may authorize any Person to act for it by proxy on all matters in which a Holder of Securities is entitled to participate, including waiving notice of any meeting, or voting or participating at a meeting. No proxy shall be valid after the expiration of 11 months from the date thereof unless otherwise provided in the proxy. Every proxy shall be revocable at the pleasure of the Holder of Securities executing it. Except as otherwise provided herein, all matters relating to the giving, voting or validity of proxies shall be governed by the General Corporation Law of the State of Delaware relating to proxies, and judicial interpretations thereunder, as if the Trust were a Delaware corporation and the Holders of the Securities were stockholders of a Delaware corporation; (iii) each meeting of the Holders of the Securities shall be conducted by the Regular Trustees or by such other Person that the Regular Trustees may designate; and (iv) unless this Declaration, the terms of the Securities, the Trust Indenture Act or the listing rules of any stock exchange on which the Preferred Securities are then listed or trading, otherwise provides, the Regular Trustees, in their sole discretion, shall establish all other provisions relating to meetings of Holders of Securities, including notice of the time, place or purpose of any meeting at which any matter is to be voted on by any Holders of Securities, waiver of any such notice, action by consent without a meeting, the establishment of a record date, quorum requirements, voting in person or by proxy or any other matter with respect to the exercise of any such right to vote. -42- ARTICLE XIII REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE Section 13.1. Representations and Warranties of Institutional Trustee. The Trustee that acts as initial Institutional Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Institutional Trustee represents and warrants, as applicable, to the Trust and the Sponsor at the time of the Successor Institutional Trustee's acceptance of its appointment as Institutional Trustee that: (a) the Institutional Trustee is eligible to act as such under Section 5.3(a); (b) the Institutional Trustee is duly organized, validly existing and in good standing, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, the Declaration; (c) the execution, delivery and performance by the Institutional Trustee of the Declaration has been duly authorized by all necessary corporate action on the part of the Institutional Trustee. The Declaration has been duly executed and delivered by the Institutional Trustee, and it constitutes a legal, valid and binding obligation of the Institutional Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (d) the execution, delivery and performance of the Declaration by the Institutional Trustee does not conflict with or constitute a breach of the charter or by-laws of the Institutional Trustee; and (e) no consent, approval or authorization of, or registration with or notice to, any state or federal banking or other regulatory authority is required for the execution, delivery or performance by the Institutional Trustee, of the Declaration. Section 13.2. Representations and Warranties of Delaware Trustee. The Trustee that acts as initial Delaware Trustee represents and warrants to the Trust and to the Sponsor at the date of this Declaration, and each Successor Delaware Trustee represents and warrants to the Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance of its appointment as Delaware Trustee that: (a) The Delaware Trustee is a Delaware banking corporation with trust powers, duly organized, validly existing and in good standing, with trust power and authority to execute and deliver, and to carry out and perform its obligations under the terms of, the Declaration; (b) The Delaware Trustee has been authorized to perform its obligations under the Certificate of Trust and the Declaration. The Declaration under Delaware law constitutes a legal, valid and binding obligation of the Delaware Trustee, enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, moratorium, insolvency, and other similar laws affecting creditors' rights generally and to general principles of equity and the -43- discretion of the court (regardless of whether the enforcement of such remedies is considered in a proceeding in equity or at law); (c) No consent, approval or authorization of, or registration with or notice to, any Delaware or federal banking or other regulatory authority is required for the execution, delivery or performance by the Delaware Trustee, of the Declaration; and (d) The Delaware Trustee is a natural person who is a resident of the State of Delaware or, if not a natural person, an entity that has its principal place of business in the State of Delaware. ARTICLE XIV MISCELLANEOUS Section 14.1. Notices. All notices provided for in this Declaration shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) if given to the Trust, in care of the Regular Trustees at the Trust's mailing address set forth below (or such other address as the Trust may give notice of to the Holders of the Securities): Unocal Capital Trust II c/o Unocal Corporation 2141 Rosecrans Avenue, Suite 4000 El Segundo, California 90245 Fax No.: 310-726-7875 Attention: Chief Legal Officer and General Counsel (b) if given to the Delaware Trustee, at the mailing address set forth below (or such other address as Delaware Trustee may give notice of to the Holders of the Securities): The Bank of New York (Delaware) White Clay Center Route 273 Newark, Delaware 19711 Fax No.: Attention: (c) if given to the Institutional Trustee, at its Corporate Trust Office to the attention of Corporate Trust Trustee Administration (or such other address as the Institutional Trustee may give notice of to the Holders of the Securities). (d) if given to the Holder of the Common Securities, at the mailing address of the Sponsor set forth below (or such other address as the Holder of the Common Securities may give notice to the Trust): -44- Unocal Corporation 2141 Rosecrans Avenue, Suite 4000 El Segundo, California 90245 Fax No.: 310-726-7875 Attention: Chief Legal Officer and General Counsel (e) if given to any other Holder, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. Section 14.2. Governing Law. This Declaration and the rights of the parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware and all rights and remedies shall be governed by such laws without regard to principles of conflict of laws of the State of Delaware or any other jurisdiction that would call for the application of the law of any jurisdiction other than the State of Delaware; provided, however, that there shall not be applicable to the Trust, the Trustees or this Declaration any provision of the laws (statutory or common) of the State of Delaware pertaining to trusts that relate to or regulate, in a manner inconsistent with the terms hereof, (i) the filing with any court or governmental body or agency of trustee accounts or schedules of trustee fees and charges, (ii) affirmative requirements to post bonds for trustees, officers, agents or employees of a trust, (iii) the necessity for obtaining court or other governmental approval concerning the acquisition, holding or disposition of real or personal property, (iv) fees or other sums payable to trustees, officers, agents or employees of a trust, (v) the allocation of receipts and expenditures to income or principal, (vi) restrictions or limitations on the permissible nature, amount or concentration of trust investments or requirements relating to the titling, storage or other manner of holding or investing trust assets, or (vii) the establishment of fiduciary or other standards of responsibility or limitations on the acts or powers of trustees that are inconsistent with the limitations or liabilities or authorities and powers of the Trustees as set forth or referenced in this Declaration. Section 3540 of Title 12 of Chapter 35 of the Delaware Code shall not apply to the Trust. Section 14.3. Intention of the Parties. It is the intention of the parties hereto that the Trust be classified for United States federal income tax purposes as a grantor trust. The provisions of this Declaration shall be interpreted to further this intention of the parties. Section 14.4. Headings. Headings contained in this Declaration are inserted for convenience of reference only and do not affect the interpretation of this Declaration or any provision hereof. Section 14.5. Successors and Assigns. Whenever in this Declaration any of the parties hereto is named or referred to, the successors and assigns of such party shall be deemed to be included, and all covenants and agreements in this Declaration by the Sponsor and the Trustees shall bind and inure to the benefit of their respective successors and assigns, whether so expressed. -45- Section 14.6. Partial Enforceability. If any provision of this Declaration, or the application of such provision to any Person or circumstance, shall be held invalid, the remainder of this Declaration, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby. Section 14.7. Counterparts. This Declaration may contain more than one counterpart of the signature page and this Declaration may be executed by the affixing of the signature of each of the Trustees to one of such counterpart signature pages. All of such counterpart signature pages shall be read as though one, and they shall have the same force and effect as though all of the signers had signed a single signature page. -46- IN WITNESS WHEREOF, the undersigned has caused these presents to be executed as of the day and year first above written. ----------------------------------------- Darrell D. Chessum, as Regular Trustee ----------------------------------------- Daniel A. Franchi, as Regular Trustee ----------------------------------------- Richard L. Walton, as Regular Trustee THE BANK OF NEW YORK (DELAWARE), as Delaware Trustee By: ------------------------------------ Name: Title: THE BANK OF NEW YORK, as Institutional Trustee By: ------------------------------------ Name: Title: UNOCAL CORPORATION, as Sponsor By: ------------------------------------ Name: Title: -47- ANNEX I TERMS OF ____% TRUST [CONVERTIBLE] PREFERRED SECURITIES ____% TRUST COMMON SECURITIES Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust of Unocal Capital Trust II (the "Trust"), dated as of _____________ (as amended from time to time, the "Declaration"), the designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities and the Common Securities are set out below (each capitalized term used but not defined herein has the meaning set forth in the Declaration): 1. Designation and Number. (a) ___________________________ (____________) preferred securities of the Trust with an aggregate liquidation amount with respect to the assets of the Trust of _____________________ Dollars ($___________), and an initial liquidation amount with respect to the assets of $50 per preferred security, are hereby designated for the purposes of identification only as "___% Trust [Convertible] Preferred Securities" (the "Preferred Securities"). The Preferred Security Certificates evidencing the Preferred Securities shall be substantially in the form of Exhibit A-1 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice or to conform to the rules of any stock exchange or other organization on which the Preferred Securities are listed or quoted. (b) ______________________ (__________) common securities of the Trust with an aggregate liquidation amount with respect to the assets of the Trust of ____________________ Dollars ($_________), and an initial liquidation amount with respect to the assets of the Trust of $50 per common security, are hereby designated for the purposes of identification only as "___ % Trust Common Securities" (the "Common Securities"). The Common Security Certificates evidencing the Common Securities shall be substantially in the form of Exhibit A-2 to the Declaration, with such changes and additions thereto or deletions therefrom as may be required by ordinary usage, custom or practice. 2. Distributions. (a) Distributions payable on each Security will be fixed at a rate per annum of ___ % (the "Coupon Rate") of the liquidation amount of any Security, such rate being the rate of interest payable on the Debentures held or to be held by the Institutional Trustee. To the extent permitted by applicable law, Distributions not paid on the regularly scheduled payment date therefor will accumulate interest thereon at the Coupon Rate compounded quarterly. The term "Distributions" as used herein includes such cash distributions and any such interest payable unless otherwise stated. Distributions are payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. The amount of Distributions payable for any period shall be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, shall be computed on the basis of 30-day months and, for periods of less than a month, the actual number of days elapsed per 30-day month. (b) Distributions on the Securities shall be cumulative, shall accumulate from _________, ____, or the most recent date on which Distributions have been paid in full, and shall be payable quarterly in arrears, on March 1, June 1, September 1 and December 1 of each year, commencing on __________ 1, ____, except as otherwise described below, when, as and if funds are available for payment and except as otherwise described below. So long as the Debenture Issuer shall not be in default in the payment of interest on the Debentures, the Debenture Issuer has the right under the Indenture, at any time, and from time to time, to defer payments of interest by extending the interest payment period on the Debentures for a period not exceeding 20 consecutive quarterly interest payment periods (each an "Extension Period"), during which Extension Period no interest shall be due and payable on the Debentures, provided that no Extension Period shall last beyond the date of maturity of the Debentures. As a consequence of such deferral, Distributions will also be deferred. To the extent permitted by applicable law, during such Extension Period, deferred quarterly Distributions will continue to accumulate with interest thereon at the Coupon Rate, for each quarter of the Extension Period. Before the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarters or extend beyond the date of maturity of the Debentures. At the end of the Extension Period, payments of accumulated Distributions shall be payable to Holders of Preferred Securities on the first record date after the termination of such Extension Period. Upon the termination of any such Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the above requirements. (c) Distributions on the Securities shall be payable to the Holders thereof as they appear on the books and records of the Trust as of the close of business on the relevant record dates. While the Preferred Securities are represented by a Global Certificate, the relevant record dates shall be the close of business on the Business Day next preceding such distribution payment date, unless otherwise provided in the Declaration or unless a different regular record date is established or provided for the corresponding interest payment date on the Debentures. The relevant record dates for the Common Securities shall be the same as for the Preferred Securities. If the Preferred Securities shall not continue to remain in book-entry only form, the relevant record dates for the Preferred Securities shall be selected by the Regular Trustees, which dates shall conform to the rules of any securities exchange or other organization on which the Securities are listed or quoted, if any, and, shall be at least one Business Day prior to the relevant payment dates, which payment dates correspond to the interest payment dates on the Debentures. Distributions payable on any Securities that are not punctually paid on any Distribution payment date, as a result of the Debenture Issuer having failed to make a payment under the Debentures, shall cease to be payable to the Person in whose name such Securities are registered on the relevant record date, and such defaulted Distribution will instead be payable to the Person whose name such Securities are registered on the special record date or other specified date determined in accordance with the Indenture. If any date on which Distributions are payable on the Securities is not a Business Day, then payment of the Distribution payable on such date will be made A-2 on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment all be made on the immediately preceding Business Day, in each case, with the same force and effect as if made on such payment date. [(d) Accumulated but unpaid Distributions shall not be payable in cash on Securities converted by the Holder into Common Stock through the Conversion Agent into Common Stock pursuant to the terms of the Securities as set forth in this Annex I to the Declaration, nor will such accumulated but unpaid Distributions be converted into additional shares of Common Stock upon conversion, but such accumulated but unpaid Distributions shall be deemed to be paid in full and then returned by the Holder to the Sponsor as partial consideration for Common Stock received on conversion, and no payment, allowance or adjustment shall be made with respect to accumulated and unpaid Distributions on such Securities, which shall be deemed to be paid in full. If any Securities are converted into shares of Common Stock during the period from (but excluding) a record date to (and including) the next succeeding distribution payment date, then either (i) if such Securities have been called for redemption on a redemption date that occurs during such period, or are to be redeemed in connection with a Special Event which occurs during such period, the Trust shall not be required to pay Distributions on such distribution payment date in respect of such Securities or (ii) if otherwise converted during such period, such Securities shall be accompanied by funds equal to the Distributions payable on such succeeding distribution payment date on the liquidation amount so converted.] (e) All Distributions will be made Pro Rata (as defined herein) to the Holders of the Preferred Securities and the Common Securities entitled thereto. In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed Pro Rata among the Holders of the Securities. 3. Liquidation Distribution Upon Dissolution. In the event of any voluntary or involuntary dissolution, winding-up or termination of the Trust, the Holders of the Securities on the date of the dissolution, winding-up or termination, as the case may be, shall be entitled to receive out of the assets of the Trust available for distribution to Holders of Securities after satisfaction of liabilities of creditors an amount equal to the aggregate liquidation amount of the Securities plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"), unless, such dissolution, winding-up or termination occurs in connection with a Special Event in which, in accordance with Section 4(c), Debentures in an aggregate principal amount equal to the aggregate liquidation amount of such Securities, with an interest rate equal to the Coupon Rate of, and bearing accrued and unpaid interest in an amount equal to the accumulated and unpaid Distributions on, such Securities, shall be distributed on a Pro Rata basis to the Holders of the Securities in exchange for such Securities. If, upon any such dissolution, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by the Trust on the Securities shall be paid on a Pro Rata basis. A-3 Holders of Securities will be entitled to receive Liquidation Distributions on a Pro Rata basis. 4. Redemption and Distribution. (a) Upon the repayment of the Debentures in whole or in part, whether at maturity or upon redemption (either at the option of the Debenture Issuer or pursuant to a Special Event as described below), the proceeds from such repayment or payment shall be substantially simultaneously applied to redeem Pro Rata Preferred Securities and Common Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so repaid or redeemed at a redemption price per Security equal to the redemption price of the Debentures, together with accrued and unpaid Distributions thereon through (but excluding) the date of the redemption, payable in cash. Holders will be given not less than 30 nor more than 60 days notice of such redemption. (b) If fewer than all the outstanding Securities are to be so redeemed, the Common Securities and the Preferred Securities will be redeemed Pro Rata and the Preferred Securities to be redeemed will be as described in Section 4(g) below. (c) If, at any time, a Tax Event or an Investment Company Event (each, as defined below, a "Special Event") shall occur and be continuing, the Regular Trustees may with the consent of the Debenture Issuer, except in certain limited circumstances described in this Section 4(c), dissolve the Trust and, after satisfaction of creditors, cause Debentures held by the Institutional Trustee, having an aggregate principal amount equal to the aggregate liquidation amount of, with an interest rate identical to the Coupon Rate of, and accrued and unpaid interest equal to accrued and unpaid Distributions on, and having the same record date for payment as the Securities, to be distributed to the Holders of the Securities in liquidation of such Holders' interests in the Trust on a Pro Rata basis, within 90 days following the occurrence of such Special Event (the "90-Day Period"); provided, however, that such dissolution and distribution shall be conditioned on (i) the Regular Trustees' receipt of an opinion of independent tax counsel experienced in such matters (a "No Recognition Opinion"), which opinion may rely on published revenue rulings of the Internal Revenue Service, to the effect that the Holders of the Securities will not recognize any gain or loss for United States federal income tax purposes as a result of the dissolution of the Trust and the distribution of Debentures, (ii) the Debenture Issuer or the Trust being unable to eliminate, which elimination shall be complete within the 90-Day Period, such Special Event by taking some ministerial action that will have no adverse effect on the Trust, the Debenture Issuer, the Sponsor or the Holders of the Securities or does not subject any of them to more than de minimis regulatory requirements ("Ministerial Action"), such as filing a form or making an election, or pursuing some other similar reasonable measure, and (iii) the Debenture Issuer's prior written consent to such dissolution and distribution. If in the event of a Special Event (i) after receipt of a Dissolution Tax Opinion (as defined hereinafter) by the Regular Trustees, the Debenture Issuer has received an opinion (a "Redemption Tax Opinion") of independent tax counsel experienced in such matters that, as a result of a Tax Event, there is more than an insubstantial risk that the Debenture Issuer would be precluded from deducting the interest on the Debentures for United States federal income tax purposes even after the Debentures were distributed to the Holders of Securities in liquidation of A-4 such Holders' interests in the Trust as described in this Section 4(c), or (ii) after receipt of a Dissolution Tax Opinion or a Change in 1940 Act Opinion by the Regular Trustees, such Regular Trustees shall have been informed by independent tax counsel experienced in such matters that it, for substantive reasons, cannot deliver a No Recognition Opinion to the Trust, the Debenture Issuer shall have the right, upon not less than 30 nor more than 60 days notice, to redeem the Debentures, in whole or in part, at a redemption price equal to 100% of the principal amount to be redeemed plus accrued and unpaid interest thereon to but excluding the date of such redemption, for cash within the 90-Day Period. Following such redemption, Securities with an aggregate liquidation amount equal to the aggregate principal amount of the Debentures so redeemed shall be redeemed by the Trust at a redemption price equal to 100% of the liquidation amount to be redeemed on a Pro Rata basis, plus accumulated but unpaid Distributions thereon to but excluding such redemption date; provided, however, that if at the time there is available to the Debenture Issuer or the Trust the opportunity to eliminate, which elimination shall be complete within the 90-Day Period, such Special Event by taking some Ministerial Action, the Trust or the Debenture Issuer will pursue such Ministerial Action in lieu of redemption. "Tax Event" means that the Regular Trustees shall have received an opinion of independent tax counsel experienced in such matters (a "Dissolution Tax Opinion") to the effect that on or after ___________________, as a result of (a) any amendment to, clarification of, or change (including any announced prospective change) in the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein affecting taxation, (b) any judicial decision, official administrative pronouncement, ruling, regulatory procedure, notice or announcement, including any notice or announcement of intent to adopt such procedures or regulations (an "Administrative Action") or (c) any amendment to, clarification of, or change in the official position or the interpretation of such Administrative Action or judicial decision that differs from the theretofore generally accepted position, in each case, by any legislative body, court, governmental authority or regulatory body, irrespective of the manner in which such amendment, clarification or change is made known, which amendment, clarification, or change is effective or such pronouncement or decision is announced, in each case, on or after ___________________, there is more than an insubstantial risk that (i) the Trust is or will be within 90 days of the date thereof, subject to United States federal income tax with respect to interest accrued or received on the Debentures, (ii) the Trust is, or will be within 90 days of the date thereof, subject to more than a de minimis amount of taxes, duties or other governmental charges, or (iii) interest payable in cash by the Debenture Issuer to the Trust on the Debentures, other than interest attributable to the Common Securities, is not, or within 90 days of the date thereof will not be, deductible, in whole or in part, by the Debenture Issuer for United States federal income tax purposes; provided, however, that such an opinion shall not be deemed to be a "Dissolution Tax Opinion" if the change in tax law that requires the Debenture Issuer for United States federal income tax purposes to defer taking a deduction for any original issue discount ("OID") that accrues with respect to the Debentures until the interest payment related to such OID is paid by the Debenture Issuer in cash, provided such change in tax law does not create more than an insubstantial risk that the Debenture Issuer will be prevented from taking a deduction for OID accruing with respect to the Debentures as of a date that is no later than the date the interest payment related to such OID is actually paid by the Debenture Issuer in cash. A-5 "Investment Company Event" means that the Regular Trustees shall have received an opinion of independent counsel experienced in such matters (a "Change in 1940 Act Opinion") to the effect that, as a result of the occurrence of a change in law or regulation or a written change in interpretation or application of law or regulations by any legislative body, court, governmental agency or regulatory authority on or after ___________________, there is more than an insubstantial risk that the Trust is or will be considered an "investment company" which is required to be registered under the Investment Company Act of 1940, as amended. On and from the date fixed by the Regular Trustees for any distribution of Debentures upon dissolution of the Trust: (i) the Securities will be deemed to be not outstanding, (ii) the Clearing Agency or its nominee, as the record Holder of the Preferred Securities, will receive a registered certificate or certificates representing the Debentures to be delivered upon such distribution, and (iii) any certificates representing Securities, except for certificates representing Preferred Securities held by the Clearing Agency or its nominee (or any successor Clearing Agency or its nominee), will be deemed to represent Debentures having an aggregate principal amount equal to the aggregate stated liquidation amount of, with an interest rate identical to the Coupon Rate of, and accrued and unpaid interest equal to accrued and unpaid Distributions on such Preferred Securities until such certificates are presented to the Debenture Issuer or its agent for transfer or reissue. (d) The Trust may not redeem any of the outstanding Preferred Securities unless all accumulated and unpaid Distributions have been paid on all of the outstanding Preferred Securities for all quarterly Distribution periods terminating on or prior to the last Distribution payment date before the date of redemption. (e) If the Debentures are distributed to Holders of the Securities, pursuant to the terms of the Indenture, the Debenture Issuer will use its reasonable efforts to have the Debentures listed on the New York Stock Exchange or listed or quoted on any national securities exchange, or with another organization on which the Preferred Securities were listed or quoted immediately prior to the distribution of the Debentures, if any. (f) Notice of any redemption of, or notice of distribution of Debentures in exchange for the Securities (a "Redemption/Distribution Notice") will be given by the Trust by mail to each Holder of Securities to be redeemed or exchanged not less than 30 nor more than 60 days before the date fixed for redemption or exchange thereof which, in the case of a redemption, will be the date fixed for redemption of the Debentures. For purposes of the calculation of the date of redemption or exchange and the dates on which notices are given pursuant to this Section 4(f), a Redemption/Distribution Notice shall be deemed to be given on the day such notice is first mailed by first-class mail, postage prepaid, or by such other means suitable to assure delivery of such written notice, to Holders of Securities. Each Redemption/Distribution Notice shall be addressed to the Holders of Securities at the address of each such Holder appearing in the books and records of the Trust. No defect in the Redemption/Distribution Notice or in the mailing of either thereof with respect to any Holder shall affect the validity of the redemption or exchange proceedings with respect to any other Holder. (g) In the event that less than all the outstanding Securities are to be redeemed, the Securities to be redeemed shall be redeemed Pro Rata from each Holder of Preferred Securities, A-6 it being understood that, in respect of Preferred Securities registered in the name of and held of record by the Clearing Agency or its nominee, the distribution of the proceeds of such redemption will be made to each Clearing Agency Participant (or Person on whose behalf such nominee holds such securities) in accordance with the procedures applied by such Clearing Agency or nominee. (h) If Securities are to be redeemed and the Trust gives a Redemption/Distribution Notice, which notice may only be issued if the Debentures are redeemed as set out in this Section 4 (which notice will be irrevocable), then (i) while the Preferred Securities are in book-entry form, with respect to the Preferred Securities, by 12:00 noon, New York City time, on the redemption date, provided that the Debenture Issuer has paid the Institutional Trustee, the Institutional Trustee will deposit irrevocably with the Clearing Agency or its nominee funds sufficient to pay the applicable redemption price and accumulated but unpaid Distributions thereon with respect to the Preferred Securities and will give the Clearing Agency irrevocable instructions and authority to pay such amounts to the Holders of the Preferred Securities, and (ii) with respect to Preferred Securities issued in definitive form and Common Securities, provided that the Debenture Issuer has paid the Institutional Trustee a sufficient amount of cash in connection with the related redemption or maturity of the Debentures, the Institutional Trustee will pay the relevant redemption price and accumulated but unpaid Distributions thereon to the Holders of such Securities by check mailed to the address of the relevant Holder appearing on the books and records of the Trust on the redemption date. If a Redemption/Distribution Notice shall have been given and funds deposited as required, if applicable, then immediately prior to the close of business on the required date of such deposit, distributions will cease to accrue on the Securities so called for redemption and all rights of Holders of such Securities so called for redemption will cease, except the right of the Holders of such Securities to receive the redemption price and accumulated but unpaid Distributions thereon, but without further accrual of interest thereon. Neither the Regular Trustees nor the Trust shall be required to register or cause to be registered the transfer of any Securities that have been so called for redemption. If any date fixed for redemption of Securities is not a Business Day, then payment of the redemption price and accumulated but unpaid Distributions thereon payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date fixed for redemption. In the event that payment of the redemption price and accumulated but unpaid Distributions thereon in respect of any Securities is improperly withheld or refused and not paid either by the Institutional Trustee or, if paid to the Institutional Trustee, by the Sponsor as guarantor pursuant to the Preferred Securities Guarantee, Distributions on such Securities will continue to accumulate at the Coupon Rate from the original redemption date to the actual date of payment, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the redemption price and the accumulated but unpaid Distributions thereon. (i) Redemption/Distribution Notices shall be sent by the Regular Trustees on behalf of the Trust to (A) in respect of the Preferred Securities, the Clearing Agency or its nominee if the Global Certificates have been issued or, if Definitive Preferred Security Certificates have been issued, to the Holder thereof, and (B) in respect of the Common Securities, to the Holder thereof. A-7 (j) Subject to the foregoing and applicable law (including, without limitation, United States federal securities laws), the Sponsor or any of its subsidiaries may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or otherwise. [5. Conversion Rights. The Holder of Securities shall have the right at any time, beginning ____________, _____ and prior to the close of business (New York time) on _______________, 20__ (or, in the case of Securities called for redemption, prior to the close of business (New York time) on the Business Day prior to the redemption date), at their option, to cause the Conversion Agent to convert Securities, on behalf of the converting Holders, into shares of Common Stock in the manner described herein on and subject to the following terms and conditions: (a) The Securities will be convertible at the office of the Conversion Agent into fully paid and nonassessable shares of Common Stock pursuant to the Holder's direction to the Conversion Agent to exchange such Securities for a portion of the Debentures theretofore held by the Trust on the basis of $1 in liquidation amount of a Security per $1 in principal amount of Debentures, and immediately convert such amount of Debentures into that number of fully paid and nonassessable shares of Common Stock obtained by dividing the principal amount of such Debentures to be converted by the conversion price of the Debentures. The initial conversion price of the Debentures is $__________. The conversion price and the securities into which the Securities are convertible are subject to certain adjustments set forth in Article VII of the Supplemental Indenture. (b) In order to convert Securities into Common Stock the Holder shall deliver to the Conversion Agent at the office referred to above an irrevocable request to convert Securities on behalf of such Holder (the "Conversion Request"), together, if the Securities are in certificated form, with such certificates. The Conversion Request shall (i) set forth the number of Securities to be converted and the name or names, if other than the Holder, in which the shares of Common Stock should be issued and (ii) direct the Conversion Agent (A) to exchange such Securities for a portion of the Debentures held by the Trust (at the rate of exchange specified in the preceding paragraph) and (B) to immediately convert such Debentures on behalf of such Holder, into Common Stock (at the conversion rate specified in the preceding paragraph). The Conversion Agent shall notify the Trust of the Holder's election to exchange Securities for a portion of the Debentures held by the Trust and the Trust shall, upon receipt of such notice, deliver to the Conversion Agent the appropriate principal amount of Debentures for exchange in accordance with this Section. The Conversion Agent shall thereupon notify the Sponsor of the Holder's election to convert such Debentures into shares of Common Stock. Except as provided above, neither the Trust nor the Sponsor will make, or be required to make, any payment, allowance or adjustment upon any conversion on account of any accumulated and unpaid Distributions accrued on the Securities (including any Additional Amounts accrued thereon) surrendered for conversion, or on account of any accumulated and unpaid dividends on the shares of Common Stock issued upon such conversion. Securities shall be deemed to have been converted immediately prior to the close of business on the day on which a Conversion Request relating to such Securities is received by the Trust in accordance with the foregoing provision (the "Conversion Date"). The Person or Persons entitled to receive Common Stock issuable upon conversion of the Debentures shall be treated for all purposes as the record holder or holders of such Common A-8 Stock at such time. As promptly as practicable on or after the Conversion Date, the Sponsor shall issue and deliver at the office of the Conversion Agent a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion, together with the cash payment, if any, in lieu of any fraction of any share to the Person or Persons entitled to receive the same, unless otherwise directed by the Holder in the notice of conversion and the Conversion Agent shall distribute such certificate or certificates and cash payments, if any, to such Person or Persons. (c) Each Holder of a Security by his acceptance thereof appoints the Institutional Trustee as "Conversion Agent" for the purpose of effecting the conversion of Securities in accordance with this Section. In effecting the conversion and transactions described in this Section, the Conversion Agent shall be acting as agent of the Holders of Securities directing it to effect such conversion transactions. The Conversion Agent is hereby authorized (i) to exchange Securities from time to time for Debentures held by the Trust in connection with the conversion of such Securities in accordance with this Section and (ii) to convert all or a portion of the Debentures into Common Stock and thereupon to deliver such shares of Common Stock in accordance with the provisions of this Section and to deliver to the Trust a new Debenture or Debentures for any resulting unconverted principal amount. (d) No fractional shares of Common Stock will be issued as a result of conversion, but in lieu thereof, such fractional interest will be paid in cash by the Sponsor to the Conversion Agent, which in turn will make such payment to the Holder or Holders of Securities so converted. (e) Unocal shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of the Debentures, free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the Debentures then outstanding. Notwithstanding the foregoing, Unocal shall be entitled to deliver upon conversion of Debentures, shares of Common Stock reacquired and held in the treasury of Unocal (in lieu of the issuance of authorized and unissued shares of Common Stock), so long as any such treasury shares are free and clear of all liens, charges, security interests or encumbrances. Any shares of Common Stock issued upon conversion of the Debentures shall be duly authorized, validly issued and fully paid and nonassessable. The Trust shall deliver the shares of Common Stock received upon conversion of the Debentures to the converting Holder free and clear of all liens, charges, security interests and encumbrances, except for United States withholding taxes. Each of Unocal and the Trust shall prepare and shall use its best efforts to obtain and keep in force such governmental or regulatory permits or other authorizations as may be required by law, and shall comply with all applicable requirements as to registration or qualification of Common Stock (and all requirements to list Common Stock issuable upon conversion of Debentures that are at the time applicable), in order to enable Unocal to lawfully issue Common Stock to the Trust upon conversion of the Debentures and the Trust to lawfully deliver Common Stock to each Holder upon conversion of the Securities. (f) Unocal will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Debentures and the delivery of the shares of Common Stock by the Trust upon conversion of the Securities. Unocal shall not, however, be A-9 required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the Securities so converted were registered, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Trust the amount of any such tax, or has established to the satisfaction of the Trust that such tax has been paid. (g) Nothing in the preceding Paragraph (f) shall limit the requirement of the Trust to withhold taxes pursuant to the terms of the Securities or set forth in this Annex I to the Declaration or to the Declaration itself or otherwise require the Institutional Trustee or the Trust to pay any amounts on account of such withholdings. (h) Notwithstanding the foregoing, no Holder of Common Securities may convert such number of Common Securities which, after giving effect to such conversion, would result in the Holders of Common Securities in the aggregate holding less then 1 % of the capital of the Trust.] 6. Voting Rights - Preferred Securities. (a) Except as provided under Sections 6(b) and 8 and as otherwise required by law and the Declaration, the Holders of the Preferred Securities will have no voting rights. (b) Subject to the requirements set forth in this paragraph and to Sections 3.10(a)(vi) and 3.7(a)(vii) of the Declaration, the Holders of a Majority in liquidation amount of the Preferred Securities, voting separately as a class, may direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or direct the exercise of any trust or power conferred upon the Institutional Trustee under the Declaration, in each case, as holder of the Debentures, including the right to direct the Institutional Trustee, as holder of the Debentures, to (i) exercise the remedies available under the Indenture with respect to the Debentures, (ii) waive any past default and its consequences that is waivable under Section 6.06 of the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, provided, however, that, where a consent or action under the Indenture would require the consent or act of holders of a Super Majority in aggregate principal amount of Debentures, the Institutional Trustee may only give such consent or take such action at the written direction of the Holders of at least the same Super Majority percentage in liquidation amount of the Preferred Securities as is required under the Indenture of aggregate principal amount of the Debentures outstanding. The Institutional Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Preferred Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Institutional Trustee or the Debenture Trustee as set forth above, the Institutional Trustee shall not take any action in accordance with the directions of the Holders of the Preferred Securities under this paragraph unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that, as a result of such action, the Trust will not be classified as other than a grantor trust for United States federal income tax purposes. If an Event of Default has occurred and is continuing and such event is attributable to the failure of the Debenture Issuer to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), then a Holder of Preferred Securities may institute a Direct Action on or after the respective due date specified in A-10 the Debentures. In connection with such Direct Action, the rights of the Holders of the Common Securities will be subrogated to the rights of such Holder of Preferred Securities to the extent of any payment made by the Debenture Issuer to such Holder of Preferred Securities in such Direct Action. Except as provided in the preceding sentence, the Holders of Preferred Securities will not be able to exercise directly any other remedy available to the holder of the Debentures. Any approval or direction of Holders of Preferred Securities may be given at a separate meeting of Holders of Preferred Securities convened for such purpose, at a meeting of all of the Holders of Securities or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of Preferred Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Preferred Securities will be required for the Trust to redeem, exchange and/or cancel Preferred Securities or to distribute Debentures, each in accordance with the Declaration and the terms of the Securities. Notwithstanding that Holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned by the Sponsor or any Affiliate of the Sponsor shall not be entitled to vote or consent and shall, for purposes of such vote or consent, be treated as if they were not outstanding. 7. Voting Rights - Common Securities. (a) Except as provided under Sections 7(b), 7(c) and 8 and as otherwise required by law and the Declaration, the Holders of the Common Securities will have no voting rights. (b) The Holders of the Common Securities are entitled, in accordance with Article V of the Declaration, to vote to appoint, remove or replace any Trustee or to increase or decrease the number of Trustees. (c) Subject to Section 2.6 of the Declaration and only after any Event of Default with respect to the Preferred Securities has been cured, waived, or otherwise eliminated and subject to the requirements of the second to last sentence of this paragraph, the Holders of a Majority in liquidation amount of the Common Securities, voting separately as a class, may direct the time, method, and place of conducting any proceeding for any remedy available to the Institutional Trustee, or exercising any trust or power conferred upon the Institutional Trustee under the Declaration, including (i) directing the time method, place of conducting any proceeding for any remedy available to the Debenture Trustee, or exercising any trust or power conferred on the Debenture Trustee with respect to the Debentures, (ii) waive any past default and its consequences that is waivable under Section 6.06 of the Indenture, or (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, provided that, where a consent or action under the Indenture would require the consent or act of the A-11 holders of a Super Majority in aggregate principal amount of the Debentures, the Institutional Trustee may only give such consent or take such action at the written direction of the Holders of at least the same Super Majority percentage in liquidation amount of the Common Securities as is required under the Indenture of aggregate principal amount of the Debentures outstanding. Pursuant to this Section 7(c), the Institutional Trustee shall not revoke any action previously authorized or approved by a vote of the Holders of the Preferred Securities. Other than with respect to directing the time, method and place of conducting any remedy available to the Institutional Trustee or the Debenture Trustee as set forth above, the Institutional Trustee shall not take any action in accordance with the directions of the Holders of the Common Securities under this paragraph unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. If the Institutional Trustee fails to enforce its rights under the Declaration, any Holder of Common Securities may institute a legal proceeding directly against any Person to enforce the Institutional Trustee's rights under the Declaration, without first instituting a legal proceeding against the Institutional Trustee or any other Person. Any approval or direction of Holders of Common Securities may be given at a separate meeting of Holders of Common Securities convened for such purpose, at a meeting of all of the Holders of Securities or pursuant to written consent. The Regular Trustees will cause a notice of any meeting at which Holders of Common Securities are entitled to vote, or of any matter upon which action by written consent of such Holders is to be taken, to be mailed to each Holder of Common Securities. Each such notice will include a statement setting forth (i) the date of such meeting or the date by which such action is to be taken, (ii) a description of any resolution proposed for adoption at such meeting on which such Holders are entitled to vote or of such matter upon which written consent is sought and (iii) instructions for the delivery of proxies or consents. No vote or consent of the Holders of the Common Securities will be required for the Trust to redeem and cancel Common Securities or to distribute Debentures in accordance with the Declaration and the terms of the Securities. 8. Amendments to Declaration and Indenture. (a) Subject to the provisions of Section 12.1 of the Declaration, if any proposed amendment to the Declaration provides for, or the Regular Trustees otherwise propose to effect, (i) any action that would adversely affect the powers, preferences or special rights of the Securities in any material respect, whether by way of amendment to the Declaration or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than as described in Section 8.1 of the Declaration, then the Holders of outstanding Securities voting together as a single class, will be entitled to vote on such amendment or proposal (but not on any other amendment or proposal) and such amendment or proposal shall not be effective except with the approval of the Holders of at least a Majority in liquidation amount of the Securities affected thereby; provided, however, if any amendment or proposal referred to in clause (i) above would adversely affect only the Preferred Securities or only the Common Securities, then only the affected class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of a Majority in liquidation amount of such class of Securities. A-12 (b) In the event the consent of the Institutional Trustee, as the holder of the Debentures, is required under the Indenture with respect to any amendment, modification or termination of the Indenture or the Debentures, the Institutional Trustee shall request the written direction of the Holders of the Securities with respect to such amendment, modification or termination and shall vote with respect to such amendment, modification or termination as directed by a Majority in liquidation amount of the Securities voting together as a single class; provided, however, that where a consent under the Indenture would require the consent of the Holders of a Super Majority in aggregate principal amount of the Debentures, the Institutional Trustee may only give such consent at the direction of the Holders of at least the same Super Majority percentage in liquidation amount of the Securities as is required under the Indenture of aggregate principal amount of the Debentures outstanding; provided, further, that the Institutional Trustee shall not take any action in accordance with the directions of the Holders of the Securities under this Section 8(b) unless the Institutional Trustee has obtained an opinion of tax counsel to the effect that for the purposes of United States federal income tax the Trust will not be classified as other than a grantor trust on account of such action. 9. Pro Rata. A reference in these terms of the Securities to any distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder of Securities according to the aggregate liquidation amount of the Securities held by the relevant Holder in relation to the aggregate liquidation amount of all Securities outstanding unless, in relation to a payment, an Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Preferred Securities pro rata according to the aggregate liquidation amount of Preferred Securities held by such Holder relative to the aggregate liquidation amount of all Preferred Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Preferred Securities, to each Holder of Common Securities pro rata according to the aggregate liquidation amount of Common Securities held by such Holder relative to the aggregate liquidation amount of all Common Securities outstanding. 10. Ranking. The Preferred Securities rank pari passu, and payment thereon shall be made Pro Rata with, the Common Securities, except that where an Event of Default occurs and is continuing, the rights of Holders of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption, and otherwise are subordinated to the rights to payment of the Holders of the Preferred Securities. 11. Acceptance of Preferred Securities Guarantee and Indenture. Each Holder of Preferred Securities by the acceptance thereof, agrees to the provisions of (a) the Preferred Securities Guarantee, including the subordination provisions therein, and (b) the Indenture, including the subordination provisions therein. 12. No Preemptive Rights. The Holders of the Securities shall have no preemptive rights to subscribe for any additional securities. 13. Miscellaneous. These terms constitute a part of the Declaration. The Sponsor will provide a copy of the Declaration, the Preferred Securities Guarantee (if appropriate), and the Indenture to a Holder without charge on written request to the Sponsor at its principal place of business. A-13 EXHIBIT A-1 FORM OF PREFERRED SECURITY CERTIFICATE [FORM OF FACE OF SECURITY CERTIFICATE] [IF THE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT THE FOLLOWING: This Preferred Security is a Global Certificate within the meaning of the Declaration hereinafter referred to and is registered in the name of the Clearing Agency or a nominee of the Clearing Agency. This Preferred Security is exchangeable for Preferred Securities registered in the name of a person other than the Clearing Agency or its nominee only in the circumstances described in the Declaration and no transfer of this Preferred Security (other than a transfer of this Preferred Security as a whole by the Clearing Agency to a nominee of the Clearing Agency or by a nominee of the Clearing Agency to the Clearing Agency or another nominee of the Clearing Agency) may be registered except in such circumstances. ] [IF THE CLEARING AGENCY IS THE DEPOSITORY TRUST COMPANY, INSERT THE FOLLOWING OR SUCH OTHER STATEMENT AS THE DEPOSITORY TRUST COMPANY SHALL SPECIFY: Unless this Preferred Security is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York) to the Trust or its agent for registration of transfer, exchange or payment, and any Preferred Security issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company (and any payment hereon is made to Cede & Co. or to such other entity as is requested by an authorized representative of The Depository Trust Company), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein.] Certificate Number Number of Preferred Securities --------------- ----------- CUSIP No. [ ] ------------- Certificate Evidencing ___% Trust [Convertible] Preferred Securities of UNOCAL CAPITAL TRUST II ___ % Trust [Convertible] Preferred Securities (liquidation amount $__ per Trust Preferred Security) Unocal Capital Trust II, a statutory trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that __________________________________________ (the "Holder") is the registered owner of preferred securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the __ % Trust [Convertible] Preferred Securities (liquidation amount $__ per Trust [Convertible] Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of ___________________, ____, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Preferred Securities as set forth in Annex I to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Holder is entitled to the benefits of the Preferred Securities Guarantee to the extent provided therein. The Sponsor will provide a copy of the Declaration, the Preferred Securities Guarantee and the Indenture to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Preferred Securities as evidence of indirect beneficial ownership in the Debentures. These Preferred Securities shall not be entitled to any benefit under the Declaration, be valid or become obligatory for any purpose, until the Certificate of Authentication hereon shall have been signed by or on behalf of the Institutional Trustee. The provisions of these Preferred Securities are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. A1-2 IN WITNESS WHEREOF, the Trust has caused this certificate to be executed. UNOCAL CAPITAL TRUST II By: ----------------------------------- Name: Regular Trustee A1-3 [FORM OF CERTIFICATE OF AUTHENTICATION] INSTITUTIONAL TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Preferred Securities referred to in the within-mentioned Declaration. Dated: - ----------------------- THE BANK OF NEW YORK as Institutional Trustee or as Authentication Agent By: By: ---------------------------------- ---------------------------------- Authorized Signatory Authorized Signatory A1-4 [FORM OF REVERSE OF SECURITY] Distributions payable on each Preferred Security will be fixed at a rate per annum of __% (the "Coupon Rate") of the liquidation amount per Preferred Security, such rate being the rate of interest payable on the Debentures held by the Institutional Trustee. Distributions not paid on the regularly scheduled payment date therefor will bear interest thereon compounded quarterly at the Coupon Rate (to the extent permitted by applicable law). The term "Distributions" as used herein includes such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of 30-day months and, for periods of less than a month, the actual number of days elapsed per 30-day month. Except as otherwise described below, distributions on the Common Securities shall be cumulative, shall accumulate from _______________, ____, or the most recent date on which Distributions have been paid in full, and shall be payable quarterly (subject to deferral as set forth in the Declaration and the Indenture) in arrears, on March 1, June 1, September 1 and December 1 of each year, commencing _____________1, ____, which payment dates shall correspond to the interest payment dates on the Debentures, when, as and if funds are available for payment, to Holders at the close of business on the regular record date for such distribution, which regular record date shall be, while these Preferred Securities are represented by a Global Certificate, the close of business on the Business Day next preceding such distribution payment date, unless otherwise provided in the Declaration or unless a different regular record date is established or provided for the corresponding interest payment date on the Debentures. The Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period (each an "Extension Period") not exceeding 20 consecutive quarterly interest payment periods during which Extension Period no interest is due and payable on the Debentures; provided that no Extension Period shall last beyond the date of the maturity of the Debentures. As a consequence of such deferral, Distributions will also be deferred. To the extent permitted by applicable law, during such Extension Period deferred quarterly Distributions will continue to accumulate with interest thereon at the Coupon Rate compounded quarterly for each quarter of the Extension Period. Before the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarters or extend beyond the maturity date of the Debentures. At the end of the Extension Period, Payments of accumulated Distributions shall be payable to Holders of Preferred Securities on the first record date after the termination of such Extension Period. Upon the termination of any such Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the requirements set forth in the Indenture. A1-5 Upon repayment of the Debentures in whole or in part, whether at maturity or upon redemption, the proceeds from such repayment or payment shall be substantially simultaneously applied to redeem the Securities as provided in the Declaration. The Preferred Securities shall be exchangeable at the option of the Debenture Issuer in certain events as set forth in the Declaration and in the Supplemental Indenture. [The Preferred Securities shall be convertible into shares of Common Stock at the holder's direction to the Conversion Agent as set forth in the Declaration.] A1-6 [CONVERSION REQUEST To: [ ] as Conversion Agent of Unocal Capital Trust II The undersigned Holder of these Preferred Securities hereby irrevocably exercises the option to convert these Preferred Securities, or the portion below designated, into Common Stock of Unocal Corporation (the "Common Stock") in accordance with the terms of the Amended and Restated Declaration of Trust of Unocal Capital Trust II, dated as of _______________, _____ (as amended from time to time, the "Declaration"). Pursuant to the aforementioned exercise of the option to convert these Preferred Securities, the undersigned hereby directs the Conversion Agent (as that term is defined in the Declaration) on behalf of the undersigned to (i) exchange such Preferred Securities for a portion of the Debentures (as that term is defined in the Declaration) held by the Trust (at the rate of exchange specified in the terms of the Preferred Securities set forth as Annex I to the Declaration) and (ii) immediately convert such Debentures, into Common Stock pursuant to the terms of the Indenture (as defined in the Declaration). The undersigned does also hereby direct the Conversion Agent that the shares of Common Stock issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Date: ------------------,------ in whole __ in part ___ Number of Preferred Securities to be converted: ____________________ If a name or names other than the undersigned, please indicate in the spaces below the name or names in which the shares of Common Stock are to be issued, along with the address or addresses of such person or persons ------------------------- ------------------------- ------------------------- Signature (for conversion only) A1-7 Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number ------------------------- ------------------------- ------------------------- Signature Guarantee:(A) ] ---------- - ---------- (A) Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A1-8 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred Security Certificate to: ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ (Insert assignee's social security or tax identification number) ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ (Insert address and zip code of assignee) and irrevocably appoints ______________________________________________________ agent to transfer this Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: __________________ Signature: __________________ (Sign exactly as your name appears on the other side of this Preferred Security Certificate) ------------------------- Signature Guarantee:(A) __________] - ---------- (A) Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A1-9 EXHIBIT A-2 FORM OF COMMON SECURITY CERTIFICATE [FORM OF FACE OF SECURITY CERTIFICATE] Certificate Number Number of Common Securities -------------- ---------- Certificate Evidencing ___% Trust Common Securities of UNOCAL CAPITAL TRUST II ____% Trust Common Securities (liquidation amount $___ per Common Security) Unocal Capital Trust II, a statutory trust formed under the laws of the State of Delaware (the "Trust"), hereby certifies that __________________________________________ (the "Holder") is the registered owner of common securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the __% Trust Common Securities (liquidation amount $___ per Common Security) (the "Common Securities"). The Common Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designation, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities represented hereby are issued and shall in all respects be subject to the provisions of the Amended and Restated Declaration of Trust of the Trust dated as of ________________, _____, as the same may be amended from time to time (the "Declaration"), including the designation of the terms of the Common Securities as set forth in Annex I to the Declaration. Capitalized terms used herein but not defined shall have the meaning given them in the Declaration. The Sponsor will provide a copy of the Declaration and the Indenture to a Holder without charge upon written request to the Trust at its principal place of business. Upon receipt of this certificate, the Holder is bound by the Declaration and is entitled to the benefits thereunder. By acceptance, the Holder agrees to treat, for United States federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of indirect beneficial ownership in the Debentures. The provisions of these Common Securities are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. IN WITNESS WHEREOF, the Trust has caused this certificate to be executed. UNOCAL CAPITAL TRUST II By: ------------------------------------ Name: Regular Trustee A2-2 [FORM OF REVERSE OF SECURITY] Distributions payable on each Common Security will be fixed at a rate per annum of __ % (the "Coupon Rate") of the liquidation amount per Common Security, such rate being the rate of interest payable on the Debentures held by the Institutional Trustee. Distributions not paid on the regularly scheduled payment date therefor will bear interest thereon compounded quarterly at the Coupon Rate (to the extent permitted by applicable law). The term "Distributions" as used herein includes such cash distributions and any such interest payable unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Institutional Trustee and to the extent the Institutional Trustee has funds available therefor. The amount of Distributions payable for any period will be computed for any full quarterly Distribution period on the basis of a 360-day year of twelve 30-day months, and for any period shorter than a full quarterly Distribution period for which Distributions are computed, Distributions will be computed on the basis of 30-day months and, for periods of less than a month, the actual number of days elapsed per 30-day month. Except as otherwise described below, distributions on the Preferred Securities shall be cumulative, shall accumulate from ___________, ____, or the most recent date on which Distributions have been paid in full, and shall be payable quarterly (subject to deferral as set forth in the Declaration and the Indenture) in arrears, on March 1, June 1, September 1 and December 1 of each year, commencing __________ 1, ____, which payment dates shall correspond to the interest payment dates on the Debentures, when, as and if funds are available for payment, to Holders at the close of business on the regular record date for such distribution, which regular record date shall be, while these Common Securities are represented by a Global Certificate, the close of business on the Business Day next preceding such distribution payment date, unless otherwise provided in the Declaration or unless a different regular record date is established or provided for the corresponding interest payment date on the Debentures. The Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period from time to time on the Debentures for a period (each an "Extension Period") not exceeding 20 consecutive quarterly interest payment periods during which Extension Period no interest is due and payable on the Debentures, provided that no Extension Period shall last beyond the date of the maturity of the Debentures. As a consequence of such deferral, Distributions will also be deferred. To the extent permitted by applicable law, during such Extension Period deferred quarterly Distributions will continue to accumulate with interest thereon at the Coupon Rate compounded quarterly for each quarter of the Extension Period. Before the termination of any such Extension Period, the Debenture Issuer may further extend such Extension Period; provided that such Extension Period together with all such previous and further extensions thereof may not exceed 20 consecutive quarters or extend beyond the maturity date of the Debentures. At the end of the Extension Period, Payments of accumulated Distributions shall be payable to Holders of Common Securities on the first record date after the termination of such Extension Period. Upon the termination of any such Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the requirements set forth in the Indenture. A2-3 Upon repayment of the Debentures, in whole or in part, whether at maturity or upon redemption, the proceeds from such repayment or payment shall be substantially simultaneously applied to redeem the Securities as provided in the Declaration. The Common Securities shall be exchangeable at the option of the Debenture Issuer in certain events as set forth in the Declaration and in the Supplemental Indenture. [The Common Securities shall be convertible into shares of Common Stock at the holder's direction to the Conversion Agent as set forth in the Declaration.] A2-4 [CONVERSION REQUEST To: [ ] as Conversion Agent of Unocal Capital Trust II The undersigned Holder of these Common Securities hereby irrevocably exercises the option to convert these Common Securities, or the portion below designated, into Common Stock of Unocal Corporation (the "Common Stock") in accordance with the terms of the Amended and Restated Declaration of Trust of Unocal Capital Trust II, dated as of ______________, _____ (as amended from time to time, the "Declaration"). Pursuant to the aforementioned exercise of the option to convert these Common Securities, the undersigned hereby directs the Conversion Agent (as that term is defined in the Declaration) on behalf of the undersigned to (i) exchange such Common Securities for a portion of the Debentures (as that term is defined in the Declaration) held by the Trust (at the rate of exchange specified in the terms of the Common Securities set forth as Annex I to the Declaration) and (ii) immediately convert such Debentures, into Common Stock pursuant to the terms of the Indenture (as defined in the Declaration). The undersigned does also hereby direct the Conversion Agent that the shares of Common Stock issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Date: -------------------,----- in whole __ in part ___ Number of Common Securities to be converted: -------------------- If a name or names other than the undersigned, please indicate in the spaces below the name or names in which the shares of Common Stock are to be issued, along with the address or addresses of such person or persons --------------------------- --------------------------- --------------------------- --------------------------- Signature (for conversion only) A2-5 Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number --------------------------- --------------------------- --------------------------- Signature Guarantee:(A) ] ------------------ - ---------- (A) Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Conversion Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Conversion Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A2-6 ASSIGNMENT FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security Certificate to: ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- (Insert assignee's social security or tax identification number) ------------------------------------------------------- ------------------------------------------------------- ------------------------------------------------------- (Insert address and zip code of assignee) and irrevocably appoints ______________________________________________________ agent to transfer this Common Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: ------------------------- Signature: -------------------------------- (Sign exactly as your name appears on the other side of this Common Security Certificate) Signature Guarantee:(A) ------------------------------- - ---------- (A) Signature must be guaranteed by an "eligible guarantor institution" that is, a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A2-7 EX-4.13 5 y82934exv4w13.txt FORM OF PREFERRED SECURITIES GUARANTEE AGREEMENT EXHIBIT 4.13 FORM OF PREFERRED SECURITIES GUARANTEE AGREEMENT UNOCAL CAPITAL TRUST II DATED AS OF ---------------,----- TABLE OF CONTENTS Page ---- ARTICLE I Definitions and Interpretation Section 1.1. Definitions and Interpretation....................................................... 1 ARTICLE II Trust Indenture Act Section 2.1. Trust Indenture Act; Application..................................................... 4 Section 2.2. Lists of Holders..................................................................... 4 Section 2.3. Reports by the Preferred Guarantee Trustee........................................... 5 Section 2.4. Periodic Reports to Preferred Guarantee Trustee...................................... 5 Section 2.5. Evidence of Compliance with Conditions Precedent..................................... 5 Section 2.6. Events of Default; Waiver............................................................ 5 Section 2.7. Event of Default; Notice............................................................. 5 Section 2.8. Conflicting Interests................................................................ 6 ARTICLE III Powers, Duties and Rights of Preferred Guarantee Trustee Section 3.1. Powers and Duties of the Preferred Guarantee Trustee................................. 6 Section 3.2. Certain Rights of Preferred Guarantee Trustee........................................ 7 Section 3.3. Not Responsible for Recitals or Issuance of Preferred Securities Guarantee........... 9 ARTICLE IV Preferred Guarantee Trustee Section 4.1. Preferred Guarantee Trustee Eligibility............................................. 10 Section 4.2. Appointment Removal and Resignation of Preferred Guarantee Trustee.................. 10 ARTICLE V Preferred Securities Guarantee Section 5.1. Preferred Securities Guarantee...................................................... 11 Section 5.2. Waiver of Notice and Demand......................................................... 11 Section 5.3. Obligations Not Affected............................................................ 11 Section 5.4. Rights of Holders................................................................... 12 Section 5.5. Guarantee of Payment................................................................ 12 Section 5.6. Subrogation......................................................................... 12 Section 5.7. Independent Obligations............................................................. 13
-i- ARTICLE VI Limitation of Transactions; Subordination Section 6.1. Limitation of Transactions.......................................................... 13 Section 6.2. Subordination....................................................................... 13 ARTICLE VII Termination Section 7.1. Termination......................................................................... 14 ARTICLE VIII Indemnification Section 8.1. Exculpation......................................................................... 14 Section 8.2. Indemnification..................................................................... 14 ARTICLE IX Miscellaneous Section 9.1. Successors and Assigns.............................................................. 15 Section 9.2. Amendments.......................................................................... 15 Section 9.3. Notices............................................................................. 15 Section 9.4. Benefit............................................................................. 16 Section 9.5. Governing Law....................................................................... 16
-ii- PREFERRED SECURITIES GUARANTEE AGREEMENT This GUARANTEE AGREEMENT (the "Preferred Securities Guarantee") dated as of __________, ____, is executed and delivered by Unocal Corporation, a Delaware corporation (the "Guarantor"), and The Bank of New York, as trustee (the "Preferred Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of Unocal Capital Trust II, a Delaware statutory trust (the "Issuer"). WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the "Declaration") dated as of __________, ____, among the trustees of the Issuer named therein, the Guarantor, as sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Issuer, the Issuer is issuing to the Holders as of the date hereof up to _________ preferred securities, having an aggregate liquidation amount of up to $_______ designated the "___% Trust [Convertible] Preferred Securities" (the "Preferred Securities"); WHEREAS, as an incentive to purchase such Preferred Securities, the Guarantor desires fully and unconditionally to agree, to the extent set forth in this Preferred Securities Guarantee, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; and WHEREAS, as of the date hereof, the Guarantor is also executing and delivering a guarantee agreement (the "Common Securities Guarantee") in substantially identical terms to this Preferred Securities Guarantee for the benefit of the holders of the common securities of the Issuer (the "Common Securities"), except that if an Event of Default (as defined in the Declaration) has occurred and is continuing, the rights of holders of the Common Securities to receive payments under the Common Securities Guarantee are subordinated to the rights of Holders of Preferred Securities to receive Guarantee Payments under this Preferred Securities Guarantee. NOW, THEREFORE, in consideration of the foregoing, the Guarantor executes and delivers this Preferred Securities Guarantee for the benefit of the Holders of Preferred Securities. ARTICLE I Definitions and Interpretation Section 1.1. Definitions and Interpretation. In this Preferred Securities Guarantee, unless the context otherwise requires: (a) capitalized terms used in this Preferred Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) terms defined in the Declaration as of the date of execution of this Preferred Securities Guarantee have the same meaning when used in this Preferred Securities Guarantee unless otherwise defined in this Preferred Securities Guarantee; (c) a term defined anywhere in this Preferred Securities Guarantee has the same meaning throughout; (d) all references to "the Preferred Securities Guarantee" or "this Preferred Securities Guarantee" are to this Preferred Securities Guarantee as modified, supplemented or amended from time to time; (e) all references in this Preferred Securities Guarantee to Articles and Sections are to Articles and Sections of this Preferred Securities Guarantee, unless otherwise specified; (f) a term defined in the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") has the same meaning when used in this Preferred Securities Guarantee, unless otherwise defined in this Preferred Securities Guarantee or unless the context otherwise requires; and (g) a reference to the singular includes the plural and vice versa. "Authorized Officer" of a Person means any Person that is authorized to bind such Person, provided, however, that the Authorized Officer signing a certificate furnished pursuant to Section 314(a)(4) of the Trust Indenture Act shall be the principal executive, financial or accounting officer of such Person. "Common Securities" has the meaning specified in the recitals. "Common Securities Guarantee" has the meaning specified in the recitals. "Corporate Trust Office" means the office of the Preferred Guarantee Trustee at which the corporate trust business of the Preferred Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Preferred Securities Guarantee is located at 101 Barclay Street (21 West), New York, New York 10286. "Covered Person" means any Holder or beneficial owner of Preferred Securities. "Declaration" has the meaning specified in the recitals. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Preferred Securities Guarantee; provided, however, that, except with respect to a default in respect of any Guarantee Payment (or a default under Section 6.1 hereof as a result of an event of default under the Declaration), any such default shall constitute an Event of Default only if the Guarantor shall have received written notice of such default and shall not have cured such default within 60 days after receipt of such notice. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by the Issuer: (a) any accumulated and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Preferred Securities to the extent the Issuer shall have funds available therefor, (b) the redemption price (the "Redemption Price"), and all accumulated and unpaid Distributions to the date of redemption, to the extent the Issuer has funds available therefor, with respect to any Preferred Securities called for redemption by the Issuer, and (c) upon a voluntary or involuntary dissolution, winding-up or termination of the Issuer (other than in connection with [the conversion of all of the Trust Securities into the Guarantor's common stock or] the -2- distribution of Debentures (as defined in the Declaration) to the Holders in exchange for Preferred Securities as provided in the Declaration), the lesser of (i) the aggregate of the liquidation amount and all accrued and unpaid Distributions on the Preferred Securities to the date of payment, to the extent the Issuer shall have funds available therefor and (ii) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the "Liquidation Distribution"). "Guarantor" has the meaning specified in the preamble. "Holder" shall mean any holder, as registered on the books and records of the Issuer, of any Preferred Securities; provided, however, that, in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate (as defined in the Declaration) of the Guarantor. "Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of the Preferred Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Preferred Guarantee Trustee. "Indenture" means the Multiple-Series Indenture dated as of September 11, 1996, of the Guarantor, as supplemented by the Second Supplemental Indenture dated as of _________ ____, between the Guarantor and The Bank of New York, as trustee, relating to the Debentures. "Issuer" has the meaning specified in the preamble. "Liquidation Distribution" has the meaning specified in the definition of "Guarantee Payments." "List of Holders" has the meaning specified in Section 2.2. "Majority in liquidation amount of the Preferred Securities" means, except as provided in the terms of the Preferred Securities, or except as provided by the Trust Indenture Act, a vote by Holder(s), voting separately as a class, of more than 50% of the liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of all outstanding Preferred Securities. "1996 Debentures" means the Guarantor's 6-1/4% Convertible Junior Subordinated Debentures due 2026. "1996 Preferred Securities" means Unocal Capital Trust's 6 1/4% Trust Convertible Preferred Securities. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, statutory or business trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. -3- "Preferred Guarantee Trustee" means The Bank of New York, until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Preferred Securities Guarantee and thereafter means each such Successor Preferred Guarantee Trustee. "Preferred Securities" has the meaning specified in the recitals. "Preferred Securities Guarantee" has the meaning specified in the preamble. "Redemption Price" has the meaning specified in the definition of "Guarantee Payments." "Responsible Officer" means, with respect to the Preferred Guarantee Trustee, any officer within the Corporate Trust Office of the Preferred Guarantee Trustee, including any vice president, any assistant vice president, any assistant secretary, the treasurer, any assistant treasurer or other officer within the Corporate Trust Office of the Preferred Guarantee Trustee customarily performing functions similar to those performed by any of the above designated officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Successor Preferred Guarantee Trustee" means a successor Preferred Guarantee Trustee possessing the qualifications to act as Preferred Guarantee Trustee under Section 4.1. "Trust Securities" means, collectively, the Common Securities and the Preferred Securities. ARTICLE II Trust Indenture Act Section 2.1. Trust Indenture Act; Application. (a) This Preferred Securities Guarantee is subject to the provisions of the Trust Indenture Act that are required to be part of this Preferred Securities Guarantee and shall, to the extent applicable, be governed by such provisions; and (b) if and to the extent that any provision of this Preferred Securities Guarantee limits, qualifies or conflicts with the duties imposed by Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. Section 2.2. Lists of Holders. (a) The Guarantor shall provide the Preferred Guarantee Trustee with a list, in such form as the Preferred Guarantee Trustee may reasonably require, of the names and addresses of the Holders ("List of Holders") (i) within 1 Business Day after each record date for payment of Distributions as long as the Preferred Securities remain in book-entry only form, otherwise within 14 days after each record date for payment of Distributions, and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 14 days before such List of Holders is given to the Preferred Guarantee Trustee, provided, that the Guarantor shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders -4- given to the Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Preferred Guarantee Trustee shall comply with its obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act. Section 2.3. Reports by the Preferred Guarantee Trustee. Within 60 days after May 15 of each year, the Preferred Guarantee Trustee shall provide to the Holders such reports as are required by Section 313 of the Trust Indenture Act if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. Section 2.4. Periodic Reports to Preferred Guarantee Trustee. The Guarantor shall provide to the Preferred Guarantee Trustee such documents, reports and information as are required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Delivery of such reports, information and documents to the Preferred Guarantee Trustee is for informational purposes only and the Preferred Guarantee Trustee's receipt of such shall not constitute constructive notice of any information contained therein, including the Guarantor's compliance with any of its covenants hereunder (as to which the Preferred Guarantee Trustee is entitled to rely exclusively on Officers' Certificates (as defined in the Declaration)). Section 2.5. Evidence of Compliance with Conditions Precedent. The Guarantor shall provide to the Preferred Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Preferred Securities Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. Section 2.6. Events of Default; Waiver. The Holders of Majority in liquidation amount of the Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of the Preferred Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. Section 2.7. Event of Default; Notice. (a) The Preferred Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default (or an event which, with the passage of time or the giving of notice or both, would constitute an Event of Default), transmit by mail, first class postage prepaid, to the Holders, notices of all Events of Default or defaults actually known to a Responsible Officer of the Preferred Guarantee Trustee, unless such defaults have been cured before the giving of such notice, provided, that, the Preferred Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Preferred -5- Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders. (b) The Preferred Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Preferred Guarantee Trustee shall have received written notice thereof, or a Responsible Officer of the Preferred Guarantee Trustee charged with the administration of the Declaration shall have obtained actual knowledge thereof. Section 2.8. Conflicting Interests. The Declaration shall be deemed to be specifically described in this Preferred Securities Guarantee for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III Powers, Duties and Rights of Preferred Guarantee Trustee Section 3.1. Powers and Duties of the Preferred Guarantee Trustee. (a) This Preferred Securities Guarantee shall be held by the Preferred Guarantee Trustee for the benefit of the Holders, and the Preferred Guarantee Trustee shall not transfer this Preferred Securities Guarantee to any Person except a Holder exercising his or her rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee Trustee upon acceptance by such Successor Preferred Guarantee Trustee of its appointment to act as Successor Preferred Guarantee Trustee. The right, title and interest of the Preferred Guarantee Trustee shall automatically vest in any Successor Preferred Guarantee Trustee, and such vesting and succession of title shall be effective whether or not conveyance documents have been executed and delivered pursuant to the appointment of such Successor Preferred Guarantee Trustee. (b) If an Event of Default actually known to a Responsible Officer of the Preferred Guarantee Trustee has occurred and is continuing, the Preferred Guarantee Trustee shall enforce this Preferred Securities Guarantee for the benefit of the Holders. (c) The Preferred Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Preferred Securities Guarantee, and no implied covenants shall be read into this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) and is actually known to a Responsible Officer of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such of the rights and powers vested in it by this Preferred Securities Guarantee, and shall use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Preferred Securities Guarantee shall be construed to relieve the Preferred Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: -6- (A) the duties and obligations of the Preferred Guarantee Trustee shall be determined solely by the express provisions of this Preferred Securities Guarantee, and the Preferred Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Preferred Securities Guarantee, and no implied covenants or obligations shall be read in this Preferred Securities Guarantee against the Preferred Guarantee Trustee; and (B) in the absence of bad faith on the part of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee may conclusively rely, as to the truth of the statements and correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Preferred Guaranteed Trustee and conforming to the requirements of this Preferred Securities Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Preferred Securities Guarantee; (ii) the Preferred Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Preferred Guarantee Trustee, unless it shall be proved that the Preferred Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Preferred Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Preferred Guarantee Trustee, or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Preferred Securities Guarantee; and (iv) no provision of this Preferred Securities Guarantee shall require the Preferred Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its duties or in the exercise of any of its rights or powers, if the Preferred Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Preferred Securities Guarantee or indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against such risk or liability is not reasonably assured to it. Section 3.2. Certain Rights of Preferred Guarantee Trustee. (a) Subject to the provisions of Section 3.1: (i) The Preferred Guarantee Trustee may conclusively rely, and shall be fully protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, -7- note, other evidence of indebtedness or other paper or document or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (ii) Any direction or act of the Guarantor contemplated by this Preferred Securities Guarantee shall be sufficiently evidenced by an Officers' Certificate. (iii) Whenever, in the administration of this Preferred Securities Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Preferred Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor. (iv) The Preferred Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or reregistration thereof). (v) The Preferred Guarantee Trustee may consult with counsel of its selection, and the advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Preferred Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Preferred Securities Guarantee from any court of competent jurisdiction. (vi) The Preferred Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Preferred Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Preferred Guarantee Trustee such security and indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against the costs, expenses (including attorneys fees and expenses and the expenses of the Preferred Guarantee Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Preferred Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence of an Event of Default, of its obligations to exercise the rights and powers vested in it by this Preferred Securities Guarantee. (vii) The Preferred Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Preferred Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. -8- (viii) The Preferred Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Preferred Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (ix) Any action taken by the Preferred Guarantee Trustee or its agents hereunder shall bind the Holders and the signature of the Preferred Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Preferred Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Preferred Securities Guarantee, both of which shall be conclusively evidenced by the Preferred Guarantee Trustee's or its agent's taking such action. (x) Whenever in the administration of this Preferred Securities Guarantee the Preferred Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Preferred Guarantee Trustee (i) may request instructions from the Holders of a Majority in liquidation amount of the Preferred Securities, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in accordance with such instructions. (xi) The Preferred Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, and the Preferred Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. (xii) The Preferred Guarantee Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Preferred Securities Guarantee. (b) No provision of this Preferred Securities Guarantee shall be deemed to impose any duty or obligation on the Preferred Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Preferred Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Preferred Guarantee Trustee shall be construed to be a duty. Section 3.3. Not Responsible for Recitals or Issuance of Preferred Securities Guarantee. The recitals contained in this Preferred Securities Guarantee shall be taken as the statements of the Guarantor, and the Preferred Guarantee Trustee does not assume any responsibility for their correctness. The Preferred Guarantee Trustee makes no representation as to the validity or sufficiency of this Preferred Securities Guarantee. -9- ARTICLE IV Preferred Guarantee Trustee Section 4.1. Preferred Guarantee Trustee Eligibility. (a) There shall at all times be a Preferred Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Securities and Exchange Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least 50 million U.S. dollars ($50,000,000), and subject to supervision or examination by federal, state, territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 4.1(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Preferred Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c). (c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. Subject to the foregoing, the Preferred Guarantee Trustee, in its individual or any other capacity, may become the owner or pledgee of Preferred Securities and may otherwise deal with the Guarantor with the same rights it would have if it were not the Preferred Guarantee Trustee. Section 4.2. Appointment Removal and Resignation of Preferred Guarantee Trustee. (a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor. (b) The Preferred Guarantee Trustee shall not be removed in accordance with Section 4.2(a) until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor. (c) The Preferred Guarantee Trustee appointed to office shall hold office until a Successor Preferred Guarantee Trustee shall have been appointed or until its removal or resignation. The Preferred Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Preferred Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by instrument in -10- writing executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and the resigning Preferred Guarantee Trustee. (d) If no Successor Preferred Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery of an instrument of resignation or removal, the Preferred Guarantee Trustee resigning or being removed may petition any court of competent jurisdiction for appointment of a Successor Preferred Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Preferred Guarantee Trustee. (e) No Preferred Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Preferred Guarantee Trustee. (f) Upon termination of this Preferred Securities Guarantee or removal or resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the Preferred Guarantee Trustee all amounts owed to the Preferred Guarantee Trustee by the Guarantor to the date of such termination, removal or resignation. ARTICLE V Preferred Securities Guarantee Section 5.1. Preferred Securities Guarantee. The Guarantor fully and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim that the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer to pay such amounts to the Holders. Section 5.2. Waiver of Notice and Demand. The Guarantor hereby waives notice of acceptance of this Preferred Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. Notwithstanding anything to the contrary herein, the Guarantor retains all of its rights under the Indenture to extend the interest payment period on the Debentures and the Guarantor shall not be obligated hereunder to make any Guarantee Payment during any Extension Period (as defined in the Declaration) with respect to Distributions on the Preferred Securities. Section 5.3. Obligations Not Affected. The obligations, covenants, agreements and duties of the Guarantor under this Preferred Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the -11- terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in, the Preferred Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be full and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. Section 5.4. Rights of Holders. (a) Subject to Section 3.2(a)(vi), the Holders of a Majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting of any proceeding for any remedy available to the Preferred Guarantor Trustee in respect of this Preferred Securities Guarantee or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Preferred Securities Guarantee. (b) If the Preferred Guarantee Trustee fails to enforce such Preferred Securities Guarantee as provided in Sections 3.1 and 5.4(a), any Holder of Preferred Securities may institute a legal proceeding directly against the Guarantor to enforce the Preferred Guarantee Trustee's rights under this Preferred Securities Guarantee, without first instituting a legal proceeding against the Issuer, the Preferred Guarantee Trustee or any other Person. The Guarantor waives any right or remedy to require that any action be brought first against the Issuer or any other Person before proceeding directly against the Guarantor. Section 5.5. Guarantee of Payment. This Preferred Securities Guarantee creates a guarantee of payment and not of collection. Section 5.6. Subrogation. The Guarantor shall be subrogated to all (if any) rights of the Holders of Preferred Securities against the Issuer in respect of any amounts paid to such -12- Holders by the Guarantor under this Preferred Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Preferred Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Preferred Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. Section 5.7. Independent Obligations. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Preferred Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.3 hereof. ARTICLE VI Limitation of Transactions; Subordination Section 6.1. Limitation of Transactions. So long as any Preferred Securities remain outstanding, if there shall have occurred an Event of Default or an event of default under the Declaration, then (a) the Guarantor shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than (i) purchases or acquisitions of shares of capital stock in connection with any employee benefit plan or program, director benefit plan or program, dividend reinvestment, stock repurchase, or other similar plans available to stockholders of the Guarantor, or any option, warrant, right, or exercisable, exchangeable, or convertible security outstanding as of ____________, (ii) as a result of a reclassification of the Guarantor's capital stock or the exchange or conversion of one class or series of the Guarantor's capital stock for another class or series of the Guarantor's capital stock or the capital securities of a subsidiary (including a trust such as the Issuer), (iii) any declaration of a dividend in connection with the implementation of a shareholder's rights plan, or the issuance of shares under any such plan, or the redemption or repurchase of any rights issued thereunder, or (iv) the purchase of fractional interests in shares of the Guarantor's capital stock pursuant to the conversion or exchange provisions of such capital stock of the Guarantor or the security being converted or exchanged), and (b) the Guarantor shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem, or make any guarantee payments (other than pursuant to this Preferred Securities Guarantee, if otherwise permitted under the Guarantor's preferred securities guarantee of the 1996 Preferred Securities , or pursuant to such guarantee of the 1996 Preferred Securities) with respect to, any debt securities issued by the Guarantor which rank pari passu with or junior in right of payment to the Debentures (other than the 1996 Debentures). Section 6.2. Subordination. This Preferred Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor, except those made pari passu or subordinate by their terms, (ii) pari passu with the most senior preferred or preference stock now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor in -13- respect of such stock or any preferred or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock. If an Event of Default (as defined in the Declaration) has occurred and is continuing, the rights of holders of the Common Securities to receive payments under the Common Securities Guarantee are subordinated to the rights of Holders of Preferred Securities to receive Guarantee Payments. ARTICLE VII Termination Section 7.1. Termination. This Preferred Securities Guarantee shall terminate upon (i) full payment of the Redemption Price of all Preferred Securities, (ii) [the distribution of the Guarantor's common stock to all of the Holders in respect of the conversion of all the Preferred Securities into the Guarantor's common stock or upon] the distribution of the Debentures held by the Issuer to the Holders of all of the Preferred Securities or (iii) full payment of the amounts payable in accordance with the Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this Preferred Securities Guarantee will continue to be effective or will be restated, as the case may be, if at any time any Holder must restore payment of any sums paid under the Preferred Securities or under this Preferred Securities Guarantee. ARTICLE VIII Indemnification Section 8.1. Exculpation. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage, liability, expense or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Preferred Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Preferred Securities Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distribution to Holders might properly be paid. Section 8.2. Indemnification. The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses -14- (including reasonable legal fees and expenses) of defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 8.2 shall survive the termination of this Preferred Securities Guarantee. When the Preferred Guarantee Trust incurs expenses or renders services in connection with an Event of Default with respect to the Preferred Securities specified in Section 6.01(e) or 6.01(f) of the Indenture of the Guarantor, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law. ARTICLE IX Miscellaneous Section 9.1. Successors and Assigns. All guarantees and agreements contained in this Preferred Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. Section 9.2. Amendments. Except with respect to any changes that do not adversely affect the rights of Holders in any material respect (in which case no consent of Holders will be required), this Preferred Securities Guarantee may be amended only with the prior approval of the Holders of at least a Majority in liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accumulated and unpaid Distributions to the date upon which the voting percentages are determined) of the Preferred Securities. The provisions of Section 12.2 of the Declaration with respect to meetings of Holders apply to the giving of such approval. Section 9.3. Notices. All notices provided for in this Preferred Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered by hand, telecopied or mailed by first class mail, as follows: (a) If given to the Preferred Guarantee Trustee, at the Preferred Guarantee Trustee's mailing address set forth below (or such other address as the Preferred Guarantee Trustee may give notice of to the Holders of the Preferred Securities): The Bank of New York 101 Barclay Street (21 West) New York, New York 10286 Attn: Corporate Trust Trustee Administration Fax No.: _________________________ (b) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Preferred Securities): Unocal Corporation 2141 Rosecrans Avenue -15- Suite 4000 El Segundo, California 90245 Attn: Corporate Secretary Fax No.: (310) 726-7875 (c) If given to any Holder of Preferred Securities, at the address set forth on the books and records of the Issuer. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid, except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. Section 9.4. Benefit. This Preferred Securities Guarantee is solely for the benefit of the Holders of the Preferred Securities and, subject to Section 3.1(a), is not separately transferable from the Preferred Securities. Section 9.5. Governing Law. THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF. THIS PREFERRED SECURITIES GUARANTEE is executed as of the day and year first above written. UNOCAL CORPORATION, as Guarantor By: --------------------------- Name: Title: THE BANK OF NEW YORK, as Preferred Guarantee Trustee By: --------------------------- Name: Title: -16- EX-5.1 6 y82934exv5w1.txt OPINION OF CHARLES O. STRATHMAN, ESQ. EXHIBIT 5.1 UNOCAL CORPORATION 2141 Rosecrans Avenue Suite 4000 El Segundo California 90245 Telephone (310) 726-7763 Facsimile (310) 726-7877 [UNOCAL 76 LOGO] Charles O. Strathman Vice President and Chief Legal Officer February 11, 2003 Union Oil Company of California Unocal Corporation Unocal Capital Trust II 2141 Rosecrans Avenue, Suite 4000 El Segundo, California 90245 RE: Registration Statement on Form S-3 ---------------------------------- Ladies and Gentlemen: As Vice President and Chief Legal Officer of Union Oil Company of California, a California corporation (the "Company"), and Unocal Corporation, a Delaware corporation ("Unocal"), and as counsel for Unocal Capital Trust II, a Delaware statutory trust (the "Trust"), I have examined, or caused to be examined by attorneys working under my direction, the Registration Statement on Form S-3 (the "Registration Statement"), including the exhibits thereto, which the Company, Unocal and the Trust propose to file with the Securities and Exchange Commission (the "Commission") concurrently with the delivery of this letter. The Registration Statement relates to the registration under the Securities Act of 1933, as amended (the "Securities Act"), for offering and sale from time to time on a continuous or delayed basis pursuant to Rule 415 under the Securities Act, of up to $1,200,000,000 aggregate public offering price (or $1,538,800,000, pursuant to Rule 429 under the Securities Act, including $338,800,000 aggregate offering price of Securities (as defined below) registered and remaining unissued under the registration statement on form S-3 filed by the Company, Unocal and the Trust with the Commission on July 2, 1998 (Registration Nos. 333-58415, 333-58415-01 and 333-58415-02)), without allocation as to class of securities, of (i) debt securities of the Company, consisting of unsecured notes, debentures or other evidences of indebtedness, which may be either senior (the "Company Senior Debt Securities") or subordinated (the "Company Subordinated Debt Securities") and issuable in one or more series, in each case, together with guarantees of Unocal as to the payment of principal, interest and premium, if any, thereof (the "Unocal Debt Securities Guarantees" and, together with the Company Senior Debt Securities and the Unocal Oil Company of California Unocal Corporation Unocal Capital Trust II February 11, 2003 Page 2 Company Subordinated Debt Securities, the "Company Debt Securities"); (ii) warrants of the Company and Unocal to purchase Company Debt Securities (the "Debt Warrants"), which may be issued independently or together with any series of Company Debt Securities; (iii) shares of Preferred Stock, par value $0.10 per share, of Unocal (the "Unocal Preferred Stock"), issuable in one or more series; (iv) shares of Common Stock, par value $1.00 per share, of Unocal (the "Unocal Common Stock"), together with associated Preferred Share Purchase Rights of Unocal (the "Rights"); (v) warrants of Unocal to purchase Unocal Preferred Stock and Unocal Common Stock (the "Equity Warrants"), which may be issued independently or together with shares of Unocal Preferred Stock or Unocal Common Stock; (vi) Trust Preferred Securities (the "Trust Preferred Securities") of the Trust, together with the guarantee thereof of Unocal to the extent set forth in such guarantee (the "Preferred Securities Guarantee"); (vii) Junior Subordinated Debentures of Unocal (the "Unocal Subordinated Debentures"), as to which the Trust Preferred Securities would represent indirect undivided beneficial interests; (viii) stock purchase contracts of Unocal (the "Unocal Stock Purchase Contracts"), requiring or entitling the holder thereof to purchase from Unocal, or Unocal to sell to such holder, Unocal Common Stock or Unocal Preferred Stock; and (ix) stock purchase units of Unocal (the "Unocal Stock Purchase Units") consisting of (1) a Unocal Stock Purchase Contract and (2) a beneficial interest in Company Debt Securities, Trust Preferred Securities and/or debt obligations of third parties. The shares of Unocal Preferred Stock and Unocal Common Stock may be issued either directly, upon the conversion or exchange of Company Debt Securities, pursuant to Unocal Stock Purchase Contracts, upon the exercise of Equity Warrants or, in the case of shares of Unocal Common Stock, upon the conversion of shares of Unocal Preferred Stock or the Trust Preferred Securities and underlying Unocal Subordinated Debentures. The Rights will be issued only with, and initially represented by the certificates for and transferable only with, shares of Unocal Common Stock. All of the foregoing securities are hereinafter referred to collectively as the "Securities." The Securities will be offered and sold in the manner described in the Registration Statement, in the applicable prospectus contained therein (each a "Prospectus" and, together, the "Prospectuses") and in supplements to a Prospectus describing in detail the particular issue or series of Securities offered thereby (each a "Prospectus Supplement"), each as filed with the Commission. The Company Senior Debt Securities and related Unocal Debt Securities Guarantees will be issued under the Indenture, dated as of February 3, 1995 (the "Company Senior Debt Indenture"), among the Company, Unocal and Chemical Trust Company of California (which was succeeded by merger, effective as of November 15, 1997, by Chase Manhattan Bank and Trust Company, National Association, which was in turn succeeded by merger, effective as of December 1, 2001, by J.P. Morgan Trust Company, National Association), as Trustee, and the Company Subordinated Debt Securities and related Unocal Debt Securities Guarantees will be issued under an indenture (the "Company Subordinated Debt Indenture" and, together with the Company Senior Debt Indenture, the "Company Debt Indentures") to be entered into among the Company, Unocal and a Trustee to be determined in the future. The Company Debt Indentures will incorporate by reference the Standard Multiple-Series Indenture Provisions, January 1991, of the Company and Unocal, dated as of January 2, 1991 Unocal Oil Company of California Unocal Corporation Unocal Capital Trust II February 11, 2003 Page 3 (the "Standard Company Debt Indenture Provisions"). The Debt Warrants and Equity Warrants will be issued pursuant to warrant agreements (each a "Warrant Agreement") to be entered into among the Company and/or Unocal and one or more Warrant Agents to be determined in the future. The Trust Preferred Securities will be issued pursuant to an Amended and Restated Declaration of Trust of the Trust (the "Trust Agreement"), to be entered into among Unocal, as Sponsor of the Trust, Darrell D. Chessum, Daniel A. Franchi and Richard L. Walton, as the Regular Trustees, The Bank of New York, as the Institutional Trustee, and The Bank of New York (Delaware), as the Delaware Trustee. The Preferred Securities Guarantee will be issued pursuant to a Preferred Securities Guarantee Agreement to be entered into between Unocal and The Bank of New York, as the Guarantee Trustee. The Unocal Subordinated Debentures will be issued pursuant to the Multiple Series Indenture, dated as of September 11, 1996 (the "Base Indenture"), between Unocal and The Bank of New York, as Trustee, and a Second Supplemental Indenture (the "Supplemental Indenture" and, together with the Base Indenture, the "Unocal Subordinated Debt Indenture") to be entered into between Unocal and The Bank of New York, as Trustee. The Rights will be issued pursuant to the Rights Agreement, dated as of January 5, 2000, as amended as of March 27 and August 2, 2002 (the "Rights Agreement"), between Unocal and Mellon Investor Services, LLC, as Rights Agent. Forms of the Company Debt Indentures, the Standard Company Debt Indenture Provisions, the Company Debt Securities, the Warrant Agreements (including annexed forms of warrant certificates) the Trust Agreement (including an annexed form of the Trust Preferred Securities), the Preferred Securities Guarantee Agreement, the Base Indenture, the Supplemental Indenture (including an annexed form of the Unocal Subordinated Debentures) and the Rights Agreement (including amendments) are included as exhibits to the Registration Statement. This opinion is rendered in accordance with the requirements of Item 601(b)(5)(i) of Regulation S-K of the Commission. I am familiar with the actions heretofore taken by the Boards of Directors and officers of the Company and Unocal and the Regular Trustees of the Trust in connection with the preparation and filing of the Registration Statement, the authorization of the Company Debt Indentures, the Base Indenture, the Rights Plan and certain related matters. I have examined, or caused to be examined by such attorneys working under my direction, and have considered such questions of law and fact and such instruments, documents and records as I or they have deemed relevant and necessary for the basis of the opinions expressed below. I have relied, as to certain matters of fact, on information obtained from public officials, officers of the Company and Unocal, the Regular Trustees of the Trust and other sources believed by me to be responsible; and I have assumed that the signatures (other than signatures executing documents on behalf of the Company and Unocal and other than signatures of the Regular Trustees of the Trust) on all documents examined or caused to be examined by me are genuine, that all documents submitted to me as originals are authentic, and that all documents submitted to me as copies conform with the originals, which assumptions I have not independently verified. Also, I have relied, as to certain legal matters, on advice of such attorneys work- Unocal Oil Company of California Unocal Corporation Unocal Capital Trust II February 11, 2003 Page 4 ing under my direction who are more familiar with such matters, as described in the preceding paragraph. The opinions expressed below are limited to the laws of the State of California, the Delaware General Corporation Law and the Federal laws of the United States, all as currently in effect, to the exclusion of all other jurisdictions and all other laws of the State of Delaware. The opinions expressed below are subject to the conditions that the Registration Statement shall have become effective under the Securities Act, that the applicable Indenture shall have been qualified under the Trust Indenture Act of 1939, as amended, and that all applicable provisions of the "Blue Sky" and securities laws of the various states and other jurisdictions in which the Securities may be offered and sold shall have been complied with. The opinions expressed in Paragraphs 1, 2, 3, 6, 10, 11 and 13 below, relating to whether the Securities described therein will be validly issued and binding obligations of the Company and/or Unocal, are subject to the exception that enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors' rights generally, (ii) general principles of equity, regardless of whether enforcement is sought in a proceeding in equity or at law, (iii) requirements that a claim with respect to any Securities denominated other than in United States dollars (or a judgment denominated other than in United States dollars in respect of such a claim) be converted into United States dollars at a rate of exchange prevailing on a date determined pursuant to applicable law, and (iv) governmental authority to limit, delay or prohibit the making of payments outside the United States or in a foreign currency, composite currency or currency unit. In addition, I express no opinion with respect to the validity and binding nature of the obligations of the Company and Unocal with respect to any Securities that may be indexed or linked to any foreign currency, composite currency, currency unit, commodity price, financial or non-financial index or other factors. Based upon and subject to the foregoing, I am of the opinion that: 1. When the applicable Company Debt Indenture under which any Company Debt Securities of any series are to be issued has been duly executed and delivered by the parties thereto, all requisite corporate action has been taken by the Company and Unocal to establish the terms of and to authorize the issuance of such Company Debt Securities under the applicable Company Debt Indenture and the consideration to be received therefor, and such Company Debt Securities have been duly completed and duly executed, authenticated, issued and delivered, against payment therefor of the consideration specified by such corporate action, in accordance with the applicable Company Debt Indenture and in the manner described in such corporate action and in the Registration Statement, the applicable Prospectus and the applicable Prospectus Supplement, such Company Debt Securities will be validly issued and binding obligations of the Company and Unocal. Unocal Oil Company of California Unocal Corporation Unocal Capital Trust II February 11, 2003 Page 5 2. When all requisite corporate action has been taken by the Company and Unocal to establish the terms of and to authorize the issuance of any series of Debt Warrants and to authorize a Warrant Agreement relating thereto, the applicable Company Debt Indenture under which Company Debt Securities of any series are to be issued upon the exercise of such Debt Warrants has been duly executed and delivered by the parties thereto, all requisite corporate action has been taken to establish the terms of and to authorize the issuance of such Company Debt Securities under the applicable Company Debt Indenture upon the exercise of such Debt Warrants and the consideration to be received therefor upon such exercise, the applicable Warrant Agreement has been duly executed and delivered by the parties thereto and certificates evidencing such Debt Warrants have been duly completed and duly executed, countersigned, issued and delivered, against payment therefor of the consideration specified by such corporate action, in accordance with the applicable Warrant Agreement and in the manner described in such corporate action and in the Registration Statement, the applicable Prospectus and the applicable Prospectus Supplement, such Debt Warrants will be validly issued and binding obligations of the Company and Unocal. 3. When the applicable Company Debt Indenture under which Company Debt Securities of any series are to be issued upon the exercise of any series of Debt Warrants has been duly executed and delivered by the parties thereto, all requisite corporate action has been taken by the Company and Unocal to establish the terms of and to authorize the issuance of such Company Debt Securities under the applicable Company Debt Indenture upon the exercise of such Debt Warrants and the consideration to be received therefor upon such exercise, such Debt Warrants have been duly and validly issued in the manner contemplated by Paragraph 2 above and exercised in accordance with their terms and the terms of the applicable Warrant Agreement and in the manner described in the Registration Statement, the applicable Prospectus and the applicable Prospectus Supplement, and such Company Debt Securities have been duly completed and duly executed, authenticated, issued and delivered, against payment therefor of the consideration specified by such corporate action, upon such exercise in accordance with the applicable Company Debt Indenture and the applicable Warrant Agreement and in the manner described in such corporate action and in the Registration Statement, the applicable Prospectus and the applicable Prospectus Supplement, such Company Debt Securities will be validly issued and binding obligations of the Company and Unocal. 4. When all requisite corporate action, including the adoption of appropriate resolutions by the Board of Directors and/or a duly authorized committee thereof (the "Board Resolutions"), has been taken by Unocal to establish the terms of and to authorize the issuance of any shares of any series of Unocal Preferred Stock, the consideration to be received therefor and a form of certificate evidencing such shares of such series, a certificate setting forth the voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions (the "Certificate of Designations") of such series has been duly executed and filed with the Secretary of State of the State of Delaware, and certificates evidencing such shares have been duly executed, countersigned, issued and delivered, against payment therefor of the consideration specified in such Board Resolutions, in the manner Unocal Oil Company of California Unocal Corporation Unocal Capital Trust II February 11, 2003 Page 6 described in such Board Resolutions and in the Registration Statement, the applicable Prospectus and the applicable Prospectus Supplement, such shares of such series of Unocal Preferred Stock will be validly issued, fully paid and nonassessable. 5. When all requisite corporate action, including the adoption of appropriate Board Resolutions, has been taken by Unocal to authorize the issuance of any shares of Unocal Common Stock and the consideration to be received therefor, and certificates evidencing such shares have been duly executed, countersigned, issued and delivered, against payment therefor of the consideration specified in such Board Resolutions, in the manner described in such Board Resolutions and in the Registration Statement, the applicable Prospectus and the applicable Prospectus Supplement, such shares of Unocal Common Stock will be validly issued, fully paid and nonassessable. 6. When all requisite corporate action, including the adoption of appropriate Board Resolutions, has been taken by Unocal to establish the terms of and to authorize the issuance of any series of Equity Warrants and to authorize a Warrant Agreement relating thereto, to establish the terms of and to authorize the issuance of shares of any series of Unocal Preferred Stock or to authorize the issuance of any shares of Unocal Common Stock, as the case may be, upon the exercise of such Equity Warrants and the consideration to be received therefor upon such exercise, and to authorize a form of certificate evidencing such shares of any such series of Unocal Preferred Stock, the Certificate of Designations of any such series of Unocal Preferred Stock has been duly executed and filed with the Secretary of State of the State of Delaware, the applicable Warrant Agreement has been duly executed and delivered by the parties thereto and certificates evidencing such Equity Warrants have been duly completed and duly executed, countersigned, issued and delivered, against payment therefor of the consideration specified in such Board Resolutions, in accordance with the applicable Warrant Agreement and in the manner described in such Board Resolutions and in the Registration Statement, the applicable Prospectus and the applicable Prospectus Supplement, such Equity Warrants will be validly issued and binding obligations of Unocal. 7. When all requisite corporate action, including the adoption of appropriate Board Resolutions, has been taken by Unocal to establish the terms of and to authorize the issuance of any shares of any series of Unocal Preferred Stock or to authorize the issuance of any shares of Unocal Common Stock, as the case may be, upon the conversion or exchange of Company Debt Securities of any series providing for such conversion or exchange and the consideration to be received therefor upon such conversion or exchange, and to authorize a form of certificate evidencing any such shares of any such series of Unocal Preferred Stock, the Certificate of Designations of any such series of Unocal Preferred Stock has been duly executed and filed with the Secretary of State of the State of Delaware, such Company Debt Securities have been duly and validly issued in the manner contemplated by Paragraph 1 or 3 above and surrendered to Unocal or its duly authorized agent for conversion or exchange, as the case may be, in accordance with their terms and the terms of the applicable Company Debt Indenture, and certificates evidencing such shares of such series of Unocal Preferred Stock or such shares of Unocal Common Stock, as Unocal Oil Company of California Unocal Corporation Unocal Capital Trust II February 11, 2003 Page 7 the case may be, have been duly executed, countersigned, issued and delivered, against receipt by Unocal of the consideration specified in such Board Resolutions, upon such conversion or exchange in accordance with the terms of such Company Debt Securities and the terms of the applicable Company Debt Indenture, such shares of such series of Unocal Preferred Stock or such shares of Unocal Common Stock, as the case may be, will be validly issued, fully paid and nonassessable. 8. When all requisite corporate action, including the adoption of appropriate Board Resolutions, has been taken by Unocal to establish the terms of and to authorize the issuance of any shares of any series of Unocal Preferred Stock or to authorize the issuance of any shares of Unocal Common Stock, as the case may be, upon the exercise of any series of Equity Warrants and the consideration to be received therefor upon such exercise, and to authorize a form of certificate evidencing any such shares of any such series of Unocal Preferred Stock, the Certificate of Designations of any such series of Unocal Preferred Stock has been duly executed and filed with the Secretary of State of the State of Delaware, such Equity Warrants have been duly and validly issued in the manner contemplated by Paragraph 6 above and exercised in accordance with their terms and the terms of the applicable Warrant Agreement and in the manner described in the Registration Statement, the applicable Prospectus and the applicable Prospectus Supplement, and certificates evidencing such shares of such series of Unocal Preferred Stock or such shares of Unocal Common Stock, as the case may be, have been duly executed, countersigned, issued and delivered, against payment therefor of the consideration specified in such Board Resolutions, upon such exercise in accordance with the applicable Warrant Agreement and in the manner described in such Board Resolutions and in the Registration Statement, the applicable Prospectus and the applicable Prospectus Supplement, such shares of such series of Unocal Preferred Stock or such shares of Unocal Common Stock, as the case may be, will be validly issued, fully paid and nonassessable. 9. When all requisite corporate action, including the adoption of appropriate Board Resolutions, has been taken by Unocal to authorize the issuance of any shares of Unocal Common Stock upon the conversion of any shares of any series of Unocal Preferred Stock providing for such conversion and the consideration to be received therefor upon such conversion, such shares of such series of Unocal Preferred Stock have been duly and validly issued in the manner contemplated by Paragraph 4, 7 or 8 above and surrendered to Unocal or its duly authorized agent for conversion in accordance with their terms and the terms of the Certificate of Designations of such series, and certificates evidencing such shares of Unocal Common Stock have been duly executed, countersigned, issued and delivered, against receipt by Unocal of the consideration specified in such Board Resolutions, upon such conversion in accordance with the Certificate of Designations of such series of Unocal Preferred Stock, such shares of Unocal Common Stock will be validly issued, fully paid and nonassessable. 10. When all requisite corporate action, including the adoption of appropriate Board Resolutions, has been taken by Unocal to authorize the Supplemental Indenture, under which Unocal Subordinated Debentures are to be issued, and such Supplemental Indenture has Unocal Oil Company of California Unocal Corporation Unocal Capital Trust II February 11, 2003 Page 8 been duly executed and delivered by the parties thereto, all requisite corporate action, including the adoption of appropriate Board Resolutions, has been taken by Unocal to establish the terms of and to authorize the issuance to the Trust of such Unocal Subordinated Debentures under such Unocal Subordinated Debt Indenture and the consideration to be received therefor, and such Unocal Subordinated Debenture have been duly completed and duly executed, authenticated, issued and delivered to the Trust against payment therefor of the consideration specified by such corporate action, in accordance with the Unocal Subordinated Debt Indenture and in the manner described in such corporate action and in the Registration Statement, the applicable Prospectus and the applicable Prospectus Supplement, such Unocal Subordinated Debentures will be validly issued and binding obligations of Unocal. 11. When all requisite corporate action, including the adoption of appropriate Board Resolutions, has been taken by Unocal to authorize the Preferred Securities Guarantee Agreement, under which the Preferred Securities Guarantee is to be issued, and such Preferred Securities Guarantee Agreement has been duly executed and delivered by the parties thereto concurrently with the issuance and sale of the Trust Preferred Securities by the Trust, against payment therefor of the consideration specified by such corporate action, in accordance with the Trust Agreement and in the manner described in such corporate action and in the Registration Statement, the applicable Prospectus and the applicable Prospectus Supplement, such Preferred Securities Guarantee will be a valid and binding obligation of Unocal. 12. When all requisite corporate action, including the adoption of appropriate Board Resolutions, has been taken by Unocal to authorize the issuance of shares of Unocal Common Stock upon the conversion or exchange of Unocal Subordinated Debentures and related Trust Preferred Securities providing for such conversion or exchange and the consideration to be received therefor upon such conversion or exchange, such Unocal Subordinated Debentures have been duly and validly issued in the manner contemplated by Paragraph 10 above and surrendered to Unocal or its duly authorized agent for conversion or exchange, as the case may be, in accordance with their terms and the terms of the Unocal Subordinated Debt Indenture, and certificates evidencing such shares of Unocal Common Stock have been duly executed, countersigned, issued and delivered, against receipt by Unocal of the consideration specified in such Board Resolutions, upon such conversion or exchange in accordance with the terms of such Unocal Subordinated Debentures and the terms of the Unocal Subordinated Debt Indenture, such shares of Unocal Common Stock will be validly issued, fully paid and nonassessable. 13. When all requisite corporate action, including the adoption of appropriate Board Resolutions, has been taken by Unocal to establish the terms of and to authorize the issuance of Unocal Stock Purchase Contracts, and to authorize the applicable Unocal Stock Purchase Contract or other agreement pursuant to which the Unocal Stock Purchase Contract is issued and the consideration to be received therefor, and such Unocal Stock Purchase Contract or other agreement has been duly executed and delivered by the parties thereto against payment therefor of the consideration specified in such Board Resolutions, in accordance with such Unocal Stock Purchase Contract or other agreement and in the manner described in such Board Resolutions Unocal Oil Company of California Unocal Corporation Unocal Capital Trust II February 11, 2003 Page 9 and in the Registration Statement, the applicable Prospectus and the applicable Prospectus Supplement, such Unocal Stock Purchase Contracts will be validly issued and binding obligations of Unocal. 14. The Rights have been duly authorized and, when such Rights are issued in accordance with the Rights Agreement, together with shares of Unocal Common Stock duly and validly issued in the manner contemplated by Paragraphs 5, 7, 8, 9 and/or 12 above, such Rights will be validly issued. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to me under the caption "Validity of the Securities" in each of the Prospectuses forming a part of the Registration Statement. In giving this consent, I do not thereby admit that I am included in the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission promulgated thereunder. Very truly yours, /s/ CHARLES O. STRATHMAN EX-5.2 7 y82934exv5w2.txt OPINION OF MORRIS NICHOLS ARSHT & TUNNELL EXHIBIT 5.2 February 11, 2003 Unocal Capital Trust II c/o Unocal Corporation 2141 Rosecrans Avenue, Suite 4000 El Segundo, California 90245 Re: Unocal Capital Trust II Ladies and Gentlemen: We have acted as special Delaware counsel to Unocal Capital Trust II, a Delaware statutory trust (the "Trust"), in connection with certain matters relating to the organization of the Trust and the proposed issuance of Preferred Securities to beneficial owners pursuant to and as described in the Registration Statement (and the Prospectus forming a part thereof) on Form S-3 to be filed with the Securities and Exchange Commission on or about the date hereof (the "Registration Statement"). Capitalized terms used herein and not otherwise herein defined are used as defined in the form of Amended and Restated Declaration of Trust of the Trust to be attached as an exhibit to the Registration Statement (the "Governing Instrument"). In rendering this opinion, we have examined copies of the following documents in the forms provided to us: the Certificate of Trust of the Trust as filed in the Office of the Secretary of State of the State of Delaware (the "State Office") on June 30, 1998 (the "Certificate"); a Declaration of Trust of the Trust dated as of June 30, 1998 (the "Original Governing Instrument"); the Governing Instrument; the Multiple Series Indenture of Unocal Corporation dated as of September 11, 1996 (the "Base Indenture"); the form of Preferred Securities Guarantee Agreement to be entered into between Unocal Corporation and The Bank of New York, as trustee (the "Preferred Guarantee"); the form of Second Supplemental Indenture, supplementing the Base Indenture, to be entered into between Unocal Corporation and The Bank of New York, as trustee; the form of Underwriting Agreement relating to the Preferred Securities (the "Underwriting Agreement"); the Registration Statement; and a certification of good standing of the Trust obtained as of a recent date from the State Office. In such examinations, we have Unocal Capital Trust II February 11, 2003 Page 2 assumed the genuineness of all signatures, the conformity to original documents of all documents submitted to us as drafts or copies or forms of documents to be executed and the legal capacity of natural persons to complete the execution of documents. We have further assumed for purposes of this opinion: (i) the due formation or organization, valid existence and good standing of each entity (other than the Trust) that is a party to any of the documents reviewed by us under the laws of the jurisdiction of its respective formation or organization; (ii) the due authorization, execution and delivery by, or on behalf of, each of the parties thereto of the above-referenced documents; (iii) that no event has occurred subsequent to the filing of the Certificate, or will occur prior to the issuance by the Trust of Preferred Securities, that would cause a dissolution or liquidation of the Trust under the Original Governing Instrument or the Governing Instrument, as applicable; (iv) that the activities of the Trust have been and will be conducted in accordance with the Original Governing Instrument or the Governing Instrument, as applicable, and the Delaware Statutory Trust Act, 12 Del. C. Section 3801 et seq. (the "Delaware Act"); (v) that Unocal Corporation, as Sponsor, the Regular Trustees, the Institutional Trustee, the Delaware Trustee and each other party thereto will duly authorize, execute and deliver the Governing Instrument, the Underwriting Agreement and all other documents contemplated thereby or by the Registration Statement to be executed in connection with the issuance by the Trust of Preferred Securities, prior to the first issuance of Preferred Securities; (vi) that the Preferred Securities will be offered and sold pursuant to the Registration Statement and a prospectus supplement that will be consistent with, and accurately describe, the terms of the Governing Instrument and the Preferred Guarantee and all other relevant documents; (vii) that prior to the first issuance of Preferred Securities, payment of the required consideration therefor will have been made in accordance with the terms and conditions of the Governing Instrument, the Registration Statement, the prospectus supplement and the Underwriting Agreement and that the Preferred Securities are otherwise issued and sold to the Preferred Securities Holders in accordance with the terms, conditions, requirements and procedures set forth in the Governing Instrument, the Registration Statement, the prospectus supplement and the Underwriting Agreement; and (viii) that the documents examined by us are in full force and effect, express the entire understanding of the parties thereto with respect to the subject matter thereof and have not been amended, supplemented or otherwise modified, except as herein referenced. We have not reviewed any documents other than those identified above in connection with this opinion, and we have assumed that there are no other documents that are contrary to or inconsistent with the opinions expressed herein. No opinion is expressed with respect to the requirements of, or compliance with, federal or state securities or blue sky laws. We express no opinion as to, and assume no responsibility for, the Registration Statement or any other offering materials relating to the Preferred Securities. As to any fact material to our opinion, other than those assumed, we have relied without independent investigation on the above-referenced documents and on the accuracy, as of the date hereof, of the matters therein contained. Unocal Capital Trust II February 11, 2003 Page 3 Based on and subject to the foregoing, and limited in all respects to matters of Delaware law, it is our opinion that: 1. The Trust is a duly formed and validly existing statutory trust in good standing under the laws of the State of Delaware. 2. The Preferred Securities, upon issuance, will constitute validly issued and, subject to the qualifications set forth in paragraph 3 below, fully paid and nonassessable beneficial interests in the assets of the Trust. 3. Under the Delaware Act and the terms of the Governing Instrument, each Preferred Security Holder of the Trust, in such capacity, will be entitled to the same limitation of personal liability as that extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware; provided, however, we express no opinion with respect to the liability of any Preferred Security Holder who is, was or may become a named Trustee of the Trust. Notwithstanding the foregoing, we note that pursuant to Section 11.4 of the Governing Instrument, the Trust may withhold amounts otherwise distributable to a Holder and pay over such amounts to the applicable jurisdictions in accordance with federal, state and local law and any amount withheld will be deemed to have been distributed to such Holder and that, pursuant to the Governing Instrument, Preferred Security Holders may be obligated to make payments or provide indemnity or security under the circumstances set forth therein. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name and reference to our opinion under the heading "VALIDITY OF THE SECURITIES" in the Prospectus forming a part thereof. In giving this consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. This opinion speaks only as of the date hereof and is based on our understandings and assumptions as to present facts, and on our review of the above referenced documents and the application of Delaware law as the same exist as of the date hereof, and we undertake no obligation to update or supplement this opinion after the date hereof for the benefit of any person or entity with respect to any facts or circumstances that may hereafter come to our attention or any changes in facts or law that may hereafter occur or take effect. This opinion is intended solely for the benefit of the addressee hereof in connection with the matters contemplated hereby and may not be relied on by any other person or entity or for any other purpose without our prior written consent. Very truly yours, MORRIS, NICHOLS, ARSHT & TUNNELL /s/ Morris, Nichols, Arsht & Tunnell EX-12.1 8 y82934exv12w1.txt STATEMENT RE COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12.1 UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------- ---------------------------------------------------------- Millions of dollars 2002 2001 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- ------- ------- Earnings from continuing operations $ 258 $ 648 $ 626 $ 746 $ 141 $ 115 $ 595 Provision for income taxes 208 451 457 500 128 181 76 Minority interests 2 38 41 16 16 7 9 Distributions (less than) greater than earnings from equity investments 1 44 69 (57) (4) (2) (65) ------- ------- ------- ------- ------- ------- ------- Earnings subtotal (a) 469 1,181 1,193 1,205 281 301 615 Fixed charges included in earnings: Interest expense 134 145 192 210 199 177 183 Interest portion of rentals (b) 14 15 19 20 22 20 23 ------- ------- ------- ------- ------- ------- ------- Fixed charges subtotal 148 160 211 230 221 197 206 Earnings from continuing operations available before fixed charges $ 617 $ 1,341 $ 1,404 $ 1,435 $ 502 $ 498 $ 821 ------- ------- ------- ------- ------- ------- ------- Fixed charges: Fixed charges included in earnings $ 148 $ 160 211 230 221 197 206 Capitalized interest 33 19 27 13 16 26 35 ------- ------- ------- ------- ------- ------- ------- Total fixed charges $ 181 $ 179 $ 238 $ 243 $ 237 $ 223 $ 241 ------- ------- ------- ------- ------- ------- ------- Ratio of earnings from continuing operations to fixed charges 3.4 7.5 5.9 5.9 2.1 2.2 3.4 ------- ------- ------- ------- ------- ------- ------- (a) Includes pre-tax impairment of: 27 -- 137 66 23 102 69 The ratio of earnings, excluding impairment, to fixed charges would be: 3.6 7.5 6.5 6.2 2.2 2.7 3.7 (b) Calculated as one-third of operating rental expense
EX-12.2 9 y82934exv12w2.txt STATEMENT RE COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12.2 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS ENDED SEPTEMBER 30 YEARS ENDED DECEMBER 31, ------------------- ---------------------------------------------------------- Millions of Dollars 2002 2001 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- ------- ------- Earnings from continuing operations $ 234 $ 629 $ 599 $ 723 $ 113 $ 93 $ 577 Provision for income taxes 203 447 452 497 121 168 59 Minority interests 2 38 41 16 16 7 9 Distributions (less than) greater than earnings from equity investments 1 44 69 (57) (4) (2) (65) ------- ------- ------- ------- ------- ------- ------- Earnings subtotal (a) 440 1,158 1,161 1,179 246 266 580 Fixed charges included in earnings: Interest expense 134 145 192 210 199 177 183 Distribution on convertible preferred securities 24 24 33 33 33 33 33 Interest portion of rentals (b) 14 15 19 20 22 20 23 ------- ------- ------- ------- ------- ------- ------- Fixed charges subtotal 172 184 244 263 254 230 239 Earnings from continuing operations available before fixed charges $ 612 $ 1,342 $ 1,405 $ 1,442 $ 500 $ 496 $ 819 ------- ------- ------- ------- ------- ------- ------- Fixed charges: Fixed charges included in earnings $ 172 $ 184 244 263 254 230 239 Capitalized interest 33 19 27 13 16 26 35 ------- ------- ------- ------- ------- ------- ------- Total fixed charges $ 205 $ 203 $ 271 $ 276 $ 270 $ 256 $ 274 ------- ------- ------- ------- ------- ------- ------- Ratio of earnings from continuing operations to fixed charges 3.0 6.6 5.2 5.2 1.9 1.9 3.0 ------- ------- ------- ------- ------- ------- ------- (a) Includes pre-tax impairment of: 27 -- 137 66 23 102 69 The ratio of earnings, excluding impairment, to fixed charges would be: 3.1 6.6 5.7 5.5 1.9 2.3 3.2 (b) Calculated as one-third of operating rental expense
EX-23.1 10 y82934exv23w1.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our report dated February 14, 2002, relating to the financial statements and financial statement schedule, which appears in Unocal Corporation's Amended Annual Report on Form 10-K/A for the year ended December 31, 2001. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PRICEWATERHOUSECOOPERS LLP PricewaterhouseCoopers LLP Los Angeles, California February 10, 2003 EX-24.1 11 y82934exv24w1.txt POWER OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY By signing below, each of the undersigned officers and/or directors of both (except as otherwise indicated below) Union Oil Company of California, a California corporation, and Unocal Corporation, a Delaware corporation ("Unocal"), hereby constitutes and appoints Terry G. Dallas, Joe D. Cecil and Darrell D. Chessum, and each of them severally, with full power of substitution and resubstitution, as his or her true and lawful attorneys-in-fact and agents to sign for the undersigned and in the name of the undersigned, in any and all capacities, the Registration Statement of Form S-3 to which this Power of Attorney shall be filed as an exhibit and any or all amendments (including any post-effective amendments) to such Registration Statement and to file the same with all exhibits thereto, including this Power of Attorney, and any and all applications and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in and about the premises, as fully to all intents and purposes as the undersigned could do if personally present. Each of the undersigned hereby ratifies and confirms all that said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. This Power of Attorney may be signed in several counterparts. IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of October 1, 2002.
SIGNATURE TITLE --------- ----- /s/ Charles R. Williamson Chairman of the Board of Directors and - ------------------------------------ Chief Executive Officer Charles R. Williamson (Principal Executive Officer) /s/ Timothy H. Ling President and - ------------------------------------ Chief Operating Officer and Director Timothy H. Ling /s/ Terry G. Dallas Executive Vice President and - ------------------------------------ Chief Financial Officer Terry G. Dallas (Principal Financial Officer) /s/ Joe D. Cecil Vice President and Comptroller - ------------------------------------ (Principal Accounting Officer) Joe D. Cecil Director of Unocal - ------------------------------------ John W. Amerman
SIGNATURE TITLE --------- ----- /s/ John W. Creighton, Jr. Director of Unocal - ------------------------------------ John W. Creighton, Jr. /s/ James W. Crownover Director of Unocal - ------------------------------------ James W. Crownover /s/ Frank C. Herringer Director of Unocal - ------------------------------------ Frank C. Herringer /s/ Donald B. Rice Director of Unocal - ------------------------------------ Donald B. Rice /s/ Kevin W. Sharer Director of Unocal - ------------------------------------ Kevin W. Sharer /s/ Marina v.N. Whitman Director of Unocal - ------------------------------------ Marina v.N. Whitman
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